Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 93397 March 3, 1997

TRADERS ROYAL BANK, petitioner,
vs.
COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE CORPORATION and
CENTRAL BANK of the PHILIPPINES, respondents.

TORRES, JR., J.:

Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of
Appeals dated January 29, 1990, 1 affirming the nullity of the transfer of Central Bank Certificate
of Indebtedness (CBCI) No. D891, 2 with a face value of P500,000.00, from the Philippine
Underwriters Finance Corporation (Philfinance) to the petitioner Trader's Royal Bank (TRB),
under a Repurchase Agreement 3 dated February 4, 1981, and a Detached Assignment 4 dated
April 27, 1981.
Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the
action was originally filed as a Petition for Mandamus 5 under Rule 65 of the Rules of Court, to
compel the Central Bank of the Philippines to register the transfer of the subject CBCI to
petitioner Traders Royal Bank (TRB).
In the said petition, TRB stated that:
Filriters through a Detached Agreement transferred ownership to Philfinance a Central Bank
Certificate of Indebtedness. It was only through one of its officers by which the CBCI was
conveyed without authorization from the company. Petitioner and Philfinance later entered
into a Repurchase agreement, on which petitioner bought the CBCI from Philfinance.
The latter agreed to repurchase the CBCI but failed to do so. When the petitioner tried to have it
registered in its name in the CB, the latter didn't want to recognize the transfer.
HELD:

The CBCI is not a negotiable instrument. 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 characterize 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 iswas 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 Philfinances 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.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-222
April 26, 1950
SALVACION F. VDA. DE EDUQUE, ETC., plaintiff-appellee,
vs.
JOSE M. OCAMPO, defendant-appellant.
Alfredo B. Cacnio and Padilla, Carlos and Fernando for appellant.
Jose Feria for appellee.
Delfin L. Gonzalez for plaintiff-intervenor.
MORAN, C.J.:
This is an action to compel acceptance of payment of a mortgage debt.
On February 16, 1935, Dr. Jose Eduque secured two loans from Mariano Ocampo de Leon, Doa
Escolastica de los Reyes and Don Jose M. Ocampo, the first in the amount of P40,000 and the
second in the sum of P15,000, both payable within the period of twenty years, with interest at the
rate of 5 per cent per annum. Payment of these two loans was guaranteed by mortgage on real
property. In the mortgage contract it is stipulated that any of the mortgage creditors may receive
payment and execute deeds of cancellation of the mortgage debts.
On December 6, 1943, plaintiff and appellee, as administratrix of the estate of the deceased Dr.
Jose Eduque, tendered payment, by means of cashier's check, of the total amount of the two
loans, P55,000, to defendant-appellant Jose M. Ocampo, one of the creditors, who refused to
accept payment. By reason of such refusal, an action was brought and a cashier's check for the
total amount of P55,000 deposited in court. After trial, judgment was rendered against defendant
compelling him to accept the P55,000 deposited in court, to issue deeds for cancellation of the
mortgage debts, and to pay the expenses of consignation and costs.
Defendant accepted the judgment with respect to the second loan of P15,000 upon the ground
that, according to him, in the deed of mortgage corresponding to that loan it clearly appeared that
the loan was payable "durante el termino de 20 aos," and that the only question remaining
between the parties is the interpretation of the first deed of mortgage regarding the first loan of
P40,000. and he asked the court to order "que de la cantidad de P55,000 consignada en este
Juzgado, se entregue al demandado la suma de P15,000, despues de descontar proporcionalmente
cualesquiera cantidades por deposito y otros conceptos segun los terminos de la decision
promulgada." The order was issued accordingly and the sum of P15,000 out of the P55,000
deposited in court was delivered to the defendant.
The present appeal concerns the decision of the lower court regarding the first loan of P40,000,
and the principal error assigned by the appellant is that tender of payment by means of a cashier's
check representing Japanese war notes is not valid.

We have already help that Japanese military notes were legal tender during the Japanese
occupation. But appellant argues, further, that the consignation of a cashier's check, which is not
legal tender, is not binding upon him. This question, however, has never been raised in the lower
court. Upon the contrary, defendant accepted impliedly the consignation of the cashier's check
when he himself asked the court that out of the money thus consigned he be paid the amount of
the second loan of P15,000. It is a rule that " a cashier's check may constitute a sufficient tender
where no objection is made on this ground." (62 C. J., p. 670; see also 40 Amer. Jur., p. 764.)
For all the foregoing, judgment is affirmed with cost against appellant.
Ozaeta, Pablo, Bengzon, Montemayor, and Reyes, JJ., concur.

Separate Opinions
TUASON, J., dissenting:
I am constrained to dissent from the majority decision on the ground on which I rested my
dissent in various cases involving the validity of payments in Japanese military notes.
I maintain that Japanese war notes were not legal tender and could not be made so by military
orders. Accordingly, payment in that currency of pre-war obligation over the protest of the
creditor did not operate to discharge the debt except to the extent he was or could have been
benefited by the payment.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-59956

October 31, 1984

ISABELO
MORAN,
JR., petitioner,
vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.

DECISION
GUTIERREZ, JR., J.:
This is a petition for review on certiorari of the decision of the respondent Court of Appeals
which ordered petitioner Isabelo Moran, Jr. to pay damages to respondent Mariano E, Pecson.
As found by the respondent Court of Appeals, the undisputed facts indicate that:

In February 1971, Isabelo Moran and Mariano Pecson entered into a partnership agreement
where they agreed to contribute P15k each for the purpose of printing 95k posters of the
delegates to the then 1971 Constitutional Commission. Moran shall be in charge in managing the
printing of the posters. It was further agreed that Pecson will receive a commission of P1k a
month starting from April 1971 to December 1971; that the partnership is to be liquidated on
December 15, 1971.
Pecson partially fulfilled his obligation to the partnership when he issued P10k in favor of the
partnership. He gave the P10k to Moran as the managing partner. Moran however did not add
anything and, instead, he only used P4k out of the P10k in printing 2,000 posters. He only
printed 2,000 posters because he felt that printing all 95k posters is a losing venture because of
the delay by the COMELEC in announcing the full delegates. All the posters were sold for a total
of P10k.

