ELIZALDE VS BINAN even have incurred liability for its refusal to return the money that all appearances
even have incurred liability for its refusal to return the money that all appearances belonged to the
Negotiable Instruments Law – Negotiable Instruments in General – 58 OG 5886 – Unconditional
Promise To Pay
Biñan Transportation Company bought two motor vehicles. They signed a promissory note and to
secure payment, they mortgaged the motor vehicles. The promissory notes were negotiated and were
not paid. So Elizalde who was holding the promissory note sued. Biñan’s defense was that the
promissory note was not negotiable because it was mentioned that it was subject to chattel mortgage.
ISSUE: Whether the note was negotiable.
HELD: Yes. For reference to mortgage to destroy negotiability, the promise to pay must be burdened
with the terms and conditions of the chattel mortgage. Since the reference to the chattel mortgage did
not make the promise to pay burdened with the terms and conditions of the chattel mortgage, the
promissory note was still negotiable.
Metropolitan Bank & Trust Company vs. Court of Appeals
G.R. No. 88866 February, 18, 1991
Cruz, J.:
Facts:
Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury warrants.
All warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and
deposited to its Savings account in Metrobank branch in Calapan, Mindoro. They were sent for
clearance. Meanwhile, Gomez is not allowed to withdraw from his account, later, however,
“exasperated” over Floria repeated inquiries and also as an accommodation for a “valued” client
Metrobank decided to allow Golden Savings to withdraw from proceeds of the warrants. In turn,
Golden Savings subsequently allowed Gomez to make withdrawals from his own account. Metrobank
informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of 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demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the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 Golden Savings.
Issue:
1. Whether or not Metrobank can demand refund agaist Golden Savings with regard to the
amount withdraws to make up with the deficit as a result of the dishonored treasury warrants.
2. Whether or not treasury warrants are negotiable instruments
Held:
No. Metrobank is negligent in giving Golden Savings the impression that the treasury warrants
had been cleared and that, consequently, it was safe to allow Gomez to withdraw. Without such
assurance, Golden Savings would not have allowed the withdrawals. Indeed, Golden Savings might
depositor, who could therefore withdraw it anytime and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings
deposited them to its account with 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. The proceeds
of the warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to
withdraw them from its own deposit.
Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that
they were genuine and in all respects what they purport to be,” in accordance with Sec. 66 of NIL.
The simple reason that NIL is not applicable to non negotiable instruments, treasury warrants.
No. The treasury warrants are not negotiable instruments. Clearly stamped on their face is the
word: non negotiable.” Moreover, and this is equal significance, it is indicated that they are payable
from a particular fund, to wit, Fund 501. An instrument to be negotiable instrument must contain an
unconditional promise or orders to pay a sum certain in money. As provided by Sec 3 of NIL an
unqualified order or promise to pay is unconditional though coupled with: 1 st, an indication of a
particular fund out of which reimbursement is to be made or a particular account to be debited with
the amount; or 2nd, a statement of the transaction which give rise to the instrument. But an order to
promise to pay out of particular fund is not unconditional. The indication of Fund 501 as the source of
the payment to be made on the treasury warrants makes the order or promise to pay “not conditional”
and the warrants themselves non-negotiable. There should be no question that the exception on
Section 3 of NIL is applicable in the case at bar.
PECO vs. Soriano
Philippine Education Co. vs. Soriano
L-22405 June 30, 1971
Dizon, J.:
Facts:
Enrique Montinola sought to purchase from Manila Post Office ten money orders of 200php
each payable to E. P. Montinola. Montinola offered to pay with the money orders with a private
check. Private check were not generally accepted in payment of money orders, the teller advised him
to see the Chief of the Money Order Division, but instead of doing so, Montinola managed to leave
the building without the knowledge of the teller. Upon the disappearance of the unpaid money order, a
message was sent to instruct all banks that it must not pay for the money order stolen upon
presentment. The Bank of America received a copy of said notice. However, The Bank of America
received the money order and deposited it to the appellant’s account upon clearance. Mauricio
Soriano, Chief of the Money Order Division notified the Bank of America that the money order
deposited had been found to have been irregularly issued and that, the amount it represented had been
deducted from the bank’s clearing account. The Bank of America debited appellant’s account with the
same account and give notice by mean of debit memo.
Issue:
Whether or not the postal money order in question is a negotiable instrument
Held:
 No. It is not disputed that the Philippine postal statutes were patterned after similar statutes in
force in United States. The Weight of authority in the United States is that postal money orders are not
negotiable instruments, the reason being that in establishing and operating a postal money order
system, the government is not engaged in commercial transactions but merely exercises a
governmental power for the public benefit. Moreover, some of the restrictions imposed upon money
orders by postal laws and regulations are inconsistent with the character of negotiable instruments.
