II.

FORM AND INTERPRETATION OF NEGOTIABLE INSTRUMENTS

A. HOW NEGOTIABILITY IS DETERMINED?

CALTEX VS. COURT OF APPEALS (GR No. 97753, Aug. 10, 1992)
- Respondent bank issued 280 certificates of time deposit (CTDs) in favor of Angel dela Cruz who delivered
the same to herein petitioner in connection with his purchased fuel products. Eventually, dela Cruz
executed and delivered an Affidavit of Loss for the reissuance of the CTDs. Dela Cruz later on obtained a
loan from respondent bank and negotiated the said CTDs, executing a Deed of Assignment of Time Deposit
which stated, among others, that the bank has full control of the indicated time deposits from and after date
of the assignment and may set-off such and apply the same to the payment of amount or amounts that may
be due on the loan upon maturity. Petitioner then went to the Sucat branch for verification of the CTDs
declared lost, alleging that the same were delivered to herein petitioner as “security for purchases made
with Caltex Philippines, Inc.” and requested that the CTDs be pre-terminated, which was refused by the
respondent bank due to the failure of petitioner to present requested documents to prove such allegation.
Petitioner then filed a complaint in the RTC, which was dismissed. On appeal, the CA affirmed the decision
of the RTC. Thus, the present petition.

ISSUE: WON the CTDs are considered negotiable?

HELD:
Yes. A sample text of the certificates of time deposit is reproduced below: SECURITY BANK AND TRUST
COMPANY 6778 Ayala Ave., Makati No. 90101 Metro Manila, Philippines SUCAT OFFICE P4,000.00
CERTIFICATE 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 of PESOS: 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 interest at the rate of 16% per cent per
annum. (Sgd. Illegible) (Sgd. Illegible) AUTHORIZED SIGNATURES Section 1, of Act No. 2031, otherwise
known as the Negotiable Instruments Law, enumerates the requisites for an instrument to become
negotiable. The CTDs in question undoubtedly meet the requirements of the law for negotiability. The
accepted rule is that the negotiability or nonnegotiability of an instrument is determined from the writing,
that is, from the fact of the instrument itself. Contrary to what respondent court held (that the CTDs are
payable to the “depositor” which is Angel dela Cruz), the documents provide that the amounts deposited
shall be repayable to the depositor. And who, according to the document is the depositor? It is the “bearer”.
The documents do not say that the depositor is Angel dela Cruz and that the amounts deposited are
repayable specifically to him. Rather, the amounts are to be repayable to the bearer of the documents or,
for that matter, whosoever may be the bearer at the time of presentment.
METROPOLITAN BANK & TRUST CO. VS. CA (GR No. 88866; Feb. 18, 1991)
- Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38
treasury warrants. They were all drawn by the Philippine Fish Marketing Authority and purportedly signed
by its General Manager and counter-signed by its Auditor. Six of these were directly payable to Gomez
while the others appeared to have been indorsed by their respective payees, followed by Gomez as second
indorser. On various dates all these warrants were subsequently indorsed by Gloria Castillo as Cashier of
Golden Savings and deposited to its Savings Account in the Metrobank. They were then sent for clearing by
the branch office to the principal office of Metrobank, which forwarded them to the Bureau of Treasury for
special clearing. After being told to wait several times, Gloria Castillo and Gomez made subsequent
withdrawals at Metrobank with the impression that the treasury warrants had been cleared. 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.

