Negotiable Instruments Law

Caltex (Philippines) Inc. vs. CA

GR 97753, 10 August 1992
Second Division, Regalado (J)
Facts: On various dates, Security Bank and Trust Co. (SEBTC), through its
Sucat branch, issued 280 certificates of time deposit (CTD) in favor of one Angel
dela Cruz who deposited with the bank the aggregate amount of P1.12 million.
Anger de la Cruz delivered the CTDs to Caltex in connection with his purchase of
fuel products from the latter. Subsequently, dela Cruz informed the bank that he
lost all the CTDs, and thus executed an affidavit of loss to facilitate the issuance
of the replacement CTDs. De la Cruz was able to obtain a loan of P875,000 from
the bank, and in turn, he executed a notarized Deed of Assignment of Time
Deposit in favor of the bank. Thereafter, Caltex presented for verification the
CTDs (which were declared lost by de la Cruz) with the bank. Caltex formally
informed the bank of its possession of the CTDs and its decision to preterminate
the same. The bank rejected Caltex claim and demand, after Caltex failed to
furnish copy of the requested documents evidencing the guarantee agreement,
etc. In 1983, de la Cruz loan matured and the bank set-off and applied the time
deposits as payment for the loan. Caltex filed the complaint, but which was
dismissed.

Issue [1]: Whether the Certificates of Time Deposit (CTDs) are negotiable
instruments.

Held [1]: The CTDs in question meet the requirements of the law for
negotiability. Contrary to the lower courts findings, the CTDs are negotiable
instruments (Section 1). Negotiability or non-negotiability of an instrument is
determined from the writing, i.e. from the face of the instrument itself. The
documents provided that the amounts deposited shall be repayable to the
depositor. The amounts are to be repayable to the bearer of the documents, i.e.
whosoever may be the bearer at the time of presentment.

Issue [2]: Whether the CTDs negotiation requires delivery only.

Held [2]: Although the CTDs are bearer instruments, a valid negotiation thereof
for the true purpose and agreement between it (Caltex) and de la Cruz requires
both delivery and indorsement; as the CTDs were delivered to it as security for
dela Cruz purchases of its fuel products, and not for payment. 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 CTDs would have sufficed. The delivery
thereof as security for the fuel purchases at most constitutes Caltex as a holder
for value by reason of his lien. Accordingly, a negotiation for such purpose cannot
be effected by mere delivery of the instrument since the terms thereof and the
subsequent disposition of such security, in the event of non-payment of the
principal
obligation,
must
be
contractually
provided
for.

ANG TEK LIAN V. CA

87 PHIL 383

FACTS:
Knowing he had insufficient funds, And Tek Lian issued a check for P4000,
payable to cash. This was given to Lee Hua Hong in exchange for cash.
Upon presentment of the check, it wasdishonored for having insufficient funds. It
is argued that the check, being payable to cash, wasnt indorsed by the
defendant, and thus, isnt guilty of the crime charged.

HELD:
A check drawn to the order of cash is payable to bearer, and the bank
may pay it to the person presenting it for payment without the drawers
endorsement. Of course, if the bank is not sure of the bearers identity or
financial solvency, it has the right to demand for identification
and/or assurance against possible complicationsfor instance, forgery of
the drawers signature, loss of the check by the rightful owner, raising the
amount payable, etc. The bank therefore, requires for its protection that the
endorsement of the draweror some other persons known to itbe
obtained. A check payable to bearer is authority for payment to the
holder. Where a check is in the ordinary form and is payable to bearer so that
no endorsement is required, a bank to which it is presented for payment
need not have the holder identified, and is not negligent in failing to do so.

Republic Planters Bank vs. CA

GR 93073, 21 December 1992
Second Division, Campos Jr. (J)

Facts: Republic Planters Bank issued 9 promissory notes signed by Shozo

Yamaguchi (President) and Fermin Canlas (Treasurer) of Worldwide Garment
Manufacturing Inc. Yamaguchi and Canlas were authorized by the corporation to
apply for credit facilities with the bank in form of export advances and letters of
credit or trust receipts accommodations. Three years after, the bank filed an
action to recover the sums of money covered by the promissory notes.
Worldwide Garment Manufacturing changed its name to Pinch Manufacturing
Corp. Canlas alleged he was not liable personally for the corporate acts that he
performed, and that the notes were still blank when he signed them.

Issue: Whether the corporate treasurer is liable for the amounts in the
promissory notes.

