Negotiable Instruments

Case Compilation

I. Preliminary Considerations

Phil. Educ Co. Inc. v. Soriano

Money Orders from the Manila Post Office were stolen and irregularly transferred. The issue was on
whether a postal money order was a negotiable instrument.
Doctrine: Postal money orders are not negotiable instruments as laws and regulations governing them
impose restrictions on indorsement and payments. Negotiable instruments are those which comply with
the requisites under Section 1 of the NIL.

Section 1, NIL: A negotiable instrument must conform to the following requirements: (WUDOR)
1. it must be written and signed by the maker or the drawer
2. contain an unconditional promise to pay a sum certain in money
3. payable upon demand or at a fixed and determinable future time
4. payable to order or to bearer
5. where the instrument is addressed to a drawee, he must be name or otherwise indicated with
reasonable certainty

Tibajia v. CA
Judgment creditor wished to garnish the funds deposited by petitioners on the basis that payment of the
check did not extinguish the judgment debt.
Doctrine: Checks are not considered legal tender as provided under Article 1249 of the civil Code. The
general rule is that delivery of promissory notes, bills or exchange, or other mercantile documents shall
only produce the effect of payment when they have been encashed or impaired due to the fault of the
creditor. Section 63 of the Central Bank Act further provides that checks representing deposit money do
not have legal tender power and their acceptance in the payment of debts is at the option of the creditor.

Philippine Airlines v. CA
Philippine Airlines paid their judgment debt through a check paid to the name of the sheriff of the court.
The sheriff absconded and the judgment creditor sought to recover the judgment debt for twenty-two
years.
Doctrine: Payment must be made to a person authorized to receive it. Acceptance of a check is subject to
Article 1249 of the Civil code and that the acceptance of a sheriff of a judgment debt does not per se
operate as a discharge of the judgment debt. Delivery of an instrument is only a substitute of money and
not money and does not operate as payment. The check must be made out in the name of the judgment
debtor and not in the name of the sheriff.

II. Form and Interpretation of Negotiable Instruments

MEBTC v. CA
A certain Eduardo Gomez opened an account with Golden Savings Bank and deposited 38 treasury
warrants drawn by the Philippine Fish Marketing authorities. These warrants were stamped with “non-
negotiable” and that they were payable from a particular fund. They were indorsed by the cashier of GSB
and deposited to Metrobank (collecting agent) to be forwarded to the Bureau of Treasury for clearing.
Before the warrants were cleared, Metrobank allowed the disbursement of the money to GSB who
disbursed the amount to Gomez. The warrants were dishonored and Metrobank demanded refund by GSB.
Doctrine: An unqualified order or promise to pay is unconditional even if coupled with (1) an indication
of a particular fund out of which reimbursement is to be made or a particular account to be debited with
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the amount or (2) a statement of transaction which gives rise to the instrument. However, an order or
promise to pay out of a particular fund is not unconditional (Sec. 3)

Negotiable: Indication of a particular fund out of Non-negotiable: Indication to pay out of a

which reimbursement is to be made particular fund
Unconditional since it does not limit the source of Conditional since it imposes a limitation as to the
the payment. source of fund which is a particular account.

Ex. “Pay to the order of X, Php 1,000 and Ex. “Pay to the order of X from rentals of the
reimbursement from rentals” (order + source) house” (source only)

Caltex Philippines v. CA, Security Bank

Security bank issued Certificate of Time Deposits to Angel dela Cruz who delivered the CTDs to Caltex
Philippines as payment for purchase of fuel. CTDs indicate that the BEARER deposited the amounts with
Security Bank. Dela Cruz informed Security bank that the CTDs were lost and the bank replaced them. Dela
Cruz then took out a loan and used the new CTDs as security. Upon maturity of the CTDs Caltex claimed
their value while Security off-set the CTDs with the loan amount.
Doctrine:
1. The negotiability or non-negotiability of a document depends on the face of the document itself.
The construction of the note reflects the intention of the parties, and no other words are to be
added or substituted in its stead.
2. The nature of the transaction between the parties is to be determined by their intention
regardless of what language was used or what form the transfer was. For negotiable instruments,
the intention is for the transferor to make the transferee the holder thereof.

