nego notes based on agbayani book and atty. mercado lectures

8/20/2019 Nego Notes Based on Agbayani Book and Atty. Mercado Lectures

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NEGOTIABLE INSTRUMENTS NOTES

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURESPage 1 of 190

BY: MA. ANGELA LEONOR C. AGUINALDOATENEO LAW 2D BATCH 2010

NOTES FOR WEEK #1

JUNE 12-16, 2007

INTRODUCTION TO NEGOTIABLE INSTRUMENTS

PURPOSE OF CODIFICATION!

Chief purpose was to produce uniformity in the laws of the differentstates upon this important subject, so that the citizens of each statemight know the rules which would be applied to their notes, checks,and other negotiable paper in every other state in which the law wasenacted, since it is an absolute impossibility for the commercialpurchaser

!

Second purpose was to preserve the law as nearly as possible as itthen existed

LAW EMBRACES SUBTANTIVE AND ADJECTIVE LAW

MOST COMMON FORMS OF NEGOTIABLE INSTRUMENTS

1.

Promissory notes2.

Bills of exchange3. Checks, which are also bills of exchange, but of a special kind

PROMISSORY NOTE, SECTION 184! “A negotiable promissory note, within the meaning of this act, is an

unconditional promise in writing by one person to another, signed bythe maker (1), engaging to pay on demand or at a fixed ordeterminable future time (2), a sum certain in money (3) to order orto bearer (4). Where a note is drawn to the maker’s own order, it isnot complete until indorsed by them.”

! Essentially a promise in writing to pay a sum certain in money!

The promise is to pay on demand or on a fixed or determinable futuretime

!

General characteristics: amount; place where contract to pay isexecuted; due date; absolute promise to pay something; payable toorder/bearer; payee; maker of the note

BILL OF EXCHANGE, SECTION 126• “A bill of exchange is an unconditional order in writing addressed by

one person to another signed by the person giving it (1), requiring theperson to whom it is addressed to pay on demand or at a fixed ordeterminable future time (2) a sum certain in money (3) to order or tobearer (4).”

• General characteristics: the order or command to pay; drawer/maker;drawee

CHECK! A bill of exchange drawn on a bank payable on demandCHECK

BILL OF EXCHANGE

Always drawn upon a bank orbanker

May or may not be drawn upon abank

Not necessary to present foracceptance

Necessary

Drawn on a deposit Not drawn Death of drawer revokes theauthority of banker to pay

Does not revoke

Must be presented for paymentwithin a reasonable time after itsissue

May be presented for paymentwithin a reasonable time after itslast negotiation

TO WHOM INSTRUMENTS MAY BE PAYABLE1.

Bearer2. Order3. To a specified person

WHEN IS IT PAYABLE TO BEARER?1.

When it is expressed to be so payable2.

When it is payable to a person named therein or bearer

WHEN IS IT PAYABLE TO ORDER?1.

When it is expressed to be payable to the order of a specified person2.

To a specified person or his order

WHEN IS IT PAYABLE TO A SPECIFIED PERSON?!

When the instrument is payable to a specified person named in theinstrument and no other

PARTIES TO A PROMISSORY NOTE1.

Maker—the person who executes the written promise to pay2.

Payee, if the instrument is payable to order—the person in whosefavor the promissory note is made payable

3.

Bearer, if the instrument is payable to bearer

PARTIES TO A BILL OF EXCHANGE


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1.

Drawer—the person who executes the written order to pay2.

Payee, if the instrument is payable to order—the person in whosefavor a bill of exchange is drawn payable

3.

Bearer, if the instrument is payable to bearer4. Acceptor—the drawee who signifies his assent to the order of the

drawer. It is only when he accepts the bill that he becomes a partythereto and liable thereon.

OTHER PARTIES TO NEGOTIATED INSTRUMENTS1.

Indorser and2. Indorsee, in the case of instruments payable to order3.

Persons negotiating by mere delivery4.

Persons to whom the instrument is negotiated by delivery

INDORSER AND INDORSEE!

When the negotiation is by indorsement completed by delivery, theparties added are the indorser and indorsee

!

Indorser—the one who negotiates the instrument! Indorsee—the one to whom the instrument is negotiated by

indorsement

WHERE INSTRUMENT IS PAYABLE TO BEARER• Where the instrument is payable to bearer, it can be negotiated by

mere delivery without necessity of indorsement

HOLDER! The payee or indorsee of a bill or note, who is in possession of it, or

the bearer thereof!

If the instrument is payable to order, he who is the payee or indorseeand who is in possession thereof

! If the instrument is payable to bearer, he who is in possession thereof

INCIDENTS IN THE “LIFE” OF A NEGOTIABLE INSTRUMENT

1.

Issue2.

Negotiation3.

Presentment for acceptance, in certain kinds of bills of exchange4.

Acceptance5.

Dishonor by non-acceptance6.

Presentment for payment7. Dishonor by non-payment8.

Notice of dishonor9.

Payment

ISSUE

! First delivery of the instrument, complete in form to a person whotakes it as a holder

DELIVERY! Consists principally of placing the transferee in possession of the

instrument, but it must be accompanied by the intent to transfer title! “every contract on a negotiable instrument is incomplete and

revocable until delivery of the instrument for the purpose of givingeffect thereto”

NEGOTIATION• Transfer of an instrument from one person to another as to constitute

the transferee the holder of the instrument• Mode of transferring an instrument• Effect is to make the transferee the holder of the instrument

HOW INSTRUMENT PAYABLE TO BEARER IS NEGOTIATED!

May be negotiated by mere delivery

HOW INSTRUMENT PAYABLE TO ORDER IS NEGOTIATED! Must be negotiated by indorsement completed by delivery! Indorsement is necessary to make the transferee the indorsee and

delivery is necessary to place the transferee in possession of theinstrument

INDORSEMENT! Legal transaction, effected by the writing of one’s own name on the

back of the instrument or upon a paper attached thereto, with orwithout additional words specifying the person to whom or to whoseorder the instrument is to be payable whereby one not only transfersone’s full legal title to the paper transferred but likewise enters into animplied guaranty that the instrument will be duly paid

SPECIAL INDORSEMENT!

Specifies the person to whom or to whose order the instrument is tobe payable

BLANK INDORSEMENT! One that doesn’t specify the person to whom or to whose order the

instrument is to be payable

NEGOTIATION, INDORSEMENT, DELIVERY, COMPARED.1.

Indorsement is merely the first step in the process of negotiatingan instrument which is payable to order


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2.

Where the instrument is payable to order, neither is deliveryequivalent to negotiation3.

But where the instrument is payable to bearer, delivery isequivalent to negotiation

PRESENTMENT FOR ACCEPTANCE! Exhibiting the bill to the drawee and demanding that he accept it, that

is, signify his assent to the order or command of the drawer

ACCEPTANCE! Signification of the drawee of his assent to the order of the drawer

DISHONOR BY ACCEPTANCE! Where the bill is presented for acceptance, and acceptance is refused

by the drawee, or cannot be obtained, or where presentment foracceptance is excused, and the bill is not accepted

PRESENTMENT FOR PAYMENT! Consists of exhibiting the instrument to the person primarily liable

thereon and demanding payment form him on the date of maturity

DISHONOR BY NON-PAYMENT!

Where the instrument is presented for payment and payment isrefused or cannot be obtained, or where presentment for payment isexcused and the instrument is overdue and unpaid

NOTICE OF DISHONOR! When an instrument has been dishonored by non-payment or non-

acceptance

DISCHARGE• An instrument is discharged by payment in due course by or on behalf

of the principal debtor

PARTIES PRIMARILY AND SECONDARILY LIABLE• Under the NIL, the person primarily liable on an instrument is the

person who by the terms of the instrument is absolutely required topay the same

• All other parties are secondarily liable

IN BILLS OF EXCHANGE• The acceptor is the one primarily liable• He is absolutely required to pay the instrument as he engages that he

will pay it according to the tenor of his acceptance

SECONDARY LIABILITY OF DRAWER• By the mere drawing of the instrument, the drawer assumes the

liability stated in Section 61• The general tenor of the liability of the drawer is that he will pay the

bill if the drawee doesn’t accept or pay the bill.• In other words, he is not absolutely required to pay the bill—if the

drawee pays, then he is not required to pay. It is only when thedrawee doesn’t pay that he will be required to pay.

SECONDARY LIABILITY OF INDORSER!

