Negotiable Instruments Case Digest: Caltex

(Phils.) Inc. V. CA And Security Bank And Trust

Co. (1992)
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:

1. W/N the CTDs are negotiable

2. 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.

FIRESTONE TIRE V. CA
353 SCRA 601

FACTS:
Fojas Arca and Firestone Tire entered into a franchising agreement wherein the former had the
privilege to purchase on credit the latters products. In paying for these products, the former could
pay through special withdrawal slips. In turn, Firestone would deposit these slips with
Citibank. Citibank would then honor and pay the slips. Citibank automatically credits the
account of Firestone then merely waited for the same to be honored and
paid by Luzon Development Bank. As this was the circumstances,
Firestone believed in the sufficient funding of the slips until there was a
time that Citibank informed it that one of the slips was dishonored. It
wrote then a demand letter to Fojas Arca for the payment and damages but the latter refused
to pay, prompting Firestone to file an action against
it.
HELD:
The withdrawal slips, at the outset, are non-negotiable. Hence, the rule on immediate notice of
dishonor is non-applicable to the case at hand. Thus, the bank was under no obligation to give
immediate notice that it wouldn't
make payment on the subject withdrawal slips. Citibank should have
known that withdrawal slips are not negotiable instruments. It couldn't expect then the slips be
treated like checks by other entities. Payment or notice of dishonor from respondent bank couldn't
be expected immediately in contrast to the situation involving checks.
In the case at bar, Citibank relied on the fact that LDB honored and paid
the withdrawal slips which made it automatically credit the account of
Firestone with the amount of the subject withdrawal slips then merely waited for LDB to honor
and pay the same. It bears stressing though that Citibank couldn't have missed the non-
negotiable character of the slips. The essence of negotiability which characterizes a negotiab
le paper as a credit instrument lies in its freedom to be a substitute for money. The
withdrawal slips in question lacked this character.

The withdrawal slips deposited were not checks as Firestone admits and Citibank generally
was not bound to accept the withdrawal slips as a valid mode of deposit. Nonetheless, Citibank
erroneously accepted the same as
such and thus, must bear the risks attendant to the acceptance of the instruments. Firestone
and Citibank could not now shift the risk to LDB for their committed mistake.

Negotiable Instruments Case Digest:

Metrobank V. CA And Golden Savings & Loan
Assoc. Inc (1991)

G.R. No. 88866 February 18, 1991

Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS:
January 1979: Eduardo Gomez opened an account with Golden Savings and
deposited over a period of 2 months 38 treasury warrants totalling P1,755,228.37.

all drawn by the Philippine Fish Marketing Authority and purportedly signed by its
General Manager and countersigned by its Auditor:

6 - directly payable to Gomez

32 - indorsed by their respective payees, followed by Gomez as second indorser

 June 25 - July 16, 1979: all warrants were subsequently indorsed by Gloria Castillo
as Cashier of Golden Savings and deposited to its Savings in the Metrobank branch

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

More than 2 weeks after the deposits, Castillo asked if the warrants were cleared.

She was told to wait.

Gomez was also not allowed to withdraw from his account

exasperated over Gloria's repeated inquiries and also as an accommodation for a

"valued client," Metrobank allowed Golden Savings to make the following
withdrawals:

July 9, 1979 - P508,000.00

July 13, 1979 - P310,000.00

July 16, 1979 - P150,000.00

Gomez was also allowed to withdraw a total amount of P1,167,500 (latest on July
16, 1979)

July 21, 1979: Metrobank informed Golden Savings that 32 of the warrants had
been dishonored by the Bureau of Treasury on July 19, 1979, and demanded the
refund by Golden Savings of the amount it had previously withdrawn, to make up
the deficit in its account. - refused

CA affirmed RTC: favored Golden Savings

ISSUE: W/N Metrobank can claim a refund from Golden Savings

HELD: NO. Affirmed. withdrawn must be charged not to Golden Savings but to
Metrobank, which must bear the consequences of its own negligence. But the balance
of P586,589.00 should be debited to Golden Savings, as obviously Gomez can no longer
be permitted to withdraw this amount from his deposit because of the dishonor of the
warrants
Metrobank was 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

It "presumed" that the warrants had been cleared simply because of "the lapse of
one week."

There was no reason why it should not have waited until the treasury warrants had
been cleared
Art. 1909. The agent is responsible not only for fraud, but also for negligence, which
shall be judged 'with more or less rigor by the courts, according to whether the agency
was or was not for a compensation.
Golden Savings acted with due care and diligence

Forgery cannot be presumed. It must be established by clear, positive and

convincing evidence. -here not proven

treasury warrants in question are not negotiable instruments

stamped on their face is the word "non-negotiable"

indicated that they are payable from a particular fund

Sec. 1. Form of negotiable instruments. An instrument to be negotiable must

conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
xxx xxx xxx
Sec. 3. When promise is unconditional. An unqualified order or promise to pay is
unconditional within the meaning of this Act though coupled with
(a) An indication of a particular fund out of which reimbursement is to be made or a
particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument judgment.
But an order or promise to pay out of a particular fund is not unconditional.

Philippine Education Co., Inc. vs

Mauricio Soriano, et al
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 PECIs
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 PECIs 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 offices 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.

Benjamin Abubakar vs The

Auditor General
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.

GEMPESAW V. CA
218 SCRA 682

FACTS:
Gempensaw was the owner of many grocery stores. She paid her suppliers
through the issuance of checks drawn against her checking account with
respondent bank. The checks were prepared by her bookkeeper Galang. In the signing of the
checks prepared by Galang, Gempensaw didn't bother
herself in verifying to whom the checks were being paid and if the
issuances were necessary. She didn't even verify the returned checks of the bank when the
latter notifies her of the same. During her two years in
business, there were incidents shown that the amounts paid for were in excess of what
should have been paid. It was also shown that even if the checks were crossed, the intended
payees didn't receive the amount of the
checks. This prompted Gempensaw to demand the bank to credit her account for the amount
of the forged checks. The bank refused to do so and this prompted her to file the case against the
bank.
HELD:
Forgery is a real defense by the party whose signature was forged. A party whose signature was
forged was never a party and never gave his consent
to the instrument. Since his signature doesnt appear in the instrument, the same cannot be
enforced against him even by a holder in due course. The drawee bank cannot charge the account
of the drawer whose signature was forged because he never gave the bank the order to pay.

In the case at bar the checks were filled up by petitioners employee Galang and were later
given to her for signature. Her signing the checks made the negotiable instruments complete. Prior
to signing of the checks, there was no valid contract yet. Petitioner completed the checks by
signing them and thereafter authorized Galang to deliver the same to their
respective payees. The checks were then indorsed, forged indorsements thereon.

As a rule, a drawee bank who has paid a check on which an indorsement

has been forged cannot debit the account of a drawer for the amount of
said check. An exception to this rule is when the drawer is guilty of negligence which
causes the bank to honor such checks. Petitioner in this
case has relied solely on the honesty and loyalty of her bookkeeper and
never bothered to verify the accuracy of the amounts of the checks she
signed the invoices attached thereto. And though she received her bank
statements, she didn't carefully examine the same to double-check her
payments. Petitioner didn't exercise reasonable diligence which eventually led to the fruition of her
bookkeepers fraudulent schemes.