Vda. de Eduque vs. Ocampo GR L-222, 26 April 1950 Second Division, Moran (CJ) Facts: On 16 February 1935, Dr. Jose Eduque secured two loans from MarianoOcampo de Leon, DonaEscolastica delos Reyes and Don Jose M. Ocampo, with amount s of P40,000 andP15,000, both payablewithin 20 years with interest of 5% per annum. Payment of the loans was guaranteed bymortgage on realproperty. On 6 December 1943, Salvacion F. Vda de Eduque, as administratrix of theestate of Dr. JoseEduque, tendered payment by means of a cashier’s check representing Japanese Warnotes to Jose M.Ocampo, who refused payment. By reason of such refusal, an action was brought andthe cashier’s check wasdeposited in court. After trial, judgment was rendered against Ocampo compelling himto accept the amount,to pay the expenses of consignation, etc. Ocampo accepted the judgment as to thesecond loan but appealed asto the first loan. Issue: Whether there is a tender of payment by means of a cashier’s check representingwar notes? Held: Japanese military notes were legal tender during the Japanese occupation; andOcampo impliedlyaccepted the consignation of the cashier’s check when he asked the court that he bepaid the amount of thesecond loan (P15,000). It is a rule that a cashier’s check may constitute a sufficient tender where no objection is made on this ground.
Negotiable Instruments Case Digest: Roman Catholic Bishop Of Malolos V. IAC (1990) G.R. No. 72110 November 16, 1990 FACTS: July 7, 1971: A contract over the land was executed between the Roman Catholic Bishop of Malolos (bishop) as vendor and the through its then president, Mr. Carlos F. Robes, as vendee, stipulating for a downpayment of P23,930 and the balance of P100,000 plus 12% interest per annum to be paid within 4 years from execution of the contract. The contract likewise provides for cancellation, forfeiture of previous payments, and reconveyance of the land in case of failure to pay within the period March 12, 1973: private respondent, through its new president, Atty. Adalia Francisco, addressed a letter 6 to Father Vasquez, parish priest of San Jose Del Monte, Bulacan, requesting to be furnished with a copy of the subject contract and the supporting documents July 17, 1975: after the expiration of the stipulated period for payment, Atty. Francisco wrote the formal request that her company be allowed to pay the principal amount of P100,000 in 3 equal installments of 6 months each with the 1st installment and the accrued interest of P24,000 to be paid immediately upon approval July 29, 1975: Bishop through its counsel, Atty. Carmelo Fernandez, formally denied the request but granted a grace period of 5 days from the receipt of the denial to pay the total balance of P124,000 August 4, 1975: private respondent, through its president, Atty. Francisco, wrote the counsel of the petitioner requesting an extension of 30 days from to fully settle its account. - denied RTC: favored Bishop declaring the down payment as forfeited. ISSUE: W/N there is tender of payment by issuance of a certified check? HELD: NO. RTC reinstated. Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to the obligee for the former’s obligation and demanding that the latter accept the same. Tender of payment cannot be presumed by a mere inference from surrounding circumstances. Sheer proof of sufficient available funds to meet more than the total obligation within the grace period - NOT sufficient On the contrary, the respondent court finds itself remiss in overlooking or taking lightly the more important findings of fact made by the trial court which are entitled to great weight on appeal and should be accorded full consideration and respect and should not be disturbed unless for strong and cogent reasons certified personal check which is not legal tender nor the currency stipulated, and therefore, can not constitute valid tender of payment. Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment.
DEVELOPMENT BANK OF RIZAL vs. SIMA WEI, ET AL. G.R. No. 85419 March 9, 1993 FACTS: Respondent Sima Wei executed and delivered to petitioner Bank a promissory note engaging to pay the petitioner Bank or order the amount of P1,820,000.00. Sima Wei subsequently issued two crossed checks payable to petitioner Bank drawn against China Banking Corporation in full settlement of the drawer's account evidenced by the promissory note. These two checks however were not delivered to the petitioner-payee or to any of its authorized representatives but instead came into the possession of respondent Lee Kian Huat, who deposited the checks without the petitionerpayee's indorsement to the account of respondent Plastic Corporation with Producers Bank. Inspite of the fact that the checks were crossed and payable to petitioner Bank and bore no indorsement of the latter, the Branch Manager of Producers Bank authorized the acceptance of the checks for deposit and credited them to the account of said Plastic Corporation. ISSUE: Whether petitioner Bank has a cause of action against Sima Wei for the undelivered checks? RULING: No. A negotiable instrument must be delivered to the payee in order to evidence its existence as a binding contract. Section 16 of the NIL provides that every 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 a negotiable instrument acquires no interest with respect thereto until its delivery to him. Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. Petitioner however has a right of action against Sima Wei for the balance due on the promissory note.