He will pay the instrument if the person primarily liable will not pay.

SECONDARY LIABILITY OF ONE NEGOTIATING BY DELIVERY!

By merely delivering an instrument payable to bearer, without sayinganything more, the person negotiating by mere delivery assumes theliability mentioned in Section 65.

!

Under said section, the general tenor of liability is similar to that of anindorser

IN PROMISSORY NOTES! The maker is primarily liable!

Agreement of the maker is that he will pay the instrument according tothe tenor

FUNCTION OF NEGOTIABLE INSTRUMENTS1.

Substitute for money2.

Increase the purchasing medium in circulation

PAYMENT BY NEGOTIABLE INSTRUMENTS! W/N the giving and taking of a promissory note or bill of exchange is

prima facie absolute payment as in the case of money or merely aprima facie conditional payment?

!

The delivery of the promissory notes payable to order, or bills ofexchange or other mercantile documents shall produce the effect ofpayment only when they have been cashed, or when, through the faultof the creditor, they have been impaired

PRINCIPAL FEATURES OF NEGOTIABLE INSTRUMENTS1. Negotiability2.

Accumulation of secondary contracts as they are transferred from oneperson to another

NEGOTIABILITY


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! Attribute or property whereby a bill, note or check passes or may passfrom hand to hand similar to money, so as to give the holder in duecourse the right to hold the instrument and collect the sums payablefor himself free from defense.

PRIMARY PURPOSE OF NEGOTIABILITY! To allow bills and notes the effect which money, in the form of

government bills or notes, supplies in the commercial world

ACCUMULATION OF SECONDARY CONTRACTS! Most important characteristic of negotiable instruments is the

accumulation of secondary contracts which they pick up and carry withthem as they are negotiated from one person to another

! Advantage: they improve as they pass from hand to hand, as moredebtors are added

NEGOTIABILITY VS. ASSIGNABILITY

ASSIGNABILITY NEGOTIABILITYMore comprehensive term and

pertains to contracts in general

Pertains only to a special class of

contracts—negotiable instrumentsSubject to the defenses obtainingamong the original parties

Takes it free from personal defensesavailable among the parties

It was necessary to allege andprove consideration to maintain anaction on a common law instrument

Consideration is presumed and neednot be alleged and proved

Indorser is not liable on hisindorsement unless there bepresentment for payment atmaturity and prompt notice ofdishonor in case of dishonor

Assignor in good faith doesn’twarrant the solvency of the debtorunless it has been expressly

stipulated or unless the insolvencywas prior to the assignment and ofcommon knowledge

General indorser is secondarilyliable for any cause for which theparty primarily liable on a

negotiable instrument doesn’t orcannot pay.He warrants the solvency of theperson primarily liable. Thequalified indorser and the personnegotiating by mere delivery have alimited secondary liability

Sec. 126. Bill of exchange, defined.

A bill of exchange is an unconditional order in writing addressed by

one person to another, signed by the person giving it, requiring the

person to whom it is addressed to pay on demand or at a fixed or

determinable future time a sum certain in money to order or tobearer.

TYPES OF BILLS OF EXCHANGE1.

Draft2.

Trade acceptance3.

Banker’s acceptance4.

Treasury warrants5.

Money orders6. Clean bills of exchange7.

Documentary bill of exchange8.

D/A bills of exchange9.

D/P bills of exchange10.

Time or usance bills11.

Bills in set12.

Inland bills13.

Foreign bills

DRAFT! Common term for all bills of exchange and they are used

synonymously

IN BANK DRAFTS, DRAWER AND DRAWEE BANK ARE LIABLE TOPURCHASER OF DRAFT FOR NOT COMPLYING WITH HIS INSTRUCTIONS! The drawee bank acting as “payor” bank is solely liable for acts not

done in accordance with the instructions of the drawer bank or of thepurchaser of the draft

!

The drawee bank has the burden of proving that it didn’t violate

TRADE ACCEPTANCE!

A bill of exchange payable to order and at a certain maturity, drawn bya seller against the purchaser of goods as drawee, for a fixed sum of

money, showing on its face the acceptance of the purchaser of goodsand that it has arisen out of a purchase of goods by the acceptor

!

A draft drawn by the seller on the purchaser of goods sold andaccepted by such purchaser

!

States upon its face that the obligation of the acceptor arises out ofpurchase of goods from the drawer

! Arises from credit obligations arising from the sale of goods and musthave a definite maturity

BANKER’S ACCEPTANCE


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! Draft of which the acceptor is a bank or banker engaged generally inthe business of granting banker’s acceptance credit

!

Similar to a trade acceptance!

Drawn against the bank instead of the buyer

TRUST RECEIPT! The written or printed document signed by the entrustee in favor of

the entruster containing terms and conditions substantially complyingwith the provisions of this decree

!

The legal title to the matter entrusted remains in the entruster but theentruster gives to the trustee a form of title which is good and legalagainst everybody except the entruster

! Entrustee—the person having or taking possession of goods,documents or instruments under a trust receipt transaction, and anysuccessor in interest of such person for the purpose or purposesspecified in the trust receipt agreement

!

Entruster—person holding title over the goods, documents, orinstruments subject of a TRA and any successor-in-interest of suchperson

Sec. 184. Promissory note, defined.

A negotiable promissory note within the meaning of this Act is anunconditional promise in writing made by one person to another,

signed by the maker, engaging to pay on demand, or at a fixed or

determinable future time, a sum certain in money to order or to

bearer. Where a note is drawn to the maker's own order, it is not

complete until indorsed by him.

SPECIAL TYPES OF PROMISSORY NOTES1.

Certificate of deposit2. Bonds3.

Bank notes4.

Due bills

CERTIFICATE OF DEPOSIT!

Written acknowledgement by a bank of the receipt of money ondeposit which the bank promises to pay to the depositor, bearer, or tosome other person or order

BONDS! A promise, under seal to pay money! More formal in character!

Runs for a longer period of time!

Issued under different legal circumstances

CLASSES OF BONDS1.

Mortgage bonds2.

Equipment bonds3. Collateral trust bonds4.

Guaranteed bonds5.

Debentures6.

Income bonds7.

Convertible8.

Redeemable9. Registered bonds10.

Coupon bonds

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.

REQUISITES AS TO A NEGOTIABLE NOTE1.

It must be in writing and signed by the maker2.

It must contain an unconditional promise to pay a sum certain inmoney3. It must be payable on demand, or at a fixed or determinablefuture time4.

It must be payable to order or to bearer

REQUISITES AS TO A NEGOTIABLE BILL1.

It must be in writing and signed by the maker2.

It must contain an unconditional order to pay a sum certain inmoney3.

It must be payable on demand, or at a fixed or determinablefuture time4.

It must be payable to order or to bearer5.

The drawee must be named or otherwise indicated therein withreasonable certainty


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THE INSTRUMENT MUST BE IN WRITING! There must be a writing of some kind, for if the instrument were not in

writing, there would be nothing to be negotiated or passed from handto hand

THE INSTRUMENT MUST BE SIGNED BY THE MAKER OR DRAWER! Full name must be written! At least the surname should appear and generally, the signature

usually is by writing the signer’s name!

But, where the name is not signed, the holder must prove that what iswritten is intended as a signature of the person sought to be charged

!

Commonly, it is found in the lower part of the instrument. It couldalso be signed anywhere as long as the maker or drawer acknowledgesthe signature to be his own.

IF A BILL, IT MUST CONTAIN AN ORDER TO PAY• It is an instrument demanding right• Any words which are equivalent to order or which show the drawer’s

will that the money should be paid, are sufficient to make the

instrument a bill of exchange

AN INSTRUMENT WITH AN EFFECT OF MERE AUTHORITY TO PAY!

It is not negotiable because it is not an order to pay!

“I hereby authorize you to pay P1000 to Pedro Cruz”

EFFECT OF MERE REQUEST TO PAY! The instrument is not negotiable as it is not an order to pay but a

mere request to pay!

“Please to let the bearer have P70 and place to my account and youwill oblige”

EFFECT OF MERE WORDS OF CIVILITY! The mere fact that it contains words of civility or courtesy doesn’t

make it non-negotiable

WHERE INSTRUMENT IS A NOTE, IT MUST CONTAIN A PROMISE TO PAY1.

It is enough that words of equivalent meaning are used2.

The promise is implied from promissory words contained in theinstrument

THE PROMISE OR ORDER TO PAY MUST BE UNCONDITIONAL! It must not be subject to a condition!

