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.

On the same date, April 18, 1958, upon discovery of the disappearance of the unpaid money orders, an urgent
message was sent to all postmasters, and the following day notice was likewise served upon all banks,
instructing them not to pay anyone of the money orders aforesaid if presented for payment. The Bank of
America received a copy of said notice three days later.

On April 23, 1958 one of the above-mentioned money orders numbered 124688 was received by appellant as
part of its sales receipts. The following day it deposited the same with the Bank of America, and one day
thereafter the latter cleared it with the Bureau of Posts and received from the latter its face value of P200.00.

On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order Division of the Manila Post
Office, acting for and in behalf of his co-appellee, Postmaster Enrico Palomar, notified the Bank of America that
money order No. 124688 attached to his letter had been found to have been irregularly issued and that, in view
thereof, the amount it represented had been deducted from the bank's clearing account. For its part, on August
2 of the same year, the Bank of America debited appellant's account with the same amount and gave it advice
thereof by means of a debit memo.

On October 12, 1961 appellant requested the Postmaster General to reconsider the action taken by his office
deducting the sum of P200.00 from the clearing account of the Bank of America, but his request was denied. So
was appellant's subsequent request that the matter be referred to the Secretary of Justice for advice. Thereafter,
appellant elevated the matter to the Secretary of Public Works and Communications, but the latter sustained the
actions taken by the postal officers.

In connection with the events set forth above, Montinola was charged with theft in the Court of First Instance of
Manila (Criminal Case No. 43866) but after trial he was acquitted on the ground of reasonable doubt.

On January 8, 1962 appellant filed an action against appellees in the Municipal Court of Manila praying for
judgment as follows:

WHEREFORE, plaintiff prays that after hearing defendants be ordered:

(a)
To countermand the notice given to the Bank of America on September 27, 1961, deducting from the
said Bank's clearing account the sum of P200.00 represented by postal money order No. 124688, or in the
alternative indemnify the plaintiff in the same amount with interest at 8-% per annum from September 27,
1961, which is the rate of interest being paid by plaintiff on its overdraft account;

(b)
To pay to the plaintiff out of their own personal funds, jointly and severally, actual and moral damages in
the amount of P1,000.00 or in such amount as will be proved and/or determined by this Honorable Court:
exemplary damages in the amount of P1,000.00, attorney's fees of P1,000.00, and the costs of action.

Plaintiff also prays for such other and further relief as may be deemed just and equitable.

On November 17, 1962, after the parties had submitted the stipulation of facts reproduced at pages 12 to 15 of
the Record on Appeal, the above-named court rendered judgment as follows:

WHEREFORE, judgment is hereby rendered, ordering the defendants to countermand the notice given to the
Bank of America on September 27, 1961, deducting from said Bank's clearing account the sum of P200.00
representing the amount of postal money order No. 124688, or in the alternative, to indemnify the plaintiff in the
said sum of P200.00 with interest thereon at the rate of 8-% per annum from September 27, 1961 until fully
paid; without any pronouncement as to cost and attorney's fees.

The case was appealed to the Court of First Instance of Manila where, after the parties had resubmitted the
same stipulation of facts, the appealed decision dismissing the complaint, with costs, was rendered.

The first, second and fifth assignments of error discussed in appellant's brief are related to the other and will
therefore be discussed jointly. They raise this main issue: that the postal money order in question is a negotiable
instrument; that its nature as such is not in anyway affected by the letter dated October 26, 1948 signed by the
Director of Posts and addressed to all banks with a clearing account with the Post Office, and that money orders,
once issued, create a contractual relationship of debtor and creditor, respectively, between the government, on
the one hand, and the remitters payees or endorses, on the other.

It is not disputed that our postal statutes were patterned after statutes in force in the United States. For this
reason, ours are generally construed in accordance with the construction given in the United States to their own
postal statutes, in the absence of any special reason justifying a departure from this policy or practice. The
weight of authority in the United States is that postal money orders are not negotiable instruments (Bolognesi
vs. U.S. 189 Fed. 395; U.S. vs. Stock Drawers National Bank, 30 Fed. 912), the reason behind this rule being that,
in establishing and operating a postal money order system, the government is not engaging in commercial
transactions but merely exercises a governmental power for the public benefit.

It is to be noted in this connection that some of the restrictions imposed upon money orders by postal laws and
regulations are inconsistent with the character of negotiable instruments. For instance, such laws and
regulations usually provide for not more than one endorsement; payment of money orders may be withheld
under a variety of circumstances (49 C.J. 1153).

Of particular application to the postal money order in question are the conditions laid down in the letter of the
Director of Posts of October 26, 1948 (Exhibit 3) to the Bank of America for the redemption of postal money
orders received by it from its depositors. Among others, the condition is imposed that "in cases of adverse claim,
the money order or money orders involved will be returned to you (the bank) and the, corresponding amount will
have to be refunded to the Postmaster, Manila, who reserves the right to deduct the value thereof from any
amount due you if such step is deemed necessary." The conditions thus imposed in order to enable the bank to
continue enjoying the facilities theretofore enjoyed by its depositors, were accepted by the Bank of America. The
latter is therefore bound by them. That it is so is clearly referred from the fact that, upon receiving advice that
the amount represented by the money order in question had been deducted from its clearing account with the
Manila Post Office, it did not file any protest against such action.

Moreover, not being a party to the understanding existing between the postal officers, on the one hand, and the
Bank of America, on the other, appellant has no right to assail the terms and conditions thereof on the ground
that the letter setting forth the terms and conditions aforesaid is void because it was not issued by a
Department Head in accordance with Sec. 79 (B) of the Revised Administrative Code. In reality, however, said
legal provision does not apply to the letter in question because it does not provide for a department regulation
but merely sets down certain conditions upon the privilege granted to the Bank of Amrica to accept and pay
postal money orders presented for payment at the Manila Post Office. Such being the case, it is clear that the
Director of Posts had ample authority to issue it pursuant to Sec. 1190 of the Revised Administrative Code.

In view of the foregoing, We do not find it necessary to resolve the issues raised in the third and fourth
assignments of error.

WHEREFORE, the appealed decision being in accordance with law, the same is hereby affirmed with costs.

Philippine Education Co. vs. Soriano (DIGEST)

L-22405

June 30, 1971

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.

G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner,

vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

Bito, Lozada, Ortega & Castillo for petitioners.

Nepomuceno, Hofilea & Guingona for private.

REGALADO, J.:

This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by respondent
court on March 8, 1991 in CA-G.R. CV No. 23615 1 affirming with modifications, the earlier decision of the
Regional Trial Court of Manila, Branch XLII, 2 which dismissed the complaint filed therein by herein petitioner
against respondent bank.

The undisputed background of this case, as found by the court a quo and adopted by respondent court, appears
of record:

1.
On various
certificates of time
aggregate amount
Original Records, p.

CTD

CTD

Dates

Serial Nos.

dates, defendant, a commercial banking institution, through its Sucat Branch issued 280
deposit (CTDs) in favor of one Angel dela Cruz who deposited with herein defendant the
of P1,120,000.00, as follows: (Joint Partial Stipulation of Facts and Statement of Issues,
207; Defendant's Exhibits 1 to 280);

Quantity

Amount

22 Feb. 82

90101 to 90120

20

P80,000

26 Feb. 82

74602 to 74691

90

360,000

2 Mar. 82

74701 to 74740

40

160,000

4 Mar. 82

90127 to 90146

20

80,000

5 Mar. 82

74797 to 94800

16,000

5 Mar. 82

89965 to 89986

22

88,000

5 Mar. 82

70147 to 90150

16,000

8 Mar. 82

90001 to 90020

20

80,000

9 Mar. 82

90023 to 90050

28

112,000

9 Mar. 82

89991 to 90000

10

40,000

9 Mar. 82

90251 to 90272

22

88,000

Total

280

=====

P1,120,000
========

2.
Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in connection with his
purchased of fuel products from the latter (Original Record, p. 208).

3.
Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch Manger, that
he lost all the certificates of time deposit in dispute. Mr. Tiangco 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 (TSN, February 9, 1987, pp. 48-50).