SPOUSES TIBAJIA v. COURT OF APPEALS and EDEN TAN G. R. No. 100290, June 4, 1993 FACTS: A suit of collection of sum of money was filed by Eden Tan against the spouses. A writ of attachment was issued, the Deputy Sheriff filed a return stating that a deposit made by Tibajia in the amount of P442,750 in another case, had been garnished by him. RTC ruled in favor of Eden Tan and ordered the spouses to pay her an amount in excess of P3,000,000. Court of Appeals modified the decision by reducing the amount for damages. Tibajia Spouses delivered to Sheriff Bolima the total money judgment of P398483.70. Tan refused to accept the payment and insisted that the garnished funds be withdrawn to satisfy the judgment obligation. ISSUE: Whether or not payment by means of check is considered payment in legal tender RULING: The ruling applies the statutory provisions which lay down the rule that a check is not legal tender and that a creditor may validly refuse payment by check, whether it be a manager’s check, cashier’s or personal check. The decision of the court of Appeals is affirmed. NO. A check, whether a manager’s check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. A check is not legal tender and that a creditor may validly refuse payment by check, whether it be a manager’s, cashier’s or personal check. The Supreme Court stressed that, “We are not, by this decision, sanctioning the use of a check for the payment of obligations over the objection of the creditor.”
CEBU INTERNATIONAL V. CA 316 SCRA 488 FACTS: Petitioner is a quasi-banking institution involved in money market transactions. Alegre invested with petitioner P500,000. Petitioner issued then a promissory note, which would mature approximately after a month. The note covered for Alegre’s placement plus interest. On the maturity of the note, petitioner issued a check payable to Alegre, covering the whole amount due. It was drawn from petitioner’s current account in BPI. When the wife of Alegre tried to deposit the check, the bank dishonored the check. Petitioner was notified of this matter and Alegre demanded the immediate payment in cash. In turn, petitioner promised to replace the check on the impossible premise that the first issued be returned to them. This prompted Alegre to file a complaint against petitioner and petitioner in turn, filed a case against BPI for allegedly unlawfully deducting from its account counterfeit checks. The trial court decided in favor of Alegre. ISSUE: Whether or not the Negotiable Instruments Law the money market transaction held between petitioner and Alegre?
is
applicable
to
HELD: Considering the nature of the money market transaction, Article 1249 of the CC is the applicable provision should be applied. A money market has been defined to be a market dealing in standardized short-term credit instruments where lenders and borrowers don’t deal directly with each other but through a middleman or dealer in the open market. In a money market transaction, the investor is the lender who loans his money to a borrower through a middleman or dealer. In the case at bar, the transaction is in the nature of a loan. Petitioner accepted the check but when he tried to encash it, it was dishonored. The holder has an immediate recourse against the drawer, and consequently could 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 money may 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 of payment.
Sesbreno vs. Court of Appeals GR 89252, 24 May 1993 FACTS: Petitioner Sesbreno made a money market placement in the amount of P300,000 with the Philippine Underwriters Finance Corporation (PhilFinance), with a term of 32 days. PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor Corporation Promissory Note, the Certificate of Securities Delivery Receipt indicating the sale of the note with notation that said security was in the custody of Pilipinas Bank, and postdated checks drawn against the Insular Bank of Asia and America for P304,533.33 payable on March 13, 1981. The checks were dishonored for having been drawn against insufficient funds. Pilipinas Bank never released the note, nor any instrument related thereto, to Sesbreno; but Sesbreno learned that the security which was issued on April 10, 1980, maturing on 6 April 1981, has a face value of P2,300,833.33 with PhilFinance as payee and Delta Motors as maker; and was stamped “nonnegotiable” on its face. As Sesbreno was unable to collect his investment and interest thereon, he filed an action for damages against Delta Motors and Pilipinas Bank. Delta Motors contents that said promissory note was not intended to be negotiated or otherwise transferred by Philfinance as manifested by the word "non-negotiable" stamped across the face of the Note. ISSUE: Whether the non-negotiability of a promissory note prevents its assignment? RULING: A negotiable instrument, instead of being negotiated, may also be assigned or transferred. The legal consequences of negotiation and assignment of the instrument are different. A non-negotiable instrument may not be negotiated but may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument. The subject promissory note, while marked "non-negotiable," was not at the same time stamped "non-transferable" or "non-assignable." It contained no stipulation which prohibited Philfinance from assigning or transferring such note, in whole or in part. **A non-negotiable instrument may not be negotiated but may be assigned or transferred, absent an express prohibition against assignment or transfer written on the face of the instrument.
Baldomero Inciong, Jr. vs Court of Appeals 257 SCRA 578 – Mercantile Law – Negotiable Instruments in General – Signature of Makers – Guaranty FACTS: In February 1983, Rene Naybe took out a loan from Philippine Bank of Communications (PBC) in the amount of P50k. For that he executed a promissory note in the same amount. Naybe was able to convince Baldomero Inciong, Jr. and Gregorio Pantanosas to co-sign with him as co-makers. The promissory note went due and it was left unpaid. PBC demanded payment from the three but still no payment was made. PBC then sue the three but PBC later released Pantanosas from its obligations. Naybe left for Saudi Arabia hence can’t be issued summons and the complaint against him was subsequently dropped. Inciong was left to face the suit. He argued that that since the complaint against Naybe was dropped, and that Pantanosas was released from his obligations, he too should have been released. ISSUE: Whether or not Inciong should be held liable. HELD: Yes. Inciong is considering himself as a guarantor in the promissory note. And he was basing his argument based on Article 2080 of the Civil Code which provides that guarantors are released from their obligations if the creditors shall release their debtors. It is to be noted however that Inciong did not sign the promissory note as a guarantor. He signed it as a solidary co-maker. A guarantor who binds himself in solidum with the principal debtor does not become a solidary co-debtor to all intents and purposes. There is a difference between a solidary co-debtor and a fiador in solidum (surety). The latter, outside of the liability he assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain to him by reason of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon him. Because the promissory note involved in this case expressly states that the three signatories therein are jointly and severally liable, any one, some or all of them may be proceeded against for the entire obligation. The choice is left to the solidary creditor (PBC) to determine against whom he will enforce collection. Consequently, the dismissal of the case against Pontanosas may not be deemed as having discharged Inciong from liability as well. As regards Naybe, suffice it to say that the court never acquired jurisdiction over him. Inciong, therefore, may only have recourse against his co-makers, as provided by law.