It must be unconditional and absolute

SUM PAYABLE MUST BE DEFINITE AND CERTAIN! The amount of money to be paid must be determinable by inspection

and must be stated plainly on the face of the instrument, and like thedenomination of money, must be started in the body of the instrument

SUM MUST BE PAYABLE IN MONEY ONLY! Money is the one standard of value in actual business or more stable

standard of value!

Legal tender—that kind of money which the law compels the creditorto accept in payment of his debt when tendered by the debtor in theright amount

!

But if authorized by law or consent of creditor, cash may besubstituted by other means, or may be check

! Instrument need not be payable in legal tender

INSTRUMENT MUST SPECIFY DENOMINATION!

Instruments should express the specific denomination of money whenit is payable in the money of a foreign country in order that the courtsmay be able to ascertain its equivalent value; otherwise, it is non-

negotiable

PAYABLE ON DEMAND OR ON A FIXED OR DETERMINABLE FUTURE TIME!

On demand!

At a fixed or determinable future time

WHERE NO YEAR IS SPECIFIED! Neither payable on demand or on a fixed or determinable future time! Time of payment is not determinable as the year is not stated

THE INSTRUMENT MUST BE PAYABLE TO ORDER OR TO BEARER! An instrument is not negotiable unless made payable to a person or

his order or bearer or unless words of the similar or equivalent importare used such as assigns or assignees or holder

WHERE PAYABLE TO THE ORDER OF BEARER!

Also negotiable!

This was held to be payable to order!

The payee of such an instrument is the bearer and it can only benegotiated by his indorsement

WHERE PAYABLE TO A CERTAIN PERSON! Where the instrument is payable to a specified person, it’s not payable

to order!

Payable to a certain person or his agent


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! Where payable to “bearer B”

THE DRAWEE MUST BE NAMED!

Requirement that refers only to bills of exchange! Drawee’s name may be omitted and be filled in under implied authority

like any other blank! An acceptance may supply the omission of the designation

IMPORTANCE OF FORMALITIES!

Essential for the security of the mercantile transactions! Distinguish the negotiable instrument from the ordinary non-

transferrable written contract

NECESSITY OF COMPLIANCE WITH PROVISIONS!

Where the instrument doesn’t conform with the requirements laiddown in Section 1, then it is not governed by NIL

DETERMINATION OF NEGOTIABILITY! By the provisions of the NIL, particularly Section 1 thereof

!

By considering the whole of the instrument! By what appears on the face of the instrument and not elsewhere

SECTION 1: CASE DIGESTS

1 CEBU INTERNATIONAL V. CA

316 SCRA 488

FACTS:Petitioner is a quasi-banking institution involved in money markettransactions. Alegre invested with petitioner P500,000. Petitioner issuedthen a promissory note, which would mature approximately after a month.The note covered for Alegre’s placement plus interest. On the maturity ofthe note, petitioner issued a check payable to Alegre, covering the whole

amount due. It was drawn from petitioner’s current account in BPI. Whenthe wife of Alegre tried to deposit the check, the bank dishonored thecheck. Petitioner was notified of this matter and Alegre demanded theimmediate payment in cash. In turn, petitioner promised to replace thecheck on the impossible premise that the first issued be returned to them.This prompted Alegre to file a complaint against petitioner and petitioner inturn, filed a case against BPI for allegedly unlawfully deducting from itsaccount counterfeit checks. The trial court decided in favor of Alegre.

ISSUE: W/N NIL is applicable to the money market transaction heldbetween petitioner and Alegre?

HELD:Considering the nature of the money market transaction, Article 1249 ofthe CC is the applicable provision should be applied. A money market hasbeen defined to be a market dealing in standardized short-term creditinstruments where lenders and borrowers don’t deal directly with eachother but through a middleman or dealer in the open market. In a moneymarket transaction, the investor is the lender who loans his money to aborrower through a middleman or dealer.

In the case at bar, the transaction is in the nature of a loan. Petitioneraccepted the check but when he tried to encash it, it was dishonored. Theholder has an immediate recourse against the drawer, and consequentlycould immediately file an action for the recovery of the value of the check.Further, in a loan transaction, the obligation to pay a sum certain in moneymay be paid in money, which is the legal tender or, by the use of a check.A check is not legal tender, and therefore cannot constitute valid tender ofpayment.

2 ROMAN CATHOLIC OF MALOLOS V. IAC191 SCRA 411

FACTS:Petitioner was the owner of a parcel of land. It then entered into acontract of lease agreement with Robes-Fransisco Realty for the parcel ofland. The agreement was that there would be downpayment plusinstallments with interest. Robes-Fransisco was then in default. Knowingthat it was in its payment of the installments, it requested for therestructuring of the installment payments but was denied. It then askedfor grace period to pay the same and tendered a check thereafter. Suchwas refused and the contract was cancelled.

HELD:

A check whether a manager’s check or ordinary check is not legal tenderand an offer of a check in payment of a debt is not valid tender of paymentand may be refused receipt by the obligee or creditor. As this is the case,the subsequent consignation of the check didn't operate to dischargeRobes-Fransisco from its obligation to petitioner.

3 BPI EXPRESS CARD CORPORATION V. CA

292 SCRA 260

FACTS:


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Marasigan was the holder of a BPI credit card. Due to his delinquency inpayment, immediate demand was given by BPI to pay account. Marasiganissued a postdated check. The check was thereafter kept in custiody byBPI and card was temporarily suspended. And on a relevant date,Marasigan after eating in Café Adriatico tried to use his card to pay but itwas dishonored.

HELD:The issuance of the postdated check was not effective payment on the partof Marasigan and thus, the bank was justified in suspending temporarily hisuse of the credit card. A check is only a substitute for money and notmoney, and the delivery of such instrument doesn't itself operate aspayment.

4 DEVELOPMENT BANK OF RIZAL V. SIMA WEI

219 SCRA 736

FACTS:Sima Wei executed a promissory note in consideration of a loan secured

from petitioner bank. She was able to pay partially for the loan but failedto pay for the balance. She then issued two checks to pay the unpaidbalance but for some unexplainable reason, the checks were not receivedby the bank but ended up in the hands of someone else. The bankinstituted actions against Sima Wei and other people. The trial courtdismissed the case and the CA affirmed this decision.

HELD:A negotiable instrument, of which a check is, is not only a written evidenceof a contract right but is also a species of property. Just as a deed to apiece of land must be delivered in order to convey title to the grantee, somust a negotiable instrument be delivered to the payee in order toevidence its existence as a binding contract. Section 16 provides thatevery contract on a negotiable instrument is incomplete and revocable until

delivery of the instrument for the purpose of giving effect thereto. Thus,the payee of the negotiable instrument acquires no interest with respectthereto until its delivery to him. Delivery of an instrument from the drawerto the payee, there can be no liability on the instrument. Moreover, suchdelivery must be intended to give effect to the instrument.

5 CF SHARP & CO., INC. V. NORTHWEST AIRLINES, INC.

381 SCRA 314

FACTS:

Petitioner was authorized to sell tickets of Northwest Airlines-Japan, butfailed to remit the proceeds. This prompted NWA to file suit againstpetitioner in Tokyo and judgment was rendered in its favor. Thereafter,the RTC issued a writ of execution for foreign court’s decision. Thepetitioner filed for certiorari, asserting it has already made partialpayments. The CA lowered the amount to be paid and included in itsdecision that the amount may be paid in local currency at rate prevailing attime of payment.

HELD:Under RA 529, stipulations on the satisfaction of obligations in foreigncurrency are void. Payments of monetary obligations, subject to certainexceptions, shall be discharged in the currency which is the legal tender ofthe Philippines. But since the law doesn't provide for the rate of exchangefor the payment of foreign currency obligations incurred after itsenactment, jurisprudence held that the exchange rate should be theprevailing rate at time of payment. This law has been amended, allowingpayments for obligations to be made in currency other than Philippinecurrency but then again, it failed to state what the exchange rate that

should be used. This being the case the jurisprudence regarding the use ofthe exchange rate at time of payment shall be used.

6 TIBAJIA V. CA

223 SCRA 163

FACTS:Tan filed a suit against spouses Tibaija. Decision was rendered in herfavor. She then filed a motion of execution for the amount deposited andthe cashier of RTC was garnished for the amount deposited therein by thespouses. This prompted the spouses to deliver cash and check but Tanrefused to accept.

