Chan Wan v. Tan Kim [G.R. No. L-15380.

September
30, 1960]
30 Jul
FACTS
Checks payable to cash or bearer were drawn by
defendant Tan Kim and were all presented for payment
by Chan Wan to the drawee bank, but they were all
dishonored. Defendant argued that plaintiff is a holder
not in due course.

ISSUE
Whether or not a holder not in due course is barred from
collecting the value of checks issued to him.

RULING
NO. It does not that simply because he was not a holder
in due course Chan Wan could not recover on the
checks. The Negotiable Instruments Law does not
provide that a holder who is not a holder in due course,
may not in any case, recover on the instrument. The only
disadvantage of holder who is not a holder in due course
is that the negotiable instrument is subject to defense as
if it were non- negotiable.

FLORENTINA A. LOZANO, petitioner, vs. THE

HONORABLE ANTONIO M. MARTINEZ, in his capacity
as Presiding Judge, Regional Trial Court, National Capital
Judicial Region, Branch XX, Manila, and the HONORABLE
JOSE B. FLAMINIANO, in his capacity as City Fiscal of
Manila, respondents.
YAP, J:
Petitioners, charged with Batas Pambansa Bilang 22 (BP
22 for short), popularly known as the Bouncing Check
Law, assail the law's constitutionality.
BP 22 punishes a person "who makes or draws and
issues any check on account or for value, knowing at the
time of issue that he does not have sufficient funds in or
credit with the drawee bank for the payment of said
check in full upon presentment, which check is
subsequently dishonored by the drawee bank for

insufficiency of funds or credit or would have been

dishonored for the same reason had not the drawer,
without any valid reason, ordered the bank to stop
payment." The penalty prescribed for the offense is
imprisonment of not less than 30 days nor more than
one year or a fine or not less than the amount of the
check nor more than double said amount, but in no case
to exceed P200,000.00, or both such fine and
imprisonment at the discretion of the court.
The statute likewise imposes the same penalty on "any
person who, having sufficient funds in or credit with the
drawee bank when he makes or draws and issues a
check, shall fail to keep sufficient funds or to maintain a
credit to cover the full amount of the check if presented
within a period of ninety (90) days from the date
appearing thereon, for which reason it is dishonored by
the drawee bank.
An essential element of the offense is "knowledge" on
the part of the maker or drawer of the check of the
insufficiency of his funds in or credit with the bank to
cover the check upon its presentment. Since this involves
a state of mind difficult to establish, the statute itself
creates a prima facie presumption of such knowledge
where payment of the check "is refused by the drawee
because of insufficient funds in or credit with such bank
when presented within ninety (90) days from the date of
the check. To mitigate the harshness of the law in its
application, the statute provides that such presumption
shall not arise if within five (5) banking days from receipt
of the notice of dishonor, the maker or drawer makes
arrangements for payment of the check by the bank or
pays the holder the amount of the check.
Another provision of the statute, also in the nature of a
rule of evidence, provides that the introduction in
evidence of the unpaid and dishonored check with the
drawee bank's refusal to pay "stamped or written
thereon or attached thereto, giving the reason therefor,
"shall constitute prima facie proof of "the making or
issuance of said check, and the due presentment to the
drawee for payment and the dishonor thereof ... for the
reason written, stamped or attached by the drawee on
such dishonored check."
The presumptions being merely prima facie, it is open to
the accused of course to present proof to the contrary to
overcome the said presumptions.
ISSUE: Whether or not (W/N) BP 22 violates the
constitutional provision forbidding imprisonment for
debt.

