PNB v CA; G.R. No.

107508; 25 Apr 1996; 256 SCRA 491

FACTS:
The Ministry of Education issued a check drawn against petitioner bank. The payee deposited the questioned check in its
savings account with Capitol City Development Bank (Capitol) which in turn deposited the same in its account with
respondent bank. After petitioner cleared the check, respondent bank credited Capitol for the amount. However,
petitioner returned the check to PBCom and debited the latter’s account for the amount covered by the check because
the check number was materially altered.
ISSUE(S):
Whether or not the alteration of the check number was material to its negotiability.
RULING:
What was altered is the serial number of the check in question, an item which, it can readily be observed, is not an
essential requisite for negotiability under Section 1 of the Negotiable Instruments Law. The aforementioned alteration
did not change the relations between the parties. The name of the drawer and the drawee were not altered. The
intended payee was the same. The sum of money due to the payee remained the same. Moreover, the check’s serial
number is not the sole indication of its origin. The name of the government agency which issued the subject check was
prominently printed therein. The check’s issuer was therefore sufficiently identified, rendering the referral to the serial
number redundant and inconsequential.

Metropolitan Bank And Trust Co. V. Cablizo (2006)

G.R. No. 154469 December 6, 2006

Lessons Applicable: Discharge of instrument and persons secondarily liable (Negotiable Instruments Law)

FACTS:
November 12,1994: Renato D. Cabilzo (Cabilzo) issued a Metrobank Check payable to "CASH" and postdated on
November 24, 1994 in the amount of P1,000 drawn against his Metrobank account to Mr. Marquez, as his sales
commission
check was presented to Westmont Bank for payment who indorsed it to Metrobank for appropriate clearing
After the entries thereon were examined, including the availability of funds and the authenticity of the signature of the
drawer, Metrobank cleared the check for encashment in accordance with the Philippine Clearing House Corporation
(PCHC) Rules
November 16, 1994: Cabilzo’s representative was at Metrobank when he was asked by a bank personnel if Cabilzo had
issued a check in the amount of P91K to which he replied in negative
That afternoon: Cabilzo called Metrobank to reiterate that he did not issue the check
He later discovered that the check of P1K was altered to P91K and date was changed from Nov 24 to Nov 14.
Cabilzo demanded that Metrobank re-credit the amount of P91,000.00 to his account
June 30, 1995: Through counsel sent a letter-demand for the amount of P90K
CA affirmed RTC: Favored Cablizo
ISSUE: W/N Cablizo can recover from Metrobank

HELD: YES. CA Affirmed material alteration changes the items which are required to be stated under Section 1 of the

Negotiable Instruments Law

Section 1. Form of negotiable instruments. - 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 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 changes the effect of the instrument
Section 125. What constitutes material alteration. – Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relation of the parties;
(e) The medium or currency in which payment is to be made;
Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters
the effect of the instrument in any respect is a material alteration.
In the case at bar, the check was altered so that the amount was increased from P1,000.00 to P91,000.00 and the date
was changed from 24 November 1994 to 14 November 1994.
Section 124. Alteration of instrument; effect of. – Where a negotiable instrument is materially altered without the
assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized,and
assented to the alteration and subsequent indorsers.
But when the instrument has been materially altered and is in the hands of a holder in due course not a party to the
alteration, he may enforce the payment thereof according to its original tenor.
Cabilzo was not the one who made nor authorized the alteration. Neither did he assent to the alteration by his express
or implied acts
There is no showing that he failed to exercise such reasonable degree of diligence required of a prudent man which
could have otherwise prevented the loss.
bank must be a high degree of diligence, if not the utmost diligence
Surprisingly, however, Metrobank failed to detect the above alterations which could not escape the attention of even
an ordinary person
"NINETY" is also typed differently and with a lighter ink
only 2 asterisks were placed before the amount in figures, while 3 asterisks were placed after such amount
"NINETY" are likewise a little bigger when compared with the letters of the words "ONE THOUSAND PESOS ONLY"
When the drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to charge its
client’s account only for bona fide disbursements he had made.
The corollary liability of Westmont Ban's indorsement, if any, is separate and independent from the liability of
Metrobank to Cabilzo.

