NEGOTIABLE INSTRUMENTS LAW (ACT NO.

2031)

A. GOVERNING LAW

Chan Wan v. Tan Kim [G.R. No. L-15380. September 30, 1960]
Tan Kim issued 11 checks payable to cash or bearer to be drawn against their account
with the Equitable Banking Corporation. The checks were negotiated to the White House Shoe
Supply (company). White House then deposited the checks to their China Bank account. China
Bank then presented the checks to Equitable Bank but the checks were returned because
Equitable Bank then had no funds to cover the checks. 8 of the checks were crossed checks //
and China Bank then stamped the checks with Account Closed and Non negotiable China
Bank Corporation.

But somehow, Chan Wan got hold of these checks (Chan Wan was not able to explain in
court how he got hold of the checks). Chan Wan now wants to encash the checks but Equitable
Bank refused accept the said checks.

ISSUE:

WON Chan Wan has a right to collect the 11 commercial documents.

HELD: No. As a general rule, a dishonored check/instrument may still be negotiated either by
endorsement or delivery and the holder may be a holder in due course provided that he
received no notice regarding the dishonor of the instrument. In this case, the checks were
already crossed on their face hence Chan Wan was properly notified of the dishonor of the
checks at the time of his acquisition.

But may Chan Wan still recover?

Yes. 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. The holder may recover directly
from the drawee, in this case Tan Kim, unless the drawees have a valid excuse in refusing
payment. The only disadvantage of a holder who is not a holder in due course is that the
negotiable instrument is subject to defense as if it were non- negotiable. The case was
remanded to the lower court for a proper determination as to how Chan Wan acquired the
checks and to determine if he is indeed entitled to payment based on some other transactions
involving those checks.

NEGOTIABLE INSTRUMENTS LAW (ACT NO. 2031)

GOVERNING LAW
Metrobank vs CA G.R. No. 88866 February 18, 1991
Eduardo Gomez opened an account with Golden Savings and Loan Association and
deposited over a period of two months 38 treasury warrants. All these warrants were again
indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its savings account
in the Metrobank branch in Calapan, Mindoro. They were then sent for clearing by to the
principal office of Metrobank, which forwarded them to the Bureau of Treasury for special
clearing.
Before they were cleared and because of Glorias repeated inquiries, Metrobank finally
decided to allow Golden Savings to withdraw from the proceeds of the warrants. Golden
Savings in turn subsequently allowed Gomez to make withdrawals from his own account. Later,
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. Metrobank contends 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.

ISSUE: WON 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 the proceeds thereof from his account with it
WON the treasury warrants are non-negotiable
RULING: Yes, Metrobank was negligent and therefore, liable. 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.
Yes, they are non-negotiable. The Negotiable Instruments Law provide:

NEGOTIABLE INSTRUMENTS LAW (ACT NO. 2031)

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.

E. SPECIFIC INSTRUMENTS COVERED

Abubakar v. Auditor General

Auditor General refuses to authorize the payment of Treasury warrant of P1,000 which
was issued in favor of Placido S. Urbanes, but is now in the hands of herein petitioner Benjamin
Abubakar.
Auditor-General reasoned out that: first, because the money available for the redemption
of treasury warrants issued before January 2, 1942, is appropriated by Republic Act No. 80 and
this warrant does not come within the purview of said appropriation; and second, because of the
requirements of his office had not been complied with, namely, that it must be shown that the
holders of warrants covering payment or replenishment of cash advances for official
expenditures (as this warrant is) received them in payment of definite government obligations.

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ISSUE: WON treasury warrant is a negotiable instrument
RULING:
No. This treasury warrant is not within the scope of the negotiable instruments
law. For one thing, the document bearing on its face the words "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.
(Section 3 last sentenced and section 1[b] of the Negotiable Instruments Law.) In the United
States, government warrants for the payment of money are not negotiable instruments
nor commercial proper.