HELD: No.
The gravamen of the offense punished by BP 22 is the
act of making and issuing a worthless check or a check
that is dishonored upon its presentation for payment. It
is not the non-payment of an obligation which the law
punishes. The law is not intended or designed to coerce
a debtor to pay his debt. The thrust of the law is to
prohibit, under pain of penal sanctions, the making of
worthless checks and putting them in circulation.
Because of its deleterious effects on the public interest,
the practice is proscribed by the law. The law punishes
the act not as an offense against property, but an
offense against public order.
The effects of the issuance of a worthless check
transcends the private interests of the parties directly
involved in the transaction and touches the interests of
the community at large. The mischief it creates is not
only a wrong to the payee or holder, but also an injury to
the public. The harmful practice of putting valueless
commercial papers in circulation, multiplied a thousand
fold, can very wen pollute the channels of trade and
commerce, injure the banking system and eventually
hurt the welfare of society and the public interest.
The enactment of BP 22 is a declaration by the
legislature that, as a matter of public policy, the making
and issuance of a worthless check is deemed public
nuisance to be abated by the imposition of penal
sanctions.
ISSUE: W/N BP 22 impairs the freedom to contract.
HELD: No. The freedom of contract which is
constitutionally protected is freedom to enter into
"lawful" contracts. Contracts which contravene public
policy are not lawful. Besides, we must bear in mind that
checks can not be categorized as mere contracts. It is a
commercial instrument which, in this modem day and
age, has become a convenient substitute for money; it
forms part of the banking system and therefore not
entirely free from the regulatory power of the state.
ISSUE: W/N it violates the equal protection clause.
HELD: No. Petitioners contend that the payee is just as
responsible for the crime as the drawer of the check,
since without the indispensable participation of the
payee by his acceptance of the check there would be no
crime. This argument is tantamount to saying that, to
give equal protection, the law should punish both the
swindler and the swindled. Moreover, the clause does
not preclude classification of individuals, who may be

accorded different treatment under the law as long as

the classification is no unreasonable or arbitrary.
G.R. No. 93397 March 3, 1997
Lessons Applicable: Requisites of negotiability to
antedated and postdated instruments (Negotiable
Instrument Law)
FACTS: Filriters (assigned) > Philfinance (still under the
name of Filriters assigned) > Traders Royal Bank = ?
(valid or not)
November 27, 1979: Filriters Guaranty Assurance
Corporation (Filriters) executed a "Detached
Assignment whereby Filriters, as registered
owner, sold, transferred, assigned and delivered
unto Philippine Underwriters Finance
Corporation (Philfinance) all its rights and title to
Central Bank Certificates of Indebtedness (CBCI)
of P500k and having an aggregate value of
P3.5M
o

The Detached Assignment contains an

express authorization executed by the
transferor intended to complete the
assignment through the registration of
the transfer in the name of PhilFinance

February 4, 1981: Traders Royal Bank (Traders)

entered into a Repurchase Agreement w/
PhilFinance whereby in consideration of the sum
of P500,000.00, PhilFinance sold, transferred and
delivered a CBCI w/ a face value of P500K which
CBCI was among those previously acquired by
PhilFinance from Filriters

PhilFinance failed to repurchase on the agreed

date of maturity, April 27, 1981, when the checks
it issued in favor of petitioner were dishonored
for insufficient funds

Philfinance transferred and assigned all, its rights

and title in the CBCI to Traders

Respondent failed and refused to register the

transfer as requested, and continues to do so
notwithstanding petitioner's valid and just title
over the same and despite repeated demands in
writing

Traders prayed for the registration by the Central

Bank of the subject CBCI in its name.

CA affirmed RTC: subsequent assignment in

favor of Traders Royal Bank null and void and of
no force and effect.
o

Philfinance acquired no title or rights

under CBCI which it could assign or
transfer to Traders and which it can
register with the Central Bank

instrument is payable only to Filriters,

the registered owner

unless made . . . by the registered owner

thereof in person or by his
representative duly authorized in writing

o
ISSUE: W/N the CBCI is a negotiable instrument

Alfredo O. Banaria, who signed

the deed of assignment
purportedly for and on behalf of
Filriters, did not have the
necessary written authorization
from the BOD

Traders, being a commercial bank,

cannot feign ignorance of Central Bank
Circular 769, and its requirements.

HELD: NO. Petition is dismissed. CA affirmed.

CBCI is not a negotiable instrument in the

absence of words of negotiability within the
meaning of the negotiable instruments law (Act
2031)

The fact that Filfinance owns majority shares in

Filriters is not by itself a ground to disregard the
independent corporate status of Filriters.

