NEGO BATCH 1

G.R. No. 76788 January 22, 1990

JUANITA SALAS, petitioner, vs. HON. COURT OF APPEALS and FIRST FINANCE &
LEASING CORPORATION, respondents.

FACTS:
Records disclose that on February 6, 1980, Juanita Salas (petitioner) bought a motor vehicle
from the Violago Motor Sales Corporation (VMS) for P58,138.20 as evidenced by a promissory
note. This note was subsequently endorsed to Filinvest Finance & Leasing Corporation (private
respondent) which financed the purchase.

Petitioner defaulted in her installments beginning May 21, 1980 allegedly due to a discrepancy
in the engine and chassis numbers of the vehicle delivered to her and those indicated in the
sales invoice, certificate of registration and deed of chattel mortgage, which fact she discovered
when the vehicle figured in an accident on May 9, 1980.

This failure to pay prompted private respondent to initiate an action for a sum of money against
petitioner before the RTC.

ISSUE:
Whether or not the promissory note in question is a negotiable instrument which will bar
completely all the available defenses of the petitioner against private respondent.

RULING:
YES.

A careful study of the questioned promissory note shows that it is a negotiable instrument,
having complied with the requisites under the law as follows: [a] it is in writing and signed by the
maker Juanita Salas; [b] it contains an unconditional promise to pay the amount of P58,138.20;
[c] it is payable at a fixed or determinable future time which is "P1,614.95 monthly for 36 months
due and payable on the 21 st day of each month starting March 21, 1980 thru and inclusive of
Feb. 21, 1983;" [d] it is payable to Violago Motor Sales Corporation, or order and as such, [e]
the drawee is named or indicated with certainty.

It was negotiated by indorsement in writing on the instrument itself payable to the Order of
Filinvest Finance and Leasing Corporation and it is an indorsement of the entire instrument.

Under the circumstances, there appears to be no question that Filinvest is a holder in due
course, having taken the instrument under the following conditions: [a] it is complete and regular
upon its face; [b] it became the holder thereof before it was overdue, and without notice that it
had previously been dishonored; [c] it took the same in good faith and for value; and [d] when it
was negotiated to Filinvest, the latter had no notice of any infirmity in the instrument or defect in
the title of VMS Corporation.

2) Ang Tek Lian vs. CA, 87 Phil. 383;

Facts:
 On November 16, 1946 Ang Tek Lian, knowing he had no funds, drew a check for the
sum of P4000 payable to the order of cash. Ang Tek Lian then delivered the instrument to Lee
Hua Hong in exchange for money.
On November 18, 1946 the check was presented by Lee Hua Hong to China Banking
Corporation but it was dishonored for insufficiency of funds. It was discovered that Ang Tek Lian
only have P335 in his account.

Issue:
Whether or not the check issued by Ang Tek Lian is a valid negotiable instrument

Ruling:
Yes the instrument is a valid negotiable instrument. 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.
Payable to the order of “cash” fulfills the requirement in sec 1 that the drawee shall named.
CASE 3
Philippine National Bank vs. Erlando Rodriguez and Norma Rodriguez
G.R. No. 170325, September 26, 2008
FACTS:
Spouses Rodriguez were engaged in informal lending business and had discounting
arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an
association of PNB employees. The association maintained current and savings account with
Philippine National Bank (PNB). PEMSLA regularly granted a loan to its members and Spouses
Rodriguez would rediscount the postdated checks issued to members whenever the association
was short of funds. As it was customary, the spouses would replace the postdated checks with
their own checks issued in the name of the members.
PEMSLA has a policy that members with outstanding debts would not be granted loan. To
subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans despite
their outstanding loan accounts. They took out loans in the names of unknowing members,
without the knowledge or consent of the latter. The officers carried this out by forging the
endorsement of the named payees in the checks. In return, the spouses issued their personal
checks in the name of the members and delivered the checks to an officer of PEMSLA. The
PEMSLA checks, on the other hand, were deposited by the spouses to their account. Rodriguez
checks were deposited directly by PEMSLA to its saving account without any endorsement from
the named payees. This irregular procedure was made possible through the facilitation of
Edmundo Palermo Jr., treasurer of PEMSLA and bank teller in the PNB branch. This became
the usual practice for the parties. When PNB found out this fraudulent acts, it closed the current
account of PEMSLA to put a stop to this scheme. As a result, the PEMSLA checks deposited by
the spouses were returned or dishonored for the reason “account closed”. The amounts of the
checks issued were duly debited from the Rodriguez account. Thus, the spouses incurred
losses from the rediscounting transactions so they filed a civil complaint for damages against
PEMSLA, the Multi-Purpose Cooperative of Philnabankers (MCP), and PNB.
ISSUE:
Who shall bear the loss of the checks?
RULING:
When a person making the check so payable did not intend for the specified payee to have any
part in the transaction, the payee is considered a fictitious payee. According to Sec. 9 of NIL,
when it is addressed to a fictitious person, it is considered as payable to bearer instrument.
Generally, if there is a fictitious payee, banks are absolved from liability. But in the case on
hand, an employee in the bank is known to help the spouses. That action constitutes
“commercial bad faith” that held the bank responsible to bear any damages and loss from the
transaction.

