Philippine Airlines vs.

Court of Appeals [GR

49188, 30 January 1990]
En Banc, Gutierrez Jr. (J): 7 concur, 3 dissent in
separate opinions where 4 joined
Facts: On 8 November 1967, Amelia Tan, under the
name and style of Able Printing Press commenced a
complaint for damages before the Court of First
Instance (CFI) of Manila (Civil Case 71307). After
trial, the CFI of Manila, Branch 13, then presided
over by the late Judge Jesus P. Morfe rendered
judgment on 29 June 1972, in favor of Tan, ordering
Philippine Airlines, Inc. (PAL) to pay Tan the amount
of P75,000.00 as actual damages, with legal interest
thereon from Tan's extra-judicial demand made by
the letter of 20 July 1967; P18,200.00, representing
the unrealized profit of 10% included in the contract
price of P200,000.00 plus legal interest thereon from
20 July 1967; P20,000.00 as and for moral
damages, with legal interest thereon from 20 July
1967; P5,000.00 damages as and for attorney's fee;
with costs against PAL. On 28 July 1972, PAL filed
its appeal with the Court of Appeals (CA-GR 51079R). On 3 February 1977, the appellate court
rendered its decision, affirming but modifying the
CFI's decision, ordering PAL to pay the sum of
P25,000.00 as damages
and P5,000.00 as attorney's fee. Notice of judgment
was sent by the Court of Appeals to the trial court
and on dates subsequent thereto, a motion for
reconsideration was filed by Tan, duly opposed by
PAL. On 23 May 1977, the Court of Appeals
rendered its resolution denying Tan's motion for
reconsideration for lack of merit.
No further appeal having been taken by the parties,
the judgment became final and executory and on 31
May 1977, judgment was correspondingly entered in
the case.
The case was remanded to the trial court for
execution and on 2 September 1977, Tan filed a

motion praying for the issuance of a writ of execution

of the judgment rendered by the Court of Appeals.
On 11 October 1977, the trial court, presided over by
Judge Ricardo D. Galano, issued its order of
execution with the corresponding writ in favor of Tan.
The writ was duly referred to Deputy Sheriff Emilio Z.
Reyes of Branch 13 of the Court of First Instance of
Manila for enforcement. 4 months later, on 11
February 1978, Tan moved for the issuance of an
alias writ of execution stating that the judgment
rendered by the lower court, and affirmed with
modification by the Court of Appeals, remained
unsatisfied. On 1 March 1978, PAL filed an
opposition to the motion for the issuance of an alias
writ of execution stating that it had already fully paid
its obligation to Tan through the deputy sheriff of the
court, Reyes, as evidenced by cash vouchers
properly signed and receipted by said Emilio Z.
Reyes. On 3 March 1978, the Court of Appeals
denied the issuance of the alias writ for being
premature, ordering the executing sheriff Reyes to
appear with his return and explain the reason for his
failure to surrender the amounts paid to him by PAL.
However, the order could not be served upon
Deputy Sheriff Reyes who had absconded or
disappeared. On 28 March 1978, motion for the
issuance of a partial alias writ of execution was filed
by Tan. On 19 April 1978, Tan filed a motion to
withdraw "Motion for Partial Alias Writ of Execution"
with Substitute Motion for Alias Writ of Execution. On
1 May 1978, the Judge issued an order granting the
motion, and issuing the alias writ of execution. On 18
May 1978, PAL received a copy of the first alias writ
of execution issued on the same day directing
Special Sheriff Jaime K. del Rosario to levy on
execution in the sum of P25,000.00 with legal
interest thereon from 20 July 1967 when Tan made
an extrajudicial demand through a letter. Levy was
also ordered for the further sum of P5,000.00
awarded as attorney's fees. On 23 May 1978, PAL

