KAUFFMAN VS. PNB (GR No. 16454, Sept.

29, 1921)

Herein plaintiff was entitled to P98,000 of the Philippine Fiber and Produce Company’s dividend for the year 1917. George B. Wicks,
treasurer of the Company, requested that a telegraphic transfer of $45,000 to the plaintiff in New York City. Wicks drew and delivered
a check for the amount of P90,355.50, total cost of said transfer, including exchange and cost of message which was accepted by the
officer selling the exchange in payment of the transfer in question. As evidence of this transaction a document was made out and
delivered to Wicks, which is referred to by the bank's assistant cashier as its official receipt. On the same day the Philippine National
Bank dispatched to its New York agency a cablegram for $45,000. However, the bank's representative in New York replied suggesting
the advisability of withholding this money from Kauffman. The PNB dispatched to its New York agency another message to withhold
the Kauffman payment as suggested. Meanwhile, upon advice of Wicks that the money has been placed to his credit, Kauffman
presented himself at the office of the Philippine National Bank in New York and demanded the money. By this time, however, the
message from the Philippine National Bank directing the withholding of payment had been received in New York, and payment was
therefore refused. Thus the present complaint to recover said sum, with interest and costs.

ISSUE: WON Act No. 2031 is applicable in the above case?

HELD: NO. The provisions of the Negotiable Instruments Law to come into operation, there must be a document in existence of the
character described in section 1 of the Law; and no rights properly speaking arise in respect to said instrument until it is delivered. In
the case before us there was an order transmitted by the defendant bank to its New York branch, for the payment of a specified sum
of money to George A. Kauffman. But this order was not made payable "to order or "to bearer," as required in Section 1(d) of that Act;
and inasmuch as it never left the possession of the bank, or its representative in New York City, there was no delivery in the sense
intended in Section 16 of the same Law. In this connection it is unnecessary to point out that the official receipt delivered by the bank
to the purchaser of the telegraphic order, and already set out above, cannot itself be viewed in the light of a negotiable instrument,
although it affords complete proof of the obligation actually assumed by the bank.

GSIS VS. CA (GR No. L-40824, Feb. 23, 1989)

Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the Lagasca spouses, executed a deed of mortgage in favor of
petitioner GSIS. Subsequently, another deed of mortgage was executed in connection with earlier two loans granted. A parcel of land,
co-owned by said mortgagor spouses, was given as security under the aforesaid two deeds and they also executed a "promissory
note". The Lagasca spouses executed an instrument denominated "Assumption of Mortgage" under which they obligated themselves to
assume obligation 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 extra-judicially foreclosed the mortgage and caused the mortgaged
property to be sold at public auction. Private respondents filed a complaint against the petitioner and the Lagasca spouses praying that
the extrajudicial foreclosure be declared null and void. In their aforesaid complaint, they alleged that they signed the mortgage
contracts not as sureties or guarantors for the Lagasca spouses but they merely gave their common property to the said co-owners
who were solely benefited by the loans from the GSIS. Trial court dismissed the case. CA reversed decision stating that the
respondents are that only of an accommodation party.

ISSUE: WON the NIL is applicable to the promissory note and mortgage deed?

HELD: No. 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. This approach of both parties appears to be misdirected and their reliance misplaced. The promissory note
hereinbefore quoted, 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.

TIBAJIA VS. CA (GR No. 100290, June 4, 1993)

A writ of attachment was issued by the trial court in connection to the collection of a sum of money filed by Eden Tan against the
Tibajia spouses. The fund was then on deposit with the cashier of the Regional Trial Court of Pasig. The Tibajia spouses thereafter
delivered to the Deputy Sheriff the total money judgment in the form of Cashier's Check worth P262,750.00. However, Eden Tan,
refused to accept the payment made and instead insisted that the garnished funds deposited with the cashier of the Regional Trial
Court of Pasig be withdrawn to satisfy the judgment obligation. Petitioners filed a motion to lift the writ of execution on the ground that
the judgment debt had already been paid but was denied by the trial court on the ground that payment in cashier's check is not
payment in legal tender. When the petitioners' motion for reconsideration was denied, the spouses Tibajia filed herein petition.