ISSUE:
WON treasury warrants are negotiable instruments?
HELD:
No. The treasury warrants in question are not negotiable instruments. Clearly stamped on their face is the
word "non-negotiable." Moreover, it is indicated that they are payable from a particular fund, to wit, Fund
501. Sections 1 and 3 of the Negotiable Instruments Law especially underscored this requirement. 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 unconditional" and the warrants themselves non-negotiable. 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 Section 66 of the Negotiable Instruments Law.
The simple reason is that this law is not applicable to the non-negotiable treasury warrants. The
indorsement was made by Gloria Castillo not for the purpose of guaranteeing the genuineness of the
warrants but merely to deposit them with Metrobank for clearing.
ANG TEK LIAN VS. CA (GR No. L-2516; Sept. 25, 1950) –
Petitioner Ang Tek Lian approached Lee Hua and asked him if he could give him P4,000.00. He said that he
is supposed to withdraw from the bank but his bank was already closed. In exchange, he gave respondent
Lee Hua a check which is “payable to the order of ‘cash”. When Lee Hua presented the check for payment
the next day, he discovered that it has an insufficient funds, hence, was dishonored by the bank. In his
defense, Ang Tek Lian argued that he did not indorse the check to Lee Hua when the latter accepted the
check without his indorsement.
ISSUE: WON Ang Tek Lian’s indorsement of the said check is necessary to hold him liable for the
dishonored check?
HELD: No. Under Section 9 of the Negotiable Instruments Law, a check drawn payable to the order of
“cash” is a check payable to bearer and the bank may pay it to the person presenting it for payment without
drawer’s indorsement. Consequently, the form of the check was totally unconnected with its dishonor. The
check was returned unsatisfied because the drawer had insufficient funds and not because the drawer’s
indorsement was lacking. Hence, Ang Tek Lian may be held liable for estafa because under article 315,
paragraph d, subsection 2 of the Revised Penal Code, one who issues a check payable to cash to accomplish
deceit and knows that at the time he had no sufficient deposit with the bank to cover the amount of the
check and without informing the payee of such circumstances is guilty of estafa.
PNB VS. MANILA OIL REFINING (GR No. L-18103; June 8, 1922)
– The manager and treasurer of respondent company executed and delivered to the Philippine National
Bank (PNB), a promissory note which provides a promise to pay petitioner bank the amount of P61,000
and that in case payment was not made at time of maturity, any lawyer in the Philippines is authorize to
represent the company and confess judgment for the said sum with interest, cost of suit and attorney's fees
of ten% for collection, a release of all errors and waiver of all rights to inquisition and appeal, and to the
benefit of all laws exempting property, real or personal, from levy or sale. 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.
ISSUE: WON provisions in notes authorizing attorneys to appear and confess judgments against makers
should not be recognized in Philippine jurisdiction by implication?
HELD: No. Judgments by confession as appeared at common law were considered an amicable, easy, and
cheap way to settle and secure debts. They are quick remedy serve to save the court's time. They also save
time and money of the litigants and the government the expenses that a long litigation entails. In one sense,
instruments of this character may be considered as special agreements, with power to enter up judgments
on them, binding the parties to the result as they themselves viewed it. On the other hand, are
disadvantages to the commercial world which outweigh the considerations just mentioned. Such warrants
of attorney are void as against public policy, because they enlarge the field for fraud, because under these
instruments the promissor bargains away his right to a day in court, and because the effect of the
instrument is to strike down the right of appeal accorded by statute. The recognition of such form of
obligation would bring about a complete reorganization of commercial customs and practices, with
reference to short-term obligations. It can readily be seen that judgment notes, instead of resulting to the
advantage of commercial life in the Philippines, might be the source of abuse and oppression, and make the
courts involuntary parties thereto. If the bank has a meritorious case, the judgment is ultimately certain in
the courts. The Court is of the opinion thus that warrants of attorney to confess judgment are not
authorized nor contemplated by Philippine law; and that provisions in notes authorizing attorneys to
appear and confess judgments against makers should not be recognized in this jurisdiction by implication
and should only be considered as valid when given express legislative sanction.
REPUBLIC PLANTERS BANK VS. CA (GR No. 93073; Dec. 21, 1992) –
In 1979, World Garment Manufacturing, through its board authorized Shozo Yamaguchi (president) and
Fermin Canlas (treasurer) to obtain credit facilities from Republic Planters Bank (RPB). For this, 9
promissory notes were executed. Each promissory note was uniformly written in the following manner:
___________, after date, for value received, I/we, jointly and severally promise to pay to the ORDER of the
REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the sum of ___________ PESOS(….) Philippine
Currency… Please credit proceeds of this note to: ________ Savings Account ______XX Current Account No.
1372-00257-6 of WORLDWIDE GARMENT MFG. CORP. Sgd. Shozo Yamaguchi Sgd. Fermin Canlas The note
became due and no payment was made. RPB eventually sued Yamaguchi and Canlas. Canlas, in his defense,
averred that he should not be held personally liable for such authorized corporate acts that he performed
inasmuch as he signed the promissory notes in his capacity as officer of the defunct Worldwide Garment
Manufacturing.
ISSUE:
WON Canlas should be held liable for the promissory notes?
HELD:
Yes. The solidary liability of private respondent Fermin Canlas is made clearer and certain, without reason
for ambiguity, by the presence of the phrase “joint and several” as describing the unconditional promise to
pay to the order of Republic Planters Bank. Where an instrument containing the words “I promise to pay” is
signed by two or more persons, they are deemed to be jointly and severally liable thereon. Canlas is
solidarily liable on each of the promissory notes bearing his signature for the following reasons: The
promissory notes are negotiable instruments and must be governed by the Negotiable Instruments Law.
Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are
makers and are liable as such. By signing the notes, the maker promises to pay to the order of the payee or
any holder according to the tenor thereof.
SPS. EVANGELISTA VS. MERCATER FINANCE CORP. (GR No. 148864; Aug. 21, 2003)
- Petitioner spouses filed a complaint against respondents for the foreclosure of the mortgage on their
property and eventual its eventual sale, claiming, among others, that they executed the said mortgage on
their capacity as officers of Embassy Farms, and not on their personal capacity, thus, there is no
consideration received by them, making the mortgage voidable. Respondent, on the other hand, claims that
the promissory note for the loan, for which the mortgage was executed, shows that the spouses signed as
co-makers, also with the succeeding promissory notes. The RTC, upon motion of the respondent, granted
summary judgment and dismissed the complaint. On appeal, the CA affirmed in toto the decision of the
RTC.
ISSUE:
WON petitioners are solidarily liable with Embassy Farms for the loan as evidenced by the promissory
note?

