PHILIPPINE EDUCATION CO., INC., plaintiff-appellant, vs.

MAURICIO A. SORIANO, ET AL., defendant-appellees.

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.

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

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.

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

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).

orders of 200php each payable to E. P. Montinola. Montinola offered to pay with the

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.

order, a message was sent to instruct all banks that it must not pay for the money

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.

Held: No. It is not disputed that the Philippine postal statutes were patterned after

PHILIPPINE EDUCATION CO. VS. SORIANO

L-22405

June 30, 1971

Dizon, J.:
Facts: Enrique Montinola sought to purchase from Manila Post Office ten money
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 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

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.

CALTEX

(PHILIPPINES),

INC., petitioner, vs.

COURT

OF

APPEALS

and

SECURITY BANK AND TRUST COMPANY

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 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 deposited with herein
defendant the aggregate amount of P1,120,000.00, as follows:
(Joint Partial Stipulation of Facts and Statement of Issues,
Original Records, p. 207; Defendant's Exhibits 1 to 280);
CTD CTD
Dates Serial Nos. 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 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 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. 4850).
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 282561).
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).

presentation and surrender of this certificate,

with interest at the rate of 16% per cent per
annum.

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 setoff and applied the time deposits in question to the payment of the
matured loan (TSN, February 9, 1987, pp. 130-131).

(Sgd. Illegible) (Sgd. Illegible)

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 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. 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., Makati No. 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

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:
a None, your Honor. 7
xxx xxx xxx
Atty. Calida:
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 ofpayment 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. Whether or not the parties can recover damages, attorney's
fees and litigation expenses from each other.
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.

212 SCRA 448 Mercantile Law Negotiable Instruments Law Negotiable

Instruments in General Bearer Instrument Certificate of Time Deposit
In 1982, Angel de la Cruz obtained certificates of time deposit (CTDs) from Security
Bank and Trust Company for the formers deposit with the said bank amounting to
P1,120,000.00. The said CTDs are couched in the following manner:
This is to Certify that B E A R E R has deposited in this Bank the sum of _______ Pesos,
Philippine Currency, repayable to said depositor _____ days. after date, upon presentation
and surrender of this certificate, with interest at the rate of ___ % per cent per annum.Angel
de la Cruz subsequently delivered the CTDs to Caltex in connection with the purchase of fuel
products from Caltex.

In March 1982, Angel de la Cruz advised Security Bank that he lost the CTDs. He
executed an affidavit of loss and submitted it to the bank. The bank then issued

another set of CTDs. In the same month, Angel de la Cruz acquired a loan of
P875,000.00 and he used his time deposits as collateral.
In November 1982, a representative from Caltex went to Security Bank to present
the CTDs (delivered by de la Cruz) for verification. Caltex advised Security Bank
that de la Cruz delivered Caltex the CTDs as security for purchases he made with
the latter. Security Bank refused to accept the CTDs and instead required Caltex to
present documents proving the agreement made by de la Cruz with Caltex. Caltex
however failed to produce said documents.
In April 1983, de la Cruz loan with Security bank matured and no payment was
made by de la Cruz. Security Bank eventually set-off the time deposit to pay off the
loan.
Caltex sued Security Bank to compel the bank to pay off the CTDs. Security Bank
argued that the CTDs are not negotiable instruments even though the word bearer
is written on their face because the word bearer contained therein refer to
depositor and only the depositor can encash the CTDs and no one else.
ISSUE: Whether or not the certificates of time deposit are negotiable.
HELD: Yes. The CTDs indicate that they are payable to the bearer; that there is an
implication that the depositor is the bearer but as to who the depositor is, no one
knows. It does not say on its face that the depositor is Angel de la Cruz. 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, 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.
However, Caltex may not encash the CTDs because although the CTDs are bearer
instruments, a valid negotiation thereof for the true purpose and agreement
between Caltex and De la Cruz, requires both delivery and indorsement. As
discerned from the testimony of Caltex representative, the CTDs were delivered to
them by de la Cruz merely for guarantee or security and not as payment.
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 non-essentials, are easily told.