Enrique P. Montinola vs. PNB, et. al., G.R. No. L-2861, Feb 26, 1951
Full Text

Facts: In May 1942, Ubaldo Laya, as provincial treasurer of Misamis Oriental issued a P100,000.00 Philippine National
Bank (PNB) check to Mariano Ramos. The said check was to be used by Ramos, as disbursing officer of the US forces at
that time, for military purposes.

On the back of the check, Ramos wrote:

Pay to the order of Enrique P. Montinola P30,000 only. The balance to be deposited in the Philippine National Bank to
the credit of M. V. Ramos.

Before Ramos can encash the check, he was made a prisoner of war by the invading Japanese forces. When he got free
in December 1944, he needed some cash for himself and so he went to a certain Enrique Montinola and made
arrangements. In consideration thereof, Montinola promised to pay 85,000 in Japanese notes (that time peso notes are
valued higher). However, he was only able to pay 45k in Japanese notes to Ramos.

Later, Montinola sought to have the check encashed but PNB dishonored the check. It appears that there was an
insertion made. Under the signature of Laya, the words “Agent, Philippine National Bank” was inserted, thus making it
appear that Laya disbursed the check as an agent of PNB and not as provincial treasurer of Misamis Oriental

ISSUE:
Whether or not the material alteration discharges the instrument?

HELD:

Yes.

First, the Court pointed out: “It was not negotiated according to the Negotiable Instruments Law (NIL) hence it is not a
negotiable instrument. There was only a partial indorsement and not a negotiation contemplated under the NIL. Only
P30k of the P100k amount of the check was indorsed. This merely make Montinola a mere assignee – and this is the
clear intent of Ramos. Ramos was merely assigning P30k to Montinola. Montinola may therefore not be regarded as an
indorsee and PNB has all the right to dishonor the check. As mere assignee, he is subject to all defenses available to the
drawer Provincial Treasurer of Misamis Oriental and against Ramos.

Anent the issue of alteration, the apparent purpose of which is to make the drawee (PNB) the drawer against which
Montinola can recover from directly. The insertion of the words “Agent, Phil. National Bank” which converts the bank
from a mere drawee to a drawer and therefore changes its liability, constitutes a material alteration of the instrument
without the consent of the parties liable thereon, and so discharges the instrument. (Section 124 of the Negotiable
Instruments Law).

The check was not legally negotiated within the meaning of the Negotiable Instruments Law. Section 32 of the same law
provides that “the indorsement must be an indorsement of the entire instrument. An indorsement which purports to
transfer to the indorsee a part only of the amount payable, . . . (as in this case) does not operate as a negotiation of the
instrument.” Montinola may therefore not be regarded as an indorsee. At most he may be regarded as a mere assignee
of the P30,000 sold to him by Ramos, in which case, as such assignee, he is subject to all defenses available to the
drawer Provincial Treasurer of Misamis Oriental and against Ramos. Neither can Montinola be considered as a holder in
due course because section 52 of said law defines a holder in due course as a holder who has taken the instrument
under certain conditions, one of which is that he became the holder before it was overdue. When Montinola received
the check, it was long overdue. And, Montinola is not even a holder because section 191 of the same law defines holder
as the payee or indorsee of a bill or note and Montinola is not a payee. Neither is he an indorsee for as already stated, at
most he can be considered only as assignee. Neither could it be said that he took it in good faith. As already stated, he
has not paid the full amount of P90,000 for which Ramos sold him P30,000 of the value of the check. In the second
place, as was stated by the trial court in its decision, Montinola speculated on the check and took a chance on its being
paid after the war.

At any rate, even assuming that there is proper negotiation, Montinola can no longer encash said check because when
he sought to have it encashed in January 1945, it is already stale there being two and half years passing since its time of
issuance.

Areza vs. Express Savings Bank

(G.R. No. 176697, September 10, 2014)

Doctrines: A depositary/collecting bank where a check is deposited, and which endorses the check upon presentment
with the drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments Law, an endorser warrants “that
the instrument is genuine and in all respects what it purports to be; that he has good title to it; that all prior parties had
capacity to contract; and that the instrument is at the time of his endorsement valid and subsisting.”

