ASTRO ELECTRONICS V. PHIL. EXPORT GUARANTEE | 23 SEPTEMBER 2003 | J.

would imply that he is undertaking the obligation in two different capacities, official
AUSTRIA-MARTINEZ
Astro Electronics Corporation (Astro) was granted several loans by the Philippine
Trust Company (Philtrust) amounting to P3,000,000.00 with interest and secured by
three promissory notes: PN PFX-254 dated 14 December 1981 for P600,000.00, PN
PFX-258 also dated 14 December 1981 for P400,000.00 and PN 15477 dated 27
August 1981 for P2,000,000.00. In each of these promissory notes, it appears that
Peter Roxas signed twice, as President of Astro and in his personal capacity. Roxas
also signed a Continuing Suretyship Agreement in favor of Philtrust Bank, as
President of Astro and as surety. Thereafter, Philippine Export and Foreign Loan
Guarantee Corporation (Philguarantee), with the consent of Astro, guaranteed in
favor of Philtrust the payment of 70% of Astro's loan, subject to the condition that
upon payment by Philguarantee of said amount, it shall be proportionally subrogated
to the rights of Philtrust against Astro. As a result of Astro's failure to pay its loan
obligations, despite demands, Philguarantee paid 70% of the guaranteed loan to
Philtrust. Subsequently, Philguarantee filed against Astro and Roxas a complaint for
sum of money with the RTC of Makati. In his Answer, Roxas disclaims any liability on
the instruments, alleging, inter alia, that he merely signed the same in blank and the
phrases "in his personal capacity" and "in his official capacity" were fraudulently
inserted without his knowledge. After trial, the RTC rendered its decision in favor of
Philguarantee, ordering Astro and Roxas to solidarily pay Philguarantee the sum of
P3,621,187.52 representing the total obligation of Astro and Roxas in favor of
Philguarantee as of 31 December 1984 with interest at the stipulated rate of 16%
per annum and stipulated penalty charges of 16% per annum computed from 1
January 1985 until the amount is fully paid. On appeal, the Court of Appeals affirmed
the RTC decision agreeing with the trial court that Roxas failed to explain
satisfactorily why he had to sign twice in the contract and therefore the presumption
that private transactions have been fair and regular must be sustained. Astro and
Roxas filed the petition for review on certiorari
and personal. Further, the three promissory notes uniformly provide: "FOR VALUE
RECEIVED, I/We jointly, severally and solidarily, promise to pay to PHILTRUST BANK
or order."
An instrument which begins with "I", "We", or "Either of us" promise to pay, when
signed by two or more persons, makes them solidarily liable. Also, the phrase "joint
and several" binds the makers jointly and individually to the payee so that all may be
sued together for its enforcement, or the creditor may select one or more as the
object of the suit. Having signed under such terms, Roxas assumed the solidary
liability of a debtor and Philtrust Bank may choose to enforce the notes against him
alone or jointly with Astro.
Furthermore, Roxas is the President of Astro and reasonably, a businessman who is
presumed to take ordinary care of his concerns. Absent any countervailing evidence,
it cannot be gainsaid that he will not sign a document without first informing himself
of its contents and consequences. Clearly, he knew the nature of the transactions
and documents involved as he not only executed these notes on two different dates
but he also executed, and again, signed twice, a "Continuing Suretyship Agreement"
notarized on 31 July 1981. Such continuing suretyship agreement even re-enforced
his solidary liability to Philtrust because as a surety, he bound himself jointly and
severally with Astro's obligation. Roxas cannot now avoid liability by hiding under the
convenient excuse that he merely signed the notes in blank and the phrases "in his
personal capacity" and "in his official capacity" were fraudulently inserted without
his knowledge.

W/N Roxas should be jointly and severally liable (solidary) with Astro for the sum
awarded by the RTC. YES