ACCORDINGLY, judgment is hereby rendered:

1. Dismissing the complaint with costs against the plaintiff;

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.

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;

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

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;

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

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.

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:

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.

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:

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.

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.)

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.

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.

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.

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.

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.

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; or (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.
Metropolitan Bank & Trust Company vs. Court of Appeals
G.R. No. 88866
February, 18, 1991
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 2 nd, a statement of the transaction which give rise to
the instrument. But an order to promise to pay out of particular fund is not
unconditional. The indication of Fund 501 as the source of the payment to be made
on the treasury warrants makes the order or promise to pay not conditional and
the warrants themselves non-negotiable. There should be no question that the
exception on Section 3 of NIL is applicable in the case at bar.
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.

FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner,

vs., COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents.

Aug. 15, 1978 42129 880,000.00

Sep. 15, 1978 42130 981,500.00

This petition assails the decision [1] dated December 29, 1993 of the Court of
Appeals in CA-G.R. CV No. 29546, which affirmed the judgment [2] of the Regional
Trial Court of Pasay City, Branch 113 in Civil Case No. PQ-7854-P, dismissing
Firestones complaint for damages.
The facts of this case, adopted by the CA and based on findings by the trial
court, are as follows:
[D]efendant is a banking corporation. It operates under a certificate of authority
issued by the Central Bank of the Philippines, and among its activities, accepts
savings and time deposits. Said defendant had as one of its client-depositors the
Fojas-Arca Enterprises Company (Fojas-Arca for brevity). Fojas-Arca maintaining a
special savings account with the defendant, the latter authorized and allowed
withdrawals of funds therefrom through the medium of special withdrawal
slips. These are supplied by the defendant to Fojas-Arca.
In January 1978, plaintiff and Fojas-Arca entered into a Franchised Dealership
Agreement (Exh. B) whereby Fojas-Arca has the privilege to purchase on credit and
sell plaintiffs products.
On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid Agreement,
Fojas-Arca purchased on credit Firestone products from plaintiff with a total amount
of P4,896,000.00. In payment of these purchases, Fojas-Arca delivered to plaintiff
six (6) special withdrawal slips drawn upon the defendant. In turn, these were
deposited by the plaintiff with its current account with the Citibank. All of them were
honored and paid by the defendant. This singular circumstance made plaintiff
believe [sic] and relied [sic] on the fact that the succeeding special withdrawal slips
drawn upon the defendant would be equally sufficiently funded. Relying on such
confidence and belief and as a direct consequence thereof, plaintiff extended to
Fojas-Arca other purchases on credit of its products.
On the following dates Fojas-Arca purchased Firestone products on credit (Exh. M,
I, J, K) and delivered to plaintiff the corresponding special withdrawal slips in
payment thereof drawn upon the defendant, to wit:
DATE WITHDRAWAL AMOUNT
SLIP NO.
June 15, 1978 42127 P1,198,092.80
July 15, 1978 42128 940,190.00

