RAUL SESBREÑO vs.

CA,

DELTA MOTORS CORPORATION AND PILIPINAS BANK ISSUE:

G.R. No. 89252            May 24, 1993 Whether or not non-negotiability of a promissory note
prevents its assignment.

FACTS:
HELD:
On 9 February 1981, Raul Sesbreno made a money market
placement in the amount of P300,000 with the Philippine Only an instrument qualifying as a negotiable instrument
Underwriters Finance Corporation (PhilFinance), with a term under the relevant statute may be negotiated either by
of 32 days. PhilFinance issued to Sesbreno the Certificate of indorsement thereof coupled with delivery, or by delivery
Confirmation of Sale of a Delta Motor Corporation Promissory alone if it is in bearer form. A negotiable instrument, instead
Note (2731), the Certificate of Securities Delivery Receipt of being negotiated, may also be assigned or transferred. The
indicating the sale of the note with notation that said security legal consequences of negotiation and assignment of the
was in the custody of Pilipinas Bank, and postdated checks instrument are different. A negotiable instrument may not be
drawn against the Insular Bank of Asia and America for negotiated but may be assigned or transferred, absent an
P304,533.33 payable on 13 March 1981. The checks were express prohibition against assignment or transfer written in
dishonored for having been drawn against insufficient funds. the face of the instrument. Herein, there was no prohibition
Pilipinas Bank never released the note, nor any instrument stipulated.
related thereto, to Sesbreno. Sesbreno learned that the
security was issued 10 April 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.

1|Page
Consolidated Plywood, et. al. vs. IFC Leasing ,
G.R. No. 72593, April 30, 1987 
FACTS:
Consolidated Plywood Industries Inc. (CPII) is a corporation
engaged in the logging business. It had for its program of
logging activities for the year 1978 the opening of additional
roads, and simultaneous logging operations along the route
of said roads, in its logging concession area at Baganga,
Manay, and Caraga, Davao Oriental.
P210,000.00. On 5 April 1978, IPM issued the sales invoice
for the 2 units of tractors. At the same time, the deed of sale
with chattel mortgage with promissory note was executed.
Barely 14 days had elapsed after their delivery when one of
the tractors broke down and after another 9 days, the other
tractor likewise broke down. IPM sent to the jobsite its
mechanics to conduct the necessary repairs, but the tractors
did not come out to be what they should be after the repairs
were undertaken because the units were no longer
serviceable. Because of the breaking down of the tractors,

For this purpose, it needed 2 additional units of tractors. the road building and simultaneous logging operations of CPII

Cognizant of CPII’s need and purpose, Atlantic Gulf & Pacific were delayed and Vergara advised IPM that the payments of

Company of Manila, through its sister company and the installments as listed in the promissory note would

marketing arm, Industrial Products Marketing (IPM), a likewise be delayed until IPM completely fulfills its obligation

corporation dealing in tractors and other heavy equipment under its warranty.