HELD:
Yes. The promissory note reads: For value received, I/We jointly and severally promise to pay to the order
of MERCATOR FINANCE CORPORATION at its office, the principal sum of EIGHT HUNDRED FORTY-FOUR
THOUSAND SIX HUNDRED TWENTY-FIVE PESOS & 78/100 (P 844,625.78), Philippine currency, x x x, in
installments as follows: September 16, 1982 - P154,267.87 October 16, 1982 - P154,267.87 November 16,
 1982 - P154,267.87 December 16, 1982 - P154,267.87 January 16, 1983 - P154,267.87 February 16, 1983 -
P154,267.87 The note was signed by petitioners and Embassy Farms, Inc. with the signature of Eduardo
Evangelista below it. Sec. 17 of the Negotiable Instruments Law provide: “Construction where instrument is
ambiguous – Where the language of the instrument is ambiguous or there are omissions therein, the
following rules of construction shall apply: (g) Where an instrument containing the word “I promise to pay”
is signed by two or more persons, they are deemed to be jointly and severally liable thereon. As such, the
promissory note itself proves that petitioners are solidarily liable with Embassy Farms. Moreover, even if
petitioners signed merely as officers, it does not erase the fact that they subsequently executed a
continuing suretyship agreement which makes them solidarily liable with the principal. They cannot
eventually claim that they did not personably receive any consideration for the contract.

Metrobank vs. CA
Metropolitan Bank & Trust Company vs. Court of Appeals
G.R. No. 88866 February, 18, 1991
Cruz, J.:

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.