ISSUE: WON the delivery of the cashier's check is considered payment in legal tender?

HELD: 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. (Philippine Airlines, Inc. vs. Court of Appeals and
Roman Catholic Bishop of Malolos, Inc. vs. Intermediate Appellate Court). The ruling in the two (2) abovementioned cases decided by
the Supreme Court 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, cashier's or personal check.

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 non-negotiability 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.

PHILIPPINE EDUCATION CO. VS. SORIANO (GR No. L-22405, June 30, 1971)

Enrique Montinola sought to purchase from the Manila Post Office 10 money orders (P200 each), offering to pay for them with a
private check. Montinola was able to leave the building with his check and the 10 money orders without the knowledge of the teller.
Upon discovery, message was sent to all postmasters and banks involving the unpaid money orders. One of the money orders was
received by the Philippine Education Co. as part of its sales receipt. It was deposited by the company with the Bank of America, which
cleared it with the Bureau of Post. The Postmaster, through the Chief of the Money Order Division of the Manila Post Office informed
the bank of the irregular issuance of the money order. The bank debited the account of the company. The company moved for
reconsideration.

ISSUE: WON postal money orders are negotiable instruments?

HELD: No. Philippine postal statutes are patterned from those of the United States, and the weight of authority in said country is that
Postal money orders are not negotiable instruments inasmuch as the establishment of a postal money order is an exercise of
governmental power for the public’s benefit. Furthermore, some of the restrictions imposed upon money order by postal laws and
regulations are inconsistent with the character of negotiable instruments. For instance, postal money orders may be withheld under a
variety of circumstances, and which are restricted to not more than one indorsement.
PBCOM VS. JOSE ARUEGO (GR No. L-25836-37, Jan. 31, 1981)

Herein plaintiff instituted against an action against defendant for the recovery of the total sum of money plus interests and attorney’s
fees. The complaint filed by the Philippine Bank of Commerce contains twenty-two (22) causes of action referring to twenty-two (22)
transactions entered into by the said Bank and Aruego on different dates. The sum sought to be recovered represents the cost of the
printing of "World Current Events," a periodical published by the defendant. To facilitate the payment of the printing the defendant
obtained a credit accommodation from the plaintiff. Thus, for every printing of the "World Current Events," the printer collected the
cost of printing by drawing a draft against the plaintiff, said draft being sent later to the defendant for acceptance. As an added
security for the payment of the amounts advanced to printer, the plaintiff bank also required defendant Aruego to execute a trust
receipt in favor of said bank wherein said defendant undertook to hold in trust for plaintiff the periodicals and to sell the same with the
promise to turn over to the plaintiff the proceeds of the sale of said publication to answer for the payment of all obligations arising
from the draft. Defendant filed an answer interposing for his defense that he signed the drafts in a representative capacity,that he
signed only as accommodation party and that the drafts signed by him were not really bills of exchange but mere pieces of evidence of
indebtedness because payments were made before acceptance.

ISSUE1: WON the drafts Aruego signed were bills of exchange?

HELD: YES. Under the Negotiable Instruments Law, 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. As long as a commercial paper conforms with the definition of a bill of
exchange, that paper is considered a bill of exchange. The nature of acceptance is important only in the determination of the kind of
liabilities of the parties involved, but not in the determination of whether a commercial paper is a bill of exchange or not.

ISSUE2: WON Aruego is personally liable?

HELD: YES. Firstly, Section 20 of the Negotiable Instruments Law provides that "Where the instrument contains or a person adds to
his signature words indicating that he signs for or on behalf of a principal or in a representative capacity, he is not liable on the
instrument if he was duly authorized; but the mere addition of words describing him as an agent or as filing a representative character,
without disclosing his principal, does not exempt him from personal liability." An inspection of the drafts accepted by the defendant
shows that nowhere has he disclosed that he was signing as a representative of the Philippine Education Foundation Company. He
merely signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARGUEGO For failure to disclose his principal, Aruego is personally
liable for the drafts he accepted. Secondly, an accommodation party is one who has signed the instrument as maker, drawer, indorser,
without receiving value therefor and for the purpose of lending his name to some other person. Such person is liable on the instrument
to a holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an accommodation
party. In lending his name to the accommodated party, the accommodation party is in effect a surety for the latter. He lends his name
to enable the accommodated party to obtain credit or to raise money. He receives no part of the consideration for the instrument but
assumes liability to the other parties thereto because he wants to accommodate another. In the instant case, the defendant signed as
a drawee/acceptor. Under the Negotiable Instrument Law, a drawee is primarily liable. Thus, if the defendant who is a lawyer, he
should not have signed as an acceptor/drawee. In doing so, he became primarily and personally liable for the drafts.