Pecson sued Moran. The trial court ordered Moran to pay Pecson damages. The Court of Appeals
affirmed the decision of the trial court but modified the same as it ordered Moran to pay P47.5k
for unrealized profit; P8k for Pecsons monthly commissions; P7k as return of investment
because the venture never took off; plus interest.
ISSUE: Whether or not the CA judgment is correct.
HELD: No. The award of P47.5k for unrealized profit is speculative. There is no evidence
whatsoever that the partnership between the Moran and Pecson would have been a profitable
venture (because base on the circumstances then i.e. the delay of the COMELEC in proclaiming
the candidates, profit is highly unlikely). In fact, it was a failure doomed from the start. There is
therefore no basis for the award of speculative damages in favor of Pecson. Further, there is
mutual breach in this case, Pecson only gave P10k instead of P15k while Moran gave nothing at
all.
As for the P8k monthly commission, this is without basis. The agreement does not state the basis
of the commission. The payment of the commission could only have been predicated on
relatively extravagant profits. The parties could not have intended the giving of a commission
inspite of loss or failure of the venture. Since the venture was a failure, Pecson is not entitled to
the P8k commission.
As for the P7k award as return for Pecsons investment, the CA erred in his ruling too. Though
the venture failed, it did took off the ground as evidenced by the 2,000 posters printed. Hence,
return of investment is not proper in this case. There are risks in any business venture and the
failure of the undertaking cannot entirely be blamed on the managing partner alone, specially if
the latter exercised his best business judgment, which seems to be true in this case.
Moran must however return the unused P6k of Pecsons contribution to the partnership plus P3k
representing Pecsons profit share in the sale of the printed posters. Computation of P3k profit
share is as follows: (P10k profit from the sale of the 2,000 posters printed) (P4k expense in
printing the 2k posters) = (P6k profit); Profit 2 = P3k each.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 84281 May 27, 1994

CITYTRUST BANKING CORPORATION, petitioner,
vs.
THE INTERMEDIATE APPELLATE COURT and EMME HERRERO, respondents.
Agcaoili and Associates for petitioner.
David B. Agoncillo for private respondent.
Humberto B. Basco, collaborating counsel for private respondent.

VITUG, J.:
This case emanated from a complaint filed by private respondent Emme Herrero for damages
against petitioner Citytrust Banking Corporation. In her complaint, private respondent averred
that she, a businesswoman, made regular deposits, starting September of 1979, with petitioner
Citytrust Banking Corporation at its Burgos branch in Calamba, Laguna. On 15 May 1980, she
deposited with petitioner the amount of Thirty One Thousand Five Hundred Pesos (P31,500.00),
in cash, in order to amply cover six (6) postdated checks she issued, viz:
Check No. Amount
007383 P1,507.00
007384 1,262.00
007387 4,299.00
007387 2,204.00
007492 6,281.00
007400 4,716.00

When presented for encashment upon maturity, all the checks were dishonored due to
"insufficient funds." The last check No. 007400, however, was personally redeemed by
private respondent in cash before it could be redeposited.

Facts:
Emme Herrero, businesswoman, made regular deposits with Citytrust Banking Corp. at
its Burgoa branch in Calamba, Laguna. She deposited the amount of P31, 500 in order to amply
cover 6 postdated checks she issued. All checks were dishonored due to insufficiency of funds
upon the presentment for encashment. Citytrust banking Corp. asserted that it was due to
Herreros fault that her checks were dishonored, for he inaccurately wrote his account number in
the deposit slip. RTC dismissed the complaint for lack of merit. CA reversed the decision of
RTC.
Issue:
Whether or not Citytrust banking Corp. has the duty to honor checks issued by Emme
Herrero despite the failure to accurately stating the account number resulting to insufficiency of
funds for the check.
Held:
Yes, even it is true that there was error on the account number stated in the deposit slip,
its is, however, indicated the name of Emme Herrero. This is controlling in determining in
whose account the deposit is made or should be posted. This is so because it is not likely to
commit an error in ones name than merely relying on numbers which are difficult to remember.
Numbers are for the convenience of the bank but was never intended to disregard the real name
of its depositors. The bank is engaged in business impressed with public trust, and it is its duty to
protect in return its clients and depositors who transact business with it. It should not be a matter
of the bank alone receiving deposits, lending out money and collecting interests. It is also its
obligation to see to it that all funds invested with it are properly accounted for and duly posted in
its ledgers.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. L-22405 June 30, 1971

PHILIPPINE EDUCATION CO., INC., plaintiff-appellant,
vs.
MAURICIO A. SORIANO, ET AL., defendant-appellees.
Marcial Esposo for plaintiff-appellant.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio G. Ibarra
and Attorney Concepcion Torrijos-Agapinan for defendants-appellees.

DIZON, J.:
An appeal from a decision of the Court of First Instance of Manila dismissing the complaint filed
by the Philippine Education Co., Inc. against Mauricio A. Soriano, Enrico Palomar and Rafael
Contreras.
On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post Office ten (10)
money orders of P200.00 each payable to E.P. Montinola withaddress at Lucena, Quezon. After
the postal teller had made out money ordersnumbered 124685, 124687-124695, Montinola
offered to pay for them with a private checks were not generally accepted in payment of money
orders, the teller advised him to see the Chief of the Money Order Division, but instead of doing
so, Montinola managed to leave building with his own check and the ten(10) money orders
without the knowledge of the teller.
Dizon, J.:
Facts:
Enrique Montinola sought to purchase from Manila Post Office ten money orders of
200php each payable to E. P. Montinola. Montinola offered to pay with the money orders with a
private check. Private check were not generally accepted in payment of money orders, the teller

advised him to see the Chief of the Money Order Division, but instead of doing so, Montinola
managed to leave the building without the knowledge of the teller. Upon the disappearance of the
unpaid money order, a message was sent to instruct all banks that it must not pay for the money
order stolen upon presentment. The Bank of America received a copy of said notice. However,
The Bank of America received the money order and deposited it to the appellants account upon
clearance. Mauricio Soriano, Chief of the Money Order Division notified the Bank of America
that the money order deposited had been found to have been irregularly issued and that, the
amount it represented had been deducted from the banks clearing account. The Bank of America
debited appellants account with the same account and give notice by mean of debit memo.
Issue:
Whether or not the postal money order in question is a negotiable instrument

Held:
No. It is not disputed that the Philippine postal statutes were patterned after similar statutes in
force in United States. The Weight of authority in the United States is that postal money orders
are not negotiable instruments, the reason being that in establishing and operating a postal money
order system, the government is not engaged in commercial transactions but merely exercises a
governmental power for the public benefit. Moreover, 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.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 88866
February 18, 1991
METROPOLITAN BANK & TRUST COMPANY, petitioner,
vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA
CASTILLO, MAGNO CASTILLO and GLORIA CASTILLO, respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan Association,
Inc.