.R. No. 88866             February 18, 1991

METROPOLITAN BANK & TRUST COMPANY, petitioner,

vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA
CASTILLO, MAGNO CASTILLO and GLORIA CASTILLO, respondents.

CRUZ, J.:

Facts:

Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury
warrants. 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. All these warrants were subsequently indorsed by Gloria Castillo
as Cashier of Golden Savings and deposited to its Savings Account in the Metrobank. They
were then sent for clearing by the branch office to the principal office of Metrobank, which
forwarded them to the Bureau of Treasury for special clearing. Gloria Castillo went to the branch
several times to ask whether the warrants had been cleared. The petitioner, "exasperated" over
Gloria's repeated inquiries and as an accommodation for a "valued client," says it finally decided
to allow Golden Savings to withdraw from the 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 in the
RTC.

Issue:
Whether or not treasury warrants are negotiable instruments
Held:
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
Section 3 of NIL an unqualified order or promise to pay is unconditional though coupled with:
1st, an indication of a particular fund out of which reimbursement is to be made or a particular
account to be debited with the amount; or 2nd, a statement of the transaction which give rise to
the instrument. But an order to promise to pay out of particular fund is not unconditional. The
indication of Fund 501 as the source of the payment to be made on the treasury warrants
makes the order or promise to pay “not conditional” and the warrants themselves non-
negotiable. There should be no question that the exception on Section 3 of NIL is applicable in
the case at bar.
CALTEX (PHILIPPINES), INC., Petitioner v. COURT OF APPEALS and SECURITY BANK
AND TRUST COMPANY, Respondents.
G.R. No. 97753
August 10, 1992

The documents provide that the amounts deposited shall be repayable to the depositor.
And according to the document, the depositor 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.
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.
FACTS

The defendant, Security Bank and Trust Company, a commercial banking institution
issued 280 Certificate of time deposit (CTDs) in favor of Angel Dela Cruz who deposited with
the Security Bank the total amount of P1.2 Million. Angel delivered the CTDs to Caltex, in
connection with his purchased of fuel products from the latter.

Subsequently, Angel informed the bank that he lost all the CTDs, and thus executed an
affidavit of loss to facilitate the issuance of the replacement CTDs. Angel negotiated and
obtained a loan from Security Bank in the amount of P875, 000 and executed a notarized Deed
of Assignment of Time Deposit.

When Caltex presented said CTDs for verification with the bank and formally informed
the bank of its decision to pre-terminate the same, the bank rejected Caltex’ claim and demand
as Caltex failed to furnish copies of certain requested documents. In 1983, dela Cruz’ loan
matured and the bank set-off and applied the time deposits as payment for the loan. Caltex filed
a complaint which was dismissed on the ground that the subject certificates of deposit are non-
negotiable.

ISSUE

Whether or not the subject CTDs are negotiable.

RULING

YES. The CTDs in question are negotiable instruments as they meet the requirements of
the law for negotiability as provided for in Section 1 of the Negotiable Instruments Law. The
documents provide that the amounts deposited shall be repayable to the depositor. And
according to the document, the depositor 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. However, petitioner cannot recover
on the CTDs. Although the CTDs are bearer instruments, a valid negotiation thereof for the true
purpose and agreement between it and dela Cruz, as ultimately ascertained, requires both
delivery and indorsement. In this case, there was no indorsement as the CTDs were delivered
not as payment but only as a security for dela Cruz' fuel purchases.