business, offered to sell to CPII 2 “Used” Allis Crawler
Tractors, 1 an HD-21-B and the other an HD-16-B. After
conducting said inspection, IPM assured CPII that the “Used”
Allis Crawler Tractors which were being offered were fit for
the job, and gave the corresponding warranty of 90 days
performance of the machines and availability of parts. With
said assurance and warranty, and relying on the IPM’s skill
and judgment, CPII through Henry Wee and Rodolfo T.
Vergara, president and vice-president, respectively, agreed
to purchase on installment said 2 units of “Used” Allis
Crawler Tractors. It also paid the down payment
2|Page
Since the tractors were no longer serviceable, on 7 April
1979, Wee asked IPM to pull out the units and have them
reconditioned, and thereafter to offer them for sale. The
proceeds were to be given to IFC Leasing and the excess, if
any, to be divided between IPM and CPII which offered to
bear 1/2 of the reconditioning cost. No response to this letter
was received by CPII and despite several follow-up calls, IPM
did nothing with regard to the request, until the complaint in
the case was filed by IFC Leasing against CPII, Wee, and
Vergara. The complaint was filed by IFC Leasing against CPII,
of et al. for the recovery of the principal sum of P1,093,789.71,
accrued interest of P151,618.86 as of 15 August 1979,
accruing interest there after at the rate of 12% per annum,
attorney’s fees of P249,081.71 and costs of suit.
CPII, et al. filed their amended answer praying for the
dismissal of the complaint. In a decision dated 20 April 1981,
the trial court rendered judgment, ordering CPII, et al. to pay
jointly and severally in their official and personal capacities
On 17 July 1985, the Intermediate Appellate Court issued the
decision affirming in toto the decision of the trial court
ISSUE:
Whether the promissory note in question is a negotiable
instrument.
HELD:
No. The pertinent portion of the note provides that “”FOR
VALUE RECEIVED, I/we jointly and severally promise to pay to
the INDUSTRIAL PRODUCTS MARKETING, the sum
P1,093,789.71, Philippine Currency, the said principal sum, to
be payable in 24 monthly installments starting July 15, 1978
and every 15th of the month thereafter until fully paid.”
Considering that paragraph (d), Section 1 of the Negotiable
Instruments Law requires that a promissory note “must be
3|Page
payable to order or bearer,” it cannot be denied that the
promissory note in question is not a negotiable instrument.
The instrument in order to be considered negotiable must
contain the so called “words of negotiability” — i.e., must be
payable to “order” or “bearer.” These words serve as an
expression of consent that the instrument may be
transferred. This consent is indispensable since a maker
assumes greater risk under a negotiable instrument than
under a non- negotiable one. Without the words “or order” or
“to the order of,” the instrument is payable only to the
person designated therein and is therefore non-negotiable.
Any subsequent purchaser thereof will not enjoy the
advantages of being a holder of a negotiable instrument, but
will merely “step into the shoes” of the person designated in
the instrument and will thus be open to all defenses available
against the latter.
Therefore, considering that the subject promissory note is not
a negotiable instrument, it follows that IFC Leasing can never
be a holder in due course but remains a mere assignee of the
note in question. Thus, CPII may raise against IFC Leasing all
of
defenses available to it as against IPM. This being so, there
was no need for CPII to implead IPM when it was sued by IFC
Leasing because CPII’s defenses apply to both or either of
them.
LORETO D. DE LA VICTORIA vs. HELD:

HON. JOSE P. BURGOS, and RAUL H. SESBREÑO
G.R. No. 111190 June 27, 1995
Under Section 16 of the Negotiable Instruments Law, every
contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of
giving effect thereto. As ordinarily understood, delivery

FACTS: means the transfer of the possession of the instrument by

the maker or drawer with the intent to transfer title to the
Raul Sesbreno filed a complaint for damages against
payee and recognize him as the holder thereof. Herein, the
Assistant City Fiscal Bienvenido Mabanto before the RTC of
salary check of a government officer or employee does not
Cebu City. After trial, judgment was rendered ordering
belong to him before it is physically delivered to him.
Mabanto to pay Sesbreno P11,000. The decision having
Inasmuch as said checks had not yet been delivered to
become final and executory, the trial court ordered its
Mabanto, they did not belong to him and still had the
execution upon Sesbreno’s motion. The writ of execution was
character of public funds. As a necessary consequence of
issued despite Mabanto’s objection. A notice of garnishment
being public fund, the checks may not be garnished to satisfy
was served upon Loreto de la Victoria as City Fiscal of
the judgment.
Mandaue City where Mabanto was then detailed. De la
Victoria moved to quash the notice of garnishment claiming
that he was not in possession of any money, funds, etc.
belonging to Mabanto until delivered to him, and as such are
still public funds which could not be subject of garnishment.