4.
On March 18, 1982, 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 (Defendant's Exhibits 282-561).

5.
On March 25, 1982, 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 (TSN, February 9, 1987, pp. 60-62).

6.
Sometime in November, 1982, Mr. Aranas, 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 (TSN, February 9, 1987, pp. 54-68).

7.
On November 26, 1982, defendant 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.

8.
On December 8, 1982, 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 (Defendant's Exhibit 564).

9.

No copy of the requested documents was furnished herein defendant.

10.
Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of the value of the
CTDs in a letter dated February 7, 1983 (Defendant's Exhibit 566).

11.
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 (TSN,
February 9, 1987, pp. 130-131).

12.
In view of the foregoing, plaintiff filed the instant complaint, praying that defendant bank be ordered to
pay it the aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued interest and
compounded interest therein at 16% per annum, moral and exemplary damages as well as attorney's fees.

After trial, the court a quo rendered its decision dismissing the instant complaint. 3

On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint, hence this
petition wherein petitioner faults respondent court in ruling (1) that the subject certificates of deposit are nonnegotiable despite being clearly negotiable instruments; (2) that petitioner did not become a holder in due
course of the said certificates of deposit; and (3) in disregarding the pertinent provisions of the Code of
Commerce relating to lost instruments payable to bearer. 4

The instant petition is bereft of merit.

A sample text of the certificates of time deposit is reproduced below to provide a better understanding of the
issues involved in this recourse.

SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., MakatiNo. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%

Date of Maturity FEB. 23, 1984 FEB 22, 1982,

19____

This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR THOUSAND ONLY,
SECURITY BANK SUCAT OFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said depositor 731
days. after date, upon presentation and surrender of this certificate, with interest at the rate of 16% per cent per
annum.

(Sgd. Illegible) (Sgd. Illegible)

AUTHORIZED SIGNATURES 5

Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing as follows:

. . . While it may be true that the word "bearer" appears rather boldly in the CTDs issued, it is important to note
that after the word "BEARER" stamped on the space provided supposedly for the name of the depositor, the
words "has deposited" a certain amount follows. The document further provides that the amount deposited shall
be "repayable to said depositor" on the period indicated. Therefore, the text of the instrument(s) themselves
manifest with clarity that they are payable, not to whoever purports to be the "bearer" but only to the specified
person indicated therein, the depositor. In effect, the appellee bank acknowledges its depositor Angel dela Cruz
as the person who made the deposit and further engages itself to pay said depositor the amount indicated
thereon at the stipulated date. 6
We disagree with these findings and conclusions, and hereby hold that the CTDs in question are negotiable
instruments. Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the
requisites for an instrument to become negotiable, viz:
(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 CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties' bone of
contention is with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's
Branch Manager way back in 1982, testified in open court that the depositor reffered to in the CTDs is no other
than Mr. Angel de la Cruz.

xxx

xxx

xxx

Atty. Calida:
q
In other words Mr. Witness, you are saying that per books of the bank, the depositor referred (sic) in
these certificates states that it was Angel dela Cruz?
witness:
a
Yes, your Honor, and we have the record to show that Angel dela Cruz was the one who cause (sic) the
amount.
Atty. Calida:
q

And no other person or entity or company, Mr. Witness?

witness:

None, your Honor. 7

xxx

xxx

Atty. Calida:

xxx

q
Mr. Witness, who is the depositor identified in all of these certificates of time deposit insofar as the bank
is concerned?
witness:
a

Angel dela Cruz is the depositor. 8

xxx

xxx

xxx

On this score, 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. 9 In the construction of a bill or note, the intention of
the parties is to control, if it can be legally ascertained. 10 While the writing may be read in the light of
surrounding circumstances 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. The duty of the court in such case is to ascertain, not what the
parties may have secretly intended as contradistinguished from what their words express, but what is the
meaning of the words they have used. What the parties meant must be determined by what they said. 11
Contrary to what respondent court held, the CTDs are negotiable instruments. 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. On the wordings of the
documents, therefore, the amounts deposited are repayable to whoever may be the bearer thereof. Thus,
petitioner's aforesaid witness merely declared that Angel de la Cruz is the depositor "insofar as the bank is
concerned," but obviously other parties not privy to the transaction between them would not be in a position to
know that the depositor is not the bearer stated in the CTDs. Hence, the situation would require any party
dealing with the CTDs to go behind the plain import of what is written thereon to unravel the agreement of the
parties thereto through facts aliunde. This need for resort to extrinsic evidence is what is sought to be avoided
by the Negotiable Instruments Law and calls for the application of the elementary rule that the interpretation of
obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in the negative.
The records reveal that Angel de la Cruz, whom petitioner chose not to implead in this suit for reasons of its
own, delivered the CTDs amounting to P1,120,000.00 to petitioner without informing respondent bank thereof at
any time. 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.
In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr., Caltex Credit
Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his
purchases of fuel products" (Emphasis ours.) 13 This admission is conclusive upon petitioner, its protestations
notwithstanding. Under the doctrine of estoppel, an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person relying thereon. 14 A party may not
go back on his own acts and representations to the prejudice of the other party who relied upon them. 15 In the
law of evidence, whenever a party has, by his own declaration, act, or omission, intentionally and deliberately
led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out
of such declaration, act, or omission, be permitted to falsify it. 16
If it were true that the CTDs were delivered as payment and not as security, petitioner's credit manager could
have easily said so, instead of using the words "to guarantee" in the letter aforequoted. Besides, when
respondent bank, as defendant in the court below, moved for a bill of particularity therein 17 praying, among
others, that petitioner, as plaintiff, be required to aver with sufficient definiteness or particularity (a) the due

date or dates of payment of the alleged indebtedness of Angel de la Cruz to plaintiff and (b) whether or not it
issued a receipt showing that the CTDs were delivered to it by De la Cruz as payment of the latter's alleged
indebtedness to it, plaintiff corporation opposed the motion. 18 Had it produced the receipt prayed for, it could
have proved, if such truly was the fact, that the CTDs were delivered as payment and not as security. Having
opposed the motion, petitioner now labors under the presumption that evidence willfully suppressed would be
adverse if produced. 19

Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs. Philippine
National Bank, et al. 20 is apropos:
. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote therefrom:
The character of the transaction between the parties is to be determined by their intention, regardless of what
language was used or what the form of the transfer was. If it was intended to secure the payment of money, it
must be construed as a pledge; but if there was some other intention, it is not a pledge. However, even though a
transfer, if regarded by itself, appears to have been absolute, its object and character might still be qualified and
explained by contemporaneous writing declaring it to have been a deposit of the property as collateral security.
It has been said that a transfer of property by the debtor to a creditor, even if sufficient on its face to make an
absolute conveyance, should be treated as a pledge if the debt continues in inexistence and is not discharged
by the transfer, and that accordingly the use of the terms ordinarily importing conveyance of absolute
ownership will not be given that effect in such a transaction if they are also commonly used in pledges and
mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership, in the absence of clear
and unambiguous language or other circumstances excluding an intent to pledge.

Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable Instruments
Law, an instrument is negotiated when it is transferred from one person to another in such a manner as to
constitute the transferee the holder thereof, 21 and a holder may be the payee or indorsee of a bill or note, who
is in possession of it, or the bearer thereof. 22 In the present case, however, there was no negotiation in the
sense of a transfer of the legal title to the CTDs in favor of petitioner in which situation, for obvious reasons,
mere delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only as security for the
purchases of Angel de la Cruz (and we even disregard the fact that the amount involved was not disclosed)
could at the most constitute petitioner only as a holder for value by reason of his lien. Accordingly, a negotiation
for such purpose cannot be effected by mere delivery of the instrument since, necessarily, the terms thereof and
the subsequent disposition of such security, in the event of non-payment of the principal obligation, must be
contractually provided for.

The pertinent law on this point is that where the holder has a lien on the instrument arising from contract, he is
deemed a holder for value to the extent of his lien. 23 As such holder of collateral security, he would be a
pledgee but the requirements therefor and the effects thereof, not being provided for by the Negotiable
Instruments Law, shall be governed by the Civil Code provisions on pledge of incorporeal rights, 24 which
inceptively provide:

Art. 2095.
Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The
instrument proving the right pledged shall be delivered to the creditor, and if negotiable, must be indorsed.