It is well-settled that the relationship of the depositors and the Bank or similar institution is that of creditor-debtor.
Article 1980 of the New Civil Code provides that fixed, savings and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loans. The bank is the debtor and the depositor is the
creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit
agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties.
Facts: Petitioners received an order for the purchase of a motor vehicle from Gerry Mambuay where the latter paid
petitioners with nine (9) Philippine Veterans Affairs Office (PVAO) checks payable to different payees and drawn against
the Philippine Veterans Bank (drawee), each valued at Two Hundred Thousand Pesos (?200,000.00). Petitioners
deposited the said checks in their savings account with the Express Savings Bank which, in turn, deposited the checks
with its depositary bank, Equitable-PCI Bank and the latter presented the checks to the drawee, the Philippine Veterans
Bank, which honored the checks. However, the subject checks were returned by PVAO to the drawee on the ground that
the amount on the face of the checks was altered from the original amount of ?4,000.00 to ?200,000.00. After informing
Express Savings Bank that the drawee dishonored the checks, Equitable-PCI Bank debited the deposit account of ESB in
the amount of P1.8M. Express Savings Bank then withdrew the amount of P1.8M representing the returned checks from
petitioners saving account.

Issue: Whether or not Express Savings Bank had the right to debit ?1,800,000.00 from petitioners’ accounts.

Held: No, Express Savings Bank cannot debit the savings account of petitioners. A depositary/collecting bank where a
check is deposited, and which endorses the check upon presentment with the drawee bank, is an endorser. Under
Section 66 of the Negotiable Instruments Law, an endorser warrants “that the instrument is genuine and in all respects
what it purports to be; that he has good title to it; that all prior parties had capacity to contract; and that the instrument
is at the time of his endorsement valid and subsisting.” As collecting bank, Express Savings Bank is liable for the amount
of the materially altered checks. It cannot further pass the liability back to the petitioners absent any showing in the
negligence on the part of the petitioners which substantially contributed to the loss from alteration.

Ty vs People Case Digest

0

Facts:

Ty's mother and sister was confined at the Manila Doctors Hospital. The total hospital bills amounted to P1 million. After
signing a contract of responsibility with the hospital, Ty issued 7 checks to cover the said expenses, all of which were
dishonored for being drawn against a closed a account. Manila Doctors Hospital sued Ty for violation of BP 22. In her
defense, Ty alleged that she issued the checks because of an "uncontrollable fear of a greater injury". She averred that
her mother threatened to commit suicide due to the inhumane treatment she allegedly suffered while confined in the
hospital. Ty was found guilty by the trial court of 7 counts of violation of BP 22. Ty appealed wherein she reiterated her
defense that she issued the checks under the impulse of an uncontrollable fear of a greater injury or in avoidance of a
greater evil or injury.

Issue:

Is the defense of uncontrollable fear or avoidance of a greater evil or injury tenable to warrant Ty's exemption from
criminal liability?

Held:

Uncontrollable fear

For this exempting circumstance to be invoked successfully, the following requisites must concur: (1) existence of an
uncontrollable fear; (2) the fear must be real and imminent; and (3) the fear of an injury is greater than or at least equal
to that committed.

It must appear that the threat that caused the uncontrollable fear is of such gravity and imminence that the ordinary
man would have succumbed to it. It should be based on a real, imminent or reasonable fear for ones life or limb. A mere
threat of a future injury is not enough. It should not be speculative, fanciful, or remote. A person invoking uncontrollable
fear must show therefore that the compulsion was such that it reduced him to a mere instrument acting not only
without will but against his will as well. It must be of such character as to leave no opportunity to the accused for
escape.

In this case, far from it, the fear, if any, harbored by Ty was not real and imminent. Ty claims that she was compelled to
issue the checks a condition the hospital allegedly demanded of her before her mother could be discharged for fear that
her mothers health might deteriorate further due to the inhumane treatment of the hospital or worse, her mother
might commit suicide. This is speculative fear; it is not the uncontrollable fear contemplated by law.

To begin with, there was no showing that the mothers illness was so life-threatening such that her continued stay in the
hospital suffering all its alleged unethical treatment would induce a well-grounded apprehension of her death. Secondly,
it is not the laws intent to say that any fear exempts one from criminal liability much less petitioners flimsy fear that her
mother might commit suicide. In other words, the fear she invokes was not impending or insuperable as to deprive her
of all volition and to make her a mere instrument without will, moved exclusively by the hospitals threats or demands.