Serrano vs. Court of Appeals, 130 SCRA 327 [1984] FACTS: On or about January 1, 1965, upon application of the SYSTEM, Group Mortgage Redemption Policy No. GMR-1 was issued by Private Life Insurance Companies operating in the Philippines for a group life insurance policy on the lives of housing loan mortgagors of the SYSTEM. Under this Group Mortgage Redemption scheme, a grantee of a housing loan of the SYSTEM is required to mortgage the house constructed out of the loan and the lot on which it stands. The SYSTEM takes a life insurance on the eligible mortgagor to the extent of the mortgage indebtedness such that if the mortgagor dies, the proceeds of his life insurance under the Group Redemption Policy will be used to pay his indebtedness to the SYSTEM. On November 10, 1967, the SYSTEM approved the real estate mortgage loan of the late Bernardo G. Serrano for P37,400.00 for the construction of the applicant's house. On December 26, 1967, a partial release in the amount of P35,400.00 was effected. On March 8, 1968, Captain Serrano died, the SYSTEM closed his housing loan account to the released amount of P35,400.00. On December 2, 1968, the petitioner (widow of the late Bernardo G. Serrano) sent a letter addressed to the Chairman of the Social Security Commission requesting that the benefits of the Group Mortgage Redemption Insurance be extended to her. Such letter was disapproved by the Commission through a resolution on the ground that the late Captain Serrano was not yet covered by the Group Mortgage Redemption Insurance policy at the time of his death. On November 10, 1967, the SYSTEM approved the real estate mortgage loan of the late Bernardo G. Serrano for P37,400.00 for the construction of the applicant's house. On December 26, 1967, a partial release in the amount of P35,400.00 was effected. On March 8, 1968, Captain Serrano died, the SYSTEM closed his housing loan account to the released amount of P35,400.00. On December 2, 1968, the petitioner (widow of the late Bernardo G. Serrano) sent a letter addressed to the Chairman of the Social Security Commission requesting that the benefits of the Group Mortgage Redemption Insurance be extended to her. Such letter was disapproved by the Commission through a resolution on the ground that the late Captain Serrano was not yet covered by the Group Mortgage Redemption Insurance policy at the time of his death. Issues: 1. Whether or not the late Bernardo G. Serrano is eligible for coverage under Group Mortgage Redemption Insurance Policy. 2. Whether or not insurance coverage takes effect from the beginning of the amortization period of such Mortgage Loan or partial release of Mortgage Loan. Held: 1. There can be no doubt as to the eligibility of the late Captain Serrano for coverage under Section 1 of Article II of the Group Mortgage Redemption Insurance Policy as he was a mortgagor of the Social Security System not over the age of 65 nearest his birthday at the time when the mortgage loan was granted to him. Section 2 of Article II of the Group Mortgage Redemption Insurance Policy provides that insurance coverage shall be "automatic" and limited only by the amount of insurance and age requirement. Under said Section 2, mortgage redemption insurance is not just automatic; it is compulsory for all qualified borrowers. 2. Applying Article 1374 of the new Civil Code, the mortgagor in the instant case was already covered by the insurance upon the partial release of the loan. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. The ambiguity in Section 3 of
Article II should be resolved in favor of the petitioner. "The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity" (Article 1377, Civil Code). The Court have held that provisions, conditions or exceptions tending to work a forfeiture of insurance policies should be construed most strongly against those for whose benefit they are inserted, and most favorably toward those against whom they are intended to operate.
Philippine Education Co., Inc. vs Mauricio Soriano, et al 39 SCRA 587 – Commercial Law – Negotiable Instruments Law – Postal Money Orders Not Negotiable Instruments Facts:In April 1958, a certain Enrique Montinola was purchasing ten money orders from the Manila Post Office. Each money order was worth P200.00. Montinola offered to pay the money orders via a private check but the cashier told him he cannot pay via a private check. But still somehow, Montinola was able to leave the post office with the money orders without him paying for them. Days later, the missing money orders were discovered. Meanwhile, the Philippine Education Co., Inc. (PECI) presented one of the missing postal money orders before the Bank of America. The money order was initially credited and so P200.00 was deposited in PECI’s account with the bank. But then later the post office, through Mauricio Soriano (Chief of the Money Order Division of the Post Office), advised the bank that the money order was irregularly issued hence the P200.00 was debited back from PECI’s account. PECI is now invoking that the money order was duly negotiated to them and thus they are entitled to the amount it represents. ISSUE: Whether or not postal money orders are negotiable instruments. HELD: No. Postal money orders are not negotiable instruments. The rationale behind this rule is the fact that in establishing and operating a postal money order system, the government is not engaging in commercial transactions but merely exercises a governmental power for the public benefit. In fact, postal money orders are subject to a lot of restrictions limiting their negotiability. Particularly in this case, as far back as 1948, there was already an agreement between Bank of America and the Manila Post Office, that in case the post office would have an adverse claim against any Bank of America depositor involving postal money orders issued by the post office, all amounts cleared in relation thereto shall be refunded back to the post office’s account with the bank – this in itself is already a limitation in the negotiability and nature of the postal money orders issued by the post office because of the special conditions attached.