G.R. No. 97753 August 10, 1992

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

FACTS:
Security Bank and Trust Company (Security Bank), a commercial banking institution, through its Sucat Branch issued
280 certificates of time deposit (CTDs) in favor of Angel dela Cruz who deposited with Security Bank the total amount
of P1,120,000

Angel delivered the CTDs to Caltex for his purchase of fuel products

March 18, 1982: Angel informed Mr. Tiangco, the Sucat Branch Manager that he lost all CTDs, submitted the
required Affidavit of Loss and received the replacement

March 25, 1982: Angel dela Cruz negotiated and obtained a loan from Security Bank in the amount of P875,000 and
executed a notarized Deed of Assignment of Time Deposit

November, 1982: Mr. Aranas, Credit Manager of Caltex went to the Sucat branch to verify the CTDs declared lost by
Angel

November 26, 1982: Security Bank received a letter from Caltex formally informing it of its possession of the CTDs in
question and of its decision to pre-terminate the same.

December 8, 1982: Caltex was requested by Security Bank to furnish:

a copy of the document evidencing the guarantee agreement with Mr. Angel dela Cruz

the details of Mr. Angel's obligation against which Caltex proposed to apply the time deposits

Security Bank rejected Caltex demand for payment bec. it failed to furnish a copy of its agreement w/ Angel

April 1983, the loan of Angel dela Cruz with Security Bank matured

August 5, 1983: CTD were set-off w/ the matured loan

Caltex filed a complaint praying the bank to pay 1,120,000 plus 16% interest

CA affirmed RTC to dismiss complaint

ISSUE:

W/N the CTDs are negotiable

W/N Caltex as holder in due course can rightfully recover on the CTDs

HELD: Petition is Denied and appealed decision is affirmed.

1. YES.
Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites for an
instrument to become negotiable, viz:

(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 -check
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.
The documents provide that the amounts deposited shall be repayable to the depositor

depositor = bearer

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

negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the
instrument itself

2. NO.
although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between
it and De la Cruz, as ultimately ascertained, requires both delivery and indorsement

CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products

There was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in which
situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed.

Where the holder has a lien on the instrument arising from contract, he is deemed a holder for value to the extent of
his lien.

As such holder of collateral security, he would be a pledgee but the requirements therefor and the effects thereof,
not being provided for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions on pledge
of incorporeal rights:

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The instrument proving
the right pledged shall be delivered to the creditor, and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged and the date of
the pledge do not appear in a public instrument.
Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless it appears
in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real
property.

CALTEX V. CA- Negotiable Instruments

12 SCRA 448
FACTS:
Security bank issued Certificates of Time Deposits to Angel dela Cruz. The same were given by Dela Cruz to
petitioner in connection to his purchase of fuel products of the latter. On a later date, Dela Cruz approached the
bank manager, communicated the loss of the certificates and requested for a reissuance. Upon compliance
with some formal requirements, he was issued replacements. Thereafter, he secured a loan from the bank where
he assigned the certificates as security. Here comes the petitioner, averred that the certificates were not
actually lost but were given as security for payment for fuel purchases. The bank demanded some proof of the
agreement but the petitioner failed to comply. The loan matured and the time deposits were terminated and
then applied to the payment of the loan. Petitioner demands the payment of the certificates but to no avail.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE 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 of

PESOS: 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 interest
at the rate of 16% per cent per annum.

(Sgd. Illegible) (Sgd. Illegible)

—————————— ———————————

AUTHORIZED SIGNATURES
HELD:
CTDs are negotiable instruments. The documents provide that the amounts deposited shall be repayable to the
depositor. And who, according to the document, is the depositor? It is the "bearer." The documents do not say
that the depositor is Angel de la Cruz and that the amounts deposited are
repayable specifically to him. Rather, the amounts are to be repayable to the bearer of the documents or, for
that matter, whosoever may be the bearer at the time of presentment.