Art. 2096.
A pledge shall not take effect against third persons if a description of the thing pledged and the
date of the pledge do not appear in a public instrument.

Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of respondent court
quoted at the start of this opinion show that petitioner failed to produce any document evidencing any contract
of pledge or guarantee agreement between it and Angel de la Cruz. 25 Consequently, the mere delivery of the
CTDs did not legally vest in petitioner any right effective against and binding upon respondent bank. The
requirement under Article 2096 aforementioned is not a mere rule of adjective law prescribing the mode

whereby proof may be made of the date of a pledge contract, but a rule of substantive law prescribing a
condition without which the execution of a pledge contract cannot affect third persons adversely. 26

On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was
embodied in a public instrument. 27 With regard to this other mode of transfer, the Civil Code specifically
declares:

Art. 1625.
An assignment of credit, right or action shall produce no effect as against third persons, unless it
appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment
involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as purchaser,
assignee or lien holder of the CTDs, neither proved the amount of its credit or the extent of its lien nor the
execution of any public instrument which could affect or bind private respondent. Necessarily, therefore, as
between petitioner and respondent bank, the latter has definitely the better right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the question of whether or not private
respondent observed the requirements of the law in the case of lost negotiable instruments and the issuance of
replacement certificates therefor, on the ground that petitioner failed to raised that issue in the lower court. 28
On this matter, we uphold respondent court's finding that the aspect of alleged negligence of private respondent
was not included in the stipulation of the parties and in the statement of issues submitted by them to the trial
court. 29 The issues agreed upon by them for resolution in this case are:

1.

Whether or not the CTDs as worded are negotiable instruments.

2.
Whether or not defendant could legally apply the amount covered by the CTDs against the depositor's
loan by virtue of the assignment (Annex "C").
3.
Whether or not there was legal compensation or set off involving the amount covered by the CTDs and
the depositor's outstanding account with defendant, if any.
4.
Whether or not plaintiff could compel defendant to preterminate the CTDs before the maturity date
provided therein.
5.

Whether or not plaintiff is entitled to the proceeds of the CTDs.

6.
other.

Whether or not the parties can recover damages, attorney's fees and litigation expenses from each

As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the foregoing
enumeration does not include the issue of negligence on the part of respondent bank. An issue raised for the
first time on appeal and not raised timely in the proceedings in the lower court is barred by estoppel. 30
Questions raised on appeal must be within the issues framed by the parties and, consequently, issues not raised
in the trial court cannot be raised for the first time on appeal. 31

Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case are properly
raised. Thus, to obviate the element of surprise, parties are expected to disclose at a pre-trial conference all
issues of law and fact which they intend to raise at the trial, except such as may involve privileged or
impeaching matters. The determination of issues at a pre-trial conference bars the consideration of other
questions on appeal. 32

To accept petitioner's suggestion that respondent bank's supposed negligence may be considered encompassed
by the issues on its right to preterminate and receive the proceeds of the CTDs would be tantamount to saying
that petitioner could raise on appeal any issue. We agree with private respondent that the broad ultimate issue

of petitioner's entitlement to the proceeds of the questioned certificates can be premised on a multitude of
other legal reasons and causes of action, of which respondent bank's supposed negligence is only one. Hence,
petitioner's submission, if accepted, would render a pre-trial delimitation of issues a useless exercise. 33
Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner still cannot
have the odds in its favor. A close scrutiny of the provisions of the Code of Commerce laying down the rules to
be followed in case of lost instruments payable to bearer, which it invokes, will reveal that said provisions, even
assuming their applicability to the CTDs in the case at bar, are merely permissive and not mandatory. The very
first article cited by petitioner speaks for itself.
Art 548.
The dispossessed owner, no matter for what cause it may be, may apply to the judge or court of
competent jurisdiction, asking that the principal, interest or dividends due or about to become due, be not paid
a third person, as well as in order to prevent the ownership of the instrument that a duplicate be issued him.
(Emphasis ours.)
xxx

xxx

xxx

The use of the word "may" in said provision shows that it is not mandatory but discretionary on the part of the
"dispossessed owner" to apply to the judge or court of competent jurisdiction for the issuance of a duplicate of
the lost instrument. Where the provision reads "may," this word shows that it is not mandatory but discretional.
34 The word "may" is usually permissive, not mandatory. 35 It is an auxiliary verb indicating liberty, opportunity,
permission and possibility. 36
Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code of Commerce, on
which petitioner seeks to anchor respondent bank's supposed negligence, merely established, on the one hand,
a right of recourse in favor of a dispossessed owner or holder of a bearer instrument so that he may obtain a
duplicate of the same, and, on the other, an option in favor of the party liable thereon who, for some valid
ground, may elect to refuse to issue a replacement of the instrument. Significantly, none of the provisions cited
by petitioner categorically restricts or prohibits the issuance a duplicate or replacement instrument sans
compliance with the procedure outlined therein, and none establishes a mandatory precedent requirement
therefor.
WHEREFORE, on the modified premises above set forth, the petition is DENIED and the appealed decision is
hereby AFFIRMED.

SO ORDERED.

Caltex (Phils.) Inc. V. CA And Security Bank And Trust Co. (1992)
G.R. No. 97753 August 10, 1992
Lessons Applicable: Requisites of negotiability to antedated and postdated instruments (Negotiable Instrument
Law)
FACTS:
Security Bank and Trust Company (Security Bank), a commercial banking institution, through its Sucat Branch
issued 280 certificates of time deposit (CTDs) in favor of Angel dela Cruz who deposited with Security Bank the
total amount of P1,120,000
Angel delivered the CTDs to Caltex for his purchase of fuel products
March 18, 1982: Angel informed Mr. Tiangco, the Sucat Branch Manager that he lost all CTDs, submitted the
required Affidavit of Loss and received the replacement
March 25, 1982: Angel dela Cruz negotiated and obtained a loan from Security Bank in the amount of P875,000
and executed a notarized Deed of Assignment of Time Deposit
November, 1982: Mr. Aranas, Credit Manager of Caltex went to the Sucat branch to verify the CTDs declared lost
by Angel

November 26, 1982: Security Bank received a letter from Caltex formally informing it of its possession of the
CTDs in question and of its decision to pre-terminate the same.
December 8, 1982: Caltex was requested by Security Bank to furnish:
a copy of the document evidencing the guarantee agreement with Mr. Angel dela Cruz
the details of Mr. Angel's obligation against which Caltex proposed to apply the time deposits
Security Bank rejected Caltex demand for payment bec. it failed to furnish a copy of its agreement w/ Angel
April 1983, the loan of Angel dela Cruz with Security Bank matured
August 5, 1983: CTD were set-off w/ the matured loan
Caltex filed a complaint praying the bank to pay 1,120,000 plus 16% interest
CA affirmed RTC to dismiss complaint
ISSUE:
W/N the CTDs are negotiable
W/N Caltex as holder in due course can rightfully recover on the CTDs
HELD: Petition is Denied and appealed decision is affirmed.
1. YES.
Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites for an
instrument to become negotiable, viz:
(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 -check
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.
The documents provide that the amounts deposited shall be repayable to the depositor
depositor = bearer
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
negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the
instrument itself
2. NO.
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
CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products
There was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in which
situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed.
Where the holder has a lien on the instrument arising from contract, he is deemed a holder for value to the
extent of his lien.
As such holder of collateral security, he would be a pledgee but the requirements therefor and the effects
thereof, not being provided for by the Negotiable Instruments Law, shall be governed by the Civil Code
provisions on pledge of incorporeal rights:

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The instrument
proving the right pledged shall be delivered to the creditor, and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged and the date
of the pledge do not appear in a public instrument.
Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless it
appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment
involves real property

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.
This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned of all nonessentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines and even
abroad. Golden Savings and Loan Association was, at the time these events happened, operating in Calapan,
Mindoro, with the other private respondents as its principal officers.
In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited over a period
of two months 38 treasury warrants with a total value of P1,755,228.37. They were all drawn by the Philippine
Fish Marketing Authority and purportedly signed by its General Manager and countersigned by its Auditor. Six of
these were directly payable to Gomez while the others appeared to have been indorsed by their respective
payees, followed by Gomez as second indorser. 1