HELD:

A check is not valid legal tender and the creditor may validly refusepayment by check.

7 CALTEX V. CA

12 SCRA 448

FACTS:Security bank issued Certificates of Time Deposits to Angel dela Cruz. Thesame were given by Dela Cruz to petitioner in connection to his purchase offuel products of the latter. On a later date, Dela Cruz approached the bankmanager, communicated the loss of the certificates and requested for a


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reissuance. Upon compliance with some formal requirements, he wasissued replacements. Thereafter, he secured a loan from the bank wherehe assigned the certificates as security. Here comes the petitioner,averred that the certificates were not actually lost but were given assecurity for payment for fuel purchases. The bank demanded some proofof the agreement but the petitioner failed to comply. The loan maturedand the time deposits were terminated and then applied to the payment ofthe loan. Petitioner demands the payment of the certificates but to noavail.

SECURITY BANKAND TRUST COMPANY

6778 Ayala Ave., Makati No. 90101Metro Manila, PhilippinesSUCAT OFFICEP 4,000.00CERTIFICATE OF DEPOSIT

Rate 16%

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____

This is to Certify that B E A R E R has deposited in this Bank the sum ofPESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000 &00 CTS Pesos, Philippine Currency, repayable to said depositor 731 days.

after date, upon presentation and surrender of this certificate, with interestat the rate of 16% per cent per annum.

(Sgd. Illegible) (Sgd. Illegible)

—————————— ———————————

AUTHORIZED SIGNATURES

HELD:

CTDs are negotiable instruments. The documents provide that the amountsdeposited shall be repayable to the depositor. And who, according to thedocument, is the depositor? It is the "bearer." The documents do not saythat the depositor is Angel de la Cruz and that the amounts deposited arerepayable specifically to him. Rather, the amounts are to be repayable tothe bearer of the documents or, for that matter, whosoever may be thebearer at the time of presentment.

If it was really the intention of respondent bank to pay the amount toAngel de la Cruz only, it could have with facility so expressed that fact inclear and categorical terms in the documents, instead of having the word

"BEARER" stamped on the space provided for the name of the depositor ineach CTD. On the wordings of the documents, therefore, the amountsdeposited are repayable to whoever may be the bearer thereof. Thus,petitioner's aforesaid witness merely declared that Angel de la Cruz is thedepositor "insofar as the bank is concerned," but obviously other partiesnot privy to the transaction between them would not be in a position toknow that the depositor is not the bearer stated in the CTDs. Hence, thesituation would require any party dealing with the CTDs to go behind theplain import of what is written thereon to unravel the agreement of theparties thereto through facts aliunde. This need for resort to extrinsicevidence is what is sought to be avoided by the Negotiable InstrumentsLaw and calls for the application of the elementary rule that theinterpretation of obscure words or stipulations in a contract shall not favorthe party who caused the obscurity.

The next query is whether petitioner can rightfully recover on the CTDs.This time, the answer is in the negative. The records reveal that Angel dela Cruz, whom petitioner chose not to implead in this suit for reasons of itsown, delivered the CTDs amounting to P1,120,000.00 to petitioner without

informing respondent bank thereof at any time. Unfortunately forpetitioner, although the CTDs are bearer instruments, a valid negotiationthereof for the true purpose and agreement between it and De la Cruz, asultimately ascertained, requires both delivery and indorsement. For,although petitioner seeks to deflect this fact, the CTDs were in realitydelivered to it as a security for De la Cruz' purchases of its fuel products.Any doubt as to whether the CTDs were delivered as payment for the fuelproducts or as a security has been dissipated and resolved in favor of thelatter by petitioner's own authorized and responsible representativehimself.

In a letter dated November 26, 1982 addressed to respondent SecurityBank, J.Q. Aranas, Jr., Caltex Credit Manager, wrote: ". . . Thesecertificates of deposit were negotiated to us by Mr. Angel dela Cruz to

guarantee his purchases of fuel products." This admission is conclusiveupon petitioner, its protestations notwithstanding. Under the doctrine ofestoppel, an admission or representation is rendered conclusive upon theperson making it, and cannot be denied or disproved as against the personrelying thereon

8 TRADERS ROYAL BANK V. CA

269 SCRA 15

FACTS:


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Filriters through a Detached Agreement transferred ownership toPhilfinance a Central Bank Certificate of Indebtedness. It was only throughone of its officers by which the CBCI was conveyed without authorizationfrom the company. Petitioner and Philfinance later entered into aRepurchase agreement, on which petitioner bought the CBCI fromPhilfinance. The latter agreed to repurchase the CBCI but failed to do so.When the petitioner tried to have it registered in its name in the CB, thelatter didn't want to recognize the transfer.

HELD:The CBCI is not a negotiable instrument. The instrument provides for apromise to pay the registered owner Filriters. Very clearly, the instrumentwas only payable to Filriters. It lacked the words of negotiability whichshould have served as an expression of the consent that the instrumentmay be transferred by negotiation.

The language of negotiability which characterize a negotiable paper as acredit instrument is its freedom to circulate as a substitute for money.Hence, freedom of negotiability is the touchstone relating to the protection

of holders in due course, and the freedom of negotiability is the foundationfor the protection, which the law throws around a holder in due course.This freedom in negotiability is totally absent in a certificate ofindebtedness as it merely acknowledges to pay a sum of money to aspecified person or entity for a period of time.

The transfer of the instrument from Philfinance to TRB was merely anassignment, and is not governed by the negotiable instruments law. Thepertinent question then is—was the transfer of the CBCI from Filriters toPhilfinance and subsequently from Philfinance to TRB, in accord withexisting law, so as to entitle TRB to have the CBCI registered in its namewith the Central Bank? Clearly shown in the record is the fact thatPhilfinance’s title over CBCI is defective since it acquired the instrumentfrom Filriters fictitiously. Although the deed of assignment stated that the

transfer was for ‘value received‘, there was really no considerationinvolved. What happened was Philfinance merely borrowed CBCI fromFilriters, a sister corporation. Thus, for lack of any consideration, theassignment made is a complete nullity. Furthermore, the transfer wasn't inconformity with the regulations set by the CB. Giving more credence torule that there was no valid transfer or assignment to petitioner.

9 INCIONG V. CA

257 SCRA 578

FACTS:

A promissory note was issued by petitioner together with 2 others jointlyand severally, to make them liable to PBC. Thereafter was a default on thepayment of the note. PBC proceeded against Inciong and in the action filedby the bank, the court decided in its favor.

HELD:Where the promissory note expressly states that the three signaturestherein are jointly and severally liable, any one or some or all of them maybe proceeded against for the entire obligation—the choice is left to thesolidary creditor to determine against whom he will enforce collection.

10 FIRESTONE TIRE V. CA

353 SCRA 601

FACTS:Fojas Arca and Firestone Tire entered into a franchising agreement whereinthe former had the privilege to purchase on credit the latter’s products. Inpaying for these products, the former could pay through special withdrawalslips. In turn, Firestone would deposit these slips with Citibank. Citibank

would then honor and pay the slips. Citibank automatically credits theaccount of Firestone then merely waited for the same to be honored andpaid by Luzon Development Bank. As this was the circumstances,Firestone believed in the sufficient funding of the slips until there was atime that Citibank informed it that one of the slips was dishonored. Itwrote then a demand letter to Fojas Arca for the payment and damagesbut the latter refused to pay, prompting Firestone to file an action againstit.

HELD:The withdrawal slips, at the outset, are non-negotiable. Hence, the rule onimmediate 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'tmake payment on the subject withdrawal slips. Citibank should have

known that withdrawal slips are not negotiable instruments. It couldn'texpect then the slips be treated like checks by other entities. Payment ornotice of dishonor from respondent bank couldn't be expected immediatelyin contrast to the situation involving checks.

In the case at bar, Citibank relied on the fact that LDB honored and paidthe withdrawal slips which made it automatically credit the account ofFirestone with the amount of the subject withdrawal slips then merelywaited for LDB to honor and pay the same. It bears stressing though thatCitibank couldn't have missed the non-negotiable character of the slips.The essence of negotiability which characterizes a negotiable paper as a


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credit instrument lies in its freedom to be a substitute for money. Thewithdrawal slips in question lacked this character.

