c


Ê
February 03, 1911Ê
Ê
THE NEGOTIABLE INSTRUMENTS LAWÊ
Ê
I. FORM AND INTERPRETATIONÊ
ÊÊ
Section 1. "
  
  
  An instrument to be negotiable must
conform to the following requirements:ÊÊ

(a) It must be in writing and signed by the maker or drawer;ÊÊ

ÊÊ
(b) Must contain an unconditional promise or order to pay a sum certain in
money;ÊÊ
ÊÊ
(c) Must be payable on demand, or at a fixed or determinable future time;ÊÊ
ÊÊ
(d) Must be payable to order or to bearer; andÊÊ
ÊÊ
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.ÊÊ

Sec. 2. î
    


   - The sum payable is a sum certain
within the meaning of this Act, although it is to be paid:ÊÊ

(a) with interest; orÊÊ

ÊÊ
(b) by stated installments; orÊÊ
ÊÊ
(c) by stated installments, with a provision that, upon default in payment of any
installment or of interest, the whole shall become due; orÊÊ
ÊÊ
(d) with exchange, whether at a fixed rate or at the current rate; orÊÊ
ÊÊ
(e) with costs of collection or an attorney's fee, in case payment shall not be
made at maturity.ÊÊ

Sec. 3. î 
     

 An unqualified order or promise to pay is
unconditional within the meaning of this Act though coupled with:ÊÊ

(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; orÊÊ
ÊÊ
(b) A statement of the transaction which gives rise to the instrument.ÊÊ
But an order or promise to pay out of a particular fund is not unconditional.chan robles
virtual law libraryÊ
ÊÊ
Sec. 4. 
 

 
     - An instrument is payable at a
determinable future time, within the meaning of this Act, which is expressed to be
payable:ÊÊ
 (a) At a fixed period after date or sight; orÊÊ
ÊÊ
(b) On or before a fixed or determinable future time specified therein; orÊÊ
ÊÊ
(c) On or at a fixed period after the occurrence of a specified event which is
certain to happen, though the time of happening be uncertain.ÊÊ

An instrument payable upon a contingency is not negotiable, and the happening of

the event does not cure the defect.ÊÊ
ÊÊ
Sec. 5. c  

   
  
   - An instrument which
contains an order or promise to do any act in addition to the payment of money is
not negotiable. But the negotiable character of an instrument otherwise negotiable is
not affected by a provision which:ÊÊ

(a) authorizes the sale of collateral securities in case the instrument be not paid
at maturity; orÊÊ
ÊÊ
(b) authorizes a confession of judgment if the instrument be not paid at
maturity; orÊÊ
ÊÊ
(c) waives the benefit of any law intended for the advantage or protection of the
obligor; orÊÊ
ÊÊ
(d) gives the holder an election to require something to be done in lieu of
payment of money.ÊÊ

But nothing in this section shall validate any provision or stipulation otherwise
illegal.ÊÊ
ÊÊ
Sec. 6. |   


 

  The validity and negotiable character of
an instrument are not affected by the fact that:ÊÊ
(a) it is not dated; orÊÊ
ÊÊ
(b) does not specify the value given, or that any value had been given therefor;
orÊÊ
ÊÊ
(c) does not specify the place where it is drawn or the place where it is payable;
orÊÊ
ÊÊ
(d) bears a seal; orÊÊ
ÊÊ
(e) designates a particular kind of current money in which payment is to be
made.ÊÊ

But nothing in this section shall alter or repeal any statute requiring in certain cases
the nature of the consideration to be stated in the instrument.ÊÊ
ÊÊ
Sec. 7. î 

 
 - An instrument is payable onÊÊ
demand:ÊÊ
 (a) When it is so expressed to be payable on demand, or at sight, or on
presentation; orÊÊ
ÊÊ
(b) In which no time for payment is expressed.ÊÊ
Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards
the person so issuing, accepting, or indorsing it, payable on demand.ÊÊ
ÊÊ
Sec. 8. î 

 

 - The instrument is payable to order where it is drawn
payable to the order of a specified person or to him or his order. It may be drawn
payable to the order of:ÊÊ

(a) A payee who is not maker, drawer, or drawee; orÊÊ

ÊÊ
(b) The drawer or maker; orÊÊ
ÊÊ
(c) The drawee; orÊÊ
ÊÊ
(d) Two or more payees jointly; orÊÊ
ÊÊ
(e) One or some of several payees; orÊÊ
ÊÊ
(f) The holder of an office for the time being.ÊÊ

Where the instrument is payable to order, the payee must be named or otherwise
indicated therein with reasonable certainty.ÊÊ
ÊÊ
Sec. 9. î 

 


 - The instrument is payable toÊÊ
bearer:ÊÊ

(a) When it is expressed to be so payable; orÊÊ

ÊÊ
(b) When it is payable to a person named therein or bearer; orÊÊ
ÊÊ
(c) When it is payable to the order of a fictitious or non-existing person, and
such fact was known to the person making it so payable; orÊÊ
ÊÊ
(d) When the name of the payee does not purport to be the name of anyÊÊ
person; orÊÊ
ÊÊ
(e) When the only or last indorsement is an indorsement in blank.ÊÊ

Sec. 10. 
      - The instrument need not follow the language of
this Act, but any terms are sufficient which clearly indicate an intention to conform
to the requirements hereof.ÊÊ
ÊÊ
Sec. 11. 

  
  - Where the instrument or an acceptance or any
indorsement thereon is dated, such date is deemed prima facie to be the true date of
the making, drawing, acceptance, or indorsement, as the case may be. 
 ÊÊ
ÊÊ
Sec. 12. c

 
 The instrument is not invalid for the reason
only that it is ante-dated or post-dated, provided this is not done for an illegal or
fraudulent purpose. The person to whom an instrument so dated is delivered acquires
the title thereto as of the date of delivery.ÊÊ
ÊÊ
Sec. 13. î 

  
 - Where an instrument expressed to be payable
at a fixed period after date is issued undated, or where the acceptance of an
instrument payable at a fixed period after sight is undated, any holder may insert
therein the true date of issue or acceptance, and the instrument shall be payable
accordingly. The insertion of a wrong date does not avoid the instrument in the
hands of a subsequent holder in due course; but as to him, the date so inserted is to
be regarded as the true date.ÊÊ
ÊÊ
Sec. 14. d
  
  - Where the instrument is wanting in any
material particular, the person in possession thereof has a prima facie authority to
complete it by filling up the blanks therein. And a signature on a blank paper
delivered by the person making the signature in order that the paper may be
converted into a negotiable instrument operates as a prima facie authority to fill it
up as such for any amount. In order, however, that any such instrument when
completed may be enforced against any person who became a party thereto prior to
its completion, it must be filled up strictly in accordance with the authority given
and within a reasonable time. But if any such instrument, after completion, is
negotiated to a holder in due course, it is valid and effectual for all purposes in his
hands, and he may enforce it as if it had been filled up strictly in accordance with the
authority given and within a reasonable time.ÊÊ
ÊÊ
Sec. 15. M   
  
 - Where an incomplete instrument has
not been delivered, it will not, if completed and negotiated without authority, be a
valid contract in the hands of any holder, as against any person whose signature was
placed thereon before delivery.ÊÊ
ÊÊ
Sec. 16.  
 
 
  Every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the
purpose of giving effect thereto. As between immediate parties and as regards a
remote party other than a holder in due course, the delivery, in order to be effectual,
must be made either by or under the authority of the party making, drawing,
accepting, or indorsing, as the case may be; and, in such case, the delivery may be
shown to have been conditional, or for a special purpose only, and not for the
purpose of transferring the property in the instrument. But where the instrument is
in the hands of a holder in due course, a valid delivery thereof by all parties prior to
him so as to make them liable to him is conclusively presumed. And where the
instrument is no longer in the possession of a party whose signature appears thereon,
a valid and intentional delivery by him is presumed until the contrary is proved.ÊÊ
ÊÊ
Sec. 17. ‘  
  
  
 
    - Where the language of the
instrument is ambiguous or there are omissions therein, the following rules of
construction apply:ÊÊ

(a) Where the sum payable is expressed in words and also in figures and there is
a discrepancy between the two, the sum denoted by the words is the sum
payable; but if the words are ambiguous or uncertain, reference may be had to
the figures to fix the amount;ÊÊ
ÊÊ
 (b) Where the instrument provides for the payment of interest, without
specifying the date from which interest is to run, the interest runs from the
date of the instrument, and if the instrument is undated, from the issue
thereof;ÊÊ
ÊÊ
(c) Where the instrument is not dated, it will be considered to be dated as of the
time it was issued;ÊÊ
ÊÊ
(d) Where there is a conflict between the written and printed provisions of the
instrument, the written provisions prevail;ÊÊ
ÊÊ
(e) Where the instrument is so ambiguous that there is doubt whether it is a bill
or note, the holder may treat it as either at his election;ÊÊ
ÊÊ
(f) Where a signature is so placed upon the instrument that it is not clear in
what capacity the person making the same intended to sign, he is to be deemed
an indorser;ÊÊ
ÊÊ
(g) Where an instrument containing the wordM
  
 is signed by two
or more persons, they are deemed to be jointly and severally liable thereon.ÊÊ
ÊÊ
Sec. 18. {
   
   




 - No person is liable
on the instrument whose signature does not appear thereon, except as herein
otherwise expressly provided. But one who signs in a trade or assumed name will be
liable to the same extent as if he had signed in his own name.ÊÊ
ÊÊ
Sec. 19. ’ 




   - The signature of any party may
be made by a duly authorized agent. No particular form of appointment is necessary
for this purpose; and the authority of the agent may be established as in other cases
of agency.ÊÊ
ÊÊ
Sec. 20. {
   
  


 
  - Where the instrument
contains or a person adds to his signature words indicating that he signs for or on
behalf of a principal or in a representative capacity, he is not liable on the
instrument if he was duly authorized; but the mere addition of words describing him
as an agent, or as filling a representative character, without disclosing his principal,
does not exempt him from personal liability.ÊÊ
ÊÊ
Sec. 21. ’ 




   - A signature by 


  operates
as notice that the agent has but a limited authority to sign, and the principal is
bound only in case the agent in so signing acted within the actual limits of his
authority.ÊÊ
ÊÊ
Sec. 22.   
 




  The indorsement or
assignment of the instrument by a corporation or by an infant passes the property
therein, notwithstanding that from want of capacity, the corporation or infant may
incur no liability thereon.ÊÊ
ÊÊ
Sec. 23. "
 

  - When a signature is forged or made without the
authority of the person whose signature it purports to be, it is wholly inoperative,
and no right to retain the instrument, or to give a discharge therefor, or to enforce
payment thereof against any party thereto, can be acquired through or under such
signature, unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.ÊÊ
ÊÊ
II. CONSIDERATIONÊ
Ê
Sec. 24. 
     

  - Every negotiable instrument is deemed



  to have been issued for a valuable consideration; and every person whose
signature appears thereon to have become a party thereto for value.ÊÊ
ÊÊ
Sec. 25. *

    . ³ Value is any consideration sufficient to support a
simple contract. An antecedent or pre-existing debt constitutes value; and is deemed
such whether the instrument is payable on demand or at a future time.ÊÊ
ÊÊ
Sec. 26. î
     


 - Where value has at any time been given
for the instrument, the holder is deemed a holder for value in respect to all parties
who become such prior to that time.ÊÊ
Sec. 27. When lien on instrument constitutes holder for value. ³ Where the holder
has a lien on the instrument arising either from contract or by implication of law, he
is deemed a holder for value to the extent of his lien.ÊÊ
ÊÊ
Sec. 28.  
   

  Absence or failure of consideration is a
matter of defense as against any person not a holder in due course; and partial failure
of consideration is a defense pro tanto, whether the failure is an ascertained and
liquidated amount or otherwise.ÊÊ
ÊÊ
Sec. 29. {
   
  
 

 - An accommodation party is one who has
signed the instrument as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other person. Such a
person is liable on the instrument to a holder for value, notwithstanding such holder,
at the time of taking the instrument, knew him to be only an accommodation party.ÊÊ
ÊÊ
III. NEGOTIATIONÊ
ÊÊ
Sec. 30. î
     
  - An instrument is negotiated when it is
transferred from one person to another in such manner as to constitute the
transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if
payable to order, it is negotiated by the indorsement of the holder and completed by
delivery.ÊÊ
ÊÊ
Sec. 31. M
 
 The indorsement must be written on the
instrument itself or upon a paper attached thereto. The signature of the indorser,
without additional words, is a sufficient indorsement.ÊÊ
ÊÊ
Sec. 32. M
  
  
 The indorsement must be an
indorsement of the entire instrument. An indorsement which purports to transfer to
the indorsee a part only of the amount payable, or which purports to transfer the
instrument to two or more indorsees severally, does not operate as a negotiation of
the instrument. But where the instrument has been paid in part, it may be indorsed
as to the residue.ÊÊ
ÊÊ
Sec. 33. X    
 - An indorsement may be either special or in blank;
and it may also be either restrictive or qualified or conditional.ÊÊ
ÊÊ
Sec. 34. ’
 
 
 
 - A special indorsement
specifies the person to whom, or to whose order, the instrument is to be payable, and
the indorsement of such indorsee is necessary to the further negotiation of the
instrument. An indorsement in blank specifies no indorsee, and an instrument so
indorsed is payable to bearer, and may be negotiated by delivery.ÊÊ
ÊÊ
Sec. 35. d
 
 
  
 
 - The holder may
convert a blank indorsement into a special indorsement by writing over the signature
of the indorser in blank any contract consistent with the character of the
indorsement.ÊÊ
ÊÊ
Sec. 36. î  

 
  - An indorsement is restrictive which either:ÊÊ

(a) Prohibits the further negotiation of the instrument; orÊÊ

ÊÊ
(b) Constitutes the indorsee the agent of the indorser; orÊÊ
ÊÊ
(c) Vests the title in the indorsee in trust for or to the use of some other
persons.ÊÊ
But the mere absence of words implying power to negotiate does not make an
indorsement restrictive.ÊÊ
ÊÊ
Sec. 37.  
 