For instance, such laws and regulations usually provide for not more than one endorsement; payment
of money orders may be withheld under a variety of circumstances.
Negotiable Instruments Case Digest: Philippine National Bank V. Erlando Rodriguez (2008)
Lessons Applicable: Fictitious Persons (Negotiable Instruments Law)
FACTS:
 Spouses Erlando and Norma Rodriguez were engaged in the informal lending business and
had a discounting arrangement with the Philnabank Employees Savings and Loan Association
(PEMSLA), an association of PNB employees
 The association maintained current and savings accounts with Philippine National Bank
(PNB)
 PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount
the postdated checks issued to members whenever the association was short of funds.
 As was customary, the spouses would replace the postdated checks with their
own checks issued in the name of the members.
 It was PEMSLA’s 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 officers carried this out by forging the indorsement
of the named payees in the checks
 Rodriguez checks were deposited directly by PEMSLA to its savings account without any
indorsement from the named payees.
 This was an irregular procedure made possible through the facilitation of Edmundo
Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch.
 this became the usual practice for the parties.
 November 1998-February 1999: spouses issued 69 checks totalling to P2,345,804. These
were payable to 47 individual payees who were all members of PEMSLA
 PNB eventually found out about these fraudulent acts
 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 amounts were duly debited from the Rodriguez account
 Spouses filed a civil complaint for damages against PEMSLA, the Multi-Purpose
Cooperative of Philnabankers (MCP), and PNB.
 PNB credited the checks to the PEMSLA account even without indorsements
= PNB violated its contractual obligation to them as depositors - so PNB should bear the losses
 RTC: favored Rodriguez
 makers, actually did not intend for the named payees to receive the proceeds of
the checks = fictitious payees (under the Negotiable Instruments Law) = negotiable by mere
delivery
 CA: Affirmed - checks were obviously meant by the spouses to be really paid to PEMSLA
= payable to order
ISSUE: W/N the 69 checks are payable to order for not being issued to fictitious persons thereby
dismissing PNB from liability
HELD: NO. CA Affirmed
 GR: when the payee is fictitious or not intended to be the true recipient of the proceeds,
the check is considered as a bearer instrument (Sections 8 and 9 of the NIL)
 EX: However, there is a commercial bad faith exception to the fictitious-payee rule. A
showing of commercial bad faith on the part of the drawee bank, or any transferee of the check
for that matter, will work to strip it of this defense. The exception will cause it to bear the loss.
 The distinction between bearer and order instruments lies in their manner of negotiation
 order instrument - requires an indorsement from the payee or holder before it
may be validly negotiated
 bearer instrument - mere delivery
 US jurisprudence: “fictitious” if the maker of the check did not intend for the payee to in
fact receive the proceeds of the check
 In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer
bears the loss
 When faced with a check payable to a fictitious payee, it is treated as a bearer instrument
that can be negotiated by delivery
 underlying theory: one cannot expect a fictitious payee to negotiate the check
by placing his indorsement thereon
 lack of knowledge on the part of the payees, however, was not tantamount to a lack of
intention on the part of respondents-spouses that the payees would not receive the checks’
proceeds
 PNB did not obey the instructions of the drawers when it accepted absent indorsement,
forged or otherwise. It was negligent in the selection and supervision of its employees
Ang Tek Lian vs. CA
Ang Tek Lian vs. Court of Appeals
L-2516 September, 1950
Bengzon, J.:
Facts:
Ang Tek Lian knowing that he had no funds therefor, drew a check upon China Banking
Corporation payable to the order of “cash”. He delivered it toLee Hua Hong in exchange for money.
The check was presented by Lee Hua hong to the drawee bank for payment, but it w3as dishonored
for insufficiency of funds. With this, Ang Tek Lian was convicted of estafa.
Issue:
Whether or not the check issued by Ang Tek Lian that is payable to the order to “cash” and not
have been indorsed by Ang Tek Lian, making him not guilty for the crime of estafa.
Held:
No.Under Sec. 9 of NIL a check drawn payable to the order of “cash” is a check payable to
bearer and the bank may pay it to the person presenting it for payment without the drawer’s
indorsement. However, if the bank is not sure of the bearer’s identity or financial solvency, it has the
right to demand identification or assurance against possible complication, such as forgery of drawer’s
signature, loss of the check by the rightful owner, raising of the amount payable, etc. But where the
bank is satisfied of the identity or economic standing of the bearer who tenders the check for
collection, it will pay the instrument without further question; and it would incur no liability to the
drawer in thus acting.
