Section 3.

When Promise is Unconditional

Indication of particular fund as source of payment makes order or promise to pay “not unconditional”

#5. METROPOLITAN BANK & TRUST COMPANY v. CA, GOLDEN SAVINGS & LOAN ASSOCIATION, INC. et. al.
G.R. No. 88866 February 18, 1991

FACTS: Eduardo Gomez opened an account with Golden Savings and deposited 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. All these warrants were subsequently
indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account in the Metrobank.
They were then sent to the Bureau of Treasury for special clearing.2
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. 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.
Eventually, 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Bureau of Treasury, and demanded the refund by Golden Savings of the amount it had previously withdrawn.
The demand was rejected. Metrobank then sued Golden Savings in the RTC which decided in favor of Golden
Savings. CA affirmed the RTC decision.

ISSUES:
1. Whether or not Metrobank can demand refund against Golden Savings with regard to the amount
withdrawn to make up with the deficit as a result of the dishonored treasury warrants. (No)
2. Whether or not treasury warrants are negotiable instruments. (No)

HELD: The petition has no merit.

1. 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 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.

2. 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.

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Section 59. Who is Holder in Due Course

#38. VICENTE R. DE OCAMPO & CO. vs. ANITA GATCHALIAN, ET AL.

G.R. No. L-15126 November 30, 1961

FACTS: The action is for the recovery of the value of a check for P600 payable to the plaintiff and drawn by
defendant Anita C. Gatchalian. Manuel Gonzales represented to defendant Anita that he was duly authorized
by the owner of the car, Ocampo Clinic, to look for a buyer of said car and to negotiate for and accomplish
said sale, but which facts were not known to plaintiff.
Satisfied by the price, Anita was advised by Manuel that the owner of the car will not be willing to
give the certificate of registration unless there is a showing that the party interested in the purchase of said car
is ready and willing to make such purchase and that for this purpose Manuel Gonzales requested Anita to give
him (Manuel Gonzales) a check which will be shown to the owner as evidence of buyer's good faith in the
intention to purchase the said car, the said check to be for safekeeping only of Manuel and to be returned to
Anita the following day when Manuel brings the car and the certificate of registration, but which facts were
not known to plaintiff. Relying on these representations of Manuel, Anita drew and issued a check.
Upon failure of Manuel to appear and bring the car and its certificate of registration and to return the
check, Anita issued a "Stop Payment Order" with the drawee bank there having no more reason for the said
check.
Meanwhile, Manuel delivered the said check to the Ocampo Clinic, in payment of the fees and
expenses arising from the hospitalization of his wife. The plaintiff for and in consideration of fees and
expenses of hospitalization and the release of the wife of Manuel from its hospital, accepted said check,
applying P441.75 thereof to payment of said fees and expenses and delivering to Manuel Gonzales the amount
of P158 representing the balance on the amount of the said check.
The plaintiff filed a complaint for estafa against Manuel for the acts in paying his obligations with
plaintiff and receiving the cash balance of the check.
In their appeal, Anita et. al. contended that the check is not a negotiable instrument and that plaintiff
is not a holder in due course

ISSUES:
1. Whether or not the plaintiff Ocampo is a holder in due course. (No)
2. Whether or not prima facie holder in due course applies. (No)

HELD:
1. Section 52, Negotiable Instruments Law, defines holder in due course, thus:
A holder in due course is a holder who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.
The stipulation of facts expressly states that plaintiff-appellee Ocampo was not aware of the
circumstances under which the check was delivered to Manuel, but we agree with the defendants-appellants
that the circumstances indicated by them in their briefs, such as the fact that appellants Anita had no
obligation or liability to the Ocampo Clinic; that the amount of the check did not correspond exactly with the
obligation of Matilde Gonzales to Dr. V. R. de Ocampo; and that the check had two parallel lines in the upper
left hand corner, which practice means that the check could only be deposited but may not be converted into
cash — all these circumstances should have put the plaintiff-appellee to inquiry as to the why and wherefore
of the possession of the check by Manuel Gonzales, and why he used it to pay Matilde's account. It was
payee's duty to ascertain from the holder Manuel Gonzales what the nature of the latter's title to the check
was or the nature of his possession. Having failed in this respect, we must declare that plaintiff-appellee was
guilty of gross neglect in not finding out the nature of the title and possession of Manuel Gonzales,
amounting to legal absence of good faith, and it may not be considered as a holder of the check in good
faith.

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 In order to show that the defendant had "knowledge of such facts that his action in taking the
instrument amounted to bad faith," it is not necessary to prove that the defendant knew the exact fraud that
was practiced upon the plaintiff by the defendant's assignor, it being sufficient to show that the defendant had
notice that there was something wrong about his assignor's acquisition of title, although he did not have
notice of the particular wrong that was committed. Paika v. Perry, 225 Mass. 563, 114 N.E. 830.
The above considerations would seem sufficient to justify our ruling that plaintiff-appellee should
not be allowed to recover the value of the check.