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.
 TRADERS ROYAL BANK VS. COURT OF APPEALS (GR No. 93397; Mar. 3, 1997)

Assailed in this Petition is the Decision of the Court of Appeals affirming the nullity of the transfer of Central Bank Certificate of
Indebtedness (CBC), with a face value of P500, 000 from Philippine Underwriters Finance Corporation (Philfinance) - without
authorization – to petitioner Traders Royal Bank.

ISSUE: WON Central Bank Certificate of Indebtedness (CBCI) is a negotiable instrument?

HELD: No. The instrument provides for a promise to pay the registered owner Filriters. Very clearly, the instrument was only payable
to Filriters. It lacked the words of negotiability which should have served as an expression of the consent that the instrument may be
transferred by negotiation. The language of negotiability which characterizes a negotiable paper as a credit instrument is its freedom to
circulate as a substitute for money. Hence, freedom of negotiability is the touchstone relating to the protection of holders in due
course, and the freedom of negotiability is the foundation for the protection, which the law throws around a holder in due course. This
freedom in negotiability is totally absent in a certificate of indebtedness as it merely acknowledges to pay a sum of money to a
specified person or entity for a period of time. The transfer of the instrument from Philfinance to TRB was merely an assignment, and is
not governed by the negotiable instruments law. The pertinent question then is—was the transfer of the CBCI from Filriters to
Philfinance and subsequently from Philfinance to TRB, in accord with existing law, so as to entitle TRB to have the CBCI registered in its
name with the Central Bank? Clearly shown in the record is the fact that Philfinance’s title over CBCI is defective since it acquired the
instrument from Filriters fictitiously. Although the deed of assignment stated that the transfer was for ‘value received‘, there was really
no consideration involved. What happened was Philfinance merely borrowed CBCI from Filriters, a sister corporation. Thus, for lack of
any consideration, the assignment made is a complete nullity. Furthermore, the transfer wasn't in conformity with the regulations set
by the CB. Giving more credence to rule that there was no valid transfer or assignment to petitioner.

STATE INVESTMENT HOUSE VS. COURT OF APPEALS (217 SCRA 32 [1993])

Nora Moulic issued checks to Corazon Victoriano as deposit for jewelry that she obtained from the latter which were meant to be sold
to other persons. When she was returning the jewelry, the payee failed to return the checks because she already negotiated the same
to the petitioner. Moulic withdrew her funds from the drawee bank.

ISSUE: WON the obligation is extinguished?

HELD: No. The acts which will discharge a simple contract for the payment of money under Sec. 119(d) are determined by other
existing legislations, e.g., Art. 1231 of the Civil Code. None of the modes outlined therein is applicable in the instant case as Sec. 199
contemplates of a situation where the holder is the creditor while its drawer is the debtor. In the present action, the payee, Corazon
Victoriano, was no longer Moulic’s creditor at the time the jewelry were returned.

II. A. LOZANO V. MARTINEZ, 146 SCRA 323

FLORENTINA A. LOZANO, petitioner, vs. THE HONORABLE ANTONIO M. MARTINEZ, in his capacity as Presiding Judge,
Regional Trial Court, National Capital Judicial Region, Branch XX, Manila, and the HONORABLE JOSE B. FLAMINIANO, in his capacity as
City Fiscal of Manila, respondents.

YAP,J:
Petitioners, charged with Batas Pambansa Bilang 22 (BP 22 for short), popularly known as the Bouncing Check Law,assail the law's
constitutionality.