SPECIFIC INSTRUMENTS COVERED

Phil. Education Co Inc v Soriano
Enrique Montinola sought to purchase from the Manila Post Office ten (10) money
orders of P200.00 each payable to E.P. Montinola. After the postal teller had made out money
orders, Montinola offered to pay for them with a private checks were not generally accepted in
payment of money orders. Montinola was able to leave the building with his own check and the
ten(10) money orders without payment.
ISSUE: WON postal money orders are negotiable instruments
RULING: No. Postal money orders are not negotiable instruments. The reason behind this rule
is 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.
It is to be noted in this connection that some of the restrictions imposed upon money
orders by postal laws and regulations are inconsistent with the character of negotiable
instruments. For instance, such laws and regulations usually provide for not more than one
endorsement; payment of money orders may be withheld under a variety of circumstances

G. CONCEPT AND REQUISITES OF NEGOTIABILITY

Jimenez v. Bucoy
In this intestate of Luther Young and Pacita Young who died, Pacifica Jimenez presented
for payment four promissory notes signed by Pacita for different amounts totaling to P21,000.
Acknowledging receipt by Pacita during the Japanese occupation, in the currency then
prevailing, the administrator manifested willingness to pay provided adjustment of the sums be
made in line with the Ballantyne schedule.

NEGOTIABLE INSTRUMENTS LAW (ACT NO. 2031)

The claimant objected to the adjustment insisting on full payment in accordance with the
notes.
It was held that the notes should be paid in the currency prevailing after the war.
ISSUE: WON the amounts be paid and reduced according to the Ballantyne schedule
RULING: No, it should not be paid according to the Ballantyne schedule. Rule: If the loan
should be paid during the Japanese occupation, the Ballantyne schedule should apply with
corresponding reduction of the amount. However, if the loan was expressly agreed to be
payable only after the war or after liberation, or became payable after those dates, no reduction
could be effected, and peso-for-peso payment shall be ordered in Philippine currency.
The note herein-above quoted amounted in effect to "a promise to pay ten thousand pesos six
months after the war, without interest."
"An acknowledgment may become a promise by the addition of words by which a promise of
payment is naturally implied, such as, "payable," "payable" on a given day, "payable on
demand," "paid . . . when called for," . . .
"To constitute a good promissory note, no precise words of contract are necessary, provided the
amount, in legal effect, to a promise to pay. In other words, if over and above the mere
acknowledgment of the debt there may be collected from the words used a promise to pay it,
the instrument may be regarded as a promissory note.

Republic Planters Bank vs. CA

Defendant Shozo Yamaguchi and private respondent Fermin Canlas were
President/Chief Operating Officer and Treasurer respectively, of Worldwide Garment
Manufacturing, Inc.. By virtue of Board a board resolution, defendant Shozo Yamaguchi and
private respondent Fermin Canlas were authorized to apply for credit facilities with the petitioner
Republic Planters Bank in the forms of export advances and letters of credit/trust receipts
accommodations. Petitioner bank issued 9 promissory notes.
Canlas contended that inasmuch as he signed the promissory notes in his capacity as
officer of the defunct Worldwide Garment Manufacturing, Inc, he should not be held personally
liable for such authorized corporate acts that he performed. It is now the contention of the
petitioner Republic Planters Bank that having unconditionally signed the nine (9) promissory
notes with Shozo Yamaguchi, jointly and severally, defendant Fermin Canlas is solidarily liable
with Shozo Yamaguchi on each of the nine notes.
ISSUE: WON Canlas is liable for the promissory notes

NEGOTIABLE INSTRUMENTS LAW (ACT NO. 2031)

RULING: Yes, Canlas is solidarily liable on each of the promissory notes bearing his signatures.
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 thereof. There is no denying that Canlas is one of
the co-makers of the promissory notes. As such, he cannot escape liability arising therefrom.
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.6 An instrument which
begins" with "I" ,We" , or "Either of us" promise to, pay, when signed by two or more persons,
makes them solidarily liable. The fact that the singular pronoun is used indicates that the
promise is individual as to each other; meaning that each of the co-signers is deemed to have
made an independent singular promise to pay the notes in full.