Astro's loan with Philtrust Bank is secured by three promissory notes. These
promissory notes are valid and binding against Astro and Roxas. As it appears on the
notes, Roxas signed twice: first, as president of Astro and second, in his personal
capacity. In signing his name aside from being the President of Astro, Roxas became
a co-maker of the promissory notes and cannot escape any liability arising from it.
Under the Negotiable Instruments Law, persons who write their names on the face
of promissory notes are makers, promising that they will pay to the order of the
payee or any holder according to its tenor. Thus, even without the phrase "personal
capacity," Roxas will still be primarily liable as a joint and several debtor under the
notes considering that his intention to be liable as such is manifested by the fact that
he affixed his signature on each of the promissory notes twice which necessarily
FIRESTONE TIRE & RUBBER COMPANY V. CA AND LUZON DEVELOPMENT BANK |
March 5, 2001 | J QUISUMBING
 Firestone filed a complaint for damages. RTC dismissed the case, CA affirmed RTC
decision. Firestone filed petition before SC
 Luzon Development Bank (defendant) is a banking corporation. Fojas- Arca
Enterprises Company is one of its client-depositors, which maintains a special
savings account with defendant. The defendant authorized and allowed
withdrawals of funds therefrom through special withdrawal slips supplied by Fojas-
Arca
 Fojas-Arca purchased tires from Firestone with special withdrawal slips drawn
upon Fojas-Arca's special savings account with respondent bank(LDB) for payment.
Petitioner in turn deposited these withdrawal slips with Citibank. The latter
credited the same to petitioner's current account, then presented the slips for
payment to respondent bank. All of them were honored and paid by the
defendant. This one circumstance made plaintiff believe that the succeeding
withdrawal slips drawn upon defendant would be also sufficiently funded, and
plaintiff extended to Fojas-Arca other purchases on credit of its products.
 For the succeeding transactions, Firestone was given 4 withdrawal slips for
payment, but only two (2) of the slips was honoured. Firestone was not informed
of such fact right away. Because some of the slips was honoured, Firestone was
induced to believe that Fojas-Arca’s account was sufficiently funded and so it
extended some more credit
 However, Citibank later informed Firestone that the other special withdrawal slips
were refused payment by respondent bank due to insufficiency of Fojas-Arca's
funds on deposit. That information came about six months from the time Fojas-
Arca purchased tires from petitioner using the subject withdrawal slips. Citibank
then debited the amount of these withdrawal slips from petitioner's account,
causing the alleged pecuniary damage subject of petitioner's cause of action
 Petitioner demanded payment for damages from LDB, the latter refused to make
payment
 Petitioner alleged that the bank (LDB) is guilty of tortious acts for giving the special
withdrawal slips the general appearance of checks; and for the failure of
respondent bank to seasonably warn petitioner that it would not honor the other
special withdrawal slips.
 The appellate court found that the special withdrawal slips in question were not
purposely given the appearance of checks, contrary to petitioner's assertions, and
thus should not have been mistaken for checks.
 The appellate court ruled that the respondent bank was under no obligation to
inform petitioner of the dishonor of the special withdrawal slips, for to do so
would have been a violation of the law on the secrecy of bank deposits
W/N respondent bank should be held liable for damages suffered by petitioner, due to
its allegedly belated notice of non-payment of the subject withdrawal slips
 At the outset, we note that petitioner admits that the withdrawal slip sin question
were non-negotiable. Hence, the rules governing the giving of immediate notice of
dishonor of negotiable instruments do not apply in this case. Petitioner itself
concedes this point. Thus, respondent bank was under no obligation to give
immediate notice that it would not make payment on the subject withdrawal slips.
Citibank should have known that withdrawal slips were not negotiable
instruments. It could not expect these slips to be treated as checks by other
entities. Payment or notice of dishonor from respondent bank could not be
expected immediately, in contrast to the situation involving checks.
 In the case at bar, it appears that Citibank, with the knowledge that respondent
Luzon Development Bank, had honored and paid the previous withdrawal slips,
automatically credited petitioner's current account with the amount of the subject
withdrawal slips, then merely waited for the same to be honored and paid by
respondent bank. It presumed that the withdrawal slips were "good.”
 It bears stressing that Citibank could not have missed the non-negotiable nature of
the withdrawal slips. The essence of negotiability which characterizes a negotiable
paper as a credit instrument lies in its freedom to circulate freely as a substitute
for money. The withdrawal slips in question lacked this character.
 A bank is under obligation to treat the accounts of its depositors with meticulous
care, whether such account consists only of a few hundred pesos or of millions of
pesos. The fact that the other withdrawal slips were honored and paid by
respondent bank was no license for Citibank to presume that subsequent slips
would be honored and paid immediately. By doing so, it failed in its fiduciary duty
to treat the accounts of its clients with the highest degree of care.
 In the ordinary and usual course of banking operations, current account deposits
are accepted by the bank on the basis of deposit slips prepared and signed by the
depositor, or the latter's agent or representative, who indicates therein the
current account number to which the deposit is to be credited, the name of the
depositor or current account holder, the date of the deposit, and the amount of
the deposit either in cash or in check
 The withdrawal slips deposited with petitioner's current account with Citibank
were not checks, as petitioner admits. Citibank was not bound to accept the
withdrawal slips as a valid mode of deposit. But having erroneously accepted them
as such, Citibank — and petitioner as account-holder — must bear the risks
attendant to the acceptance of these instruments. Petitioner and Citibank could
not now shift the risk and hold private respondent liable for their admitted
mistake
METROBANK V. CA | 18 February 1991 | J. CRUZ
The Metropolitan Bank and Trust Co. (MetroBank) is a commercial bank with
branches throughout the Philippines and even abroad. Golden Savings and Loan
Association was, at the time these events happened, operating in Calapan, Mindoro,
