Name: Deirdre Jo Marie C.

Taala
Subject: Negotiable Instruments
Topic: Concept of Negotiable Instruments

GSIS vs CA
170 SCRA 533

Facts:

Spouses Racho together with Spouses Lagasca executed a deed of mortgage in favor of GSIS in
connection with 2 loans granted by the latter in the sums of Php 11,500.00 and Php 3,000.00,
respectively. A parcel of land co-owned by the mortgagor spouses was govern as security under
the aforesaid deeds and executed a promissory note promising to pay the said amounts to GSIS
jointly, severally and solidarily.

The Lagasca spouses executed an instrument obligating themselves in the assumption of the
aforesaid obligation and to secure the release of the mortgage.

Failing to comply with the conditions of the mortgage, GSIS extrajudicially foreclosed the
mortgage and caused the property to be sold at public auction.

More than 2 years after, Spouses Racho filed a complaint against GSIS and Spouses Lagasca
praying that the extrajudicial foreclosure be declared null and void. They allege that they
signed the mortgage contracts not as sureties for the Lagasca spouses but merely as
accommodation party

Issue: WON the promissory note and mortgage deeds are negotiable.

Ruling:

No. Section 29 of the NIL provides that an accommodation party is one who has signed an
instrument as maker, drawer, acceptor of indorser without receiving value therefore, but is
held liable on the instrument to a holder for value although the latter knew him to be only an
accommodation party.

Both parties appears to be misdirected and their reliance misplaced. The promissory note, as
well as the mortgage deeds subject of this case, are clearly not negotiable instrument because
it did not comply with the fourth requisite to be considered as such under Sec. 1 of the NIL –
they are neither payable to order nor to bearer. The note is payable to a specified party, the
GSIS.
Topic: Treasury Warrants

Metropolitan Bank and Trust Company vs CA

269 SCRA 15

Facts:

Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury warrants.
All warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and
deposited to its Savings account in Metrobank branch in Calapan, Mindoro. They were sent for
clearance. Meanwhile, Gomez is not allowed to withdraw from his account, later, however,
“exasperated” over Floria repeated inquiries and also as an accommodation for a “valued”
client Metrobank decided to allow Golden Savings to withdraw from proceeds of the warrants.
In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own
account. Metrobank informed Golden Savings that 32 of the warrants had been dishonored by
the Bureau of Treasury and demanded the refund by Golden Savings of the amount it had
previously withdrawn, to make up the deficit in its account. The demand was rejected.
Metrobank then sued Golden Savings.

Issue: Whether or not treasury warrants are negotiable instruments.

Ruling:

No. The treasury warrants are not negotiable instruments. Clearly stamped on their face is the
word: non negotiable.” Moreover, and this is equal significance, it is indicated that they are
payable from a particular fund, to wit, Fund 501. An instrument to be negotiable instrument
must contain an unconditional promise or orders to pay a sum certain in money. As provided by
Sec 3 of NIL an unqualified order or promise to pay is unconditional though coupled with: 1st,
an indication of a particular fund out of which reimbursement is to be made or a particular
account to be debited with the amount; or 2nd, a statement of the transaction which give rise
to the instrument. But an order to promise to pay out of particular fund is not unconditional.
The indication of Fund 501 as the source of the payment to be made on the treasury warrants
makes the order or promise to pay “not conditional” and the warrants themselves non-
negotiable. There should be no question that the exception on Section 3 of NIL is applicable in
the case at bar.
Topic: Postal Money Orders

Philippine Education Co. vs. Soriano

39 SCRA 587

Facts:

Enrique Montinola sought to purchase from Manila Post Office ten money orders of 200php
each payable to E. P. Montinola. Montinola offered to pay with the money orders with a private
check. Private check were not generally accepted in payment of money orders, the teller
advised him to see the Chief of the Money Order Division, but instead of doing so, Montinola
managed to leave the building without the knowledge of the teller. Upon the disappearance of
the unpaid money order, a message was sent to instruct all banks that it must not pay for the
money order stolen upon presentment. The Bank of America received a copy of said notice.
However, The Bank of America received the money order and deposited it to the appellant’s
account upon clearance. Mauricio Soriano, Chief of the Money Order Division notified the Bank
of America that the money order deposited had been found to have been irregularly issued and
that, the amount it represented had been deducted from the bank’s clearing account. The Bank
of America debited appellant’s account with the same account and give notice by mean of debit
memo.

Issue: Whether or not the postal money order in question is a negotiable instrument.

Ruling:

No. It is not disputed that the Philippine postal statutes were patterned after similar statutes in
force in United States. The Weight of authority in the United States is that postal money orders
are not negotiable instruments, the reason being that in establishing and operating a postal
money order system, the government is not engaged in commercial transactions but merely
exercises a governmental power for the public benefit. Moreover, some of the restrictions
imposed upon money orders by postal laws and regulations are inconsistent with the character
of negotiable instruments. For instance, such laws and regulations usually provide for not more
than one endorsement; payment of money orders may be withheld under a variety of
circumstances.
Topic: Crossed Check

Bataan Cigar vs CA
230 SCRA 643

Facts:

Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the manufacturing of
cigarettes purchased from King Tim Pua George (George King) 2,000 bales of tobacco leaf to be
delivered starting October 1978. On July 13, 1978, it issued crossed checks post dated
sometime in March 1979 in the total amount of P820K. George represented that he would
complete delivery w/in 3 months from Dec 5 1978 so BCCFI agreed to purchase additional 2,500
bales of tobacco leaves, despite the previous failure in delivery. It issued post dated crossed
checks in the total amount of P1.1M payable sometime in September 1979. On July 19, 1978,
George sold to SIHI at a discount check amounting to P164K, post dated March 31, 1979, drawn
by BCCFI w/ George as payee.