Ty has also failed to convince the Court that she was left with no choice but to commit a crime. She did not take
advantage of the many opportunities available to her to avoid committing one. By her very own words, she admitted
that the collateral or security the hospital required prior to the discharge of her mother may be in the form of postdated
checks or jewelry. And if indeed she was coerced to open an account with the bank and issue the checks, she had all the
opportunity to leave the scene to avoid involvement.

Avoidance of a greater evil or injury

The law prescribes the presence of three requisites to exempt the actor from liability under this paragraph: (1) that the
evil sought to be avoided actually exists; (2) that the injury feared be greater than the one done to avoid it; (3) that there
be no other practical and less harmful means of preventing it.

In the instant case, the evil sought to be avoided is merely expected or anticipated. If the evil sought to be avoided is
merely expected or anticipated or may happen in the future, this defense is not applicable. Ty could have taken
advantage of an available option to avoid committing a crime. By her own admission, she had the choice to give jewelry
or other forms of security instead of postdated checks to secure her obligation.

Moreover, for the defense of state of necessity to be availing, the greater injury feared should not have been brought
about by the negligence or imprudence, more so, the willful inaction of the actor. In this case, the issuance of the
bounced checks was brought about by Tys own failure to pay her mothers hospital bills.

Caltex Inc. v. Court of Appeals [G.R. No. 97753. August 10, 1992]
24
MAR
FACTS

On various dates, Security Bank and Trust Company (SBTC), through its Sucat Branch issued 280 certificates of time
deposit (CTD) in favor of one Angel dela Cruz who later lost them.

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____

This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR THOUSAND ONLY, SECURITY BANK
SUCAT OFFICE P4,000& 00 CTS Pesos, Philippine Currency, repayable to said depositor 731 days. after date, upon
presentation and surrender of this certificate, with interest at the rate of 16% per cent per annum.

(Sgd. Illegible)
Caltex (Phils.) Inc. went to the SBTCSucat branch and presented for verification the CTDs declared lost by Angel dela Cruz
alleging that the same were delivered to herein plaintiff “as security for purchases made with Caltex Philippines, Inc.” by
said depositor. SBTC rejected Caltex’s demand and claim. Caltex sued SBTC but case was dismissed rationalizing that
CTD’s are non-negotiable instruments.

ISSUE

Whether or not Certificate of Time Deposit (CTD) is a negotiable instrument.

RULING

YES. The CTDs in question undoubtedly meet the requirements of the law for negotiability under Section 1 of the
Negotiable Instruments Law. The accepted rule is that the negotiability or non-negotiability of an instrument is
determined from the writing, that is, from the face of the instrument itself. In the construction of a bill or note, the
intention of the parties is to control, if it can be legally ascertained. Here, 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.

While the writing may be read in the light of surrounding circumstances in order to more perfectly understand the intent
and meaning of the parties, yet as they have constituted the writing to be the only outward and visible expression of
their meaning, no other words are to be added to it or substituted in its stead.

Ang vs Associated Bank, etal

532 SCRA 244 [G.R. No. 146511 September 5, 2007]

Facts: On August 28, 1990, respondent Associated Bank (formerly Associated Banking Corporation and now known as
United Overseas Bank Philippines) filed a collection suit against Antonio Ang Eng Liong and petitioner Tomas Ang for the
two (2) promissory notes that they executed as principal debtor and co-maker, respectively. In the Complaint,
respondent Bank alleged that on October 3 and 9, 1978, the defendants obtained a loan of P evidenced by a promissory
note bearing PN-No. DVO-78-382, and P 50,000, 30,000, evidenced by a promissory note bearing PNNo. DVO-78-390. As
agreed, the loan would be payable, jointly and severally, on January 31, 1979 and December 8, 1978, respectively. In
addition, subsequent amendments to the promissory notes as well as the disclosure statements6 stipulated that the
loan would earn 14% interest rate per annum, 2% service charge per annum, 1% penalty charge per month from due
date until fully paid, and attorney’s fees equivalent to 20% of the outstanding obligation. Despite repeated demands for
payment, the latest of which were on September 13, 1988 and September 9, 1986, on Antonio Ang Eng Liong and Tomas
Ang, respectively, respondent Bank claimed that the defendants failed and refused to settle their obligation, resulting in
a total indebtedness of P 539,638.96 as of July 31, 1990. In his Answer, Antonio Ang Eng Liong only admitted to have
secured a loan amounting to P 80,000. He pleaded though that the bank “be ordered to submit a more reasonable
computation” considering that there had been “no correct and reasonable statement of account” sent to him by the
bank, which was allegedly collecting excessive interest, penalty charges, and attorney’s fees despite knowledge that his
business was destroyed by fire, hence, he had no source of income for several years. For his part, petitioner Tomas Ang
filed an Answer with Counterclaim and Cross-claim. He interposed the affirmative defenses that: the bank is not the real
party in interest as it is not the holder of the promissory notes, much less a holder for value or a holder in due course;
the bank knew that he did not receive any valuable consideration for affixing his signatures on the notes but merely lent
his name as an accommodation party; he accepted the promissory notes in blank, with only the printed provisions and
the signature of Antonio Ang Eng Liong appearing therein.