with Lucia Castillo, Magno Castillo and Gloria Castillo as its principal officers. In
January 1979, a certain Eduardo Gomez opened an account with Golden Savings and
deposited over a period of 2 months 38 treasury warrants with a total value of
P1,755,228.37. They were all drawn by the Philippine Fish Marketing Authority and
purportedly signed by its General Manager and counter-signed by its Auditor. 6 of
these were directly payable to Gomez while the others appeared to have been
indorsed by their respective payees, followed by Gomez as second indorser. On
various dates between June 25 and July 16, 1979, all these warrants were
subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited
to its Savings Account 2498 in the Metrobank branch in Calapan, Mindoro. They
were then sent for clearing by the branch office to the principal office of Metrobank,
which forwarded them to the Bureau of Treasury for special clearing. More than 2
weeks after the deposits, Gloria Castillo went to the Calapan branch several times to
ask whether the warrants had been cleared. She was told to wait. Accordingly,
Gomez was meanwhile not allowed to withdraw from his account. Later, however,
"exasperated" over Gloria's repeated inquiries and also as an accommodation for a
"valued client," MetroBank says it finally decided to allow Golden Savings to
withdraw from the proceeds of the warrants. The first withdrawal was made on 9
July 1979, in the amount of P508,000.00, the second on 13 July 1979, in the amount
of P310,000.00, and the third on 16 July 1979, in the amount of P150,000.00. The
total withdrawal was P968,000.00. In turn, Golden Savings subsequently allowed
Gomez to make withdrawals from his own account, eventually collecting the total
amount of P1,167,500.00 from the proceeds of the apparently cleared warrants. The
last withdrawal was made on 16 July 1979. On 21 July 1979, Metrobank informed
Golden Savings that 32 of the warrants had been dishonored by the Bureau of
Treasury on 19 July 1979, 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 in the Regional Trial Court of Mindoro. After
trial, judgment was rendered in favor of Golden Savings, which, however, filed a
motion for reconsideration even as Metrobank filed its notice of appeal. On 4
November 1986, the lower court modified its decision, by dismissing the complaint
with costs against Metrobank; by issolving and lifting the writ of attachment of the
properties of Golden Savings and Spouses Magno Castillo and Lucia Castillo; directing
Metrobank to reverse its action of debiting Savings Account 2498 of the sum of
P1,754,089.00 and to reinstate and credit to such account such amount existing
before the debit was made including the amount of P812,033.37 in favor of Golden
Savings and thereafter, to allow Golden Savings to withdraw the amount outstanding
thereon before the debit; by ordering Metrobank to pay Golden Savings attorney's
fees and expenses of litigation in the amount of P200,000.00; and by ordering
Metrobank to pay the Spouses Magno Castillo and Lucia Castillo attorney's fees and
expenses of litigation in the amount of P100,000.00. On appeal to the appellate
court, the decision was affirmed, prompting Metrobank to file the petition for
review.
W/N the treasury warrants in question are negotiable instruments.
Clearly stamped on the treasury warrants' face is the word "non-negotiable."
Moreover, and this is of equal significance, it is indicated that they are payable from
a particular fund, to wit, Fund 501. Section 1 of the Negotiable Instruments Law,
provides that "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." Section 3 (When promise is unconditional) thereof provides that "An
unqualified order or promise to pay is unconditional within the meaning of this Act
though coupled with — (a) 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 (b) A statement of the transaction which gives rise to the instrument. But an order
or promise to pay out of a 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 unconditional" and the warrants themselves non-
negotiable. There should be no question that the exception on Section 3 of the
Negotiable Instruments Law is applicable in the present case. 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
Section 66 of the Negotiable Instruments Law. The simple reason is that this law is
not applicable to the non-negotiable treasury warrants. The indorsement was made
by Gloria Castillo not for the purpose of guaranteeing the genuineness of the
warrants but merely to deposit them with Metrobank for clearing. It was in fact
Metrobank that made the guarantee when it stamped on the back of the warrants:
"All prior indorsement and/or lack of endorsements guaranteed, Metropolitan Bank
& Trust Co., Calapan Branch."
HKSBC V. CIR | June 4, 2014 | J. LEONARDO-DE CASTRO
Petitions for review on certiorari assailing the Decision and Resolution of the CA. The respective
Decisions in the said cases similarly reversed and set aside the decisions of the CTA and
dismissed the petition of Petitioner HSBC.
 HSBC performs custodial services on behalf of its investor-clients with respect to their passive
investments in the Philippines, particularly investments in shares of stocks in domestic
corporations. As a custodian bank, HSBC serves as the collection/payment agent.
 HSBC’s investor-clients maintain Philippine peso and/or foreign currency accounts, which are
managed by HSBC through instructions given through electronic messages. The said
instructions are standard forms known in the banking industry as SWIFT, or "Society for
Worldwide Interbank Financial Telecommunication." In purchasing shares of stock and other
investment in securities, the investor-clients would send electronic messages from abroad
instructing HSBC to debit their local or foreign currency accounts and to pay the purchase
price therefor upon receipt of the securities.
 Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid
Documentary Stamp Tax (DST) from September to December 1997 and also from January to
December 1998 amounting to P19,572,992.10 and P32,904,437.30, respectively.
 BIR, thru its then Commissioner, issued BIR Ruling to the effect that instructions or advises
from abroad on the management of funds located in the Philippines which do not involve
transfer of funds from abroad are not subject to DST. A documentary stamp tax shall be
imposed on any bill of exchange or order for payment purporting to be drawn in a foreign
country but payable in the Philippines.
o While the payor is residing outside the Philippines, he maintains a local and foreign currency
account in the Philippines from where he will draw the money intended to pay a named
recipient. The instruction or order to pay shall be made through an electronic message.
Consequently, there is no negotiable instrument to be made, signed or issued by the payee.