  

    
 - A restrictive
indorsement confers upon the indorsee the right:ÊÊ
(a) to receive payment of the instrument;ÊÊ
ÊÊ
(b) to bring any action thereon that the indorser could bring;ÊÊ
ÊÊ
(c) to transfer his rights as such indorsee, where the form of the indorsement
authorizes him to do so.ÊÊ

But all subsequent indorsees acquire only the title of the first indorsee under the
restrictive indorsement.ÊÊ
ÊÊ
Sec. 38. o
   
 - A qualified indorsement constitutes the indorser a
mere assignor of the title to the instrument. It may be made by adding to the
indorser's signature the words "without recourse" or any words of similar import.
Such an indorsement does not impair the negotiable character of the instrument.ÊÊ
ÊÊ
Sec. 39. ‘   
 
 Where an indorsement is conditional, the party
required to pay the instrument may disregard the condition and make payment to
the indorsee or his transferee whether the condition has been fulfilled or not. But any
person to whom an instrument so indorsed is negotiated will hold the same, or the
proceeds thereof, subject to the rights of the person indorsing conditionally.ÊÊ
ÊÊ
Sec. 40. M
   


 


 - Where an instrument,
payable to bearer, is indorsed specially, it may nevertheless be further negotiated by
delivery; but the person indorsing specially is liable as indorser to only such holders
as make title through his indorsement.ÊÊ
ÊÊ
Sec. 41. M
 


  


  - Where an instrument
is payable to the order of two or more payees or indorsees who are not partners, all
must indorse unless the one indorsing has authority to indorse for the others.ÊÊ
ÊÊ
Sec. 42.    



 
 


ÊÊ


 - Where an instrument is drawn or indorsed to a person as 

or other
fiscal officer of a bank or corporation, it is deemed prima facie to be payable to the
bank or corporation of which he is such officer, and may be negotiated by either the
indorsement of the bank or corporation or the indorsement of the officer.ÊÊ
ÊÊ
Sec. 43. M
 

  
 
  - Where the name of a
payee or indorsee is wrongly designated or misspelled, he may indorse the
instrument as therein described adding, if he thinks fit, his proper signature.ÊÊ
ÊÊ
Sec. 44. M
 

 
 

  - Where any person is under
obligation to indorse in a representative capacity, he may indorse in such terms as to
negative personal liability.Êrobles virtual law libraryÊ
ÊÊ
Sec. 45.    

   - Except where an indorsement bears
date after the maturity of the instrument, every negotiation is deemed prima facie to
have been effected before the instrument was overdue.ÊÊ
ÊÊ
Sec. 46. 
  

   - Except where the contrary appears,
every indorsement is presumed prima facie to have been made at the place where the
instrument is dated.ÊÊ
ÊÊ
Sec. 47. ‘  
   




 An instrument negotiable in its
origin continues to be negotiable until it has been restrictively indorsed or
discharged by payment or otherwise.ÊÊ
ÊÊ
Sec. 48. ’
   
 - The holder may at any time strike out any
indorsement which is not necessary to his title. The indorser whose indorsement is
struck out, and all indorsers subsequent to him, are thereby relieved from liability on
the instrument.ÊÊ
ÊÊ
Sec. 49. 

 
   
  - Where the holder of an instrument
payable to his order transfers it for value without indorsing it, the transfer vests in
the transferee such title as the transferor had therein, and the transferee acquires in
addition, the right to have the indorsement of the transferor. But for the purpose of
determining whether the transferee is a holder in due course, the negotiation takes
effect as of the time when the indorsement is actually made.ÊÊ
ÊÊ
Sec. 50. î 




 
  
 - Where an instrument is
negotiated back to a prior party, such party may, subject to the provisions of this
Act, reissue and further negotiable the same. But he is not entitled to enforce
payment thereof against any intervening party to whom he was personally liable.ÊÊ
ÊÊ
IV. RIGHTS OF THE HOLDERÊ
Ê
Sec. 51. ©    
  
 - The holder of a negotiable instrument may
to sue thereon in his own name; and payment to him in due course discharges the
instrument.ÊÊ
ÊÊ
Sec. 52. î
    
 
  
 - A holder in due course is a holder
who has taken the instrument under the following conditions:ÊÊ
(
a) That it is complete and regular upon its face;ÊÊ
ÊÊ
(b) That he became the holder of it before it was overdue, and without notice
that it has been previously dishonored, if such was the fact;ÊÊ
ÊÊ
(c) That he took it in good faith and for value;ÊÊ
ÊÊ
(d) That at the time it was negotiated to him, he had no notice of any infirmity
in the instrument or defect in the title of the person negotiating it.ÊÊ

Sec. 53. î 
  
  
 Where an instrument
payable on demand is negotiated on an unreasonable length of time after its issue,
the holder is not deemed a holder in due course.ÊÊ
ÊÊ
Sec. 54.   

  
 - Where the transferee receives notice of
any infirmity in the instrument or defect in the title of the person negotiating the
same before he has paid the full amount agreed to be paid therefor, he will be deemed
a holder in due course only to the extent of the amount therefore paid by him.ÊÊ
ÊÊ
Sec. 55. î    The title of a person who negotiates an instrument is
defective within the meaning of this Act when he obtained the instrument, or any
signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for
an illegal consideration, or when he negotiates it in breach of faith, or under such
circumstances as amount to a fraud.ÊÊ
ÊÊ
Sec. 56. î
        - To constitutes notice of an infirmity in
the instrument or defect in the title of the person negotiating the same, the person
to whom it is negotiated must have had actual knowledge of the infirmity or defect,
or knowledge of such facts that his action in taking the instrument amounted to bad
faith.ÊÊ
ÊÊ
Sec. 57. ©     
  
 - A holder in due course holds the
instrument free from any defect of title of prior parties, and free from defenses
available to prior parties among themselves, and may enforce payment of the
instrument for the full amount thereof against all parties liable thereon. robles virtual law
libraryÊ
ÊÊ
Sec. 58. î   
 
  In the hands of any holder other than a
holder in due course, a negotiable instrument is subject to the same defenses as if it
were non-negotiable. But a holder who derives his title through a holder in due
course, and who is not himself a party to any fraud or illegality affecting the
instrument, has all the rights of such former holder in respect of all parties prior to
the latter.ÊÊ
ÊÊ
Sec. 59. î   
  
 - Every holder is deemed prima facie to
be a holder in due course; but when it is shown that the title of any person who has
negotiated the instrument was defective, the burden is on the holder to prove that he
or some person under whom he claims acquired the title as holder in due course. But
the last-mentioned rule does not apply in favor of a party who became bound on the
instrument prior to the acquisition of such defective title.ÊÊ
ÊÊ
V. LIABILITIES OF PARTIESÊ
Ê
Sec. 60. {
   

 - The maker of a negotiable instrument, by making it,
engages that he will pay it according to its tenor, and admits the existence of the
payee and his then capacity to indorse.ÊÊ
ÊÊ
Sec. 61. {
   


 - The drawer by drawing the instrument admits the
existence of the payee and his then capacity to indorse; and engages that, on due
presentment, the instrument will be accepted or paid, or both, according to its tenor,
and that if it be dishonored and the necessary proceedings on dishonor be duly taken,
he will pay the amount thereof to the holder or to any subsequent indorser who may
be compelled to pay it. But the drawer may insert in the instrument an express
stipulation negativing or limiting his own liability to the holder.ÊÊ
ÊÊ
Sec. 62. {
   

 - The acceptor, by accepting the instrument, engages
that he will pay it according to the tenor of his acceptance and admits:ÊÊ

(a) The existence of the drawer, the genuineness of his signature, and his
capacity and authority to draw the instrument; andÊÊ
ÊÊ
(b) The existence of the payee and his then capacity to indorse.ÊÊ

Sec. 63. î 


 

 - A person placing his signature upon an
instrument otherwise than as maker, drawer, or acceptor, is deemed to be indorser
unless he clearly indicates by appropriate words his intention to be bound in some
other capacity.ÊÊ
ÊÊ
Sec. 64. {
   



 

. - Where a person, not otherwise a party to an
instrument, places thereon his signature in blank before delivery, he is liable as
indorser, in accordance with the following rules:ÊÊ

(a) If the instrument is payable to the order of a third person, he is liable to the
payee and to all subsequent parties.ÊÊ
ÊÊ
(b) If the instrument is payable to the order of the maker or drawer, or is
payable to bearer, he is liable to all parties subsequent to the maker or drawer.ÊÊ
ÊÊ
(c) If he signs for the accommodation of the payee, he is liable to all parties
subsequent to the payee.ÊÊ

Sec. 65. î



 
 
  

 
  ³ Every person
negotiating an instrument by delivery or by a qualified indorsement warrants:ÊÊ
 (a) That the instrument is genuine and in all respects what it purports to be;ÊÊ
ÊÊ
(b) That he has a good title to it;ÊÊ
ÊÊ
(c) That all prior parties had capacity to contract;ÊÊ
ÊÊ
(d) That he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless.ÊÊ

But when the negotiation is by delivery only, the warranty extends in favor of no
holder other than the immediate transferee.ÊÊ
ÊÊ
The provisions of subdivision (c) of this section do not apply to a person negotiating
public or corporation securities other than bills and notes.ÊÊ
ÊÊ
Sec. 66. {
   

 

 - Every indorser who indorses without
qualification, warrants to all subsequent holders in due course:ÊÊ

(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next
preceding section; andÊÊ
ÊÊ
(b) That the instrument is, at the time of his indorsement, valid and subsisting;ÊÊ

And, in addition, he engages that, on due presentment, it shall be accepted or paid,

or both, as the case may be, according to its tenor, and that if it be dishonored and
the necessary proceedings on dishonor be duly taken, he will pay the amount thereof
to the holder, or to any subsequent indorser who may be compelled to pay it.ÊÊ
ÊÊ
Sec. 67. {
    

 


 
 
 ³ Where a person
places his indorsement on an instrument negotiable by delivery, he incurs all the
liability of an indorser.ÊÊ
ÊÊ
Sec. 68. |

    




 - As respect one another, indorsers are
liable


 in the order in which they indorse; but evidence is admissible to
show that, as between or among themselves, they have agreed otherwise. Joint
payees or joint indorsees who indorse are deemed to indorse jointly and severally.
robles virtual law libraryÊ
ÊÊ
Sec. 69. {
   




 - Where a broker or other agent negotiates
an instrument without indorsement, he incurs all the liabilities prescribed by Section
Sixty-five of this Act, unless he discloses the name of his principal and the fact that
he is acting only as agent.ÊÊ
ÊÊ
VI. PRESENTATION FOR PAYMENTÊ
Ê
Sec. 70.  
 
 
 

 - Presentment for payment is
not necessary in order to charge the person primarily liable on the instrument; but if
the instrument is, by its terms, payable at a special place, and he is able and willing
to pay it there at maturity, such ability and willingness are equivalent to a tender of
payment upon his part. But except as herein otherwise provided, presentment for
payment is necessary in order to charge the drawer and indorsers.ÊÊ
 ÊÊ
Sec. 71. 
  
  
  

 

 



 
 Where the instrument is not payable on demand, presentment
must be made on the day it falls due. Where it is payable on demand, presentment
must be made within a reasonable time after its issue, except that in the case of a bill
of exchange, presentment for payment will be sufficient if made within a reasonable
time after the last negotiation thereof.ÊÊ
ÊÊ
Sec. 72. î
    
   
  - Presentment for payment, to be
sufficient, must be made:ÊÊ

(a) By the holder, or by some person authorized to receive payment on his

behalf;ÊÊ
ÊÊ
(b) At a reasonable hour on a business day;ÊÊ
ÊÊ
(c) At a proper place as herein defined;ÊÊ
ÊÊ
(d) To the person primarily liable on the instrument, or if he is absent or
inaccessible, to any person found at the place where the presentment is made.ÊÊ

Sec. 73. 
 