On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed by Gloria
Castillo as Cashier of Golden Savings and deposited to its Savings Account No. 2498 in the Metrobank branch in
Calapan, Mindoro. They were then sent for clearing by the branch office to the principal office of Metrobank,
which forwarded them to the Bureau of Treasury for special clearing. 2
More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask whether
the warrants had been cleared. She was told to wait. Accordingly, Gomez was meanwhile not allowed to
withdraw from his account. Later, however, "exasperated" over Gloria's repeated inquiries and also as an
accommodation for a "valued client," the petitioner says it finally decided to allow Golden Savings to withdraw
from the proceeds of the
warrants. 3
The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on July 13, 1979, in
the amount of P310,000.00, and the third on July 16, 1979, in the amount of P150,000.00. The total withdrawal
was P968.000.00. 4
In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account, eventually
collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared warrants. The last
withdrawal was made on July 16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the
Bureau of Treasury on July 19, 1979, 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 in the Regional Trial Court of Mindoro. 5 After
trial, judgment was rendered in favor of Golden Savings, which, however, filed a motion for reconsideration even
as Metrobank filed its notice of appeal. On November 4, 1986, the lower court modified its decision thus:
ACCORDINGLY, judgment is hereby rendered:
1.

Dismissing the complaint with costs against the plaintiff;

2.
Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings and Loan
Association, Inc. and defendant Spouses Magno Castillo and Lucia Castillo;
3.
Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the sum of
P1,754,089.00 and to reinstate and credit to such account such amount existing before the debit was made
including the amount of P812,033.37 in favor of defendant Golden Savings and Loan Association, Inc. and
thereafter, to allow defendant Golden Savings and Loan Association, Inc. to withdraw the amount outstanding
thereon before the debit;
4.
Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc. attorney's fees and
expenses of litigation in the amount of P200,000.00.
5.
Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo attorney's fees and
expenses of litigation in the amount of P100,000.00.
SO ORDERED.
On appeal to the respondent court, 6 the decision was affirmed, prompting Metrobank to file this petition for
review on the following grounds:
1.
Respondent Court of Appeals erred in disregarding and failing to apply the clear contractual terms and
conditions on the deposit slips allowing Metrobank to charge back any amount erroneously credited.
(a)
Metrobank's right to charge back is not limited to instances where the checks or treasury warrants are
forged or unauthorized.
(b)
Until such time as Metrobank is actually paid, its obligation is that of a mere collecting agent which
cannot be held liable for its failure to collect on the warrants.
2.
Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank is made to pay for
warrants already dishonored, thereby perpetuating the fraud committed by Eduardo Gomez.

3.
Respondent Court of Appeals erred in not finding that as between Metrobank and Golden Savings, the
latter should bear the loss.
4.
Respondent Court of Appeals erred in holding that the treasury warrants involved in this case are not
negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent in giving
Golden Savings the impression that the treasury warrants had been cleared and that, consequently, it was safe
to allow Gomez to withdraw the proceeds thereof from his account with it. Without such assurance, Golden
Savings would not have allowed the withdrawals; with such assurance, there was no reason not to allow the
withdrawal. Indeed, Golden Savings might even have incurred liability for its refusal to return the money that to
all appearances belonged to the depositor, who could therefore withdraw it any time 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. 7 It was only when
Metrobank gave the go-signal that Gomez was finally allowed by Golden Savings to withdraw them from his own
account.
The argument of Metrobank that Golden Savings should have exercised more care in checking the personal
circumstances of Gomez before accepting his deposit does not hold water. It was Gomez who was entrusting the
warrants, not Golden Savings that was extending him a loan; and moreover, the treasury warrants were subject
to clearing, pending which the depositor could not withdraw its proceeds. There was no question of Gomez's
identity or of the genuineness of his signature as checked by Golden Savings. In fact, the treasury warrants were
dishonored allegedly because of the forgery of the signatures of the drawers, not of Gomez as payee or indorser.
Under the circumstances, it is clear that Golden Savings acted with due care and diligence and cannot be
faulted for the withdrawals it allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling more than
one and a half million pesos (and this was 1979). There was no reason why it should not have waited until the
treasury warrants had been cleared; it would not have lost a single centavo by waiting. Yet, despite the lack of
such clearance and notwithstanding that it had not received a single centavo from the proceeds of the
treasury warrants, as it now repeatedly stresses it allowed Golden Savings to withdraw not once, not twice,
but thrice from the uncleared treasury warrants in the total amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance and it also
wanted to "accommodate" a valued client. It "presumed" that the warrants had been cleared simply because of
"the lapse of one week." 8 For a bank with its long experience, this explanation is unbelievably naive.
And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the dorsal side of the
deposit slips through which the treasury warrants were deposited by Golden Savings with its Calapan branch.
The conditions read as follows:
Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's collecting agent,
assuming no responsibility beyond care in selecting correspondents, and until such time as actual payment shall
have come into possession of this bank, the right is reserved to charge back to the depositor's account any
amount previously credited, whether or not such item is returned. This also applies to checks drawn on local
banks and bankers and their branches as well as on this bank, which are unpaid due to insufficiency of funds,
forgery, unauthorized overdraft or any other reason. (Emphasis supplied.)
According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent for Golden
Savings and give it the right to "charge back to the depositor's account any amount previously credited, whether
or not such item is returned. This also applies to checks ". . . which are unpaid due to insufficiency of funds,
forgery, unauthorized overdraft of any other reason." It is claimed that the said conditions are in the nature of
contractual stipulations and became binding on Golden Savings when Gloria Castillo, as its Cashier, signed the
deposit slips.
Doubt may be expressed about the binding force of the conditions, considering that they have apparently been
imposed by the bank unilaterally, without the consent of the depositor. Indeed, it could be argued that the
depositor, in signing the deposit slip, does so only to identify himself and not to agree to the conditions set forth
in the given permit at the back of the deposit slip. We do not have to rule on this matter at this time. At any

rate, the Court feels that even if the deposit slip were considered a contract, the petitioner could still not validly
disclaim responsibility thereunder in the light of the circumstances of this case.
In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be suggesting
that as a mere agent it cannot be liable to the principal. This is not exactly true. On the contrary, Article 1909 of
the Civil Code clearly provides that
Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall be judged 'with
more or less rigor by the courts, according to whether the agency was or was not for a compensation.
The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the clearance
given by it that assured Golden Savings it was already safe to allow Gomez to withdraw the proceeds of the
treasury warrants he had deposited Metrobank misled Golden Savings. There may have been no express
clearance, as Metrobank insists (although this is refuted by Golden Savings) but in any case that clearance could
be implied from its allowing Golden Savings to withdraw from its account not only once or even twice but three
times. The total withdrawal was in excess of its original balance before the treasury warrants were deposited,
which only added to its belief that the treasury warrants had indeed been cleared.
Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any reason is not
acceptable. Any reason does not mean no reason at all. Otherwise, there would have been no need at all for
Golden Savings to deposit the treasury warrants with it for clearance. There would have been no need for it to
wait until the warrants had been cleared before paying the proceeds thereof to Gomez. Such a condition, if
interpreted in the way the petitioner suggests, is not binding for being arbitrary and unconscionable. And it
becomes more so in the case at bar when it is considered that the supposed dishonor of the warrants was not
communicated to Golden Savings before it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier negligence in giving express or at least implied
clearance to the treasury warrants and allowing payments therefrom to Golden Savings. But that is not all. On
top of this, the supposed reason for the dishonor, to wit, the forgery of the signatures of the general manager
and the auditor of the drawer corporation, has not been established. 9 This was the finding of the lower courts
which we see no reason to disturb. And as we said in MWSS v. Court of Appeals: 10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be established by clear, positive
and convincing evidence. This was not done in the present case.
A no less important consideration is the circumstance that the treasury warrants in question are not negotiable
instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this is of equal
significance, it is indicated that they are payable from a particular fund, to wit, Fund 501.
The following sections of the Negotiable Instruments Law, especially the underscored parts, are pertinent:
Sec. 1. Form of negotiable instruments. An instrument to be negotiable must conform to the following
requirements:
(a)

It must be in writing and signed by the maker or drawer;

(b)

Must contain an unconditional promise or order to pay a sum certain in money;

(c)

Must be payable on demand, or at a fixed or determinable future time;

(d)

Must be payable to order or to bearer; and

(e)
Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.
xxx

xxx

xxx

Sec. 3. When promise is unconditional. An unqualified order or promise to pay is unconditional within the
meaning of this Act though coupled with
(a)
An indication of a particular fund out of which reimbursement is to be made or a particular account to be
debited with the amount;
(b)
A statement of the transaction which gives rise to the instrument judgment.
But an order or promise to pay out of a particular fund is not unconditional.