o Such electronic instructions by the non-resident payor cannot be considered as a
transaction per se considering that the same do not involve any transfer of funds from
abroad or from the place where the instruction originates. Insofar as the local bank is
concerned, such instruction could be considered only as a memorandum and shall be
entered as such in its books of accounts. The actual debiting of the payor’s account, local
or foreign currency account in the Philippines, is the actual transaction that should be
properly entered as such. Under the Documentary Stamp Tax Law, the mere withdrawal of
money from a bank deposit, local or foreign currency account, is not subject to DST, unless
the account so maintained is a current or checking account, in which case, the issuance of
the check or bank drafts is subject to the documentary stamp tax.
o Likewise, the receipt of funds from another bank in the Philippines for deposit to the
payee’s account and thereafter upon instruction of the non-resident depositor-payor,
through an electronic message, the depository bank to debit his account and pay a named
recipient shall not be subject to documentary stamp tax. It should be noted that the receipt
of funds from another local bank in the Philippines by a local depository bank for the
account of its client residing abroad is part of its regular banking transaction which is not
subject to documentary stamp tax.
 With the above BIR Ruling as its basis, HSBC filed on an administrative claim for the refund of
allegedly representing erroneously paid DST to the BIR
 As its claims for refund were not acted upon by the BIR, HSBC subsequently brought the
matter to the CTA, which favored HSBC and ordered payment of refund or issuance of tax
credit.
 However, the CA reversed decisions of the CTA and ruled that the electronic messages of
HSBC’s investor-clients are subject to DST.
o DST is levied on the exercise by persons of certain privileges conferred by law for the
creation, revision, or termination of specific legal relationships through the execution of
specific instruments, independently of the legal status of the transactions giving rise
thereto.
W/N electronic messages are considered transactions pertaining to negotiable instruments that
warrant the payment of DST. NO
The Court agrees with the CTA that the DST under Section 181 of the Tax Code is levied on the
acceptance or payment of "a bill of exchange purporting to be drawn in a foreign country but
payable in the Philippines" and that "a bill of exchange is an unconditional order in writing
addressed by one person to another, signed by the person giving it, requiring the person to
whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain
in money to order or to bearer."
The Court further agrees with the CTA that the electronic messages of HSBC’s investor-clients
containing instructions to debit their respective local or foreign currency accounts in the
Philippines and pay a certain named recipient also residing in the Philippines is not the
transaction contemplated under Section 181 of the Tax Code as such instructions are "parallel
to an automatic bank transfer of local funds from a savings account to a checking account
maintained by a depositor in one bank." The Court favorably adopts the finding of the CTA that
the electronic messages "cannot be considered negotiable instruments as they lack the feature
of negotiability, which, is the ability to be transferred" and that the said electronic messages are
"mere memoranda" of the transaction consisting of the "actual debiting of the [investor-client-
payor’s] local or foreign currency account in the Philippines" and "entered as such in the books
of account of the local bank," HSBC.
The instructions given through electronic messages that are subjected to DST in these cases are
not negotiable instruments as they do not comply with the requisites of negotiability under
Section 1 of the Negotiable Instruments Law. The electronic messages are not signed by the
investor-clients as supposed drawers of a bill of exchange; they do not contain an unconditional
order to pay a sum certain in money as the payment is supposed to come from a specific fund
or account of the investor-clients; and, they are not payable to order or bearer but to a
specifically designated third party. Thus, the electronic messages are not bills of exchange. As
there was no bill of exchange or order for the payment drawn abroad and made payable here
in the Philippines, there could have been no acceptance or payment that will trigger the
imposition of the DST under Section 181 of the Tax Code.
In these cases, the electronic messages received by HSBC from its investor-clients abroad
instructing the former to debit the latter's local and foreign currency accounts and to pay the
purchase price of shares of stock or investment in securities do not properly qualify as either
presentment for acceptance or presentment for payment. There being neither presentment for
acceptance nor presentment for payment, then there was no acceptance or payment that could
have been subjected to DST to speak of.
GRANTED
POWELL & POWELL V. GREENLEAF & CURRIER | o The promise to pay is not subject to the extrinsic agreement or according to
such agreement, but it is absolute and conditional
 Suit to recover balance on two instruments in writing dated, July 6, 1992 and June o The first reference is a recital of the consideration
7, 1923. o Neither is the second reference such as to burden the instruments before us
 Promise to pay Arthur A. Bishop the sum of 150 dollars in 12 equal monthly with the terms of the extrinsic agreement. It is a mere acknowledgement of
payments of $12.50 each receipt of the copy of the agreement, and does not affect negotiability.
 PNs contained 2 references to extrinsic agreements: (1) “for and in consideration  Other arguments:
of a contract and agreement entered into this day” and (2) “we hereby o defendant says that the instruments are bilateral contracts rather than
acknowledge the receipt of a true copy of this entire agreement.” promissory notes and calls attention to certain provisions of the extrinsic
W/N these instruments are negotiable, so that plaintiffs can maintain this suit in their agreements since the instruments are not subject to such agreements, the
own names. terms thereof are immaterial
o defendants claim that the instruments are not negotiable because they provide
 An instrument to be negotiable must contain, among other things, an that the first payment is to be made upon the signing of the instruments -
unconditional promise or order to pay a sum certain in money. instrument to be negotiable must be payable on demand or at a fixed or
 An unqualified order or promise to pay is unconditional within the meaning of the determinable future time. First payment was payable at a determinable future
statute “though coupled with a statement of the transaction which gives rise to time — signing of the instrument.