  Presentment for payment is made at the proper
place:ÊÊ

(a) Where a place of payment is specified in the instrument and it is there

presented;ÊÊ
ÊÊ
(b) Where no place of payment is specified but the address of the person to
make payment is given in the instrument and it is there presented;ÊÊ
ÊÊ
(c) Where no place of payment is specified and no address is given and the
instrument is presented at the usual place of business or residence of the
person to make payment;ÊÊ
ÊÊ
(d) In any other case if presented to the person to make payment wherever he
can be found, or if presented at his last known place of business or residence.ÊÊ

Sec. 74. M 
    - The instrument must be exhibited to the
person from whom payment is demanded, and when it is paid, must be delivered up
to the party paying it.ÊÊ
ÊÊ
Sec. 75. 
  
  




 - Where the instrument is
payable at a bank, presentment for payment must be made during banking hours,
unless the person to make payment has no funds there to meet it at any time during
the day, in which case presentment at any hour before the bank is closed on that day
is sufficient.ÊÊ
ÊÊ
Sec. 76. 
  

 

 
 - Where the person primarily
liable on the instrument is dead and no place of payment is specified, presentment
for payment must be made to his personal representative, if such there be, and if,
with the exercise of reasonable diligence, he can be found.ÊÊ
 ÊÊ
Sec. 77. 
  
 




 - Where the persons primarily
liable on the instrument are liable as partners and no place of payment is specified,
presentment for payment may be made to any one of them, even though there has
been a dissolution of the firm.ÊÊ
ÊÊ
Sec. 78. 
   
 - Where there are several persons, not partners,
primarily liable on the instrument and no place of payment is specified, presentment
must be made to them all.ÊÊ
ÊÊ
Sec. 79. î 
  

 

 


 Presentment for
payment is not required in order to charge the drawer where he has no right to
expect or require that the drawee or acceptor will pay the instrument.ÊÊ
ÊÊ
Sec. 80. î 
  

 

  

 Presentment is not
required in order to charge an indorser where the instrument was made or accepted
for his accommodation and he has no reason to expect that the instrument will be
paid if presented.ÊÊ
ÊÊ
Sec. 81. î 
 
 
    - Delay in making
presentment for payment is excused when the delay is caused by circumstances
beyond the control of the holder and not imputable to his default, misconduct, or
negligence. When the cause of delay ceases to operate, presentment must be made
with reasonable diligence.ÊÊ
ÊÊ
Sec. 82. î 
 

   - Presentment for payment is
excused:ÊÊ

(a) Where, after the exercise of reasonable diligence, presentment, as required

by this Act, cannot be made;ÊÊ
ÊÊ
(b) Where the drawee is a fictitious person;ÊÊ
ÊÊ
(c) By waiver of presentment, express or implied.ÊÊ

Sec. 83. î   
 
 

 - The instrument is
dishonored by non-payment when:ÊÊ

(a) It is duly presented for payment and payment is refused or cannot be

obtained; orÊÊ
ÊÊ
(b) Presentment is excused and the instrument is overdue and unpaid.ÊÊ

Sec. 84. {
   
  


   
 
 -
Subject to the provisions of this Act, when the instrument is dishonored by non-
payment, an immediate right of recourse to all parties secondarily liable thereon
accrues to the holder.Êrobles virtual law libraryÊ
ÊÊ
Sec. 85.   

 - Every negotiable instrument is payable at the time fixed
therein without grace. When the day of maturity falls upon Sunday or a holiday, the
instruments falling due or becoming payable on Saturday are to be presented for
payment on the next succeeding business day except that instruments payable on
demand may, at the option of the holder, be presented for payment before twelve
o'clock noon on Saturday when that entire day is not a holiday.ÊÊ
ÊÊÊ
Sec. 86.     - When the instrument is payable at a fixed period
after date, after sight, or after that happening of a specified event, the time of
payment is determined by excluding the day from which the time is to begin to run,
and by including the date of payment.ÊÊ
ÊÊÊ
Sec. 87. © 
  




 - Where the instrument is made
payable at a bank, it is equivalent to an order to the bank to pay the same for the
account of the principal debtor thereon.ÊÊ
ÊÊÊ
Sec. 88. î
    
  
 - Payment is made in due course
when it is made at or after the maturity of the payment to the holder thereof in good
faith and without notice that his title is defective.ÊÊ
ÊÊÊ
VII. NOTICE OF DISHONORÊ
ÊÊ
Sec. 89.       
   Except as herein otherwise
provided, when a negotiable instrument has been dishonored by non-acceptance or
non-payment, notice of dishonor must be given to the drawer and to each indorser,
and any drawer or indorser to whom such notice is not given is discharged.ÊÊ
ÊÊÊ
Sec. 90. d   - The notice may be given by or on behalf of the holder, or
by or on behalf of any party to the instrument who might be compelled to pay it to
the holder, and who, upon taking it up, would have a right to reimbursement from
the party to whom the notice is given.ÊÊ
ÊÊÊ
Sec. 91.    
 - Notice of dishonor may be given by any agent either
in his own name or in the name of any party entitled to given notice, whether that
party be his principal or not.ÊÊ
ÊÊÊ
Sec. 92.     
  
. - Where notice is given by or on behalf
of the holder, it inures to the benefit of all subsequent holders and all prior parties
who have a right of recourse against the party to whom it is given.ÊÊ
ÊÊÊ
Sec. 93.  
    

  
  - Where notice is
given by or on behalf of a party entitled to give notice, it inures to the benefit of the
holder and all parties subsequent to the party to whom notice is given.Ê
 ÊÊ
ÊÊÊ
Sec. 94. î 

    - Where the instrument has been dishonored in
the hands of an agent, he may either himself give notice to the parties liable thereon,
or he may give notice to his principal. If he gives notice to his principal, he must do
so within the same time as if he were the holder, and the principal, upon the receipt
of such notice, has himself the same time for giving notice as if the agent had been
an independent holder.ÊÊ
ÊÊÊ
Sec. 95. î       - A written notice need not be signed and an
insufficient written notice may be supplemented and validated by verbal
communication. A misdescription of the instrument does not vitiate the notice
unless the party to whom the notice is given is in fact misled thereby.ÊÊ
ÊÊÊ
Sec. 96. "
    - The notice may be in writing or merely oral and may be
given in any terms which sufficiently identify the instrument, and indicate that it
has been dishonored by non-acceptance or non-payment. It may in all cases be given
by delivering it personally or through the mails.ÊÊ
ÊÊÊ
Sec. 97.     
  - Notice of dishonor may be given either to
the party himself or to his agent in that behalf.ÊÊ
ÊÊÊ
Sec. 98.    


 
 When any party is dead and his death is known
to the party giving notice, the notice must be given to a personal representative, if
there be one, and if with reasonable diligence, he can be found. If there be no
personal representative, notice may be sent to the last residence or last place of
business of the deceased.ÊÊ
ÊÊÊ
Sec. 99.    


 - Where the parties to be notified are partners, notice to
any one partner is notice to the firm, even though there has been a dissolution.ÊÊ
ÊÊÊ
Sec. 100.    
  
 - Notice to joint persons who are not
partners must be given to each of them unless one of them has authority to receive
such notice for the others.ÊÊ
ÊÊÊ
Sec. 101.    

 - Where a party has been adjudged a bankrupt or an
insolvent, or has made an assignment for the benefit of creditors, notice may be
given either to the party himself or to his trustee or assignee.ÊÊ
ÊÊÊ
Sec. 102.           - Notice may be given as soon as
the instrument is dishonored and, unless delay is excused as hereinafter provided,
must be given within the time fixed by this Act.ÊÊ
ÊÊÊ
Sec. 103. î 


  
  

 Where the person giving and the
person to receive notice reside in the same place, notice must be given within the
following times:ÊÊ

(a) If given at the place of business of the person to receive notice, it must be
given before the close of business hours on the day following.ÊÊ
ÊÊÊ
(b) If given at his residence, it must be given before the usual hours of rest on
the day following.ÊÊ
ÊÊÊ
(c) If sent by mail, it must be deposited in the post office in time to reach him
in usual course on the day following.ÊÊ

Sec. 104. î 


  
   

  - Where the person giving and the
person to receive notice reside in different places, the notice must be given within
the following times:ÊÊ

(a) If sent by mail, it must be deposited in the post office in time to go by mail
the day following the day of dishonor, or if there be no mail at a convenient
hour on last day, by the next mail thereafter.ÊÊ
 ÊÊÊ
(b) If given otherwise than through the post office, then within the time that
notice would have been received in due course of mail, if it had been deposited
in the post office within the time specified in the last subdivision.ÊÊ

Sec. 105. î  
 

    - Where notice of dishonor
is duly addressed and deposited in the post office, the sender is deemed to have given
due notice, notwithstanding any miscarriage in the mails.ÊÊ
ÊÊÊ
Sec. 106.      
     - Notice is deemed to have been
deposited in the post-office when deposited in any branch post office or in any letter
box under the control of the post-office department.ÊÊ
ÊÊÊ
Sec. 107.      

   - Where a party receives notice of
dishonor, he has, after the receipt of such notice, the same time for giving notice to
antecedent parties that the holder has after the dishonor.ÊÊ
ÊÊÊ
Sec. 108. î 
     - Where a party has added an address to his
signature, notice of dishonor must be sent to that address; but if he has not given
such address, then the notice must be sent as follows:ÊÊ

(a) Either to the post-office nearest to his place of residence or to the post-
office where he is accustomed to receive his letters; orÊÊ
ÊÊÊ
(b) If he lives in one place and has his place of business in another, notice may
be sent to either place; orÊÊ
ÊÊÊ
(c) If he is sojourning in another place, notice may be sent to the place where
he is so sojourning.ÊÊ

But where the notice is actually received by the party within the time specified in
this Act, it will be sufficient, though not sent in accordance with the requirement of
this section.ÊÊ
ÊÊ
Sec. 109. î

   . - Notice of dishonor may be waived either before the time
of giving notice has arrived or after the omission to give due notice, and the waiver
may be expressed or implied.ÊÊ
ÊÊÊ
Sec. 110. î 


. - Where the waiver is embodied in the
instrument itself, it is binding upon all parties; but, where it is written above the
signature of an indorser, it binds him only.ÊÊ
ÊÊÊ
Sec. 111. î

 
  A waiver of protest, whether in the case of a foreign bill
of exchange or other negotiable instrument, is deemed to be a waiver not only of a
formal protest but also of presentment and notice of dishonor.ÊÊ
ÊÊÊ
Sec. 112. î         - Notice of dishonor is dispensed with
when, after the exercise of reasonable diligence, it cannot be given to or does not
reach the parties sought to be charged.ÊÊ
ÊÊÊ
Sec. 113. 
        - Delay in giving notice of dishonor is
excused when the delay is caused by circumstances beyond the control of the holder
and not imputable to his default, misconduct, or negligence. When the cause of delay
ceases to operate, notice must be given with reasonable diligence.ÊÊ
ÊÊÊ
Sec. 114. î      


 - Notice of dishonor is not
required to be given to the drawer in either of the following cases:ÊÊ

(a) Where the drawer and drawee are the same person;ÊÊ
ÊÊÊ
(b) When the drawee is fictitious person or a person not having capacity to
contract;ÊÊ
ÊÊÊ
(c) When the drawer is the person to whom the instrument is presented for
payment;ÊÊ
ÊÊÊ
(d) Where the drawer has no right to expect or require that the drawee or
acceptor will honor the instrument;ÊÊ
ÊÊÊ
(e) Where the drawer has countermanded payment.ÊÊ

Sec. 115. î       

 ³ Notice of dishonor is not
required to be given to an indorser in either of the following cases:ÊÊ

(a) When the drawee is a fictitious person or person not having capacity to
contract, and the indorser was aware of that fact at the time he indorsed the
instrument;ÊÊ
ÊÊÊ
(b) Where the indorser is the person to whom the instrument is presented for
payment;ÊÊ
ÊÊÊ
(c) Where the instrument was made or accepted for his accommodation.ÊÊ

Sec. 116.     

 



  - Where due notice of
dishonor by non-acceptance has been given, notice of a subsequent dishonor by non-
payment is not necessary unless in the meantime the instrument has been accepted.ÊÊ
ÊÊÊ
Sec. 117.          