ISSUE:

Whether or not the checks subject of garnishment belong to

Mabanto or whether they still belong to the government.
4|Page
DEVELOPMENT BANK OF RIZAL vs. SIMA WEI, ET AL. Whether petitioner Bank has a cause of action against Sima
Wei for the undelivered checks.
G.R. No. 85419 March 9, 1993

RULING:
FACTS:
No.  A negotiable instrument must be delivered to the payee
Respondent Sima Wei executed and delivered to petitioner
in order to evidence its existence as a binding
Bank a promissory note engaging to pay the petitioner Bank
contract.  Section 16 of the NIL provides that every contract
or order the amount of P1,820,000.00.  Sima Wei
on a negotiable instrument is incomplete and revocable until
subsequently issued two crossed checks payable to
delivery of the instrument for the purpose of giving effect
petitioner Bank drawn against China Banking Corporation in
thereto.  Thus, the payee of a negotiable instrument acquires
full settlement of the drawer's account evidenced by the
no interest with respect thereto until its delivery to
promissory note.  These two checks however were not
him.  Without the initial delivery of the instrument from the
delivered to the petitioner-payee or to any of its authorized
drawer to the payee, there can be no liability on the
representatives but instead came into the possession of
instrument.  Petitioner however has a right of action against
respondent Lee Kian Huat, who deposited the checks without
Sima Wei for the balance due on the promissory note.
the petitioner-payee's indorsement to the account of
respondent Plastic Corporation with Producers Bank.  Inspite
of the fact that the checks were crossed and payable to
petitioner Bank and bore no indorsement of the latter, the
Branch Manager of Producers Bank authorized the
acceptance of the checks for deposit and credited them to
the account of said Plastic Corporation.

ISSUE:
5|Page
METROPOL VS. SAMBOK Whether or not Sambok Motors Co is a qualified indorser,
thus it is not liable upon the failure of payment of the maker.
L-39641          February 28, 1983
HELD:
FACTS:
No. A qualified indorserment constitutes the indorser a mere
Dr. Javier Villaruel executed a promissory note in favor of Ng
assignor of the title to the instrument. It may be made by
Sambok Sons Motors Co., Ltd. Payable in 12 equal monthly
adding to the indorser’s signature the words “without
installments with interest. It is further provided that  in case
recourse” or any words of similar import. Such indorsement
on non-payment of any of the installments, the total principal
relieves the indorser of the general obligation to pay if the
sum then remaining unpaid shall become due and payable
instrument is dishonored but not of the liability arising from
with an additional interest. Sambok Motors co., a sister
warranties on the instrument  as provided by section 65 of
company of Ng Sambok Sons negotiated and indorsed the
NIL. However, Sambok indorsed the note “with recourse” and
note in favor of Metropol Financing & investment
even waived the notice of demand, dishonor, protest and
Corporation. Villaruel defaulted in the payment, upon
presentment.
presentment of the promissory note he failed to pay the
promissory note as demanded, hence Ng Sambok Sons Recourse means resort to a person who is secondarily liable
Motors Co., Ltd. notified Sambok as indorsee that the after the default of the person who is primarily liable.
promissory note has been dishonored and demanded Sambok by indorsing the note “with recourse” does not make
payment. Sambok failed to pay. Ng Sambok Sons filed a itself a qualified indorser but a general indorser who is
complaint for the collection of sum of money. During the secondarily liable, because by such indorsement, it agreed
pendency of the case Villaruel died. Sambok argues that by that if Villaruel fails to pay the not the holder can go after it.
adding the words “with recourse” in the indorsement of the The effect of such indorsement is that the note was indorsed
note, it becomes a qualified indorser, thus, it does not witout qualification. A person who indorses without
warrant that in case that the maker failed to pay upon qualification engages that on due presentment, the note shall
presentment it will pay the amount to the holder. be accepted or paid, or both as the case maybe, and that if it
be dishonored, he will pay the amount thereof to the holder.
ISSUE:

6|Page
The words added by Sambok do not limit his liability, but
rather confirm his obligation as general indorser.  
ISSUE:
VICENTE R. DE OCAMPO & CO. v. ANITA GATCHALIAN.
Whether or not De Ocampo is a holder in due course.
G.R. No. L-15126. November 30, 1961.