the instrument.” o defendants say that the instruments are not negotiable because the
 Whether they are negotiable must be determined from the language of the consideration for them was an executory contract or promise on the part of the
instruments themselves, unaided by an inspection of the extrinsic agreements to payee. - NO, claim already disposed of.
which they refer.  JUDGEMENT REVERSED
 GR: whenever a bill of exchange or promissory note contains a reference to some
extrinsic in such a way as to make it subject to the terms of that contract, as
distinguished from a reference importing merely that the extrinsic agreement was
the origin of the transaction, or constitutes the consideration of the bill or note,
the negotiability of the paper is destroyed.
 But it is equally well settled that the negotiability of a bill or note is not affected by
a reference which is simply a
o (1) recital of the consideration for which the paper was given, or
o (2) statement of the origin of the transaction, or by a statement that it is given in
accordance with the terms of a contract of even date between the same parties.
 In short, to destroy negotiability, the reference to collateral contract must show
that the obligation to pay is burdened with the conditions of that contract.
 Negotiability destroyed is payment is subject to some condition referred to but “as
per terms of contract” following the words value received, were held no two
affect. It is not destroyed by a statement that a note was part of a contract of a
certain date.
 The instrument before us contain two references to the extrinsic agreements: (1)
For and in consideration of a contract and agreement entered into this day with us
by Arthur… whereby we are entitled to use of said company’s system of collection
and we hereby for value received…” and (2) “we hereby acknowledge the receipt
of a true copy of this entire agreement”
 It is not apparent how the negotiability of these instruments is affected by either
of those references.
RFC V. CA | May 14, 1954 | J. CONCEPCION
 Jesus de Anduiza & Quinatana Cano borrowed money from the Agricultural and
Industrial Bank (now RFC), as evidenced by a promissory note dated October 31,
1941. In said note, they promised to pay the AIB, or order, on or before October
31, 1951, the sum of P13,800.00, with interest at the rate of 6% p.a.. Said note
also recited that payments were to be made in ten equal annual installments in
accordance with the given schedule of amortizations.
 Mortgagors Anduiza and Cano failed to pay the yearly amortizations that fell due
on October 31, 1942 and 1943. Learning of this, Estelito Madrid (who temporarily
lived in the house of Anduiza) offered to pay and actually paid on October 30,
1944 the full amount of said indebtedness to AIB/RFC.
 July 30, 1948: Madrid instituted the present action asking the court to
o declare as paid the P16,425.17 Anduiza owed the AIB/RFC;
o order AIB/RFC to cancel the mortgage and release the properties;
o condemn Anduiza to pay Madrid the P16,425.17 with legal interest, etc.
 In answer, AIB/RFC prayed that the complaint be dismissed. The bank argued that
in as much as Madrid’s payment was unauthorized by Anduiza, Madrid’s deposit in
the sum of P16,425.17 was null and void in accordance with EO No. 49, series of
1945. Anduiza, on the other hand, alleged that when Madrid paid his debt, the
same was not yet due and demandable; hence, he may not be compelled to pay
the latter.
 RTC dismissed the complaint. On appeal, the CA reversed and directed AIB/RFC to
cancel the mortgage and Anduiza to pay Madrid the P16,425.17. Hence this appeal
by certiorari.
 AIB/RFC’s Arguments: that payments by Madrid were made against the express
will of Anduiza and over the objection of the Bank, hence not valid; that the
obligation in question was not fully due and demandable at the time of the
payments
WON the debtors were entitled to pay the obligation prior to Oct. 15, 1951. YES
 At the outset, it should be noted that the makers of the promissory note quoted
above promised to pay the obligation evidenced thereby "on or before October
31, 1951." Although the full amount of said obligation was not demandable prior
to October 31, 1951, in view of the provision of the note relative to the payment
in ten (10) annual installments, it is clear, therefore, that the makers or debtors
were entitled to make a complete settlement of the obligation at any time before
said date.
WON payment by third person [Madrid] was valid. YES
 Madrid was entitled to pay the obligation of Anduiza irrespective of the latter's will
or that of the Bank, and even over the objection of either or both.
 Article 1158 of the Civil Code of Spain, which was in force in the Phils. at the time
of the payments under consideration and of the institution of the present case
provides: "Payment may be made by any person, whether he has an interest in the
performance of the obligation or not, and whether the payment is known and
approved by the debtor or whether he is unaware of it. One who makes a
payment for the account of another may recover from the debtor the amount of
the payment, unless it was made against his express will. In the latter case he can
recover from the debtor only in so far as the payment has been beneficial to him."
 The decision also cited comments from Manresa, Mucius Scaevola and Sanchez
Roman - all in Spanish! I will not attempt to translate them. They do not deal with
the NEGO topic under consideration.
 Payments in question were not made against the objection either of Anduiza or of
the Bank! Anduiza impliedly, but clearly, acquiesced in the validity of the payment
when he joined Madrid in appealing the decision of CFI Manila. Also, AIB/RFC
issued receipts acknowledging payment w/out qualification and demanded a
signed statement of Anduiza sanctioning said payments merely as a condition
precedent, not to its acceptance, which had already been made, but to the
execution of the deed of cancellation of the mortgage constituted in favor of said
institution
 This condition was null and void, for the creditor Bank had no other right than to
exact payment. After such payment, the obligation in question, as regards said
creditor, and the latter’s status and rights as such creditor, become automatically
extinguished. Hence: The good or bad faith of the payor is immaterial. The
exercise of a right, vested by law without any qualification, can hardly be legally
considered as tainted with bad faith.
 The Bank cannot invoke the provision that the payor "may only recover from the
debtor insolar as the payment has been beneficial to him," when made against his
express will. This is a defense that may be availed of by the debtor, not by the
Bank, for it affects solely the rights of the former.
Disposition: CA affirmed.
PUGET STATE BANK V. WASHINGTON PAVING