Ang Tek Lian v. CA

Peitioner drew a check from China Banking Corporation, payable to the order of “cash”. This was delivered
to a Lee Hua Hong who presented it to CBC for encashment. The check was dishonored due to insufficiency
of funds.
Doctrine: Where a check is payable to the order of cash, it is considered a bearer instrument. The drawee
bank need not obtain any indorsement (since only delivery is required) and may pay it to the person
presenting the same.

An instrument is payable to bearer when (Sec. 9)

1. Expressly provided (“I promise to pay bearer Php 1,000”)
2. Payable to a person named therein or bearer (“Payable to X or to bearer”)
3. Payable to the order of a fictitious person (“Payable to the order of Cash”)
4. the name does not purport to be the name of any person (“Payable to the King of the Philippines”)
5. last indorsement is an indorsement in blank

PNB v. Rodriguez
Spouses Rodriguez were in the business of discounting checks, one of their clients being PEMSLA, the loan
association of PNB. The spouses had an account with PNB for such purpose. PEMSLA had a policy of
denying loan application of members with outstanding debts. To circumvent such policy, some of the
officers issued loans in the names of unknowing members and gave such checks to Sps. Rodriguez for
rediscounting. The spouses then deposits the PEMSLA checks to their account with PNB while PEMSLA
deposits the Rodriguez checks to their account without any indorsement from the named payees. This was
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facilitated by a bank teller of PNB. PNB found out and closed the current account of PEMSLA resulting in
the PEMSLA checks deposited by the Spouses to be dishonored while the account of the spouses continued
to be debited.
Doctrine:
1. The general rule is that when the payee is fictitious or not intended to be the true recipient of the
proceeds, such instrument is a bearer instrument and hence payable upon presentment or
demand without need for indorsement.
2. A fictitious payee may refer to a payee who is actual and existing but the maker did not intend to
him to receive the proceeds of a check. In a fictitious payee situation, the drawee bank is absolved
from liability and the drawer bears the loss.
3. An exception to such rule is when there is commercial bad faith on the part of the drawee bank
or any transferee. This would strip the latter of such defense and he shall bear such loss.
Commercial bad faith is present when the transferee acts dishonestly and is a party to the
fraudulent scheme.

PNB v. Manila Oil Refining and By-Products Co.

Manager of MORBC executed and delivered to PNB a negotiable instrument paid to the order of PNB which
further authorizes “any attorney in the Philippine Islands, in case [the note] be not paid at maturity], to
appear in [the manager’s] name and confess judgment.
Doctrine: Warrants of attorney to confess judgment are not authorized nor contemplated by law and that
provisions in notes authorizing attorneys to appear and confess judgment against makers are not
recognized by implication and can only be valid when provided for by law. Judgement notes are void due
to being against public policy as it deprives the debtor due process.

Republic Planters Bank v. CA

A promissory note was issued by private respondents in favor of Republic Planters Bank. Under such note,
it was stated that “I/We, jointly and severally promise to pay to the order of Republic Planters Bank the
sum of ________ PESOS” and the same was signed by Yamaguchi and Canlas “in their personal capacity”.
RPB brought suit against the corporation and Canlas who alleged that he cannot be held liable for
payment.
Doctrine:
1. An instrument containing the words, “I promise to pay” and signed by two or more person would
deem that the parties are solidarily liable for such payment. This means that each co-signers deem
to have made an independent and singular promise to pay the notes in full.
2. Persons who write their names on the face of the promissory notes are makers and are liable as
such. By signing the notes, he promises to pay the order of the payee or any other holder
according to the tenor of the instrument (Sec. 184, NIL)
3. An incomplete instrument delivered for signature is governed by Section 14 of the NIL which
provides that the person in possession thereof has a prima facie authority to fill up such blanks.
(Sec. 14)