Traders knew that Philfinance is not registered

owner of the CBCI.

certificate of indebtedness
o
o

= certificates for the creation and

maintenance of a permanent
improvement revolving fund

similar to a "bond"

properly understood as
acknowledgment of an
obligation to pay a fixed sum of
money

usually used for the purpose of

long term loans

Philfinance merely borrowed the CBCI from

Filriters, a sister corporation.
o

lack of any consideration = assignment

is a complete nullity

Filriters to Philfinance did not conform to the

"Rules and Regulations Governing Central Bank
Certificates of Indebtedness" (Central Bank
Circular No. 769, series of 1980) under which the
note was issued.
o

Published in the Official Gazette on

November 19, 1980, Section 3 thereof
provides that any assignment of
registered certificates shall not be valid

The fact that a non-owner was disposing

of the registered CBCI owned by another
entity was a good reason for petitioner
to verify of inquire as to the title
Philfinance to dispose to the CBCI.

Nemo potest nisi quod de jure potest no man

can do anything except what he can do lawfully.

G.R. No. 97753 August 10, 1992
Lessons Applicable: Requisites of negotiability to
antedated and postdated instruments (Negotiable
Instrument Law)
FACTS:
Security Bank and Trust Company (Security
Bank), a commercial banking institution, through
its Sucat Branch issued 280 certificates of time
deposit (CTDs) in favor of Angel dela Cruz who
deposited with Security Bank the total amount of
P1,120,000

Angel delivered the CTDs to Caltex for his

purchase of fuel products

March 18, 1982: Angel informed Mr. Tiangco, the

Sucat Branch Manager that he lost all CTDs,
submitted the required Affidavit of Loss and
received the replacement

March 25, 1982: Angel dela Cruz negotiated and

obtained a loan from Security Bank in the

amount of P875,000 and executed a notarized

Deed of Assignment of Time Deposit

November, 1982: Mr. Aranas, Credit Manager of

Caltex went to the Sucat branch to verify the
CTDs declared lost by Angel

November 26, 1982: Security Bank received a

letter from Caltex formally informing it of its
possession of the CTDs in question and of its
decision to pre-terminate the same.

December 8, 1982: Caltex was requested by

Security Bank to furnish:
o

a copy of the document evidencing the

guarantee agreement with Mr. Angel
dela Cruz

the details of Mr. Angel's obligation

against which Caltex proposed to apply
the time deposits

Security Bank rejected Caltex demand for

payment bec. it failed to furnish a copy of its
agreement w/ Angel

April 1983, the loan of Angel dela Cruz with

Security Bank matured

August 5, 1983: CTD were set-off w/ the matured

loan

Caltex filed a complaint praying the bank to pay

1,120,000 plus 16% interest

CA affirmed RTC to dismiss complaint

(a) It must be in writing and signed by the maker or

drawer;
(b) Must contain an unconditional promise or 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 -check
(e) Where the instrument is addressed to a drawee, he
must be named or otherwise indicated therein with
reasonable certainty.
The documents provide that the amounts
deposited shall be repayable to the depositor
o

2. NO.
although the CTDs are bearer instruments, a
valid negotiation thereof for the true purpose
and agreement between it and De la Cruz, as
ultimately ascertained, requires both delivery
and indorsement

W/N Caltex as holder in due course can

rightfully recover on the CTDs

CTDs were in reality delivered to it as a

security for De la Cruz' purchases of its
fuel products

There was no negotiation in the sense of

a transfer of the legal title to the CTDs in
favor of petitioner in which situation, for
obvious reasons, mere delivery of the
bearer CTDs would have sufficed.

HELD: Petition is Denied and appealed decision is

affirmed.