BP 22 punishes a person "who makes or draws and issues any check on account or for value, knowing at the time of issue that he does
not have sufficient funds in or credit with the draweebank for the payment of said check in full upon presentment, which check is
subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason
had not the drawer, without any valid reason, ordered the bank to stop payment." The penalty prescribed for the offense is
imprisonment of not less than 30 days nor more than one year or a fine or not less than the amount of the check nor more than double
said amount, but in no case to exceed P200,000.00, or both such fine and imprisonment at the discretion of the court.The statute
likewise imposes the same penalty on "any person who, having sufficient funds in or credit with the drawee bank when he makes or
draws and issues a check, shall fail to keep sufficient funds or to maintain a credit to cover the full amount of the check if presented
within a period of ninety (90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank.An essential
element of the offense is "knowledge" on the part of the maker or drawer of the check of the insufficiency of his funds in or credit with
the bank to cover the check upon its presentment. Since this involves a state of mind difficult to establish, the statute itself creates
a prima faciepresumption of such knowledge where payment of the check "is refused by the drawee because of insufficient funds in or
credit with such bank when presented within ninety (90) days from the date of the check. To mitigate the harshness of the law in its
application, the statute provides that such presumption shall not arise if within five (5) banking days from receipt of the notice of
dishonor, the maker or drawer makes arrangements for payment of the check by the bank or pays the holder the amount of the
check.Another provision of the statute, also in the nature of a rule of evidence, provides that the introduction in evidence of the unpaid
and dishonored check with the drawee bank's refusal to pay "stamped or written thereon or attached thereto, giving the reason
therefor, "shall constitute primafacie proof of "the making or issuance of said check, and the due presentment to the drawee for
payment and the dishonor thereof ... for the reason written, stamped or attached by the drawee on such dishonored check."The
presumptions being merely prima facie, it is open to the accused of course to present proof to the contrary to overcome the said
presumptions.
ISSUE: Whether or not (W/N) BP 22 violates the constitutional provision forbidding imprisonment for debt.
HELD: No.The gravamen of the offense punished by BP 22 is the act of making and issuing a worthless check or a check that is
dishonored upon its presentation for payment. It is not the non-payment of an obligation which the law punishes. The law is not
intended or designed to coerce a debtor to pay his debt. The thrust of the law is to prohibit, under pain of penal sanctions, the making
of worthless checks and putting them in circulation. Because of its deleterious effects on the public interest, the practice is proscribed
by the law. The law punishes the act not as an offense against property, but an offense against public order.The effects of the issuance
of a worthless check transcends the private interests of the parties directly involved in the transaction and touches the interests of the
community at large. The mischief it creates is not only a wrong to the payee or holder, but also an injury to the public. The harmful
practice of putting valueless commercial papers in circulation, multiplied a thousand fold, can very wen pollute the channels of trade
and commerce, injure the banking system and eventually hurt the welfare of society and the public interest.The enactment of BP 22 is
a declaration by the legislature that, as a matter of public policy, the making and issuance of a worthless check is deemed public
nuisance to be abated by the imposition of penal sanctions.
ISSUE:W/N BP 22 impairs the freedom to contract.
HELD: No. The freedom of contract which is constitutionally protected is freedom to enter into "lawful" contracts. Contracts which
contravene public policy are not lawful. Besides, we must bear in mind that checks can not be categorized as mere contracts. It is a
commercial instrument which, in this modem day and age, has become a convenient substitute for money; it forms part of the banking
system and therefore not entirely free from the regulatory power of the state.
ISSUE: W/N it violates the equal protection clause.
HELD: No. Petitioners contend that the payee is just as responsible for the crime as the drawer of the check, since without the
indispensable participation of the payee by his acceptance of the check there would be no crime. This argument is tantamount to
saying that, to give equal protection, the law should punish both the swindler and the swindled. Moreover, the clause does not
preclude classification of individuals, who may be accorded different treatment under the law as long as the classification is no
unreasonable or arbitrary.