Under the Negotiable Instruments Law, an instrument is negotiated when it is transferred

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

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.

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. In the
construction of a bill or note, the intention of the parties is to control, if it can be legally
ascertained. While the writing may be read in the light of surrounding circumstances in order to
more perfectly understand the intent and meaning of the parties, yet as they have constituted
the writing to be the only outward and visible expression of their meaning, no other words are to
be added to it or substituted in its stead.

The duty of the court in such case is to ascertain, not what the parties may have secretly
intended as contradistinguished from what their words express, but what is the meaning of the
words they have used. What the parties meant must be determined by what they said.
REPUBLIC PLANTERS BANK, Petitioner, v. COURT OF APPEALS and FERMIN CANLAS,
Respondent
G.R. No. 93073
December 21, 1992

Under the Negotiable Instruments Law, persons who write their names on the face of
promissory notes are makers and are liable as such. By signing the notes, the maker promises
to pay to the order of the payee or any holder according to the tenor thereof. Based on the
above provisions of law, there is no denying that private respondent Fermin Canlas is one of the
co-makers of` the promissory notes. As such, he cannot escape liability arising therefrom.

FACTS

Defendant Shozo Yamaguchi and private respondent Fermin Canlas were

President/Chief Operating Officer and Treasurer respectively, of Worldwide Garment
Manufacturing, Inc.. By virtue of Board Resolution No.1 dated August 1, 1979, defendant Shozo
Yamaguchi and private respondent Fermin Canlas were authorized to apply for credit facilities
with the petitioner Republic Planters Bank in the forms of export advances and letters of
credit/trust receipts accommodations. Petitioner bank issued nine promissory notes, marked as
Exhibits A to I inclusive, each of which were uniformly worded in the following manner:

___________, after date, for value received, I/we, jointly and severaIly promise
to pay to the ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila,
Philippines, the sum of ___________ PESOS(....) Philippine Currency...

On the right bottom margin of the promissory notes appeared the signatures of Shozo
Yamaguchi and Fermin Canlas above their printed names with the phrase "and (in) his personal
capacity" typewritten below. At the bottom of the promissory notes appeared: "Please credit
proceeds of this note to:

________ Savings Account ______XX Current Account

No. 1372-00257-6
of WORLDWIDE GARMENT MFG. CORP.

These entries were separated from the text of the notes with a bold line which ran
horizontally across the pages.

In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment
Manufacturing, Inc. was apparently rubber stamped above the signatures of defendant and
private respondent. On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to
change its corporate name to Pinch Manufacturing Corporation.

On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of money
covered among others, by the nine promissory notes with interest thereon, plus attorney's fees
and penalty charges. The complainant was originally brought against Worldwide Garment
Manufacturing, Inc. inter alia, but it was later amended to drop Worldwide Manufacturing, Inc. as
defendant and substitute Pinch Manufacturing Corporation it its place. Defendants Pinch
Manufacturing Corporation and Shozo Yamaguchi did not file an Amended Answer and failed to
appear at the scheduled pre-trial conference despite due notice. Only private respondent
Fermin Canlas filed an Amended Answer wherein he, denied having issued the promissory
notes in question since according to him, he was not an officer of Pinch Manufacturing
Corporation, but instead of Worldwide Garment Manufacturing, Inc., and that when he issued
said promissory notes in behalf of Worldwide Garment Manufacturing, Inc., the same were in
blank, the typewritten entries not appearing therein prior to the time he affixed his signature.

ISSUE

Whether private respondent Fermin Canlas is solidarily liable with the other defendants,
namely Pinch Manufacturing Corporation and Shozo Yamaguchi, on the nine promissory notes?
(YES)

RULING

Under the Negotiable Instruments Law, persons who write their names on the face of
promissory notes are makers and are liable as such. By signing the notes, the maker promises
to pay to the order of the payee or any holder according to the tenor thereof. Based on the
above provisions of law, there is no denying that private respondent Fermin Canlas is one of the
co-makers of the promissory notes. As such, he cannot escape liability arising therefrom.