CRUZ, J.:
Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury
warrants. All warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden
Savings and deposited to its Savings account in Metrobank branch in Calapan, Mindoro. They
were sent for clearance. Meanwhile, Gomez is not allowed to withdraw from his account, later,
however, exasperated over Floria repeated inquiries and also as an accommodation for a
valued client Metrobank decided to allow Golden Savings to withdraw from proceeds of the
warrants. In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his
own account. 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.
Metrobank then sued Golden Savings.
Issue:
1. Whether or not Metrobank can demand refund agaist Golden Savings with regard to the
amount withdraws to make up with the deficit as a result of the dishonored treasury warrants.
2. Whether or not treasury warrants are negotiable instruments
Held:
No. Metrobank is 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.
Without such assurance, Golden Savings would not have allowed the withdrawals. Indeed,
Golden Savings might even have incurred liability for its refusal to return the money that all
appearances belonged to the depositor, who could therefore withdraw it anytime and for any
reason he saw fit.

It was, in fact, to secure the clearance of the treasury warrants that Golden Savings
deposited them to its account with Metrobank. Golden Savings had no clearing facilities of its
own. It relied on Metrobank to determine the validity of the warrants through its own services.
The proceeds of the warrants were withheld from Gomez until Metrobank allowed Golden
Savings itself to withdraw them from its own deposit.
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 Sec. 66 of
NIL. The simple reason that NIL is not applicable to non negotiable instruments, treasury
warrants.
No. The treasury warrants are not negotiable instruments. Clearly stamped on their face is
the word: non negotiable. Moreover, and this is equal significance, it is indicated that they are
payable from a particular fund, to wit, Fund 501. An instrument to be negotiable instrument must
contain an unconditional promise or orders to pay a sum certain in money. As provided by Sec 3
of NIL an unqualified order or promise to pay is unconditional though coupled with: 1 st, 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 2 nd, a statement of the transaction which give rise to the
instrument. But an order to promise to pay out of particular fund is not unconditional. 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 conditional and the warrants themselves non-negotiable. There
should be no question that the exception on Section 3 of NIL is applicable in the case at bar.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 96405

June 26, 1996

BALDOMERO INCIONG, JR., petitioner,

vs.
COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.

DECISION
ROMERO, J.:p
This is a petition for review on certiorari of the decision of the Court of Appeals affirming that
of the Regional Trial Court of Misamis Oriental, Branch 18, 1 which disposed of Civil Case No.
10507 for collection of a sum of money and damages, as follows:

257 SCRA 578 Mercantile Law Negotiable Instruments in General Signature of Makers
Guaranty
In February 1983, Rene Naybe took out a loan from Philippine Bank of Communications (PBC)
in the amount of P50k. For that he executed a promissory note in the same amount. Naybe was
able to convince Baldomero Inciong, Jr. and Gregorio Pantanosas to co-sign with him as comakers. The promissory note went due and it was left unpaid. PBC demanded payment from the
three but still no payment was made. PBC then sue the three but PBC later released Pantanosas
from its obligations. Naybe left for Saudi Arabia hence cant be issued summons and the
complaint against him was subsequently dropped. Inciong was left to face the suit. He argued
that that since the complaint against Naybe was dropped, and that Pantanosas was released from
his obligations, he too should have been released.

ISSUE: Whether or not Inciong should be held liable.

HELD: Yes. Inciong is considering himself as a guarantor in the promissory note. And he was
basing his argument based on Article 2080 of the Civil Code which provides that guarantors are
released from their obligations if the creditors shall release their debtors. It is to be noted
however that Inciong did not sign the promissory note as a guarantor. He signed it as a solidary
co-maker.
A guarantor who binds himself in solidum with the principal debtor does not become a solidary
co-debtor to all intents and purposes. There is a difference between a solidary co-debtor and
a fiador in solidum (surety). The latter, outside of the liability he assumes to pay the debt before
the property of the principal debtor has been exhausted, retains all the other rights, actions and
benefits which pertain to him by reason of the fiansa; while a solidary co-debtor has no other
rights than those bestowed upon him.
Because the promissory note involved in this case expressly states that the three signatories
therein are jointly and severally liable, any one, some or all of them may be proceeded against
for the entire obligation. The choice is left to the solidary creditor (PBC) to determine against
whom he will enforce collection. Consequently, the dismissal of the case against Pontanosas
may not be deemed as having discharged Inciong from liability as well. As regards Naybe,
suffice it to say that the court never acquired jurisdiction over him. Inciong, therefore, may only
have recourse against his co-makers, as provided by law.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 93073

December 21, 1992

REPUBLIC
PLANTERS
vs.
COURT OF APPEALS and FERMIN CANLAS, respondents.

BANK, petitioner,

DECISION
CAMPOS, JR., J.:
This is an appeal by way of a Petition for Review on Certiorari from the decision * of the Court
of Appeals in CA G.R. CV No. 07302, entitled Republic Planters Bank. Plaintiff-Appellee vs.
Pinch Manufacturing Corporation, et al., Defendants, and Fermin Canlas, Defendant-Appellant,
which affirmed the decision ** in Civil Case No. 82-5448 except that it completely absolved
Fermin Canlas from liability under the promissory notes and reduced the award for damages and
attorneys fees. The RTC decision, rendered on June 20, 1985, is quoted hereunder:

216 SCRA 738 Mercantile Law Negotiable Instruments in General Signature of Makers
In 1979, World Garment Manufacturing, through its board authorized Shozo Yamaguchi
(president) and Fermin Canlas (treasurer) to obtain credit facilities from Republic Planters Bank
(RPB). For this, 9 promissory notes were executed. Each promissory note was uniformly written
in the following manner:

___________, after date, for value received, I/we, jointly and severally promise to pay to the
ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the sum of
___________ PESOS(.) Philippine Currency
Please credit proceeds of this note to:

________ Savings Account ______XX Current Account

No. 1372-00257-6 of WORLDWIDE GARMENT MFG. CORP.
Sgd. Shozo Yamaguchi
Sgd. Fermin Canlas

The note became due and no payment was made. RPB eventually sued Yamaguchi and Canlas.
Canlas, in his defense, averred that he should not be held personally liable for such authorized
corporate acts that he performed inasmuch as he signed the promissory notes in his capacity as
officer of the defunct Worldwide Garment Manufacturing.
ISSUE: Whether or not Canlas should be held liable for the promissory notes.
HELD: Yes. The solidary liability of private respondent Fermin Canlas is made clearer and
certain, without reason for ambiguity, by the presence of the phrase joint and several as
describing the unconditional promise to pay to the order of Republic Planters Bank. 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.
Canlas is solidarily liable on each of the promissory notes bearing his signature for the following
reasons:
The promissory notes are negotiable instruments and must be governed by the Negotiable
Instruments Law.
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 according to the tenor thereof.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-10221

February 28, 1958

IN RE: Intestate of Luther Young and Pacita Young, spouses.

