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Cases Digest in Negotiable Instruments Law

NEGOTIABILITY

(1) Philippine Education Co. vs. Soriano
GR L-22405, 30 June 1971
39 SCRA 587

FACTS:
Enrique Montinola sought to purchase from the Manila Post Office 10 money orders (P200 each), offering to pay
for them with a private check. Montinola was able to leave the building with his check and the 10 money orders
without the knowledge of the teller. Upon discovery, message was sent to all postmasters and banks involving
the unpaid money orders. One of the money orders was received by the Philippine Education Co. as part of its
sales receipt. It was deposited by the company with the Bank of America, which cleared it with the Bureau of
Post. The Postmaster, through the Chief of the Money Order Division of the Manila Post Office informed the
bank of the irregular issuance of the money order. The bank debited the account of the company. The company
moved for reconsideration.

ISSUE:
Whether postal money orders are negotiable instruments?

HELD:
Philippine postal statutes are patterned from those of the United States, and the weight of authority in said
country is that Postal money orders are not negotiable instruments inasmuch as the establishment of a postal
money order is an exercise of governmental power for the publics benefit. Furthermore, some of the
restrictions imposed upon money order by postal laws and regulations are inconsistent with the character of
negotiable instruments. For instance, postal money orders may be withheld under a variety of circumstances,
and which are restricted to not more than one indorsement.

(2) CALTEX (PHILIPPINES), INC. vs. CA
G.R. No. 97753, August 10, 1992
212 SCRA 448

FACTS:
Security bank issued Certificates of Time Deposits to Angel dela Cruz. The same were given by Dela Cruz to
petitioner in connection to his purchase of fuel products of the latter. On a later date, Dela Cruz approached the
bank manager, communicated the loss of the certificates and requested for a reissuance.
Upon compliance with some formal requirements, he was issued replacements. Thereafter, he secured a loan
from the bank where he assigned the certificates as security. Here comes the petitioner, averred that the
certificates were not actually lost but were given as security for payment for fuel purchases. The bank
demanded some proof of the agreement but the petitioner failed to comply. The loan matured and the time
deposits were terminated and then applied to the payment of the loan.
Petitioner demands the payment of the certificates but to no avail.

ISSUE:
Whether or not the certificates of time deposits (CTDs) are negotiable instruments?

HELD:
The Court held that the CTDs are negotiable instruments. The CTDs in question undoubtedly meet the
requirements of the law for negotiability. The Negotiable Instruments Law provides, an instrument to be
negotiable must conform to certain requirements, hence, (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
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the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable
certainty.

The documents provide that the amounts deposited shall be repayable to the depositor. And who, according to
the document, is the depositor? It 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.

If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could have
with facility so expressed that fact in clear and categorical terms in the documents, instead of having the word
"BEARER" stamped on the space provided for the name of the depositor in each CTD. On the wordings of the
documents, therefore, the amounts deposited are repayable to whoever may be the bearer thereof.
Thus, petitioner's aforesaid witness merely declared that Angel de la Cruz is the depositor "insofar as the bank
is concerned," but obviously other parties not privy to the transaction between them would not be in a
position to know that the depositor is not the bearer stated in the CTDs. Hence, the situation would require
any party dealing with the CTDs to go behind the plain import of what is written thereon to unravel the
agreement of the parties thereto through facts aliunde. This need for resort to extrinsic evidence is what
is sought to be avoided by the Negotiable Instruments Law and calls for the application of the
elementary rule that the interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity.

(3) Metropolitan Bank & Trust Company vs. Court of Appeals
G.R. No. 88866, February, 18, 1991
194 SCRA 169

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:
Whether or not treasury warrants are negotiable instruments?

HELD:
The Court held in the negative. 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 2
nd
, 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.

(4) Sesbreno vs. CA
GR 89252, 24 May 1993
222 SCRA 446
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FACTS:
On 9 February 1981, Raul Sesbreno made a money market placement in the amount of P300,000 with the
Philippine Underwriters Finance Corporation (PhilFinance), with a term of 32 days. PhilFinance issued to
Sesbreno the Certificate of Confirmation of Sale of a Delta Motor Corporation Promissory Note (2731), the
Certificate of Securities Delivery Receipt indicating the sale of the note with notation that said security was in the
custody of Pilipinas Bank, and postdated checks drawn against the Insular Bank of Asia and America for
P304,533.33 payable on 13 March 1981. The checks were dishonored for having been drawn against insufficient
funds. Pilipinas Bank never released the note, nor any instrument related thereto, to Sesbreno; but Sesbreno
learned that the security was issued 10 April 1980, maturing on 6 April 1981, has a face value of P2,300,833.33
with PhilFinance as payee and Delta Motors as maker; and was stamped non-negotiable on its face. As
Sesbreno was unable to collect his investment and interest thereon, he filed an action for damages against Delta
Motors and Pilipinas Bank.

ISSUE:
Whether non-negotiability of a promissory note prevents its assignment?

HELD:
Only an instrument qualifying as a negotiable instrument under the relevant statute may be negotiated either by
indorsement thereof coupled with delivery, or by delivery alone if it is in bearer form. A negotiable instrument,
instead of being negotiated, may also be assigned or transferred. The legal consequences of negotiation and
assignment of the instrument are different. A negotiable instrument may not be negotiated but may be assigned
or transferred, absent an express prohibition against assignment or transfer written in the face of the
instrument. Wherein, there was no prohibition stipulated.

(5) Firestone Tire and Rubber Co. vs CA
G.R. No. 113236. March 5, 2001
353 SCRA 601

FACTS:
Fojas-Arca Enterprises Company maintained a special account with respondent Luzon Development Bank which
authorized and allowed the former to withdraw funds from its account through the medium of special
withdrawal slips. Fojas-Arca purchased on credit products from Firestone with a total amount of
P4,896,000.00. In payment of these purchases, Fojas-Arca delivered to plaintiff six special withdrawal slips
drawn upon the respondent bank. In turn, these were deposited by the plaintiff with its current account with
the Citibank. All of them were honored and paid by the defendant. However, in a subsequent transaction
involving the payment of withdrawal slips by Fojas-Arca for purchases on credit from petitioner, two withdrawal
slips for the total sum of P2,078,092.80 were dishonored and not paid by respondent bank for the reason "NO
ARRANGEMENT".

ISSUE:
Whether or not the acceptance and payment of the special withdrawal slips gives the impression that it is a
negotiable instrument like a check?

HELD:
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. As the
withdrawal slips in question were non-negotiable, the rules governing the giving of immediate notice of
dishonor of negotiable instruments do not apply. The 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. 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.