Caltex (Philippines), Inc. vs Court of Appeals 212 SCRA 448 – Mercantile Law – Negotiable Instruments Law – Negotiable Instruments in General – Bearer Instrument – Certificate of Time Deposit
FACTS: In 1982, Angel de la Cruz obtained certificates of time deposit (CTDs) from Security Bank and Trust Company for the former’s 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.
Negotiable Instruments Case Digest: Traders Royal Bank V. CA (1997) G.R. No. 93397 March 3, 1997 Lessons Applicable: Requisites of negotiability to antedated and postdated instruments (Negotiable Instrument Law) FACTS: Filriters (assigned) > Philfinance (still under the name of Filriters assigned) > Traders Royal Bank = ? (valid or not) November 27, 1979: Filriters Guaranty Assurance Corporation (Filriters) executed a "Detached Assignment whereby Filriters, as registered owner, sold, transferred, assigned and delivered unto Philippine Underwriters Finance Corporation (Philfinance) all its rights and title to Central Bank Certificates of Indebtedness (CBCI) of P500k and having an aggregate value of P3.5M The Detached Assignment contains an express authorization executed by the transferor intended to complete the assignment through the registration of the transfer in the name of PhilFinance February 4, 1981: Traders Royal Bank (Traders) entered into a Repurchase Agreement w/ PhilFinance whereby in consideration of the sum of P500,000.00, PhilFinance sold, transferred and delivered a CBCI w/ a face value of P500K which CBCI was among those previously acquired by PhilFinance from Filriters PhilFinance failed to repurchase on the agreed date of maturity, April 27, 1981, when the checks it issued in favor of petitioner were dishonored for insufficient funds Philfinance transferred and assigned all, its rights and title in the CBCI to Traders Respondent failed and refused to register the transfer as requested, and continues to do so notwithstanding petitioner's valid and just title over the same and despite repeated demands in writing Traders prayed for the registration by the Central Bank of the subject CBCI in its name. CA affirmed RTC: subsequent assignment in favor of Traders Royal Bank null and void and of no force and effect. Philfinance acquired no title or rights under CBCI which it could assign or transfer to Traders and which it can register with the Central Bank instrument is payable only to Filriters, the registered owner ISSUE: W/N the CBCI is a negotiable instrument HELD:
NO. Petition is dismissed. CA affirmed.
CBCI is not a negotiable instrument in the absence of words of negotiability within the meaning of the negotiable instruments law (Act 2031) certificate of indebtedness = certificates for the creation and maintenance of a permanent improvement revolving fund similar to a "bond" properly understood as acknowledgment of an obligation to pay a fixed sum of moneyusually used for the purpose of long term loans Philfinance merely borrowed the CBCI from Filriters, a sister corporation. lack of any consideration = assignment is a complete nullity Filriters to Philfinance did not conform to the "Rules and Regulations Governing Central Bank Certificates of Indebtedness" (Central Bank Circular No. 769, series of 1980) under which the note was issued. Published in the Official Gazette on November 19, 1980, Section 3 thereof provides that any assignment of registered certificates shall not be valid unless made . . . by the registered owner thereof in person or by his representative duly authorized in writing Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of Filriters, did not have the necessary written authorization from the BOD Traders, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its requirements. The fact that Filfinance owns majority shares in Filriters is not by itself a ground to disregard the independent corporate status of Filriters. Traders knew that Philfinance is not registered owner of the CBCI. The fact that a non-owner was disposing of the registered CBCI owned by another entity was a good reason for petitioner to verify of inquire as to the title Philfinance to dispose to the CBCI. Nemo potest nisi quod de jure potest — no man can do anything except what he can do lawfully.
Medel vs Court of Appeals, 299 SCRA 481; GR No. 131622, November 27, 1998, FACTS: Defendants obtained a loan from Plaintiff in the amount P50, 000.00, payable in 2 months and executed a promissory note. Plaintiff gave only the amount of P47, 000.00 to the borrowers and retained P3, 000.00 as advance interest for 1 month at 6% per month. Defendants obtained another loan from Defendant in the amount of P90, 000.00, payable in 2 months, at 6% interest per month. They executed a promissory note to evidence the loan and received only P84, 000.00 out of the proceeds of the loan. For the third time, Defendants secured from Plaintiff another loan in the amount of P300, 000.00, maturing in 1 month, and secured by a real estate mortgage. They executed a promissory note in favor of the Plaintiff. However, only the sum of P275, 000.00, was given to them out of the proceeds of the loan. Upon maturity of the three promissory notes, Defendants failed to pay the indebtedness. Defendants consolidated all their previous unpaid loans totalling P440, 000.00, and sought from Plaintiff another loan in the amount of P60, 000.00, bringing their indebtedness to a total of P50,000.00. They executed another promissory note in favor of Plaintiff to pay the sum of P500, 000.00 with a 5.5% interest per month plus 2% service charge per annum, with an additional amount of 1% per month as penalty charges. On maturity of the loan, the Defendants failed to pay the indebtedness which prompt the Plaintiffs to file with the RTC a complaint for collection of the full amount of the loan including interests and other charges. Declaring that the due execution and genuineness of the four promissory notes has been duly proved, the RTC ruled that although the Usury Law had been repealed, the interest charged on the loans was unconscionable and “revolting to the conscience” and ordered the payment of the amount of the first 3 loans with a 12% interest per annum and 1% per month as penalty. On appeal, Plaintiff-appellants argued that the promissory note, which consolidated all the unpaid loans of the defendants, is the law that governs the parties. The Court of Appeals ruled in favor of the Plaintiff-appellants on Usury Law has become legally inexistent with the promulgation by the of Circular No. 905, the lender and the borrower could agree on any charged on the loan, and ordered the Defendants to pay the Plaintiffs plus 5.5% per month interest and 2& service charge per annum , and 1% charges.
