1. Borromeovs.

Sun
SYNOPSIS
Private respondent brought before the then Court of the First Instance of Rizal, an action, against
Lourdes O. Borromeo, Federico O. Borromeo and Federico O. Borromeo, Inc. (FOB), to compel the
transfer to his name in the books of FOB 23, 223 shares of stock registered in the name of Federico
Borromeo, as evidenced by a Deed of Assignment dated January 16, 1974. After trial, the lower court
came out with a decision declaring the questioned signature on subject Deed of Assignment as the
genuine signature of Federico Borromeo. On appeal by petitioners, the Court of Appeals adjudged as
forgery the controverted signature of herein petitioner Borromeo. However, after the private
respondent filed a motion for reconsideration, the appellate court reversed its decision and affirmed in
toto the decision of the trial court. Aggrieved by the decision, petitioners filed the instant petition
contending that the appellate court erred in holding that the signature of Federico Borromeo in Deed of
Assignment is a genuine signature.
The Supreme Court found the petition devoid of merit. The Court ruled that respondent court erred not
in affirming the decision of the Regional Trial Court in Civil Case No. 19466. Accordingly, the petition
was dismissed for lack of merit and the assailed resolution is affirmed.
||| (Borromeo v. Sun, G.R. No. 75908, [October 22, 1999], 375 PHIL 595-605)

That the Deed of Assignment is dated January 16, 1974 while the questioned
signature was found to be circa 1954-1957, and not that of 1974, is of no
moment. It does not necessarily mean, that the deed is a forgery. Pertinent
records reveal that the subject Deed of Assignment is embodied in a blank
form for the assignment of shares with authority to transfer such shares in the
books of the corporation. It was clearly intended to be signed in blank to
facilitate the assignment of shares from one person to another at any future
time. This is similar to Section 14 of the Negotiable Instruments Law where the
blanks may be filled up by the holder, the signing in blank being with the
assumed authority to do so. Indeed, as the shares were registered in the name
of Federico O. Borromeo just to give him personality and standing in the
business community, private respondent had to have a counter evidence of
ownership of the shares involved. Thus, the execution of the deed of
assignment in blank, to be filled up whenever needed. The same explains the
discrepancy between the date of the deed of assignment and the date when
the signature was affixed thereto. While it is true that the 1974 standard
signature of Federico O. Borromeo is to the naked eye dissimilar to his
questioned signature circa 1954-1957, which could have been caused by sheer
lapse of time, Col. Jose Fernandez, respondent's expert witness, found the said
signatures similar to each other after subjecting the same to stereomicroscopic
examination and analysis because the intrinsic and natural characteristic of
Federico O. Borromeo's handwriting were present in all the exemplar
signatures used by both Segundo Tabayoyong and Col. Jose Fernandez. It is

therefore beyond cavil that the findings of the Court of origin affirmed by the
Court of Appeals on the basis of the corroborative findings of the Philippine
Constabulary Crime Laboratory confirmed the genuineness of the signature of
Federico O. Borromeo in the Deed of Assignment dated January 16,
1974. (Borromeo v. Sun, G.R. No. 75908, [October 22, 1999], 375 PHIL 595605)
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2. GSIS vs. CA

NEGOTIABLE INSTRUMENTS LAW; ACCOMMODATION PARTY; DEFINED. 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. (GSIS v. Court of Appeals, G.R. No. L-40824, [February
23, 1989], 252 PHIL 552-560)
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Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the spouses Mr. and Mrs Flaviano Lagasca,
executed a deed of mortgage, dated November 13, 1957, in favor of petitioner Government Service Insurance System
(hereinafter referred to as GSIS) and subsequently, another deed of mortgage, dated April 14, 1958, in connection with
two loans granted by the latter in the sums of P 11,500.00 and P 3,000.00, respectively. 1 A parcel of land covered by
Transfer Certificate of Title No. 38989 of the Register of Deed of Quezon City, co-owned by said mortgagor spouses, was
given as security under the aforesaid two deeds. 2 They also executed a 'promissory note" which states in part:
... for value received, we the undersigned ... JOINTLY, SEVERALLY and SOLIDARILY, promise to pay
the GOVERNMENT SERVICE INSURANCE SYSTEM the sum of . . . (P 11,500.00) Philippine
Currency, with interest at the rate of six (6%) per centum compounded monthly payable in . . .
(120)equal monthly installments of . . . (P 127.65) each. 3

On July 11, 1961, the Lagasca spouses executed an instrument denominated "Assumption of Mortgage" under which
they obligated themselves to assume the aforesaid obligation to the GSIS and to secure the release of the mortgage
covering that portion of the land belonging to herein private respondents and which was mortgaged to the GSIS. 4 This
undertaking was not fulfilled. 5
Upon failure of the mortgagors to comply with the conditions of the mortgage, particularly the payment of the
amortizations due, GSIS extrajudicially foreclosed the mortgage and caused the mortgaged property to be sold at
public auction on December 3, 1962. 6

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.
3. Kauffman vs. PNB

Wicks, the treasurer of the Philippine Fiber and Produce Company (PFPC), presented
himself in the exchange department of the Philippine National Bank in Manila and
requested that a telegraphic transfer of $45,000 should be made to Kauffman in New
York City, upon account of the PFPC.

