1

GSIS v CA
[GR No. 40824] [Feb. 23, 1989 [Regalado, J.]

Petitioners: Government Service Insurance System

Respondents: Court of Appeals and Mr/Mrs Racho
Topic: Nature and Purpose of Negotiable Instruments

FACTS:
Spouses Racho and spouses Lagasca executed a deed of mortgage in favor
of GSIS (Nov. 13, 1957 & April 14, 1958) in connection with two loans
granted by GSIS.

A parcel of land co-owned by Racho was given as security for the two deeds.
A promissory note was also executed, both spouse promising to pay
solidarily the loan.

July 11, 1961: Lagascas executed Assumption of Mortgage under which they
obligated themselves to soley assume the obligation to GSIS and to secure
the release of the mortgage covering that portion of the land belonging to
Rachos and which was mortgaged to GSIS.

When they failed comply with the conditions of the mortgage, particularly in
paying amortizations due, GSIS foreclosed the mortgage and caused the
mortgaged property to be sold.

2 years after, Rachos filed a case against Lagascas and GSIS praying that
the foreclosure be null and void, and that they can recover said property.

They claim that they signed the mortgage contracts not as sureties or
guarantors for the Lagasca spouses but they merely gave their consent as
co-owners with Lagascas who were solely benefited by the loans from the
GSIS.

TC dismissed case for failure to establish cause of action.

CA reversed, held that as against the GSIS, Rachos have a valid cause for
having foreclosed the mortgage without having given sufficient notice to
them as required either as to their delinquency in the payment of
amortization or as to the subsequent foreclosure of the mortgage by reason
of any default in such payment.

Both parties relied on provisions of Negotiable Instruments Law which

provide that an accommodation party is one who has signed an instrument
as maker, drawer, acceptor of indorser without receiving value therefor, but
is held liable on the instrument to a holder for value although the latter knew
him to be only an accommodation party.
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ISSUE: WoN the promissory note and mortgage deeds are negotiable
instruments NO

HELD:

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.
Commercial

1. The promissory note as well as the mortgage deeds, are clearly not
negotiable instruments as they do not comply with fourth requisite under
Section 1 of Act No. 2031.
It should payable to bearer BUT note is payable to specific party
GSIS.

2. Rachos are with liability under the mortgage contracts because third
persons who are not parties to the principal obligation may secure the latter
by pledging or mortgaging their own property (Article 2085).
The fact that the loans were solely for the benefit of the Lagasca
spouses would not invalidate the mortgage with respect to private
respondents' share in the property.
In consenting to it, their share in the property shall nevertheless
secure and respond for the performance of the principal obligation.

3. The supposed requirement of prior demand on the private respondents

would not be in point here since the mortgage contracts created obligations
with specific terms for the compliance
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MITRA v PEOPLE HELD:

[GR No. 191404] [July 5, 2010] [Mendoza, J.]
Petitioners: Eumelia Mitra
Respondents: People of the Philippines & Felicismo Tarcelo
Topic: Nature and Purpose of Negotiable Instruments
FACTS:
Eumelia Mitra (Treasurer) and Florencio Cabrera (President) worked in Lucky
Nine Credit Corporation, a corporation engaged in money lending activities.
Tarcelo invested money in LNCC and he was issued checks equivalent to the
amounts he invested plus the interest on his investments.
1. On basis of petitioner that the corporation must first be declared to have
committed the violation before the liability attaches to the signatories of the
checks
2.. A check is a negotiable instrument that serves as a substitute for money
and as a convenient form of payment in financial transactions and
obligations. The convenience of checks, however, is damaged by unfunded
checks that adversely affect confidence in our commercial and banking
activities, and ultimately injure public interest.
To stem the harm caused by these bouncing checks to the
community, BP 22 considers the mere act of issuing an unfunded
check as an offense not only against property but also against public
order.

