Negotiable Instruments Law Case Digests by: Earl Larroder

8. Roman Catholic Bishop of Malolos vs. IAC

FACTS:
On July 7, 1971, a contract was entered between the Bishop of
Malolos as vendor, and Robes-Francisco Realty through its then-President Mr.
Carlos F. Robes as vendee, over a 20,655 square meters portion of a parcel
of land situated in San Jose del Monte, Bulacan, which stipulated a down
payment of P23, 930.00 and the balance of P100, 000.00 plus 12% interest
per annum to be paid within four (4) years from execution of the
contract, that is, on or before July 7, 1975. The contract likewise provides
for cancellation, forfeiture of previous payments, and reconveyance of the
land in question in case the private respondent would fail to complete
payment within the said period.
However, On July 17, 1975, admittedly after the expiration of the
stipulated period for payment, the new President of the realty corporation,
Atty. Francisco, wrote the petitioner a formal request to allow her company to
pay the principal amount of P100, 000.00 in three (3) equal installments of
six (6) months each with the first installment and the accrued interest of P24,
000.00 to be paid immediately upon approval of the said request.
The petitioner (Bishop of Malolos) through its lawyer, Atty. Carmelo
Fernandez, denied the request but granted the latter a grace period of five
(5) days from the receipt of the denial to pay the total balance of
P124,000.00, otherwise, the provisions of the contract regarding
cancellation, forfeiture, and reconveyance would be implemented.
Atty. Francisco (president of Robes-Francisco Realty; respondent) ,
wrote a letter dated August 22, 1975, directly addressed to the petitioner,
protesting the alleged refusal of the latter to accept tender of payment
( through a certified personal check which is not legal tender nor
the currency stipulated,) made on the last day of the grace period
(August 5, 1975). The private respondent also demanded the execution of
a deed of absolute sale over the land in question.
The petitioners lawyer (Atty. Fernandez) stated that the refusal of his
client to execute the deed of absolute sale was due to its (private
respondents) failure to pay its full obligation. Moreover, the petitioner
denied that the private respondent had made any tender of

payment whatsoever within the grace period. In view of this alleged

breach of contract, the petitioner cancelled the contract and considered all
previous payments forfeited and the land as ipso facto reconveyed.
ISSUE: WON an offer of a check is a valid tender of payment of an
obligation under a contract which stipulates that the consideration of the
sale is in Philippine Currency notwithstanding the finding of the IAC that Atty.
Francisco had sufficient available funds (the lower court decided that they
did NOT have sufficient funds; reversed by IAC) did tender payment for the
said obligation?

HELD: NO. A finding that the private respondent had sufficient available
funds on or before the grace period for the payment of its obligation does not
constitute proof of tender of payment by the latter for its obligation within
the said period.
In the case of Philippine Airlines vs. Court of Appeals: Since a
negotiable instrument is only a substitute for money and not money, the
delivery of such an instrument does not, by itself, operate as
payment. A check, whether a managers 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.
The tender of payment by the private respondent was not valid for
failure to comply with the requisite payment in legal tender or currency
stipulated within the grace period. Also there was a failure of Atty. Francisco
to present in court the certified personal check allegedly tendered as
payment or, at least, its xerox copy, or even bank records thereof.
Also, tender of payment involves a positive and unconditional act by
the obligor of offering legal tender currency as payment to the obligee for
the formers obligation and demanding that the latter accept the same.
Thus, tender of payment cannot be presumed by a mere inference
from surrounding circumstances. At most, sufficiency of available
funds is only affirmative of the capacity or ability of the obligor to
fulfill his part of the bargain. The respondent court (IAC) was therefore in
error.