SPS Evangelista v. Mercator Finance

Sps. Evangelista were officers of Embassy Farms. They loaned from respondent, Mercator Finance, and the
Sps. executed a promissory note as co-makers in favor of Mercator Finance.
Doctrine: An ambiguity in the wording of the promissory note must be interpreted with respect to the
rules of construction as provided under Section 17 of the NIL.
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Section 17 of the NIL provides that,

a) Where the sum payable is expressed in words and also in figures and there is a discrepancy
between the two, the sum denoted by the words is the sum payable; but if the words are
ambiguous or uncertain, reference may be had to the figures to fix the amount;

b) Where the instrument provides for the payment of interest, without specifying the date from
which interest is to run, the interest runs from the date of the instrument, and if the instrument
is undated, from the issue thereof;

c) Where the instrument is not dated, it will be considered to be dated as of the time it was issued;

d) Where there is a conflict between the written and printed provisions of the instrument, the
written provisions prevail;

e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder
may treat it as either at his election;

f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person
making the same intended to sign, he is to be deemed an indorser;

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

Ilano v. Espanol
Ilano entrusted her check book with her employee. Said employee procured promissory notes and signed
blank checks from Ilano as the latter was recuperating from illness. Upon discovery, Ilano filed a case
against her employee as well the holders of the instruments.
Doctrine:
1. Elements of Cause of Action: (1) The petitioner has a legal right, (2) the defendant has a correlative
obligation with respect to such right, and (3) there is an act or omission by the defendant which
violates such right
2. In case there is a cause of action, vagueness in the allegations does not warrant an outright
dismissal but rather a motion for a bill of particulars may be filed.
3. The validity and negotiability of an instrument is not affected by the fact that
a. it is not dated
b. it does not specify the value given therefor
c. it does not specify the place where it is drawn or place where it I payable
d. it bears a seal
e. it designates a particular kind of current money in which the payment is to be paid.
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III. Negotiation

Sesbreno v. CA
Delta Corporation issued a Promissory Note in favor of PhilFinance. The note indicates that the maker was
Delta Corp., the payee was PhilFinance, and that the instrument was NON-NEGOTIABLE. The note was
deposited with Filipinas Bank. Later on, PhilFinance issued a certificate of securities delivery covering the
Promissory note to Raul Sesbreno by virtue of a money market placement that the latter made. Upon
maturity, Sesbreno demanded the instrument from Filipinas Bank and Delta Corporation.

Doctrine
1. Only a negotiable instrument can be negotiated either through delivery (bearer instrument) or
indorsement coupled with delivery (order instrument). It may likewise be assigned or transferred.
Meanwhile, a non-negotiable instrument may only be assigned or transferred absent any express
prohibition against such acts.
2. The rights of an assignee cannot be greater than that of the assignor as the former merely
substitutes the latter. The assignee can only acquire rights available to the assignor prior to the
notice of assignment given to the debtor.
3. Money Market Transaction (def.) A transaction involving short-term credit instruments where
lenders and borrowers deal through a middle man in the open market. It involves commercial
papers which are instruments evidencing credit, issued, endorsed, sold, or transferred to another
person, with or without recourse.

Consolidated Plywood v. IFC Leasing

Consolidated Plywood bought two tractors from Industrial Products Marketing (IPM). Purchase was by
virtue of a Promissory Note (No words of negotiability) with IPM having a warranty over the tractors for
90 days. IPM assigned their rights to IFC LEASING (IFC).
Doctrine:
1. The instrument in order to be considered negotiable must contain the so called 'words of
negotiability “i.e. must be payable to order or to bearer” These words serve as an expression of
consent that the instrument may be transferred. This consent is indispensable since a maker
assumes greater risks under a negotiable instrument than under a non-negotiable one