Pay George A. Kauffman, New York, account Philippine Fiber Produce Co.,
$45,000. (Sgd.) PHILIPPINE NATIONAL BANK, Manila.
PNBs representative in New York withheld the money from Kauffman, in view of his
reluctance to accept certain bills of the PFPC. Kauffman demanded the money but was
refused to be paid.
ISSUE
Whether or not Kauffman has a right of action based on Negotiable Instruments Law.
RULING
NO. Kauffman has no right of action based on Negotiable Instruments Law on the
ground that it can only come into operation if there is a document in existence of the
character described in Section 1 of the said Law, and rights properly speaking arise in
respect to said instrument until it is delivered. In this case, there was an order
transmitted by PNB to its New York branch, for the payment of a specified sum of money
to Kauffman. But this order was not made payable to order or to bearer, as required
in subsection (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.
Kauffman, however, has remedy based on the Civil Code, particularly on stipulations
pour atrui.

4. Caltex vs. CA
Facts:
Respondent bank issued 280 certificates of time deposits in favor of Angel De La Cruz, who deposited with herein
defendant the aggregate amount of Php 1,120,000
Angel de la Cruz delivered the CTDs to petitioner in connection with his purchased of fuel products from the latter
Angel informed the Sucat Branch Manager that he lost all the certificates of time deposit in dispute. The Manager
advised said depositor to execute and submit a notarized Affidavit of Loss, as required by defendant bank's procedure, if
he desired replacement of said lost CTDs
Angel dela Cruz executed and delivered to defendant bank the required Affidavit of Loss (Defendant's Exhibit 281). On
the basis of said affidavit of loss, 280 replacement CTDs were issued in favor of said depositor
Angel dela Cruz negotiated and obtained a loan from defendant bank in the amount of Eight Hundred Seventy Five
Thousand Pesos (P875,000.00). On the same date, said depositor executed a notarized Deed of Assignment of Time
Deposit (Exhibit 562) which stated, among others, that he (de la Cruz) surrenders to defendant bank "full control of the
indicated time deposits from and after date" of the assignment and further authorizes said bank to pre-terminate, set-off
and "apply the said time deposits to the payment of whatever amount or amounts may be due" on the loan upon its
maturity
Credit Manager of plaintiff Caltex (Phils.) Inc., went to the defendant bank's Sucat branch and presented for verification
the CTDs declared lost by Angel dela Cruz alleging that the same were delivered to herein plaintiff "as security for
purchases made with Caltex Philippines, Inc." by said depositor
The Bank received a letter (Defendant's Exhibit 563) from herein plaintiff formally informing it of its possession of the
CTDs in question and of its decision to pre-terminate the same.

plaintiff was requested by herein defendant to furnish the former "a copy of the document evidencing the guarantee
agreement with Mr. Angel dela Cruz" as well as "the details of Mr. Angel dela Cruz" obligation against which plaintiff
proposed to apply the time deposits
No copy of the requested documents was furnished herein defendant.
defendant bank rejected the plaintiff's demand and claim for payment of the value of the CTDs
In April 1983, the loan of Angel dela Cruz with the defendant bank matured and fell due and on August 5, 1983, the
latter set-off and applied the time deposits in question to the payment of the matured loan

Issue: 1) Whether the CTDs are negotiable instruments? 2) Whether petitioner can rightfully recover on the CTDs?
Held: 1) yes. The CTDs in question undoubtedly meet the requirements of the law for negotiability.
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.
2) No. 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.
(Bearer instruments are negotiated by mere delivery. Delivery is defined as the transfer of possession of the instrument by the
maker or drawer with the intention to transfer title to the payee and recognize him as holder thereof. In the case at bar, the CTDs
were merely delivered as security for the purchased fuel products)
5. Salas vs. CA

FACTS:

February 6, 1980: Juanita Salas bought a motor vehicle from the Violago Motor Sales Corp. (VMS) for