filed an urgent motion to quash the alias writ of

execution stating that no return of the writ had as yet
been made by Deputy Sheriff Reyes and that the
judgment debt had already been fully satisfied by
PAL as evidenced by the cash vouchers signed and
receipted by the server of the writ of execution,
Deputy Sheriff Reyes. On 26 May 1978, Special
Sheriff del Rosario served a notice of garnishment
on the depository bank of PAL, Far East Bank and
Trust Company, Rosario Branch, Binondo, Manila,
through its manager and garnished PAL's deposit in
the said bank in the total amount of P64,408.00 as of
16 May 1978. PAL filed the petition for certiorari.
Issue: Whether the payment made to the
absconding sheriff by check in his name operate to
satisfy the
judgment debt.
Held: Under the initial judgment, Amelia Tan was
found to have been wronged by PAL. She filed her
complaint in 1967. After 10 years of protracted
litigation in the Court of First Instance and the Court
of Appeals, Ms. Tan won her case. Almost 22 years
later, Ms. Tan has not seen a centavo of what the
courts have solemnly declared as rightfully hers.
Through absolutely no fault of her own, Ms. Tan has
been deprived of what, technically, she should have
been paid from the start, before 1967, without need
of her going to court to enforce her rights. And all
because PAL did not issue the checks intended for
her, in her name. Under the peculiar circumstances
of the case, the payment to the absconding sheriff
by check in his name did not operate as a
satisfaction of the judgment debt. In general, a
payment, in order to be effective to discharge an
obligation, must be made to the proper person.
Article 1240 of the Civil Code provides that
"Payment shall be made to the person in whose
favor the obligation has been constituted, or his

successor in interest, or any person authorized to

receive it." Further, Article 1249 of the Civil Code
provides that "The payment of debts in money shall
be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the
currency which is legal tender in the Philippines. The
delivery of promissory notes payable to order, or bills
of exchange or other mercantile documents shall
produce the effect of payment only when they have
been cashed, or when through the fault of the
creditor they have been impaired. In the meantime,
the action derived from the original obligation shall
be held in abeyance." In the absence of an
agreement, either express or implied, payment
means the discharge of a debt or obligation in
money and unless the parties so agree, a debtor has
no rights, except at his own peril, to substitute
something in lieu of cash as medium of payment of
his debt. Consequently, unless authorized to do so
by law or by consent of the obligee, a public officer
has no authority to accept anything other than
money in payment of an obligation under a judgment
being executed.
Strictly speaking, the acceptance by the sheriff of
PAL's checks does not, per se, operate as a
discharge of the judgment debt. 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. A check, whether a
manager's check or ordinary check, is not legal
tender, and an offer of a check in payment of a debt
is not a valid tender of payment and may be refused
receipt by the obligee or creditor. Mere delivery of
checks does not discharge the obligation under a
judgment. The obligation is not extinguished and
remains suspended until the payment by commercial
document is actually realized.

PNB vs Rodriguez
G.R. No. 170325 September 26, 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 PhilippineNational
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.

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
fraudulent acts

To put a stop to this scheme, PNB closed the

current account of PEMSLA.

found

out

about

these

It was PEMSLAs policy not to approve

applications for loans of members with
outstanding debts.

As a result, the PEMSLA checks deposited by

the spouses were returned or dishonored for
the reason Account Closed.

To subvert this policy, some PEMSLA officers

devised a scheme to obtain additional loans
despite their outstanding loan accounts.

The amounts were duly debited from the

Rodriguez account

They took out loans in the names of unknowing

members, without the knowledge or consent of
the latter.

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

order instrument - requires an indorsement

from the payee or holder before it may be
validly negotiated

bearer instrument - mere delivery

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

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

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

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

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

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

Ilano vs Hon. Hispano

FACTS:
Defendant AMELIA O. ALONZO, is a trusted
employee of [petitioner]. She has been with them for
several years already, and through the years,

defendant ALONZO was able to gain the trust and

confidence of [petitioner] and her family; That due to
these trust and confidence reposed upon defendant
ALONZO by [petitioner], there were occasions when
defendant ALONZO was entrusted with [petitioners]
METROBANK Check Book containing either signed
or unsigned blank checks, especially in those times
when [petitioner] left for the United States for
medical check-up;
Defendant Alonzo was able to succeed in inducing
the petitioner to sign PN through fraud and deceit;
defendant ALONZO in collusion with her codefendants, ESTELA CAMACLANG, ALLAN
CAMACLANG and ESTELITA LEGASPI likewise
was able to induce plaintiff to sign several
undated blank checks, among which are:
The named defendants-herein respondents filed
their respective Answers invoking, among other
grounds for dismissal, lack of cause of action, for
while the checks subject of the complaint had been
issued on account and for value, some had been
dishonored due to ACCOUNT CLOSED; and the
allegations in the complaint are bare and general.
The trial court dismissed petitioners complaint for
failure to allege the ultimate facts-bases of
petitioners claim that her right was violated and that
she suffered damages thereby. The Court of
Appeals affirmed the trial courts decision and held
that the elements of a cause of action are absent in
the case and petitioner did not deny the
genuineness or authenticity of her signature on the
subject promissory notes and the allegedly signed
blank