 - An omission to give
notice of dishonor by non-acceptance does not prejudice the rights of a holder in due
course subsequent to the omission.ÊÊ
ÊÊÊ
Sec. 118. î 
  
  
 - Where any
negotiable instrument has been dishonored, it may be protested for non-acceptance
or non-payment, as the case may be; but protest is not required except in the case of
foreign bills of exchange.Êrobles virtual law libraryÊ
ÊÊ
VIII. DISCHARGE OF NEGOTIABLEÊINSTRUMENTSÊ
ÊÊ
Sec. 119. M 
  

 - A negotiable instrument is discharged:ÊÊ

(a) By payment in due course by or on behalf of the principal debtor;ÊÊ

ÊÊÊ
 (b) By payment in due course by the party accommodated, where the
instrument is made or accepted for his accommodation;ÊÊ
ÊÊÊ
(c) By the intentional cancellation thereof by the holder;ÊÊ
ÊÊÊ
(d) By any other act which will discharge a simple contract for the payment of
money;ÊÊ
ÊÊÊ
(e) When the principal debtor becomes the holder of the instrument at or after
maturity in his own right.ÊÊ

Sec. 120. î 
   


    


 

 A
person secondarily liable on the instrument is discharged:ÊÊ

(a) By any act which discharges the instrument;ÊÊ

ÊÊÊ
(b) By the intentional cancellation of his signature by the holder;ÊÊ
ÊÊÊ
(c) By the discharge of a prior party;ÊÊ
ÊÊÊ
(d) By a valid tender or payment made by a prior party;ÊÊ
ÊÊÊ
(e) By a release of the principal debtor unless the holder's right of recourse
against the party secondarily liable is expressly reserved;ÊÊ
ÊÊÊ
(f) By any agreement binding upon the holder to extend the time of payment or
to postpone the holder's right to enforce the instrument unless made with the
assent of the party secondarily liable or unless the right of recourse against
such party is expressly reserved.ÊÊ

Sec. 121. ©   

  

   
 - Where the instrument is paid
by a party secondarily liable thereon, it is not discharged; but the party so paying it
is remitted to his former rights as regard all prior parties, and he may strike out his
own and all subsequent indorsements and against negotiate the instrument, except:ÊÊ

(a) Where it is payable to the order of a third person and has been paid by the
drawer; andÊÊ
ÊÊÊ
(b) Where it was made or accepted for accommodation and has been paid by the
party accommodated.ÊÊ

Sec. 122. ©

  
 - The holder may expressly renounce his rights
against any party to the instrument before, at, or after its maturity. An absolute and
unconditional renunciation of his rights against the principal debtor made at or after
the maturity of the instrument discharges the instrument. But a renunciation does
not affect the rights of a holder in due course without notice. A renunciation must be
in writing unless the instrument is delivered up to the person primarily liable
thereon.ÊÊ
ÊÊÊ
Sec. 123. ‘

   

 
 - A cancellation made
unintentionally or under a mistake or without the authority of the holder, is
inoperative but where an instrument or any signature thereon appears to have been
cancelled, the burden of proof lies on the party who alleges that the cancellation was
made unintentionally or under a mistake or without authority.ÊÊ
ÊÊÊ
Sec. 124. c

    
  - Where a negotiable instrument is
materially altered without the assent of all parties liable thereon, it is avoided,
except as against a party who has himself made, authorized, or assented to the
alteration and subsequent indorsers.ÊÊ
But when an instrument has been materially altered and is in the hands of a holder in
due course not a party to the alteration, he may enforce payment thereof according
to its original tenor.ÊÊ
ÊÊÊ
Sec. 125. î
    






  Any alteration which changes:ÊÊ

(a) The date;ÊÊ

ÊÊÊ
(b) The sum payable, either for principal or interest;ÊÊ
ÊÊÊ
(c) The time or place of payment:ÊÊ
ÊÊÊ
(d) The number or the relations of the parties;ÊÊ
ÊÊÊ
(e) The medium or currency in which payment is to be made;ÊÊ
ÊÊÊ
(f) Or which adds a place of payment where no place of payment is specified, or
any other change or addition which alters the effect of the instrument in any
respect, is a material alteration.ÊÊ

BILLS OF EXCHANGEÊ
ÊÊ
IX. FORM AND INTERPRETATIONÊ
ÊÊ
Sec. 126. d  
  - A bill of exchange is an unconditional order in
writing addressed by one person to another, signed by the person giving it, requiring
the person to whom it is addressed to pay on demand or at a fixed or determinable
future time a sum certain in money to order or to bearer.ÊÊ
ÊÊÊ
Sec. 127. d  

   
  

 - A bill of itself does
not operate as an assignment of the funds in the hands of the drawee available for
the payment thereof, and the drawee is not liable on the bill unless and until he
accepts the same.ÊÊ
ÊÊÊ
Sec. 128. d 

  

 

 A bill may be addressed to two or
more drawees jointly, whether they are partners or not; but not to two or more
drawees in the alternative or in succession.ÊÊ
ÊÊÊ
Sec. 129. M


    
 An inland bill of exchange is a bill
which is, or on its face purports to be, both drawn and payable within the Philippines.
Any other bill is a foreign bill. Unless the contrary appears on the face of the bill, the
holder may treat it as an inland bill.ÊÊ
ÊÊÊ
Sec. 130. î  





  - Where in a bill the drawer
and drawee are the same person or where the drawee is a fictitious person or a person
not having capacity to contract, the holder may treat the instrument at his option
either as a bill of exchange or as a promissory note.ÊÊ
ÊÊÊ
Sec. 131. ©
 
  The drawer of a bill and any indorser may insert
thereon the name of a person to whom the holder may resort in case of need; that is
to say, in case the bill is dishonored by non-acceptance or non-payment. Such person
is called a referee in case of need. It is in the option of the holder to resort to the
referee in case of need or not as he may see fit.ÊÊ
ÊÊÊ
X. ACCEPTANCEÊ
ÊÊ
Sec. 132. c
 

 
  - The acceptance of a bill is the
signification by the drawee of his assent to the order of the drawer. The acceptance
must be in writing and signed by the drawee. It must not express that the drawee will
perform his promise by any other means than the payment of money.ÊÊ
ÊÊÊ
Sec. 133.  
  

 
   - The holder of a bill
presenting the same for acceptance may require that the acceptance be written on
the bill, and, if such request is refused, may treat the bill as dishonored.ÊÊ
ÊÊÊ
Sec. 134. c
 


  
 Where an acceptance is written on a
paper other than the bill itself, it does not bind the acceptor except in favor of a
person to whom it is shown and who, on the faith thereof, receives the bill for value.ÊÊ
ÊÊÊ
Sec. 135. 
  
  
 

 - An unconditional
promise in writing to accept a bill before it is drawn is deemed an actual acceptance
in favor of every person who, upon the faith thereof, receives the bill for value.ÊÊ
ÊÊÊ
Sec. 136.  
 

 
 - The drawee is allowed twenty-four hours
after presentment in which to decide whether or not he will accept the bill; the
acceptance, if given, dates as of the day of presentation.ÊÊ
ÊÊÊ
Sec. 137. {
   



 
 
   - Where a drawee to whom
a bill is delivered for acceptance destroys the same, or refuses within twenty-four
hours after such delivery or within such other period as the holder may allow, to
return the bill accepted or non-accepted to the holder, he will be deemed to have
accepted the same.ÊÊ
ÊÊÊ
Sec. 138. c
    . - A bill may be accepted before it has been
signed by the drawer, or while otherwise incomplete, or when it is overdue, or after it
has been dishonored by a previous refusal to accept, or by non payment. But when a
bill payable after sight is dishonored by non-acceptance and the drawee subsequently
accepts it, the holder, in the absence of any different agreement, is entitled to have
the bill accepted as of the date of the first presentment.ÊÊ
ÊÊÊ
Sec. 139. X   

 An acceptance is either general or qualified. A
general acceptance assents without qualification to the order of the drawer. A
qualified acceptance in express terms varies the effect of the bill as drawn.ÊÊ
ÊÊÊ
Sec. 140. î
    




 - An acceptance to pay at a
particular place is a general acceptance unless it expressly states that the bill is to be
paid there only and not elsewhere.ÊÊ
ÊÊÊ
Sec. 141. o
  

 - An acceptance is qualified which is:ÊÊ

(a) Conditional; that is to say, which makes payment by the acceptor dependent
on the fulfillment of a condition therein stated;ÊÊ
ÊÊÊ
(b) Partial; that is to say, an acceptance to pay part only of the amount for
which the bill is drawn;ÊÊ
ÊÊÊ
(c) Local; that is to say, an acceptance to pay only at a particular place;ÊÊ
ÊÊÊ
(d) Qualified as to time;ÊÊ
ÊÊÊ
(e) The acceptance of some, one or more of the drawees but not of all.ÊÊ
Sec. 142. ©    

  
 
  

 - The holder may refuse to
take a qualified acceptance and if he does not obtain an unqualified acceptance, he
may treat the bill as dishonored by non-acceptance. Where a qualified acceptance is
taken, the drawer and indorsers are discharged from liability on the bill unless they
have expressly or impliedly authorized the holder to take a qualified acceptance, or
subsequently assent thereto. When the drawer or an indorser receives notice of a
qualified acceptance, he must, within a reasonable time, express his dissent to the
holder or he will be deemed to have assented thereto.ÊÊ
ÊÊÊ
XI. PRESENTMENT FOR ACCEPTANCEÊ
ÊÊ
Sec. 143. î 
 


 
 - Presentment for
acceptance must be made:ÊÊ

(a) Where the bill is payable after sight, or in any other case, where presentment
for acceptance is necessary in order to fix the maturity of the instrument; orÊÊ
ÊÊÊ
(b) Where the bill expressly stipulates that it shall be presented for acceptance;
orÊÊ
ÊÊÊ
(c) Where the bill is drawn payable elsewhere than at the residence or place of
business of the drawee.ÊÊ

In no other case is presentment for acceptance necessary in order to render any

party to the bill liable.ÊÊ
ÊÊÊ
Sec. 144. î 

 
 

 



 

 - Except as herein
otherwise provided, the holder of a bill which is required by the next preceding
section to be presented for acceptance must either present it for acceptance or
negotiate it within a reasonable time. If he fails to do so, the drawer and all indorsers
are discharged.ÊÊ
ÊÊÊ
Sec. 145. 
  
 - Presentment for acceptance must be made by or
on behalf of the holder at a reasonable hour, on a business day and before the bill is
overdue, to the drawee or some person authorized to accept or refuse acceptance on
his behalf; andÊÊ

(a) Where a bill is addressed to two or more drawees who are not partners,
presentment must be made to them all unless one has authority to accept or
refuse acceptance for all, in which case presentment may be made to him only;ÊÊ
ÊÊÊ
(b) Where the drawee is dead, presentment may be made to his personal
representative;ÊÊ
ÊÊÊ
(c) Where the drawee has been adjudged a bankrupt or an insolvent or has made
an assignment for the benefit of creditors, presentment may be made to him or
to his trustee or assignee.ÊÊ

Sec. 146. |


 
 

- A bill may be presented for
acceptance on any day on which negotiable instruments may be presented for
payment under the provisions of Sections seventy-two and eighty-five of this Act.
When Saturday is not otherwise a holiday, presentment for acceptance may be made
before twelve o'clock noon on that day.ÊÊ
ÊÊÊ
Sec. 147. 
  
       - Where the holder of a bill drawn
payable elsewhere than at the place of business or the residence of the drawee has no
time, with the exercise of reasonable diligence, to present the bill for acceptance
before presenting it for payment on the day that it falls due, the delay caused by
presenting the bill for acceptance before presenting it for payment is excused and
does not discharge the drawers and indorsers.ÊÊ
ÊÊÊ
Sec. 148. î 

    Presentment for acceptance is excused
and a bill may be treated as dishonored by non-acceptance in either of the following
cases:ÊÊ

(a) Where the drawee is dead, or has absconded, or is a fictitious person or a

person not having capacity to contract by bill.ÊÊ
ÊÊÊ
(b) Where, after the exercise of reasonable diligence, presentment can not be
made.ÊÊ
ÊÊÊ
(c) Where, although presentment has been irregular, acceptance has been
refused on some other ground.ÊÊ

Sec. 149. î  
 


 - A bill is dishonored by non-
acceptance:ÊÊ

(a) When it is duly presented for acceptance and such an acceptance as is

prescribed by this Act is refused or can not be obtained; orÊÊ
ÊÊÊ
(b) When presentment for acceptance is excused and the bill is not accepted.ÊÊ

Sec. 150.   
 
  

 Where a bill is duly presented for
acceptance and is not accepted within the prescribed time, the person presenting it
must treat the bill as dishonored by nonacceptance or he loses the right of recourse
against the drawer and indorsers.ÊÊ
ÊÊÊ
Sec. 151. ©     
 
  
 - When a bill is dishonored by
nonacceptance, an immediate right of recourse against the drawer and indorsers
accrues to the holder and no presentment for payment is necessary.ÊÊ
ÊÊÊ
XII. PROTESTÊ
ÊÊ
Sec. 152.M

 
 

- Where a foreign bill appearing on its face
to be such is dishonored by nonacceptance, it must be duly protested for
nonacceptance, by nonacceptance is dishonored and where such a bill which has not
previously been dishonored by nonpayment, it must be duly protested for
nonpayment. If it is not so protested, the drawer and indorsers are discharged. Where
a bill does not appear on its face to be a foreign bill, protest thereof in case of
dishonor is unnecessary.ÊÊ
ÊÊÊ
Sec. 153. 
  