These were likewise deposited by plaintiff in its current account with Citibank and in
turn the Citibank forwarded it [sic] to the defendant for payment and collection, as it
had done in respect of the previous special withdrawal slips. Out of these four (4)
withdrawal slips only withdrawal slip No. 42130 in the amount of P981,500.00 was
honored and paid by the defendant in October 1978. Because of the absence for a
long period coupled with the fact that defendant honored and paid withdrawal slips
No. 42128 dated July 15, 1978, in the amount of P981,500.00 plaintiffs belief was all
the more strengthened that the other withdrawal slips were likewise sufficiently
funded, and that it had received full value and payment of Fojas-Arcas credit
purchased then outstanding at the time. On this basis, plaintiff was induced to
continue extending to Fojas-Arca further purchase on credit of its products as per
agreement (Exh. B).
However, on December 14, 1978, plaintiff was informed by Citibank that special
withdrawal slips No. 42127 dated June 15, 1978 for P1,198,092.80 and No. 42129
dated August 15, 1978 for P880,000.00 were dishonored and not paid for the
reason NO ARRANGEMENT. As a consequence, the Citibank debited plaintiffs
account for the total sum of P2,078,092.80 representing the aggregate amount of
the above-two special withdrawal slips. Under such situation, plaintiff averred that
the pecuniary losses it suffered is caused by and directly attributable to defendants
gross negligence.
On September 25, 1979, counsel of plaintiff served a written demand upon the
defendant for the satisfaction of the damages suffered by it. And due to defendants
refusal to pay plaintiffs claim, plaintiff has been constrained to file this complaint,
thereby compelling plaintiff to incur litigation expenses and attorneys fees which
amount are recoverable from the defendant.
Controverting the foregoing asseverations of plaintiff, defendant asserted, inter
alia that the transactions mentioned by plaintiff are that of plaintiff and Fojas-Arca
only, [in] which defendant is not involved; Vehemently, it was denied by defendant
that the special withdrawal slips were honored and treated as if it were checks, the
truth being that when the special withdrawal slips were received by defendant, it
only verified whether or not the signatures therein were authentic, and whether or
not the deposit level in the passbook concurred with the savings ledger, and
whether or not the deposit is sufficient to cover the withdrawal; if plaintiff treated the
special withdrawal slips paid by Fojas-Arca as checks then plaintiff has to blame
itself for being grossly negligent in treating the withdrawal slips as check when it is
clearly stated therein that the withdrawal slips are non-negotiable; that defendant is
not a privy to any of the transactions between Fojas-Arca and plaintiff for which
reason defendant is not duty bound to notify nor give notice of anything to plaintiff. If
at first defendant had given notice to plaintiff it is merely an extension of usual bank
courtesy to a prospective client; that defendant is only dealing with its depositor

Fojas-Arca and not the plaintiff. In summation, defendant categorically stated that
plaintiff has no cause of action against it (pp. 1-3, Dec.; pp. 368-370, id).[3]
Petitioners complaint[4] for a sum of money and damages with the Regional
Trial Court of Pasay City, Branch 113, docketed as Civil Case No. 29546, was
dismissed together with the counterclaim of defendant.
Petitioner appealed the decision to the Court of Appeals. It averred that
respondent Luzon Development Bank was liable for damages under Article
2176[5] in relation to Articles 19[6] and 20[7] of the Civil Code. As noted by the CA,
petitioner alleged the following tortious acts on the part of private respondent: 1) the
acceptance and payment of the special withdrawal slips without the presentation of
the depositors passbook thereby giving the impression that the withdrawal slips are
instruments payable upon presentment; 2) giving the special withdrawal slips the
general appearance of checks; and 3) the failure of respondent bank to seasonably
warn petitioner that it would not honor two of the four special withdrawal slips.
On December 29, 1993, the Court of Appeals promulgated its assailed
decision. It denied the appeal and affirmed the judgment of the trial court. According
to the appellate court, respondent bank notified the depositor to present the
passbook whenever it received a collection note from another bank, belying
petitioners claim that respondent bank was negligent in not requiring a passbook
under the subject transaction. The appellate court also found that the special
withdrawal slips in question were not purposely given the appearance of checks,
contrary to petitioners assertions, and thus should not have been mistaken for
checks. Lastly, the appellate court ruled that the respondent bank was under no
obligation to inform petitioner of the dishonor of the special withdrawal slips, for to
do so would have been a violation of the law on the secrecy of bank deposits.
Hence, the instant petition, alleging the following assignment of error:
25. The CA grievously erred in holding that the [Luzon
Development] Bank was free from any fault or negligence
regarding the dishonor, or in failing to give fair and timely advice
of the dishonor, of the two intermediate LDB Slips and in failing
to award damages to Firestone pursuant to Article 2176 of the
New Civil Code.[8]
The issue for our consideration is whether or not respondent bank should be
held liable for damages suffered by petitioner, due to its allegedly belated notice of
non-payment of the subject withdrawal slips.