The withdrawal slips deposited were not checks as Firestone admits andCitibank generally was not bound to accept the withdrawal slips as a validmode of deposit. Nonetheless, Citibank erroneously accepted the same assuch and thus, must bear the risks attendant to the acceptance of theinstruments. Firestone and Citibank could not now shift the risk to LDB fortheir committed mistake.

11 SESBRENO V. CA

222 SCRA 466

FACTS:Petitioner made a placement with Philfinance. The latter delivered to himdocuments, some of which was a promissory note from Delta Motors and apost-dated check. The post-dated checks were dishonored. This promptedpetitioner to ask for the promissory note from DMC and it was discoveredthat the note issued by DMC was marked as non-negotiable. As Sesbreno

failed to recover his money, he f iled case against DMC and Philfinance.

HELD:The non-negotiability of the instrument doesn’t mean that it is non-assignable or transferable. It may still be assigned or transferred in wholeor in part, even without the consent of the promissory note, since consentis not necessary for the validity of the assignment.

In assignment, the assignee is merely placed in the position of theassignors and acquires the instrument subject to all the defenses thatmight have been set up against the original payee.

12 SERRANO V. CA

196 SCRA 107

FACTS:Serrano bought some jewelry from Ribaya. Due to need of finances, shedecided to have the jewelry pawned. She instructed her secretary to do sofor her, which the secretary did but absconded after receiving theproceeds. It is to be noted that the pawnshop ticket indicated that the jewelry was redeemable “by presentation by the bearer.” Afterwards,there was a lead on where the jewelry was pawned. An investigation wasdone to verify the suspicion. The jewelry was to be sold in a public auctionthen. The petitioner and police authorities informed the pawnshop ownernot to sell the jewelry as she was the rightful owner thereof. Despite of

this however, the jewelry was redeemed by a Tomasa de Leon whopresented the pawnshop ticket.

HELD:Having been informed by the petitioner and the police that jewelry pawnedto it was either stolen or involved in an embezzlement of the proceeds ofthe pledge, pawnbroker became duty bound to hold the things pledged andto give notice to the petitioner and authorities of any effort to redeemthem. Such a duty was imposed by Article 21 of the CC. The circumstancethat the pawn ticket stated that the pawn was redeemable by the bearer,didn’t dissolve this duty. The pawn ticket wasn’t a negotiable instrumentunder the NIL, nor was it a negotiable document of title under Article 1507of the CC.

Sec. 2. What constitutes certainty as to sum.

The sum payable is a sum certain within the meaning of this Act,although it is to be paid:

(a) with interest; or

(b) by stated installments; or(c) by stated installments, with a provision that, upon default in

payment of any installment or of interest, the whole shall becomedue; or

(d) with exchange, whether at a fixed rate or at the current rate; or

(e) with costs of collection or an attorney's fee, in case payment

shall not be made at maturity.

WITH INTEREST!

The fact that the sum payable is to be paid with interest doesn’t renderthe sum uncertain

! Amount can easily be computed!

When interest is stipulated but not specified, the legal interest shall beused

!

Where there is no stipulation, the legal rate shall be paid when thedebtor incurs delay!

Interest due shall earn legal interest from the time it is judiciallydemaned, although the instrument may be silent upon this point

ESCALATION AND DEESCALATION CLAUSE—FORMER VALID IFACCOMPANIED BY THE LATTER! May stipulate that the rate of interest agreed upon may be increased

in the event that the applicable maximum rate of interest is increasedby law or by the MB


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! Deescalation clause—stipulation in the agreement that the rate ofinterest agreed upon shall be reduced if the maximum rate of interestis decreased by law or by the MB

BY STATED INSTALLMENTS

1.

Must be stated2.

The maturity of each installment must be fixed or determinable—required in order to comply with the requisite that the instrument, ifnot payable on demand, must be payable on a fixed or determinablefuture time

BY STATED INSTALLMENTS, WITH ACCELERATION CLAUSE! Acceleration clause—“upon default in the payment of any installment,

the whole sum payable shall become due”!

It hastens the payment of the whole note

WITH EXCHANGE!

While the rate of exchange is not always the same and while it istechnically true that the resort must be had to extrinsic evidence to

ascertain what it is, yet the current rate of exchange between twoplaces at a particular date is a matter of common commercialknowledge, or at least easily ascertained by anyone so that the partiescan always, without difficulty, ascertain the exact amount necessary todischarge the paper

! Applies only to instruments drawn in one country and payable inanother

EXCHANGE!

Difference in value of the same amount of money in different countries!

Current rate or fixed rate

WITH COSTS AND ATTORNEY’S FEES! An instrument may thus stipulate that costs of collection and

attorney’s fees shall be paid by the debtor in addition to the principalin case the instrument shall not be paid in maturity!

Although the stipulation will make the sum after maturity uncertain, itwill not affect the certainty of the sum payable at maturity andtherefore, will not affect the negotiability of the instrument in which itis stipulated

NOTES FOR WEEK 2

JUNE 18-23, 2007


13 MEDEL V. CA

299 SCRA 481

FACTS:Four loans were involved in this case.

The first loan was secured by the spouses Medel from Gonzales in theamount of P50,000 wherein P3,000 was withheld by the latter as advanceinterest. This was secured by a P/N.

The second loan obtained was for P90,000. The spouses only receivedP84,000.

The third loan was for P300,000 and this was secured by a real estatemortgage.

The spouses failed to pay for the aforementioned three loans. This was

consolidated into one loan in the amount of P500,000. An additionalP60,000 was loaned to make the payable P500,000. This was covered witha promissory note containing an accelaration clause. Again the spousesfailed to pay.

The appellate court modified the interest to be paid by saying that that theinterest should be 5.5% per month.

HELD:The interest was exorbitant, iniquitous, and unconscionable and hence, itcontrary to morals, if not the law.

The interest should be lowered down.

14 RADIOWEALTH FINANCE V. INTERNATIONAL CORPORATEBANK

182 SCRA 862

FACTS:The petitioner entered into a Credit Facilities agreement with Interbank.This is secured by a promissory note, trust receipts, securityarrangements, which included provisions on payment of attorney’s fees andcosts of collection in case of default. The petitioner failed to pay. Acompromise agreement was entered into by the parties but this agreement


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failed to include the attorney’s fees and costs of collection. The trial courtreduced the percentage of attorney’s fees in its decision.

HELD:The courts may modify the attorney’s fees previously agreed upon where

the amount appears to be unconscionable and unreasonable. For the lawrecognizes the validity of stipulations included in documents such asnegotiable instruments and mortgages with respect. The fees in this caseare reasonable and fair.

15 BACHRACH V. GOLINGCO

39 PHIL 139

FACTS:Bachrach sold a truck to Golingco, which was secured by a promissory noteand a chattel mortgage on the truck. The promissory note provided thatthere would be payment of 25% attorney’s fees.

HELD:

It may lawfully be stipulated in favor of the creditor that in the event that itbecomes necessary, by reason of the delinquency of the debtor, to employcounsel to enforce payment of the obligation, a reasonable attorney’s feeshall be paid by the debtor, in addition to amount due of principal andinterest. The legality of this stipulation, when annexed to the negotiableinstrument, is recognized by the NIL.

The courts have the power to limit the amount recoverable under a specialprovision in a promissory note, whereby the debtor obligates himself to paya specified amount, or a certain per centum of the principal debt, insatisfaction of attorney’s fees for which the creditor would become liable insuing upon the note.

*Normally, if there is absence of any agreement as to attorney’s fees, then

the court would only grant nominal amounts.

Sec. 3. When promise is unconditional.An unqualified order or promise to pay is unconditional within the

meaning of this Act though coupled with:

(a) 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(b) A statement of the transaction which gives rise to the

instrument.

But an order or promise to pay out of a particular fund is notunconditional.

APPLICATION OF SECTION!

Whether or not the indication of a particular fund or particular account,or the statement of the transaction which gives rise to the instrument,would make the promise or order conditional

INDICATION OF A PARTICULAR FUND! First case, the particular fund is not the direct source of the payment,

only the source of reimbursement! Unconditional—drawee pays the payee from his own funds and

afterwards, the drawee pays himself from the particular fund indicated

!

But an order or promise to pay out of a particular fund is notunconditional—particular fund is the direct source of payment

!

Conditional—where the payment to the payee is directly from thefunds indicated, the payment is the subject to the condition that the

funds indicated are sufficient

PARTICULAR ACCOUNT TO BE DEBITED!