Issue: Whether or not Petitioner is liable to the obligation despite being a mere co-maker and accommodation party.

Held: Yes. Notably, Section 29 of the NIL defines an accommodation party as a person “who has signed the instrument
as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to
some other person.” As gleaned from the text, an accommodation party is one who meets all the three requisites, viz:
(1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value
therefor; and (3) he must sign for the purpose of lending his name or credit to some other person. An accommodation
party lends his name to enable the accommodated party to obtain credit or to raise money; he receives no part of the
consideration for the instrument but assumes liability to the other party/ies thereto. The accommodation party is liable
on the instrument to a holder for value even though the holder, at the time of taking the instrument, knew him or her to
be merely an accommodation party, as if the contract was not for accommodation.

As petitioner acknowledged it to be, the relation between an accommodation party and the accommodated party is one
of principal and surety – the accommodation party being the surety. from the beginning; As such, he is deemed an
original promisor and debtor he is considered in law as the same party as the debtor in relation to whatever is adjudged
touching the obligation of the latter since their liabilities are interwoven as to be inseparable. Although a contract of
suretyship is in essence accessory or collateral to a valid principal obligation, the surety’s liability to the creditor is
immediate, primary and absolute; he is directly and equally bound with the principal. As an equivalent of a regular party
to the undertaking, a surety becomes liable to the debt and duty of the principal obligor even without possessing a
direct or personal interest in the obligations nor does he receive any benefit therefrom.

In the instant case, petitioner agreed to be “jointly and severally” liable under the two promissory notes that he co-
signed with Antonio Ang Eng Liong as the principal debtor. This being so, it is completely immaterial if the bank would
opt to proceed only against petitioner or Antonio Ang Eng Liong or both of them since the law confers upon the creditor
the prerogative to choose whether to enforce the entire obligation against any one, some or all of the debtors.
Nonetheless, petitioner, as an accommodation party, may seek reimbursement from Antonio Ang Eng Liong, being the
party accommodated.

Consequently, in issuing the two promissory notes, petitioner as accommodating party warranted to the holder in due
course that he would pay the same according to its tenor. value therefore It is no defense to state on his part that he did
not receive any because the phrase “without receiving value therefor” used in Sec. 29 of the NIL means “without
receiving value by virtue of the instrument” and not as it is apparently supposed to mean, “without receiving payment
for lending his name.” Stated differently, when a third person advances the face value of the note to the accommodated
party at the time of its creation, the consideration for the note as regards its maker is the money advanced to the
accommodated party. It is enough that value was given for the note at the time of its creation. As in the instant case, a
sum of money was received by virtue of the notes, hence, it is immaterial so far as the bank is concerned whether one of
the signers, particularly petitioner, has or has not received anything in payment of the use of his name.

Furthermore, since the liability of an accommodation party remains not only primary but also unconditional to a holder
for value, even if the accommodated party receives an extension of the period for payment without the consent of the
accommodation party, the latter is still liable for the whole obligation and such extension does not release him because
as far as a holder for value is concerned, he is a solidary co-debtor.

Romeo C. Garcia vs. Dionisio V. Llamas, G.R. No. 154127. December 8, 2003
Full Text

Facts: A complaint for sum of money was filed by respondent Dionisio Llamas against Petitioner Romeo Garcia and
Eduardo de Jesus alleging that the two borrowed Php 400, 000 from him. They bound themselves jointly and severally to
pay the loan on or before January 23, 1997 with a 15% interest per month. The loan remained unpaid despite repeated
demands by respondent.