The initial transaction in this case was between petitioner and Fojas-Arca,
whereby the latter purchased tires from the former with special withdrawal slips
drawn upon Fojas-Arcas special savings account with respondent bank. Petitioner
in turn deposited these withdrawal slips with Citibank. The latter credited the same
to petitioners current account, then presented the slips for payment to respondent
bank. It was at this point that the bone of contention arose.
On December 14, 1978, Citibank informed petitioner that special withdrawal
slips Nos. 42127 and 42129 dated June 15, 1978 and August 15, 1978,
respectively, were refused payment by respondent bank due to insufficiency of
Fojas-Arcas funds on deposit. That information came about six months from the
time Fojas-Arca purchased tires from petitioner using the subject withdrawal slips.
Citibank then debited the amount of these withdrawal slips from petitioners account,
causing the alleged pecuniary damage subject of petitioners cause of action.
At the outset, we note that petitioner admits that the withdrawal slips in
question were non-negotiable.[9] Hence, the rules governing the giving of immediate
notice of dishonor of negotiable instruments do not apply in this case. [10] Petitioner
itself concedes this point.[11] Thus, respondent bank was under no obligation to give
immediate notice that it would not make payment on the subject withdrawal
slips.Citibank should have known that withdrawal slips were not negotiable
instruments. It could not expect these slips to be treated as checks by other
entities. Payment or notice of dishonor from respondent bank could not be expected
immediately, in contrast to the situation involving checks.
In the case at bar, it appears that Citibank, with the knowledge that respondent
Luzon Development Bank, had honored and paid the previous withdrawal slips,
automatically credited petitioners current account with the amount of the subject
withdrawal slips, then merely waited for the same to be honored and paid by
respondent bank. It presumed that the withdrawal slips were good.
It bears stressing that Citibank could not have missed the non-negotiable
nature of the withdrawal slips. The essence of negotiability which characterizes a
negotiable paper as a credit instrument lies in its freedom to circulate freely as a
substitute for money.[12] The withdrawal slips in question lacked this character.
A bank is under obligation to treat the accounts of its depositors with
meticulous care, whether such account consists only of a few hundred pesos or of
millions of pesos.[13] The fact that the other withdrawal slips were honored and paid
by respondent bank was no license for Citibank to presume that subsequent slips
would be honored and paid immediately. By doing so, it failed in its fiduciary duty to
treat the accounts of its clients with the highest degree of care.[14]
In the ordinary and usual course of banking operations, current account
deposits are accepted by the bank on the basis of deposit slips prepared and
signed by the depositor, or the latters agent or representative, who indicates therein
the current account number to which the deposit is to be credited, the name of the

depositor or current account holder, the date of the deposit, and the amount of the
deposit either in cash or in check.[15]
The withdrawal slips deposited with petitioners current account with Citibank
were not checks, as petitioner admits. Citibank was not bound to accept the
withdrawal slips as a valid mode of deposit. But having erroneously accepted them
as such, Citibank and petitioner as account-holder must bear the risks attendant to
the acceptance of these instruments. Petitioner and Citibank could not now shift the
risk and hold private respondent liable for their admitted mistake.
WHEREFORE, the petition is DENIED and the decision of the Court of
Appeals in CA-G.R. CV No. 29546 is AFFIRMED. Costs against petitioner.
SO ORDERED.
Firestone Tire & rubber Co. vs. Court of Appeals
GR No. 113236