Where an instrument containing the words “I promise to pay” is signed by two or more persons,
they are deemed to be jointly and severally liable thereon. An instrument which begins with “I”,
“We”, or “Either of us” promise to pay, when signed by two or more persons, makes them
solidarily liable. The fact that the singular pronoun is used indicates that the promise is
individual as to each other; meaning that each of the co-signers is deemed to have made an
independent singular promise to pay the notes in full.

In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and
certain, without reason for ambiguity, by the presence of the phrase “joint and several” as
describing the unconditional promise to pay to the order of Republic Planters Bank. A joint and
several notes is one in which the makers bind themselves both jointly and individually to the
payee so that all may be sued together for its enforcement, or the creditor may select one or
more as the object of the suit. A joint and several obligations in common law corresponds to a
civil law solidary obligation; that is, one of several debtors bound in such wise that each is liable
for the entire amount, and not merely for his proportionate share.

7) Sps. Evangelista vs. Mercator Finance Corp., et al, August 21, 2003

Facts:
 On February 16, 1982, the petitioners Spouses Evangelista executed a mortgage in
favor of defendant Mercator Finance Corporation (MFC) for and in consideration of certain loans
and/or other forms of credit accommodation obtained from the mortgagee-defendant MFC to
secure the payment and those others that the mortgagee might extend to Embassy Farms Inc.
Spouses Evangelista signed the promissory note and the subsequent Continuing Suretyship
Agreement executed to guarantee the indebtedness of Embassy Farms, and the succeeding
promissory notes restructuring the loan. Due to their failure to pay the obligation, the properties
were foreclosed and sold. After 10 years, however, petitioners filed a complaint for annulment of
titles of the properties sold. One of their contentions is that the promissory note that they signed
contained an ambiguity because they both signed when it was constructed as “I promise to pay”
and therefore shall be construed in their favor.

Issue:
Whether or Not the promissory that they signed is valid and should be construed in their favor

Ruling:
Yes, the promissory note is valid, however it must be construed in conformity with sec 17
(g) which states that; SECTION 17. Construction where instrument is ambiguous. — Where the
language of the instrument is ambiguous or there are omissions therein, the following rules of
construction apply;
(g) Where an instrument containing the word "I promise to pay" is signed by two or more
persons, they are deemed to be jointly and severally liable thereon.
Case 8
Ilano v. Court of Appeals
Facts:
Amelia Alonzo is anemployee of Victoria Ilano that was trusted his check book containing blank
checks with signature during she was in the United States for medical check-up,. A Complaint
for Revocation/Cancellation of Promissory Notes and Bills of Exchange (Checks) with Damages
and Prayer for Preliminary Injunction or Temporary Restraining Order (TRO) against Alonzo et
al. before the Regional Trial Court of Cavite. Ilano contends that Alonzo, by means of deceit and
abuse of confidence succeeded in procuring Promissory Notes and signed blank checks. The
RTC rendered a decision dismissing the complaint for lack of cause of action and failure to
allege the ultimate facts of the case.
On appeal, the Court of Appeals affirmed the dismissal of the complaint. ALONZO is a trusted
employee of Ilano. She has been with them for several years already, and through the years,
defendant ALONZO was able to gain the trust and confidence of ilano and her family. The trust
and confidence were abused when there are checks issued without the knowledge and intention
of the real owner of the checks. The checks issued by Alonzo bounced due to closing of the
account of Ilano.
Issue:
Whether or not ilano be held responsible to the information written up by Alonzo in her behalf
Ruling
No, she shall not be responsible. In Sec.6 of the NIL, the negotiable character of an instrument
is not affected even if it is not dated and so on. However, only if it is the will of the payee or his
mistake. On the case at hand, without any intention of Ilano, checks were issued on his behalf
by Alonzo.
Almost all of the checks were drawn from a closed account which Alonzo clearly intents to draw
from with malice. Due to the closing of the account, the instrument is rendered nonnegotiable
and and the court holds Ilano no responsibility to the actions of Alonzo.
G.R. No. 89252 May 24, 1993
RAUL SESBREÑO, petitioner, vs. HON. COURT OF APPEALS, DELTA MOTORS
CORPORATION AND PILIPINAS BANK, respondents.