The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order
or promise to pay "not unconditional" and the warrants themselves non-negotiable. There should be no question
that the exception on Section 3 of the Negotiable Instruments Law is applicable in the case at bar. This
conclusion conforms to Abubakar vs. Auditor General 11 where the Court held:
The petitioner argues that he is a holder in good faith and for value of a negotiable instrument and is entitled to
the rights and privileges of a holder in due course, free from defenses. But this treasury warrant is not within the
scope of the negotiable instrument law. For one thing, the document bearing on its face the words "payable from
the appropriation for food administration, is actually an Order for payment out of "a particular fund," and is not
unconditional and does not fulfill one of the essential requirements of a negotiable instrument (Sec. 3 last
sentence and section [1(b)] of the Negotiable Instruments Law).
Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were
"genuine and in all respects what they purport to be," in accordance with Section 66 of the Negotiable
Instruments Law. The simple reason is that this law is not applicable to the non-negotiable treasury warrants.
The indorsement was made by Gloria Castillo not for the purpose of guaranteeing the genuineness of the
warrants but merely to deposit them with Metrobank for clearing. It was in fact Metrobank that made the
guarantee when it stamped on the back of the warrants: "All prior indorsement and/or lack of endorsements
guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands, 12 but we feel this case
is inapplicable to the present controversy.1wphi1 That case involved checks whereas this case involves
treasury warrants. Golden Savings never represented that the warrants were negotiable but signed them only
for the purpose of depositing them for clearance. Also, the fact of forgery was proved in that case but not in the
case before us. Finally, the Court found the Jai Alai Corporation negligent in accepting the checks without
question from one Antonio Ramirez notwithstanding that the payee was the Inter-Island Gas Services, Inc. and it
did not appear that he was authorized to indorse it. No similar negligence can be imputed to Golden Savings.
We find the challenged decision to be basically correct. However, we will have to amend it insofar as it directs
the petitioner to credit Golden Savings with the full amount of the treasury checks deposited to its account.
The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was allowed to
withdraw P1,167,500.00 before Golden Savings was notified of the dishonor. The amount he has withdrawn must
be charged not to Golden Savings but to Metrobank, which must bear the consequences of its own negligence.
But the balance of P586,589.00 should be debited to Golden Savings, as obviously Gomez can no longer be
permitted to withdraw this amount from his deposit because of the dishonor of the warrants. Gomez has in fact
disappeared. To also credit the balance to Golden Savings would unduly enrich it at the expense of Metrobank,
let alone the fact that it has already been informed of the dishonor of the treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of the dispositive
portion of the judgment of the lower court shall be reworded as follows:
3.
Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter allowing defendant
Golden Savings & Loan Association, Inc. to withdraw the amount outstanding thereon, if any, after the debit.
SO ORDERED.
Metropolitan Bank & Trust Company vs. Court of Appeals
G.R. No. 88866
February, 18, 1991
Cruz, J.:
Facts:
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: 1st, 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 2nd, 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.

G.R. No. 89252 May 24, 1993

RAUL SESBREO, petitioner,
vs.
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS BANK, respondents.
Salva, Villanueva & Associates for Delta Motors Corporation.
Reyes, Salazar & Associates for Pilipinas Bank.

On 9 February 1981, petitioner Raul Sesbreo made a money market placement in the amount of P300,000.00
with the Philippine Underwriters Finance Corporation ("Philfinance"), Cebu Branch; the placement, with a term of
thirty-two (32) days, would mature on 13 March 1981, Philfinance, also on 9 February 1981, issued the following
documents to petitioner:
(a)
the Certificate of Confirmation of Sale, "without recourse," No. 20496 of one (1) Delta Motors
Corporation Promissory Note ("DMC PN") No. 2731 for a term of 32 days at 17.0% per annum;
(b)
the Certificate of securities Delivery Receipt No. 16587 indicating the sale of DMC PN No. 2731 to
petitioner, with the notation that the said security was in custodianship of Pilipinas Bank, as per Denominated
Custodian Receipt ("DCR") No. 10805 dated 9 February 1981; and
(c)
post-dated checks payable on 13 March 1981 (i.e., the maturity date of petitioner's investment), with
petitioner as payee, Philfinance as drawer, and Insular Bank of Asia and America as drawee, in the total amount
of P304,533.33.
On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance. However, the checks
were dishonored for having been drawn against insufficient funds.
On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private respondent Pilipinas
Bank ("Pilipinas"). It reads as follows:
PILIPINAS BANK
Makati Stock Exchange Bldg.,
Ayala Avenue, Makati,
Metro Manila
February 9, 1981

VALUE DATE
TO

Raul Sesbreo

April 6, 1981

MATURITY DATE
NO. 10805
DENOMINATED CUSTODIAN RECEIPT
This confirms that as a duly Custodian Bank, and upon instruction of PHILIPPINE UNDERWRITES FINANCE
CORPORATION, we have in our custody the following securities to you [sic] the extent herein indicated.
SERIAL MAT.
NUMBER
2731

FACE
DATE

ISSUED REGISTERED
AMOUNT
VALUE BY
HOLDER PAYEE

4-6-81 2,300,833.34

DMC

PHIL.

307,933.33

UNDERWRITERS
FINANCE CORP.
We further certify that these securities may be inspected by you or your duly authorized representative at any
time during regular banking hours.
Upon your written instructions we shall undertake physical delivery of the above securities fully assigned to you
should this Denominated Custodianship Receipt remain outstanding in your favor thirty (30) days after its
maturity.
PILIPINAS BANK
(By Elizabeth De Villa
Illegible Signature) 1
On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas, Makati Branch, and
handed her a demand letter informing the bank that his placement with Philfinance in the amount reflected in
the DCR No. 10805 had remained unpaid and outstanding, and that he in effect was asking for the physical
delivery of the underlying promissory note. Petitioner then examined the original of the DMC PN No. 2731 and
found: that the security had been issued on 10 April 1980; that it would mature on 6 April 1981; that it had a
face value of P2,300,833.33, with the Philfinance as "payee" and private respondent Delta Motors Corporation
("Delta") as "maker;" and that on face of the promissory note was stamped "NON NEGOTIABLE." Pilipinas did not
deliver the Note, nor any certificate of participation in respect thereof, to petitioner.
Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981, 2 again asking private
respondent Pilipinas for physical delivery of the original of DMC PN No. 2731. Pilipinas allegedly referred all of
petitioner's demand letters to Philfinance for written instructions, as has been supposedly agreed upon in
"Securities Custodianship Agreement" between Pilipinas and Philfinance. Philfinance did not provide the
appropriate instructions; Pilipinas never released DMC PN No. 2731, nor any other instrument in respect thereof,
to petitioner.
Petitioner also made a written demand on 14 July 1981 3 upon private respondent Delta for the partial
satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had assigned to him said Note to
the extent of P307,933.33. Delta, however, denied any liability to petitioner on the promissory note, and
explained in turn that it had previously agreed with Philfinance to offset its DMC PN No. 2731 (along with DMC
PN No. 2730) against Philfinance PN No. 143-A issued in favor of Delta.
In the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the Securities and
exchange commission ("SEC") and the Central Bank. Pilipinas delivered to the SEC DMC PN No. 2731, which to
date apparently remains in the custody of the SEC. 4
As petitioner had failed to collect his investment and interest thereon, he filed on 28 September 1982 an action
for damages with the Regional Trial Court ("RTC") of Cebu City, Branch 21, against private respondents Delta and
Pilipinas. 5 The trial court, in a decision dated 5 August 1987, dismissed the complaint and counterclaims for
lack of merit and for lack of cause of action, with costs against petitioner.
Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a Decision dated 21 March
1989, the Court of Appeals denied the appeal and held: 6
Be that as it may, from the evidence on record, if there is anyone that appears liable for the travails of plaintiffappellant, it is Philfinance. As correctly observed by the trial court:
This act of Philfinance in accepting the investment of plaintiff and charging it against DMC PN No. 2731 when its
entire face value was already obligated or earmarked for set-off or compensation is difficult to comprehend and
may have been motivated with bad faith. Philfinance, therefore, is solely and legally obligated to return the
investment of plaintiff, together with its earnings, and to answer all the damages plaintiff has suffered incident
thereto. Unfortunately for plaintiff, Philfinance was not impleaded as one of the defendants in this case at bar;
hence, this Court is without jurisdiction to pronounce judgement against it. (p. 11, Decision)
WHEREFORE, finding no reversible error in the decision appealed from, the same is hereby affirmed in toto. Cost
against plaintiff-appellant.
Petitioner moved for reconsideration of the above Decision, without success.
Hence, this Petition for Review on Certiorari.