HOW NEGOTIABILITY IS DETERMINED - JUANITA SALAS V. HON. COURT OF APPEALS, et. al., G.R. No. 76788, Jan. 22,
1990
G.R. No. 76788 January 22,1990
Juanita Salas (Petitioner) bought a motor vehicle from the Violago Motor Sales Corporation (VMS) as evidenced by a promissory note.
This note was subsequently endorsed to Filinvest Finance & Leasing Corporation (private respondent) which financed the purchase.
Petitioner defaulted in her installments allegedly due to a discrepancy in the engine and chassis numbers of the vehicle delivered to her
and those indicated in the sales invoice, certificate of registration and deed of chattel mortgage, which fact she discovered when the
vehicle figured in an accident. This failure to pay prompted private respondent to initiate an action for a sum of money against
petitioner before the Regional Trial Court.
ISSUE: WON private respondent is a holder in due course?
HELD: YES. The Promissory Note was negotiated by indorsement in writing on the instrument itself payable to the Order of Filinvest
Finance and Leasing Corporation and it is an indorsement of the entire instrument. Under the circumstances, there appears to be no
question that Filinvest is a holder in due course, having taken the instrument under the following conditions: [a] it is complete and
regular upon its face; [b] it became the holder thereof before it was overdue, and without notice that it had previously been
dishonored; [c] it took the same in good faith and for value; and [d] when it was negotiated to Filinvest, the latter had no notice of any
infirmity in the instrument or defect in the title of VMS Corporation. Accordingly, respondent corporation holds the instrument
free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and
may enforce payment of the instrument for the full amount thereof. This being so, petitioner cannot set up against
respondent the defense of nullity of the contract of sale between her and VMS.

DISTINCTIONS BETWEEN NEGOTIABLE INSTRUMENTS AND NON-NEGOTIABLE INSTRUMENTS - SESBREÑO V. COURT

OF APPEALS, 222 SCRA 466 (1993)

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 (1) the Certificate of Confirmation of Sale of a Delta Motor
Corporation Promissory Note, (2) 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 (3) post-dated 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 Delta Promissory Note
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
“non-negotiable” on its face. PhilFrance was later on placed under the custody of the Securities and Exchange Commission. 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 contends 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. The trial court and the CA dismissed petitioner’s
complaint and appeal, respectively, for lack of cause of action. If anything, petitioner has a cause of action against Philfrance, which,
however, was not impleaded.
ISSUE: WON the non-negotiability of a promissory note prevents its assignment?
HELD: No. 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.

KINDS OF NEGOTIABLE INSTRUMENTS - HSBC V. CIR, G.R. NO. 166018, JUNE 4, 2014
FACTS: HSBC received emails from its foreign clientele to debit funds from their accounts for the payment of shares and securities in the
Philippines. After debiting the appropriate taxes to the BIR, HSBC then requested that the latter rule on whether or not such email
transactions were negotiable instruments subject to documentary stamp tax (DST). The BIR responded in the negative, holding that such
emails were not transactions contemplated in Sec. 181 of the 1997 Tax Code. On the strength of this response, HSBC proceeded to
demand the return of their tax payments advanced on the presumption that DST was applicable. However, as BIR did not heed HSBC’s
requests for the return of the payments, HSBC filed with the Court of Tax Appeals. CTA ruled in their favor. CA reversed, holding that
Sec. 181 does not apply to the instrument or bill of exchange per se, but on the acceptance or payment of said order. Hence this petition
for review on certiorari before the SC.
ISSUE: Whether or not the emails are negotiable instruments subject to DST
HELD: No. Under Section 1 of the Negotiable Instruments law, the emails fail to conform to all the requirements listed therein. Ergo,
the emails are not negotiable instruments. They are not written and signed by the maker or drawer; they do not contain an unconditional
order to pay a sum certain in money as the payment is supposed to come from a specific fund or account of the investor-clients; and, they
are not payable to order or bearer but to a specifically designated third party. Thus, the electronic messages are not bills of exchange.
As there was no bill of exchange or order for the payment drawn abroad and made payable here in the Philippines, there could have
been no acceptance or payment that would trigger the imposition of the DST under Section 181 of the Tax Code. RODRIGO RIVERA vs.
SPS. SALVADOR AND VIOLETA CHUA G.R. No. 184458 | Jan. 14, 2015 | Perez, J. FACTS: Petitioner Rivera obtained a loan from
Respondent Spouses Chua in the amount of P120, 000, and the same was evidenced by a promissory note to be paid on the December
31, 1995, with 5% monthly interest from the date of default until the entire obligation is fully paid for. Three years after the date of
payment stipulated in the promissory note, Rivera, in partial payment of the loan, issued two checks drawn against his current account
with the Philippine Commercial International Bank (PCIB). The first check stipulated the Spouses Chua as payee, but the second check
was payable to cash. Upon presentment of the checks, however, both were dishonored for the reason “account closed”. The Spouses
Chua then demanded payment from Rivera, but because of the latter’s unjustified refusal to comply, a complaint for the collection of
a sum of money was filed before the MeTC.