Mitra and Cabrera signed checks issued by LNCC to Tarcelo. BP 22 Section 1 (3). Where the check is drawn by a corporation, company
or entity, the person or persons who actually signed the check in behalf of
When Tarcelo presented these checks for payment, they were dishonored such drawer shall be liable under this Act.
because the account closed.
3. This provision recognizes the reality that a corporation can only act
Tarcelo orally demanded LNCC for the payment of these checks and
through its officers.
eventually, he filed a case against Mitra and Cabrera for BP 22.
Llamado v CA: the accused was liable on the unfunded corporate
check which he signed as treasurer of the corporation as BP 22 does
MTCC found both Mitra and Cabrera guilty. They appealed.
not punish the purpose for which the check was issued or in
consideration of the terms and conditions relating to its issuance
Mitra defense: they signed 7 checks in blank with no name of the payee, no
amount stated and no date of maturity; they did not know when and to
whom those checks would be issued; the seven checks were only among
those in one or two booklets of checks they were made to sign at that time;
and that they signed the checks so as not to delay the transactions of LNCC
because they did not regularly hold office there.

RTC affirmed MTCC decision.

Mitra filed petition for review claiming that there was no proper service of
the notice of dishonor on her.

ISSUE: WoN the elements of violation of BP 22 must be proved as against

the corporation who owns the current account where the subject checks
were drawn before liability attaches to signatories NO
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Caltex v CA
[GR No. 9755] [Aug. 10, 1992] [Regalado, J.]
Petitioners: Caltex
Respondents: CA & Security Bank and Trust Company
Topic: Nature and Purpose of Negotiable Instruments
FACTS:
Angel de la Cruz obtained certificates of time deposit (CTDs) from Security
Bank and Trust Company for the formers deposit with the said bank
amounting to P1,120,000.00.
Angel subsequently delivered the CTDs to Caltex in connection with the
purchase of fuel products from Caltex.
March 1982: he advised Security Bank that he lost the CTDs and executed an
affidavit of loss to submit to bank.
HELD:
1. The CTDs indicate that they are payable to the bearer.
That there is an implication that the depositor is the bearer but as to
who the depositor is, no one knows. It does not say on its face that
the depositor is Angel de la Cruz.
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.
2. 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.

Bank issued another set of CTDs.
Angel acquired a loan of P875,000.00 and he used his time deposits as
collateral.
Nov. 1982, a representative from Caltex went to Security Bank to present the
CTDs (delivered by de la Cruz) for verification.
3. However, Caltex may not encash the CTDs because although the CTDs are
bearer instruments, a valid negotiation thereof for the true purpose and
agreement between Caltex and De la Cruz, requires both delivery and
indorsement.
As discerned from the testimony of Caltex representative, the CTDs
were delivered to them by de la Cruz merely for guarantee or
security and not as payment.

Caltex advised Security Bank that Angel delivered to them the CTDs as
security for purchases he made with the latter.

Security Bank refused to accept the CTDs and instead required Caltex to
present documents proving the agreement made by de la Cruz with Caltex.
Caltex however failed to produce said documents.

April 1983, de la Cruz loan with Security bank matured and no payment was
made by de la Cruz. Security Bank eventually set-off the time deposit to pay
off the loan.

Caltex sued Security Bank to compel the bank to pay off the CTDs.

Security Bank argued that the CTDs are not negotiable instruments even
though the word bearer is written on their face because the word bearer
contained therein refer to depositor and only the depositor can encash the
CTDs and no one else.

ISSUE: WoN the certificates of time deposit are negotiable YES

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Garcia v Llamas Since relation between an accommodation party and the party
accommodated is principal and surety, a surety is bound equally and
[GR No. 154127] [Dec. 8, 2003] [Panganiban, J.] absolutely with the principal and is deemed an original promissor
and debtor from the beginning.
Petitioners: Romeo Garcia
Respondents: Dionisio Llamas
Topic: Nature and Purpose of Negotiable Instruments

FACTS:
Dec. 23, 1996, Garcia and de Jesus borrowed 400,000 from Llamas. They
executed PN wherein they bound themselves solidarily to pay loan before
Jan. 23, 1997.