PACIFICA JIMENEZ, petitioner-appellee,
vs.
DR. JOSE BUCOY, administrator-appellant.
Frank
W.
Brady
and
E. A. Beltran for appellant.

Pablo

C.

de

Guia,

Jr.

for

appellee.

DECISION
BENGZON, J.:
In this intestate of Luther Young and Pacita Young who died in 1954 and 1952 respectively,
Pacifica Jimenez presented for payment four promissory notes signed by Pacita for different
amounts totalling twenty-one thousand pesos (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.
The claimant objected to the adjustment insisting on full payment in accordance with the notes.
Applying doctrines of this Court on the matter, the Hon. Primitive L. Gonzales, Judge, held that
the notes should be paid in the currency prevailing after the war, and that consequently plaintiff
was entitled to recover P21,000 plus attorneys fees for the sum of P2,000.
Hence this appeal.

103 Phil. 40 Mercantile Law Negotiable Instruments Law Negotiable Instruments in

General Unconditional Promise To Pay
During the Japanese occupation, Pacita Young issued three promissory 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 Ballantyne
Schedule 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-forpeso 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.

90 SCRA 533 Mercantile Law Negotiable Instruments Law Negotiable Instruments in

General Sum Certain in Money RA 529

In 1969, Jesusa Afable and two others procured a loan from Nelia Ponce in the amount of
$194,016.29. In June 1969, Afable and her co-debtors executed a promissory note in favor of
Ponce in the peso equivalent of the loan amount which was P814,868.42. The promissory note
went due and was left unpaid despite demands from Ponce. This prompted Ponce to sue Afable et
al. The trial court ruled in favor of Ponce. The Court of Appeals initially affirmed the trial court
but it later reversed its decisions as it ruled that the promissory note under consideration was
payable in US dollars, and, therefore pursuant to Republic Act 529, the transaction was illegal
with neither party entitled to recover under the in pari delicto rule.
ISSUE: Whether or not Ponce may recover.
HELD: Yes. RA 529 provides that an agreement to pay in dollars is null and void and of no
effect however what the law specifically prohibits is payment in currency other than legal tender.
It does not defeat a creditors claim for payment, as it specifically provides that every other
domestic obligation whether or not any such provision as to payment is contained therein or
made with respect thereto, shall be discharged upon payment in any coin or currency which at
the time of payment is legal tender for public and private debts. A contrary rule would allow a
person to profit or enrich himself inequitably at anothers expense.
On the face of the promissory note, it says that it is payable in Philippine currency the
equivalent of the dollar amount loaned to Afable et al. It may likewise be pointed out that the
Promissory Note contains no provision giving the obligee the right to require payment in a
particular kind of currency other than Philippine currency, which is what is specifically
prohibited by RA No. 529. If there is any agreement to pay an obligation in a currency other
than Philippine legal tender, the same is null and void as contrary to public policy, pursuant to
Republic Act No. 529, and the most that could be demanded is to pay said obligation in
Philippine currency.

NOTE: RA 529 has already been repealed by Republic Act 8183 which provides that every
monetary obligation must be paid in Philippine currency which is legal tender in the
Philippines. However, the parties may agree that the obligation or transaction shall be
settled in any other currency at the time of payment. (The Philippine Negotiable Instruments
Law, De Leon and De Leon Jr., p. 29)
34 SCRA 337 Mercantile Law Negotiable Instruments Law Negotiable Instruments in
General Sum Certain in Money Currency To Be Used
Octavio Kalalo is an engineer whose services were contracted by Alfredo Luz, an architect in
1961. Luz contracted Kalalo to work on ten projects across the country, one of which was an in
the International Rice Research Institute (IRRI) Research Center in Los Baos, Laguna. Luz was

to be paid $140,000.00 for the entire project. For Kalalos work, Luz agreed to pay him 20% of
what IRRI is going to pay or equivalent to $28,000.00.
ISSUE: Whether or not Kalalo should be paid in US currency.
HELD: No. The agreement was forged in 1961, years before the passage of Republic Act 529 in
1950. The said law requires that payment in a particular kind of coin or currency other than the
Philippine currency shall be discharged in Philippine currency measured at the prevailing rate of
exchange at the time the obligation was incurred. Nothing in the law however provides which
rate of exchange shall be used hence it is but logical to use the rate of exchange at the time of
payment.

Lessons Applicable: Fictitious Persons (Negotiable Instruments Law)

FACTS:

Spouses Erlando and Norma Rodriguez were engaged in the informal lending business
and had a discounting arrangement with the Philnabank Employees Savings and Loan
Association (PEMSLA), an association of PNB employees

The association maintained current and savings accounts with Philippine National Bank
(PNB)

PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount
the postdated checks issued to members whenever the association was short of funds.

As was customary, the spouses would replace the postdated checks with their own
checks issued in the name of the members.

It was PEMSLAs policy not to approve applications for loans of members with
outstanding debts.

To subvert this policy, some PEMSLA officers devised a scheme to obtain

additional loans despite their outstanding loan accounts.

They took out loans in the names of unknowing members, without the
knowledge or consent of the latter.

The officers carried this out by forging the indorsement of the

named payees in the checks

Rodriguez checks were deposited directly by PEMSLA to its savings account without any
indorsement from the named payees.

This was an irregular procedure made possible through the facilitation of Edmundo
Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch.

this became the usual practice for the parties.

November 1998-February 1999: spouses issued 69 checks totalling to P2,345,804. These
were payable to 47 individual payees who were all members of PEMSLA

PNB eventually found out about these fraudulent acts

To put a stop to this scheme, PNB closed the current account of PEMSLA.