FACTS:
On 9 February 1981, petitioner Raul Sesbreño made a money market placement in the amount
of P300,000.00 with the Philippine Underwriters Finance Corporation ("Philfinance"), Cebu
Branch; the placement, with a term of thirty-two (32) days, would mature on 13 March 1981,
Philfinance, also on 9 February 1981, issued the following documents to petitioner: Certificate of
Confirmation of Sale of a Delta Motor Corporation Promissory Note (DMC PN No. 2731), 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 13 March 1981.

On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance.
However, the checks were dishonored for having been drawn against insufficient funds. On 26
March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private
respondent Pilipinas Bank ("Pilipinas").

DMC PN No. 2731 was discovered to be marked as "NON-NEGOTIABLE".

ISSUE:
Whether or not DMC PN No. 2731 marked as non-negotiable may be assigned?

RULING:
YES.

A negotiable instrument may, however, instead of being negotiated, also be assigned or

transferred. The legal consequences of negotiation as distinguished from assignment of a
negotiable instrument are, of course, different. A non-negotiable instrument may, obviously, not
be negotiated; but it may be assigned or transferred, absent an express prohibition against
assignment or transfer written in the face of the instrument: The words "not negotiable,"
stamped on the face of the bill of lading, did not destroy its assignability, but the sole effect was
to exempt the bill from the statutory provisions relative thereto, and a bill, though not negotiable,
may be transferred by assignment; the assignee taking subject to the equities between the
original parties.
DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-
transferable" or "non-assignable." It contained no stipulation which prohibited Philfinance from
assigning or transferring, in whole or in part, that Note.

G.R. No. 72593 April 30, 1987

CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and RODOLFO T.

VERGARA, petitioners,
vs.
IFC LEASING AND ACCEPTANCE CORPORATION, respondent.

GUTIERREZ, JR., J.:

Facts:

The petitioner is a corporation engaged in the logging business. It had for its program of
logging activities the opening of additional roads, and simultaneous logging operations and for
this purpose, it needed two (2) additional units of tractors. Atlantic Gulf & Pacific Company of
Manila, through its sister company and marketing arm, Industrial Products Marketing (the
"seller-assignor"), a corporation dealing in tractors and other heavy equipment business, offered
to sell to petitioner-corporation two (2) "Used" Allis Crawler Tractors, one (1) an HDD-21-B and
the other an HDD-16-B. The seller-assignor assured petitioner-corporation that they were fit for
the job, and gave the corresponding warranty. Wee and Vergara, agreed to purchase on
installment said two units and paid the down payment. At the same time, the deed of sale with
chattel mortgage with promissory note was executed. Simultaneously with the execution of the
deed of sale with chattel mortgage with promissory note, the seller-assignor, by means of a
deed of assignment, assigned its rights and interest in the chattel mortgage in favor of the
respondent. The tractors broke down and mechanics were sent to conduct the necessary
repairs, but the tractors were no longer serviceable. The road building and simultaneous logging
operations were delayed and petitioner Vergara advised the seller-assignor that the payments
of the installments as listed in the promissory note would likewise be delayed. Since the tractors
were no longer serviceable, petitioner Wee asked to pull out the units and have them
reconditioned, and thereafter to offer them for sale. The proceeds were to be given to the
respondent and the excess, if any, to be divided between the seller-assignor and petitioner-
corporation which offered to bear one-half (1/2) of the reconditioning cost. No response was
received and despite several follow-up calls, the seller-assignor did nothing with until the
complaint in this case was filed by the respondent against the petitioners, the corporation, Wee,
and Vergara.

Issue: Whether or not the promissory note in question is a negotiable instrument so as to bar
completely all the available defenses of the petitioner against the respondent-assignee.