2. Section 52 (c) provides that a holder in due course is one who takes the instrument "in good faith and for
value;" Section 59, "that every holder is deemed prima facie to be a holder in due course;" and Section 52
(d), that in order that one may be a holder in due course it is necessary that "at the time the instrument
was negotiated to him "he had no notice of any . . . defect in the title of the person negotiating it;" and
lastly Section 59, that every holder is deemed prima facieto be a holder in due course.
In the case at bar the rule that a possessor of the instrument is prima facie holder in due course
does not apply because there was a defect in the title of the holder (Manuel Gonzales), because the
instrument is not payable to him or to bearer. On the other hand, the stipulation of facts indicated by the
appellants in their brief, like the fact that the drawer had no account with the payee; that the holder did not
show or tell the payee why he had the check in his possession and why he was using it for the payment of his
own personal account — show that holder's title was defective or suspicious, to say the least. As holder's title
was defective or suspicious, it cannot be stated that the payee acquired the check without knowledge of
said defect in holder's title, and for this reason the presumption that it is a holder in due course or that it
acquired the instrument in good faith does not exist. And having presented no evidence that it acquired the
check in good faith, it (payee) cannot be considered as a holder in due course. In other words, under the
circumstances of the case, instead of the presumption that payee was a holder in good faith, the fact is that it
acquired possession of the instrument under circumstances that should have put it to inquiry as to the title of
the holder who negotiated the check to it. The burden was, therefore, placed upon it to show that
notwithstanding the suspicious circumstances, it acquired the check in actual good faith.
When the case has taken such shape that the plaintiff is called upon to prove himself a holder in due
course to be entitled to recover, he is required to establish the conditions entitling him to standing as
such, including good faith in taking the instrument. It devolves upon him to disclose the facts and
circumstances attending the transfer, from which good or bad faith in the transaction may be
inferred.
In the case at bar as the payee acquired the check under circumstances which should have put it to
inquiry, why the holder had the check and used it to pay his own personal account, the duty devolved upon it,
plaintiff-appellee, to prove that it actually acquired said check in good faith. The stipulation of facts contains
no statement of such good faith, hence we are forced to the conclusion that plaintiff payee has not proved
that it acquired the check in good faith and may not be deemed a holder in due course thereof.

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Section 184. Promissory Note

Promissory note executed to evidence crop loans to be used for plowing, purchasing seeds, planting,
cultivation, harvesting, marketing transportation etc. for the agricultural year 1943 1944 became due and
demandable only at the end of the said agricultural year – more or less around the month of April 1944.

#69. IN THE MATTER OF THE TESTATE ESTATE OF THE DECEASED GERMAN GASTON.
VICTORIA VDA. DE GASTON, administratrix-appellee vs. REPUBLIC OF THE PHILIPPINES, claimant-appellant
G.R. No. L-20320 March 30, 1967

FACTS: In the months of April, May, June, July, and December 1943, German Gaston took out 5 loans from the
Bank of Taiwan totaling to P4,889.91. He executed 5 promissory notes (PNs) corresponding to the 5 loans he
took each month. The loan was promised to be used for the plowing, cultivating, etc. of the hacienda that
Gaston was leasing. Later, the Republic of the Philippines was subrogated to the rights of the Bank of Taiwan.
In February 1962, the Republic filed its claim against the estate of Gaston (obviously German’s already
dead at that time) on the strength of the 5 promissory notes. In its defense, the estate invokes the statute of
limitations as it avers that more than ten years have already elapsed since the accrual of the obligation to pay
(so first PN has prescribed in April 1953, so on).
ISSUE: Whether or not the contention of the estate is correct.
HELD: No. There was a moratorium law in force from November 1944 to May 1953. During that period, the
running of the prescriptive period in all loan obligations was suspended. That’s a period of 8 years and 6
months.
[From 1943 to 1962 (when the government claim was filed), at least 19 years have already elapsed.
But if we deduct the suspended period of 8 years and 6 months, there’s still 10 years and six months remaining
which is still more than the prescriptive period of ten years.]
The Supreme Court, however ruled that there being no maturity date on the PNs, the PNs are deemed
to be payable within a reasonable time (not payable on demand, as the estate claims). The SC considered the
nature of the transaction involved. The PNs were approved in relation to an agricultural undertaking wherein
Gaston must used the money for no other purposes than agricultural purposes, otherwise they will be payable
immediately. It appears that Gaston used the money for agricultural purposes hence the PNs are payable only
after the agricultural year (for how can he pay if there’s no yield yet from his crops). The end of the agricultural
year is December 1944, and that will be the reckoning point as to when the PNs become payable and that’s the
time when the period of prescription must be counted.
From December 1944 to February 1962, 17 years ten months have elapsed. Subtract therefrom the
suspended period of 8 years 6 months and that would leave 9 years and four months – therefore, the filing of
the claim by the Republic of the Philippines is still well within the period of prescription.

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