Petitioner resisted the complaint alleging that he signed the promissory note merely as an accommodation party for de
Jesus and the latter had already paid the loan by means of a check and that the issuance of the check and acceptance
thereof novated or superseded the note.
The trial court rendered a judgment on the pleadings in favor of the respondent and directed petitioner to pay jointly
and severally respondent the amounts of Php 400, 000 representing the principal amount plus interest at 15% per
month from January 23, 1997 until the same shall have been fully paid, less the amount of Php 120,000 representing
interests already paid.

The Court of Appeals ruled that no novation, express or implied, had taken place when respondent accepted the check
from de Jesus. According to the CA, the check was issued precisely to pay for the loan that was covered by the
promissory note jointly and severally undertaken by petitioner and de Jesus. Respondent’s acceptance of the check did
not serve to make de Jesus the sole debtor because first, the obligation incurred by him and petitioner was joint and
several; and second, the check which had been intended to extinguish the obligation bounced upon its presentment.

Issues: (1) Whether or not there was novation of the obligation

(2) Whether or not the defense that petitioner was only an accommodation party had any basis.

Held: For novation to take place, the following requisites must concur: (1) There must be a previous valid obligation; (2)
the parties concerned must agree to a new contract; (3) the old contract must be extinguished; and (4) there must be a
valid new contract.

The parties did not unequivocally declare that the old obligation had been extinguished by the issuance and the
acceptance of the check or that the check would take the place of the note.

(2) By its terms, the note was made payable to a specific person rather than bearer to or order—a requisite for
negotiability. Hence, petitioner cannot avail himself of the NIL’s provisions on the liabilities and defenses of an
accommodation party. Besides, a non-negotiable note is merely a simple contract in writing and evidence of such
intangible rights as may have been created by the assent of the parties. The promissory note is thus covered by the
general provisions of the Civil Code, not by the NIL.

Even granting that the NIL was applicable, still petitioner would be liable for the note. An accommodation party is liable
for the instrument to a holder for value even if, at the time of its taking, the latter knew the former to be only an
accommodation party. The relation between an accommodation party and the party accommodated is, in effect, one of
principal and surety. It is a settled rule that a surety is bound equally and absolutely with the principal and is deemed an
original promissory debtor from the beginning. The liability is immediate and direct.

G.R. No. 158262 (Digest) | Violago V. BA Finance Corp | July 21, 2008
FACTS:
? 1983: Avelino Violago, President of Violago Motor Sales Corporation (VMSC), offered to sell a Toyota Cressida
Model 1983 to increase the sales quota to his cousin, Pedro F. Violago and his wife, Florencia.

? spouses would just have to pay a down payment of PhP 60.5K while the balance would be financed by BA
Finance.

? The spouses would pay the monthly installments to BA Finance while Avelino would take care of the
documentation and approval of financing of the car.

? August 4, 1983: the spouses and Avelino signed a promissory note under which they bound themselves to pay
jointly and severally to the order of VMSC the amount of PhP 209,601 in 36 monthly installments of PhP 5,822.25 a
month, the first installment to be due and payable on September 16, 1983.

? Avelino prepared a Disclosure Statement of Loan/Credit Transportation which showed the net purchase price of
the vehicle, down payment, balance, and finance charges.
? VMSC then issued a sales invoice in favor of the spouses with a detailed description of the Toyota Cressida car.

? In turn, the spouses executed a chattel mortgage over the car in favor of VMSC as security for the amount of
PhP 209,601.

? VMSC, through Avelino, endorsed the promissory note to BA Finance without recourse. After receiving the
amount of PhP 209,601,

? VMSC executed a Deed of Assignment of its rights and interests under the promissory note and chattel
mortgage in favor of BA Finance. Meanwhile, the spouses remitted the amount of PhP 60,500 to VMSC through Avelino

? spouses were unaware that the same car had already been sold in 1982 to Esmeraldo Violago, another cousin of
Avelino

? Since VMSC failed to deliver the car, Pedro did not pay any monthly amortization to BA Finance.

? March 1, 1984: BA Finance filed with the RTC a complaint for Replevin with Damages against the spouses

? RTC: favored BA finance , however, declared that they are entitled to be indemnified by Avelino

? CA: affirmed - promissory note was a negotiable instrument and that BA Finance was a holder in due course

ISSUE: W/N the holder of an invalid promissory note may be considered a holder in due course

HELD: YES. CA reversed because Avelino and VMSC are the same
? negotiable:

Section 1. Form of Negotiable Instruments. – 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 52. What constitutes a holder in due course.––A holder in due course is a holder who has taken the instrument
under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if
such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of
the person negotiating it.