Despite repeated demands, they refused to pay so Llamas sued them.

Garcia averred that he assumed no liability under PN because he merely

signed it as an accomodation party for de Jesus and that he is relieved from
any liability arising from the note inasmuch as the loan had been paid by de
Jesus by means of a check dated 17 April 1997.

Llamas asserted that the loan remained unpaid for the reason that the check
issued by de Jesus bounced.

RTC ruled in favor of Llamas and ordered Garcia and de Jesus to pay jointly
and severally.

CA ruled that 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. No novation had
taken place.

ISSUE: WoN the promissory note is a negotiable instrument NO

HELD:
1. The promissory note is not a negotiable instrument because it was made
payable to a specific person, rather than to bearer or to order.
Petitioner cannot avail himself thus of the NIL's provisions on the
liabilities and defenses of an accommodation party.
A non-negotiable note is merely a simple contract in writing and is
evidence of such intangible rights as may have been created by the
assent of the parties PN is covered by Civil Code,

2. Assuming that NIL was applicable, petitioner would be liable for the
promissory note because 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 (Article 29 of NIL).
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Consolidated Plywood V IFC Leasing
[GR No. 72593] [April 30, 1987] [Guiterrez J.]
Petitioners: Consolidated Plywood, Henry Wee, Rodolfo Vergara
Respondents: IFC Leasing and Acceptance Corporation
Topic: Nature and Purpose of Negotiable Instruments
FACTS:
Atlantic Gulf & Pacific Company of Manila, through Industrial Products
Marketing, offered to sell to Plywood two used allis crawler tractors, HDD
21 B and HDD 16 B.
Consolidated Plywood, a logging business, requested Industrial to inspect job
site which latter assured was fit for job.
Plywood, through petitioners Wee and VP Vergara, agreed to purchase on
installment said two units of tractors.
Industrial issued sales invoice for the 2 units of tractors. A deed of sale with
chattel mortgage with promissory note was also executed.
With the execution of the deed of sale with chattel mortgage with promissory
note, the IFC by means of a deed of assignment, assigned its rights and
interest in the chattel mortgage in favor of the respondent.
IFC delivered the 2 units of tractors to Plywood. BUT barely 14 days and one
of the tractors broke down. After 9 more, the other also.
Vergara informed IFC that the tractors broke down and requested for the
seller-assignor's usual prompt attention under the warranty
IFC sent mechanics to fix it 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 Plywood were delayed and Vergara
advised the seller-assignor that the payments of the installments as listed in
the promissory note would likewise be delayed until the seller-assignor
completely fulfills its obligation under its warranty
Since the tractors were no longer serviceable, on April 7, 1979, Wee asked
the seller-assignor to pull out the units and have them reconditioned, and
thereafter to offer them for sale. The proceeds were to be given to the
respondent and the excess, if any, to be divided between the seller-assignor
and IFC which offered to bear one-half (1/2) of the reconditioning cost
No response was received by Plywood. IFC filed a complaint against
petitioners for recovery of principal sum.
TC ordered Plywood to pay the principal sum plus interest.
Plywood appealed to IAC but IAC affirmed the decision of TC NEGOTIABLE
INSTRUMENT DAW.
ISSUE: WoN PN is a negotiable instrumet NO
HELD:
FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the
INDUSTRIAL PRODUCTS MARKETING, the sum of ONE MILLION NINETY THREE
THOUSAND SEVEN HUNDRED EIGHTY NINE PESOS & 71/100 only (P
1,093,789.71), 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. ...
1. The PN is not a negotiable instrument as paragraph (d), Section 1 of the
Negotiable Instruments Law requires that a promissory note "must be
payable to order or bearer.
The instrument in order to be considered negotiablility-i.e. must
contain the so-called 'words of negotiable, 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.
SEC. 8. WHEN PAYABLE TO ORDER. The instrument is
payable to order where it is drawn payable to the order of a
specified person or to him or his order
2. There must always be a specified person named in the instrument (note is
to be paid to the person designated in the instrument or to any person to
whom he has indorsed and delivered the same)
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."
3. Respondent can never be a holder in due course but remains a mere
assignee of the note in question so petitioner may raise against the
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respondent all defenses available to it as against the seller-assignor

Industrial Products Marketing.