 Action by plaintiff (Puget) seeking recovery upon 2 promissory notes, executed by

def (Washington) each for $5,ooo payable to its own order, 90 days after date
thereafter transferred by it to the Olympia Bank Trust Company by endorsement
making them payable to its order and thereafter transferred by that delivery only,
without endorsement to the plaintiff.
 George Savage and D.I. Cornell were made defendants because they endorsed the
notes at the time they transferred by the Washington Paving Company to the
Olympia Bank and Trust Company.
 Judgment in lower court in favor of defendants, upon the ground that, while the
noted evidenced legal obligations of the defendants, they were entitled to set-off
against the amount due thereon to the plaintiff a greater amount which was
owing to the Washington Paving Company from the Olympia Bank upon a deposit
credit at the time of the transfer of the notes by that bank to the plaintiff.

Is the Puget Sound Bank wholly in the shoes of the Olympia Bank?

 If yes, the Puget cannot recover because the amount due it upon the notes is less
than the amount of the deposit credit of the paving company in the Olympia Bank.
 Are the notes negotiable in the sense that their transfer to Puget destroyed the
defense of set-off invoked by the paying company?

SC:

 The notes contain this provision “This note shall become due and payable on
demand at the option of the payee when it seems itself insecure.”
 These provisions, answer this question. We think the word “contingency” here
refers to contingency as to time.
 The above quoted provision gives the Olympia bank, the payee, the unrestricted
power to declare the notes due anytime before maturity, and the right to exercise
such power possessed by the payee is not dependent upon nor does it grow out of
any act, promise, or agreement of the paying company, the maker of the note.
 It is the contingency over which the maker of the notes has no control.
 These are not negotiable and are therefore subject to any defense the paying
company may have against them, which existed at the time of the transfer.