After consideration of the allegations contained and issues raised in the pleadings, the Court resolved to give
due course to the petition and required the parties to file their respective memoranda. 7
Petitioner reiterates the assignment of errors he directed at the trial court decision, and contends that
respondent court of Appeals gravely erred: (i) in concluding that he cannot recover from private respondent
Delta his assigned portion of DMC PN No. 2731; (ii) in failing to hold private respondent Pilipinas solidarily liable
on the DMC PN No. 2731 in view of the provisions stipulated in DCR No. 10805 issued in favor r of petitioner, and
(iii) in refusing to pierce the veil of corporate entity between Philfinance, and private respondents Delta and
Pilipinas, considering that the three (3) entities belong to the "Silverio Group of Companies" under the
leadership of Mr. Ricardo Silverio, Sr. 8
There are at least two (2) sets of relationships which we need to address: firstly, the relationship of petitioner
vis-a-vis Delta; secondly, the relationship of petitioner in respect of Pilipinas. Actually, of course, there is a third
relationship that is of critical importance: the relationship of petitioner and Philfinance. However, since
Philfinance has not been impleaded in this case, neither the trial court nor the Court of Appeals acquired
jurisdiction over the person of Philfinance. It is, consequently, not necessary for present purposes to deal with
this third relationship, except to the extent it necessarily impinges upon or intersects the first and second
relationships.
I.
We consider first the relationship between petitioner and Delta.
The Court of appeals in effect held that petitioner acquired no rights vis-a-vis Delta in respect of the Delta
promissory note (DMC PN No. 2731) which Philfinance sold "without recourse" to petitioner, to the extent of
P304,533.33. The Court of Appeals said on this point:
Nor could plaintiff-appellant have acquired any right over DMC PN No. 2731 as the same is "non-negotiable" as
stamped on its face (Exhibit "6"), negotiation being defined as the transfer of an instrument from one person to
another so as to constitute the transferee the holder of the instrument (Sec. 30, Negotiable Instruments Law). A
person not a holder cannot sue on the instrument in his own name and cannot demand or receive payment
(Section 51, id.) 9
Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that the Note had been validly
transferred, in part to him by assignment and that as a result of such transfer, Delta as debtor-maker of the
Note, was obligated to pay petitioner the portion of that Note assigned to him by the payee Philfinance.
Delta, however, disputes petitioner's contention and argues:
(1)
that DMC PN No. 2731 was not intended to be negotiated or otherwise transferred by Philfinance as
manifested by the word "non-negotiable" stamp across the face of the Note 10 and because maker Delta and
payee Philfinance intended that this Note would be offset against the outstanding obligation of Philfinance
represented by Philfinance PN No. 143-A issued to Delta as payee;
(2)
that the assignment of DMC PN No. 2731 by Philfinance was without Delta's consent, if not against its
instructions; and
(3)
assuming (arguendo only) that the partial assignment in favor of petitioner was valid, petitioner took the
Note subject to the defenses available to Delta, in particular, the offsetting of DMC PN No. 2731 against
Philfinance PN No. 143-A. 11
We consider Delta's arguments seriatim.
Firstly, it is important to bear in mind that the negotiation of a negotiable instrument must be distinguished from
the assignment or transfer of an instrument whether that be negotiable or non-negotiable. Only an instrument
qualifying as a negotiable instrument under the relevant statute may be negotiated either by indorsement
thereof coupled with delivery, or by delivery alone where the negotiable instrument is in bearer form. A
negotiable instrument may, however, instead of being negotiated, also be assigned or transferred. The legal
consequences of negotiation as distinguished from assignment of a negotiable instrument are, of course,
different. A non-negotiable instrument may, obviously, not be negotiated; but it may be assigned or transferred,
absent an express prohibition against assignment or transfer written in the face of the instrument:
The words "not negotiable," stamped on the face of the bill of lading, did not destroy its assignability, but the
sole effect was to exempt the bill from the statutory provisions relative thereto, and a bill, though not
negotiable, may be transferred by assignment; the assignee taking subject to the equities between the original
parties. 12 (Emphasis added)

DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-transferable" or
"non-assignable." It contained no stipulation which prohibited Philfinance from assigning or transferring, in whole
or in part, that Note.
Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and which should be quoted
in full:
April 10, 1980
Philippine Underwriters Finance Corp.
Benavidez St., Makati,
Metro Manila.
Attention:
SVP-Treasurer

Mr. Alfredo O. Banaria

GENTLEMEN:
This refers to our outstanding placement of P4,601,666.67 as evidenced by your Promissory Note No. 143-A,
dated April 10, 1980, to mature on April 6, 1981.
As agreed upon, we enclose our non-negotiable Promissory Note No. 2730 and 2731 for P2,000,000.00 each,
dated April 10, 1980, to be offsetted [sic] against your PN No. 143-A upon co-terminal maturity.
Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo.
Very Truly Yours,
(Sgd.)
Florencio B. Biagan
Senior Vice President 13
We find nothing in his "Letter of Agreement" which can be reasonably construed as a prohibition upon
Philfinance assigning or transferring all or part of DMC PN No. 2731, before the maturity thereof. It is scarcely
necessary to add that, even had this "Letter of Agreement" set forth an explicit prohibition of transfer upon
Philfinance, such a prohibition cannot be invoked against an assignee or transferee of the Note who parted with
valuable consideration in good faith and without notice of such prohibition. It is not disputed that petitioner was
such an assignee or transferee. Our conclusion on this point is reinforced by the fact that what Philfinance and
Delta were doing by their exchange of their promissory notes was this: Delta invested, by making a money
market placement with Philfinance, approximately P4,600,000.00 on 10 April 1980; but promptly, on the same
day, borrowed back the bulk of that placement, i.e., P4,000,000.00, by issuing its two (2) promissory notes: DMC
PN No. 2730 and DMC PN No. 2731, both also dated 10 April 1980. Thus, Philfinance was left with not
P4,600,000.00 but only P600,000.00 in cash and the two (2) Delta promissory notes.
Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN No. 2731 had been effected
without the consent of Delta, we note that such consent was not necessary for the validity and enforceability of
the assignment in favor of petitioner. 14 Delta's argument that Philfinance's sale or assignment of part of its
rights to DMC PN No. 2731 constituted conventional subrogation, which required its (Delta's) consent, is quite
mistaken. Conventional subrogation, which in the first place is never lightly inferred, 15 must be clearly
established by the unequivocal terms of the substituting obligation or by the evident incompatibility of the new
and old obligations on every point. 16 Nothing of the sort is present in the instant case.
It is in fact difficult to be impressed with Delta's complaint, since it released its DMC PN No. 2731 to Philfinance,
an entity engaged in the business of buying and selling debt instruments and other securities, and more
generally, in money market transactions. In Perez v. Court of Appeals, 17 the Court, speaking through Mme.
Justice Herrera, made the following important statement:
There is another aspect to this case. What is involved here is a money market transaction. As defined by
Lawrence Smith "the money market is a market dealing in standardized short-term credit instruments (involving
large amounts) where lenders and borrowers do not deal directly with each other but through a middle manor a
dealer in the open market." It involves "commercial papers" which are instruments "evidencing indebtness of
any person or entity. . ., which are issued, endorsed, sold or transferred or in any manner conveyed to another
person or entity, with or without recourse". The fundamental function of the money market device in its
operation is to match and bring together in a most impersonal manner both the "fund users" and the "fund

suppliers." The money market is an "impersonal market", free from personal considerations. "The market
mechanism is intended to provide quick mobility of money and securities."
The impersonal character of the money market device overlooks the individuals or entities concerned. The
issuer of a commercial paper in the money market necessarily knows in advance that it would be expenditiously
transacted and transferred to any investor/lender without need of notice to said issuer. In practice, no
notification is given to the borrower or issuer of commercial paper of the sale or transfer to the investor.
xxx
xxx
xxx
There is need to individuate a money market transaction, a relatively novel institution in the Philippine
commercial scene. It has been intended to facilitate the flow and acquisition of capital on an impersonal basis.
And as specifically required by Presidential Decree No. 678, the investing public must be given adequate and
effective protection in availing of the credit of a borrower in the commercial paper market. 18 (Citations omitted;
emphasis supplied)
We turn to Delta's arguments concerning alleged compensation or offsetting between DMC PN No. 2731 and
Philfinance PN No. 143-A. It is important to note that at the time Philfinance sold part of its rights under DMC PN
No. 2731 to petitioner on 9 February 1981, no compensation had as yet taken place and indeed none could have
taken place. The essential requirements of compensation are listed in the Civil Code as follows:
Art. 1279. In order that compensation may be proper, it is necessary:
(1)
That each one of the obligors be bound principally, and that he be at the same time a principal creditor
of the other;
(2)
That both debts consists in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;
(3)

That the two debts are due;

(4)

That they be liquidated and demandable;

(5)
That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor. (Emphasis supplied)
On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This was explicitly
recognized by Delta in its 10 April 1980 "Letter of Agreement" with Philfinance, where Delta acknowledged that
the relevant promissory notes were "to be offsetted (sic) against [Philfinance] PN No. 143-A upon co-terminal
maturity."
As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days before the
"co-terminal maturity" date, that is to say, before any compensation had taken place. Further, the assignment to
petitioner would have prevented compensation had taken place between Philfinance and Delta, to the extent of
P304,533.33, because upon execution of the assignment in favor of petitioner, Philfinance and Delta would have
ceased to be creditors and debtors of each other in their own right to the extent of the amount assigned by
Philfinance to petitioner. Thus, we conclude that the assignment effected by Philfinance in favor of petitioner
was a valid one and that petitioner accordingly became owner of DMC PN No. 2731 to the extent of the portion
thereof assigned to him.
The record shows, however, that petitioner notified Delta of the fact of the assignment to him only on 14 July
1981, 19 that is, after the maturity not only of the money market placement made by petitioner but also of both
DMC PN No. 2731 and Philfinance PN No. 143-A. In other words, petitioner notified Delta of his rights as assignee
after compensation had taken place by operation of law because the offsetting instruments had both reached
maturity. It is a firmly settled doctrine that the rights of an assignee are not any greater that the rights of the
assignor, since the assignee is merely substituted in the place of the assignor 20 and that the assignee acquires
his rights subject to the equities i.e., the defenses which the debtor could have set up against the original
assignor before notice of the assignment was given to the debtor. Article 1285 of the Civil Code provides that:
Art. 1285.
The debtor who has consented to the assignment of rights made by a creditor in favor of a third
person, cannot set up against the assignee the compensation which would pertain to him against the assignor,
unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to the
compensation.
If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up
the compensation of debts previous to the cession, but not of subsequent ones.

If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits
prior to the same and also later ones until he had knowledge of the assignment. (Emphasis supplied)
Article 1626 of the same code states that: "the debtor who, before having knowledge of the assignment, pays
his creditor shall be released from the obligation." In Sison v. Yap-Tico, 21 the Court explained that:
[n]o man is bound to remain a debtor; he may pay to him with whom he contacted to pay; and if he pay before
notice that his debt has been assigned, the law holds him exonerated, for the reason that it is the duty of the
person who has acquired a title by transfer to demand payment of the debt, to give his debt or notice. 22
At the time that Delta was first put to notice of the assignment in petitioner's favor on 14 July 1981, DMC PN No.
2731 had already been discharged by compensation. Since the assignor Philfinance could not have then
compelled payment anew by Delta of DMC PN No. 2731, petitioner, as assignee of Philfinance, is similarly
disabled from collecting from Delta the portion of the Note assigned to him.
It bears some emphasis that petitioner could have notified Delta of the assignment or sale was effected on 9
February 1981. He could have notified Delta as soon as his money market placement matured on 13 March 1981
without payment thereof being made by Philfinance; at that time, compensation had yet to set in and discharge
DMC PN No. 2731. Again petitioner could have notified Delta on 26 March 1981 when petitioner received from
Philfinance the Denominated Custodianship Receipt ("DCR") No. 10805 issued by private respondent Pilipinas in
favor of petitioner. Petitioner could, in fine, have notified Delta at any time before the maturity date of DMC PN
No. 2731. Because petitioner failed to do so, and because the record is bare of any indication that Philfinance
had itself notified Delta of the assignment to petitioner, the Court is compelled to uphold the defense of
compensation raised by private respondent Delta. Of course, Philfinance remains liable to petitioner under the
terms of the assignment made by Philfinance to petitioner.
II.
We turn now to the relationship between petitioner and private respondent Pilipinas. Petitioner contends that
Pilipinas became solidarily liable with Philfinance and Delta when Pilipinas issued DCR No. 10805 with the
following words:
Upon your written instruction, we [Pilipinas] shall undertake physical delivery of the above securities fully
assigned to you . 23
The Court is not persuaded. We find nothing in the DCR that establishes an obligation on the part of Pilipinas to
pay petitioner the amount of P307,933.33 nor any assumption of liability in solidum with Philfinance and Delta
under DMC PN No. 2731. We read the DCR as a confirmation on the part of Pilipinas that:
(1)
it has in its custody, as duly constituted custodian bank, DMC PN No. 2731 of a certain face value, to
mature on 6 April 1981 and payable to the order of Philfinance;
(2)
Pilipinas was, from and after said date of the assignment by Philfinance to petitioner (9 February 1981),
holding that Note on behalf and for the benefit of petitioner, at least to the extent it had been assigned to
petitioner by payee Philfinance; 24
(3)
petitioner may inspect the Note either "personally or by authorized representative", at any time during
regular bank hours; and
(4)
upon written instructions of petitioner, Pilipinas would physically deliver the DMC PN No. 2731 (or a
participation therein to the extent of P307,933.33) "should this Denominated Custodianship receipt remain
outstanding in [petitioner's] favor thirty (30) days after its maturity."
Thus, we find nothing written in printers ink on the DCR which could reasonably be read as converting Pilipinas
into an obligor under the terms of DMC PN No. 2731 assigned to petitioner, either upon maturity thereof or any
other time. We note that both in his complaint and in his testimony before the trial court, petitioner referred
merely to the obligation of private respondent Pilipinas to effect the physical delivery to him of DMC PN No.
2731. 25 Accordingly, petitioner's theory that Pilipinas had assumed a solidary obligation to pay the amount
represented by a portion of the Note assigned to him by Philfinance, appears to be a new theory constructed
only after the trial court had ruled against him. The solidary liability that petitioner seeks to impute Pilipinas
cannot, however, be lightly inferred. Under article 1207 of the Civil Code, "there is a solidary liability only when
the law or the nature of the obligation requires solidarity," The record here exhibits no express assumption of
solidary liability vis-a-vis petitioner, on the part of Pilipinas. Petitioner has not pointed to us to any law which
imposed such liability upon Pilipinas nor has petitioner argued that the very nature of the custodianship
assumed by private respondent Pilipinas necessarily implies solidary liability under the securities, custody of
which was taken by Pilipinas. Accordingly, we are unable to hold Pilipinas solidarily liable with Philfinance and
private respondent Delta under DMC PN No. 2731.

We do not, however, mean to suggest that Pilipinas has no responsibility and liability in respect of petitioner
under the terms of the DCR. To the contrary, we find, after prolonged analysis and deliberation, that private
respondent Pilipinas had breached its undertaking under the DCR to petitioner Sesbreo.
We believe and so hold that a contract of deposit was constituted by the act of Philfinance in designating
Pilipinas as custodian or depositary bank. The depositor was initially Philfinance; the obligation of the depository
was owed, however, to petitioner Sesbreo as beneficiary of the custodianship or depository agreement. We do
not consider that this is a simple case of a stipulation pour autri. The custodianship or depositary agreement
was established as an integral part of the money market transaction entered into by petitioner with Philfinance.
Petitioner bought a portion of DMC PN No. 2731; Philfinance as assignor-vendor deposited that Note with
Pilipinas in order that the thing sold would be placed outside the control of the vendor. Indeed, the constituting
of the depositary or custodianship agreement was equivalent to constructive delivery of the Note (to the extent
it had been sold or assigned to petitioner) to petitioner. It will be seen that custodianship agreements are
designed to facilitate transactions in the money market by providing a basis for confidence on the part of the
investors or placers that the instruments bought by them are effectively taken out of the pocket, as it were, of
the vendors and placed safely beyond their reach, that those instruments will be there available to the placers
of funds should they have need of them. The depositary in a contract of deposit is obliged to return the security
or the thing deposited upon demand of the depositor (or, in the presented case, of the beneficiary) of the
contract, even though a term for such return may have been established in the said contract. 26 Accordingly,
any stipulation in the contract of deposit or custodianship that runs counter to the fundamental purpose of that
agreement or which was not brought to the notice of and accepted by the placer-beneficiary, cannot be enforced
as against such beneficiary-placer.
We believe that the position taken above is supported by considerations of public policy. If there is any party
that needs the equalizing protection of the law in money market transactions, it is the members of the general
public whom place their savings in such market for the purpose of generating interest revenues. 27 The
custodian bank, if it is not related either in terms of equity ownership or management control to the borrower of
the funds, or the commercial paper dealer, is normally a preferred or traditional banker of such borrower or
dealer (here, Philfinance). The custodian bank would have every incentive to protect the interest of its client the
borrower or dealer as against the placer of funds. The providers of such funds must be safeguarded from the
impact of stipulations privately made between the borrowers or dealers and the custodian banks, and disclosed
to fund-providers only after trouble has erupted. In the case at bar, the custodian-depositary bank Pilipinas
refused to deliver the security deposited with it when petitioner first demanded physical delivery thereof on 2
April 1981. We must again note, in this connection, that on 2 April 1981, DMC PN No. 2731 had not yet matured
and therefore, compensation or offsetting against Philfinance PN No. 143-A had not yet taken place. Instead of
complying with the demand of the petitioner, Pilipinas purported to require and await the instructions of
Philfinance, in obvious contravention of its undertaking under the DCR to effect physical delivery of the Note
upon receipt of "written instructions" from petitioner Sesbreo. The ostensible term written into the DCR (i.e.,
"should this [DCR] remain outstanding in your favor thirty [30] days after its maturity") was not a defense
against petitioner's demand for physical surrender of the Note on at least three grounds: firstly, such term was
never brought to the attention of petitioner Sesbreo at the time the money market placement with Philfinance
was made; secondly, such term runs counter to the very purpose of the custodianship or depositary agreement
as an integral part of a money market transaction; and thirdly, it is inconsistent with the provisions of Article
1988 of the Civil Code noted above. Indeed, in principle, petitioner became entitled to demand physical delivery
of the Note held by Pilipinas as soon as petitioner's money market placement matured on 13 March 1981
without payment from Philfinance.
We conclude, therefore, that private respondent Pilipinas must respond to petitioner for damages sustained by
arising out of its breach of duty. By failing to deliver the Note to the petitioner as depositor-beneficiary of the
thing deposited, Pilipinas effectively and unlawfully deprived petitioner of the Note deposited with it. Whether or
not Pilipinas itself benefitted from such conversion or unlawful deprivation inflicted upon petitioner, is of no
moment for present purposes. Prima facie, the damages suffered by petitioner consisted of P304,533.33, the
portion of the DMC PN No. 2731 assigned to petitioner but lost by him by reason of discharge of the Note by
compensation, plus legal interest of six percent (6%) per annum containing from 14 March 1981.
The conclusion we have reached is, of course, without prejudice to such right of reimbursement as Pilipinas may
have vis-a-vis Philfinance.
III.
The third principal contention of petitioner that Philfinance and private respondents Delta and Pilipinas should
be treated as one corporate entity need not detain us for long.
In the first place, as already noted, jurisdiction over the person of Philfinance was never acquired either by the
trial court nor by the respondent Court of Appeals. Petitioner similarly did not seek to implead Philfinance in the
Petition before us.

Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas have been organized as
separate corporate entities. Petitioner asks us to pierce their separate corporate entities, but has been able only
to cite the presence of a common Director Mr. Ricardo Silverio, Sr., sitting on the Board of Directors of all three
(3) companies. Petitioner has neither alleged nor proved that one or another of the three (3) concededly related
companies used the other two (2) as mere alter egos or that the corporate affairs of the other two (2) were
administered and managed for the benefit of one. There is simply not enough evidence of record to justify
disregarding the separate corporate personalities of delta and Pilipinas and to hold them liable for any assumed
or undetermined liability of Philfinance to petitioner. 28
WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of Appeals in C.A.-G.R. CV No. 15195
dated 21 march 1989 and 17 July 1989, respectively, are hereby MODIFIED and SET ASIDE, to the extent that
such Decision and Resolution had dismissed petitioner's complaint against Pilipinas Bank. Private respondent
Pilipinas bank is hereby ORDERED to indemnify petitioner for damages in the amount of P304,533.33, plus legal
interest thereon at the rate of six percent (6%) per annum counted from 2 April 1981. As so modified, the
Decision and Resolution of the Court of Appeals are hereby AFFIRMED. No pronouncement as to costs.
Sesbreno vs. Court of Appeals
GR 89252, 24 May 1993
FACTS:
Petitioner Sesbreno made a money market placement in the amount of P300,000 with the Philippine
Underwriters Finance Corporation (PhilFinance), with a term of 32 days. PhilFinance issued to Sesbreno the
Certificate of Confirmation of Sale of a Delta Motor Corporation Promissory Note, the Certificate of Securities
Delivery Receipt indicating the sale of the note with notation that said security was in the custody of Pilipinas
Bank, and postdated checks drawn against the Insular Bank of Asia and America for P304,533.33 payable on
March 13, 1981. The checks were dishonored for having been drawn against insufficient funds. Pilipinas Bank
never released the note, nor any instrument related thereto, to Sesbreno; but Sesbreno learned that the
security which was issued on April 10, 1980, maturing on 6 April 1981, has a face value of P2,300,833.33 with
PhilFinance as payee and Delta Motors as maker; and was stamped non-negotiable on its face. As Sesbreno
was unable to collect his investment and interest thereon, he filed an action for damages against Delta Motors
and Pilipinas Bank. Delta Motors contents that said promissory note was not intended to be negotiated or
otherwise transferred by Philfinance as manifested by the word "non-negotiable" stamped across the face of the
Note.
ISSUE:
Whether the non-negotiability of a promissory note prevents its assignment.
RULING:
A negotiable instrument, instead of being negotiated, may also be assigned or transferred. The legal
consequences of negotiation and assignment of the instrument are different. A non-negotiable instrument may
not be negotiated but may be assigned or transferred, absent an express prohibition against assignment or
transfer written in the face of the instrument. The subject promissory note, while marked "non-negotiable," was
not at the same time stamped "non-transferable" or "non-assignable." It contained no stipulation which
prohibited Philfinance from assigning or transferring such note, in whole or in part.
**A non-negotiable instrument may not be negotiated but may be assigned or transferred, absent an express
prohibition against assignment or transfer written on the face of the instrument.