212 SCRA 448 Mercantile Law Negotiable Instruments Law Negotiable Instruments in General Bearer Instrument Certificate of Time Deposit

212 SCRA 448 Mercantile Law Negotiable Instruments Law Negotiable Instruments in General Bearer Instrument Certificate of Time DepositIn 1982, Angel de la Cruz obtained certificates of time deposit (CTDs) from Security Bank and Trust Company for the formers deposit with the said bank amounting to P1,120,000.00. The said CTDs are couched in the following manner:

This is to Certify that B E A R E R has deposited in this Bank the sum of _______ Pesos, Philippine Currency, repayable to said depositor _____ days. after date, upon presentation and surrender of this certificate, with interest at the rate of ___ % per cent per annum.Angel de la Cruz subsequently delivered the CTDs to Caltex in connection with the purchase of fuel products from Caltex.

In March 1982, Angel de la Cruz advised Security Bank that he lost the CTDs. He executed an affidavit of loss and submitted it to the bank. The bank then issued another set of CTDs. In the same month, Angel de la Cruz acquired a loan of P875,000.00 and he used his time deposits as collateral.

In November 1982, a representative from Caltex went to Security Bank to present the CTDs (delivered by de la Cruz) for verification. Caltex advised Security Bank that de la Cruz delivered Caltex the CTDs as security for purchases he made with the latter. Security Bank refused to accept the CTDs and instead required Caltex to present documents proving the agreement made by de la Cruz with Caltex. Caltex however failed to produce said documents.

In April 1983, de la Cruz loan with Security bank matured and no payment was made by de la Cruz. Security Bank eventually set-off the time deposit to pay off the loan.

Caltex sued Security Bank to compel the bank to pay off the CTDs. Security Bank argued that the CTDs are not negotiable instruments even though the word bearer is written on their face because the word bearer contained therein refer to depositor and only the depositor can encash the CTDs and no one else.

ISSUE: Whether or not the certificates of time deposit are negotiable.

HELD: Yes. The CTDs indicate that they are payable to the bearer; that there is an implication that the depositor is the bearer but as to who the depositor is, no one knows. It does not say on its face that the depositor is Angel de la Cruz. 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, 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.

However, Caltex may not encash the CTDs because although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between Caltex and De la Cruz, requires both delivery and indorsement. As discerned from the testimony of Caltex representative, the CTDs were delivered to them by de la Cruz merely for guarantee or security and not as payment.

Consolidated Plywood Industries, Inc V. IFC Leasing And Acceptance Corp.

G.R. No. 72593 April 30, 1987

Lessons Applicable: Requisites of negotiability to antedated and postdated instruments (Negotiable Instruments Law)

FACTS: Consolidated (buyer pays promossor note) > IPM (seller-assignor who violatedwarranty) > IFC (holder in due course or merely an assignee?)

Consolidated Plywood Industries, Inc (Consolidated) is a corporation engaged in the logging business

For the purpose of opening of additional roads and simultaneous logging operations along the route of roads, it needed 2 additional units of tractors

Atlantic Gulf & Pacific Company of Manila, through its sister company and marketing arm, Industrial Products Marketing (IPM) (seller-assignor) offered to sell 2 "Used" Allis Crawler Tractors

IPM inspected the job site and assured that the tractors were fit for the job and gave a 90-days performance warranty of the machines and availability of parts.

Consolidated purchased on installment.

It paid the down payment of P210,000

April 5, 1978: IPM issued the sales invoice and the deed of sale with chattel mortgage withpromissory note was executed

IPM, by means of a deed of assignment, assigned its rights and interest in the chattelmortgage in favor of IFC Leasing and Acceptance Corp. (IFC)

After 14 days, one of the tractors broke down and after another 9 days, the other tractor too

Because of the breaking down of the tractors, the road building and simultaneous logging operations were delayed

Consolidated unilaterally rescinded the contract w/ IPM

April 7, 1979: Wee of Consolidated asked IPM to pull out the units and have them reconditioned, and thereafter to offer them for sale.