SAN MIGUEL v. PUZON, JR. G.R. No. 167567 September 22, 2010
Related law: Sec. 16; Sec. 12; NIL; Delivery for the purpose of giving effect to an instrument (i.e. for
payment) FACTS: Puzon was a dealer of San Miguel Corporation (SMC). Puzon purchased SMC
products on credit. SMC requires him to issue postdated checks equivalent to the value of the
products purchased to ensure payment. The checks are to be return to Puzon once he settles his credit.
In one instance, Puzon went to SMC Sales Office and allegedly requested to see particular checks that
he gave to SMC. When he got hold of them, he allegedly immediately left the office with the checks.
SMC demanded for the return of the checks which Puzon ignored. As such, SMC filed a complaint
against him for theft. The prosecutor however found no probable cause for theft because of SMC and
Puzon’s relationship as one of creditor-debtor and recommended dismissal. Hence, this petition.
ISSUE/S: 1. Was there probable cause for theft? HELD: 1. None. One of the essential elements of
theft is the taking of a personal property belonging to another. A such, it is necessary to ascertain
whether the ownership of the checks were transferred to SMC. If SMC owns the checks, then there is
probable cause for theft, otherwise, there is none. According to the Sec. 12 of the NIL, the person to
whom an instrument is delivered acquires the title to it. The delivery mentioned in Sec. 12 must be
read in conjunction with Sec. 16 of the NIL which says that the delivery must be for the purpose of
giving effect to the instrument. Since the checks were given merely as security and not as payment for
the credit, then the checks were not delivered so as to give effect to them. As such, ownership was not
transferred to SMC. Hence, the checks that Puzon allegedly took were not properties belonging to
another. Consequently, there is no probable cause for theft. Prepared by: Daniel John A. Fordan !1
RCBC vs. Hi-Tri Development Corp. and Luz R. Bakunawa, G.R. No. 192413, June 13, 2012
Facts:
Millan paid the spouses Bakunawa P1,019,514.29 as down payment for the purchase of six (6) lots
with the Spouses Bakunawa giving Millan the Owner’s Copies of TCTs of said lots.
Due to some obstacles, the sale did not push through; so Spouses Bakunawa rescinded the sale and
offered to return to Millan her down. However, Millan refused to accept back the down payment.
Consequently, the Spouses Bakunawa, through their company, Hi-Tri took out on October 28, 1991, a
Manager’s Check from RCBC-Ermita in the amount of P 1,019,514.29, payable to Millan’s company
Rosmil and used this as one of their basis for a complaint against Millan.
The Spouses Bakunawa retained custody of RCBC Manager’s Check and refrained from cancelling or
negotiating it. Millan was also informed that the Manager’s Check was available for her withdrawal,
she being the payee.
On January 31, 2003, without the knowledge of Spouses Bakunawa, RCBC reported the
"P 1,019,514.29-credit existing in favor of Rosmil to the Bureau of Treasury as among its "unclaimed
balances" as of January 31, 2003. On December 14, 2006, the Republic, through the Office of the
Solicitor General (OSG), filed with the RTC the action for Escheat.
On April 30, 2008, Spouses Bakunawa settled amicably their dispute with Millan. Spouses Bakunawa
tried to recover the P1,019,514.29 under Manager’s Check but they were informed that the amount
was already subject of the escheat proceedings before the RTC.
The trial court ordered the deposit of the escheated balances with the Treasurer and credited in favor
of the Republic. Respondents claim that they were not able to participate in the trial, as they were not
informed of the ongoing escheat proceedings. Later motion for reconsideration was denied.
CA reversed the RTC ruling. CA pronounced that RTC Clerk of Court failed to issue individual
notices directed to all persons claiming interest in the unclaimed balances. CA held that the Decision
and Order of the RTC were void for want of jurisdiction.
Issue:
Whether or not the allocated funds may be escheated in favor of the Republic
Held:
There are sufficient grounds to affirm the CA on the exclusion of the funds allocated for the payment
of the Manager’s Check in the escheat proceedings.
An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank
(drawee), requesting the latter to pay a person named therein (payee) or to the order of the payee or to
the bearer, a named sum of money. The issuance of the check does not of itself operate as an
assignment of any part of the funds in the bank to the credit of the drawer. Here, the bank becomes
liable only after it accepts or certifies the check. After the check is accepted for payment, the bank
would then debit the amount to be paid to the holder of the check from the account of the depositor-
drawer.