? (a) the “Promissory Note”, Exhibit “A”, is complete and regular; (b) the “Promissory Note” was endorsed by the
VMSC in favor of the Appellee; (c) the Appellee, when it accepted the Note, acted in good faith and for value; (d) the
Appellee was never informed, before and at the time the “Promissory Note” was endorsed to the Appellee, that the
vehicle sold to the Defendants-Appellants was not delivered to the latter and that VMSC had already previously sold the
vehicle to Esmeraldo Violago. Although Jose Olvido mortgaged the vehicle to Generoso Lopez, who assigned his rights
to the BA Finance Corporation (Cebu Branch), the same occurred only on May 8, 1987, much later than August 4, 1983,
when VMSC assigned its rights over the “Chattel Mortgage” by the Defendants-Appellants to the Appellee. Hence,
Appellee was a holder in due course

1 Since BA Finance is a holder in due course, petitioners cannot raise the defense of non-delivery of the object and
nullity of the sale against the corporation.

2 VMSC is a family-owned corporation of which Avelino was president. Avelino committed fraud in selling the
vehicle to petitioners, a vehicle that was previously sold to Avelino’s other cousin, Esmeraldo

3 Avelino clearly defrauded petitioners. His actions were the proximate cause of petitioners’ loss. He cannot now
hide behind the separate corporate personality of VMSC to escape from liability for the amount adjudged by the trial
court in favor of petitioners.

4 obligation was incurred in the name of the corporation, the petitioner [Arcilla] would still be personally liable
therefor because for all legal intents and purposes, he and the corporation are one and the same

Consolidated Plywood, et. al. vs. IFC Leasing , G.R. No. 72593, April 30, 1987
Full Text

Facts: Consolidated Plywood Industries Inc. (CPII) is a corporation engaged in the logging business. It had for its program
of logging activities for the year 1978 the opening of additional roads, and simultaneous logging operations along the
route of said roads, in its logging concession area at Baganga, Manay, and Caraga, Davao Oriental.

For this purpose, it needed 2 additional units of tractors. Cognizant of CPII’s need and purpose, Atlantic Gulf & Pacific
Company of Manila, through its sister company and marketing arm, Industrial Products Marketing (IPM), a corporation
dealing in tractors and other heavy equipment business, offered to sell to CPII 2 “Used” Allis Crawler Tractors, 1 an HD-
21-B and the other an HD-16-B. After conducting said inspection, IPM assured CPII that the “Used” Allis Crawler Tractors
which were being offered were fit for the job, and gave the corresponding warranty of 90 days performance of the
machines and availability of parts. With said assurance and warranty, and relying on the IPM’s skill and judgment, CPII
through Henry Wee and Rodolfo T. Vergara, president and vice-president, respectively, agreed to purchase on
installment said 2 units of “Used” Allis Crawler Tractors. It also paid the down payment of P210,000.00. On 5 April 1978,
IPM issued the sales invoice for the 2 units of tractors. At the same time, the deed of sale with chattel mortgage with
promissory note was executed.

Barely 14 days had elapsed after their delivery when one of the tractors broke down and after another 9 days, the other
tractor likewise broke down. IPM sent to the jobsite its mechanics to conduct the necessary repairs, but the tractors did
not come out to be what they should be after the repairs were undertaken because the units were no longer
serviceable. Because of the breaking down of the tractors, the road building and simultaneous logging operations of CPII
were delayed and Vergara advised IPM that the payments of the installments as listed in the promissory note would
likewise be delayed until IPM completely fulfills its obligation under its warranty.