The instrument is to be paid first and afterwards, the particularaccount indicated will be debited

! The payment is not subject to the sufficiency or adequacy of theparticular account to be debited

STATEMENT OF TRANSACTION!

Instruments are not issued without any transaction upon which theyare based

! Generally negotiable but a statement of transaction will render theinstrument non-negotiable where the promise or order to pay is madesubject to the conditions and terms of the transactions stated, then

the instrument is rendered non-negotiable

AS PER CONTRACT NOTES!

The appearance of words “as per contract” on the face of theinstruments in any position doesn’t affect the negotiability of theinstrument

CHATTEL NOTES! A promissory note given for a chattel and stipulating that the title to

the chattel shall remain in the vendor-payee until the note is paid, isnot conditional


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REFERENCE TO MORTGAGES!

Provisions in the mortgage doesn’t affect the negotiability of theinstrument it secures

! Where a note otherwise negotiable contains the words “this note is

secured by a mortgage” and the mortgage contains clauses promisingto do many acts other than the payment of money, it was held thatthe note is not rendered non-negotiable

WHEN REFERENCE TO A MORTGAGE RENDERS INSTRUMENT NON-NEGOTIABLE!

When there is uncertainty in amount or when such provisions becomepart of the note, even though they aren’t in the note itself, theinstrument is also rendered non-negotiable


16 ABUBAKAR V. AUDITOR GENERAL

81 PHIL. 359

FACTS:The auditor general refuses to authorize the payment of the treasurywarrant issued in the name of Placido Urbanes, now in the hands ofBenjamin Abubakar. The auditor general refuses to do so because, first,the money available for redemption of treasury warrants was appropriatedby law and the subject warrant doesn’t fall within the purview of the law;second, one of the requirements was not complied with, which is it must besworn that the holders of the warrant covering payment or replenishmentof cash advances for official expenditures received them in payment ofdefinite government obligations.

HELD:Petitioner holds that he is a holder in good faith and for value of a

negotiable instrument and is entitled to the rights and privileges of a holderin due course, free from defenses. But this treasury warrant is within thescope of the NIL. For one thing, the document bearing on its face thewords “payable from the appropriation for food administration”, is actuallyan order for payment out of a particular fund, and is not unconditional, anddoesn’t fulfill one of the essential requirements of a negotiable instrument.

17 METROPOLITAN BANK V. CA

194 SCRA 169

FACTS:

Gomez opened an account with Golden Savings bank and deposited 38treasury warrants. All these warrants were indorsed by the cashier ofGolden Savings, and deposited it to the savings account in a Metrobankbranch. They were sent later on for clearing by the branch office to theprincipal office of Metrobank, which forwarded them to the Bureau of

Treasury for special clearing. On persistent inquiries on whether thewarrants have been cleared, the branch manager allowed withdrawal of thewarrants, only to find out later on that the treasury warrants have beendishonored.

HELD:The treasury warrants were not negotiable instruments. Clearly, it isindicated that it was non-negotiable and of equal significance is theindication that they are payable from a particular fund, Fund 501. Thisindication as the source of payment to be made on the treasury warrantmakes the promise to pay conditional and the warrants themselves non-negotiable.

Metrobank then cannot contend that by indorsing the warrants in general,

GS assumed that they were genuine and in all respects what they purportit to be, in accordance to Section 66 of the NIL. The simple reason is thatthe law isn’t applicable to the non-negotiable treasury warrants. Theindorsement was made for the purpose of merely depositing them withMetrobank for clearing. It was in fact Metrobank which stamped on theback of the warrants: “All prior indorsements and/or lack of endorsementsguaranteed…”

Sec. 4. Determinable future time; what constitutes. - An instrumentis payable at a determinable future time, within the meaning of this

Act, which is expressed to be payable:

(a) At a fixed period after date or sight; or

(b) On or before a fixed or determinable future time specifiedtherein; or

(c) On or at a fixed period after the occurrence of a specified

event, which is certain to happen, though the time of happening be

uncertain.

An instrument payable upon a contingency is not negotiable, and

the happening of the event does not cure the defect.

“AFTER SIGHT”


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! After the drawee has seen the instrument upon presentment foracceptance

ACCELARATION NOTES!

There are certain notes which contain acceleration provisions! Make it possible for the maker to pay the instrument at an earlier date

or make it possible for the holder to require payment of the instrumentat an earlier date

*Type of acceleration note wherein the option to accelerate belongs to themaker, in the above case is A.

EXAMPLES OR ILLUSTRATIONS OF ACCELARATION NOTES1.

That contain acceleration clauses on the maker’s default in payment ofinstallments or of interest, or on the happening of an extrinsic event

2. Or contain, in notes secured by collateral, a provision that the makershall supply additional collateral in case of depreciation in the value ofthe original deposit, with the holder’s right to declare the note dueimmediately on failure to make good the depreciation

a.

Non-negotiable—time for payment becomes uncertain andindefinite

b.

It doesn’t render it non-negotiable—that from the standpointof expediency as encouraging circulation and of business

custom on account of their common acceptance by thecommercial world, such clauses should be interpreted as notaffecting negotiability

3.

Or contain provisions for acceleration when holder deems himselfinsecure

a.

It is rendered non-negotiable where it is payable at a fixedand future time, but with an option on the part of the holderto declare it due and demandable before maturity wheneverhe deems it insecure but to hold them non-negotiable is aspurious construction of the Act

b.

It is rendered non-negotiable when the whole condition islodged to the holder—middle ground is so long as the basis isdependent on factors not within the control of the holder,then it would still be negotiable

WORD USED IS AFTER! The word used in the law is “after” and not before

Sec. 5. Additional provisions not affecting negotiability. - An

instrument which contains an order or promise to do any act in

addition to the payment of money is not negotiable. But the

negotiable character of an instrument otherwise negotiable is not

affected by a provision which:

(a) authorizes the sale of collateral securities in case the

instrument be not paid at maturity; or

(b) authorizes a confession of judgment if the instrument be

not paid at maturity; or

(c) waives the benefit of any law intended for the advantage or

protection of the obligor; or

(d) gives the holder an election to require something to be done

in lieu of payment of money.

But nothing in this section shall validate any provision or

stipulation otherwise illegal.

GENERAL RULE AS TO THE ADDITIONAL ACT! The general rule is that an instrument must not contain an order or

promise to do any act in addition to the payment of money.Otherwise, the instrument wouldn’t be negotiable.

FOUR EXCEPTIONS TO THE GENERAL RULE1.

SALE OF COLLATERAL SECURITIES if the instrument be not paid atmaturity

2.

Authorizes CONFESSION OF JUDGMENT if the instrument be not paidat maturity

3. WAIVER OF BENEFIT OF LAW for the protection and benefit of theobligor

4.

Gives the HOLDER an election to require something to be done in lieuof payment of money

I promise to pay B or order P100 on or before July 1,2007.

Signed A

I promise to pay B or his order P100 ten days after

sight. Signed A


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PROMISE TO FURNISH ADDITIONAL SECURITY! A promise of the maker to render additional collateral will render the

note non-negotiable, as that would be an additional act to the promiseto pay money

! However, they are to be distinguished from those instruments in which

the holder may demand collateral, and failure to furnish it acceleratesthe instrument which are clearly negotiable, but merely accelerable onthe non-performance of an optional act

SALE OF COLLATERAL SECURITIES! The law gives exceptions to the general rule that “an instrument which

contains an order or promise to do any act in addition to the paymentof money is non-negotiable”

! Sometimes, the obligation arising from the transaction which gives riseto the instrument is secured by a mortgage or pledge

!

The additional act to be performed is to be executed after the date ofmaturity, when the instrument c eases to be negotiable in the fullcommercial sense

! Before date of maturity, however, the sale of collateral securities

would render the instrument non-negotiable

CONFESSION OF JUDGMENT!

Must be after the date of maturity!

Second exception to the rule

TWO CLASSES OF CONFESSION OF JUDGMENT1.

Cognovit actionem—a written confession of an action by thedefendant, subscribed but not sealed, and irrevocably authorizing anyattorney of any court of record to confess judgment and issueexecution usually for the sum named. It is given in order to saveexpense and differs from a warrant of attorney, which is given to anexpressly designated attorney before the commencement of any actionand is under seal.

2.

Confession relicta verificatione—confession of judgment made afterplea is pleaded

WARRANT OF ATTORNEY!

