5. RAUL SESBREÑO v. HON.

COURT OF APPEALS, DELTA MOTORS CORPORATION

AND PILIPINAS BANK (1993) G.R. No. 89252/ 222 SCRA 466

FACTS:

On 9 February 1981, petitioner Raul Sesbreño made a money market placement in the
amount of P300,000.00 with the Philippine Underwriters Finance Corporation ("Philfinance"),
Cebu Branch; the placement, with a term of thirty-two (32) days, would mature on 13 March 1981,
Philfinance, also on 9 February 1981, issued the following documents to petitioner:

(a) the Certificate of Confirmation of Sale, "without recourse," No. 20496 of one (1) Delta Motors
Corporation Promissory Note ("DMC PN") No. 2731 for a term of 32 days at 17.0% per annum;

(b) the Certificate of securities Delivery Receipt No. 16587 indicating the sale of DMC PN No.
2731 to petitioner, with the notation that the said security was in custodianship of Pilipinas Bank,
as per Denominated Custodian Receipt ("DCR") No. 10805 dated 9 February 1981; and

(c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of petitioner's
investment), with petitioner as payee, Philfinance as drawer, and Insular Bank of Asia and
America as drawee, in the total amount of P304,533.33.

PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor

Corporation Promissory Note 2731, the Certificate of Securities Delivery Receipt indicating the
sale of the note with notation that said security was in the custody of Pilipinas Bank, and postdated
checks drawn against the Insular Bank of Asia and America for P304, 533.33 payable on 13
March 1981. Upon its maturity, petitioner sought to encash the postdated checks but they were
dishonored for having insufficient funds.

Petitioner then issued a demand letter to private respondent Pilipinas Bank, but the note
was never released nor any instrument related thereto. Petitioner also made a written demand
upon private respondent Delta as maker for the partial satisfaction of DMC PN No. 2731,
explaining that Philfinance, as payee thereof, had assigned to him said Note. Delta, however,
denied any liability to petitioner on the promissory note.

As petitioner had failed to collect his investment and interest thereon, he filed an action
for damages with the RTC against private respondents Delta and Pilipinas. The complaint was
dismissed and was affirmed by the CA on appeal.

ISSUE:
WON a non-negotiable promissory note be assigned.
RULING:
 Only an instrument qualifying as a negotiable instrument under the relevant statute may
be negotiated either by indorsement thereof coupled with delivery or by delivery alone where the
negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being
negotiated, also be assigned or transferred. The legal consequences of negotiation as
distinguished from assignment of a negotiable instrument are, of course, different. A non-
negotiable instrument may, obviously, not be negotiated; but it may be assigned or transferred,
absent an express prohibition against assignment or transfer written in the face of the instrument.
In this case, while the promissory note was marked "non-negotiable," it was not at the
same time stamped "non-transferable" or "non-assignable." Hence, there is no stipulation which
prohibited the promissory note’s assigning or transferring, in whole or in part.

8. PHILIPPINE NATIONAL BANK (PNB) vs. RODRIGUEZ G.R. No. 170325 (2008)

FACTS:

Respondents-Spouses Rodriguez maintained savings and demand/checking accounts

with petitioner.In line with their informal lending business, they had a discounting arrangement
with PEMSLA, an association of PNB employees, which regularly granted loans to its members.
Spouses Rodriguez would rediscount the postdated checks issued to members whenever the
association was short of funds, and would replace the postdated checks with their own checks
issued in the name of the members.

PNB later on found out that some PEMSLA officers took out loans in the names of other
members, without their knowledge or consent by forging the indorsement of the named payees in
the checks.

PNB then closed the current account of PEMSLA. The checks deposited to PEMSLA
however, were debited from the Rodriguez account. Thus, spouses Rodriguez incurred losses.

The spouses Rodriguez filed a civil complaint for damages against PEMSLA and PNB.
They sought to recover the value of their checks that were deposited to the PEMSLA savings
account amounting to P2,345,804.00. The spouses contended that PNB paid the wrong payees,
hence, it should bear the loss.

The RTC rendered judgment in favor of spouses Rodriguez, and ruled that PNB is liable
to return the value of the checks. On appeal, the CA affirmed the RTC Decicion..

ISSUE:

Whether the subject checks are payable to order or to bearer and who bears the loss.
RULING:

A check is “a bill of exchange drawn on a bank payable on demand.” It is either an order or a

bearer instrument. 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.

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.

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 person making it so payable. Thus, checks issued to “Prinsipe
Abante” or “Si Malakas at si Maganda,” who are well-known characters in Philippine mythology,
are bearer instruments because the named payees are fictitious and non-existent.

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. At most,
the bank’s thesis shows that the payees did not have knowledge of the existence of 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. Considering that respondents-spouses were transacting with PEMSLA and not the
individual payees, it is understandable that they relied on the information given by the officers of
PEMSLA that the payees would be receiving the checks.

In this case, the subject checks are presumed order instruments. This is because, as found
by both lower courts, PNB failed to present sufficient evidence to defeat the claim of respondents
that the named payees were the intended recipients of the checks’ proceeds. The bank failed to
satisfy a requisite condition of a fictitious-payee situation – that the maker of the check intended
for the payee to have no interest in the transaction.

Because of a failure to show that the payees were “fictitious” in its broader sense, the fictitious-
payee rule does not apply. Thus, the checks are to be deemed payable to order. Consequently,
the drawee bank bears the loss.