the ground that the Central Bank in 1982 interest that may be the sum of P500,000, per month as penalty
Defendants filed the present case via petition for review on certiorari. Issue: WON the stipulated 5.5% interest rate per month on the loan in the sum of P500, 000.00 is usurious. Held: No. A stipulated rate of interest at 5.5% per month on the P500, 000.00 loan is excessive, iniquitous, unconscionable and exorbitant, but it cannot be considered “usurious” because Central Bank Circular No. 905 has expressly removed the interest ceilings prescribed by the Usury Law and that the Usury Law is now “legally inexistent.” Doctrine: A CB Circular cannot repeal a law. Only a law can repeal another law. Jurisprudence provides that CB Circular did not repeal nor in a way amend the Usury Law but simply suspended the latter’s effectivity (Security Bank and Trust Co vs RTC). Usury
has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon. Law: Article 2227, Civil Code The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable. Note: While the Usury Law ceiling on interest rates was lifted by the CB Circular 905, nothing in the said circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to levels which would either enslave their borrowers or lead to a haemorrhaging of their assets (Almeda vs. CA, 256 SCRA 292 [1996]).
RADIOWEALTH
FINANCE
V. INTERNATIONAL 182 SCRA 862
CORPORATE BANK
FACTS: The petitioner entered into a Credit Facilities agreement with Interbank. This is secured by a promissory note, trust receipts, security arrangements, which included provisions on payment of attorney’s fees and costs of collection in case of default. The petitioner failed to pay. A compromise agreement was entered into by the parties but this agreement failed to include the attorney’s fees and costs of collection. The trial court reduced 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 law recognizes the validity of stipulations included in documents such as negotiable instruments and mortgages with respect. The fees in this case are reasonable and fair.
Benjamin Abubakar vs The Auditor General 81 Phil. 359 – Commercial Law – Negotiable Instruments Law – Treasury Warrants FACTS: In 1941, a treasury warrant was issued in favor of Placido Urbanes, a government employee in the province of La Union. The said treasury warrant was meant to augment the Food Production Campaign in the said province. It was then negotiated by Urbanes to Benjamin Abubakar, a private individual. When Abubakar sought to have the treasury warrant encashed, the Auditor General denied payment because first of, it is against the appropriating law (Republic Act 80) to authorize payments to private individuals when it comes to treasury warrants. Abubakar then contends that he is entitled to encash as he was a holder in good faith. ISSUE: Whether or not a treasury warrant is a negotiable instrument. HELD: No. A treasury warrant is not a negotiable instrument. One of the requirements of a negotiable instrument is that it must be unconditional. In Section 3 of the Negotiable Instruments Law, an order or promise to pay out of a particular fund makes the instrument conditional. A treasury
warrant, like the one in this case, comes from a particular fund, a particular appropriation. In this case, it was written on the face of the treasury warrant that it is “payable from the appropriation for food administration”. Thus, it is not negotiable for being conditional. NOTE the difference: However, an instrument is negotiable if it merely mentions/indicates a particular fund out of which reimbursement is to be made. This does not make the instrument conditional because it does not say that such particular fund is the source of payment. It is only a notice to the drawee that he can reimburse himself out of that particular fund after paying the payee. As to the source of payment to the payee, there is no mention of it.
Metropolitan Bank & Trust Company vs. Court of Appeals
G.R. No. 88866 Cruz, J.:
February, 18, 1991
Facts: Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury warrants. All warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings account in Metrobank branch in Calapan, Mindoro. They were sent for clearance. Meanwhile, Gomez is not allowed to withdraw from his account, later, however, “exasperated” over Floria repeated inquiries and also as an accommodation for a “valued” client Metrobank decided to allow Golden Savings to withdraw from proceeds of the warrants. In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account. Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account. The demand was rejected. Metrobank then sued Golden Savings. Issue: 1. Whether or not Metrobank can demand refund agaist Golden Savings with regard to the amount withdraws to make up with the deficit as a result of the dishonored treasury warrants. 2. Whether or not treasury warrants are negotiable instruments Held: No. Metrobank is negligent in giving Golden Savings the impression that the treasury warrants had been cleared and that, consequently, it was safe to allow Gomez to withdraw. Without such assurance, Golden Savings would not have allowed the withdrawals. Indeed, Golden Savings might even have incurred liability for its refusal to return the money that all appearances belonged to the depositor, who could therefore withdraw it anytime and for any reason he saw fit. It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to determine the validity of the warrants through its own services. The proceeds of the warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own deposit. Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were genuine and in all respects what they purport to be,” in accordance with Sec. 66 of NIL. The simple reason that NIL is not applicable to non negotiable instruments, treasury warrants. No. The treasury warrants are not negotiable instruments. Clearly stamped on their face is the word: non negotiable.” Moreover, and this is equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501. An instrument to be negotiable instrument must contain
an unconditional promise or orders to pay a sum certain in money. As provided by Sec 3 of NIL an unqualified order or promise to pay is unconditional though coupled with: 1st, an indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or 2nd, a statement of the transaction which give rise to the instrument. But an order to promise to pay out of particular fund is not unconditional. The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay “not conditional” and the warrants themselves non-negotiable. There should be no question that the exception on Section 3 of NIL is applicable in the case at bar.