 The protest must be annexed to the bill or must
contain a copy thereof, and must be under the hand and seal of the notary making it
and must specify:ÊÊ

(a) The time and place of presentment;ÊÊ

ÊÊÊ
(b) The fact that presentment was made and the manner thereof;ÊÊ
ÊÊÊ
(c) The cause or reason for protesting the bill;ÊÊ
ÊÊÊ
(d) The demand made and the answer given, if any, or the fact that the drawee
or acceptor could not be found.ÊÊ

Sec. 154. 
  

- Protest may be made by:ÊÊ

(a) A notary public; orÊÊ

ÊÊÊ
(b) By any respectable resident of the place where the bill is dishonored, in the
presence of two or more credible witnesses.ÊÊ

Sec. 155. 
   

 - When a bill is protested, such protest must be
made on the day of its dishonor unless delay is excused as herein provided. When a
bill has been duly noted, the protest may be subsequently extended as of the date of
the noting.ÊÊ
ÊÊÊ
Sec. 156. 
  

 A bill must be protested at the place where it is
dishonored, except that when a bill drawn payable at the place of business or
residence of some person other than the drawee has been dishonored by
nonacceptance, it must be protested for non-payment at the place where it is
expressed to be payable, and no further presentment for payment to, or demand on,
the drawee is necessary.ÊÊ
ÊÊÊ
Sec. 157. 
   
 


 
 A bill which has been
protested for non-acceptance may be subsequently protested for non-payment.ÊÊ
ÊÊÊ
Sec. 158. 
 


 


   - Where the acceptor has
been adjudged a bankrupt or an insolvent or has made an assignment for the benefit
of creditors before the bill matures, the holder may cause the bill to be protested for
better security against the drawer and indorsers.Êrobles virtual law libraryÊ
ÊÊÊ
Sec. 159. î 
      - Protest is dispensed with by any
circumstances which would dispense with notice of dishonor. Delay in noting or
protesting is excused when delay is caused by circumstances beyond the control of
the holder and not imputable to his default, misconduct, or negligence. When the
cause of delay ceases to operate, the bill must be noted or protested with reasonable
diligence.ÊÊ
ÊÊÊ
Sec. 160. 
  
   
 
  - When a bill is lost or destroyed or
is wrongly detained from the person entitled to hold it, protest may be made on a
copy or written particulars thereof.ÊÊ
ÊÊÊ
XIII. ACCEPTANCE FOR HONORÊ
ÊÊÊ
Sec. 161. î  


 
 - When a bill of exchange has been
protested for dishonor by non-acceptance or protested for better security and is not
overdue, any person not being a party already liable thereon may, with the consent of
the holder, intervene and accept the bill 

protest for the honor of any party
liable thereon or for the honor of the person for whose account the bill is drawn. The
acceptance for honor may be for part only of the sum for which the bill is drawn; and
where there has been an acceptance for honor for one party, there may be a further
acceptance by a different person for the honor of another party.ÊÊ
ÊÊÊ
Sec. 162. c

 
 
 - An acceptance for honor supra protest
must be in writing and indicate that it is an acceptance for honor and must be signed
by the acceptor for honor.Ê
 ÊÊ
ÊÊÊ
Sec. 163. î  



 
  


 - Where an
acceptance for honor does not expressly state for whose honor it is made, it is
deemed to be an acceptance for the honor of the drawer.ÊÊ
ÊÊÊ
Sec. 164. {
    


 
 The acceptor for honor is liable to the
holder and to all parties to the bill subsequent to the party for whose honor he has
accepted.ÊÊ
ÊÊÊ
Sec. 165. c
 


 
 - The acceptor for honor, by such
acceptance, engages that he will, on due presentment, pay the bill according to the
terms of his acceptance provided it shall not have been paid by the drawee and
provided also that is shall have been duly presented for payment and protested for
non-payment and notice of dishonor given to him.ÊÊ
ÊÊÊ
Sec. 166. ×

  



  

 
 - Where a bill
payable after sight is accepted for honor, its maturity is calculated from the date of
the noting for non-acceptance and not from the date of the acceptance for honor.ÊÊ
ÊÊÊ
Sec. 167. 
   

 

 
  - Where a dishonored bill
has been accepted for honor supra protest or contains a referee in case of need, it
must be protested for non-payment before it is presented for payment to the acceptor
for honor or referee in case of need.ÊÊ
ÊÊÊ
Sec. 168. 
 

 


 
 Ê
 - Presentment
for payment to the acceptor for honor must be made as follows:ÊÊ

(a) If it is to be presented in the place where the protest for non-payment was
made, it must be presented not later than the day following its maturity.ÊÊ
ÊÊÊ
(b) If it is to be presented in some other place than the place where it was
protested, then it must be forwarded within the time specified in Section one
hundred and four.ÊÊ

Sec. 169. î 

 
 
    - The provisions of Section
eighty-one apply where there is delay in making presentment to the acceptor for
honor or referee in case of need.ÊÊ
ÊÊÊ
Sec. 170.  
  


 
 - When the bill is dishonored by the
acceptor for honor, it must be protested for non-payment by him.ÊÊ
ÊÊÊ
XIV. PAYMENT FOR HONORÊ
ÊÊ
Sec. 171.î 



 
- Where a bill has been protested for
non-payment, any person may intervene and pay it 

protest for the honor of
any person liable thereon or for the honor of the person for whose account it was
drawn.ÊÊ
ÊÊÊ
Sec. 172. 

 
 
- The payment for honor 

protest, in
order to operate as such and not as a mere voluntary payment, must be attested by a
notarial act of honor which may be appended to the protest or form an extension to
it.ÊÊ
ÊÊÊ
Sec. 173. 


 


 
 The notarial act of honor must be
founded on a declaration made by the payer for honor or by his agent in that behalf
declaring his intention to pay the bill for honor and for whose honor he pays.ÊÊ
ÊÊÊ
Sec. 174. 

 

   
 

 
 - Where two or more
persons offer to pay a bill for the honor of different parties, the person whose
payment will discharge most parties to the bill is to be given the preference.ÊÊ
ÊÊÊ
Sec. 175.    

   
  

Ê 
 - Where a bill has
been paid for honor, all parties subsequent to the party for whose honor it is paid are
discharged but the payer for honor is subrogated for, and succeeds to, both the rights
and duties of the holder as regards the party for whose honor he pays and all parties
liable to the latter.ÊÊ
ÊÊÊ
Sec. 176. î 
 

   
 
 


  Where the holder
of a bill refuses to receive payment 

protest, he loses his right of recourse
against any party who would have been discharged by such payment.ÊÊ
ÊÊÊ
Sec. 177. ©    


 
 - The payer for honor, on paying to the holder
the amount of the bill and the notarial expenses incidental to its dishonor, is entitled
to receive both the bill itself and the protest.ÊÊ
ÊÊÊ
XV. BILLS IN SETÊ
ÊÊ
Sec. 178. d          - Where a bill is drawn in a set, each part of
the set being numbered and containing a reference to the other parts, the whole of
the parts constitutes one bill.ÊÊ
ÊÊÊ
Sec. 179. ©    
 
 


 

 
 - Where two or more
parts of a set are negotiated to different holders in due course, the holder whose title
first accrues is, as between such holders, the true owner of the bill. But nothing in
this section affects the right of a person who, in due course, accepts or pays the parts
first presented to him.ÊÊ
ÊÊÊ
Sec. 180. {
    
  
  



  
   


  - Where the holder of a set indorses two or more parts to different persons
he is liable on every such part, and every indorser subsequent to him is liable on the
part he has himself indorsed, as if such parts were separate bills.ÊÊ
ÊÊÊ
Sec. 181. c
  

    - The acceptance may be written on any
part and it must be written on one part only. If the drawee accepts more than one
part and such accepted parts negotiated to different holders in due course, he is
liable on every such part as if it were a separate bill.ÊÊ
ÊÊÊ
Sec. 182. 


   

    - When the acceptor of a bill
drawn in a set pays it without requiring the part bearing his acceptance to be
delivered up to him, and the part at maturity is outstanding in the hands of a holder
in due course, he is liable to the holder thereon.ÊÊ
ÊÊÊ
Sec. 183.   

   
  - Except as herein otherwise provided,
where any one part of a bill drawn in a set is discharged by payment or otherwise, the
whole bill is discharged.ÊÊ
ÊÊÊ
XVI. PROMISSORY NOTES AND CHECKSÊ
ÊÊ
Sec. 184. 

   - A negotiable promissory note within the
meaning of this Act is an unconditional promise in writing made by one person to
another, signed by the maker, engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money to order or to bearer. Where a note
is drawn to the maker's own order, it is not complete until indorsed by him.ÊÊ
ÊÊÊ
Sec. 185. ‘   - A check is a bill of exchange drawn on a bank payable on
demand. Except as herein otherwise provided, the provisions of this Act applicable to
a bill of exchange payable on demand apply to a check.ÊÊ
ÊÊÊ
Sec. 186. î  
 
  
  A check must be presented
for payment within a reasonable time after its issue or the drawer will be discharged
from liability thereon to the extent of the loss caused by the delay.ÊÊ
ÊÊÊ
Sec. 187. ‘
  
     - Where a check is certified by the bank on
which it is drawn, the certification is equivalent to an acceptance.ÊÊ
ÊÊÊ
Sec. 188.  
  
  

   
   Where the
holder of a check procures it to be accepted or certified, the drawer and all indorsers
are discharged from liability thereon.ÊÊ
ÊÊÊ
Sec. 189. î   

 


 - A check of itself does not operate
as an assignment of any part of the funds to the credit of the drawer with the bank,
and the bank is not liable to the holder unless and until it accepts or certifies the
check.ÊÊ
ÊÊÊ

XVII. GENERAL PROVISIONSÊ

ÊÊ
Sec. 190. ’
  - This Act shall be known as the Negotiable Instruments Law.ÊÊ
ÊÊÊ
Sec. 191.    

  
  - In this Act, unless the contract
otherwise requires:ÊÊ

c
 means an acceptance completed by delivery or notification;ÊÊ
ÊÊÊ
c includes counterclaim and set-off;ÊÊ
ÊÊÊ
d
includes any person or association of persons carrying on the business
of banking, whether incorporated or not;ÊÊ
ÊÊÊ
d


 means the person in possession of a bill or note which is payable to
bearer;ÊÊ
ÊÊÊ
d  means bill of exchange, and "note" means negotiable promissory note;ÊÊ
ÊÊÊ
 
 means transfer of possession, actual or constructive, from one person
to another;ÊÊ
ÊÊÊ
 
means the payee or indorsee of a bill or note who is in possession of it,
or the bearer thereof;ÊÊ
ÊÊÊ
M
 means an indorsement completed by delivery;ÊÊ
ÊÊÊ
M 
 means negotiable instrument;ÊÊ
ÊÊÊ
M means the first delivery of the instrument, complete in form, to a
person who takes it as a holder;ÊÊ
ÊÊÊ

includes a body of persons, whether incorporated or not;ÊÊ
ÊÊÊ
*
 means valuable consideration;ÊÊ
ÊÊÊ
î
includes printed, and 
 includes print.ÊÊ
Sec. 192. 
 



   
 - The person 


 liable on
an instrument is the person who, by the terms of the instrument, is absolutely
required to pay the same. All other parties are   

 liable.ÊÊ
ÊÊÊ
Sec. 193. ©

 
     - In determining what is a 



  regard is to be had to the nature of the instrument, the usage of trade or
business with respect to such instruments, and the facts of the particular case.ÊÊ
ÊÊÊ
Sec. 194.     