AFFIRMED
GARCIA V. LLAMAS | 8 DECEMBER 2003 | J. PANGANIBAN W/N a person, who signed the promissory note merely as an accommodation party,
was released as obligor when the maker agreed to extend the term of the obligation.
The case started out as a complaint for sum of money and damages by Dionisio
Llamas against Romeo Garcia and Eduardo de Jesus (Civil Case Q97-32-873), the The note in question is not a negotiable instrument. By its terms, the note was made
complaint alleged that on 23 December 1996, Garcia and de Jesus borrowed payable to a specific person rather than to bearer or to order — a requisite for
P400,000.00 from Llamas; that, on the same day, they executed a promissory note negotiability under Act 2031, the Negotiable Instruments Law (NIL). Hence, Garcia
wherein they bound themselves jointly and severally to pay the loan on or before 23 cannot avail himself of the NIL's provisions on the liabilities and defenses of an
January 1997 with a 5% interest per month; that the loan has long been overdue accommodation party. Besides, a non-negotiable note is merely a simple contract in
and, despite repeated demands, Garcia and de Jesus have failed and refused to pay writing and is evidence of such intangible rights as may have been created by the
it; and that, by reason of their unjustified refusal, Llamas was compelled to engage assent of the parties. The promissory note is thus covered by the general provisions
the services of counsel to whom he agreed to pay 25% of the sum to be recovered of the Civil Code, not by the NIL. Even granting arguendo that the NIL was applicable,
from Garcia and de Jesus, plus P2,000.00 for every appearance in court. Annexed to still, Garcia would be liable for the promissory note. Under Article 29 of Act 2031, an
the complaint were the promissory note and a demand letter, dated 2 May 1997, by accommodation party is liable for the instrument to a holder for value even if, at the
Llamas addressed to Garcia and de Jesus. Resisting the complaint, Garcia, in his time of its taking, the latter knew the former to be only an accommodation party.
answer, averred that he assumed no liability under the promissory note because he The relation between an accommodation party and the party accommodated is, in
signed it merely as an accommodation party for de Jesus; among others. During the effect, one of principal and surety — the accommodation party being the surety. It is
pre-trial conference, de Jesus and his lawyer did not appear, nor did they file any a settled rule that a surety is bound equally and absolutely with the principal and is
pre-trial brief. Neither did Garcia file a pre-trial brief, and his counsel even deemed an original promisor and debtor from the beginning. The liability is
manifested that he would no longer present evidence. Given this development, the immediate and direct.
trial court gave Llamas permission to present his evidence ex parte against de Jesus;
and, as regards Garcia, the trial court directed Llamas to file a motion for judgment
on the pleadings, and for Garcia to file his comment or opposition thereto. Instead,
Llamas filed a Motion to declare Garcia in default and to allow him to present his
evidence ex parte. Meanwhile, Garcia filed a Manifestation submitting his defense to
a judgment on the pleadings. Subsequently, Llamas filed a Manifestation/Motion to
submit the case for judgment on the pleadings, withdrawing in the process his
previous motion. Thereunder, he asserted that Garcia's and de Jesus' solidary liability
under the promissory note cannot be any clearer, and that the check issued by de
Jesus did not discharge the loan since the check bounced. On 7 July 1998, the
Regional Trial Court (RTC) of Quezon City (Branch 222) disposed of the case,
rendering the decision in favor of Llamas and ordering Garcia and De Jesus] to pay,
jointly and severally, Llamas the sums of P400,000.00 representing the principal
amount plus 5% interest thereon per month from 23 January 1997 until the same
shall have been fully paid, less the amount of P120,000.00 representing interests
already paid by de Jesus; P100,000.00 as attorney's fees plus appearance fee of
P2,000.00 for each day of court appearance, and; Cost of this suit. On appeal and on
26 November 2001, the Court of Appeals, insofar as it pertains to Garcia, affirmed
the decision of the trial court subject to the modification that the award for
attorney's fees and cost of suit was deleted. As to portion pertainng to de Jesus, the
Court set said portion aside and ordered the case against de Jesus remanded to the
court of origin for purposes of receiving ex parte Llamas' evidence against de Jesus.
On 26 June 2002, the appellate court denied Garcia's motion for reconsideration.
Garcia filed the petition for review.
PNB V. SPS RODRIGUEZ | SEPTEMBER 26, 2008 | J. REYES
DOCTRINE: PNB is liable to the spouses. The checks were payable to order and not to
bearer. Thus, indorsement by the named payees is required for it to be negotiated. A
check that is payable to a specified payee is an order instrument. However, under
Section 9(c) of the NIL, a check payable to a specified payee may nevertheless be
considered as a bearer instrument if it is payable to the order of a fictitious or non-
existing person, and such fact is known 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, are bearer instruments because the
named payees are fictitious and non-existent. The Court though did not have the
occasion yet to discuss a broader meaning of the term "fictitious" as used in the NIL.
Court rulings in the United States are a logical starting point since our law on
negotiable instruments was directly lifted from the Uniform Negotiable Instruments
Law of the United States. 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 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. However,
there is a commercial bad faith exception to the fictitious-payee rule. Commercial
bad faith is present if the transferee of the check acts dishonestly, and is a party to
the fraudulent scheme. In this case, because of a failure to show that the payees
were "fictitious" in its broader sense, the fictitious-payee rule does not apply. The
bank was not able to prove that Rodriguez spouses intended that the payees would
not receive the checks’ proceeds.
 Sps. Rodriguez were clients of PNB, Amelia Branch, Cebu City. They have an existing
saving and checking accounts with said bank. Sps. Rodriguez were engaged in
informal lending business. They had a discounting agreement with 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 PNB.
 PEMSLA regularly granted loans to its members. Sps. Rodriguez would rediscount
the postdated checks issued to members whenever the association was short of
funds. 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 PEMSLA checks issued for these loans were then given to the
spouses for rediscounting. The officers carried this out by forging the indorsement
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 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. It appears that this became
the usual practice for the parties.
 For almost 3 months, 69 checks were issued by the spouses amounting to P2,345,804.
These were payable to individual members of PEMSLA. PNB discovered this scheme.
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.
 Sps. Rodriguez filed a civil complaint for damages against PEMSLA, the Multi-
Purpose Cooperative of Philnabankers (MCP), and petitioner PNB. They sought to
recover the value of their checks that were deposited to the PEMSLA savings
account amounting to P2,345,804.00. The spouses contended that because PNB
credited the checks to the PEMSLA account even without indorsements, PNB violated
its contractual obligation to them as depositors. PNB paid the wrong payees, hence,
it should bear the loss.
 PNB filed a motion to dismiss on the ground of lack of cause of action because the
one who should have brought the action were the individual payees and not the
Sps. Rodriguez.
 RTC denied the MTD. PNB filed their answer claiming that the checks were payable
to bearer because the payees were “fictitious payees” as the drawer did not intend
for the named payees to receive the proceeds of the checks. Thus, the check can be
negotiated by mere delivery. They filed also cross-claim against PEMSLA and MCP.
 RTC ruled that the instrument is payable to order. Thus, indorsements were
required for negotiation and PNB was liable to return the value of the check to the
spouses. It dismissed the cross-claim filed by PNB.
 CA at first reversed RTC but later on reversed itself, ruling that the checks are
payable to order and thus PNB is liable for the return of the value to the spouses.
WON the checks are payable to order or to bearer. Specifically, whether the checks are
deemed payable to the order of a “fictitious person” making it an instrument payable
to bearer. Moreover, who bears the loss?
 The check is payable to order. Thus, indorsement is required for its negotiation.
 As a rule, when the payee is fictitious or not intended to be the true recipient of the
proceeds, the check is considered as a bearer instrument. A check is "a bill of
exchange drawn on a bank payable on demand.” It is either an order or a bearer
instrument (Refer to Sec. 8 and 9 of NIL).
 The distinction between bearer and order instruments lies in their manner of
negotiation. Under Section 30 of the NIL, an order instrument requires an
indorsement from the payee or holder before it may be validly negotiated. A bearer
instrument, on the other hand, does not require an indorsement to be validly
negotiated. It is negotiable by mere delivery (Sec. 30).
 A check that is payable to a specified payee is an order instrument. However, under
Section 9(c) of the NIL, a check payable to a specified payee may nevertheless be
considered as a bearer instrument if it is payable to the order of a fictitious or non-
existing person, and such fact is known 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, are bearer instruments because the
named payees are fictitious and non-existent.
 The Court though did not have the occasion yet to discuss a broader meaning of the
term "fictitious" as used in the NIL. Court rulings in the United States are a logical
starting point since our law on negotiable instruments was directly lifted from the
Uniform Negotiable Instruments Law of the United States.
 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 payee to in fact receive
the proceeds of the check. This usually occurs when the maker places a name of an
existing payee on the check for convenience or to cover up an illegal activity. Thus,
a check made expressly payable to a non-fictitious and existing person is not
necessarily an order instrument. If the payee is not the intended recipient of the
proceeds of 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 absolved from liability and the
drawer bears the loss. The underlying theory is that one cannot expect a fictitious
payee to negotiate the check by placing his indorsement thereon. And since the
maker knew this limitation, he must have intended for the instrument to be
negotiated by mere delivery. Thus, in case of controversy, the drawer of the check
will bear the loss. This rule is justified for otherwise, it will be most convenient for
the maker who desires to escape payment of the check to always deny the validity
of the indorsement (Mueller & Martin v. Liberty Insurance Bank; Getty Petroleum
Corp. v. American Express Travel Related Services Company, Inc.)
 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. Commercial bad faith is present if the transferee of the
check acts dishonestly, and is a party to the fraudulent scheme. Getty Petroleum
Corp. v. American Express Travel Related Services Company, Inc. also laid the
principle that the fictitious-payee rule extends protection even to non-bank
transferees of the checks.
 In this case, because of a failure to show that the payees were "fictitious" in its
broader sense, the fictitious-payee rule does not apply. Thus, the checks are to be
deemed payable to order. Consequently, the drawee bank bears the loss. For the
fictitious-payee rule to be available as a defense, PNB must show that the makers
did not intend for the named payees to be part of the transaction involving the
checks. At most, the bank's thesis shows that the payees did not have knowledge
of the existence of the checks. This 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. Considering that
respondents-spouses were transacting with PEMSLA and not the individual payees,
it is understandable that they relied on the information given by the officers of
PEMSLA that the payees would be receiving the checks.
 Verily, the subject checks are presumed order instruments. This is because, as
found by both lower courts, PNB failed to present sufficient evidence to defeat the
claim of respondents-spouses that the named payees were the intended recipients
of the checks' proceeds. The bank failed to satisfy a requisite condition of a
fictitious-payee situation - that the maker of the check intended for the payee to
have no interest in the transaction.
 PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its
teller or tellers accepted the 69 checks for deposit to the PEMSLA account even
without any indorsement from the named payees. It bears stressing that order
instruments can only be negotiated with a valid indorsement.
 A bank that regularly processes checks that are neither payable to the customer
nor duly indorsed by the payee is apparently grossly negligent in its operations.
This Court has recognized the unique public interest possessed by the banking
industry and the need for the people to have full trust and confidence in their
banks. For this reason, banks are minded to treat their customer's accounts with
utmost care, confidence, and honesty
appealed Amended Decision is AFFIRMED with the MODIFICATION
PEOPLE V. WAGAS