P58,138.20 as evidence by a promissory note

This note was subsequently endorsed to Filinvest Finance &Leasing Corp. (FFLC)
May 21, 1980: Salas defaulted in her installments allegedly due to discrepancies in the engine and chassis

number of the vehicle delivered and discovery of certificate of reg. and deed of mortgage
Petitioner claims she be released of liability because of fraud, bad faith and misrepresentation of Violago Motor Sales
(VMS) Corporation, which delivered the motor vehicle after she executed a promissory note with private respondent.
VMS initiated for a sum of money at the RTC

RTC: favored VMS

CA: Affirmed

ISSUE: W/N the promissory note is a negotiable which will bar completely all defenses of Salas against
VMS
HELD: YES. Affirmed

Requisites under the law (Sec. 1 of Negotiable Instruments Law)

it is in writing and signed by the maker (Salas)

it contains an unconditional promise to pay the amount P58,138.20

it is payable at a fixed or determinable future time which is P1,614.95 monthly for 36 months due and

payable on the 21st day of each month starting March 21, 1980 thru and inclusive of Feb 21 1983
It is payable to VMS or order and as such
drawee is named or indicated with certainty

Filinvest = holder in due course

6. Garcia vs. Llamas
Doctrine:
Novation cannot be presumed. It must be clearly and unequivocally shown that it indeed took place, either by the express assent of
the parties or by the complete incompatibility between the old and the new agreements.
An accommodation party is liable for the instrument to a holder for value even if, at the time of its taking, the latter knew the former to
be only an accommodation party. The relation between an accommodation party and the party accommodated is, in effect, one of
principal and surety the accommodation party being the surety. It is a settled rule that a surety is bound equally and absolutely with
the principal and is deemed an original promissor and debtor from the beginning.
Facts:
Petitioner and Eduardo De Jesus borrowed P400,000.00 from respondent. Both executed a promissory note wherein they bound
themselves jointly and severally to pay the loan on or before 23 January 1997 with a 5% interest per month. The loan has long been
overdue and, despite repeated demands, both have failed and refused to pay it. Hence, a complaint was filed against both.
Resisting the complaint, Garcia averred that he assumed no liability because he signed merely as an accommodation party for De
Jesus; and that he is relieved from any liability arising from the note inasmuch as the loan had been paid by De Jesus by means of a
check dated 17 April 1997; and that, in any event, the issuance of the check and respondents acceptance thereof novated or
superseded the note.
Respondent answered that there was no novation to speak of because the check bounced.
Issues:
1. Whether or not there was novation in the obligation
2. Whether or not the defense that petitioner was only an accommodation party had any basis
Held:
1. No. In order to change the person of the debtor, the old one must be expressly released from the obligation, and the third person or
new debtor must assume the formers place in the relation (Reyes v. CA). Well-settled is the rule that novation is never presumed
(Security Bank v. Cuenca). Consequently, that which arises from a purported change in the person of the debtor must be clear and
express. It is thus incumbent on petitioner to show clearly and unequivocally that novation has indeed taken place. Petitioner failed to
do this. In the present case, petitioner has not shown that he was expressly released from the obligation, that a third person was
substituted in his place, or that the joint and solidary obligation was cancelled and substituted by the solitary undertaking of De Jesus.
Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a new debtor in place
of the old one, or by subrogating a third person to the rights of the creditor (Idolor v. CA, February 7, 2001). Article 1293 of the Civil
Code defines novation as follows:

Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him rights
mentioned in articles 1236 and 1237.
In general, there are two modes of substituting the person of the debtor: (1) expromision and (2) delegacion. In expromision, the
initiative for the change does not come from and may even be made without the knowledge of the debtor, since it consists of a
third persons assumption of the obligation. As such, it logically requires the consent of the third person and the creditor. In delegacion,
the debtor offers, and the creditor accepts, a third person who consents to the substitution and assumes the obligation; thus, the
consent of these three persons are necessary. Both modes of substitution by the debtor require the consent of the creditor.
Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new one that
takes the place of the former. It is merely modificatory when the old obligation subsists to the extent that it remains compatible with the
amendatory agreement (Babst v. CA). Whether extinctive or modificatory, novation is made either by changing the object or the
principal conditions, referred to as objective or real novation; or by substituting the person of the debtor or subrogating a third person to
the rights of the creditor, an act known as subjective or personal novation (Spouses Bautista v. Pilar Development Corporation, 371
Phil. 533, August 17, 1999). For novation to take place, the following requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract (Security Bank v Cuenca, October 3, 2000)
Novation may also be express or implied. It is express when the new obligation declares in unequivocal terms that the old obligation is
extinguished. It is implied when the new obligation is incompatible with the old one on every point (Article 1292, NCC). The test of
incompatibility is whether the two obligations can stand together, each one with its own independent existence (Molino v. Security
Diners International Corporation, August 16, 2001).
2. No. The note was made payable to a specific person rather than to bearer or to order a requisite for negotiability under the
Negotiable Instruments Law (NIL). Hence, petitioner cannot avail himself of the NILs provisions on the liabilities and defenses of an
accommodation party.
Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the promissory note. Under Article 29 of the NIL,
an accommodation party is liable for the instrument to a holder for value even if, at the time of its taking, the latter knew the former to
be only an accommodation party. The relation between an accommodation party and the party accommodated is, in effect, one of
principal and surety the accommodation party being the surety. It is a settled rule that a surety is bound equally and absolutely with
the principal and is deemed an original promissor and debtor from the beginning.