FEATURES OF NEGOTIABILITY - FIRESTONE TIRE & RUBBER CO. V. CA, G.R. NO. 113236, MARCH 5, 2001

Facts: Forjas-Arca Enterprise Company is maintaining a special savings account with Luzon Development Bank, the latter authorized
and allowed withdrawals of funds though the medium of special withdrawal slips. These are supplied by Fojas-Arca. Fojas-Arca
purchased on credit with FirestoneTire & Rubber Company, in payment Fojas-Arca delivered a 6 special withdrawal slips. In turn, these
were deposited by the Firsestone to its bank account in Citibank. With this, relying on such confidence and belief Firestone extended to
Fojas-Arca other purchase on credit of its products but several withdrawal slips were dishonored and not paid. As a consequence,
Citibank debited the plaintiff’s account representing the aggregate amount of the two dishonored special withdrawal slips. Fojas-Arca
averred that the pecuniary losses it suffered are a caused by and directly attributes to defendant’s gross negligence as a result Fojas-
Arca filed a complaint.

Issue: Whether or not the acceptance and payment of the special withdrawal slips without the presentation of the depositor’s
passbook thereby giving the impression that it is a negotiable instrument like a check.

Held: No. Withdrawal slips in question were non-negotiable instrument. Hence, the rules governing the giving immediate notice of
dishonor of negotiable instrument do not apply. The essence of negotiability which characterizes a negotiable paper as a credit
instrument lies in its freedom to circulate freely as a substitute for money. The withdrawal slips in question lacked this character.

Kinds of Negotiable Instruments - HSBC v. CIR, G.R. No. 166018, June 4, 2014
G.R. No. 166018 June 4, 2014
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE BRANCHES, Petitioner,
vs.COMMISSIONER OF INTERNAL REVENUE, Respondent;
x-----------------------x
G.R. No. 167728
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE BRANCHES, Petitioner, vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

NATURE: Petitions for review on certiorari assailing the Decision and Resolution of the CA. The respective Decisions in
the said cases similarly reversed and set aside the decisions of the CTA and dismissed the petition of Petitioner HSBC.

FACTS:
1. HSBC performs custodial services on behalf of its investor-clients with respect to their passive investments in
the Philippines, particularly investments in shares of stocks in domestic corporations. As a custodian bank,
HSBC serves as the collection/payment agent.

2. HSBC’s investor-clients maintain Philippine peso and/or foreign currency accounts, which are managed by
HSBC through instructions given through electronic messages. The said instructions are standard forms known
in the banking industry as SWIFT, or "Society for Worldwide Interbank Financial Telecommunication." In
purchasing shares of stock and other investment in securities, the investor-clients would send electronic
messages from abroad instructing HSBC to debit their local or foreign currency accounts and to pay the
purchase price therefor upon receipt of the securities.

3. Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid Documentary Stamp Tax
(DST) from September to December 1997 and also from January to December 1998 amounting to
P19,572,992.10 and P32,904,437.30, respectively.

