CASE DIGEST NEGOTIABLE INSTRUMENTS

1. JIMENEZ VS BUCOY
FACTS:
In  the  intestate  of  the  estate  of  spouses  Young,  Jimenez 
presents  a promissory  note  signed  by  Pacita  Young  for  different 
amounts  totaling P21,000.    The  administrator  is  willing  to  pay 
the  promissory  note  on  the premise that the amount be adjusted. 
Claimant assails the adjustment and
hence, she instituted a case for collection of sum of money.  
 
*Note: “6 months after the war

HELD:
The  administrator  calls  attention  to  the  fact  that  the  notes 
contained  no express  promise  to  pay  for  a  certain  amount.    This 
is  without  merit.    An acknowledge  may  become  a  promise  to 
pay  by  the  addition  of  words  by which  a  promise  of  payment 
is  naturally  implied,  such  as  “payable”,
“payable” on a given date, “payable on demand”, “paid…when called
for”.
 
To  constitute  a  good  promissory  note,  no  precise  words  of 
contract  are necessary, provided they amount, in legal effect, a
promise to pay.

2. Philippine Education Company inc.,  vs. Soriano

G.R.. No. L-22405 , June 30 1971

 FACTS
Enrique Montinola irregularly got hold of 10 money orders from
 Manila Post Office. Upon discovery of the disappearance of
unpaid money orders, instructions to postmasters and banks
were sent to not honor said my orders. Philippine Education Co.
Inc. received one money order as part of its sales receipt and
deposited same with Bank of America which was subsequently
cleared with the Bureau of Posts. More than a year later, the
appellee Chief of the Money Order Division of the Manila Post
Office informed the bank about the irregularity and deducted the
amount. Appellant requested the Postmaster General to
reconsider but his request was denied. Montinola was charged
with theft but was acquitted. Appellant filed an action for
indemnification in the Municipal Court of Manila which
rendered a decision favorable to appellant.

ISSUE:
Is postal money order a negotiable instrument?

RULING:
No, postal money orders are not negotiable instruments because in
establishing and operating a postal money order system, the
government is not engage 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
instrument. 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

3. Caltex vs CA
FACTS:
Security bank issued Certificates of Time Deposits to Angel dela
Cruz.  The same were given by Dela Cruz to Caltex 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 deposits (CTDs) are negotiable
instruments?
HELD:
Yes. The Court held that the CTDs are negotiable instruments. The
CTDs in question undoubtedly meet the requirements of the law for
negotiability.
The Negotiable Instruments Law provides, an instrument to be
negotiable must conform to certain requirements, hence,

1. It must be in writing and signed by the maker or drawer;

2. Must contain an unconditional promise or order to pay a sum
certain in money;
3. Must be payable on demand, or at a fixed or determinable future
time;
4. Must be payable to order or to bearer; and
5. Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.

The documents provide that the amounts deposited shall

be repayable to the depositor.  And who, according to the document,
is the depositor? It 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.
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.
Thus, petitioner’s aforesaid witness merely declared that Angel 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. Hence, the situation  would require any
party dealing with the CTDs to go behind the plain  import  of  what 
is  written  thereon  to  unravel  the  agreement  of  the parties  thereto 
through  facts  aliunde.  This  need  for  resort  to  extrinsic evidence 
is  what  is  sought  to  be  avoided  by  the  Negotiable  Instruments
Law  and  calls  for  the  application  of  the  elementary  rule  that 
the interpretation of obscure words or stipulations in a contract shall
not favor the party who caused the obscurity.

5. FIRESTONE TIRE V. CA  

353 SCRA 601

 FACTS:
Fojas Arca and Firestone Tire entered into a franchising agreement
wherein the former had the privilege to purchase on credit  the latter’s
products.  In paying for these products, the former could pay through
special withdrawal slips.  In turn, Firestone would deposit these slips
with Citibank.  Citibank would  then  honor  and  pay  the  slips.   
Citibank  automatically  credits  the account  of  Firestone  then 
merely  waited  for  the  same  to  be  honored  and paid  by  Luzon 
Development  Bank.    As  this  was  the  circumstances,
Firestone  believed  in  the  sufficient  funding  of  the  slips  until 
there  was  a time  that  Citibank  informed  it  that  one  of  the  slips 
was  dishonored.    It wrote  then  a  demand  letter  to  Fojas  Arca 
for  the  payment  and  damages but the latter refused to pay,
prompting Firestone to file an action against
it.   
 