As a result, the PEMSLA checks deposited by the spouses were returned or

dishonored for the reason Account Closed.

The amounts were duly debited from the Rodriguez account

Spouses filed a civil complaint for damages against PEMSLA, the Multi-Purpose
Cooperative of Philnabankers (MCP), and PNB.

PNB credited the checks to the PEMSLA account even without indorsements
= PNB violated its contractual obligation to them as depositors - so PNB should bear the
losses

RTC: favored Rodriguez

makers, actually did not intend for the named payees to receive the proceeds of
the checks = fictitious payees (under the Negotiable Instruments Law) = negotiable by mere
delivery

CA: Affirmed - checks were obviously meant by the spouses to be really paid to
PEMSLA = payable to order

ISSUE: W/N the 69 checks are payable to order for not being issued to fictitious persons thereby
dismissing PNB from liability

HELD: NO. CA Affirmed

GR: when the payee is fictitious or not intended to be the true recipient of the proceeds,
the check is considered as a bearer instrument (Sections 8 and 9 of the NIL)

EX: However, there is a commercial bad faith exception to the fictitious-payee rule. A
showing of commercial bad faith on the part of the drawee bank, or any transferee of the
check for that matter, will work to strip it of this defense. The exception will cause it to bear
the loss.
The distinction between bearer and order instruments lies in their manner of negotiation

order instrument - requires an indorsement from the payee or holder before it may
be validly negotiated
bearer instrument - mere delivery

US jurisprudence: fictitious if the maker of the check did not intend for the payee to in
fact receive the proceeds of the check

In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer
bears the loss

When faced with a check payable to a fictitious payee, it is treated as a bearer instrument
that can be negotiated by delivery

underlying theory: one cannot expect a fictitious payee to negotiate the check by
placing his indorsement thereon

lack of knowledge on the part of the payees, however, was not tantamount to a lack of
intention on the part of respondents-spouses that the payees would not receive the checks
proceeds

PNB did not obey the instructions of the drawers when it accepted absent indorsement,
forged or otherwise. It was negligent in the selection and supervision of its employees

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 166018
June 4, 2014
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITEDPHILIPPINE BRANCHES, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent;
x-----------------------x
G.R. No. 167728
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITEDPHILIPPINE BRANCHES, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
These petitions for review on certiorari1 assail the Decision2 and Resolution dated July 8, 2004
and October 25, 2004, respectively, of the Court of Appeals in CA-G.R. SP No. 77580, as well as
the Decision3 and Resolution dated September 2, 2004 and April 4, 2005, respectively, of the
Court of Appeals in CA-G.R. SP No. 70814. The respective Decisions in the said cases similarly
reversed and set aside the decisions of the Court of Tax Appeals (CTA) in CTA Case Nos.
59514 and 6009,5 respectively, and dismissed the petitions of petitioner Hongkong and Shanghai
Banking Corporation Limited-Philippine Branches (HSBC). The corresponding Resolutions, on
the other hand, denied the respective motions for reconsideration of the said Decisions.
HSBC performs, among others, custodial services on behalf of its investor-clients, corporate and
individual, resident or non-resident of the Philippines, 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 with respect to dividends and
other income derived from its investor-clients passive investments.6
HSBCs 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.7
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 toP19,572,992.10 and P32,904,437.30, respectively, broken down as
follows:

A. September to December 1997

September 1997

P 6,981,447.90

October 1997

6,209,316.60

November 1997

3,978,510.30

December 1997

2,403,717.30

Total
B. January to December 1998
January 1998

P19,572,992.10
P 3,328,305.60

February 1998

4,566,924.90

March 1998

5,371,797.30

April 1998

4,197,235.50

May 1998

2,519,587.20

June 1998

2,301,333.00

July 1998

1,586,404.50

August 1998

1,787,359.50

September 1998

1,231,828.20

October 1998

1,303,184.40

November 1998

2,026,379.70

December 1998

2,684,097.50

Total
P32,904,437.30
On August 23, 1999, the Bureau of Internal Revenue (BIR), thru its then Commissioner,
Beethoven Rualo, issued BIR Ruling No. 132-99 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. BIR Ruling No. 132-99 reads:
Date: August 23, 1999
FERRY TOLEDO VICTORINO GONZAGA
& ASSOCIATES
G/F AFC Building, Alfaro St.
Salcedo Village, Makati
Metro Manila
Attn: Atty. Tomas C. Toledo
Tax Counsel
Gentlemen:

This refers to your letter dated July 26, 1999 requesting on behalf of your clients, the CITIBANK
& STANDARD CHARTERED BANK, for a ruling as to whether or not the electronic
instructions involving the following transactions of residents and non-residents of the Philippines
with respect to their local or foreign currency accounts are subject to documentary stamp tax
under Section 181 of the 1997 Tax Code, viz:
A. Investment purchase transactions:
An overseas client sends instruction to its bank in the Philippines to either:
(i) debit its local or foreign currency account and to pay a named recipient in the
Philippines; or
(ii) receive funds from another bank in the Philippines for deposit into its account
and to pay a named recipient in the Philippines."
The foregoing transactions are carried out under instruction from abroad and [do] not involve
actual fund transfer since the funds are already in the Philippine accounts. The instructions are in
the form of electronic messages (i.e., SWIFT MT100 or MT 202 and/or MT 521). In both cases,
the payment is against the delivery of investments purchased. The purchase of investments and
the payment comprise one single transaction. DST has already been paid under Section 176 for
the investment purchase.
B. Other transactions:
An overseas client sends an instruction to its bank in the Philippines to either:
(i) debit its local or foreign currency account and to pay a named recipient, who
may be another bank, a corporate entity or an individual in the Philippines; or
(ii) receive funds from another bank in the Philippines for deposit to its account
and to pay a named recipient, who may be another bank, a corporate entity or an
individual in the Philippines."
The above instruction is in the form of an electronic message (i.e., SWIFT MT 100 or MT 202)
or tested cable, and may not refer to any particular transaction.
The opening and maintenance by a non-resident of local or foreign currency accounts with a
bank in the Philippines is permitted by the Bangko Sentral ng Pilipinas, subject to certain
conditions.
In reply, please be informed that pursuant to Section 181 of the 1997 Tax Code, which provides
that
SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others. Upon any acceptance
or payment of any bill of exchange or order for the payment of money purporting to be drawn in
a foreign country but payable in the Philippines, there shall be collected a documentary stamp tax
of Thirty centavos (P0.30) on each Two hundred pesos (P200), or fractional part thereof, of the
face value of any such bill of exchange, or order, or Philippine equivalent of such value, if
expressed in foreign currency. (Underscoring supplied.)
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.
Under the foregoing provision, the documentary stamp tax shall be levied on the instrument, i.e.,
a bill of exchange or order for the payment of money, which purports to draw money from a