17. Traders Royal Bank vs. CA

* *[A Certificate of Indebtedness is an 'I owe you' (IOU) note issued by a

borrower evidencing his or her promise to pay a specified sum on the stated
date.]**
FACTS: On November 27, 1979, Filriters Guaranty Assurance Corporation
(Filriters) as registered owner, sold, transferred, assigned and delivered
unto Philippine Underwriters Finance Corporation (Philfinance) all its rights
and title to Central Bank Certificates of Indebtedness No. 891 of
(P500,000) and having an aggregate value of (P3,500,000.00), by one
Alfredo Banaria, then Senior Vice-President-Treasury of Filriters, without any
board resolution, knowledge or consent of the board of directors of
Filriters, and without any clearance or authorization from the Insurance
Commissioner, executed a detached assignment purportedly assigning CBCI
No. 891 to Philfinance.
Subsequently, Philfinance transferred the CBCI which was still
registered in the name of Filriters, to appellant Traders Royal Bank (TRB).
However, PhilFinance wanted to repurchase through a (repurchase
agreement) the said CBCI. Its failure to repurchase the CBCI on the agreed
date of maturity, April 27, 1981, was due to the checks it issued in favor
of petitioner were dishonored for insufficient funds;
Traders Royal Bank armed with the deed of assignment tried to register
in its name in the Securities Servicing Department of the Central Bank, and
requested the latter to effect the transfer of the CBCI on its books and to
issue a new certificate in the name of petitioner as absolute owner thereof.
Central Bank, however, refused to effect the transfer and registration in view
of an adverse claim filed by defendant Filriters.
Left with no other recourse, TRB filed a special civil action for
mandamus against the Central Bank in the Regional Trial Court of Manila. The
suit, however, was subsequently as a case of interpleader when Central Bank
prayed in its amended answer that Filriters be impleaded as a respondent
and the court adjudge which of them is entitled to the ownership of CBCI.
Filriters said that the detached assignment was made by one of its
officers is patently void and inoperative because the assignment is without
the knowledge and consent of directors of Filriters, and not duly authorized in
writing by the Board and the CBCI constitutes reserve investment of Filriters
against liabilities, which is a requirement under the Insurance Code for its

existence as an insurance company and the pursuit of its business

operations therefore prohibited by law.
In the appellate court, petitioner argued that the subject CBCI was a
negotiable instrument, and having acquired the said certificate from
Philfinance as a holder in due course, its possession of the same is thus free
from any defect of title of prior parties and from any defense available to
prior parties among themselves, and it may thus, enforce payment of the
instrument for the full amount thereof against all parties liable thereon.
The CA said that the CBCI is not a negotiable instrument, since the
instrument clearly stated that it was payable to Filriters, the registered
owner, whose name was inscribed thereon, and that the certificate lacked
the words of negotiability which serve as an expression of consent that
the instrument may be transferred by negotiation and did not conform to
Central Bank Circular No. 769, series of 1980, better known as the "Rules and
Regulations Governing Central Bank Certificates of Indebtedness", which
provided that any "assignment of registered certificates shall not be valid
unless made . . . by the registered owner thereof in person or by his
representative duly authorized in writing."
Issue:
WON the CBCI is negotiable instrument or not.
WON the Assignment of registered certificate is valid or null and void.
HELD: NO. The court ruled that the subject CBCI is not a negotiable
instrument, stating that:
As worded, the instrument provides a promise "to pay Filriters
Guaranty Assurance Corporation, the registered owner hereof." Very clearly,
the instrument is payable only to Filriters, the registered owner, whose
name is inscribed thereon. It lacks the words of negotiability which
should have served as an expression of consent that the instrument
may be transferred by negotiation.
Obviously the Assignment of certificate from Filriters to Philfinance was
null and void. One of officers who signed the deed of assignment in behalf of
Filriters did not have the necessary written authorization from the
Board of Directors of Filriters. For lack of such authority the assignment is
considered null and void.

Before the instruments become negotiable instruments, the

instrument must conform to the requirements under the Negotiable
Instrument Law. Otherwise instrument shall not bind the parties.
Clearly shown in the record is the
over CBCI is defective since it acquired
fictitiously. Under 1409 of the Civil Code those
simulated or fictitious are considered void and

fact that Philfinances title

the instrument from Filriters
contracts which are absolutely
inexistent from the beginning.

The accepted rule is that the negotiability or non-negotiability of an

instrument is determined from the writing, that is, from the face of the
instrument itself. In the construction of a bill or note, the intention of the
parties is to control, if it can be legally ascertained. While the writing may be
read in the light of surrounding circumstance in order to more perfectly
understand the intent and meaning of the parties, yet as they have
constituted the writing to be the only outward and visible expression of their
meaning, no other words are to be added to it or substituted in its stead.
Thus, the transfer of the instrument from Philfinance to TRB was
merely an assignment, and is not governed by the negotiable
instruments law.