HELD:

The withdrawal slips, at the outset, are non-negotiable.  Hence, the

rule on immediate notice of dishonor is non-applicable to the case at
hand.  Thus, the bank was under no obligation to give immediate
notice that it wouldn't make  payment  on  the  subject  withdrawal 
slips.    Citibank  should  have known  that  withdrawal  slips  are  not 
negotiable  instruments.    It  couldn't expect then the slips be treated
like checks by other entities.  Payment or notice of dishonor from
respondent bank couldn't be expected immediately in contrast to the
situation involving checks. 

In the case at bar, Citibank relied on the fact that LDB honored and
paid the  withdrawal  slips  which  made  it  automatically  credit  the 
account  of Firestone  with  the  amount  of  the  subject  withdrawal 
slips  then  merely waited for LDB to honor and pay the same.  It
bears stressing though that Citibank  couldn't  have  missed  the  non-
negotiable  character  of  the  slips.  The  essence  of  negotiability 
which  characterizes  a  negotiable  paper  as  a credit  instrument  lies 
in  its  freedom  to  be  a  substitute  for  money.    The withdrawal
slips in question lacked this character.
 
The  withdrawal  slips  deposited  were  not  checks  as  Firestone 
admits  and Citibank generally was not bound to accept the
withdrawal slips as a valid mode of deposit.  Nonetheless, Citibank
erroneously accepted the same as such  and  thus,  must  bear  the 
risks  attendant  to  the  acceptance  of  the instruments.  Firestone and
Citibank could not now shift the risk to LDB for their committed
mistake. 

PHILIPPINE NATIONAL BANK vs. JOSE C. ZULUETA

G.R. No.L-7271 August 30, 1957
BENGZON, J.

FACTS:

Zulueta applied for a commercial letter of credit with

Philippine National Bank (Manila) and was subsequently
granted on November 6, 1948, in favor of Otis Elevator Co.,
260 Eleventh Avenue, New York City, U.S.A., for
$14,449.15 for the purchase of an electric passenger elevator.
 Upon failure to pay, PNB sued the defendant upon a letter of
credit and a draft for the amount of $14,449.15.

Issues:
Whether or not the instrument is negotiable.
Ruling:
The document is negotiable and is governed by the
Negotiable Instruments Law. But this statute does not
contain any express provision on the question. We know the
draft is a foreign bill of exchange, because, drawn in New
York, it is payable here. (Sec. 129 Negotiable Instruments
Law.) We also know that although the amount payable is
expressed in dollars-not current money here-it is still
negotiable, for it may be discharged with pesos of equivalent
amount.

Notes:
An instrument is still negotiable although the amount to be
paid is expressed in currency that is not legal tender so long
as it is expressed in money

Under the Sec 1 of RA 8183, all monetary obligations shall

be settled in Philippine currency which is legal tender in the
Philippines. However, the parties may agree that the
obligation shall be settled in any other currency at the time of
payment

 Sec 1(b) and 6(e) call for the payment of money but the law
does not require the payment should be made in legal tender
  The Uniform Currency Act (RA 529) has repealed RA 8183;
the parties may now—not only in the case of NI—but in any
contract involving payment of debt money, agree now that
the payment should be made in a foreign currency

Case No. 6

BALDOMERO INCIONG, JR vs. COURT OF APPEALS

G.R. No. 96405 June 26, 1996
ROMERO, J.
FACTS:

Petitioner Inciong together with Naybe and Pantanosas

signed a promissory note holding themselves jointly and
severally liable to private respondent Philippine Bank of
Communications (PBC) for the amount of P50,000,00.
Despite extensive effort from PBC to demand for payment
thereof, the obligation remained unpaid up until the due date.
On January 24, 1986 private respondent filed a complaint for
collection of the sum of P50,000.00 against the three
obligors. Said complaint was dismissed for failure of the
plaintiff to prosecute the case. However, the lower court
reconsidered the dismissal order and required the sheriff to
serve the summonses. Only the summons addressed to
petitioner was served since the case against Pantanosas was
dismissed and Naybe went abroad.