There are checks of a special type called manager’s or cashier’s checks. These are bills of exchange
drawn by the bank’s manager or cashier, in the name of the bank, against the bank itself. Typically, a
manager’s or a cashier’s check is procured from the bank by allocating a particular amount of funds to
be debited from the depositor’s account or by directly paying or depositing to the bank the value of
the check to be drawn. Since the bank issues the check in its name, with itself as the drawee, the
check is deemed accepted in advance. Ordinarily, the check becomes the primary obligation of the
issuing bank and constitutes its written promise to pay upon demand.
Nevertheless, the mere issuance of a manager’s check does not ipso facto work as an automatic
transfer of funds to the account of the payee. In case the procurer of the manager’s or cashier’s check
retains custody of the instrument, does not tender it to the intended payee, or fails to make an
effective delivery, we find the following provision on undelivered instruments under the Negotiable
Instruments Law applicable:
Sec. 16. Delivery; when effectual; when presumed. – Every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As
between immediate parties and as regards a remote party other than a holder in due course, the
delivery, in order to be effectual, must be made either by or under the authority of the party making,
drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may be shown to
have been conditional, or for a special purpose only, and not for the purpose of transferring the
property in the instrument. But where the instrument is in the hands of a holder in due course, a valid
delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed.
And where the instrument is no longer in the possession of a party whose signature appears thereon, a
valid and intentional delivery by him is presumed until the contrary is proved.
Petitioner acknowledges that the Manager’s Check was procured by respondents, and that the amount
to be paid for the check would be sourced from the deposit account of Hi-Tri. When Rosmil did not
accept the Manager’s Check offered by respondents, the latter retained custody of the instrument
instead of cancelling it. As the Manager’s Check neither went to the hands of Rosmil nor was it
further negotiated to other persons, the instrument remained undelivered. Petitioner does not dispute
the fact that respondents retained custody of the instrument.
Since there was no delivery, presentment of the check to the bank for payment did not occur. An order
to debit the account of respondents was never made. In fact, petitioner confirms that the Manager’s
Check was never negotiated or presented for payment to its Ermita Branch, and that the allocated
fund is still held by the bank. As a result, the assigned fund is deemed to remain part of the account of
Hi-Tri, which procured the Manager’s Check. The doctrine that the deposit represented by a
manager’s check automatically passes to the payee is inapplicable, because the instrument – although
accepted in advance – remains undelivered. Hence, respondents should have been informed that the
deposit had been left inactive for more than 10 years, and that it may be subjected to escheat
proceedings if left unclaimed.
Bpi vs casa montesorri
Facts: CASA Montessori International opened an account with BPI, with CASA’s President as one of
its authorized signatories. It discovered that 9 of its checks had been encashed by a certain Sonny D.
Santos whose name turned out to be fictitious, and was used by a certain Yabut, CASA’s
external auditor. He voluntarily admitted that he forged the signature and encashed the checks.
RTC granted the Complaint for Collection with Damages against BPI ordering to reinstate the amount
in the account, with interest. CA took account of CASA’s contributory negligence and apportioned the
loss between CASA and BPI, and ordred Yabut to reimburse both.
BPI contends that the monthly statements it issues to its clients contain a notice worded as follows:
“If no error is reported in 10 days, account will be correct” and as such, it should be considered a
waiver.
Issue:Whether or not waiver or estoppel results from failure to report the error in the bank statement
Held: Such notice cannot be considered a waiver, even if CASA failed to report the error. Neither is it
estopped from questioning the mistake after the lapse of the ten-day period.
This notice is a simple confirmation or "circularization" -- in accounting parlance -- that requests
client-depositors to affirm the accuracy of items recorded by the banks. Its purpose is to obtain from
the depositors a direct corroboration of the correctness of their account balances with their
respective banks.
Every right has subjects -- active and passive. While the active subject is entitled to demand its
enforcement, the passive one is duty-bound to suffer such enforcement. On the one hand, BPI could
not have been an active subject, because it could not have demanded from CASA a response to its
notice. CASA, on the other hand, could not have been a passive subject, either, because it had no
obligation to respond. It could -- as it did -- choose not to respond.
Estoppel precludes individuals from denying or asserting, by their own deed or representation,
anything contrary to that established as the truth, in legal contemplation. Our rules on evidence even
make a juris et de jure presumption that whenever one has, by one’s own act or omission,
intentionally and deliberately led another to believe a particular thing to be true and to act upon that
belief, one cannot -- in any litigation arising from such act or omission -- be permitted to falsify that
supposed truth.
In the instant case, CASA never made any deed or representation that misled BPI. The former’s
omission, if any, may only be deemed an innocent mistake oblivious to the procedures
and consequences of periodic audits. Since its conduct was due to such ignorance founded upon an
innocent mistake, estoppel will not arise. A person who has no knowledge of or consent to a
transaction may not be estopped by it. "Estoppel cannot be sustained by mere argument or doubtful
inference x x x." CASA is not barred from questioning BPI’s error even after the lapse of the period
given in the notice.