7. Jimenez vs. Bucoy

NEGOTIABLE INSTRUMENTS; PROMISSORY NOTES; WHEN ACKNOWLEDGMENT

BECOMES A PROMISE TO PAY. An acknowledgment of a debt becomes a
promise to pay by the addition of words implying a promise of payment, such
as, "payable," "payable on a given day," "payable on demand". (Jimenez v.
Bucoy, G.R. No. L-10221, [February 28, 1958], 103 PHIL 40-46)
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During the Japanese occupation, Pacita Young issued threepromissory notes to Pacifica Jimenez.
The total sum of the notes was P21k. All three promissory notes were couched in this manner:
Received from Miss Pacifica Jimenez the total amount of ___________ payable six months after
the war, without interest.
When the promissory notes became due, Jimenez presented the notes for payment. Pacita and
her husband died and so the notes were presented to the administrator of the estate of the
spouses (Dr. Jose Bucoy). Bucoy manifested his willingness to pay but he said that since the
loan was contracted during the Japanee occupation the amount should be deducted and the
BallantyneSchedule should be used, that is peso-for-yen (which would lower the amount due
from P21k). Bucoy also pointed out that nowhere in the not can be seen an express promise
to pay because of the absence of the words I promise to pay
ISSUE: Whether or not Bucoy is correct.
HELD: No. The Ballantyne schedule may not be used here because the debt is not payable
during the Japanese occupation. It is expressly stated in the notes that the amounts stated
therein are payable six months after the war. Therefore, no reduction could be effected, and
peso-for-peso payment shall be ordered in Philippine currency.
The notes also amounted in effect to a promise to pay the amounts indicated therein. 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 they 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.

8. Lee vs. CA

Mico Metals Corporation, through its Vice-President and General Manager, executed
a Deed of Real Estate Mortgage over its properties in Pasig, Metro Manila to secure
the loans obtained from PBCom. Petitioners sureties, in their personal capacities,
executed a surety agreement in favor of PBCom whereby petitioners, jointly and
severally, guaranteed the prompt payment on due dates of letters of credits and
other obligations of every kind and nature, for which Mico may be held accountable
by PBCom. Mico also filed with PBCom applications for domestic and foreign letters
of credit which were approved.
The aforementioned real estate mortgage was foreclosed and the said mortgaged
properties were sold in a public auction for Mico's failure to pay the obligations
incurred upon maturity. The proceeds of the purchase price at public auction were
applied to the outstanding obligations of Mico, leaving still an unpaid balance which

Mico refused to acknowledge. Hence, PBCom filed a complaint for a sum of money
with prayer for writ of preliminary attachment before the RTC. Petitioners contended
that there was no proof that the proceeds of the loans or the goods under the trust
receipts were even delivered to and received by Mico.
The Supreme Court held that the documents presented by private respondent
PBCom to prove petitioners' credit availments and liabilities have not merely created
a prima facie case but have actually proved the solidary obligation of Mico and the
petitioners as sureties of Mico in favor of respondent PBCom. The letters of credit
showed that pertinent materials/merchandise have been received by Mico. The
drafts signed by the beneficiary/suppliers in connection with the corresponding
letters of credit proved that said suppliers were paid by PBCom for the account of
Mico.
(Lee v. Court of Appeals, G.R. No. 117913, 117914, [February 1, 2002])
COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS; REQUISITES. Negotiable
instruments which are meant to be substitutes for money, must conform to the
following requisites to be considered as such a) it must be in writing; b) it must be
signed by the maker or drawer; c) it must contain an unconditional promise or order
to pay a sum certain in money; d) it must be payable on demand or at a fixed or
determinable future time; e) it must be payable to order or bearer; and f) where it is
a bill of exchange, the drawee must be named or otherwise indicated with
reasonable certainty.
(Lee v. Court of Appeals, G.R. No. 117913, 117914,
[February 1, 2002])
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