FACTS: RULING:

Anita Gatchalian was interested in buying a car. Manuel
Gonzales offered to her a car owned by plaintiff. Gonzales
claimed that he was authorized by the plaintiff to sell the car.
Gonzales order defendant to issue a cross-check to comply
on showing interest in buying the car. Gonzales promised to
return the check the next day.
The SC held that plaintiff is a not a holder in due course.
There were obvious instances to show that the check was
negligently acquired like plaintiff having no liability with
defendant and that the check was crossed. Plaintiff failed to
exercise prudence and caution. Plaintiff should have asked
questions to further inquire upon suspicion.

When Gonzales never appeared after, defendant issue a stop The presumption of good faith did not apply to plaintiff
payment order on the check. She found out that Gonzales because the defect was apparent on the instruments face – it
used the check as payment to plaintiff's clinic for his wife's was not payable to defendant or bearer.
fees. Plaintiff now demands defendant for payment of the
check, in which defendant refused citing that plaintiff is a not
a holder in due course.

The lower court held that defendant should pay plaintiff.

7|Page
CELY YANG v. COURT OF APPEALS. G.R. No. 138074. Whether David was a holder in due course.
August 15, 2003.
RULING:
FACTS:
The SC held that David was a holder in due course and
Yang's petition is denied. Yang has the burden of proof to
prove that David was not a holder in due course which she
Cely Yang and Prem Chandiramani agreed to exchange the
failed to do so. It was noted that David exchanged the checks
latter's manager's check to two of Yang's checks both
for money when petitioner averred otherwise.
payable to the order of Fernando David. They also agreed
that Yang would secure a dollar draft in exchange for The SC also agreed with the findings of the lower court. In
Chandiramani's dollar draft. relation to the checks being crossed, the SC said that in
Bataan Cigar v. CA, the checks were negotiated while in this
At the time of exchange, Yang gave the checks to Danilo
case it was only deposited.
Ranigo. Ranigo said that Chandaramani did not appear the
rendezvous and that he lost the checks and draft, but in fact,
the exchange transpired.

Yang requested the respective banks to stop payment on the

instruments but was subsequently denied. Yang filed a
complaint for the return of the checks and for damages
against Chandaramani and David.

The lower court sided with David and was held as holder in
due course. The checks were complete in its face when they
were negotiated and that he had no notice that the checks
were dishonored and took the checks in good faith. The lower
courts also said that David had taken the necessary
precautions to verify the genuineness of the checks.
Marcelo A. Mesina vs. Intermediate Appellate Court
ISSUE:
8|Page
G.R. No. 70145 Whether or not petitioner can collect on the stolen check on
the ground that he is a holder in due course.
November 13, 1986,  145 SCRA 497
RULING:

No.  Petitioner failed to substantiate his claim that he is a

FACTS:
holder in due course and for consideration or value as shown
Jose Go purchased from Associated Bank a cashier's check by the established facts of the case. Admittedly, petitioner
for P800,000.00. Unfortunately, he left said check on the top became the holder of the cashier's check as endorsed by
of the desk of the bank manager when he left the bank. The Alexander Lim who stole the check. He refused to say how
bank manager entrusted the check for safekeeping to a bank and why it was passed to him. He had therefore notice of the
official, a certain Albert Uy.  While Uy went to the men's defect of his title over the check from the start. The holder of
room, the check was stolen by his visitor in the person of a cashier's check who is not a holder in due course cannot
Alexander Lim.  Upon discovering that the check was lost, enforce such check against the issuing bank which dishonors
Jose Go accomplished  a "STOP PAYMENT" order.  Two days the same.
later, Associated Bank received the lost check for clearing
from Prudential Bank.  After dishonoring the same check
twice, Associated Bank received summons and copy of a
complaint for damages of Marcelo Mesina who was in
possession of the lost check and is demanding
payment.  Petitioner claims that a cashier's check cannot be
countermanded in the hands of a holder in due course.

ISSUE:

9|Page