Gempesaw
FACTS:
 Gempesaw owns and operates four grocery stores
 to pay their debts of her supplies, she draws checks against her account
 she signed each and every crossed check without bothering to verify the
accuracy of the checks against the corresponding invoices because she reposed full and implicit
trust and confidence on her bookkeeper.
 although the Bank notified her of all checks presented to and paid by the bank,
petitioner did not verify he correctness of the returned checks, much less check if the payees
actually received the checks in payment for the supplies she received
 It was only after the lapse of more 2 years that petitioner found out about the
fraudulent manipulations of her bookkeeper
 November 7, 1984: Gempesaw made a written demand on respondent drawee Bank to
credit her account with the money value of the 82 checks totalling P1,208.606.89 for having
been wrongfully charged against her account
 January 23, 1985: Gempesaw filed against Philippine Bank of Communications (drawee
Bank) for recovery of the money value of 82 checks charged against the Gempesaw's account
on the ground that the payees' indorsements were forgeries
 RTC: dismissed the complaint
 CA: affirmed
 Gempesaw gross negligence = promixate cause of the loss
ISSUE: W/N Gempesaw has a right to recover the amount attributable to the forgeries
HELD: NO. REMANDED to the trial court for the reception of evidence to determine the exact
amount of loss suffered by the petitioner, considering that she partly benefited from the issuance of
the questioned checks since the obligation for which she issued them were apparently extinguished,
such that only the excess amount over and above the total of these actual obligations must be
considered as loss of which one half must be paid by respondent drawee bank to herein petitioner.
 Petitioner completed the checks by signing them as drawer and thereafter authorized her
employee Alicia Galang to deliver to payees
 GR: drawee bank who has paid a check on which an indorsement has been forged cannot
charge the drawer's account for the amount of said check
 EX: where the drawer is guilty of such negligence which causes the bank to honor such a
check or checks.
 Under the NIL, the only kind of indorsement which stops the further negotiation of an
instrument is a restrictive indorsement which prohibits the further negotiation thereof.
Sec. 36. When indorsement restrictive. - An indorsement is restrictive which either chanrobles virtual
law library
(a) Prohibits further negotiation of the instrument; or
xxx xxx xxx
 In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be
written in express words at the back of the instrument, so that any subsequent party may be
forewarned that ceases to be negotiable.
 However, the restrictive indorsee acquires the right to receive payment and
bring any action thereon as any indorser, but he can no longer transfer his rights as such
indorsee where the form of the indorsement does not authorize him to do so.
 When it violated its internal rules that second endorsements are not to be accepted without
the approval of its branch managers and it did accept the same upon the mere approval of Boon,
a chief accountant, it contravened the tenor of its obligation at the very least, if it were not
actually guilty of fraud or negligence
 drawee Bank did not discover the irregularity with respect to the acceptance of checks
with second indorsement for deposit even without the approval of the branch manager despite
periodic inspection conducted by a team of auditors from the main office constitutes negligence
on the part of the bank in carrying out its obligations to its depositors
LOZANO VS MARTINEZ
Facts:
Petitioners were charged with violation of Batas Pambansa Bilang 22 (Bouncing Check Law). They
moved seasonably to quash the informations on the ground that the acts charged did not constitute an
offense, the statute being unconstitutional. The motions were denied by the respondent trial courts,
except in one case, wherein the trial court declared the law unconstitutional and dismissed the case.
The parties adversely affected thus appealed.
Issue:
1. Whether or not BP 22 is violative of the constitutional provision on non-imprisonment due to debt
2. Whether it impairs freedom of contract
3. Whether it contravenes the equal protection clause
Held:
1. The enactment of BP 22 is a valid exercise of the police power and is not repugnant to the
constitutional inhibition against imprisonment for debt. 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.
Unlike a promissory note, a check is not a mere undertaking to pay an amount of money. It
is an order addressed to a bank and partakes of a representation that the drawer
has funds on deposit against which the check is drawn, sufficient to ensure payment upon
its presentation to the bank. There is therefore an element of certainty or assurance that the
instrument will be paid upon presentation. For this reason, checks have become widely
 accepted as a medium of payment in trade and commerce. Although not legal tender,
checks have come to be perceived as convenient substitutes for currency in commercial
and financial transactions. The basis or foundation of such perception is confidence. If
such confidence is shaken, the usefulness of checks as currency substitutes would be
greatly diminished or may become nil. Any practice therefore tending to destroy that
confidence should be deterred for the proliferation of worthless checks can only
create havoc in trade circles and the banking community.