In reply, Inciong alleged that he was merely persuaded by

Campos a friend to take part in the loan with Naybe upon the
understanding that he shall only be considered a co-maker to
the said loan in support for his logging business venture. He
further alleged that upon affixing his signature to five (5)
copies of a blank promissory note brought to him by
Campos, he indicated to one copy that he bounds himself
only for the amount of P5, 000. According to him the
presence of trickery, fraud and misrepresentation vitiates his
participation to the promissory notes and at the same negate
his liability thereof.

ISSUE:
 Whether or not Inciong’s indication of limited liability be
appreciated.

RULING: (In application of Sec. 14 of the Negotiable Instruments

Law)

No, In the aforementioned decision of the lower court,

it noted that the typewritten figure "--50,000 --" clearly
appears directly below the admitted signature of the
petitioner in the promissory note. Hence, the latter's
uncorroborated testimony on his limited liability cannot
prevail over the presumed regularity and fairness of the
transaction, under Sec. 5 (q) of Rule 131. The lower court
added that it was "rather odd" for petitioner to have indicated
in a copy and not in the original, of the promissory note, his
supposed obligation in the amount of P5,000.00 only.
Finally, the lower court held that, even granting that said
limited amount had actually been agreed upon, the same
would have been merely collateral between him and Naybe
and, therefore, not binding upon the private respondent as
creditor-bank.

NOTE:

Sec.  14.  Blanks; when  may  be  filled.  -  Where  the  instrument  is

wanting  in  any  material  particular,  the  person  in  possession
thereof has a prima facie authority to complete it by filling up the
blanks therein. And a signature on a blank paper delivered by the
person  making  the  signature  in  order  that  the  paper  may  be
converted  into  a  negotiable  instrument  operates  as  a  prima  facie
authority  to  fill  it  up  as  such  for  any  amount.  In order, however,
that any such instrument when completed may be enforced against
any person who became a party thereto prior to its completion, it must
be filled up strictly in accordance with the authority given and
within a reasonable time.  But  if   any  such  instrument,  after
completion, is negotiated to a holder in due course, it is valid and
effectual for all purposes in his hands, and he may enforce it as if it
had  been  filled  up  strictly  in  accordance  with  the  authority 
given and within a reasonable time.

Republic Planters Bank v CA 216 SCRA 738

FACTS: Defendant Yamaguchi and private respondent Canlas, both

officers of Worldwide Garment Manufacturing, Inc. were authorized
to apply for credit facilities with the petitioner Republic Planters
Bank. Petitioner bank issued nine promissory notes signed by the
Yamaguchi and Canlas to secure payment of the obligations. Years
after, petitioner bank filed a complaint for the recovery of sums of
money covered among others, by the nine promissory notes. Canlas
denied having issued the promissory notes in question, because when
he issued said promissory notes in behalf of the company the same
were in blank, the typewritten entries not appearing therein prior to
the time he affixed his signature.

ISSUE: Is Canlas liable for the amounts appeared in the promissory

notes?
HELD: YES. Canlas is solidarily liable on each of the promissory
notes bearing his signature for the following reasons: The promissory
notes are negotiable instruments and must be governed by the
Negotiable Instruments Law. Under the Negotiable Instruments Law,
persons who write their names on the face of promissory notes are
makers and are liable as such. By signing the notes, the maker
promises to pay to the order of the payee or any holder according to
the tenor thereof. Based on the aforementioned provisions of law,
there is no denying that Canlas is one of the co-makers of the
promissory notes. As such, he cannot escape liability arising
therefrom. Further, where an instrument containing the words "I
promise to pay" is signed by two or more persons, they are deemed to
be jointly and severally liable thereon. 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. The fact that the
singular pronoun is used indicates that the promise is individual as to
each other; meaning that each of the co-signers is deemed to have
made an independent singular promise to pay the notes in full. In the
case at bar, the solidary liability of private respondent Fermin Canlas
is made clearer and certain, without reason for ambiguity, by the
presence of the phrase "joint and several" as describing the
unconditional promise to pay to the order of Republic Planters Bank.