4. Assuming it is a negotiable instrument, the respondent cannot be a holder

in due course because they had actual knowledge of the fact that the seller-
assignor's right to collect the purchase price was not unconditional, and that
it was subject to the condition that the tractors -sold were not defective.
The respondent knew that when the tractors turned out to be
defective, it would be subject to the defense of failure of
consideration and cannot recover the purchase price from the
petitioners.
BAD FAITH

5. Respondent failed to present any evidence to prove that it had no

knowledge of any fact, which would justify its act of taking the promissory
note as not amounting to bad faith as Section 52 and 56 of NIL provide that
holder in due cause should be in good faith.

PNB v RODRIGUEZ
[GR No. 170325] [Sept. 26, 2008] [Reyes, J.]
Petitioners: Philippine National Bank
Respondents: Erlando Rodriguez & Norma Rodriguez
Topic: Nature and Purpose of Negotiable Instruments
FACTS:
Spouses Erlando and Norma Rodriguez were clients of PNB which maintained
their checking accounts.
The spouses were engaged in the informal lending business. In line with their
business, they had a discounting arrangement with the Philnabank
Employees Savings and Loan Association (PEMSLA), an association
of PNB employees
PEMSLA regularly granted loans to its members.
As was customary, the spouses would replace the postdated checks with
their own checks issued in the name of the members.
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.
Spouses issued 69 checks payable to 47 individual payees.
To put a stop to this scheme, PNB closed the current account of PEMSLA so
their checks, deposited by spouses, were returned this latter incurred losses.
Rodriquez filed a civil complaint for damages to recover the value of their
checks that were deposited to PEMSLA savings as PNB credited the
checks to the PEMSLA account even without indorsements thus
violating contractual obligation to them as depositors.
PNB claims that the claim for damages should come from the payees of the
checks, and not from spouses Rodriguez
RTC ruled that PNB is liable to return the value of the checks.
PNB appealed to CA on ground that checks should be considered payable to
bearer.
CA held that the checks were obviously meant by the spouses to be really
paid to PEMSLA = bearer instrument
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Rodriguez filed MR. CA reversed. Checks were payable to order.
ISSUE: WoN the subject checks are payable to order YES
HELD:
1. 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 either an order or a bearer instrument.
SEC. 8. When payable to order. The instrument is payable to order where it is drawn
payable to the order of a specified person or to him or his order. It may be drawn
payable to the order of
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must be named or otherwise
indicated therein with reasonable certainty.
SEC. 9.When payable to bearer. The instrument is payable to bearer
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When 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; or
(d) When the name of the payee does not purport to be the name of any person; or
(e) Where the only or last indorsement is an indorsement in blank
SEC. 30.What constitutes negotiation. An instrument is negotiated when it is
transferred from one person to another in such manner as to constitute the
transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if
payable to order, it is negotiated by the indorsement of the holder completed by
delivery.
1. 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. It is negotiable by mere delivery.
2. A check that is payable to a specified payee is an order instrument but
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
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person making it so payable.

3. 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.
Mueller & Martin v Liberty Insurance Bank: when the person
making the check so payable did not intend for the specified payee
to have any part in the transactions, the payee is considered as a
fictitious payee. Liberty Insurance Bank, as drawee, was authorized
to make payment to the bearer of the check, regardless of whether
prior indorsements were genuine or not.

4. A showing of commercial bad faith (if the transferee of the check acts
dishonestly, and is a party to the fraudulent scheme) 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.

5. 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.
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.