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.
2. 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.
3. There is no substance in the claim that the statute in question denies equal protection
of the laws or is discriminatory, since it penalizes the drawer of the check, but not the
payee. It is contended 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. The
petitioners’ posture ignores the well-accepted meaning of the clause “equal protection
of the laws.” The clause does not preclude classification of individuals, who may be
accorded different treatment under the law as long as the classification is not unreasonable
or arbitrary. (Lozano vs Martinez, G.R. No. L-63419, December 18, 1986)
CITIBANK vs. SABENIANO
G.R.No. 156132, October 16, 2006
FACTS: Petitioner Citibank is a banking corporation duly authorized under the laws of the USA to do
commercial banking activities n the Philippines. Sabeniano was a client of both Petitioners Citibank
and FNCB Finance. Respondent filed a complaint against petitioners claiming to have substantial
deposits, the proceeds of which were supposedly deposited automatically and directly to respondent’s
account with the petitioner Citibank and that allegedly petitioner refused to despite repeated demands.
Petitioner alleged that respondent obtained several loans from the former and in default, Citibank
exercised its right to set-off respondent’s outstanding loans with her deposits and money. RTC
declared the act illegal, null and void and ordered the petitioner to refund the amount plus interest,
ordering Sabeniano, on the other hand to pay Citibank her indebtedness. CA affirmed the decision
entirely in favor of the respondent.
ISSUE: Whether petitioner may exercise its right to set-off respondent’s loans with her deposits and
money in Citibank-Geneva
RULING: Petition is partly granted with modification.
1. Citibank is ordered to return to respondent the principal amount of P318,897.34 and P203,150.00
plus 14.5% per annum
2. The remittance of US $149,632.99 from respondent’s Citibank-Geneva account is declared illegal,
null and void, thus Citibank is ordered to refund said amount in Philippine currency or its equivalent
using exchange rate at the time of payment.
3. Citibank to pay respondent moral damages of P300,000, exemplary damages for P250,000,
attorney’s fees of P200,000.
4. Respondent to pay petitioner the balance of her outstanding loans of P1,069,847.40 inclusive off
interest.
BPI vs Spouses Royeca G.R. No. 176664, July 21, 2008
FACTS:
Spouses Reynaldo and Victoria Royeca (respondents) executed and delivered to Toyota Shaw, Inc. a
Promissory Note payable in 48 equal monthly installments. The Promissory Note provides for a
penalty of 3% for every month or fraction of a month that an installment remains unpaid.
Respondents executed a Chattel Mortgage in favor of Toyota over a certain motor vehicle. Toyota,
with notice to respondents, executed a Deed of Assignment transferring all its rights, title, and interest
in the Chattel Mortgage to Far East Bank and Trust Company (FEBTC).
Claiming that the respondents failed to pay four (4) monthly, FEBTC sent a formal demand to
respondents, asking for the payment thereof, plus penalty. The respondents refused to pay on the
ground that they had already paid their obligation. FEBTC filed a Complaint for Replevin and
Damages against the respondents with the Metropolitan Trial Court (MeTC) of Manila praying for the
delivery of the vehicle. The complaint was later amended to substitute BPI as plaintiff when it merged
with and absorbed FEBTC.
Respondents alleged that they delivered to the Auto Financing Department of FEBTC eight (8)
postdated checks in different amount. The Acknowledgment Receipt, which they attached to the
Answer, showed that FEBTC received the checks. respondents further averred that they did not
receive any notice from the drawee banks or from FEBTC that these checks were dishonored. They
explained that, considering this and the fact that the checks were issued three years ago, they believed
in good faith that their obligation had already been fully paid. They alleged that the complaint is
frivolous and plainly vexatious.
FEBTC admitted that they had, in fact, received the eight checks from the respondents. However, two
of these were dishonored. He recalled that the remaining two checks were not deposited anymore due
to the previous dishonor of the two checks.
ISSUE:
Whether tender of checks constitutes payment.
RULING:
NO. A check is not legal tender and, therefore, cannot constitute a valid tender of payment. Since a
negotiable instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment. The obligation is not extinguished and
remains suspended until the payment by commercial document is actually realized.
Traders Royal Bank v CA (Negotiable Instruments Law)

TRADERS ROYAL BANK V CA G.R. No. 93397 March 3, 1997 xxx xxx xxx

FACTS:
Filriters registered owner of Central Bank Certificate of Indebtedness (CBCI). Filriters transferred it
to Philfinance by one of its officers without authorization from the company. Subsequently,
Philfinance transferred same CBCI to Traders Royal Bank (TRB) under a repurchase agreement.