Dela Victoria v. Burgos

The salary of the petitioner to be paid in check was garnished while it has yet to be delivered to him.
Doctrine: Section 16 of the NIL provides that every contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument is made. Delivery refers to the transfer of possession of the
instrument by the maker or drawer with intent to transfer title and recognize the transferee as the holder
thereof. Salary that has yet to be delivered to petitioner and thus cannot be garnished until then

Development Bank of Rizal v. Sima Wei

Sima Wei issued two crossed checks drawn against China Banking Corporation and payable to DBR. The
crossed checks eventually came into the possession of Lee Kian Huat who deposited the check to the
account of Plastic Corporation with Producer’s bank despite being crossed and payable to DBR. DBR filed
a case against Sima Wei et al.
Doctrine: It is only upon the delivery of a negotiable instrument that a person acquires a right or interest
therein. Absence of such delivery, a person cannot have a cause of action based on the instruments.
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However, the person may institute an action to collect the proceeds of the loan if it be found that the
same had not been fully paid.

Metropol Financing v. Sambok Motors Co.

A promissory note was issued by a Dr. Villaruel in favor of respondents for the payment of Php 15k. Sambok
Motors indorsed the same to petitioner, Metropol Financing, by signing the note and placing “with
recourse” upon it. Villaruel defaulted and Metropol demanded payment from Sambok.
Doctrine:
1. A qualified indorsement constitutes the indorser as a mere assignor of the title of the document.
Such indorsement may be made by adding to the signature of the indorser the words, “without
recourse”.
2. A qualified indorsement relieves the indorser the general obligation to pay in case of dishonor but
does not relieve him of his liabilities arising from warranties.
3. Recourse means resort to a person who is secondary liable after the default of a person who is
primarily liable. It arises from the nature of negotiable instruments as accumulating secondary
contracts.

IV. Holders

De Ocampo v. Gatchalian
Gatchalian issued a check to be paid to the order of Ocampo Clinic to serve proof of her intention to buy
the car offered by Manuel Gonzales as the alleged agent of De Ocampo Clinic. Gonzales then delivered the
check to De Ocampo as payment for the hospitalization expenses of his wife. The clinic accepted and gave
Gonzales change. The failure to appear of Gonzales as agreed upon with Gatchalian caused the latter to
Stop Payment Order of the check. De Ocampo filed to collect payment

Movement of the NI:

Gatchalian delivered check as proof of intention to buy car to Gonzales. Gonzales paid such check to De
Ocampo Clinic to satisfy indebtedness.

Doctrine:
1. A holder in due course is one who has taken the instrument under the following conditions:
a. that the instrument is complete and regular on its face
b. that he became holder before it was overdue and without notice of dishonor
c. that he took it in good faith and for value
d. that he had no notice of infirmity or knowlege of defect in the title of the person
negotiating it at the time it was negotiated to him
2. Indication that the check is a crossed check would place inquiry as to the possession and purpose
of the check. Accepting the same as payment instead of being deposited directly would constitute
as negligence on the part of the payee and the absence of the fourth requisite in order to declare
such holder as a holder in due faith.

Yang v. CA
By virtue of an agreement, Yang delivered cashier checks and a dollar draft to Chandiramani through her
associate, Liong, who delivered it through his messenger Ranigo. Ranigo allegedly lost the instruments.
Chandiramani was able to acquire the instruments without complying with the agreement. He delivered
the instruments to David.Yang instituted an action against Chandiramani and David. David interposed the
defense that he was a Holder in Due Course.
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Movement of the NI:

Yang -> Liong (as associate of Yang) -> Ranigo (messenger of Liong) -> LOST INSTRUMENTS ->
Chandiramani -> Fernando David (no knowledge of agreement) -> Deposited with Equitable Bank (Crossed
checks)
Doctrine:
1. Every holder of a negotiable instrument is considered prima facie a holder in due course. The
presumption arises in favor of a person who is a holder who is a “payee or indorsee of a bill or
note, who is in possession of it, or the bearer thereof”
2. Such presumption may be rebutted upon showing that the holder has not possessed such
instrument in compliance with Section 52 of the NIL. However, the burden of proof is upon the
party alleging the same.