26. Yang vs. Hon. Court of Appeals

FACTS: On or before 22 December 1987, Cely Yang and Prem
Chandiramani entered into an agreement whereby Chandiramani was to
give Yang a Philippine Commercial International Bank (PCIB) manager's
check in the amount of P4.2 million in exchange for 2 (two)of Yang's
manager's checks, each in the amount of P2.087 million, both payable to the
order of Fernando David. Yang and Chandiramani agreed that the difference
of P26, 000.00 in the exchange would be their profit to be divided equally
between them.
Yang and Chandiramani also further agreed that the former would
secure from FEBTC (Far East Bank & Trusct Co.) a dollar draft in the amount
of US$200,000.00, payable to PCIB FCDU Account No. 4195-01165-2, which
Chandiramani would exchange for another dollar draft in the same amount to
be issued by Hang Seng Bank Ltd. of Hong Kong.
On December 22, 1987, Yang procured the ff:

a) Equitable Cashiers Check No. CCPS 14-009467 in the sum of P2,

087,000.00, dated December 22, 1987, payable to the order of Fernando
David;
b) FEBTC Cashiers Check No. 287078, in the amount of P2,087,000.00,
dated December 22, 1987, likewise payable to the order of Fernando David;
and
c) FEBTC Dollar Draft No. 4771, drawn on Chemical Bank, New York, in the
amount of US$200,000.00, dated December 22, 1987, payable to PCIB FCDU
Account No. 4195-01165-2.
At about one oclock in the afternoon of the same day, Yang gave the
aforementioned cashiers checks and dollar drafts to her business
associate, Albert Liong, to be delivered to Chandiramani by Liongs
messenger, Danilo Ranigo. Ranigo was to meet Chandiramani at Philippine
Trust Bank, Ayala Avenue, Makati City, Metro Manila, where he would turn
over Yangs cashiers checks and dollar draft to Chandiramani who, in turn,
would deliver to Ranigo a PCIB managers check in the sum of P4.2 million
and a Hang Seng Bank dollar draft for US$200,000.00 in exchange.
Chandiramani did not appear at the rendezvous and Ranigo allegedly
lost the two cashiers checks and the dollar draft bought by petitioner. Ranigo
reported the alleged loss of the checks and the dollar draft to Liong at half
past four in the afternoon of December 22, 1987. Liong, in turn, informed
Yang, and the loss was then reported to the police.
However the checks and the dollar draft were not lost, for Chandiramani was
able to get hold of said instruments, without delivering the exchange
consideration consisting of the PCIB managers check and the Hang Seng
Bank dollar draft.
Chandiramani delivered to respondent Fernando David at China
Banking Corporation branch in San Fernando City, Pampanga, the following:
(a) FEBTC Cashiers Check No. 287078, dated December 22, 1987, in the sum
of P2.087 million; and
(b) Equitable Cashiers Check No. CCPS 14-009467, dated December 22,
1987, also in the amount of P2.087 million.
In exchange, Chandiramani got US$360,000.00 from David, which
Chandiramani deposited in the savings account of his wife, Pushpa
Chandiramani; and his mother, Rani Reynandas, who held FCDU

Account No. 124 with the United Coconut Planters Bank branch in Greenhills,
San Juan, Metro Manila. Chandiramani also deposited FEBTC Dollar Draft No.
4771, dated December 22, 1987, drawn upon the Chemical Bank, New York
for US$200,000.00 in PCIB FCDU Account No. 4195-01165-2 on the same
date.
Meanwhile, Yang requested FEBTC and Equitable to stop payment on
the instruments she believed to be lost. Both banks complied with her
request, but upon the representation of PCIB, FEBTC subsequently lifted the
stop payment order on FEBTC Dollar Draft No. 4771, thus enabling the holder
of PCIB FCDU Account No. 4195-01165-2 to receive the amount of
US$200,000.00.
On December 28, 1987, herein petitioner Yang lodged a Complaint against
Equitable, Chandiramani, and David.
The lower court which the CA affirmed however decided in favor of
Fernando David against the plaintiff Cely Yang and declaring the former
entitled to the proceeds of the two (2) cashiers checks, together with the
earnings derived therefrom.
ISSUE: WON Fernando David is a holder in due course?
HELD: Every holder of a negotiable instrument is deemed prima facie a
holder in due course. However, this presumption arises only in favor of a
person who is a holder as defined in Section 191 of the Negotiable
Instruments Law.
It is not disputed that David was the payee of the checks in question.
The weight of authority sustains the view that a payee may be a holder in
due course. Hence, the presumption that he is a prima facie holder in
due course applies in his favor. However, said presumption may be
rebutted. Hence, what is vital to the resolution of this issue is whether David
took possession of the checks under the conditions provided for in Section
52of the Negotiable Instruments Law. All the requisites provided for in
Section 52 must concur in Davids case, otherwise he cannot be
deemed a holder in due course.
Yangs arguments against David as not a holder in due course are: (1)
the lack of proof to show that David tendered any valuable consideration for
the disputed checks; and (2) Davids failure to inquire from Chandiramani as
to how the latter acquired possession of the checks, thus resulting in Davids
intentional ignorance tantamount to bad faith. In sum, petitioner posits
that the last two requisites of Section 52 are missing, thereby
preventing David from being considered a holder in due course.