Gilbert Wagas ordered from Alberto Ligaray 200 bags of rice over the telephone. As
payment, Wagas issued a check in favor of Ligaray. When the check was deposited it
was dishonored due to insufficiency of funds. Ligaray notified Wagas and demanded
payment from the latter but Wagas refused and failed to pay the amount, Ligaray
filed a complaint for estafa before the RTC. RTC convicted Wagas of estafa because
the RTC believed that the prosecution had proved that it was Wagas who issued the
dishonored check, despite the fact that Ligaray had never met Wagas in person.
Hence, this direct appeal.

W/N Wagas is guilty beyond reasonable doubt. NO

The Supreme Court acquitted Wagas. The check delivered to Ligaray was made
payable to cash. Under the Negotiable Instruments Law, this type of check was
payable to the bearer and could be negotiated by mere delivery without the need of
an indorsement. This rendered it highly probable that Wagas had issued the check
not to Ligaray, but to somebody else like Cañada, his brother-in-law, who then
negotiated it to Ligaray.1wphi1 Relevantly, Ligaray confirmed that he did not himself
see or meet Wagas at the time of the transaction and thereafter, and expressly
stated that the person who signed for and received the stocks of rice was Cañada.

It bears stressing that the accused, to be guilty of estafa as charged, must have used
the check in order to defraud the complainant. What the law punishes is the fraud or
deceit, not the mere issuance of the worthless check. Wagas could not be held guilty
of estafa simply because he had issued the check used to defraud Ligaray. The proof
of guilt must still clearly show that it had been Wagas as the drawer who had
defrauded Ligaray by means of the check
CONTINENTAL ILLINOIS BANK & TRUST CO. V. CLEMENT | JUN 6, 1932 | J. NORTH
This is a suit on a promissory note signed by the defendant, Belle W. Clement, and
another, Byron C. Thorpe. The defense urged is that the note is the joint obligation
of the two makers, and that plaintiff cannot recover because one of them was not
made a party defendant. The jury's verdict was in favor of the plaintiff, but judgment
for defendant was entered non obstante. Plaintiff has appealed.
The note in part reads:
In the trial court counsel agreed that the case should be controlled by the law of the
forum rather than the law of Illinois, where the note was executed and made
payable. Appellant's brief now points out that counsel were in error in so stipulating,
but appellee insists that the stipulation should be held binding upon the parties in
this appeal, and that the law of Michigan should control. The same result will be
reached in either case. Section 68 of the Illinois negotiable instruments law provides:
"All parties jointly liable on a negotiable instrument are deemed to be jointly and
severally liable." Smith-Hurd Illinois Revised Statutes (1931), chap. 98, § 88.

"Chicago, Ill., February 9, 1931. Not only by statutory provision but by court decision it appears the rule in Illinois is
"Sixty days ..... after date, the undersigned, for value received, promises to pay to the that persons who sign a note joint in form are liable both jointly and severally.
order of Continental Illinois Bank Trust Company, at its office in Chicago, Ill., Twenty- Hochschild v. Goddard Tool Co., 233 Ill. App. 56; Harrison v. Thackaberry, 248 Ill. 512
four thousand dollars. * * * ( 94 N.E. 172).

"To secure the payment of this note * * * the undersigned has pledged, transferred
and delivered to said bank the following property, viz: (sundry securities) and further
to secure said note and liabilities the undersigned hereby pledges, assigns and
transfers any and all other property now or hereafter and howsoever in the
possession or control of the holder hereof. * * *
The judgment entered in the circuit court is set aside, and the case remanded with
direction to enter judgment upon and in accordance with the verdict of the jury.
Costs to appellant.

(Signed) "BYRON C. THORPE (Signed) "BELLE W. CLEMENT."

The negotiable instruments law of this State (2 Comp. Laws 1929, § 9266) provides:

"Where an instrument containing the words 'I promise to pay,' is signed by two or
more persons, they are deemed to be jointly and severally liable thereon."

"If an instrument worded in the singular is executed by several, the obligation is a

joint and several one." Dow Law Bank v. Godfrey, 126 Mich. 521 (86 Am. St. Rep.
559), citing numerous cases.

It is quite persuasive that each of the several verbs used in this note is in form to
agree with a subject in the singular, not in the plural. Conforming to this
construction, the note, if stated in such words as would eliminate the seeming
ambiguity, would read: Each (not both) of the undersigned promises to pay, etc. A
note so drawn would clearly fall within the above-quoted portion of the negotiable
instruments law and the decisions cited. We think it follows that the note in suit is
the joint and several obligation of the makers.