Elizalde & Co, Inc v Binan Trans Co.

FACTS: Defendant purchased from Elizalde Motors Inc. two trucks

with chattel mortgage on two different occasions. Down payment was
made and defendant executed promissory notes for the payment of the
balance. In the promissory notes reference was made to the chattel
mortgage constituted by the defendant in favor of the motor company.
Subsequently, Elizalde transferred its credit to the plaintiff Elizalde &
Co. Inc. The plaintiff made a formal demand, which the defendant
failed to comply. Defendan argued that the promissory notes were not
negotiable because those were subjected to a chattel mortgage.

ISSUE: Are the promissory notes negotiable?

HELD: YES. The promissory notes are negotiable. In each of them
the defendant promises to pay to the Elizalde Motors, Inc. or its order.
The reference made therein to the corresponding chattel mortgage
contract is merely incidental of the note and was not intended to
vitiate the negotiability of the note. It is a well-settled that when the
reference is a simple recital of the consideration for which the paper
was given, its negotiability is not thereby affected.

Arrieta vs. National Rice & Corn Corporation (NARIC) GR L-15645,

31 January 1964 En Banc, Regala (J)

Facts: On 19 May 1952, Paz and Vitaliado Arrieta participated in the

public bidding called by NARIC for the Negotiable Instruments Law,
2004 ( 1 ) Digests (Berne Guerrero) supply of 20,000 metric tons of
Burmese rice. Ad her bid of $203 per metric ton was the lowest, she
was awarded the contract for the same. As a result of the delay in the
opening of the letter of credit by NARIC, the allocation of Arrieta’s
supplier in Rangoon was cancelled and the 5% deposit amounting to
an equivalent of P200,000 was forfeited. Arrieta endeavored but
failed to restore the cancelled Burmese rice allocation, and thus
offered Thailand rice instead. Such offer was rejected by NARIC.
Subsequently, Arrieta sent a letter to NARIC, demanding
compensation for the damages caused her in the sum of US$286,000
representing unrealized profit. The demand having been rejected, she
instituted the case.

Issue: Whether the rate of exchange to be applied in the conversion is

that prevailing at the time of breach, or at the time the obligation was
incurred, or on the promulgation of the decision.

Held: As pronounced in Eastboard Navigation vs. Ismael, if there is

any agreement to pay an obligation in the currency other than
Philippine legal tender, the same is null and void as contrary to public
policy (RA 529), and the most that could be demanded is to pay said
obligation in Philippine currency to be measured in the prevailing rate
of exchange at the time the obligation was incurred. Herein, the rate
of exchange to be applied is that of 1 July 1952, when the contract
was executed.

Ponce vs. CA GR L-49444, 31 May 1979 First Division, Melencio-

Herrera (J)
Facts: On 3 June 1969, Jesus Afable, together with Feliza Mendoza
and Ma. Aurora Dino executed a promissory note in favor of Nelia
Ponce in the sum of P814,868.42 payable without interest on or
before 31 July 1969, subject to an interest of 12% per annum if not
paid at maturity, and an additional sum equivalent to 10% of total
amount due as attorney’s fees in case it is necessary to bring suit, and
the execution of a first mortgage on their properties or the Carmen
Planas Memorial Inc. in the event of failure to pay the indebtedness in
accordance with the terms. Upon failure of the debtors to pay, a
complaint was filed against them for the recovery of the principal
sum, plus interest and damages. The trial court rendered judgment in
favor of Ponce. The Court of Appeals affirmed the decision of the
trial court. On the second motion for reconsideration, however, the
appellate court reversed the judgment and opined that the intent of the
parties was that the note was payable in US dollars which is illegal,
with neither party entitled to recover under the “in pari delicto” rule.
Issue: Whether an agreement to pay in dollars defeat a creditor’s
claim for payment.