The proceeds were to be given to IFC and the excess will be divided between:IPM

Consolidated which offered to bear one-half 1/2 of the reconditioning cost

IPM didn't do anything

IFC filed against Consolidated for the recovery of the principal sum P1,093,789.71, interest and attorney's fees

RTC and CA: favored IFC

breach of warranty if any, is not a defense available to Consolidated either to withdraw from the contract and/or demand a proportionate reduction of the price with damages in either case

ISSUE: W/N IFC is a holder in due course of the negotiable promissory note so as to bar completely all the available defenses of the Consolidated against IPM

HELD: CA reversed and set aside

Consolidated is a victim of warranrty

The Civil Code provides that:

ART. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them.

ART. 1562. In a sale of goods, there is an implied warranty or condition as to the quality or fitness of the goods, as follows:(1) Where the buyer, expressly or by implication makes known to the seller the particular purpose for which the goods are acquired, and it appears that the buyer relies on the sellers skill or judge judgment (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be reasonably fit for such purpose;xxx xxx xxx

ART. 1564. An implied warranty or condition as to the quality or fitness for a particular purpose may be annexed by the usage of trade.

xxx xxx xxx

ART. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold even though he was not aware thereof.This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold. (Emphasis supplied).

GR: extends to the corporation to whom it assigned its rights and interests

EX: assignee is a holder in due course of the promissory note

assuming the note is negotiable

Consolidated's defenses may not prevail against it.

Articles 1191 and 1567 of the Civil Code provide that:

ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

xxx xxx xxx ART. 1567. In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case. (Emphasis supplied)

Consolidated, having unilaterally and extrajudicially rescinded its contract with the seller-assignor, can no longer sue IPM except by way of counterclaim if IPM sues it because of the rescission

Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a promissory note "must be payable to order or bearer" - in this case it is non-negotiable

= expression of consent that the instrument may be transferred

consent is indispensable since a maker assumes greater risk under a negotiable instrument than under a non-negotiable one

When instrument is payable to order

SEC. 8. WHEN PAYABLE TO ORDER. - The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. . . .

Without the words "or order" or"to the order of, "the instrument is payable only to the person designated therein and is therefore non-negotiable.Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument but will merely "step into the shoes" of the person designated in the instrument and will thus be open to all defenses available against the latter

Even conceding for purposes of discussion that the promissory note in question is a negotiable instrument, the IFC cannot be a holder in due course due to absence of GF for knowing that the tractors were defective

SEC. 52. WHAT CONSTITUTES A HOLDER IN DUE COURSE. - A holder in due course is a holder who has taken the instrument under the following conditions:

xxx xxx xxx xxx xxx xxx

(c) That he took it in good faith and for value(d) That the time it was negotiated by him he had no notice of any infirmity in the instrument of deffect in the title of the person negotiating itSEC. 56. WHAT CONSTITUTES NOTICE OF DEFFECT. - To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounts to bad faith. (Emphasis supplied)

We believe the finance company is better able to bear the risk of the dealer's insolvency than the buyer and in a far better position to protect his interests against unscrupulous and insolvent dealers. . .

Garcia V. Llamas (2003)

G.R. No. 154127 December 8, 2003

Lessons Applicable: Consideration and Accommodation Party (Negotiable Instruments Law)

FACTS:

Romeo Garcia and Eduardo de Jesus borrowed P400K and issued a promissory note binding themselves solidarily to Dionisio Llamas

Llamas filed a complaint for sum of money and damages against Garcia and de Jesus.

Garcia: signed merely as an accommodation party

RTC: favored Llamas against de Jesus

CA: no novation

ISSUE: W/N de Jesus is not be liable as an accomodation party because note is non-negotiable

HELD: YES. CA Affirmed

Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor - NOT in this case

By its terms, the note was made payable to a specific person rather than to bearer or to order- a requisite for negotiability under Act 2031, the Negotiable Instruments Law (NIL). Hence, petitioner cannot avail himself of the NILs provisions on the liabilities and defenses of an accommodation party.

Besides, a non-negotiable note is merely a simple contract in writing and is evidence of such intangible rights as may have been created by the assent of the parties

The promissory note is thus covered by the general provisions of the Civil Code, not by the NIL

Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the promissory note.

Under Article 29 of Act 2031, an accommodation party is liable for the instrument to a holder for value even if, at the time of its taking, the latter knew the former to be only an accommodation party.

The relation between an accommodation party and the party accommodated is, in effect, one of principal and surety