ISSUE: In issue then is whether petitioners

complaint failed to state a cause of action.
As reflected in the above-quoted allegations in
petitioners complaint, petitioner is seeking twin
reliefs, one for revocation/cancellation of promissory
notes and checks, and the other for damages.
While some of the allegations may lack particulars,
and are in the form of conclusions of law, the
elements of a cause of action are present. For even
if some are not stated with particularity, petitioner
alleged 1) her legal right not to be bound by the
instruments which were bereft of consideration and
to which her consent was vitiated; 2) the
correlative obligation on the part of the defendantsrespondents to respect said right; and 3) the act of
the defendants-respondents in procuring her
signature on the instruments through deceit,
abuse of confidence machination, fraud,
falsification, forgery, defraudation, and bad
faith, and with malice, malevolence and selfish
intent.

was not affected. For Section 6 of the Negotiable

Instruments Law provides:
Section 6. Omission; seal; particular money. The
validity and negotiable character of an
instrument are not affected by the fact that
(a) It is not dated; or (b) Does not specify the
value given, or that any value had been given
therefor; or (c) Does not specify the place where it
is drawn or the place where it is payable; or (d)
Bears a seal; or (e) Designates a particular kind of
current money in which payment is to be made.
However, even if the holder of Check No. 0084078
would have filled up the month and day of issue
thereon to be December and 31, respectively, it
would have, as it did, become stale six (6) months or
180 days thereafter, following current banking
practice.
It is, however, with respect to the
questioned promissory notes that the present
petition assumes merit. For, petitioners allegations
in the complaint relative thereto, even if lacking
particularity, does not as priorly stated call for the
dismissal of the complaint.

Where the allegations of a complaint are vague,

indefinite, or in the form of conclusions, its dismissal
is not proper for the defendant may ask for more
particulars.

Metrobank vs. CA
G.R. No. 88866
Cruz, J.:
Facts:

With respect to above-said Check No. 0084078,

however, which was drawn against another account
of petitioner, albeit the date of issue bears only the
year 1999, its validity and negotiable character at
the time the complaint was filed on March 28, 2000

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.

February, 18, 1991

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 even
have incurred liability for its refusal to return the
money that all appearances belonged to the
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: 1st, 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.
Firestone Tire & rubber Co. vs. Court of Appeals
GR No. 113236
March 5, 2001
Quisumbing, J.:
Facts:

Forjas-Arca Enterprise Company is

maintaining a special savings account with Luzon
Development Bank, the latter authorized and
allowed withdrawals of funds though the medium of
special withdrawal slips. These are supplied by
Fojas-Arca. Fojas-Arca purchased on credit with
FirestoneTire & Rubber Company, in payment
Fojas-Arca delivered a 6 special withdrawal slips. In
turn, these were deposited by the Firsestone to its
bank account in Citibank. With this, relying on such
confidence and belief Firestone extended to FojasArca other purchase on credit of its products but
several withdrawal slips were dishonored and not
paid. As a consequence, Citibank debited the
plaintiffs account representing the aggregate
amount of the two dishonored special withdrawal
slips. Fojas-Arca averred that the pecuniary losses it
suffered are a caused by and directly attributes to
defendants gross negligence as a result Fojas-Arca
filed a complaint.
Issue:

Whether or not the acceptance and payment

of the special withdrawal slips without the
presentation of the depositors passbook thereby
giving the impression that it is a negotiable
instrument like a check.
Held:
No. Withdrawal slips in question were non
negotiable instrument. Hence, the rules governing
the giving immediate notice of dishonor of negotiable
instrument do not apply. 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.

Ang Tek Lian vs. Court of Appeals [GR L-2516,

25 September 1950]
En Banc, Bengzon (J): 6 concur
Facts:
Knowing he had no funds therefor, Ang Tek Lian
drew on Saturday, 16 November 1946, a check upon
the China Banking Corporation for the sum of
P4,000, payable to the order of "cash". He delivered
it to Lee Hua Hong in exchange for money which the
latter handed in the act. On 18 November 1946, the
next business day, the check was presented by Lee
Hua Hong to the drawee bank for payment, but it
was dishonored for insufficiency of funds, the
balance of the deposit of Ang Tek Lian on both dates
being P335 only. Ang Tek Lian was charged and
was convicted of estafa in the Court of First Instance
of Manila. The Court of Appeals affirmed the verdict.
Issue: Whether indorsement is necessary for the
presentation of a bearer instrument for payment.
Held: Under Section 9(d) of the Negotiable
Instruments Law, 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. A check
payable to the order of cash is a bearer instrument.
Where a check is made payable to the order of
cash, the word cash does not purport to be the
name of any person, and hence the instrument is
payable to bearer. The drawee bank need not obtain
any indorsement of the check, but may pay it to the
person presenting it without any indorsement." Of
course, if the bank is not sure of the bearer's identity
or financial solvency, it has the right to demand
identification and/or assurance against possible
complications, for instance, (a) forgery of drawer's
signature, (b) loss of the check by the rightful owner,