When Philfinance failed to do so, The TRB tried to register in its name in the CBCI. The Central
Bank did not want to recognize the transfer.
The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay bearer, of
if this Certificate of indebtedness be registered, to FILRITERS GUARANTY ASSURANCE
CORPORATION, the registered owner hereof, the principal sum of FIVE HUNDRED THOUSAND
PESOS.
NO. The CBCI is not a negotiable instrument, since the instrument clearly stated that it was payable
to Filriters, and the certificate lacked the words of negotiability which serve as an expression of
consent that the instrument may be transferred by negotiation.

Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action
was originally filed as a Petition for Mandamus 5 under Rule 65 of the Rules of Court, to compel the Before the instruments become negotiable instruments, the instrument must conform to the
Central Bank of the Philippines to register the transfer of the subject CBCI to petitioner Traders Royal requirements under the Negotiable Instrument Law. Otherwise instrument shall not bind the parties.
Bank (TRB).

2. Whether the Assignment of registered certificate is valid or null and void.

DECISION OF LOWER COURTS: * RTC: transfer is null and void. * CA: The appellate court ruled
that the subject CBCI is not a negotiable instrument. Philfinance acquired no title or rights under
CBCI No. D891 which it could assign or transfer to Traders Royal Bank and which the latter can
register with the Central Bank. Thus, the transfer of the instrument from Philfinance to TRB was IT'S NULL AND VOID. Obviously the Assignment of certificate from Filriters to Philfinance was
merely an assignment, and is not governed by the negotiable instruments law. null and void. One of officers who signed the deed of assignment in behalf of Filriters did not have
the necessary written authorization from the Board of Directors of Filriters. For lack of such authority
the assignment is considered null and void.

APPLICABLE LAWS:
Under section 1 of Act no. 2031 an instrument to be negotiable must conform to the following
requirements: (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 (e) Where the
instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable
certainty.
Clearly shown in the record is the fact that Philfinance's title over CBCI is defective since it
acquired the instrument from Filriters fictitiously. Under 1409 of the Civil Code those contracts
which are absolutely simulated or fictitious are considered void and inexistent from the beginning.
Petitioner knew that Philfinance is not registered owner of the CBCI No. D891. 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.

Under section 3, Article V of Rules and Regulations Governing Central Bank Certificates of
Indebtedness states that the assignment of registered certificates shall not be valid unless made at the OTHER NOTES:
office where the same have been issued and registered or at the Securities Servicing Department,
1. the mere ownership by a single stockholder or by another corporation of all or nearly all of the
Central Bank of the Philippines, and by the registered owner thereof, in person or by his
capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate
representative, duly authorized in writing. For this purpose, the transferee may be designated as the
corporate personalities.
representative of the registered owner. ISSUES & RULING: 1. Whether the CBCI is negotiable
instrument or not.

CONSOLIDATED PLYWOOD INDUSTRIES VS. IFC LEASING & ACCEPTANCE CORP.

The pertinent portions of the subject CBCI read:
149 SCRA 448 (1987)
Facts:
Consolidated Plywood Industries Inc. (CPII) is a corporation engaged in the logging
business. It had for its program of logging activities the opening of additional roads, and simultaneous
logging operations along the route of said roads. With this, it requires two more units of tractors to
attain its objective. Atlantic Gulf and Pacific Company of Manila’s sister company, Industrial
Products Marketing (IPM), offered to sell to CPII 2 "Used" Allis Crawler Tractors. IPM assured CPII
that the "Used" Allis Crawler Tractors which were offered are fit for the job, and gave the
corresponding warranty of 90 days performance of the machines and availability of parts. The
president and vice president of CPII, agreed to purchase on installment said 2 units of "Used" Allis
Crawler Tractors relying on IPM’s guarantee. They paid a down payment of 210,000.00. After
issuance of the sales invoice, the deed of sale with chattel mortgage with promissory note was
executed. Simultaneously with the execution of the deed of sale with chattel mortgage with
promissory note, IPM, by means of a deed of assignment, assigned its rights and interest in the chattel
mortgage in favor of IFC Leasing and Acceptance Corporation. Immediately thereafter, IPM
delivered said 2 units of "Used “tractors to CPII's jobsite as agreed upon. Eventually, one of the
tractors broke down, 9 days subsequent to the incident; the other tractor also broke down. IPM sent
mechanics to fix the tractors but was unable to do so as the units were not serviceable. Due to this, the
road building and simultaneous logging operations were delayed. The Vice President of CPII advised
IPM that the payments of the installments as listed in the promissory note would likewise be delayed
until IPM completely fulfills its obligation under its warranty. Since the tractors were no longer
serviceable, the President asked IPM to pull out the units and have them reconditioned, and thereafter
to offer them for sale. The proceeds were to be given to IFC Leasing and the excess, if any, to be
divided between IPM and CPII which offered to bear 1/2 of their conditioning cost. No response to
this letter was received by CPII and despite several follow-up calls; IPM did nothing with regard to
the request, until the complaint in the case was filed by IFC Leasing against CPII. The trial court
rendered judgment, ordering CPII, et al. to pay jointly and severally in their official and personal
capacities the principal sum of P1, 093,798.71 with accrued interest. CPII et al.'s motion for
reconsideration was denied by the Intermediate Appellate Court Hence, this case.