foreign country but payable in the Philippines. In the instant case, however, 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, i.e., SWIFT MT 100 or
MT 202 and/or MT 521. Consequently, there is no negotiable instrument to be made, signed or
issued by the payee. In the meantime, 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 payors 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 imposed under Section 179 of the 1997 Tax Code. In the instant case,
and subject to the physical impossibility on the part of the payor to be present and prepare and
sign an instrument purporting to pay a certain obligation, the withdrawal and payment shall be
made in cash. In this light, the withdrawal shall not be subject to documentary stamp tax. The
case is parallel to an automatic bank transfer of local funds from a savings account to a checking
account maintained by a depositor in one bank.
Likewise, the receipt of funds from another bank in the Philippines for deposit to the payees
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. Neither does the receipt of funds
makes the recipient subject to the documentary stamp tax. The funds are deemed to be part of the
deposits of the client once credited to his account, and which, thereafter can be disposed in the
manner he wants. The payor-clients further instruction to debit his account and pay a named
recipient in the Philippines does not involve transfer of funds from abroad. Likewise, as stated
earlier, such debit of local or foreign currency account in the Philippines is not subject to the
documentary stamp tax under the aforementioned Section 181 of the Tax Code.
In the light of the foregoing, this Office hereby holds that the instruction made through an
electronic message by non-resident payor-client to debit his local or foreign currency account
maintained in the Philippines and to pay a certain named recipient also residing in the
Philippines is not the transaction contemplated under Section 181 of the 1997 Tax Code. Such
being the case, such electronic instruction purporting to draw funds from a local account
intended to be paid to a named recipient in the Philippines is not subject to documentary stamp
tax imposed under the foregoing Section.

This ruling is being issued on the basis of the foregoing facts as represented. However, if upon
investigation it shall be disclosed that the facts are different, this ruling shall be considered null
and void.
Very truly yours,
(Sgd.) BEETHOVEN L. RUALO
Commissioner of Internal Revenue8
With the above BIR Ruling as its basis, HSBC filed on October 8, 1999 an administrative claim
for the refund of the amount of P19,572,992.10 allegedly representing erroneously paid DST to
the BIR for the period covering September to December 1997.
Subsequently, on January 31, 2000, HSBC filed another administrative claim for the refund of
the amount ofP32,904,437.30 allegedly representing erroneously paid DST to the BIR for the
period covering January to December 1998.
As its claims for refund were not acted upon by the BIR, HSBC subsequently brought the matter
to the CTA as CTA Case Nos. 5951 and 6009, respectively, in order to suspend the running of the
two-year prescriptive period.
The CTA Decisions dated May 2, 2002 in CTA Case No. 6009 and dated December 18, 2002 in
CTA Case No. 5951 favored HSBC. Respondent Commissioner of Internal Revenue was ordered
to refund or issue a tax credit certificate in favor of HSBC in the reduced amounts
of P30,360,570.75 in CTA Case No. 6009 andP16,436,395.83 in CTA Case No. 5951,
representing erroneously paid DST that have been sufficiently substantiated with documentary
evidence. The CTA ruled that HSBC is entitled to a tax refund or tax credit because Sections 180
and 181 of the 1997 Tax Code do not apply to electronic message instructions transmitted by
HSBCs non-resident investor-clients:
The instruction made through an electronic message by a nonresident investor-client, which is to
debit his local or foreign currency account in the Philippines and pay a certain named recipient
also residing in the Philippines is not the transaction contemplated in Section 181 of the Code. In
this case, the withdrawal and payment shall be made in cash. It is 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 act of debiting the account is not subject to the documentary stamp tax under
Section 181. Neither is the transaction subject to the documentary stamp tax under Section 180
of the same Code. These electronic message instructions cannot be considered negotiable
instruments as they lack the feature of negotiability, which, is the ability to be transferred (Words
and Phrases).
These instructions are considered as mere memoranda and entered as such in the books of
account of the local bank, and the actual debiting of the payors local or foreign currency account
in the Philippines is the actual transaction that should be properly entered as such.9
The respective dispositive portions of the Decisions dated May 2, 2002 in CTA Case No. 6009
and dated December 18, 2002 in CTA Case No. 5951 read:
II. CTA Case No. 6009
WHEREFORE, in the light of all the foregoing, the instant Petition for Review is PARTIALLY
GRANTED. Respondent is hereby ORDERED to REFUND or ISSUE A TAX CREDIT

CERTIFICATE in favor of Petitioner the amount of P30,360,570.75 representing erroneous