Since the tractors were no longer serviceable, on 7 April 1979, Wee asked IPM to pull out the units and have them
reconditioned, and thereafter to offer them for sale. The proceeds were to be given to IFC Leasing and the excess, if any,
to be divided between IPM and CPII which offered to bear 1/2 of the reconditioning cost. No response to this letter was
received by CPII and despite several follow-up calls, IPM did nothing with regard to the request, until the complaint in
the case was filed by IFC Leasing against CPII, Wee, and Vergara. The complaint was filed by IFC Leasing against CPII, et
al. for the recovery of the principal sum of P1,093,789.71, accrued interest of P151,618.86 as of 15 August 1979,
accruing interest there after at the rate of 12% per annum, attorney’s fees of P249,081.71 and costs of suit.
CPII, et al. filed their amended answer praying for the dismissal of the complaint. In a decision dated 20 April 1981, the
trial court rendered judgment, ordering CPII, et al. to pay jointly and severally in their official and personal capacities

On 17 July 1985, the Intermediate Appellate Court issued the decision affirming in toto the decision of the trial court.

Issue: Whether the promissory note in question is a negotiable instrument.

Held: No. The pertinent portion of the note provides that “”FOR VALUE RECEIVED, I/we jointly and severally promise to
pay to the INDUSTRIAL PRODUCTS MARKETING, the sum of P1,093,789.71, Philippine Currency, the said principal sum,
to be payable in 24 monthly installments starting July 15, 1978 and every 15th of the month thereafter until fully paid.”
Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a promissory note “must be
payable to order or bearer,” it cannot be denied that the promissory note in question is not a negotiable instrument.

The instrument in order to be considered negotiable must contain the so called “words of negotiability” — i.e., must be
payable to “order” or “bearer.” These words serve as an expression of consent that the instrument may be transferred.
This consent is indispensable since a maker assumes greater risk under a negotiable instrument than under a non-
negotiable one. Without the words “or order” or “to the order of,” the instrument is payable only to the person
designated therein and is therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the advantages of
being a holder of a negotiable instrument, but will merely “step into the shoes” of the person designated in the
instrument and will thus be open to all defenses available against the latter.

Therefore, considering that the subject promissory note is not a negotiable instrument, it follows that IFC Leasing can
never be a holder in due course but remains a mere assignee of the note in question. Thus, CPII may raise against IFC
Leasing all defenses available to it as against IPM. This being so, there was no need for CPII to implead IPM when it was
sued by IFC Leasing because CPII’s defenses apply to both or either of them.

GR No. 101163 January 11, 1993

Bellosillo, J.:

Facts:
Nora Moulic issued to Corazon Victoriano, as security for pieces of jewellery to be sold on commission, two postdated
checks in the amount of fifty thousand each. Thereafter, Victoriano negotiated the checks to State Investment House,
Inc. When Moulic failed to sell the jewellry, she returned it to Victoriano before the maturity of the checks. However,
the checks cannot be retrieved as they have been negotiated. Before the maturity date Moulic withdrew her funds from
the bank contesting that she incurred no obligation on the checks because the jewellery was never sold and the checks
are negotiated without her knowledge and consent. Upon presentment of for payment, the checks were dishonoured
for insufficiency of funds.

Issues:
1. Whether or not State Investment House inc. was a holder of the check in due course
2. Whether or not Moulic can set up against the petitioner the defense that there was failure or absence of
consideration

Held:

Yes, Section 52 of the NIL provides what constitutes a holder in due course. The evidence shows that: on the faces of the
post dated checks were complete and regular; that State Investment House Inc. bought the checks from Victoriano
before the due dates; that it was taken in good faith and for value; and there was no knowledge with regard that the
checks were issued as security and not for value. A prima facie presumption exists that a holder of a negotiable
instrument is a holder in due course. Moulic failed to prove the contrary.
No, Moulic can only invoke this defense against the petitioner if it was a privy to the purpose for which they were issued
and therefore is not a holder in due course.

No, Section 119 of NIL provides how an instruments be discharged. Moulic can only invoke paragraphs c and d as
possible grounds for the discharge of the instruments. Since Moulic failed to get back the possession of the checks as
provided by paragraph c, intentional cancellation of instrument is impossible. As provided by paragraph d, the acts
which will discharge a simple contract of payment of money will discharge the instrument. Correlating Article 1231 of
the Civil Code which enumerates the modes of extinguishing obligation, none of those modes outlined therein is
applicable in the instant case. Thus, Moulic may not unilaterally discharge herself from her liability by mere expediency
of withdrawing her funds from the drawee bank. She is thus liable as she has no legal basis to excuse herself from
liability on her check to a holder in due course. Moreover, the fact that the petitioner failed to give notice of dishonor is
of no moment. The need for such notice is not absolute; there are exceptions provided by Sec 114 of NIL.