If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could have with
facility so expressed that fact in clear and categorical terms in the documents, instead of having the word "BEARER"
stamped on the space provided for the name of the depositor in each CTD. On the wordings of the documents,
therefore, the amounts deposited are repayable to whoever may be the bearer thereof. Thus, petitioner's
aforesaid witness merely declared that Angel de la Cruz is the
depositor "insofar as the bank is concerned," but obviously other parties not privy to the transaction
between them would not be in a position to know that the depositor is not the bearer stated in the CTDs.
Hence, the situation would require any party dealing with the CTDs to go behind the
plain import of what is written thereon to unravel the agreement of the parties thereto through facts
aliunde. This need for resort to extrinsic evidence is what is sought to be avoided by the Negotiable
Instruments Law and calls for the application of the elementary rule that the
interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.

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 de la Cruz, whom petitioner chose not to implead in this suit for reasons of
its own, delivered the CTDs amounting to P1,120,000.00 to petitioner without informing respondent bank
thereof at any time. Unfortunately for petitioner, although the CTDs are bearer instruments, a valid
negotiation thereof for the true purpose and agreement between it and De la Cruz, as ultimately ascertained,
requires both delivery and indorsement. For, although petitioner seeks to deflect this fact, the CTDs were in
reality delivered 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 fuel products or as a security has been dissipated and resolved in favor of the
latter by petitioner's own authorized and responsible representative himself.

In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr., Caltex Credit
Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr. Angel dela Cruz to
guarantee his purchases of fuel products." This admission is conclusive
upon petitioner, its protestations notwithstanding. Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against
the person relying thereon
Ang Tek Lian vs. Court of Appeals
L-2516 September, 1950
Bengzon, J.:

Facts:
Ang Tek Lian knowing that he had no funds therefor, drew a check upon China Banking Corporation payable to
the order of “cash”. He delivered it toLee Hua Hong in exchange for money. The check was presented by Lee Hua
hong to the drawee bank for payment, but it w3as dishonored for insufficiency of funds. With this, Ang Tek Lian was
convicted of estafa.

Issue:
Whether or not the check issued by Ang Tek Lian that is payable to the order to “cash” and not have been
indorsed by Ang Tek Lian, making him not guilty for the crime of estafa.

Held:
No.Under Sec. 9 of NIL a check drawn payable to the order of “cash” is a check payable to bearer and the bank
may pay it to the person presenting it for payment without the drawer’s indorsement. However, if the bank is not
sure of the bearer’s identity or financial solvency, it has the right to demand identification or assurance against
possible complication, such as forgery of drawer’s signature, loss of the check by the rightful owner, raising of the
amount payable, etc. But where the bank is satisfied of the identity or economic standing of the bearer who tenders
the check for collection, it will pay the instrument without further question; and it would incur no liability to the
drawer in thus acting.
FACTS: Knowing he had no funds therefor, petitioner Ang Tek Lian drew a check upon the China Banking Corporation
for the sum of P4,000, payable to the order of “cash”. He delivered it to Lee Hua Hong in exchange for money which
the latter handed in the act. The next business day, the check was presented by Lee Hua Hong to the drawee bank
for payment, but it was dishonored for insufficiency of funds, the balance of the deposit of Ang Tek Lian on both
dates being P335 only.
Petitioner was sued for estafa. In his defense, however, he argues that as the check had been made payable to
“cash” and had not been endorsed by Ang Tek Lian, the defendant is not guilty of the offense charged.

ISSUE: WON a check payable to “cash” needs indorsement?

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, 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.
February 16, 2018
PNB vs. Erlando T. Rodriguez, et. al., Sept. 26, 2008, Sept. 4, 2013
Full Text
Negotiable Instruments Law, Sec. 185. Check defined.
A check is a bill of exchange drawn on a bank payable on demand. Except as herein otherwise provided, the
provisions of this Act applicable to a bill of exchange payable on demand apply to a check.
Section 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 to bearer.