Instrument in writing addressed to one or more attorneys namedtherein, authorizing them, generally to appear in court, or in somespecified court on behalf of the person giving it, and to confess judgment in favor of some particular person named therein in anaction for debt

EFFECT OF CONFESSION OF JUDGMENT IN THE PHILIPPINES

In the Philippines, a confession of judgment is considered void as it isagainst public policy--1.

Because they enlarge the f ield for fraud2.

Because under this treatment, the promissory bargains away his rightto a day in court

3.

Because the effect of the instrument is to strike down the right toappeal accorded by statute

WAIVER OF BENEFIT!

Waives the benefit of any law intended for the advantage andprotection of the obligor

!

Examples: presentment for payment, notice of dishonor, protest

ELECTION OF HOLDER TO REQUIRE SOME OTHER ACT!

Fourth exception to the rule!

Even if there is an additional act, the instrument still remains to benegotiable provided that the right to choose between payment ofmoney or the performance of the additional act is in the hands of theholder

CASE DIGESTS: SECTION 5

18 NATIONAL BANK V. MANILA OIL REFINING

43 PHIL 444

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

HELD:

Warrants of attorney to confess judgment aren’t authorized norcontemplated by our law. Provisions in notes authorizing attorneys toappear and confess judgments against makers should not be recognized inour jurisdiction by implication and should only be considered as valid whengiven express legislative sanction.

ATTY. MERCADO’S QUESTIONS:1.

What are the arguments for the validity of a confession of judgment?2.

One of the arguments is that the NIL acknowledges the validity of astipulation for a confession of judgment. Is this sufficient? Theanswer is no.


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19 TRADERS INSURANCE V. DY ENG BIOK104 PHIL 806

FACTS:

Dy Eng Giok was a provincial sales agent of distillery corporation, with theresponsibility of remitting sales proceeds to the principal corporation. Hehas a running balance and to satisfy payment, a surety bond was issuedwith petitioner as guarantor, whereby they bound themselves liable to thedistillery corporation.

More purchases was made by Dy Eng Giok and he was able to pay forthese additional purchases. Nonetheless, the payment was first applied tohis prior payables. A remaining balance still is unpaid. Thus, an actionwas filed against sales agent and surety company. Judgment wasrendered in favor of the corporation.

HELD:The remittances of Dy Eng Giok should first be applied to the obligation

first contracted by him and covered by the surety agreement. First, in theabsence of express stipulation, a guaranty or suretyship operatesprospectively and not retroactively. It only secures the debts contractedafter the guaranty takes effect. To apply the payment to the obligationscontracted before the guaranty would make the surety answer for debtsoutside the guaranty. The surety agreement didn't guarantee the paymentof any outstanding balance due from the principal debtor but only he wouldturn out the sales proceeds to the Distileria and this he has done, since hisremittances exceeded the value of the sales during the period of theguaranty.

Second, since the Dy Eng Biok’s obligations prior to the guaranty were notcovered, and absent any express stipulation, any prior payment madeshould be applied to the debts that were guaranteed since they are to be

regarded as the more onerous debts.

Sec. 6. Omissions; seal; particular money. - The validity andnegotiable character of an instrument are not affected by the fact

that:

(a) it is not dated; or

(b) does not specify the value given, or that any value had beengiven therefor; or

(c) does not specify the place where it is drawn or the place

where it is payable; or

(d) bears a seal; or

(e) designates a particular kind of current money in whichpayment is to be made.

But nothing in this section shall alter or repeal any statute

requiring in certain cases the nature of the consideration to be

stated in the instrument.

EFFECT OF OMISSION OF DATE! Even where the instrument is not dated, still the instrument is not

rendered non-negotiable!

There are however instances, wherein the date is needed for theinstrument to become negotiable

!

When are these instances?o When it is payable in a period after date or after sight

o

When it is allowed to write the date… (Section 13)

ATTY. MERCADO: “WHEN IS DATING REQUIRED TO COMPLETE THEINSTRUMENT?”

EFFECT OF OMISSION OF VALUE! Usually, what is stated in the instrument is that it is being used for

“value received” without specifying what that value is! Nevertheless, the absence of value given, doesn’t render the

instrument non-negotiable

PARTICULAR KIND OF MONEY!

Even if the money in which the instrument is to be payable is not legaltender, provided that it is current money or foreign money which has a

fixed value in relation to the money in the country in which theinstrument is payable, still the negotiability of the instrument is notaffected, as the instrument still is considered payable in money

Sec. 7. When payable on demand. - An instrument is payable on

demand:

(a) When it is so expressed to be payable on demand, or at

sight, or on presentation; or

(b) In which no time for payment is expressed.


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Where an instrument is issued, accepted, or indorsed whenoverdue, it is, as regards the person so issuing, accepting, or

indorsing it, payable on demand.

EXPRESSED TO BE PAYABLE ON DEMAND! An instrument is payable on demand where it is expressed to be

payable on demand, on sight, or on presentation!

It is payable on demand also when no date of payment is specified!

It is payable on demand when the time of payment is left blank orunfilled

INSTRUMENT ON DEMAND ONLY AS BETWEEN THE PARTIES! That after the date of maturity, the instrument can no longer be

negotiated as to make the parties who acquire the instrument after thedate of maturity holders in due course because they become holdersthereof with notice that it is already overdue, as this can bedetermined from the face of the instrument itself

Sec. 8. When payable to order. - The instrument is payable to orderwhere 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.

WORDS OF NEGOTIABILITY!

Among others, for an instrument to be negotiable, it should containwords of negotiability

!

There are only 2 ways by which an instrument and the bill or note is tobe paid to the person designated in the instrument or to any person towhom he has indorsed or delivered the same

! Without the words “or order” or “to order of”, the instrument ispayable only to the person designated therein and therefore, is non-negotiable

MEANING OF THE PHRASE “TO ORDER”

! Pay the payee or the person designated by the payee

NECESSITY OF NAMING THE PAYEE!

The law requires that the payee must be named or otherwise indicatedwith reasonable certainty

!

Must be a person in being, whether natural or legal, and ascertained atthe time of issue

! If there is no named payee, where the instrument is payable to order,no one could indorse the instrument. Consequently, it is useless toconsider it as negotiable.

WHERE THE BLANK FOR NAME OF PAYEE UNFILLED! Not payable to order because the payee is not named neither is he

designated with reasonable certainty


20 SALAS V. CA

181 SCRA 296

FACTS:

Petitioner bought a car from Viologo Motor Sales Company, which wassecured by a promissory note, which was later on indorsed to FilinvestFinance, which financed the transaction. Petitioner later on defaulted inher installment payments, allegedly due to the fraud imputed by VMS inselling her a different vehicle from what was agreed upon. This default inpayment prompted Filinvest Finance to initiate a case against petitioner.The trial court decided in favor of Filinvest, to which the appellate courtupheld by increasing the amount to be paid.

Pay to Y or order the amount of P100.Sgd. A

To: X

Pay to the order of the President of Ateneo de Manila University onJune 20, 2010.

Sgd. ATo: X Corporation


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It is the contention of petitioner that since the agreement between her andthe motor company was inexistent, none had been assigned in favor ofprivate respondent.

HELD:

Petitioner’s liability on the promissory note, the due execution andgenuineness of which she never denied under oath, is under the foregoingfactual milieu, as inevitable as it is clearly established.

The records reveal that involved herein is not a simple case of assignmentof credit as petitioner would have it appear, where the assignee merelysteps into the shoes of, is open to all defenses available against and canenforce payment only to the same extent as, the assignor-vendor.

The instrument to be negotiable must contain the so-called words ofnegotiabili ty. There are only 2 ways for an instrument to be payable toorder. There must always be a specified person named in the instrumentand the bill or note is to be paid to the person designated in the instrumentor 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 payableonly to the person designated therein and is thus non-negotiable. Anysubsequent purchaser thereof will not enjoy the advantages of being aholder in due course but will merely step into the shoes of the persondesignated in the instrument and will thus be open to the defensesavailable against the latter.

In the case at bar, the promissory notes is earmarked with negotiabilityand Filinvest is a holder in due course.

21 CONSOLIDATED PLYWOOD V. IFC

149 SCRA 448

FACTS:

Petitioner bought from Atlantic Gulf and Pacific Company, through its sistercompany Industrial Products Marketing, two used tractors. Petitioner wasissued a sales invoice for the two used tractors. At the same time, thedeed of sale with chattel mortgage with promissory note was issued.Simultaneously, the seller assigned the deed of sale with chattel mortgageand promissory note to respondent. The used tractors were then deliveredbut barely 14 days after, the tractors broke down. The seller sentmechanics but the tractors were not repaired accordingly as they were nolonger serviceable. Petitioner would delay the payments on the promissorynotes until the seller completes its obligation under the warranty.