March 5, 2001

Facts: Forjas-Arca Enterprise Company is maintaining a special savings account

with Luzon Development Bank, the latter authorized and allowed withdrawals of
funds though the medium of special withdrawal slips. These are supplied by FojasArca. Fojas-Arca purchased on credit with FirestoneTire & Rubber Company, in
payment Fojas-Arca delivered a 6 special withdrawal slips. In turn, these were
deposited by the Firsestone to its bank account in Citibank. With this, relying on
such confidence and belief Firestone extended to Fojas-Arca other purchase on
credit of its products but several withdrawal slips were dishonored and not paid. As
a consequence, Citibank debited the plaintiffs account representing the aggregate
amount of the two dishonored special withdrawal slips. Fojas-Arca averred that the
pecuniary losses it suffered are a caused by and directly attributes to defendants
gross negligence as a result Fojas-Arca filed a complaint.
Issue: Whether or not the acceptance and payment of the special withdrawal slips
without the presentation of the depositors passbook thereby giving the impression
that it is a negotiable instrument like a check.
Held: No. Withdrawal slips in question were non negotiable instrument. Hence, the
rules governing the giving immediate notice of dishonor of negotiable instrument do
not apply. The essence of negotiability which characterizes a negotiable paper as a
credit instrument lies in its freedom to circulate freely as a substitute for money. The
withdrawal slips in question lacked this character.
ANG TEK LIAN, petitioner, vs. THE COURT OF APPEALS, respondent.
For having issued a rubber check, Ang Tek Lian was convicted of estafa in the Court
of First Instance of Manila. The Court of Appeals affirmed the verdict.

It appears that, knowing he had no funds therefor, Ang Tek Lian drew on Saturday,
November 16, 1946, the check Exhibits A upon the China Banking Corporation for
the sum of P4,000, payable to the order of "cash". He delivered it to Lee Hua Hong
in exchange for money which the latter handed in act. On November 18, 1946, the
next business day, the check was presented by Lee Hua Hong to the drawee bank
for payment, but it was dishonored for insufficiency of funds, the balance of the
deposit of Ang Tek Lian on both dates being P335 only.
The Court of Appeals believed the version of Lee Huan Hong who testified that "on
November 16, 1946, appellant went to his (complainant's) office, at 1217 Herran,
Paco, Manila, and asked him to exchange Exhibit A which he (appellant) then
brought with him with cash alleging that he needed badly the sum of P4,000
represented by the check, but could not withdraw it from the bank, it being then
already closed; that in view of this request and relying upon appellant's assurance
that he had sufficient funds in the blank to meet Exhibit A, and because they used to
borrow money from each other, even before the war, and appellant owns a hotel
and restaurant known as the North Bay Hotel, said complainant delivered to him, on
the same date, the sum of P4,000 in cash; that despite repeated efforts to notify him
that the check had been dishonored by the bank, appellant could not be located
any-where, until he was summoned in the City Fiscal's Office in view of the
complaint for estafa filed in connection therewith; and that appellant has not paid as
yet the amount of the check, or any part thereof."
Inasmuch as the findings of fact of the Court of Appeals are final, the only question
of law for decision is whether under the facts found, estafa had been accomplished.
Article 315, paragraph (d), subsection 2 of the Revised Penal Code, punishes
swindling committed "By post dating a check, or issuing such check in payment of
an obligation the offender knowing that at the time he had no funds in the bank, or
the funds deposited by him in the bank were not sufficient to cover the amount of
the check, and without informing the payee of such circumstances".
We believe that under this provision of law Ang Tek Lian was properly held liable. In
this connection, it must be stated that, as explained in People vs. Fernandez (59
Phil., 615), estafa is committed by issuing either a postdated check or an ordinary
check to accomplish the deceit.
It is argued, however, that as the check had been made payable to "cash" and had
not been endorsed by Ang Tek Lian, the defendant is not guilty of the offense
charged. Based on the proposition that "by uniform practice of all banks in the
Philippines a check so drawn is invariably dishonored," the following line of
reasoning is advanced in support of the argument:
. . . When, therefore, he (the offended party ) accepted the check (Exhibit
A) from the appellant, he did so with full knowledge that it would be
dishonored upon presentment. In that sense, the appellant could not be
said to have acted fraudulently because the complainant, in so accepting