4. BIR, thru its then Commissioner, issued BIR Ruling to the effect that instructions or advises from abroad on
the management of funds located in the Philippines which do not involve transfer of funds from abroad are not
subject to DST. A documentary stamp tax shall be imposed on any bill of exchange or order for payment
purporting to be drawn in a foreign country but payable in the Philippines.

a. While the payor is residing outside the Philippines, he maintains a local and foreign currency account in
the Philippines from where he will draw the money intended to pay a named recipient. The instruction
or order to pay shall be made through an electronic message. Consequently, there is no negotiable
instrument to be made, signed or issued by the payee.
b. Such electronic instructions by the non-resident payor cannot be considered as a transaction per se
considering that the same do not involve any transfer of funds from abroad or from the place where
the instruction originates. Insofar as the local bank is concerned, such instruction could be considered
only as a memorandum and shall be entered as such in its books of accounts. The actual debiting of the
payor’s account, local or foreign currency account in the Philippines, is the actual transaction that
should be properly entered as such. Under the Documentary Stamp Tax Law, the mere withdrawal of
money from a bank deposit, local or foreign currency account, is not subject to DST, unless the account
so maintained is a current or checking account, in which case, the issuance of the check or bank drafts
is subject to the documentary stamp tax.
c. Likewise, the receipt of funds from another bank in the Philippines for deposit to the payee’s account
and thereafter upon instruction of the non-resident depositor-payor, through an electronic message,
the depository bank to debit his account and pay a named recipient shall not be subject to
documentary stamp tax. It should be noted that the receipt of funds from another local bank in the
Philippines by a local depository bank for the account of its client residing abroad is part of its regular
banking transaction which is not subject to documentary stamp tax.

5. With the above BIR Ruling as its basis, HSBC filed on an administrative claim for the refund of allegedly
representing erroneously paid DST to the BIR
6. As its claims for refund were not acted upon by the BIR, HSBC subsequently brought the matter to the CTA,
which favored HSBC and ordered payment of refund or issuance of tax credit.
7. However, the CA reversed decisions of the CTA and ruled that the electronic messages of HSBC’s investor-
clients are subject to DST.
a. DST is levied on the exercise by persons of certain privileges conferred by law for the creation,
revision, or termination of specific legal relationships through the execution of specific instruments,
independently of the legal status of the transactions giving rise thereto.

ISSUE: Whether or not the electronic messages are considered transactions pertaining to negotiable instruments that
warrant the payment of DST.
HELD: NO.
The Court agrees with the CTA that the DST under Section 181 of the Tax Code is levied on the acceptance or payment
of "a bill of exchange purporting to be drawn in a foreign country but payable in the Philippines" and that "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."

The Court further agrees with the CTA that the electronic messages of HSBC’s investor-clients containing instructions
to debit their respective local or foreign currency accounts in the Philippines and pay a certain named recipient also
residing in the Philippines is not the transaction contemplated under Section 181 of the Tax Code as such instructions
are "parallel to an automatic bank transfer of local funds from a savings account to a checking account maintained by a
depositor in one bank." The Court favorably adopts the finding of the CTA that the electronic messages "cannot be
considered negotiable instruments as they lack the feature of negotiability, which, is the ability to be transferred" and
that the said electronic messages are "mere memoranda" of the transaction consisting of the "actual debiting of the
[investor-client-payor’s] local or foreign currency account in the Philippines" and "entered as such in the books of
account of the local bank," HSBC.

The instructions given through electronic messages that are subjected to DST in these cases are not negotiable
instruments as they do not comply with the requisites of negotiability under Section 1 of the Negotiable Instruments
Law. The electronic messages are not signed by the investor-clients as supposed drawers of a bill of exchange; they do
not contain an unconditional order to pay a sum certain in money as the payment is supposed to come from a specific
fund or account of the investor-clients; and, they are not payable to order or bearer but to a specifically designated
third party. Thus, the electronic messages are not bills of exchange. As there was no bill of exchange or order for the
payment drawn abroad and made payable here in the Philippines, there could have been no acceptance or payment
that will trigger the imposition of the DST under Section 181 of the Tax Code.

In these cases, the electronic messages received by HSBC from its investor-clients abroad instructing the former to
debit the latter's local and foreign currency accounts and to pay the purchase price of shares of stock or investment in
securities do not properly qualify as either presentment for acceptance or presentment for payment. There being
neither presentment for acceptance nor presentment for payment, then there was no acceptance or payment that
could have been subjected to DST to speak of.

WHEREFORE, the petitions are hereby GRANTED and the Decisions dated May 2, 2002 in CTA Case No. 6009 and dated
December 18, 2002 in CT A Case No. 5951 of the Court of Tax Appeals are REINSTATED. SO ORDERED.