    
 - Where the day, or
the last day for doing any act herein required or permitted to be done falls on a
Sunday or on a holiday, the act may be done on the next succeeding secular or
business day.ÊÊ
ÊÊÊ
Sec. 195. c 
  c - The provisions of this Act do not apply to negotiable
instruments made and delivered prior to the taking effect hereof.Ê
 ÊÊ
ÊÊÊ
Sec. 196. ‘
  
 
 c Any case not provided for in this Act shall
be governed by the provisions of existing legislation or in default thereof, by the rules
of the law merchant.ÊÊ
ÊÊ
Sec. 197. ©
  - All acts and laws and parts thereof inconsistent with this Act are
hereby repealed.ÊÊ
ÊÊÊ
Sec. 198.   c
  - This Act shall take effect ninety days after its
publication in the Official Gazette of the Philippine Islands shall have been
completed.ÊÊ
ÊÊÊ

: February 3, 1911ÊÊ

m




m

 
m
m mÊ




petitioner,

vs.
d









d






 

 
respondents.
Ê

Mn this petition for review on certiorari, petitioner challenges the April 22, 1985 decision  and the July
16, 1985 resolution  of the then Mntermediate Appellate Court in AC-G.R. CV No. 02553 entitled "BA
Finance Corporation v. Nyco Sales Corporation, et al." which affirmed with modification the July 20,
1983 decision  of the Regional Trial Court, National Capital Region, Manila, Branch MM in the same
case docketed as Civil Case No. 125909 ordering petitioner to pay respondent the amount of
P60,000.00 as principal obligation plus corresponding interest, the sum of P10,000.00 as and for,
attomey's fees and 1/3 of the costs of suit. Ê

Mt appears on record that petitioner Nyco Sales Corporation (hereinafter referred to as Nyco) whose
president and general manager is Rufino Yao, is engaged in the business of selling construction
materials with principal office in Davao City. Sometime in 1978, the brothers Santiago and Renato
Fernandez (hereinafter referred to as the Fernandezes), both acting in behalf of Sanshell
Corporation, approached Rufino Yao for credit accommodation. They requested Nyco, thru Yao, to
grant Sanshell discounting privileges which Nyco had with BA Finance Corporation (hereinafter
referred to as BA Finance). Yao apparently acquiesced, hence on or about November 15, 1978, the
Fernandezes went to Yao for the purpose of discounting Sanshell's post-dated check which was a
BPM-Davao Branch Check No. 499648 dated February 17, 1979 for the amount of P60,000.00. The
said check was payable to Nyco. Following the discounting process agreed upon, Nyco, thru Yao,
endorsed the check in favor of BA Finance. Thereafter, BA Finance issued a check payable to Nyco
which endorsed it in favor of Sanshell. Sanshell then made use of and/or negotiated the check.
Accompanying the exchange of checks was a Deed of Assignment executed by Nyco in favor of BA
Finance with the conformity of Sanshell. Nyco was represented by Rufino Yao, while Sanshell was
represented by the Fernandez brothers. Under the said Deed, the subject of the discounting was the
aforecited check (Rollo, pp- 26-28). At the back thereof and of every deed of assignment was the
Continuing Suretyship Agreement whereby the Fernandezes unconditionally guaranteed to BA
Finance the full, faithful and prompt payment and discharge of any and all indebtedness of Nyco
(M
., pp. 36, 46). The BPM check, however, was dishonored by the drawee bank upon presentment
for payment. BA Finance immediately reported the matter to the Fernandezes who thereupon issued
a substitute check dated February 19,1979 for the same amount in favor of BA Finance. Mt was a
Security Bank and Trust Company check bearing the number 183157, which was again dishonored
when it was presented for payment. Despite repeated demands, Nyco and the Fernandezes failed to
settle the obligation with BA Finance, thus prompting the latter to institute an action in court (M
., p
28). Nyco and the Fernandezes, despite having been served with summons and copies of the
complaint, failed to file their answer and were consequently declared in default. On May 16, 1980, the
lower court ruled in favor of BA Finance ordering them to pay the former jointly and severally, the sum
of P65,536.67 plus 14% interest per annum from July 1, 1979 and attorney's fees in the amount of
P3, 000. 00 as well as the costs of suit (Rollo, pp. 51-52). Nyco, however, moved to set aside the
order of default, to have its answer admitted and to be able to implead Sanshell. The prayer was
granted through an order dated June 23, 1980, wherein the decision of the court was set aside only
as regards Nyco. Trial ensued once more until the court reached a second decision which states: Ê

î
R
FOR
, judgment is hereby rendered in favor of the plaintiff and against the defendant Nyco Sales
Corporation by ordering the latter to pay the former the following: Ê

1) P60,000.00 as principal obligation, plus interest thereon at the rate of 14% per annum from February 1,
1979 until fully paid; Ê

2) The amount of P100,000.00 as and for attorney's fees; and Ê

3) One-third (1/3) of the costs of this suit. Ê

îith respect to defendants Santiago and Renato Fernandez, the decision of May 16, 1980 stands. Ê

The cross-claim of defendant Nyco Sales Corporation against codefendants Santiago B. Fernandez and
Renato B. Fernandez is hereby denied, as there is no showing that Nyco's Answer with cross-claim dated
May 29, 1980 was ever received by said Fernandez brothers, even as it is noted that the latter have not
been declared in default with respect to said cross-claim, nor were evidence adduced in connection
therewith. Ê

As to the would-be litigant Sanshell Construction and Development Corporation, defendant Nyco Sales
Corporation did not properly implead said corporation which should have been by way of a third-party
complaint instead of a mere cross-claim. The same observations are noted as regard this cross-claim
against Sanshell as those made with respect to the Fernandez brothers. Ê

SO ORD
R
D. Ê

On appeal, the appellate court also upheld BA Finance but modified the lower court's decision by
ordering that the interest should run from February 19, 1979 until paid and not from February 1, 1979.
Nyco's subsequent motion for reconsideration was denied (M
., pp. 33, 62). ence, the present
recourse. Ê

The crux of the controversy is whether or not the assignor is liable to its assignee for its dishonored
checks. Ê

For its defense, Nyco anchors its arguments on the following premises: a) that the appellate court
erred in affirming its liability for the BPM check despite a similar finding of liability for the SBTC check
rendered by the same lower court; b) that it was actually discharged of its liability over the SBTC
check when BA Finance failed to give it a notice of dishonor; c) that there was novation when BA
Finance accepted the SBTC check in replacement of the BPM check; and d) that it cannot be held
liable for its Presidents unauthorized acts.Ê

The petition is devoid of merit. Ê

An assignment of credit is the process of transferring the right of the assignor to the assignee, who
would then be allowed to proceed against the debtor. Mt may be done either gratuitously or
generously, in which case, the assignment has an effect similar to that of a sale. Ê

According to Article 1628 of the Civil Code, the assignor-vendor warrants both the credit itself (its
existence and legality) and the person of the debtor (his solvency), if so stipulated, as in the case at
bar. Consequently, if there be any breach of the above warranties, the assignor-vendor should be
held answerable therefor. There is no question then that the assignor-vendor is indeed liable for the
invalidity of whatever he as signed to the assignee-vendee. Ê

Considering now the facts of the case at bar, it is beyond dispute that Nyco executed a deed of
assignment in favor of BA Finance with Sanshell Corporation as the debtor-obligor. BA Finance is
actually enforcing said deed and the check covered thereby is merely an incidental or collateral
matter. This particular check merely evidenced the credit which was actually assigned to BA Finance.
Thus, the designation is immaterial as it could be any other check. Both the lower and the appellate
courts recognized this and so it is utterly misplaced to say that Nyco is being held liable for both the
BPM and the SBTC checks. Mt is only what is represented by the said checks that Nyco is being asked
to pay. Mndeed, nowhere in the dispositive parts of the decisions of the courts can it be gleaned that
BA Finance may recover from the two checks. Ê

Nyco's pretension that it had not been notified of the fact of dishonor is belied not only by the formal
demand letter but also by the findings of the trial court that Rufino Yao of Nyco and the Fernandez
Brothers of Sanshell had frequent contacts before, during and after the dishonor (Rollo, p. 40). More
importantly, it fails to realize that for as long as the credit remains outstanding, it shall continue to be
liable to BA Finance as its assignor. The dishonor of an assigned check simply stresses its liability
and the failure to give a notice of dishonor will not discharge it from such liability. This is because the
cause of action stems from the breach of the warranties embodied in the Deed of Assignment, and
not from the dishonoring of the check alone (See Art. 1628, Civil Code). Ê

Novation is the third defense set up by petitioner Nyco. Mt insists that novation took place when BA
Finance accepted the SBTC check in replacement of the BPM cheek. Such is manifestly untenable. Ê

There are only two ways which indicate the presence of novation and thereby produce the effect of
extinguishing an obligation by another which substitutes the same. First, novation must be explicitly
stated and declared in unequivocal terms as novation is never presumed (Mondragon v. Mntermediate
Appellate Court, G.R. No. 71889, April 17, 1990; Caneda Jr. v. Court of Appeals, G.R. No. 81322,
February 5, 1990). Secondly, the old and the new obligations must be incompatible on every point.
The test of incompatibility is whether or not the two obligations can stand together, each one having
its independent existence Mf they cannot, they are incompatible and the latter obligation novates the
first (Mondragon v. Mntermediate Appellate Court, supra; Caneda Jr. v. Court of Appeals, supra). Mn
the instant case, there was no express agreement that BA Finance's acceptance of the SBTC check
will discharge Nyco from liability. Neither is there incompatibility because both checks were given
precisely to terminate a single obligation arising from Nyco's sale of credit to BA Finance. As novation
speaks of two distinct obligations, such is inapplicable to this case. Ê

Finally, Nyco disowns its President's acts claiming that it never authorized Rufino Yao (Nyco's
President) to even apply to BA Finance for credit accommodation. Mt supports its argument with the
fact that it did not issue a Board resolution giving Yao such authority. owever, the very evidence on
record readily belies Nyco's contention. Mts corporate By-Laws clearly provide for the powers of its
President, which include,
r al
a, executing contracts and agreements, borrowing money, signing,
indorsing and delivering checks, all in behalf of the corporation. Furthermore, the appellate court
correctly adopted the lower court's observation that there was already a previous transaction of
discounting of checks involving the same personalities wherein any enabling resolution from Nyco
was dispensed with and yet BA Finance was able to collect from Nyco and Sanshell was able to
discharge its own undertakings. Such effectively places Nyco under estoppel
 pa
s which arises
when one, by his acts, representations or admissions, or by his silence when he ought to speak out,
intentionally or through culpable negligence, induces another to believe certain facts to exist and such
other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to
deny the existence of such facts (Panay
lectric Co., Mnc. v. Court of Appeals, G.R. No. 81939, June
29,1989). Nyco remained silent in the course of the transaction and spoke out only later to escape
liability. This cannot be countenanced. Nyco is estopped from denying Rufino Yao's authority as far
as the latter's transactions with BA Finance are concerned. Ê

PR
MMS
S CONSMD
R
D, the decision appealed from is AFFMRM
D. Ê

SO ORD
R
D. Ê

!



!" #
$%&'
#(
m )Ê


*


+
*
,-.




petitioners,
vs.





respondent. Ê

This is a petition for certiorari under Rule 45 of the Rules of Court which assails on questions of law a
decision of the Mntermediate Appellate Court in AC-G.R. CV No. 68609 dated July 17, 1985, as well
as its resolution dated October 17, 1985, denying the motion for reconsideration. Ê

The antecedent facts culled from the petition are as follows: Ê

The petitioner is a corporation engaged in the logging business. Mt had for its program of logging
activities for the year 1978 the opening of additional roads, and simultaneous logging operations
along the route of said roads, in its logging concession area at Baganga, Manay, and Caraga, Davao
Oriental. For this purpose, it needed two (2) additional units of tractors. Ê

Cognizant of petitioner-corporation's need and purpose, Atlantic Gulf & Pacific Company of Manila,
through its sister company and marketing arm, Mndustrial 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 DD-21-B and the other an DD-16-B. Ê

Mn order to ascertain the extent of work to which the tractors were to be exposed, (t.s.n., May 28,
1980, p. 44) and to determine the capability of the "Used" tractors being offered, petitioner-
corporation requested the seller-assignor to inspect the job site. After conducting said inspection, the
seller-assignor assured petitioner-corporation that the "Used" Allis Crawler Tractors which were being
offered were fit for the job, and gave the corresponding warranty of ninety (90) days performance of
the machines and availability of parts. (t.s.n., May 28, 1980, pp. 59-66). Ê

îith said assurance and warranty, and relying on the seller-assignor's skill and judgment, petitioner-
corporation through petitioners îee and Vergara, president and vice- president, respectively, agreed
to purchase on installment said two (2) units of "Used" Allis Crawler Tractors. Mt also paid the down
payment of Two undred Ten Thousand Pesos (P210,000.00). Ê

On April 5, 1978, the seller-assignor issued the sales invoice for the two 2) units of tractors (
xh. "3-
A"). At the same time, the deed of sale with chattel mortgage with promissory note was executed
(
xh. "2"). Ê

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 (
exh. " 1 "), assigned its rights and interest in
the chattel mortgage in favor of the respondent. Ê

Mmmediately thereafter, the seller-assignor delivered said two (2) units of "Used" tractors to the
petitioner-corporation's job site and as agreed, the seller-assignor stationed its own mechanics to
supervise the operations of the machines. Ê

Barely fourteen (14) days had elapsed after their delivery when one of the tractors broke down and
after another nine (9) days, the other tractor likewise broke down (t.s.n., May 28, 1980, pp. 68-69). Ê

On April 25, 1978, petitioner Rodolfo T. Vergara formally advised the seller-assignor of the fact that
the tractors broke down and requested for the seller-assignor's usual prompt attention under the
warranty (
exh. " 5 "). Ê