FACTS:
Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner PNB, Amelia Avenue
Branch, Cebu City. They maintained savings and demand/checking accounts, namely, PNBig Demand Deposits
(Checking/Current Account under the account name Erlando and/or Norma Rodriguez), and PNBig Demand Deposit
(Checking/Current Account under the account name Erlando T. Rodriguez).
The spouses were engaged in the informal lending business. In line with their business, they had a
discounting arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an association
of PNB employees. Naturally, PEMSLA was likewise a client of PNB Amelia Avenue Branch. The association
maintained current and savings accounts with petitioner bank.
PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated checks issued
to members whenever the association was short of funds. As was customary, the spouses would replace the
postdated checks with their own checks issued in the name of the members.
It was PEMSLA’s policy not to approve applications for loans of members with outstanding debts. To subvert this
policy, some PEMSLA officers devised a scheme to obtain additional loans despite their outstanding loan
accounts. They took out loans in the names of unknowing members, without the knowledge or consent of the
latter. The PEMSLA checks issued for these loans were then given to the spouses for rediscounting. The officers
carried this out by forging the indorsement of the named payees in the checks. In return, the spouses issued their
personal checks (Rodriguez checks) in the name of the members and delivered the checks to an officer of
PEMSLA. The PEMSLA checks, on the other hand, were deposited by the spouses to their account.
Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings account without any
indorsement from the named payees. This was an irregular procedure made possible through the facilitation of
Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. It appears that this became the usual
practice for the parties. For the period November 1998 to February 1999, the spouses issued sixty nine (69) checks,
in the total amount ofP2,345,804.00. These were payable to forty seven (47) individual payees who were all
members of PEMSLA.
Petitioner PNB eventually found out about these fraudulent acts. To put a stop to this scheme, PNB closed the
current account of PEMSLA. As a result, the PEMSLA checks deposited by the spouses were returned or dishonored
for the reason “Account Closed.” The corresponding Rodriguez checks, however, were deposited as usual to the
PEMSLA savings account. The amounts were duly debited from the Rodriguez account. Thus, because the PEMSLA
checks given as payment were returned, spouses Rodriguez incurred losses from the rediscounting transactions.
Alarmed over the unexpected turn of events, the spouses Rodriguez filed a civil complaint for damages against
PEMSLA, the Multi-Purpose Cooperative of Philnabankers (MCP), and petitioner PNB. They sought to recover the
value of their checks that were deposited to the PEMSLA savings account amounting to P2,345,804.00.
In its Answer,PNB claimed it is not liable for the checks which it paid to the PEMSLA account without any
indorsement from the payees. The bank contended that spouses Rodriguez, the makers, actually did not intend for
the named payees to receive the proceeds of the checks. Consequently, the payees were considered as fictitious
payees as defined under the Negotiable Instruments Law (NIL). Being checks made to fictitious payees which are
bearer instruments, the checks were negotiable by mere delivery.
RTC: After trial, the RTC rendered judgment in favor of spouses Rodriguez (plaintiffs). It ruled that PNB (defendant) is
liable to return the value of the checks. CA affirmed the decision.
ISSUE:
Whether the subject checks are payable to order or to bearer and who bears the loss?
HELD:
As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is
considered as a bearer instrument. A check is a bill of exchange drawn on a bank payable on demand.[11] It is either
an order or a bearer instrument. Sections 8 and 9 of the NIL states:

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. 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.

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-existing person, and such fact is 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) Where the only or last indorsement is an indorsement in blank.[12] (Underscoring supplied)
PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller or tellers accepted the 69
checks for deposit to the PEMSLA account even without any indorsement from the named payees. It bears stressing
that order instruments can only be negotiated with a valid indorsement.
A check that is payable to a specified payee is an order instrument. However, under Section 9(c) of the NIL, a check
payable to a specified payee may nevertheless be considered as a bearer instrument if it is payable to the order of a
fictitious or non-existing person, and such fact is known to the person making it so payable.