Mesina v. IAC
Respondent, purchased a Cashier’s check with Associated Bank. However, he left the check when he left
the bank. For safekeeping, the check was entrusted to a bank official who had a visitor (Alexander Lim).
The check was lost which was reported with the police and a stop payment order was made over the check.
Later on, the check was received for clearing by Prudential bank. It was dishonored twice due to the stop
payment. Associated bank received a letter from an attorney who refused to disclose his client’s identity,
demanding the payment of the check. A complaint was later on filed by petitioner, Marcelo Mesina, for
damages. Mesina stated that he came to possess the check when it was paid to him by Lim in a “certain
transaction”

Movement of the NI:

Associated Bank (Cashier’s Check) -> John Go –x- Instrument lost/stolen –x- Alex Lim -> Unknown Person
-> Unknown Person becomes Marcelo Mesina -> Prudential Bank (stops payment)
Doctrine: Absence of the name of the holder in the negotiable instrument would bring into question
whether the holder is a holder in due course and that the presumption shall not arise. Hence, the burden
shifts to the holder to prove that he acquired the instrument without any infirmity or defect in the title of
the person negotiating the same.

V. Liability of Parties

Crisologo-Jose v. CA
Check issued by Atty. Benares (President of Mover Enterprises) and signed as an alternate signatory by
Ricardo Santos Jr. (VP of Mover Enterprises) as an accommodation of their clients, Jaime and Clarita Ong.
The check was drawn against Trader’s Royal Bank and payable to petitioner, Ernestina Crisologo-Jose.
Petitioner sought to hold Benares and Santos liable.
Doctrine:
1. Accommodation party - To be considered as an accommodation party, a person must
a. be a party to the instrument (sign it)
b. not receive value therefor
c. sign for the purpose of lending his name for the credit of some other person
2. General Rule: Indorsement of a corporation without consideration or the accommodation of
another is ultra vires or “beyond its power”. A person who has taken the instrument with the
knowledge of the ultra vires accommodation cannot recover from a corporation who is merely an
accommodation party. Nevertheless, the signatories shall be the ones bound by the
accommodation as their respective personal liabilities.
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3. Exception: An officer may execute or indorse a negotiable instrument in the name of the
corporation if specifically authorized to do so.

Sadaya v. Sevilla
Promissory Note executed by Victor Sevilla, Oscar Varona, and Simeon Sadaya in favor of BPI or its order,
for Php 15,000. Sevilla and Sadaya signed the note as co-makers of Varona. Only Varona received the value
of the note. Sadaya voluntarily paid upon demand of BPI and was not able to recover the amount from
Varona (principal debtor). Sadaya sought to recover from his co-sureties.
Doctrine: Rules on reimbursement by co-accommodation maker
A. A joint and several (joint) accommodation maker of a negotiable instrument may demand
from the principal debtor reimbursement for the amount that he paid to the payee
B. He may likewise demand reimbursement from his co-accommodation maker without going
against the principal debtor provided that
a. He made payment by virtue of a judicial demand OR
b. the principal debtor is insolvent

Travel-On v. CA
Six checks were drawn by Arturo Miranda in favor of the petitioner, Travel-On. The checks were dishonored
and a collection suit was instituted by Travel-On. Miranda interposed the defense that he was an
accommodation party and that the checks were merely used to show that Travel-On was financially stable.
Doctrine: A check issued which is regular on its face is deemed prima facie to have been for valuable
consideration and every person who signed is deemed a party for value. This same presumption would
entitle the holder to recovery of the sum.

Rule: It is presumed that a negotiable instrument is given or indorsed with specific consideration. Burden
falls upon the party who alleges otherwise

Accommodation Party (def.) one who lends his credit to an accommodated party by issuing or indorsing
a check which is held by the payee or indorsee as a holder in due course, who gave full value therefor to
the accommodated party. An accommodation party warrants the HIDC that he will pay the note according
to its tenor in case of non-performance by the principal debtor (accommodated party).