Mn response to the formal advice by petitioner Rodolfo T. Vergara,
xhibit "5," the seller-assignor sent
to the job site its mechanics to conduct the necessary repairs (
xhs. "6," "6-A," "6-B," 16 C," "16-C-1,"
"6-D," and "6-
"), but the tractors did not come out to be what they should be after the repairs were
undertaken because the units were no longer serviceable (t. s. n., May 28, 1980, p. 78). Ê

Because of the breaking down of the tractors, the road building and simultaneous logging operations
of petitioner-corporation 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 until the
seller-assignor completely fulfills its obligation under its warranty (t.s.n, May 28, 1980, p. 79). Ê
Since the tractors were no longer serviceable, on April 7, 1979, petitioner îee asked the seller-
assignor 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 (

exh. " 7 ").Ê

No response to this letter,
xhibit "7," was received by the petitioner-corporation and despite several
follow-up calls, the seller-assignor did nothing with regard to the request, until the complaint in this
case was filed by the respondent against the petitioners, the corporation, îee, and Vergara. Ê

The complaint was filed by the respondent against the petitioners for the recovery of the principal sum
of One Million Ninety Three Thousand Seven undred
ighty Nine Pesos & 71/100 (P1,093,789.71),
accrued interest of One undred Fifty One Thousand Six undred
ighteen Pesos & 86/100
(P151,618.86) as of August 15, 1979, accruing interest thereafter at the rate of twelve (12%) percent
per annum, attorney's fees of Two undred Forty Nine Thousand
ighty One Pesos & 71/100
(P249,081.7 1) and costs of suit. Ê

The petitioners filed their amended answer praying for the dismissal of the complaint and asking the
trial court to order the respondent to pay the petitioners damages in an amount at the sound
discretion of the court, Twenty Thousand Pesos (P20,000.00) as and for attorney's fees, and Five
Thousand Pesos (P5,000.00) for expenses of litigation. The petitioners likewise prayed for such other
and further relief as would be just under the premises. Ê

Mn a decision dated April 20, 1981, the trial court rendered the following judgment: Ê

î
R
FOR
, judgment is hereby rendered: Ê

1. ordering defendants to pay jointly and severally in their official and personal capacities the principal
sum of ON
MMLLMON NMN
TY T R

T OUSAND S
V
N UNDR
D NMN
TY
MG T P
SOS &
71/100 (P1,093,798.71) with accrued interest of ON
UNDR
D FMFTY ON
T OUSAND SM
UNDR
D
MG T

N P
SOS & 86/100 (P151,618.,86) as of August 15, 1979 and accruing interest
thereafter at the rate of 12% per annum; Ê

2. ordering defendants to pay jointly and severally attorney's fees equivalent to ten percent (10%) of the
principal and to pay the costs of the suit. Ê

Defendants' counterclaim is disallowed. (pp. 45-46, Rollo) Ê

On June 8, 1981, the trial court issued an order denying the motion for reconsideration filed by the
petitioners. Ê

Thus, the petitioners appealed to the Mntermediate Appellate Court and assigned therein the following
errors: Ê

MÊ

T AT T
LOî
R COURT
RR
D MN FMNDMNG T AT T
S
LL
R ATLANTMC GULF AND

PACMFMC COMPANY OF MANMLA DMD NOT APPROV
D
F
NDANTS-APP
LLANTS CLAMM OF
îARRANTY. Ê

MMÊ
T AT T
LOî
R COURT
RR
D MN FMNDMNG T AT PLAMNTMFF- APP
LL

MS A OLD
R MN
DU
COURS
OF T
PROMMSSORY NOT
AND SU
D UND
R SAMD NOT
AS OLD
R
T
R
OF MN DU
COURS
. Ê

On July 17, 1985, the Mntermediate Appellate Court issued the challenged decision affirming
 
the decision of the trial court. The pertinent portions of the decision are as follows: Ê

xxx xxx xxxÊ

From the evidence presented by the parties on the issue of warranty, îe are of the considered opinion
that aside from the fact that no provision of warranty appears or is provided in the Deed of Sale of the
tractors and even admitting that in a contract of sale unless a contrary intention appears, there is an
implied warranty, the defense of breach of warranty, if there is any, as in this case, does not lie in favor of
the appellants and against the plaintiff-appellee who is the assignee of the promissory note and a holder
of the same in due course. îarranty lies in this case only between Mndustrial Products Marketing and
Consolidated Plywood Mndustries, Mnc. The plaintiff-appellant herein upon application by appellant
corporation granted financing for the purchase of the questioned units of Fiat-Allis Crawler,Tractors. Ê

xxx xxx xxxÊ

olding that breach of warranty if any, is not a defense available to appellants either to withdraw from the
contract and/or demand a proportionate reduction of the price with damages in either case (Art. 1567,
New Civil Code). îe now come to the issue as to whether the plaintiff-appellee is a holder in due course
of the promissory note. Ê

To begin with, it is beyond arguments that the plaintiff-appellee is a financing corporation engaged in
financing and receivable discounting extending credit facilities to consumers and industrial, commercial or
agricultural enterprises by discounting or factoring commercial papers or accounts receivable duly
authorized pursuant to R.A. 5980 otherwise known as the Financing Act. Ê

A study of the questioned promissory note reveals that it is a negotiable instrument which was discounted
or sold to the MFC Leasing and Acceptance Corporation for P800,000.00 (
xh. "A") considering the
following. it is in writing and signed by the maker; it contains an unconditional promise to pay a certain
sum of money payable at a fixed or determinable future time; it is payable to order (Sec. 1, NML); the
promissory note was negotiated when it was transferred and delivered by MPM to the appellee and duly
endorsed to the latter (Sec. 30, NML); it was taken in the conditions that the note was complete and
regular upon its face before the same was overdue and without notice, that it had been previously
dishonored and that the note is in good faith and for value without notice of any infirmity or defect in the
title of MPM (Sec. 52, NML); that MFC Leasing and Acceptance Corporation held the instrument free from
any defect of title of prior parties and free from defenses available to prior parties among themselves and
may enforce payment of the instrument for the full amount thereof against all parties liable thereon (Sec.
57, NML); the appellants engaged that they would pay the note according to its tenor, and admit the
existence of the payee MPM and its capacity to endorse (Sec. 60, NML). Ê

Mn view of the essential elements found in the questioned promissory note, îe opine that the same is
legally and conclusively enforceable against the defendants-appellants. Ê

î
R
FOR
, finding the decision appealed from according to law and evidence, îe find the appeal
without merit and thus affirm the decision
 . îith costs against the appellants. (pp. 50-55, Rollo) Ê

The petitioners' motion for reconsideration of the decision of July 17, 1985 was denied by the
Mntermediate Appellate Court in its resolution dated October 17, 1985, a copy of which was received
by the petitioners on October 21, 1985. Ê

ence, this petition was filed on the following grounds: Ê

M. Ê
ON MTS FAC
, T
PROMMSSORY NOT
MS CL
ARLY NOT A N
GOTMABL
MNSTRUM
NT AS
D
FMN
D UND
R T
LAî SMNC
MT MS N
MT
R PAYABL
TO ORD
R NOR TO B
AR
R. Ê

MMÊ

T
R
SPOND
NT MS NOT A OLD
R MN DU
COURS
: AT B
ST, MT MS A M
R
ASSMGN

OF T
SUBJ
CT PROMMSSORY NOT
. Ê

MMM.Ê

SMNC
T
MNSTANT CAS
MNVOLV
S A NON-N
GOTMABL
MNSTRUM
NT AND T

TRANSF
R OF RMG TS îAS T ROUG A M
R
ASSMGNM
NT, T
P
TMTMON
RS MAY
RAMS
AGAMNST T
R
SPOND
NT ALL D
F
NS
S T AT AR
AVAMLABL
TO MT AS AGAMNST
T
S
LL
R- ASSMGNOR, MNDUSTRMAL PRODUCTS MARK
TMNG. Ê

MV. Ê

T
P
TMTMON
RS AR
NOT LMABL
FOR T
PAYM
NT OF T
PROMMSSORY NOT

B
CAUS
: Ê

A) T
S
LL
R-ASSMGNOR MS GUMLTY OF BR
AC OF îARRANTY UND
R T
LAî; Ê

B) MF AT ALL, T
R
SPOND
NT MAY R
COV
R ONLY FROM T
S
LL
R-ASSMGNOR OF

T
PROMMSSORY NOT
. Ê

V. Ê

T
ASSMGNM
NT OF T
C ATT
L MORTGAG
BY T
S
LL
R- ASSMGNOR MN FAVOR OF

T
R
SPOND
NT DO
S NOT C ANG
T
NATUR
OF T
TRANSACTMON FROM B
MNG A
SAL
ON MNSTALLM
NTS TO A PUR
LOAN. Ê

VM. Ê

T
PROMMSSORY NOT
CANNOT B
ADMMTT
D OR US
D MN
VMD
NC
MN ANY COURT

B
CAUS
T
R
UMSMT
DOCUM
NTARY STAMPS AV
NOT B

N AFFM
D T
R
ON
OR CANC
LL
D. Ê

The petitioners prayed that judgment be rendered setting aside the decision dated July 17, 1985, as
well as the resolution dated October 17, 1985 and dismissing the complaint but granting petitioners'
counterclaims before the court of origin. Ê

On the other hand, the respondent corporation in its comment to the petition filed on February 20,
1986, contended that the petition was filed out of time; that the promissory note is a negotiable
instrument and respondent a holder in due course; that respondent is not liable for any breach of
warranty; and finally, that the promissory note is admissible in evidence. Ê

The core issue herein is 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. Ê
Preliminarily, it must be established at the outset that we consider the instant petition to have been
filed on time because the petitioners' motion for reconsideration actually raised new issues. Mt cannot,
therefore, be considered pro- formal. Ê

The petition is impressed with merit. Ê

First, there is no question that the seller-assignor breached its express 90-day warranty because the
findings of the trial court, adopted by the respondent appellate court, that "14 days after delivery, the
first tractor broke down and 9 days, thereafter, the second tractor became inoperable" are sustained
by the records. The petitioner was clearly a victim of a warranty not honored by the maker. Ê

The Civil Code provides that: Ê

ART. 1561.   vr s all  rsps
l fr warra aga
s  
 fs w
   
g sl
ma av s ul   rr
 uf
 fr   us fr w


s
, or should they diminish its fitness
for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or
would have given a lower price for it; but said vendor shall not be answerable for patent defects or those
which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his
trade or profession, should have known them.Ê

ART. 1562. M a sal f gs  r
s a
mpl
 warra r 

 as    qual
 r f
ss f  
gs as fllws:Ê

(1) î r   ur 

prssl r 
mpl
a
 maks kw    sllr   par
ular purps fr
w
   gs ar aqu
r a
 appars  a   ur rl
s    sllrs sk
ll r jug jugm
(w  r     grwr r maufaurr r   r
s a
mpl
 warra  a   gs s all 
rasa l f
 fr su purpsÊ

xxx xxx xxxÊ

ART. 1564. An implied warranty or condition as to the quality or fitness for a particular purpose may be
annexed by the usage of trade.Ê

xxx xxx xxxÊ

ART. 1566.   vr
s rsps
l    v fr a
 fauls r fs
   
g sl
v  ug  was  awar  rf.Ê

This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the
hidden faults or defects in the thing sold. (
mphasis supplied). Ê

Mt is patent then, that the seller-assignor is liable for its breach of warranty against the petitioner. This
liability as a general rule, extends to the corporation to whom it assigned its rights and interests
unless the assignee is a holder in due course of the promissory note in question, assuming the note
is negotiable, in which case the latter's rights are based on the negotiable instrument and assuming
further that the petitioner's defenses may not prevail against it. Ê

Secondly, it likewise cannot be denied that as soon as the tractors broke down, the petitioner-
corporation notified the seller-assignor's sister company, AG & P, about the breakdown based on the
seller-assignor's express 90-day warranty, with which the latter complied by sending its mechanics.
owever, due to the seller-assignor's delay and its failure to comply with its warranty, the tractors
became totally unserviceable and useless for the purpose for which they were purchased. Ê

Thirdly, the petitioner-corporation, thereafter, unilaterally rescinded its contract with the seller-
assignor. Ê
Articles 1191 and 1567 of the Civil Code provide that: Ê

ART. 1191.   pwr  rs
  l
ga
s
s
mpl

 r
pral s in case one of the obligors
should not comply with what is incumbent upon him. Ê

 
jur par ma  s w   fulf
llm a   rs
ss
 f    l
ga
 w
  
pam f amags
 
 r as. e may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible. Ê

xxx xxx xxxÊ

ART. 1567. Mn the cases of articles 1561, 1562, 1564, 1565 and 1566,   v ma l w
w
 raw
g frm   ra a ma
g a prpr
a ru
 f   pr
 w
 amags


 r as. (
mphasis supplied) Ê

Petitioner, having unilaterally and extrajudicially rescinded its contract with the seller-assignor,
necessarily can no longer sue the seller-assignor except by way of counterclaim if the seller-assignor
sues it because of the rescission. Ê