NATIONAL BANK V. MANILA OIL REFINING 43 PHIL 444
FACTS: Manila Oil has issued a promissory note in favor of National Bank which included a provision on a confession of judgment in case of failure to pay obligation. Indeed, Manila Oil has failed to pay on demand. This prompted the bank to file a case in court, wherein an attorney associated with them entered his appearance for the defendant. To this the defendant objected. HELD: Warrants of attorney to confess judgment aren’t authorized nor contemplated by our law. Provisions in notes authorizing attorneys to appear and confess judgments against makers should not be recognized in our jurisdiction by implication and should only be considered as valid when given express legislative sanction.
RADERS INSURANCE V. DY ENG BIOK 104 PHIL 806 FACTS: Dy Eng Giok was a provincial sales agent of distillery corporation, with the responsibility of remitting sales proceeds to the principal corporation. He has a running balance and to satisfy payment, a surety bond was issued with petitioner as guarantor, whereby they bound themselves liable to the distillery corporation. More purchases was made by Dy Eng Giok and he was able to pay for these additional purchases. Nonetheless, the payment was first applied to his prior payables. A remaining balance still is unpaid. Thus, an action was filed against sales agent and surety company. Judgment was rendered 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 the absence of express stipulation, a guaranty or suretyship operates prospectively and not retroactively. It only secures the debts contracted
after the guaranty takes effect. To apply the payment to the obligations contracted before the guaranty would make the surety answer for debts outside the guaranty. The surety agreement didn't guarantee the payment of any outstanding balance due from the principal debtor but only he would turn out the sales proceeds to the Distileria and this he has done, since his remittances exceeded the value of the sales during the period of the guaranty. Second, since the Dy Eng Biok’s obligations prior to the guaranty were not covered, and absent any express stipulation, any prior payment made should be applied to the debts that were guaranteed since they are to be regarded as the more onerous debts.
Negotiable Instruments Case Digest: Salas V. CA (1990) G.R. No. 76788 January 22,1990 Lessons Applicable: Introduction to Negotiable Instruments (Negotiable Instruments Law) FACTS: February 6, 1980: Juanita Salas bought a motor vehicle from the Violago Motor Sales Corp. (VMS) for P58,138.20 as evidence by a promissory note This note was subsequently endorsed to Filinvest Finance &Leasing Corp. (FFLC) May 21, 1980: Salas defaulted in her installments allegedly due to discrepancies in the engine and chassis number of the vehicle delivered and discovery of certificate of reg. and deed of mortgage VMS initiated for a sum of money at the RTC RTC: favored VMS CA: Affirmed ISSUE: W/N the promissory note is a negotiable which will bar completely all defenses of Salas against VMS HELD:
YES. Affirmed
Requisites under the law (Sec. 1 of Negotiable Instruments Law) it is in writing and signed by the maker (Salas) it contains an unconditional promise to pay the amount P58,138.20 it is payable at a fixed or determinable future time which is P1,614.95 monthly for 36 months due and payable on the 21st day of each month starting March 21, 1980 thru and inclusive of Feb 21 1983 It is payable to VMS or order and as such drawee is named or indicated with certainty Filinvest = holder in due course
SALAS V. CA 181 SCRA 296 FACTS: Petitioner bought a car from Viologo Motor Sales Company, which was secured by a promissory note, which was later on indorsed to Filinvest Finance, which financed the transaction. Petitioner later on defaulted in her installment payments, allegedly due to the fraud imputed by VMS in selling her a different vehicle from what was agreed upon. This default in payment prompted Filinvest Finance to initiate a case against petitioner. The trial court decided in favor of Filinvest, to which the appellate court upheld by increasing the amount to be paid. It is the contention of petitioner that since the agreement between her and the motor company was inexistent, none had been assigned in favor of private respondent. HELD: Petitioner’s liability on the promissory note, the due execution and genuineness of which she never denied under oath, is under the foregoing factual milieu, as inevitable as it is clearly established.