Held: Canlas is a co-maker of the promissory notes, under the law, and cannot
escape liability arising there from. Inasmuch as the instrument contained the
words I promise to pay and is signed by two or more persons, said persons are
deemed to be jointly and severally liable thereon. As the promissory notes are
stereotype ones issued by the bank in printed form with blank spaces filled up as
per agreed terms of the loan, following customary procedures, leaving the
debtors to do nothing but read the terms and conditions therein and to sign as
makers or co-makers. Section 14 of the Negotiable Instruments Law, therefore,
does not apply. Canlas is solidarily liable with the corporation for the amount of
the 9 promissory notes.

NATIONAL BANK V. MANILA OIL REFINING

43 PHIL 444

FACTS:
Manila Oil has issued a promissory note in favor of National Bank which
included a provision on a confession of judgment in case of failure to pay
obligation. Indeed, Manila Oil has failed to pay on demand. This prompted the
bank to file a case in court, wherein an attorney associated with them entered his
appearance for the defendant. To this the defendant objected.
HELD:
Warrants of attorney to confess judgment arent authorized nor
contemplated by our law.
Provisions in notes authorizing attorneys to appear
and confess judgments against makers should not be recognized in our
jurisdiction by implication and should only be considered as valid when given
express legislative sanction.

PNB v. Rodriguez
GR No. 170325
Justice Reyes
Facts: Respondents-Spouses Erlando and Norma Rodriguez were clients of
petitioner
Philippine
National
Bank
(PNB),
Amelia
Avenue
Branch, Cebu City. They maintained savings and demand/checking accounts,
namely, PNBig Demand Deposits (Checking/Current Account No. 810624-6
under the account name Erlando and/or Norma Rodriguez), and PNBig Demand
Deposit (Checking/Current Account No. 810480-4 under the account name
Erlando T. Rodriguez).
The spouses were engaged in the informal lending business. In line with their
business, they had a discounting arrangement with the PhilNabank Employees
Savings
and
Loan
Association
(PEMSLA),
an
association
of PNB employees. Naturally, PEMSLA was likewise a client of PNB Amelia
Avenue Branch. The association maintained current and savings accounts with
petitioner bank.
PEMSLA regularly granted loans to its members. Spouses Rodriguez would
rediscount the postdated checks issued to members whenever the association
was short of funds. As was customary, the spouses would replace the postdated
checks with their own checks issued in the name of the members.
It was PEMSLAs policy not to approve applications for loans of members with
outstanding debts. To subvert this policy, some PEMSLA officers devised a
scheme to obtain additional loans despite their outstanding loan accounts. They
took out loans in the names of unknowing members, without the knowledge or
consent of the latter. The PEMSLA checks issued for these loans were then
given to the spouses for rediscounting. The officers carried this out by forging
the endorsement of the named payees in the checks. In return, the spouses
issued their personal checks (Rodriguez checks) in the name of the members
and delivered the checks to an officer of PEMSLA. The PEMSLA checks, on the
other hand, were deposited by the spouses to their account.
Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its
savings account without any endorsement from the named payees. This was an
irregular procedure made possible through the facilitation of Edmundo Palermo,
Jr., treasurer of PEMSLA and bank teller in the PNB Branch. It appears that this
became the usual practice for the parties. For the period November 1998 to

February 1999, the spouses issued sixty nine (69) checks, in the total amount
ofP2, 345,804.00. These were payable to forty seven (47) individual payees who
were all members of PEMSLA.
Petitioner PNB eventually found out about these fraudulent acts. To put a stop to
this scheme, PNB closed the current account of PEMSLA. As a result, the
PEMSLA checks deposited by the spouses were returned or dishonored for the
reason Account Closed. The corresponding Rodriguez checks, however, were
deposited as usual to the PEMSLA savings account. The amounts were duly
debited from the Rodriguez account. Thus, because the PEMSLA checks given
as payment were returned, spouses Rodriguez incurred losses from the
rediscounting transactions.

Issue: Whether the subject checks are payable to order or to bearer and who
bears the loss?

Held: In the case at bar, respondents-spouses were the banks depositors. The
checks were drawn against respondents-spouses accounts. PNB, as the
drawee bank, had the responsibility to ascertain the regularity of the
endorsements, and the genuineness of the signatures on the checks before
accepting them for deposit. Lastly, PNB was obligated to pay the checks in strict
accordance with the instructions of the drawers. Petitioner miserably failed to
discharge this burden.
The checks were presented to PNB for deposit by a representative of PEMSLA
absent any type of endorsement, forged or otherwise. The facts clearly show
that the bank did not pay the checks in strict accordance with the instructions of
the drawers, respondents-spouses. Instead, it paid the values of the checks not
to the named payees or their order, but to PEMSLA, a third party to the
transaction between the drawers and the payees.
Moreover, PNB was negligent in the selection and supervision of its
employees. The trustworthiness of bank employees is indispensable to maintain
the stability of the banking industry. Thus, banks are enjoined to be extra vigilant
in the management and supervision of their employees.