1st) Section 24 of the Negotiable Instruments Law creates a

presumption that every party to an instrument acquired the same for a
consideration1[19] or for value.2[20] Thus, the law itself creates a
presumption in Davids favor that he gave valuable consideration for the
checks in question. the petitioner failed to discharge her burden of proof.
Actually, David did not receive the checks gratis, but instead gave
Chandiramani US$360,000.00 as consideration for the said instruments.
2nd) David was not privy to the transaction between petitioner and
Chandiramani. Instead, Chandiramani and David had a separate dealing in
which it was precisely Chandiramanis duty to deliver the checks to David as
payee. The evidence shows that Chandiramani performed said task to the
letter. Petitioner admits that David took the step of asking the manager
of his bank to verify from FEBTC and Equitable as to the
genuineness of the checks and only accepted the same after being
assured that there was nothing wrong with said checks. At that time,
David was not aware of any stop payment order. Under these circumstances,
David thus had no obligation to ascertain from Chandiramani what the
nature of the latters title to the checks was, if any, or the nature of his
possession.
Petitioner also now claims that David should have been put on alert as
the instruments in question were crossed checks. The Negotiable
Instruments Law is silent with respect to crossed checks, although the Code
of Commerce3 makes reference to such instruments. Nonetheless, this Court
has taken judicial cognizance of the practice that a check with two parallel
lines in the upper left hand corner means that it could only be deposited and
not converted into cash.4[24] The effects of crossing a check, thus, relates to
the mode of payment, meaning that the drawer had intended the check for
deposit only by the rightful person, i.e., the payee named therein.

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2
3
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35.
Spouses
Corporation

Pedro

and

Florencia

Viologo

vs.

BA

Finance

Facts: Avelino Violago, President of Violago Motor Sales Corporation (VMSC),

offered to sell a Toyota Cressida Model 1983 to increase the sales quota to
his cousin, Pedro F. Violago and his wife, Florencia. The spouses would just
have to pay a down payment of PhP 60.5K while the balance would be
financed by BA Finance. The spouses would pay the monthly installments to
BA Finance while Avelino would take care of the documentation and approval
of financing of the car.
August 4, 1983: the spouses and Avelino signed a promissory note
under which they bound themselves to pay jointly and severally to the order
of VMSC the amount of PhP 209,601 in 36 monthly installments of PhP
5,822.25 a month, the first installment to be due and payable on September
16, 1983. Avelino prepared a Disclosure Statement of Loan/Credit
Transportation which showed the net purchase price of the vehicle, down
payment, balance, and finance charges. VMSC then issued a sales invoice in
favor of the spouses with a detailed description of the Toyota Cressida car.
In turn, the spouses executed a chattel mortgage over the car in favor
of VMSC as security for the amount of PhP 209,601.VMSC, through Avelino,
endorsed the promissory note to BA Finance without recourse. After receiving
the amount of PhP 209,601, VMSC executed a Deed of Assignment of its
rights and interests under the promissory note and chattel mortgage in favor
of BA Finance. Meanwhile, the spouses remitted the amount of PhP60,500 to
VMSC through Avelino spouses were unaware that the same car had
already been sold in 1982 to Esmeraldo Violago, another cousin of
Avelino. Since VMSC failed to deliver the car, Pedro did not pay any monthly
amortization to BA Finance.
March 1, 1984: BA Finance filed with the RTC a complaint for Replevin with
Damages against thespousesRTC: favored BA finance , however, declared
that they are entitled to be indemnified by AvelinoCA: affirmed - promissory
note was a negotiable instrument and that BA Finance was a holder in due
course
ISSUE: WON the holder of an invalid promissory note may be considered a
holder in due course.
HELD: YES. CA reversed because Avelino and VMSC are the same negotiable: