Philippine Bank of Commerce vs.

Aruego
GR L-25836-37, 31 January 1981
First Division, Fernandez (J)

Facts:
Jose Aruego publishes a periodical called “World Current Events.” To facilitate
payment of theprinting, Aruego obtained a credit accommodation from the Philippine Bank of
Commerce. For every printing of the periodical, the printer (Encal Press and Photo-Engraving)
collected the cost of printing by drawing adraft against the bank, said draft being sent
later to Aruego for acceptance. As an added security for thepayment of the amounts
advanced to the printer, the bank also required Aruego to execute a trust receipt infavor of the
bank wherein Aruego undertook to hold in trust for the bank the periodicals and to sell the
samewith the promise to turn over to the bank the proceeds of the sale to answer for the payment
of all obligationsarising from the draft. The bank instituted an action against Aruego
to recover the cost of printing of thelatter’s periodical for the period of 28 August 1950 to
14 March 1951.

Issue [1]:
Whether the drafts were bills of exchange or mere pieces of evidence of indebtedness.

Held [1]:
Under the Negotiable Instruments Law, a bill of exchange is an unconditional order
in writingaddressed by one person to another, signed by the person giving it,
requiring the person to whom it isaddressed to pay on demand or at a fixed or determinable
future time a sum certain in money to order or tobearer. As long as a commercial paper
conforms with the definition of a bill of exchange, that paper isconsidered a bill of
exchange. The nature of acceptance is important only in the determination of the kind
ofliabilities of the parties involved, but not in the determination of whether a
commercial paper is a bill ofexchange or not.
Issue [2]:
Whether Aruego is an agent of Philippine Education Foundation Company when he
signed thesupposed bills of exchange.
Held [2]:
Nowhere in the drafts accepted by Aruego that he disclosed that he was signing as representative
ofthe Philippine Education Foundation Company. For failure to disclose his principal, Aruego is
personallyliable for the drafts he accepted, pursuant to Section 20 of the Negotiable Instruments
Law.
Issue [3]:
Whether Aruego is primarily liable.
Held [3]:
An accommodation party is one who has signed the instrument as maker, drawer, acceptor,
indorser,without receiving value therefor and for the purpose of lending his name to
some other person. Herein,Aruego signed as a drawee / acceptor. Under the Negotiable
Instruments Law, a drawee is primarily liable. IfAruego intended to be secondarily liable only,
he should not have signed as an acceptor / drawee. In doing so,he became primarily and
personally liable for the drafts.
Jimenez vs. Bucoy
GR L-10221, 28 February 1958
En Banc, Bengzon (J)

Facts: In the proceedings in the intestate of Luther Young and Pacita Young who died in 1954
and 1952,
respectively, Pacifica Jimenez presented for payment 4 promissory notes signed by Pacita for
different amounts totalling P21,000. Acknowledging receipt by Pacita during the Japanese
occupation, in the currency then prevailing, the Administrator manifested willingness to pay
provided adjustment of the sums be made in line with the Ballantyne schedule. The claimant
objected to the adjustment insisting on full payment in accordance with the notes. The court
held that the notes should be paid in the currency prevailing after the war, and thus entitling
Jimemez to recover P21,000 plus P2,000 as attorney’s fees. Hence, the appeal.

Issue: Whether the amounts should be paid, peso for peso; or whether a reduction should be
made in accordance with the Ballantyne schedule.

Held: If the loan was expressly agreed to be payable only after the war, or after liberation, or
became payable after those dates, no reduction could be effected, and peso-for-peso payment
shall be ordered in Philippine currency. The Ballantyne Conversion Table does not apply where
the monetary obligation, under the contract, was not payable during the Japanese occupation.
Herein, the debtor undertook to pay “six months after the war,” peso for peso payment is
indicated.
INCIONG VS COURT OF APPEALS
G.R. No. 96405, June 26, 1996

FACTS:
On February 3, 1983, petitioner Baldomero L. Inciong, Jr. together with Rene C. Naybe and
Gregorio D. Pantanosas signed a promissory note in the amount of P50, 000.00 holding
themselves jointly and severally liable to private respondent Philippine Bank of
Communications. The promissory note was due on May 5, 1983. Said due date expired
without the promissors having paid their obligation.
On November 14, 1983 and on June 8, 1984, private respondent sent petitioner telegrams
demanding payment thereof. On December 11, 1983, private respondent also sent
registered mail a final letter of demand to Rene C. Naybe. Since both obligors did not
respond to the demand made, private respondent filed on January 24, 1986 a complaint for
collection of the sum of P50, 000.00 against the three (3) obligors. On January 27, 1987,
the lower court dismissed the case against defendant Pantanosas as prayed by herein
private respondent. Meanwhile, only the summons addressed to petitioner was served for
the reason that defendant Naybe had gone to Saudi Arabia.
The lower court rendered its decision holding petitioner solidarily liable and to pay herein
respondent bank the amount of P50, 000.00 plus interest thereon. Petitioner appealed the
said decision to the Court of Appeals. The respondent court, however, affirmed the decision
of the lower court. The petitioner moved for reconsideration, which was later on denied by
the respondent Court of Appeals.

ISSUE:
Whether or not the dismissal of the complaint against Naybe, the principal debtor, and
against Pantanosas, his co-maker, constituted a release of his obligation.

HELD:
The dismissal of the complaint against Naybe and Pantanosas did not constitute a release
of petitioner‘s obligation, especially because the dismissal of the case against Pantanosas
was upon the motion of private respondent itself. Petitioner signed the promissory note as a
solidary co-maker and not as a guarantor. A solidary or joint and several obligation is one in
which each debtor is liable for the entire obligation, and each creditor is entitled to demand
the whole obligation. The promissory note involved in this case expressly states that the
three signatories therein are jointly and severally liable, any one, some or all of them may
be proceeded against for the entire obligation. The choice is left to the solidary creditor to
determine against whom he will enforce collection
Under Article 1207 of the Civil Code, when there are two or more debtors in one and the
same obligation, the presumption is that the obligation is joint so that each of the debtors is
liable only for a proportionate part of the debt. There is solidary liability only when the
obligation expressly so states, when the law so provides or when the nature of the
obligation so requires.
Ponce vs. CA
GR L-49444, 31 May 1979
First Division, Melencio-Herrera (J)

Facts: On 3 June 1969, Jesus Afable, together with Feliza Mendoza and Ma. Aurora Dino
executed a
promissory note in favor of Nelia Ponce in the sum of P814,868.42 payable without interest on
or before 31
July 1969, subject to an interest of 12% per annum if not paid at maturity, and an additional sum
equivalent to
10% of total amount due as attorney’s fees in case it is necessary to bring suit, and the
execution of a first
mortgage on their properties or the Carmen Planas Memorial Inc. in the event of failure to pay
the
indebtedness in accordance with the terms. Upon failure of the debtors to pay, a complaint was
filed against
them for the recovery of the principal sum, plus interest and damages. The trial court rendered
judgment in
favor of Ponce. The Court of Appeals affirmed the decision of the trial court. On the second
motion for
reconsideration, however, the appellate court reversed the judgment and opined that the intent
of the parties
was that the note was payable in US dollars which is illegal, with neither party entitled to recover
under the
“in pari delicto” rule.

Issue: Whether an agreement to pay in dollars defeat a creditor’s claim for payment.

Held: If there is an agreement to pay an obligation in a currency other than Philippine legal
tender, the same is illegal / null and void as contrary to public policy, pursuant to RA 529, and
the most that can be demanded is to pay the said obligation in Philippine currency. It cannot
defeat a creditor’s claim for payment, for such will allow a person to enrich himself inequitably at
another’s expense. What RA 529 prohibits is the payment of an obligation in dollars. A creditor
cannot oblige the debtor to pay in dollars, even if the loan was given in said currency. In such
case, the indemnity is expressed in Philippine currency on the basis of the current rate of
exchange at the time of payment.
Octavio Kalalo vs Alfredo Luz
34 SCRA 337 – Mercantile Law – Negotiable Instruments Law – Negotiable Instruments in
General – Sum Certain in Money – Currency To Be Used
FACTS: Octavio Kalalo is an engineer whose services were contracted by Alfredo Luz, an
architect in 1961. Luz contracted Kalalo to work on ten projects across the country, one of
which was an in the International Rice Research Institute (IRRI) Research Center in Los
Baños, Laguna. Luz was to be paid $140,000.00 for the entire project. For Kalalo’s work, Luz
agreed to pay him 20% of what IRRI is going to pay or equivalent to $28,000.00.
ISSUE: Whether or not Kalalo should be paid in US currency.
HELD: No. The agreement was forged in 1961, years before the passage of Republic Act
529 in 1950. The said law requires that payment in a particular kind of coin or currency other
than the Philippine currency shall be discharged in Philippine currency measured at the
prevailing rate of exchange at the time the obligation was incurred. Nothing in the law
however provides which rate of exchange shall be used hence it is but logical to use the rate
of exchange at the time of payment.
Caltex (Philippines) vs CA
212 SCRA 448
August 10, 1992