payment of documentary stamp tax for the taxable year 1998.10
II. CTA Case No. 5951
WHEREFORE, in the light of the foregoing, the instant petition is hereby partially granted.
Accordingly, respondent is hereby ORDERED to REFUND, or in the alternative, ISSUE A TAX
CREDIT CERTIFICATE in favor of the petitioner in the reduced amount of P16,436,395.83
representing erroneously paid documentary stamp tax for the months of September 1997 to
December 1997.11
However, the Court of Appeals reversed both decisions of the CTA and ruled that the electronic
messages of HSBCs investor-clients are subject to DST. The Court of Appeals explained:
At bar, [HSBC] performs custodial services in behalf of its investor-clients as regards their
passive investments in the Philippines mainly involving shares of stocks in domestic
corporations. These investor-clients maintain Philippine peso and/or foreign currency accounts
with [HSBC]. Should they desire to purchase shares of stock and other investments securities in
the Philippines, the investor-clients send their instructions and advises via electronic messages
from abroad to [HSBC] in the form of SWIFT MT 100, MT 202, or MT 521 directing the latter
to debit their local or foreign currency account and to pay the purchase price upon receipt of the
securities (CTA Decision, pp. 1-2; Rollo, pp. 41-42). Pursuant to Section 181 of the NIRC,
[HSBC] was thus required to pay [DST] based on its acceptance of these electronic messages
which, as [HSBC] readily admits in its petition filed before the [CTA], were essentially orders to
pay the purchases of securities made by its client-investors (Rollo, p. 60).
Appositely, the BIR correctly and legally assessed and collected the [DST] from [HSBC]
considering that the said tax was levied against the acceptances and payments by [HSBC] of the
subject electronic messages/orders for payment. The issue of whether such electronic messages
may be equated as a written document and thus be subject to tax is beside the point. As We have
already stressed, Section 181 of the law cited earlier imposes the [DST] not on the bill of
exchange or order for payment of money but on the acceptance or payment of the said bill or
order. The acceptance of a bill or order is the signification by the drawee of its assent to the order
of the drawer to pay a given sum of money while payment implies not only the assent to the said
order of the drawer and a recognition of the drawers obligation to pay such aforesaid sum, but
also a compliance with such obligation (Philippine National Bank vs. Court of Appeals, 25
SCRA 693 [1968]; Prudential Bank vs. Intermediate Appellate Court, 216 SCRA 257 [1992]).
What is vital to the valid imposition of the [DST] under Section 181 is the existence of the
requirement of acceptance or payment by the drawee (in this case, [HSBC]) of the order for
payment of money from its investor-clients and that the said order was drawn from a foreign
country and payable in the Philippines. These requisites are surely present here.
It would serve the parties well to understand the nature of the tax being imposed in the case at
bar. In Philippine Home Assurance Corporation vs. Court of Appeals (301 SCRA 443 [1999]),
the Supreme Court ruled that [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. In the same case, the High Court also declared citing Du Pont vs. United States
(300 U.S. 150, 153 [1936])
The tax is not upon the business transacted but is an excise upon the privilege, opportunity, or
facility offered at exchanges for the transaction of the business. It is an excise upon the facilities
used in the transaction of the business separate and apart from the business itself. x x x.
To reiterate, the subject [DST] was levied on the acceptance and payment made by [HSBC]
pursuant to the order made by its client-investors as embodied in the cited electronic messages,
through which the herein parties privilege and opportunity to transact business respectively as
drawee and drawers was exercised, separate and apart from the circumstances and conditions
related to such acceptance and subsequent payment of the sum of money authorized by the
concerned drawers. Stated another way, the [DST] was exacted on [HSBCs] exercise of its
privilege under its drawee-drawer relationship with its client-investor through the execution of a
specific instrument which, in the case at bar, is the acceptance of the order for payment of
money. The acceptance of a bill or order for payment may be done in writing by the drawee in
the bill or order itself, or in a separate instrument (Prudential Bank vs. Intermediate Appellate
Court, supra.)Here, [HSBC]s acceptance of the orders for the payment of money was veritably
done in writing in a separate instrument each time it debited the local or foreign currency
accounts of its client-investors pursuant to the latters instructions and advises sent by electronic
messages to [HSBC]. The [DST] therefore must be paid upon the execution of the specified
instruments or facilities covered by the tax in this case, the acceptance by [HSBC] of the order
for payment of money sent by the client-investors through electronic messages. x x x.12
Hence, these petitions.
HSBC asserts that the Court of Appeals committed grave error when it disregarded the factual
and legal conclusions of the CTA. According to HSBC, in the absence of abuse or improvident
exercise of authority, the CTAs ruling should not have been disturbed as the CTA is a highly
specialized court which performs judicial functions, particularly for the review of tax cases.
HSBC further argues that the Commissioner of Internal Revenue had already settled the issue on
the taxability of electronic messages involved in these cases in BIR Ruling No. 132-99 and
reiterated in BIR Ruling No. DA-280-2004.13
The Commissioner of Internal Revenue, on the other hand, claims that Section 181 of the 1997
Tax Code imposes DST on the acceptance or payment of a bill of exchange or order for the
payment of money. The DST under Section 18 of the 1997 Tax Code is levied on HSBCs
exercise of a privilege which is specifically taxed by law. BIR Ruling No. 132-99 is inconsistent
with prevailing law and long standing administrative practice, respondent is not barred from
questioning his own revenue ruling. Tax refunds like tax exemptions are strictly construed
against the taxpayer.14
The Court finds for HSBC.
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." A bill of exchange is one of two general forms of negotiable instruments
under the Negotiable Instruments Law.15
The Court further agrees with the CTA that the electronic messages of HSBCs 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-clientpayors] local or foreign currency account in the Philippines" and "entered as such in the books
of account of the local bank," HSBC.16
More fundamentally, 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, which provides:
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.
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.
Section 181 of the 1997 Tax Code, which governs HSBCs claim for tax refund for taxable year
1998 subject of G.R. No. 167728, provides:
SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others. Upon any acceptance
or payment of any bill of exchange or order for the payment of money purporting to be drawn in
a foreign country but payable in the Philippines, there shall be collected a documentary stamp tax
of Thirty centavos (P0.30) on each Two hundred pesos (P200), or fractional part thereof, of the
face value of any such bill of exchange, or order, or the Philippine equivalent of such value, if
expressed in foreign currency. (Emphasis supplied.)

Section 230 of the 1977 Tax Code, as amended, which governs HSBCs claim for tax refund for
DST paid during the period September to December 1997 and subject of G.R. No. 166018, is
worded exactly the same as its counterpart provision in the 1997 Tax Code quoted above.
The origin of the above provision is Section 117 of the Tax Code of 1904,17 which provided:
SECTION 117. The acceptor or acceptors of any bill of exchange or order for the payment of any
sum of money drawn or purporting to be drawn in any foreign country but payable in the
Philippine Islands, shall, before paying or accepting the same, place thereupon a stamp in
payment of the tax upon such document in the same manner as is required in this Act for the
stamping of inland bills of exchange or promissory notes, and no bill of exchange shall be paid
nor negotiated until such stamp shall have been affixed thereto.18 (Emphasis supplied.)
It then became Section 30(h) of the 1914 Tax Code19:
SEC. 30. Stamp tax upon documents and papers. Upon documents, instruments, and papers,
and upon acceptances, assignments, sales, and transfers of the obligation, right, or property
incident thereto documentary taxes for and in respect of the transaction so had or accomplished
shall be paid as hereinafter prescribed, by the persons making, signing, issuing, accepting, or
transferring the same, and at the time such act is done or transaction had:
xxxx
(h) Upon any acceptance or payment upon acceptance of any bill of exchange or order for the
payment of money purporting to be drawn in a foreign country but payable in the Philippine
Islands, on each two hundred pesos, or fractional part thereof, of the face value of any such bill
of exchange or order, or the Philippine equivalent of such value, if expressed in foreign currency,
two centavos[.] (Emphasis supplied.)
It was implemented by Section 46 in relation to Section 39 of Revenue Regulations No. 26,20 as
amended:
SEC. 39. A Bill of Exchange is one that "denotes checks, drafts, and all other kinds of orders for
the payment of money, payable at sight or on demand, or after a specific period after sight or
from a stated date."
SEC. 46. Bill of Exchange, etc. When any bill of exchange or order for the payment of money
drawn in a foreign country but payable in this country whether at sight or on demand or after a
specified period after sight or from a stated date, is presented for acceptance or payment, there
must be affixed upon acceptance or payment of documentary stamp equal to P0.02 for each P200
or fractional part thereof. (Emphasis supplied.)
It took its present form in Section 218 of the Tax Code of 1939,21 which provided:
SEC. 218. Stamp Tax Upon Acceptance of Bills of Exchange and Others. Upon any acceptance
or payment of any bill of exchange or order for the payment of money purporting to be drawn in
a foreign country but payable in the Philippines, there shall be collected a documentary stamp tax
of four centavos on each two hundred pesos, or fractional part thereof, of the face value of any
such bill of exchange or order, or the Philippine equivalent of such value, if expressed in foreign
currency. (Emphasis supplied.)

