NEGOTIABLE INSTRUMENTS LAW

Doctrines/Ruling

1. A treasury warrant "payable from the appropriation for food

administration," is actually an order for payment out of "a particular fund,"
and is not unconditional, and does not fulfill one of the essential
requirements of a negotiable instrument. In the United States, government
warrants for the payment of money are not negotiable instruments nor commercial
paper.||| (Abubakar v. Auditor General, G.R. No. L-1405, [July 31, 1948], 81 PHIL 359-
361)

2. The Negotiable Instruments Law does not provide that a holder who is not a holder in
due course, may not in any case, recover on the instrument. If B purchases an
overdue negotiable promissory note signed by A, he is not a holder in due course; but
he may recover from A, if the latter has no valid excuse for refusing payment. The
only disadvantage of a holder who is not a holder in due course is that the negotiable
instrument is subject to defenses as if it were non-negotiable.||| (Chan Wan v. Tan
Kim, G.R. No. L-15380, [September 30, 1960], 109 PHIL 706-712)

3. ". . . for value received, we the undersigned . . . JOINTLY, SEVERALLY and SOLIDARILY,
promise to pay the GOVERNMENT SERVICE INSURANCE SYSTEM the sum of . . .
(P11,500.00) Philippine Currency, with interest at the rate of six (6%) per centum
compounded monthly payable in . . .(120) equal monthly installments of . . .
(P127.65) each.”

NON-NEGOTIABLE. 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.||| (Government Service Insurance System v. Court of Appeals, G.R. No. L-
40824, [February 23, 1989], 252 PHIL 552-560)

4. A promissory note signed by one person in favor of another, but not to his order,
wherein it is simply stated: "I promise to pay X so much," is nothing but an ordinary
note, not negotiable. A document of this kind is nothing more than mere written
evidence of the contract it represents. But a promissory note payable to order is not
merely proof, as is the other one, of the contract therein contained; it is negotiable,
indorsable, transferable, without the knowledge or consent of the person who issued
and signed it; it is a real instrument of exchange; it is something commutative which
the drawer issues is exchange for the money or merchandise that he has received
from the holder of the note, or as a result of accounts between them.||| (El Banco
Español-Filipino v. Tan-Tongco, G.R. No. 4163, [August 4, 1909], 13 PHIL 628-654)

5. The 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.||| (Caltex
(Philippines), Inc. v. Court of Appeals, G.R. No. 97753, [August 10, 1992])

6. In the present case, BCCFI's defense in stopping payment is as good to SIHI as it is to

George King. Because, really, the checks were issued with the intention that George
 King would supply BCCFI with the bales of tobacco leaf. There being failure of
consideration, SIHI is not a holder in due course. Consequently, BCCFI cannot be
obliged to pay the checks.

The foregoing does not mean, however, that respondent could not recover from the
checks. The only disadvantage of a holder who is not a holder in due course is that
the instrument is subject to defenses as if it were non-negotiable. 14 Hence,
respondent can collect from the immediate indorser, in this case, George King. |||
(Bataan Cigar and Cigarette Factory, Inc. v. Court of Appeals, G.R. No. 93048, [March
3, 1994]) – Check case!

7. Appellant's contention that as mere indorser, she may not be made liable on account
of the dishonor of the checks indorsed by her, is likewise untenable. Under the law,
the holder or last indorsee of a negotiable instrument has the right to "enforce
payment of the instrument for the full amount thereof against all parties liable
thereon." 18 Among the "parties liable thereon" is an indorser of the instrument i.e.,
"a person placing his signature upon an instrument otherwise than as maker, drawer,
or acceptor . . . unless he clearly indicates by appropriate words his intention to be
bound in some other capacity." 19 Such an indorser "who indorses without
qualification," inter alia "engages that on due presentment, . . . (the instrument) shall
be accepted or paid, or both, as the case may be, according to its tenor, and that if it
be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay
the amount thereof to the holder, or to any subsequent indorser who may be
compelled to pay it." 20 Maniego may also be deemed an "accommodation party" in
the light of the facts, i.e., a person "who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the purpose of lending
his name to some other person." 21 As such, she is under the law "liable on the
instrument to a holder for value, notwithstanding such holder at the time of taking
the instrument knew . . . (her) to be only an accommodation party," 22 although she
has the right, after paying the holder, to obtain reimbursement from the party
accommodated, "since the relation between them is in effect that of principal and
surety, the accommodation party being the surety." 23||| (People v. Maniego, G.R. No.
L-30910, [February 27, 1987], 232 PHIL 31-38)

8. The pertinent portion of the note is as follows:

"FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the INDUSTRIAL
PRODUCTS MARKETING, the sum of ONE MILLION NINETY THREE THOUSAND SEVEN
HUNDRED EIGHTY NINE PESOS & 71/100 only (P1,093,789.71), Philippine Currency,
the said principal sum, to be payable in 24 monthly installments starting July 15,
1978 and every 15th of the month thereafter until fully paid. . . . ."

Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires
that a promissory note "must be payable to order or bearer," it cannot be denied that
the promissory note in question is not a negotiable instrument.

"The instrument in order to be considered negotiable must contain the so called

'words of negotiability' — i.e., must be payable to 'order' or 'bearer'. These words
serve as an expression of consent that the instrument may be transferred. This
consent is indispensable since a maker assumes greater risk under a negotiable
instrument than under a non-negotiable one. . . .

"These are the only two ways by which an instrument may be made payable to order.
There must always be a specified person named in the instrument. It means that 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
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." (Campos and Campos, Notes and Selected
Cases on Negotiable Instruments Law, Third Edition, page 38). (Emphasis supplied)|||
(Consolidated Plywood Industries v. IFC Leasing and Acceptance Corp., G.R. No.
72593, [April 30, 1987], 233 PHIL 462-480)

9.