Issue:
Whether the promissory note in question is a negotiable instrument?
Held:
The pertinent portion of the note provides that ""FORVALUE RECEIVED, I/we jointly
and severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING, the sum of
ONEMILLION NINETY THREE THOUSAND SEVEN HUNDRED EIGHTYNINE PESOS &
71/100 only (P1,093,789.71), Philippine Currency, the said principal sum, to be payable in 24
monthly installments starting July 15, 1978 and every 15th of the month thereafter until fully paid."
Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a
promissory note "must be payable to order or bearer," it cannot be denied that the promissory note in
question is nota negotiable instrument. The instrument in order to be considered negotiable must
contain the so called "words of negotiability" ³ i.e., must be payable to "order" or "bearer."These
words serve as an expression of consent that the instrument may be transferred. This consent is
indispensable since a maker assumes greater risk under a negotiable instrument than under a non-
negotiable one. Without the words "or order" or "to the order of," the instrument is payable only to the
person designated therein and is therefore non-negotiable. Any subsequent purchaser thereof will not
enjoy the advantages of being a holder of a negotiable instrument, but will merely "step into the shoes
"of the person designated in the instrument and will thus be open to all defenses available against the
latter. Therefore, considering that the subject promissory note is not a negotiable instrument, it
follows that IFC Leasing can never be a holder in due course but remains a mere assignee of the note
in question. Thus, CPII may raise against IFC Leasing all defenses available to it as against IPM. This
being so, there was no need for CPII to implead IPM when it was sued by IFC Leasing because CPII's
defenses apply to both or either of them.
Caltex vs CA
Caltex (Philippines) Inc. vs. CA
GR 97753, 10 August 1992
-negotiability
FACTS:
Security Bank and Trust Co. issued 280 certificates of time deposit (CTD) in favor of one Mr. Angel
dela Cruz who deposited with the bank P1.12 million. Dela 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. When Caltex presented said CTDs for verification with the bank and formally
informed the bank of its decision to preterminate the same, the bank rejected Caltex’ claim and
demand as Caltex failed to furnish copies of certain requested documents. In 1983, dela Cruz’ loan
matured and the bank set-off and applied the time deposits as payment for the loan. Caltex filed a
complaint which was dismissed on the ground that the subject certificates of deposit are non-
negotiable.
ISSUE:
Whether the Certificates of Time Deposit (CTDs) are negotiable instruments.
RULING:
The CTDs in question are negotiable instruments as they meet the requirements of the law for
negotiability as provided for in Section 1 of the Negotiable Instruments Law. The documents provide
that the amounts deposited shall be repayable to the depositor. And according to the document, the
depositor is the "bearer." The documents do not say that the depositor is Angel de la Cruz and that the
amounts deposited are repayable specifically to him. Rather, the amounts are to be repayable to the
bearer of the documents or, for that matter, whosoever may be the bearer at the time of presentment.
However, petitioner cannot recover on the CTDs. Although the CTDs are bearer instruments, a valid
negotiation thereof for the true purpose and agreement between it and dela Cruz, as ultimately
ascertained, requires both delivery and indorsement. In this case, there was no indorsement as the
CTDs were delivered not as payment but only as a security for dela Cruz' fuel purchases.
**The accepted rule is that the negotiability or non-negotiability of an instrument is determined from
the writing, that is, from the face of the instrument itself. The CTDs in question are negotiable
instruments as they meet the requirements of the law for negotiability as provided for in Section 1 of
the Negotiable Instruments Law. The documents provide that the amounts deposited shall be
repayable to the depositor. And according to the document, the depositor is the "bearer." The
documents do not say that the depositor is Angel de la Cruz and that the amounts deposited are
repayable specifically to him. Rather, the amounts are to be repayable to the bearer of the documents
or, for that matter, whosoever may be the bearer at the time of presentment.