Thereafter, a collection suit was filed against petitioner for the payment ofthe promissory note.

HELD:It is patent that the seller is liable for the breach in warranty against the

petitioner. This liability as a general rule extends to the corporation towhom it assigned its rights and interests unless the assignee is a holder indue course of the promissory note in question, assuming the note isnegotiable, in which case, the latter’s rights are based on a negotiableinstrument and assuming further that the petitioner’s defense may notprevail against it.

The promissory note in question is not a negotiable instrument. Thepromissory note in question lacks the so-called words of negotiability. Andas such, it follows that the respondent can never be a holder in due coursebut remains merely an assignee of the note in question. Thus, thepetitioner may raise against the respondents all defenses available to itagainst the seller.

22 GSIS V. CA170 SCRA 533

FACTS:Two deeds of mortgages were issued by spouses Racho in favor of GSIS assecurity for two loans obtained by them. They also executed a promissorynote. Due to the failure to comply with the terms of the mortgage, themortgages were extrajudicially foreclosed. The foreclosure was beingassailed by the spouses as they alleged that the mortgage contracts weresigned not as guarantees or sureties but merely gave their commonproperty for the sole benefit of the other spouses. Both sides of the caseused the provisions on accommodation parties in the NIL.

The trial court dismissed the action but this was reversed by the appellate

court.

HELD:Both parties rely on the NIL but this is misplaced. The promissory noteand the deeds of mortgage are not negotiable instruments as they lack thefourth requisite which is it must be payable to order or bearer.

23 PECO V. SORIANO

39 SCRA 587

FACTS:


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Montinola purchased money orders from the postal office. He issued apersonal check to pay for the money orders and since it is irregular to havechecks as payments, he was advised to see the Chief of the Money OrderDivision. He didn’t do so but left the office with the money orders and thecheck. A notice was thereafter issued to all post offices as well as the Bank

of America, about the irregularly issued money orders and the order not toaccept such orders.

Plaintiff was one of those who received the subject money orders andencashed it with the Bank of America. At first, it was given the money butlater on, his account was debited in pursuance of the letter given by theChief.

HELD:Postal money orders are not negotiable instruments. In establishing andoperating a postal money order system, the government is not engaged incommercial transactions but merely exercises a governmental power forthe public benefit. Moreover, some restrictions imposed money orders bypostal laws and regulations are inconsistent with the character of

negotiable instruments.

24 EQUITABLE BANKING V. IAC161 SCRA 518

FACTS:Nell Company issued a check to help Casals and Casville Enterprises obtaina letter of credit from Equitable Banking in connection with equipment, agarrett skidder, which Casals and Casville were buying from Nell. Nellindicated the payee as follows “EQUITABLE BANKING CORPORATION A/CCASVILLE ENTERPRISES INC.”

Casals deposited the check with the bank and the bank teller accepted thesame and in accordance with customary bank practice, stamped in the

check the words “non-negotiable”. The amount was withdrawn after thedeposit.

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

HELD:

Equitable is not liable to Nell. Nell should bear the loss as it was throughits own acts, which put it into the power of Casals and Casville Enterprisesto 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 madethe bank teller in accordance with customary bank practice, and not by Nellas the drawer of the check, and simply meant that thereafter the samecheck could no longer be negotiated.

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

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-existingperson, and such fact was 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) When the only or last indorsement is an indorsement in

blank.

PAYABLE TO THE ORDER OF A FICTITIOUS OR NON-EXISTENT PERSON1. The payee named must be fictitious or non-existent2.

The one making the instrument so payable must know him to befictitious or non-existing

FICTITIOUS PERSON!

Not limited to persons having no real existence!

To be a person who has no right to the instrument because the draweror maker of it so intended, and therefore, it doesn’t matter whetherthe name of the payee used by the drawer or drawee be that of theliving or the dead, or one who never existed

EXISTING PAYEE INTENDED TO RECEIVE PROCEEDS; NOT PAYABLE TOBEARER


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! A negotiable paper made payable to the name of an existing personknown or believed by the maker or drawer to be existing, with intentthat he should receive it or its proceeds, or that it be paid to him orupon his indorsement, IS NOT PAYABLE TO A FICTITIOUS PAYEE ORTO BEARER, although as a matter of fact such person has no interest

in the paper and it was procured by fraud of a third person or of themaker’s or drawer’s employee or agent whose knowledge or intent isnot imputable to the principal or employer, and cashed by the personhaving possession upon the forged instrument of the payee

NON-EXISTING PAYEE, OR ONE WITHOUT INTEREST, BUT BELIEVEDEXISTING OR WITH INTEREST, AND INTENDED TO RECEIVE PROCEEDS;NOT PAYABLE TO BEARER

NON-EXISTING PAYEE, OR ONE WITHOUT INTEREST, KNOWN ORBELIEVED NON-EXISTING NOT INTENDED TO RECEIVE PROCEEDS;PAYABLE TO BEARER

PERSON TO WHOM THE FICTITIOUS OR NON-EXISTING CHARACTER OF

PAYEE MUST BE KNOWN! The drawer drawing a bill or the maker making a note is the person to

whom the fictitious or non-existing character of the payee must beknown

!

Where the instrument is drawn or made by an agent or prepared by anemployee with the maker or drawer signing only, the question arisesas to whose intent should control

! Another difficulty: who is the person who makes the instrumentpayable to the payee—the clerk or the treasurer?

!

Agbayani’s view: that the signer does after all create the instrumentand should determine who owns it

WHERE AGENT HAS NO AUTHORITY TO EXECUTE INSTRUMENT! The knowledge of the principal or employer is controlling, and if he

doesn’t have any knowledge of the fictitious or non-existing characterof the payee, the knowledge of the employee or the agent will notavail to call into application as to fictitious payees and the instrumentwill not be considered as payable to bearer

NAME OF PAYEE NOT NAME OF PERSON! Pay to cash! Pay to the order of money! Pay to the order of cash

WHERE PAYABLE TO THE ESTATE OF A DEAD PERSON

! It has been held to be payable to bearer! Agbayani: estate is a juridical person in a limited way and thus it

shouldn’t be payable to bearer


25 ANG TEK LIAN V. CA

87 PHIL 383

FACTS:Knowing he had insufficient funds, Ang Tek Lian issued a check for P4000,payable to cash. This was given to Lee Hua Hong in exchange for cash.Upon presentment of the check, it was dishonored for having insufficientfunds. It is argued that the check, being payable to cash, wasn’t indorsedby the defendant, and thus, isn’t guilty of the crime charged.

HELD:A check drawn to the order of “cash” is payable to bearer, and the bankmay pay it to the person presenting it for payment without the drawer’s

indorsement. Of course, if the bank is not sure of the bearer’s identity orfinancial solvency, it has the right to demand for identification and/orassurance against possible complications—for instance, forgery of thedrawer’s signature, loss of the check by the rightful owner, raising theamount payable, etc. The bank therefore, requires for its protection thatthe indorsement of the drawer—or some other persons known to it—beobtained. A check payable to bearer is authority for payment to theholder. Where a check is in the ordinary form and is payable to bearer sothat no indorsement is required, a bank to which it is presented forpayment need not have the holder identified, and is not negligent in failingto do so.

Sec. 10. Terms, when sufficient. - The instrument need not follow

the language of this Act, but any terms are sufficient which clearly

indicate an intention to conform to the requirements hereof.


26 JIMENEZ V. BUCOY

103 PHIL 40

FACTS:In the intestate of the estate of spouses Young, Jimenez presents apromissory note signed by Pacita Young for different amounts totalingP21,000. The administrator is willing to pay the promissory note on the


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premise that the amount be adjusted. Claimant assails the adjustment andhence, 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 noexpress promise to pay for a certain amount. This is without merit. Anacknowledge may become a promise to pay by the addition of words bywhich 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 arenecessary, provided they amount, in legal effect, a promise to pay.

Sec. 11. Date, presumption as to. - Where the instrument or anacceptance or any indorsement thereon is dated, such date is

deemed prima facie to be the true date of the making, drawing,

acceptance

nego notes based on agbayani book and atty. mercado lectures

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