H. NEGOTIATION BY ENDORSEMENT vs. By mere DELIVERY

Metropolitan Bank & Trust Co v CA 166260 Feb 18, 2009
A check, payable to cash, was drawn against the account of Bienvenido C. Tan with
petitioner Metrobank was deposited with respondent United Overseas Bank (UOB). The check
was then forwarded for clearing on January 14, 1997 through the PCHC, and, on the same
date, Metrobank cleared the check. In its Letter, however, Metrobank informed UOB that it was
returning the check on account of material alterationthe date was changed from January 23,
1997 to January 13, 1997, and the amount was altered from P1,000.00 to P91,000.00.
UOB refused to accept the return and to reimburse Metrobank the amount it paid on the check.
Metrobank contended that UOB had the duty to examine the deposited check for any material
alteration; but since UOB failed to exercise due diligence in determining that the check had
been altered, UOB should bear the loss. In its Answer with Counterclaim, UOB interposed the
defenses that it exercised due diligence, and that Metrobank failed to comply with the 24-hour
clearing house rule, and, with gross negligence, cleared the check.
ISSUE: WON the RTC has jurisdiction to review arbitral awards.
RULING: No. The Court has already explained in Insular Savings Bank v. Far East Bank and
Trust Company, that the PCHC (Philippine Clearing House Corporation) Rules cannot confer
jurisdiction on the RTC to review arbitral awards.

Metropolitan Bank & Trust Co v BA Finance Corp 179952 Dec. 4, 2009

NEGOTIABLE INSTRUMENTS LAW (ACT NO. 2031)

Bitanga obtained from respondent BA Finance a loan to secure which, he mortgaged his
car with. The mortgage contained the stipulation that it should be insured against any loss or
damage by theft, accident, fire, and to make it payable to the Mortgagee, BA Finance Corp.
Bitanga thus had the mortgaged car with an insurance from Malayan Insurance.
The car was stolen. On Bitangas claim, Malayan Insurance issued a check payable to
the order of B.A. Finance Corporation and Lamberto Bitanga for P224,500, drawn against
China Bank. The check was crossed with the notation For Deposit Payees Account Only.
Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the
check to his account with the Asianbank, now merged with herein petitioner MetroBank. Bitanga
subsequently withdrew the entire proceeds of the check.

ISSUE: WON Bitanga is liable since the instrument must be indorsed by both payees,
Bitanga and BA Finance
RULING: Yes.
Section 41 of the Negotiable Instruments Law provides:
Where an instrument is payable to the order of two or more payees or
indorsees who are not partners, all must indorse unless the one indorsing
has authority to indorse for the others. (emphasis and underscoring supplied)
Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and
release of the proceeds thereof, despite the absence of authority of Bitangas co-payee BA
Finance to endorse it on its behalf.
Petitioners argument that since there was neither forgery, nor unauthorized indorsement
because Bitanga was a co-payee in the subject check,the dictum in Associated Bank v.
CA does not apply in the present case fails. The payment of an instrument over a missing
indorsement is the equivalent of payment on a forged indorsement or an unauthorized
indorsement in itself in the case of joint payees.
The banking business is imbued with public interest such that the highest degree of
diligence and highest standards of integrity and performance are expected of banks in order to
maintain the trust and confidence of the public in general in the banking sector. Undoubtedly, BA
Finance has a cause of action against petitioner.
Moreover, Section 68 of the Negotiable Instruments Law which instructs that joint payees
who indorse are deemed to indorse jointly and severally. Recall that when the maker dishonors
the instrument, the holder thereof can turn to those secondarily liable the indorser for
recovery. And since the law explicitly mandates a solidary liability on the
part of the joint payees who indorse the instrument, the holder thereof
(assuming
the
check was further negotiated) can turn to either Bitanga or BA Finance for full recompense.

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