Facts:

On various dates, defendant, a commercial banking institution, through its Sucat Branch issued 280
certificates of time deposit (CTDs) in favor of one Angel dela Cruz who is tasked to deposit aggregate
amounts.

One time Mr. dela Cruz delivered the CTDs to Caltex Philippines in connection with his purchased of fuel
products from the latter. However, Sometime in March 1982, he 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.

Angel dela Cruz negotiated and obtained a loan from defendant bank and executed a notarized Deed of
Assignment of Time Deposit, which stated, among others, that he 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.

In 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.

Mr dela Cruz received a letter from the plaintiff formally informing of its possession of the CTDs in
question and of its decision to pre-terminate the same. ccordingly, defendant bank rejected the plaintiff's
demand and claim for payment of the value of the CTDs in a letter dated February 7, 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. However, the
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.

On appeal, CA affirmed the lower court's dismissal of the complaint, and ruled (1) that the subject
certificates of deposit are non-negotiable 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.

Issues:

a) Whether certificates of time deposit (CTDs) are negotiable instruments?

b) Is the depositor also the bearer of the document?
c) Whether petitioner can rightfully recover on the CTDs?
Held:

The CTDs in question are not 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 accepted rule is that the negotiability or non-negotiability of an instrument is determined from the
writing, that is, from the face of the instrument itself. In the construction of a bill or note, the intention of
the parties is to control, if it can be legally ascertained. While the writing may be read in the light of
surrounding 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.

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, and a holder may be the payee or indorsee of a
bill or note, who is in possession of it, or the bearer thereof. 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.
 TRADERS INSURANCE V. DY
ENG BIOK
104 PHIL 806
FACTS:
Dy Eng Giok was a provincial sales agent of distillery corporation, with the responsibility of remitting
sales proceeds to the principal corporation. He has a running balance and to satisfy
payment, a surety bond was issued with petitioner as guarantor, whereby they bound themselves
liable to the distillery corporation.
More purchases was made by Dy Eng Giok and he was able to pay for these additional
purchases. Nonetheless, the payment was first applied to
his prior payables. A remaining balance still is unpaid. Thus, an action
was filed against sales agent and surety company. Judgment was rendered in favor of the
corporation.

HELD:
The remittances of Dy Eng Giok should first be applied to the obligation first contracted by
him and covered by the surety agreement. First, in the
absence of express stipulation, a guaranty or suretyship operates
prospectively and not retroactively. It only secures the debts contracted
after the guaranty takes effect. To apply the payment to the obligations
contracted before the guaranty would make the surety answer for debts outside the
guaranty. The surety agreement didn't guarantee the payment of any outstanding balance due from
the principal debtor but only he would
turn out the sales proceeds to the Distileria and this he has done, since his
remittances exceeded the value of the sales during the period of the guaranty.

Second, since the Dy Eng Biok’s obligations prior to the guaranty were not
covered, and absent any express stipulation, any prior payment made should be applied to the
debts that were guaranteed since they are to be regarded as the more onerous debts.
PNB V. CONCEPCION MINING

115 PHIL 723

FACTS:
A case for collection of a sum of money was filed against defendants in
connection with a promissory note they issued with others. The
defendants move that since their co-makers have died, claim should be also against the
estates of such. This was denied by the court.

HELD:
Where an instrument containing the words “I promise to pay” is signed by
two or more persons, they are deemed to be jointly and severally liable
thereon. By virtue of this provision found in Section 17, and as the
promissory note was executed jointly and severally by the parties, the payee of the
promissory note had the right to hold any one of the them responsible for the payment of the
amount of the note.