6. Subject checks are presumed order instruments because 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. =
FICTITIOUS PAYEE RULE DOES NOT APPLY PAYABLE TO ORDER; drawee
bank (PNB) bears the loss!

7. PNB was remiss in its duty as the drawee bank.

In a checking transaction, the drawee bank should charge to the
drawers accounts only the payables authorized by the latter.
Otherwise, the drawee will be violating the instructions of the drawer
and it shall be liable for the amount charged to the drawers account
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Lim v CA
[GR No. 107898] [Dec. 19, 1995] [Bellosillo, J.]

Petitioners: Manuel Lim & Rosita Lim

Respondents: CA & People of the PH
Topic: Nature and Purpose of Negotiable Instruments

FACTS:
Spouses Lim, president and treasurer of RIGI Bilt Industries, were charged
before RTC with estafa and BP 22 because they purchased goods from Linton
Commercial Company and issued 7 SOLIDBANK checks simultaneously with
delivery of payment.

When presented to drawee bank, the checks were dishonored as payment on

checks had been stopped for insufficiency of funds.

Despite repeated notice and demand the Lim spouses failed and refused to
pay the checks or the value of the goods.

TC held both accused guilty of estafa and violation of B.P. 22.

CA acquitted them of estafa on the ground that indeed the checks were not
made in payment of an obligation contracted at the time of their issuance,
BUT not estafa.

ISSUE: WoN

HELD:

1. Under Sec. 191 of the Negotiable Instruments Law the term "issue"
means the first delivery of the instrument complete in form to a
person who takes it as a holder. On the other hand, the term "holder"
refers to the payee or indorsee of a bill or note who is in possession of
it or the bearer.
The receipt of the checks by the collector of LINTON is not the
issuance and delivery to the payee in contemplation of law.

Astro Electronics v PH Export
[GR No. 136729] [Sept. 23, 2003] [Austria-Martinez, J.]
Petitioners: Astro Electronics Corp & Peter Roxas
Respondents: PH Export & Foreign Loan Guarantee Corp
Topic: Nature and Purpose of Negotiable Instruments
FACTS:
Astro was granted several loans by the Philippine Trust Company amounting
to P3,000,000.00 with interest and secured by three promissory notes: PN
NO. PFX-254 dated December 14, 1981 for P600,000.00, PN No. PFX-258 also
dated December 14, 1981 for P400,000.00 and PN No. 15477 dated August
27, 1981 for P2,000,000.00.
In each of these promissory notes, it appears that petitioner Roxas signed
twice, as President of Astro and in his personal capacity.
Roxas also signed a Continuing Surety ship Agreement in favor of Philtrust
Bank, as President of Astro and as surety.
Thereafter, Philguarantee, with the consent of Astro, guaranteed in favor of
Philtrust the payment of 70% of Astros loan subject to the condition that
upon payment by Philguanrantee of said amount, it shall be proportionally
subrogated to the rights of Philtrust against Astro.
As a result of Astros failure to pay its loan obligations, despite demands,
Philguarantee paid 70% of the guaranteed loan to Philtrust.
Philguarantee filed against Astro and Roxas a complaint for sum of money
with the RTC of Makati.
Roxas disclaims any liability on the instruments, alleging hat 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.
12
RTC ruled in favor of Philguarantee, as if Roxas really intended to sign the
instruments merely in his capacity as President of Astro, then he should have
signed only once in the promissory note.
CA affirmed decision.
ISSUE: WoN the signing of Roxas twice in the promissory notes would make
him solidarily liable with Astro YES
HELD:
1. 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.
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.
Even without the phrase personal capacity, Roxas will still be
primarily liable as solidary 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 would imply that he is undertaking the obligation in two
different capacities, official and personal.
2. Upon closer inspection of PN, it reveals that portions of his signatures
covered portions of the typewritten words personal capacity indicating with
certainty that the typewritten words were already existing at the time Roxas
affixed his signatures thus demolishing his claim that the typewritten words
were just inserted after he signed the promissory notes.
3. 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.
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.