1. YES.
Section 1 Act No. 2031, otherwise known as the
Negotiable Instruments Law, enumerates the requisites
for an instrument to become negotiable, viz:

If it was really the intention of

respondent bank to pay the
amount to Angel de la Cruz
only, it could have with facility
so expressed that fact in clear
and categorical terms in the
documents, instead of having
the word "BEARER" stamped on
the space provided for the name
of the depositor in each CTD

negotiability or non-negotiability of an
instrument is determined from the writing, that
is, from the face of the instrument itself

ISSUE:
1. W/N the CTDs are negotiable
2.

depositor = bearer

Where the holder has a lien on the instrument

arising from contract, he is deemed a holder for
value to the extent of his lien.
o

As such holder of collateral security, he

would be a pledgee but the

requirements therefor and the effects

thereof, not being provided for by the
Negotiable Instruments Law, shall be
governed by the Civil Code provisions
on pledge of incorporeal rights:

Art. 2095. Incorporeal rights, evidenced by negotiable

instruments, . . . may also be pledged. The instrument
proving the right pledged shall be delivered to the
creditor, and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third
persons if a description of the thing pledged and the
date of the pledge do not appear in a public instrument.
Art. 1625. An assignment of credit, right or action shall
produce no effect as against third persons, unless it
appears in a public instrument, or the instrument is
recorded in the Registry of Property in case the
assignment involves real property.
CASE DIGEST: NEGOTIABLE INSTRUMENTS LAW
PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS
GR. NO. 107508 April 25, 1996
1st Division Kapunan
FACTS:
Ministry of Education Culture issued a check payable to
Abante Marketing and drawn against Philippine National
Bank (PNB). Abante Marketing, deposited the questioned
check in its savings account with Capitol City
Development Bank (CAPITOL). In turn, Capitol deposited
the same in its account with the Philippine Bank of
Communications (PBCom) which, in turn, sent the check
to PNB for clearing. PNB cleared the check as good and
thereafter, PBCom credited Capitol's account for the
amount stated in the check. However, PNB returned the
check to PBCom and debited PBCom's account for the
amount covered by the check, the reason being that
there was a "material alteration" of the check number.
PBCom, as collecting agent of Capitol, then proceeded
to debit the latter's account for the same amount, and
subsequently, sent the check back to petitioner. PNB,
however, returned the check to PBCom. On the other
hand, Capitol could not in turn, debit Abante Marketing's
account since the latter had already withdrawn the
amount of the check. Capitol sought clarification from
PBCom and demanded the re-crediting of the amount.
PBCom followed suit by requesting an explanation and
re-crediting from PNB. Since the demands of Capitol
were not heeded, it filed a civil suit against PBCom which
in turn, filed a third-party complaint against PNB for
reimbursement/indemnity with respect to the claims of
Capitol. PNB, on its part, filed a fourth-party complaint

against Abante Marketing.

The Trial Court rendered its decision, ordering PBCom to
re-credit or reimburse; PNB to reimburse and indemnify
PBCom for whatever amount PBCom pays to Capitol;
Abante Marketing to reimburse and indemnify PNB for
whatever amount PNB pays to PBCom. The court
dismissed the counterclaims of PBCom and PNB. The
appellate court modified the appealed judgment by
ordering PNB to honor the check. After the check shall
have been honored by PNB, the court ordered PBCom to
re-credit Capitol's account with it the amount. PNB filed
the petition for review on certiorari averring that under
Section 125 of the NIL, any change that alters the effect
of the instrument is a material alteration.
ISSUE:
WON an alteration of the serial number of a check is a
material alteration under the NIL.
HELD:
NO, alteration of a serial number of a check is not a
material alteration contemplated under Sec. 125 of the
NIL.
RATIO:
An alteration is said to be material if it alters the effect of
the instrument. It means an unauthorized change in an
instrument that purports to modify in any respect the
obligation of a party or an unauthorized addition of
words or numbers or other change to an incomplete
instrument relating to the obligation of a party. In other
words, a material alteration is one which changes the
items which are required to be stated under Section 1 of
the Negotiable Instruments Law.
In the present case what was altered is the serial number
of the check in question, an item which is not an
essential requisite for negotiability under Section 1 of
the Negotiable Instruments Law. The aforementioned
alteration did not change the relations between the
parties. The name of the drawer and the drawee were
not altered. The intended payee was the same. The sum
of money due to the payee remained the same. The
check's serial number is not the sole indication of its
origin. The name of the government agency which
issued the subject check was prominently printed
therein. The check's issuer was therefore insufficiently
identified, rendering the referral to the serial number
redundant and inconsequential.