It then became Section 230 of the 1977 Tax Code,22 as amended by Presidential Decree Nos.
1457 and 1959,which, as stated earlier, was worded exactly as Section 181 of the current Tax
Code:
SEC. 230. Stamp tax upon acceptance of bills of exchange and others. Upon any acceptance or
payment of any bill of exchange or order for the payment of money purporting to be drawn in a
foreign country but payable in the Philippines, there shall be collected a documentary stamp tax
of thirty centavos on each two hundred pesos, or fractional part thereof, of the face value of any
such bill of exchange, or order, or the Philippine equivalent of such value, if expressed in foreign
currency. (Emphasis supplied.)
The pertinent provision of the present Tax Code has therefore remained substantially the same
for the past one hundred years.1wphi1 The identical text and common history of Section 230 of
the 1977 Tax Code, as amended, and the 1997 Tax Code, as amended, show that the law imposes
DST on either (a) the acceptance or (b) the payment of a foreign bill of exchange or order for the
payment of money that was drawn abroad but payable in the Philippines.
DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or
properties incident thereto.23 Under Section 173 of the 1997 Tax Code, the persons primarily
liable for the payment of the DST are those (1) making, (2) signing, (3) issuing, (4) accepting, or
(5) transferring the taxable documents, instruments or papers.24
In general, 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. Examples of such privileges, the exercise of which, as effected through the issuance
of particular documents, are subject to the payment of DST are leases of lands, mortgages,
pledges and trusts, and conveyances of real property.25
As stated above, Section 230 of the 1977 Tax Code, as amended, now Section 181 of the 1997
Tax Code, levies DST on either (a) the acceptance or (b) the payment of a foreign bill of
exchange or order for the payment of money that was drawn abroad but payable in the
Philippines. In other words, it levies DST as an excise tax on the privilege of the drawee to
accept or pay a bill of exchange or order for the payment of money, which has been drawn
abroad but payable in the Philippines, and on the corresponding privilege of the drawer to have
acceptance of or payment for the bill of exchange or order for the payment of money which it has
drawn abroad but payable in the Philippines.
Acceptance applies only to bills of exchange.26 Acceptance of a bill of exchange has a very
definite meaning in law.27 In particular, Section 132 of the Negotiable Instruments Law provides:
Sec. 132. Acceptance; how made, by and so forth. The acceptance of a bill [of exchange28] is
the signification by the drawee of his assent to the order of the drawer. The acceptance must be in
writing and signed by the drawee. It must not express that the drawee will perform his promise
by any other means than the payment of money.
Under the law, therefore, what is accepted is a bill of exchange, and the acceptance of a bill of
exchange is both the manifestation of the drawees consent to the drawers order to pay money
and the expression of the drawees promise to pay. It is "the act by which the drawee manifests
his consent to comply with the request contained in the bill of exchange directed to him and it

contemplates an engagement or promise to pay."29 Once the drawee accepts, he becomes an

acceptor.30 As acceptor, he engages to pay the bill of exchange according to the tenor of his
acceptance.31
Acceptance is made upon presentment of the bill of exchange, or within 24 hours after such
presentment.32Presentment for acceptance is the production or exhibition of the bill of exchange
to the drawee for the purpose of obtaining his acceptance.33
Presentment for acceptance is necessary only in the instances where the law requires it.34 In the
instances where presentment for acceptance is not necessary, the holder of the bill of exchange
can proceed directly to presentment for payment.
Presentment for payment is the presentation of the instrument to the person primarily liable for
the purpose of demanding and obtaining payment thereof.35
Thus, whether it be presentment for acceptance or presentment for payment, the negotiable
instrument has to be produced and shown to the drawee for acceptance or to the acceptor for
payment.
Revenue Regulations No. 26 recognizes that the acceptance or payment (of bills of exchange or
orders for the payment of money that have been drawn abroad but payable in the Philippines)
that is subjected to DST under Section 181 of the 1997 Tax Code is done after presentment for
acceptance or presentment for payment, respectively. In other words, the acceptance or payment
of the subject bill of exchange or order for the payment of money is done when there is
presentment either for acceptance or for payment of the bill of exchange or order for the payment
of money.
Applying the above concepts to the matter subjected to DST 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.
Indeed, there had been no acceptance of a bill of exchange or order for the payment of money on
the part of HSBC. To reiterate, there was no bill of exchange or order for the payment drawn
abroad and made payable here in the Philippines. Thus, there was no acceptance as the electronic
messages did not constitute the written and signed manifestation of HSBC to a drawer's order to
pay money. As HSBC could not have been an acceptor, then it could not have made any payment
of a bill of exchange or order for the payment of money drawn abroad but payable here in the
Philippines. In other words, HSBC could not have been held liable for DST under Section 230 of
the 1977 Tax Code, as amended, and Section 181 of the 1997 Tax Code as it is not "a person
making, signing, issuing, accepting, or, transferring" the taxable instruments under the said
provision. Thus, HSBC erroneously paid DST on the said electronic messages for which it is
entitled to a tax refund.

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.
TERESITA J. LEONARDO-DE CASTRO
Associate Justice