The records reveal that involved herein is not a simple case of assignment of credit as petitioner would have it appear, where the assignee merely steps into the shoes of, is open to all defenses available against and can enforce payment only to the same extent as, the assignor-vendor. The instrument to be negotiable must contain the so-called words of negotiability. There are only 2 ways for an instrument to be payable to order. There must always be a specified person named in the instrument and the bill or note is to be paid to the person designated in the instrument or 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 payable only to the person designated therein and is thus non-negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a holder in due course but will merely step into the shoes of the person designated in the instrument and will thus be open to the defenses available against the latter. In the case at bar, the promissory Filinvest is a holder in due course.
notes
is
earmarked
with
negotiability and
Government Service Insurance System v. Court of Appeals 170 SCRA 533, February 23, 1989 Facts: Private respondents, Mr. and Mrs. Isabelo R. Racho, together with spouses Mr. and Mrs Flaviano Lagasca, executed a deed of mortgage, dated November 13, 1957, in favor of petitioner GSIS and subsequently, another deed of mortgage, dated April 14, 1958, in connection with two loans granted by the latter in the sums of P 11,500.00 and P 3,000.00, respectively. A parcel of land covered by Transfer Certificate of Title No. 38989 of the Register of Deed of Quezon City, co-owned by said mortgagor spouses, was given as security under the two deeds. They also executed a 'promissory note". On July 11, 1961, the Lagasca spouses executed an instrument denominated "Assumption of Mortgage," obligating themselves to assume the said obligation to the GSIS and to secure the release of the mortgage covering that portion of the land belonging to spouses Racho and which was mortgaged to the GSIS. This undertaking was not fulfilled. Upon failure of the mortgagors to comply with the conditions of the mortgage, particularly the payment of the amortizations due, GSIS extrajudicially foreclosed the mortgage and caused the mortgaged property to be sold at public auction on December 3, 1962. For more than two years, the spouses Racho filed a complaint against the spouses Lagasca praying that the extrajudicial foreclosure "made on, their property and all other documents executed in relation thereto in favor of the Government Service Insurance System" be declared null and void. The trial court rendered judgment on February 25, 1968 dismissing the complaint for failure to establish a cause of action. However, said decision was reversed by the respondent Court of Appeals, stating that, although formally they are co-mortgagors, the GSIS required their consent to the mortgage of the entire parcel of land which was covered with only one certificate of title, with full knowledge that the loans secured were solely for the benefit of the appellant Lagasca spouses who alone applied for the loan. Issues: Whether the respondent court erred in annulling the mortgage as it affected the share of private respondents in the reconveyance of their property? Whether private respondents benefited from extrajudicial foreclosure proceedings are valid?
the
loan,
the
mortgage
and
the
Held: Both parties relied on the provisions of Section 29 of Act No. 2031, otherwise known as the Negotiable Instruments Law, which provide that an accommodation party is one who has signed an instrument as maker, drawer, acceptor of indorser without receiving value therefor, but is held liable on the instrument to a holder for value although the latter knew him to be only an accommodation party.
The promissory note, as well as the mortgage deeds subject of this case, are clearly not negotiable instruments. These documents do not comply with the fourth requisite to be considered as such under Section 1 of Act No. 2031 because they are neither payable to order nor to bearer. The note is payable to a specified party, the GSIS. Absent the aforesaid requisite, the provisions of Act No. 2031 would not apply; governance shall be afforded, instead, by the provisions of the Civil Code and special laws on mortgages. As earlier indicated, the factual findings of respondent court are that private respondents signed the documents "only to give their consent to the mortgage as required by GSIS", with the latter having full knowledge that the loans secured thereby were solely for the benefit of the Lagasca spouses. Contrary to the holding of the respondent court, it cannot be said that private respondents are without liability under the aforesaid mortgage contracts. The factual context of this case is precisely what is contemplated in the last paragraph of Article 2085 of the Civil Code to the effect that third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. So long as valid consent was given, the fact that the loans were solely for the benefit of the Lagasca spouses would not invalidate the mortgage with respect to private respondents' share in the property. The respondent court, erred in annulling the mortgage insofar as it affected the share of private respondents or in directing reconveyance of their property or the payment of the value.
Negotiable Instruments Case Digest: Consolidated Plywood Industries, Inc V. IFC Leasing And Acceptance Corp. (1987) G.R. No. 72593 April 30, 1987 Lessons Applicable: Requisites of negotiability instruments (Negotiable Instruments Law)
to
antedated
and
postdated
FACTS: Consolidated (buyer pays promossor note) > IPM (seller-assignor who violated warranty) > 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 with promissory note was executed IPM, by means of a deed of assignment, assigned its rights and interest in the chattel mortgage 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 P1,093,789.71, interest and attorney's fees
recovery
of
the
principal
sum
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.chanroblesvirtualawlibrary chanrobles virtual law library 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 chanrobles virtual law library 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.chanroblesvirtualawlibrary chanrobles virtual law library xxx xxx xxx chanrobles virtual law library 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 chanrobles virtual law library
prevail
against
it.chanroblesvirtualawlibrary
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.chanroblesvirtualawlibrary chanrobles virtual law library xxx xxx xxx chanrobles virtual law library 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: chanrobles virtual law library xxx xxx xxx chanrobles virtual law library xxx xxx xxx chanrobles virtual law library (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 it SEC. 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. . .