the check as it was drawn, must be considered, by every rational

consideration, to have done so fully aware of the risk he was running
thereby." (Brief for the appellant, p. 11.)
We are not aware of the uniformity of such practice. Instances have undoubtedly
occurred wherein the Bank required the indorsement of the drawer before honoring
a check payable to "cash." But cases there are too, where no such requirement had
been made . It depends upon the circumstances of each transaction.
Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the
order of "cash" is a check payable to bearer, and the bank may pay it to the person
presenting it for payment without the drawer's indorsement.
A check payable to the order of cash is a bearer instrument.
Bacal vs. National City Bank of New York (1933), 146 Misc., 732; 262 N. Y.
S., 839; Cleary vs. De Beck Plate Glass Co. (1907), 54 Misc., 537; 104 N.
Y. S., 831; Massachusetts Bonding & Insurance Co. vs. Pittsburgh Pipe &
Supply Co. (Tex. Civ. App., 1939), 135 S. W. (2d), 818. See also H. Cook &
Son vs. Moody (1916), 17 Ga. App., 465; 87 S. E., 713.
Where a check is made payable to the order of "cash", the word cash
"does not purport to be the name of any person", and hence the instrument
is payable to bearer. The drawee bank need not obtain any indorsement of
the check, but may pay it to the person presenting it without any
indorsement. . . . (Zollmann, Banks and Banking, Permanent Edition, Vol.
6, p. 494.)
Of course, if the bank is not sure of the bearer's identity or financial solvency, it has
the right to demand identification and /or assurance against possible complications,
for instance, (a) forgery of drawer's signature, (b) loss of the check by the rightful
owner, (c) raising of the amount payable, etc. The bank may therefore require, for its
protection, that the indorsement of the drawer or of some other person known to
it be obtained. But where the Bank is satisfied of the identity and /or the
economic standing of the bearer who tenders the check for collection, it will pay the
instrument without further question; and it would incur no liability to the drawer in
thus acting.
A check payable to bearer is authority for payment to holder. Where a
check is in the ordinary form, and is payable to bearer, so that no
indorsement is required, a bank, to which it is presented for payment, need
not have the holder identified, and is not negligent in falling to do so. . . .
(Michie on Banks and Banking, Permanent Edition, Vol. 5, p. 343.)

. . . Consequently, a drawee bank to which a bearer check is presented for

payment need not necessarily have the holder identified and ordinarily may
not be charged with negligence in failing to do so. See Opinions 6C:2 and
6C:3 If the bank has no reasonable cause for suspecting any irregularity, it
will be protected in paying a bearer check, "no matter what facts unknown
to it may have occurred prior to the presentment." 1 Morse, Banks and
Banking, sec. 393.
Although a bank is entitled to pay the amount of a bearer check without
further inquiry, it is entirely reasonable for the bank to insist that holder give
satisfactory proof of his identity. . . . (Paton's Digest, Vol. I, p. 1089.)
Anyway, it is significant, and conclusive, that the form of the check Exhibit A was
totally unconnected with its dishonor. The Court of Appeals declared that it was
returned unsatisfied because the drawer had insufficient funds not because the
drawer's indorsement was lacking.
Wherefore, there being no question as to the correctness of the penalty imposed on
the appellant, the writ ofcertiorari is denied and the decision of the Court of Appeals
is hereby affirmed, with costs.
87 Phil. 383 Mercantile Law Negotiable Instruments Law Negotiable
Instruments in General Indorsement to Cash Bearer Instrument
In 1946, Ang Tek Lian approached Lee Hua and asked him if he could give him
P4,000.00. He said that he meant to withdraw from the bank but the banks already
closed. In exchange, he gave Lee Hua a check which is payable to the order of
cash. The next day, Lee Hua presented the check for payment but it was
dishonored due to insufficiency of funds. Lee Hua eventually sued Ang Tek Lian. In
his defense, Ang Tek Lian argued that he did not indorse the check to Lee Hua and
that when the latter accepted the check without Ang tek Lians indorsement, he had
done so fully aware of the risk he was running thereby.
ISSUE: Whether or not Ang Tek Lian is correct.
HELD: No. Under the Negotiable Instruments Law (sec. 9 [d]), a check drawn
payable to the order of cash is a check payable to bearer hence a bearer
instrument, and the bank may pay it to the person presenting it for payment without
the drawers indorsement. Where a check is made payable to the order of cash,
the word cash does not purport to be the name of any person, and hence the
instrument is payable to bearer. The drawee bank need not obtain any indorsement
of the check, but may pay it to the person presenting it without any indorsement.