(c) raising of the amount payable, etc. The bank may

therefore require, for its protection, that the
indorsement of the drawer or of some other
person known to it be obtained. But where the
Bank is satisfied of the identity and/or the 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. A check payable to bearer is authority
for payment to the holder. Where a check is in the
ordinary form, and is payable to bearer, so that no
indorsement is required, a bank, to which it is
presented for payment, need not have the holder
identified, and is not negligent in failing to do so.
Consequently, a drawee bank to which a bearer
check is presented for payment need not necessarily
have the holder identified and ordinarily may not be
charged with negligence in failing to do so. If the
bank has no reasonable cause for suspecting any
irregularity, it will be protected in paying a bearer
check, no matter what facts unknown to it may have
occurred prior to the presentment. Although a bank
is entitled to pay the amount of a bearer check
without further inquiry, it is entirely reasonable for
the bank to insist that the holder give satisfactory
proof of his identity. Herein anyway, it is significant,
and conclusive, that the form of the check was totally
unconnected with its dishonor. It was returned
unsatisfied because the drawer had insufficient
funds not because the drawer's indorsement was
lacking.
Sesbreno vs. Court of Appeals [GR 89252, 24
May 1993]
Third Division, Feliciano (J): 4 concur
See case entry 10
Facts:
On 9 February 1981, Raul Sesbreo made a money
market placement in the amount of P300,000.00 with
the Philippine Underwriters Finance Corporation

(Philfinance), Cebu Branch; the placement, with a

term of 32 days, would mature on 13 March 1981.
Philfinance, also on 9 February 1981, issued the
following documents to Sesbreno: (a) the Certificate
of Confirmation of Sale, "without recourse," 20496 of
1 Delta Motors Corporation Promissory Note (DMC
PN) 2731 for a term of 32 days at 17.0 % per
annum; (b) the Certificate of Securities Delivery
Receipt 16587 indicating the sale of DMC PN 2731
to Sesbreno, with the notation that the said security
was in custodianship of Pilipinas Bank, as per
Denominated Custodian Receipt (DCR) 10805 dated
9 February 1981; and (c) post-dated checks payable
on 13 March 1981 (i.e., the maturity date of
Sesbreno's investment), with Sesbreno as payee,
Philfinance as drawer, and Insular Bank of Asia and
America as drawee, in the total amount of
P304,533.33. On 13 March 1981, Sesbreno sought
to encash the post-dated checks issued by
Philfinance. However, the checks were dishonored
for having been drawn against insufficient funds. On
26 March 1981, Philfinance delivered to Sesbreno
the DCR 10805 issued by Pilipinas Bank (Pilipinas).
On 2 April 1981, Sesbreno approached Ms.
Elizabeth de Villa of Pilipinas, Makati Branch, and
handed to her a demand letter informing the bank
that his placement with Philfinance in the amount
reflected in the DCR 10805 had remained unpaid
and outstanding, and that he in effect was asking for
the physical delivery of the underlying promissory
note. Sesbreno then examined the original of the
DMC PN 2731 and found: that the security had been
issued on 10 April 1980; that it would mature on 6
April 1981; that it had a face value of P2,300,833.33,
with Philfinance as "payee" and Delta Motors
Corporation (Delta) as "maker;" and that on face of
the promissory note was stamped "NONNEGOTIABLE." Pilipinas did not deliver the Note,
nor any certificate of participation in respect thereof,
to Sesbreno. Sesbreno later made similar demand