Equitable Banking Corporation vs Intermediate Appellate Court 161 SCRA 518 – Mercantile Law – Negotiable Instruments Law – Negotiable Instruments in General – Certainty of Payee FACTS: In 1975, Liberato Casals, majority stockholder of Casville Enterprises, went to buy two garrett skidders (bulldozers) from Edward J. Nell Company amounting to P970,000.00. To pay the bulldozers, Casals agreed to open a letter of credit with the Equitable Banking Corporation. Pursuant to this, Nell Company shipped one of the bulldozers to Casville. Meanwile, Casville advised Nell Company that in order for the letter of credit to be opened, Casville needs to deposit P427,300.00 with Equitable Bank, and that since Casville is a little short, it requested Nell Company to pay the deposit in the meantime. Nell Company agreed and so P427,300.00. The check read:
it
eventually
sent
a
check
in
the
amount
of
Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES, INC. Nell Company sent the check to Casville so that it would be the latter who could send it to Equitable Bank to cover the deposit in lieu of the letter of credit. Casals received the check, he went to Equitable Bank, and the teller received the check. The teller, instead of applying the amount as deposit in lieu of the letter of credit, credited the check to Casville’s account with Equitable Bank. Casals later withdrew all the P427,300.00 and appropriated it to himself. ISSUE: Whether or not Equitable Bank is liable to cover for the loss. HELD: No. The subject check was equivocal and patently ambiguous. Reading on the wordings of the check, the payee thereon ceased to be indicated with reasonable certainty in contravention of Section 8 of the Negotiable Instruments Law. As worded, it could be accepted as deposit to the account of the party named after the symbols “A/C,” or payable to the Bank as trustee, or as an agent, for Casville Enterprises, Inc., with the latter being the ultimate beneficiary. That ambiguity is to be taken contra proferentem that is, construed against Nell Company who caused the ambiguity and could have also avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code, provides: Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.
Pacifica Jimenez vs Jose Bucoy 103 Phil. 40 – Mercantile Law – Negotiable Instruments Law – Negotiable Instruments in General – Unconditional Promise To Pay FACTS: During the Japanese occupation, Pacita Young issued three promissory notes to Pacifica Jimenez. The total sum of the notes was P21k. All three promissory notes were couched in this manner: Received from Miss Pacifica Jimenez the total amount of ___________ payable six months after the war, without interest. When the promissory notes became due, Jimenez presented the notes for payment. Pacita and her husband died and so the notes were presented to the administrator of the estate of the spouses (Dr. Jose Bucoy). Bucoy manifested his willingness to pay but he said that since the loan was contracted during the Japanee occupation the amount should be deducted and the Ballantyne Schedule should be used, that is peso-for-yen (which would lower the amount due from P21k). Bucoy also pointed out that nowhere in the not can be seen an express “promise” to pay because of the absence of the words “I promise to pay…” ISSUE: Whether or not Bucoy is correct. HELD: No. The Ballantyne schedule may not be used here because the debt is not payable during the Japanese occupation. It is expressly stated in the notes that the amounts stated therein are payable “six months after the war”. Therefore, no reduction could be effected, and peso-for-peso payment shall be ordered in Philippine currency.
The notes also amounted in effect to a promise to pay the amounts indicated therein. An acknowledgment may become a promise by the addition of words by which a promise of payment is naturally implied, such as, “payable,” “payable” on a given day, “payable on demand,” “paid . . . when called for,” . . . To constitute a good promissory note, no precise words of contract are necessary, provided they amount, in legal effect, to a promise to pay. In other words, if over and above the mere acknowledgment of the debt there may be collected from the words used a promise to pay it, the instrument may be regarded as a promissory note.
Ang Tek Lian vs Court of Appeals 87 Phil. 383 – Mercantile Law – Negotiable Instruments Law – Negotiable Instruments in General – Indorsement to “Cash” – Bearer Instrument FACTS: In 1946, Ang Tek Lian approached Lee Hua and asked him if he could give him P4,000.00. He said that he meant to withdraw from the bank but the bank’s already closed. In exchange, he gave Lee Hua a check which is “payable to the order of ‘cash’”. The next day, Lee Hua presented the check for payment but it was dishonored due to insufficiency of funds. Lee Hua eventually sued Ang Tek Lian. In his defense, Ang Tek Lian argued that he did not indorse the check to Lee Hua and that when the latter accepted the check without Ang tek Lian’s indorsement, he had done so fully aware of the risk he was running thereby. ISSUE: Whether or not Ang Tek Lian is correct. HELD: No. Under the Negotiable Instruments Law (sec. 9 [d]), a check drawn payable to the order of “cash” is a check payable to bearer hence a bearer instrument, and the bank may pay it to the person presenting it for payment without the drawer’s indorsement. Where a check is made payable to the order of ‘cash’, the word “cash” does not purport to be the name of any person, and hence the instrument is payable to bearer. The drawee bank need not obtain any indorsement of the check, but may pay it to the person
presenting it without any indorsement.
319 SCRA 595
PACHECO V. CA
FACTS: Due to dire financial needs of petitioner spouses who were engaged in the construction business, they secured loans from Vicencio. At every loan secured, the lender compelled the spouses to issue an undated check despite the admission of spouses that their bank account has insufficient funds or as on a later date, already closed. Lender assured them that the issuance of the check was only evidence of indebtedness, that it would not be presented to the bank, and it would be for formalities only. On the date wherein there was an unpaid balance to the loans secured by the spouses, the lender had them place a date on two of the later checks issued. Surprised later on, the spouses were charged with estafa as the checks were presented for encashment and was dishonored. HELD: BY MUTUAL AGREEMENT OF THE PARTIES, THE NEGOTIABLE CHARACTER OF A CHECK MAY BE WAIVED AND THE INSTRUMENT BE SIMPLY TREATED AS PROOF OF AN OBLIGATION. There cannot be deceit on the part of the spouses because they agreed with the lender at the time of the issuance and postdating of the checks that the same shall not be encashed or presented to the bank. As per assurance of the lender, the checks are nothing but evidence of the loan or security thereof in lieu of and for the same purpose as a promissory note.