A bank that regularly processes checks that are neither payable to the customer nor duly indorsed by the payee is
apparently grossly negligent in its operations.This Court has recognized the unique public interest possessed by the
banking industry and the need for the people to have full trust and confidence in their banks. For this reason, banks
are minded to treat their customers accounts with utmost care, confidence, and honesty.

In a checking transaction, the drawee bank has the duty to verify the genuineness of the signature of the drawer and
to pay the check strictly in
accordance with the drawers instructions, i.e., to the named payee in the check. It should charge to the drawers
accounts only the payables authorized by the latter. Otherwise, the drawee will be violating the instructions of the
drawer and it shall be liable for the amount charged to the drawers account.
In the case at bar, respondents-spouses were the bank’s depositors. The checks were drawn against respondents-
spouses’ accounts. PNB, as the drawee bank, had the responsibility to ascertain the regularity of the indorsements,
and the genuineness of the signatures on the checks before accepting them for deposit. Lastly, PNB was obligated to
pay the checks in strict accordance with the instructions of the drawers. Petitioner miserably failed to discharge this
burden.
The checks were presented to PNB for deposit by a representative of PEMSLA absent any type of indorsement,
forged or otherwise. The facts clearly show that the bank did not pay the checks in strict accordance with the
instructions of the drawers, respondents-spouses. Instead, it paid the values of the checks not to the named payees
or their order, but to PEMSLA, a third party to the transaction between the drawers and the payees.
Moreover, PNB was negligent in the selection and supervision of its employees. The trustworthiness of bank
employees is indispensable to maintain the stability of the banking industry. Thus, banks are enjoined to be extra
vigilant in the management and supervision of their employees.
PHILIPPINE NATIONAL BANK vs.
MANILA OIL REFINING & BY-PRODUCTS COMPANY, INC.
G.R. No. L-18103
June 8, 1922
FACTS:
This case concerns the validity of a provision in a Php61,000.00 promissory note
whereby in case the same is not paid at maturity, the maker (Manila Oil) authorizes any attorney
to appear and confess judgment thereon for the principal amount, with interest, costs, and
attorney's fees, and waives all errors, rights to inquisition, and appeal, and all property
exceptions.
On May 8, 1920, the manager and the treasurer of the Manila Oil executed and delivered
to the PNB the promissory note in question. When they defaulted, PNB brought action to the CFI
of Manila to recover the Php61,000.00. They brought with them Atty. Elias Rector, an attorney
associated with PNB, to enter in representation of Manila Oil. He filed a motion of confessing
judgment. The defendant, however, in a sworn declaration, objected strongly to the unsolicited
representation of attorney Recto. Later, attorney Antonio Gonzalez appeared for the defendant
and filed a demurrer, and when this was overruled, presented an answer. The trial judge rendered
judgment on the motion of attorney Recto in the terms of the complaint.

ISSUE:
Whether the promissory note in question is valid.

HELD:
No it is not. After hearing the opinion of experts, the Court arrived at this decision.
Warrants of attorney to confess judgment are not authorized nor contemplated by our law.
Provisions in notes authorizing attorneys to appear and confess judgments against makers should
not be recognized in this jurisdiction by implication and should only be considered as valid when
given express legislative sanction.
Although the NIL mentions of the validity of the promissory note despite the presence of
a provision of a confession of judgment, the Court points out the conclusion of the article: “But
nothing in this section shall validate any provision or stipulation otherwise illegal." If
confessions of judgment were allowed, the debtor will be deprived of his right to be heard.
Moreover, it is not the policy of the law to place a debtor in the absolute power of his creditor.
The field for fraud is too far enlarged by such an instrument.