letters, dated 3 July 1981 and 3 August 1981, again

asking Pilipinas for physical delivery of the original of
DMC PN 2731. Pilipinas allegedly referred all of
Sesbreno's demand letters to Philfinance for written
instructions, as had been supposedly agreed upon in
a "Securities Custodianship Agreement" between
Pilipinas and Philfinance. Philfinance never did
provide the appropriate instructions; Pilipinas never
released DMC PN 2731, nor any other instrument in
respect thereof, to petitioner. Sesbreno also made a
written demand on 14 July 1981 upon Delta for the
partial satisfaction of DMC PN 2731, explaining that
Philfinance, as payee thereof, had assigned to him
said Note to the extent of P307,933.33. Delta,
however, denied any liability to Sesbreno on the
promissory note, and explained in turn that it had
previously agreed with Philfinance to offset its DMC
PN 2731 (along with DMC PN 2730) against
Philfinance PN 143-A issued in favor of Delta. In the
meantime, Philfinance, on 18 June 1981, was placed
under the joint management of the Securities and
Exchange Commission (SEC) and the Central Bank.
Pilipinas delivered to the SEC DMC PN 2731, which
to date apparently remains in the custody of the
SEC. As Sesbreno had failed to collect his
investment and interest thereon, he filed on 28
September 1982 an action for damages with the
Regional Trial Court (RTC) of Cebu City, Branch 21,
against Delta and Pilipinas. The trial court, in a
decision dated 5 August 1987, dismissed the
complaint and counterclaims for lack of merit and for
lack of cause of action, with costs against Sesbreno.
Sesbreno appealed to the Court of Appeals (CA GR
CV 15195). In a Decision dated 21 March 1989, the
Court of Appeals denied the appeal. Sesbreno
moved for reconsideration of the above Decision,
without success. Sesbreno filed the Petition for
Review on Certiorari.

Issue:
Whether the marking non-negotiable in DMC PN
2731 prohibited Philfinance from assigning or
transferring the same to Sesbreno.
Held:
The negotiation of a negotiable instrument must be
distinguished from the assignment or transfer of an
instrument whether that be negotiable or nonnegotiable. 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 where the
negotiable instrument is in bearer form. A negotiable
instrument may, however, instead of being
negotiated, also be assigned or transferred. The
legal consequences of negotiation as distinguished
from assignment of a negotiable instrument are, of
course, different. A non-negotiable instrument may,
obviously, not be negotiated; but it may be assigned
or transferred, absent an express prohibition against
assignment or transfer written in the face of the
instrument: "The words 'not negotiable,' stamped on
the face of the bill of lading, did not destroy its
assignability, but the sole effect was to exempt the
bill from the statutory provisions relative thereto, and
a bill, though not negotiable, may be transferred by
assignment; the assignee taking subject to the
equities between the original parties." Herein, DMC
PN No. 2731, while marked "non-negotiable," was
not at the same time stamped "non-transferrable" or
"nonassignable." It contained no stipulation which
prohibited Philfinance from assigning or transferring,
in whole or in part, that Note. Further, there is
nothing in the letter of agreement dated 10 April
1980 between Delta and Philfinance which can be
reasonably construed as a prohibition upon
Philfinance assigning or transferring all or part of
DMC PN 2731, before the maturity thereof. It is
scarcely necessary to add that, even had this "Letter

of Agreement" set forth an explicit prohibition of

transfer upon Philfinance, such a prohibition cannot
be invoked against an assignee or transferee of the
Note who parted with valuable consideration in good
faith and without notice of such prohibition. It is not
disputed that Sesbreno was such an assignee or
transferee.
[The issue whether Delta is liable for the value of the
promissory to Sesbreno was resolved through
Articles 1279 and 1636 of the New Civil Code as to
compensation, and Article 1285 of the same as to
the assignment of creditor's rights. The Court held
that since Sesbreno failed to notify Delta of the
assignment of the creditor's (Philfinance) rights at
any time before the maturity date of DMC PN 2731,
and because the record is bare of any indication that
Philfinance had itself notified Delta of the
assignment to Sesbreno, the Court was compelled
to uphold the defense of compensation raised by
Delta. The Court, however, held that Philfinance
remained liable to Sesbreno under the terms of the
assignment made by Philfinance to Sesbreno.
As to the issue of Pilipinas liability to Sesbreno, on
the other hand, the Court held that Pilipinas must
respond to Sesbreno for damages sustained by him
arising out of its breach of duty. By failing to deliver
the Note to Sesbreno as depositor-beneficiary of the
thing deposited -- when Pilipinas purported to
require and await the instructions of Philfinance, in
obvious contravention of its undertaking under the
DCR to effect physical delivery of the Note upon
receipt of "written instructions" from Sesbreo -Pilipinas effectively and unlawfully deprived
Sesbreno of the Note deposited with it. Civil Law II
issues, MVG.]