Agro-Conglomerates INC. v. CA
Agro Conglomerates sold two parcels of land to Wonderland Food Industries. Wonderland shall pay one
million upon signing, two million worth of stocks, and two million in four installments. An addendum was
made which provided that a loan would instead be taken from Summa Savings Loan and in the name of
Agro. The loan shall be paid by Wonderland. Mario Soriano signed as a maker of several promissory notes
payable to Regent Savings Bank (Summa Savings)
Doctrine: An accommodation party is a person who has signed the instrument as maker, acceptor, or
indorser, without receiving value therefor, and for the purpose of lending his name to some other person
and is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the
instrument knew (the signatory) to be an accommodation party. After payment to the holder, he has the
right to obtain reimbursement from the party accommodated.
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Gonzales v. RCBC
A check ($7,500) drawn by Dr. Don Zapata against Wilshire Center Bank (California, USA) and payable to
Eva Alviar, mother of Gonzales. This was indorsed by Alviar to her daughter, Melva Gonzales who worked
in RCBC. Gonzales presented the check to Olivia Gomez who indorsed the check by signing it and placing
“up to PHP 17,500 only”. The check was checked and marked OK by another employee and was presented
to the remittance section. RCBC tried to collect from the First Interstate Bank of California who dishonored
it due to the “irregular indorsement”
Doctrine: A subsequent party causing the defect in the instrument cannot have a recourse against any of
the prior indorsers in good faith. A general indorser can only be held liable for the state of the instrument
at the time of their indorsement under Sec. 66 as well as the warranties under Section 65. The indorser
who causes an infirmity or defect shall bear such loss or damage.

Ang v. Associated Bank

Ang and Liong took out two loans from Associated Bank. They issued two promissory notes, both of which
were signed by Ang and Liong. The proceeds were acquired by Liong. Upon maturity, Associated Bank
demanded payment from them which they failed to settle. Ang interposed the defense that he did not
receive any valuable consideration for signing the loan and was merely an accommodation party.
Doctrine: Accommodation party under Section 29 of the NIL
1. An accommodation party is a person who signed the instrument as a maker, drawer, acceptor, or
indorser without receiving value therefor and for the purpose of lending his name to some other
person. The requisites are as follows:
a. He must be a party to the instrument as maker, drawer, acceptor, or indorser
b. He must not receive value therefor
c. He must sign for the purpose of lending his name or credit to another
2. “Without receiving value therefor” means “without receiving value by virtue of the instrument”
and not as “without receiving payment for lending his name”. When a third person advances the
face value of the note to the accommodated party, the consideration is the money advanced to
the latter.

Far East Bank & Trust Company v. Gold Palace Jewelry

A foreigner purchased several pieces of jewelry from Gold Palace Jewelry. He paid by offering a foreign
draft issued by United Overseas Bank – Malaysia. The manager of GPJ deposited the draft to FEBTC. FEBTC
as the collecting bank, presented the draft for clearing with Land Bank of the Philippines (drawee bank).
LBP cleared the draft. Account of UOB was debited of the amount, GPJ account with FEBTC credited. Pieces
of jewelry was released to the foreigner. It was later on found that the amount of the draft was altered,
when UOB found that its account was being depleted. FEBTC refunded the amount to LBP and demanded
the same from GPJ.
Doctrine: The acceptor of the instrument, upon its acceptance, engages that he will pay it according to
the tenor of his acceptance. Such acceptance gives rise to the obligation of the acceptor to pay and can
no longer repudiate the payment it erroneously made to a holder in due course. Commercial Policy favors
the protection of any one who, in due course, changes his position on the faith of the drawee bank’s
clearance and payment of a check or draft.

Where one of two innocent parties must suffer a loss, the law will leave the loss where it finds it. A drawee
bank, in most cases, is in a better position than a holder, to verify with the drawer matters relating to the
instrument.