Held: No. The instrument in order to be considered negotiable must contain the so called 'words
of negotiability'-ie., 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 risks under a negotiable instrument than under a non-negotiable one. The
instrument is payable to order where it is drawn payable to the order of a specified person or to
him or his order . . . "These are the only two ways by which an instrument may be made payable
to order. There must be always be a specified person named in the instrument. It means that
the bill or note is to be paid to the person designated in the instrument or to any person to whom
he has indorsed and delivered the same. 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 the
respondent can never be a holder in due course but remains a mere assignee of the note in
question. Thus, the petitioner may raise against the respondent all defenses available to it as
against the seller-assignor Industrial Products Marketing.

G.R. No. 111190 June 27, 1995

LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue City and in his personal capacity
as garnishee, petitioner,
vs.
HON. JOSE P. BURGOS, Presiding Judge, RTC, Br. XVII, Cebu City, and RAUL H.
SESBREÑO, respondents.

BELLOSILLO, J.:

Facts:

A notice of garnishment was served on petitioner as City Fiscal where defendant

Mabanto, Jr., was then detailed. The notice directed petitioner not to disburse, transfer, release
or convey to any other person except to the deputy sheriff concerned the salary checks or other
checks, monies, or cash due or belonging to Mabanto, Jr., under penalty of law. Private
respondent filed a motion before the trial court. The petition was dismissed. Thus, the trial court,
finding no more legal obstacle to act on the motion for examination of the garnishees, directed
petitioner to submit his report showing the amount of the garnished salaries of Mabanto, Jr.
Private respondent filed a motion to require petitioner to explain why he should not be cited in
contempt of court for failing to comply with the order. Petitioner moved to quash the notice of
garnishment claiming that he was not in possession of any money, funds, credit, property or
anything of value belonging to Mabanto, Jr., except his salary and RATA checks, but that said
checks were not yet properties of Mabanto, Jr., until delivered to him. He further claimed that, as
such, they were still public funds which could not be subject to garnishment. The trial court
denied both motions and ordered petitioner to immediately comply with its order. It opined that
the checks of Mabanto, Jr., had already been released through petitioner by the Department of
Justice duly signed by the officer concerned. Upon service of the writ of garnishment, petitioner
as custodian of the checks was under obligation to hold them for the judgment creditor.
Additionally, there was no sufficient reason for petitioner to hold the checks because they were
no longer government funds and presumably delivered to the payee, conformably with the last
sentence of Sec. 16 of the Negotiable Instruments Law.

Issue: Whether or not a check still in the hands of the maker or its duly authorized
representative is owned by the payee before physical delivery to the latter.

Held:
 No. As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds. He
receives his compensation in the form of checks from the Department of Justice through
petitioner as City Fiscal and head of office. Under Sec. 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 means the
transfer of the possession of the instrument by the maker or drawer with intent to transfer title to
the payee and recognize him as the holder thereof.

Inasmuch as said checks had not yet been delivered to Mabanto, Jr., they did not
belong to him and still had the character of public funds. In Tiro v. Hontanosas we ruled that —
The salary check of a government officer or employee such as a teacher does not belong to him
before it is physically delivered to him. Until that time the check belongs to the government.
Accordingly, before there is actual delivery of the check, the payee has no power over it; he
cannot assign it without the consent of the Government.

12) Development Bank of Rizal vs. Sima Wei, 219 SCRA 736

Facts:
Sima Wei executed a promissory note in consideration of a loan secured from
Development Bank of Rizal. She was able to pay partially for the loan but failed to pay for the
balance. On November 18, 1983 Sima Wei issued two checks to pay the unpaid balance
but for some unexplainable reason, the checks were not received by the bank but ended up
in the hands of Lee Kian Huat. Lee Kian Huat then deposited the check to Plastics
Corporation. The manager of Producers Bank, relying on the assurance of the President of the
Plastic Corporation allowed the check to be deposited even without indorsement from
Development Bank of Rizal. Development Bank of Rizal then instituted actions against Sima
Wei and other people.

Issue:
Whether or not Sima Wei is freed from liability when she issued the check in the name of
Development Bank of Rizal

Ruling:
No, Sima Wei is not freed from liability. Section 16 of the Negotiable Instruments Law,
provides that;
“Every contract on a negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. . . .”
No delivery occurred to Development Bank of Rizal and therefore the instrument is still
incomplete and she is still not freed from her liability. Further, assuming that Development Bank
did indeed receive the check, she would still not be freed from her liability until the check has
been encashed.