Held: If there is an agreement to pay an obligation in a currency other

than Philippine legal tender, the same is illegal / null and void as
contrary to public policy, pursuant to RA 529, and the most that can
be demanded is to pay the said obligation in Philippine currency. It
cannot defeat a creditor’s claim for payment, for such will allow a
person to enrich himself inequitably at another’s expense. What RA
529 prohibits is the payment of an obligation in dollars. A creditor
cannot oblige the debtor to pay in dollars, even if the loan was given
in said currency. In such case, the indemnity is expressed in
Philippine currency on the basis of the current rate of exchange at the
time of payment.

Kalalo vs. Luz GR L-27782, 31 July 1970 En Banc, Zaldivar (J)

 Facts: On 17 November 1959, Octavio Kalalo entered into an
agreement with Alfredo Luz where he was to render engineering
design services for a fee. On 11 December 1961, Kalalo sent Luz a
statement of account where the balance due for services rendered was
P59,505. On 18 May 1962, Luz sent Kalalo a resume of fees due to
the latter, and a check for P10,861.08. Kalalo refused to accept the
check as full payment of the balance of the fees due him. On 10
August 1962, Kalalo filed a complaint containing 4 causes of action,
i.e. $28,000 (representing 20% of the amount paid to Luz in the
International Research Institute project) and the balance of
P30,881.25 as fees; P17,0000 as consequential and moral damages;
P55,000 as moral damages, attorney’s fees and litigation expenses;
and P25,000 as actual damages, attorney’s fees and litigation
expenses). The trial court ruled in favor of Kalalo. Luz filed an appeal
directly with the Supreme Court raising only questions of law.
Issue: Whether the rate of exchange of dollar to peso are those at the
time of the payment of the judgment or at the time when the research
institute project became due and demandable. Held: Luz’ obligation
to pay Kalalo the sum of US$28,000 accrued on 25 August 1961, or
after the enactment of RA 529 (16 June 1950). Thus, the provision of
the statute which requires payment at the prevailing rate of exchange
when the obligation was incurred cannot be applied. RA 529 does not
provide for the rate of exchange for the payment of obligation
incurred after the enactment of the Act, and thus the rate of exchange
should be that prevailing at the time of payment. The view finds
support in the ruling of the Court in Engel vs. Velasco & Co. The trial
court did not err in holding the rate of exchange is that at the time of
payment.
 NATIONAL BANK V. MANILA OIL REFINING  
43 PHIL 444
 

FACTS:
Manila  Oil  has  issued  a  promissory  note  in  favor  of  National 
Bank  which included a provision on a confession of judgment in case
of failure to pay obligation.  Indeed, Manila Oil has failed to pay on
demand.  This prompted the bank to file a case in court, wherein an
attorney associated with them entered his appearance for the
defendant.  To this the defendant objected.   
 

HELD:
Warrants   of   attorney   to   confess   judgment   aren’t   authorized  
nor contemplated  by  our  law.    Provisions  in  notes  authorizing 
attorneys  to appear and confess judgments against makers should not
be recognized in our jurisdiction by implication and should only be
considered as valid when given express legislative sanction.  

PNB vs. Manila Oil Refining and By Products Company

G.R. No. L-18103, June 8, 1922

FACTS:
The manager and the treasurer of the defendant executed and
delivered to the complainant Philippine National Bank a written
instrument with a judgment note on demand, PNB brought an action
and filed a motion confessing judgment.
ISSUE:
Whether or not a judgment note or a provision in a promissory note
whereby in case the same is not paid at maturity, the maker authorizes
any attorney to and confess judgment thereon for the principal amount
with interest, costs and attorney’s fees, and waives all errors, rights to
inquisition, and appeal, and all property exemptions. Will it affect the
negotiable character of the instrument?

RULING:
No, a judgment note will not affect the negotiable character of the
instrument. However, judgment note is not valid and effective.
Warrants of attorney to confess judgment are void as against public
policy because they enlarge the field for fraud, under these
instruments the promissor bargains away his right a day in court, and
the effect of instrument is to strike down the right of appeal accorded
by statute.