On December 19 and 26, 1978, George sold 2 checks both in the amount of P100K, post dated
September 15 & 30, 1979 respectively, drawn by BCCFI w/ George as payee. Upon failure to
deliver, BCCFI issued on March 30, 1979 and September 14 & 28, 1979 a stop payment order
for all checks

SIHI failing to claim, filed a claim against BCCFI

RTC decided that SIHI is holder in due course. Non-inclusion of George as party is immaterial to
the case.

Issue:

Whether or not SIHI is a holder in due course begin a second indorser and a holder of crossed
checks.

Ruling:

Yes. The Supreme Court granted the petition and the decision of the RTC reversed.

Sec. 52
1. That it is complete and regular upon its face
2. 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
3. That he took it in good faith and for value
 4. 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

 Sec. 59
 every holder is deemed prima facie a holder in due course
 However, when it is shown that the title of any person who has negotiated the
instrument was defective, the burden is on the holder to prove that he or some person
under whom he claims, acquired the title as holder in due course.
 effect of crossing of a check

1. check may not be encashed but only deposited in the bank

2. check may be negotiated only once — to one who has an account with a bank
3. act of crossing the check serves as warning to the holder that the check has been
issued for a definite purpose - he must inquire if he has received the check pursuant to
that purpose, otherwise, he is not a holder in due course

 crossing of checks should put the holder on inquiry and upon him devolves the duty to
ascertain the indorser's title to the check or the nature of his possession - failure = guilty of
gross negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of the
Negotiable Instruments Law
 SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to pay the
checks.  However, that SIHI could not recover from the checks. The only disadvantage of a
holder who is not a holder in due course is that the instrument is subject to defenses as if it
were non-negotiable. Hence, SIHI can collect from the immediate indorser, George.
Topic: It must be in writing

Caltex Phil, Inc. vs CA

212 SCRA 448

Facts:

Security bank issued Certificates of Time Deposits to Angel dela Cruz. The same were given by
Dela Cruz to petitioner in connection to his purchase of fuel products of the latter. On a later
date, Dela Cruz approached the bank manager, communicated the loss of the certificates
and requested for a reissuance. Upon compliance with some formal requirements, he was
issued replacements.Thereafter, he secured a loan from the bank where he assigned the
certificates as security. Here comes the petitioner, averred that the certificates were not
actually lost but were given as security for payment for fuel purchases. The bank demanded
some proof of the agreement but the petitioner failed to comply. The loan matured and
the time deposits were terminated and then applied to the payment of the loan. Petitioner
demands the payment of the certificates but to no avail.

Issue: Whether or not the Certificates of Time Deposit (CTDs) are negotiable instruments.

Ruling:

The CTDs in question are negotiable instruments as they meet the requirements of the law for
negotiability as provided for in Section 1 of the Negotiable Instruments Law. The documents
provide that the amounts deposited shall be repayable to the depositor. And according to the
document, the depositor is the "bearer." The documents do not say that the depositor is Angel
de la Cruz and that the amounts deposited are repayable specifically to him. Rather, the
amounts are to be repayable to the bearer of the documents or, for that matter, whosoever
may be the bearer at the time of presentment. However, petitioner cannot recover on the
CTDs. Although the CTDs are bearer instruments, a valid negotiation thereof for the true
purpose and agreement between it and dela Cruz, as ultimately ascertained, requires both
delivery and indorsement. In this case, there was no indorsement as the CTDs were delivered
not as payment but only as a security for dela Cruz' fuel purchases
Topic: Interpretation of Instruments: Other Rules

Equitable Banking vs. Intermediate Appellate Court

GR No. L-74451, May 25, 1988, 161 SCRA 518

Facts:

Nell company issued a check to Casals and Casville Enterprises to obtain a letter of credit from
Equitable Banking in connection with equipment, a garrett skidder, which Casals and Casville
were buying from Nell. Nell indicated the payee as follows " EQUITABLE BANKING
CORPORATION A/C CASVILLE ENTERPRISES INC."

Casals deposited the check with the bank and the bank teller accepted the same and in
accordance with customary bank practice, stamped in the check the words “non-
negotiable”. The amount was withdrawn after the deposit.

This prompted Nell to file a case against the bank, Casals and Casville. While the instant
case was being tried, Casals and Casville assigned the garrett skidder to plaintiff which
credited in favor of defendants the amount of P450,000, as partial satisfaction of its claim
against them.

Issue: Whether or not Equitable bak is liable to cover for the loss.

Ruling:

Equitable is not liable to Nell. Nell should bear the loss as it was through its own acts, which
put it into the power of Casals and Casville Enterprises to perpetuate the fraud against it.

The check wasn’t initially non-negotiable. Neither was it cross-checked. The rubber-
stamping transversally on the face of the check was only made the bank teller in accordance
with customary bank practice, and not by Nell as the drawer of the check, and simply
meant that thereafter the same
check could no longer be negotiated.

The payee was not indicated with reasonable certainty in contravention of Section 8. As
worded, it could be accepted as deposit to the account of the party named therein after the
symbols of A/C, or payable to the bank as trustee, or as an agent, for Casville with the
latter being the ultimate beneficiary.