Mn the case of the University of the 
l
pp
s v. D ls Agls (35 SCRA 102) we held: Ê

Mn other words, the party who deems the contract violated may consider it resolved or rescinded, and act
accordingly, w
 u prv
us ur a
 u
 prs a
s w r
sk. For it is only the final judgment
of the corresponding court that will conclusively and finally settle whether the action taken was or was not
correct in law. But   law f

l s  rqu
r  a   ra
g par w  l
vs
slf
jur
mus f
rs f
l su
 a wa
 fr ajugm fr ak
g 
raju

al sps  pr
s
rs.
O rw
s   par
jur     r's ra w
ll av  pass
vl s
 a wa
s amags
aumula ur
g   p f   su
 u
l   f
al jugm f rs
ss

s rr w    law

slf rqu
rs  a  s ul 
r
s u 
l
g  m

m

s w amags (C
v
l C Ar
l
2203. (
mphasis supplied) Ê

Going back to the core issue, we rule that the promissory note in question is not a negotiable
instrument. Ê

The pertinent portion of the note is as follows: Ê

FOR VALU
R
C
MV
D, M/we jointly and severally promise to pay to the MNDUSTRMAL PRODUCTS
MARK
TMNG, the sum of ON
MMLLMON NMN
TY T R

T OUSAND S
V
N UNDR
D
MG TY
NMN
P
SOS & 71/100 only (P 1,093,789.71), Philippine Currency, the said principal sum, to be payable
in 24 monthly installments starting July 15, 1978 and every 15th of the month thereafter until fully paid. ... Ê

Considering that paragraph (d), Section 1 of the Negotiable Mnstruments Law requires that a
promissory note "must be payable to order or bearer, " it cannot be denied that the promissory note in
question is not a negotiable instrument. Ê

The instrument in order to be considered negotiablility-i.e. must contain the so-called 'words of negotiable,
must be payable to 'order' or 'bearer'. These words serve as an expression of consent that the instrument
may be transferred. This consent is indispensable since a maker assumes greater risk under a negotiable
instrument than under a non-negotiable one. ...Ê

xxx xxx xxxÊ

îhen instrument is payable to order. Ê

S
C. 8. î
N PAYABL
TO ORD
R. ² The instrument is payable to order where it is drawn payable
to the order of a specified person or to him or his order. . . . Ê
 xxx xxx xxxÊ

These are the only two ways by which an instrument may be made payable to order. There must always
be a specified person named in the instrument. Mt 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. î
 u
  wrs "r rr" r"   rr f " 
srum
s paa l l    prs s
ga  r

a
s  rfr g
a l. A su squ pur asr  rf w
ll  j   avaags f 
g
a lr f a g
a l
srum u w
ll mrl "step into the shoes" of the person designated in the
instrument and will thus be open to all defenses available against the latter." (Campos and Campos,
Notes and Selected Cases on Negotiable Mnstruments Law, Third
dition, page 38). (
mphasis supplied) Ê

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 Mndustrial Products Marketing. Ê

This being so, there was no need for the petitioner to implied the seller-assignor when it was sued by
the respondent-assignee because the petitioner's defenses apply to both or either of either of them.
Auall   rrs s w  a v   rsp
slf am
  
g a mr ass
g f  
prm
ssr 
 qus
  w
: Ê
ATTY. PALACA: Ê
Did we get it right from the counsel that what is being assigned is the Deed of Sale with Chattel Mortgage with the
promissory note which is as testified to by the witness was indorsed? (Counsel for Plaintiff nodding his head.) Then we
have no further questions on cross, Ê
COURT: Ê
You confirm his manifestation? You are nodding your head? Do you confirm that? Ê
ATTY. MLAGAN: Ê
The Deed of Sale cannot be assigned. A deed of sale is a transaction between two persons; what is assigned are
rights, the rights of the mortgagee were assigned to the MFC Leasing & Acceptance Corporation. Ê
COURT: Ê
e puts it in a simple way as one-deed of sale and chattel mortgage were assigned; . . . you want to make a distinction,
one is an assignment of mortgage right and the other one is indorsement of the promissory note. îhat counsel for
defendants wants is that you stipulate that it is contained in one single transaction? Ê
ATTY. MLAGAN: Ê
îe stipulate it is one single transaction. (pp. 27-29, TSN., February 13, 1980). Ê

Secondly, even conceding for purposes of discussion that the promissory note in question is a
negotiable instrument, the respondent cannot be a holder in due course for a more significant reason. Ê

The evidence presented in the instant case shows that prior to the sale on installment of the tractors,
there was an arrangement between the seller-assignor, Mndustrial Products Marketing, and the
respondent whereby the latter would pay the seller-assignor the entire purchase price and the seller-
assignor, in turn, would assign its rights to the respondent which acquired the right to collect the price
from the buyer, herein petitioner Consolidated Plywood Mndustries, Mnc. Ê

A mere perusal of the Deed of Sale with Chattel Mortgage with Promissory Note, the Deed of
Assignment and the Disclosure of Loan/Credit Transaction shows that said documents evidencing the
sale on installment of the tractors were all executed on the same day by and among the buyer, which
is herein petitioner Consolidated Plywood Mndustries, Mnc.; the seller-assignor which is the Mndustrial
Products Marketing; and the assignee-financing company, which is the respondent. Therefore, the
respondent had actual knowledge of the fact that the seller-assignor's right to collect the purchase
price was not unconditional, and that it was subject to the condition that the tractors -sold were not
defective. The respondent knew that when the tractors turned out to be defective, it would be subject
to the defense of failure of consideration and cannot recover the purchase price from the petitioners.

ven assuming for the sake of argument that the promissory note is negotiable, the respondent,
which took the same with actual knowledge of the foregoing facts so that its action in taking the
instrument amounted to bad faith, is not a holder in due course. As such, the respondent is subject to
all defenses which the petitioners may raise against the seller-assignor. Any other interpretation
would be most inequitous to the unfortunate buyer who is not only saddled with two useless tractors
but must also face a lawsuit from the assignee for the entire purchase price and all its incidents
without being able to raise valid defenses available as against the assignor.Ê

Lastly, the respondent failed to present any evidence to prove that it had no knowledge of any fact,
which would justify its act of taking the promissory note as not amounting to bad faith. Ê

Sections 52 and 56 of the Negotiable Mnstruments Law provide that: negotiating it. Ê

xxx xxx xxxÊ

S
C. 52. î AT CONSTMTUT
S A OLD
R MN DU
COURS
. ² A holder in due course is a holder
who has taken the instrument under the following conditions: Ê

xxx xxx xxxÊ

xxx xxx xxxÊ

(c)  a  k

 g fa
 a fr valuÊ

(d)  a   
m
 was g
a 
m  a  
 f a
f
rm

  
srum f ff


  
l f   prs g
a
g
Ê

S
C. 56. î A CONSM
S NOMC OF DFFC. ²  s
u 
 f a
f
rm

  

srum r f
   
l f   prs g
a
g   sam   prs  w m

s g
a
mus av a aual kwlg f  
f
rm
 r f r kwlg f su fas  a
s a


ak
g  
srum amus  a fa
 . (
mphasis supplied) Ê

îe subscribe to the view of Camps a Camps that a financing company is not a holder in good
faith as to the buyer, to wit: Ê

Mn installment sales, the buyer usually issues a note payable to the seller to cover the purchase price.
Many times, in pursuance of a previous arrangement with the seller, a finance company pays the full price
and the note is indorsed to it, subrogating it to the right to collect the price from the buyer, with interest.
îith the increasing frequency of installment buying in this country, it is most probable that the tendency of
the courts in the United States to protect the buyer against the finance company will , the finance
company will be subject to the defense of failure of consideration and cannot recover the purchase price
from the buyer. As against the argument that such a rule would seriously affect "a certain mode of
transacting business adopted throughout the State," a court in one case stated: Ê

Mt may be that our holding here will require some changes in business methods and will
impose a greater burden on the finance companies. îe think the buyer-Mr. & Mrs.
General Public-should have some protection somewhere along the line. îe believe the
finance company is better able to bear the risk of the dealer's insolvency than the buyer
and in a far better position to protect his interests against unscrupulous and insolvent
dealers. . . . Ê
 Mf this opinion imposes great burdens on finance companies it is a potent argument in
favor of a rule which win afford public protection to the general buying public against
unscrupulous dealers in personal property. . . . (Mutual Finance Co. v. Martin, 63 So. 2d
649, 44 ALR 2d 1 [1953]) (Campos and Campos, Notes and Selected Cases on
Negotiable Mnstruments Law, Third
dition, p. 128). Ê

Mn the case of Cmmr
al Cr
 Crpra
 v. Orag Cur Ma
 îrks (34 Cal. 2d 766)
involving similar facts, it was held that in a very real sense, the finance company was a moving force
in the transaction from its very inception and acted as a party to it. îhen a finance company actively
participates in a transaction of this type from its inception, it cannot be regarded as a holder in due
course of the note given in the transaction. Ê

Mn like manner, therefore, even assuming that the subject promissory note is negotiable, the
respondent, a financing company which actively participated in the sale on installment of the subject
two Allis Crawler tractors, cannot be regarded as a holder in due course of said note. Mt follows that
the respondent's rights under the promissory note involved in this case are subject to all defenses
that the petitioners have against the seller-assignor, Mndustrial Products Marketing. For Section 58 of
the Negotiable Mnstruments Law provides that "in the hands of any holder other than a holder in due
course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. ... " Ê

Prescinding from the foregoing and setting aside other peripheral issues, we find that both the trial
and respondent appellate court erred in holding the promissory note in question to be negotiable.
Such a ruling does not only violate the law and applicable jurisprudence, but would result in unjust
enrichment on the part of both the assigner- assignor and respondent assignee at the expense of the
petitioner-corporation which rightfully rescinded an inequitable contract. îe note, however, that since
the seller-assignor has not been impleaded herein, there is no obstacle for the respondent to file a
civil Suit and litigate its claims against the seller- assignor in the rather unlikely possibility that it so
desires, Ê

î
R
FOR
, in view of the foregoing, the decision of the respondent appellate court dated July 17,
1985, as well as its resolution dated October 17, 1986, are hereby ANNULL
D and S
T ASMD
. The
complaint against the petitioner before the trial court is DMSMMSS
D. Ê

SO ORD
R
D. Ê

#



/!!
("
-0
#(
m mÊ

+



plaintiff-appellant,
vs.





defendant-appellees.Ê

An appeal from a decision of the Court of First Mnstance of Manila dismissing the complaint filed by
the Philippine
ducation Co., Mnc. against Mauricio A. Soriano,
nrico Palomar and Rafael Contreras.Ê

On April 18, 1958
nrique Montinola sought to purchase from the Manila Post Office ten (10) money
orders of P200.00 each payable to
.P. Montinola withaddress at Lucena, uezon. 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.Ê
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.Ê

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.Ê

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
nrico 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.Ê

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
îorks and Communications, but the latter sustained the actions taken by the postal officers.Ê

Mn connection with the events set forth above, Montinola was charged with theft in the Court of First
Mnstance of Manila (Criminal Case No. 43866) but after trial he was acquitted on the ground of
reasonable doubt.Ê

On January 8, 1962 appellant filed an action against appellees in the Municipal Court of Manila
praying for judgment as follows:Ê

î
R
FOR
, plaintiff prays that after hearing defendants be ordered:Ê

(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 8-½% per annum from
September 27, 1961, which is the rate of interest being paid by plaintiff on its overdraft account;Ê

(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 onorable
Court: exemplary damages in the amount of P1,000.00, attorney's fees of P1,000.00, and the costs of
action.Ê

Plaintiff also prays for such other and further relief as may be deemed just and equitable.Ê

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:Ê

î
R
FOR
, 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 8-½% per annum from
September 27, 1961 until fully paid; without any pronouncement as to cost and attorney's fees.Ê
The case was appealed to the Court of First Mnstance of Manila where, after the parties had
resubmitted the same stipulation of facts, the appealed decision dismissing the complaint, with costs,
was rendered.Ê

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.Ê

Mt 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.Ê

Mt 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).Ê

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 (
xhibit 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.Ê

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 ead in accordance with Sec. 79 (B) of the Revised Administrative
Code. Mn 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.Ê

Mn view of the foregoing, îe do not find it necessary to resolve the issues raised in the third and
fourth assignments of error.Ê
î
R
FOR
, the appealed decision being in accordance with law, the same is hereby affirmed with
costs.Ê



m((! (
-0


m #Ê

d
d

,-.

d
petitioners,

vs.
+
+d



,-.


respondents.Ê

Petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia, are before this Court assailing the
decision 
of respondent appellate court dated 24 April 1991 in CA-G.R. SP No. 24164 denying their
petition for r
rar
prohibition, and injunction which sought to annul the order of Judge
utropio
Migriño of the Regional Trial Court, Branch 151, Pasig, Metro Manila in Civil Case No. 54863 entitled
"
den Tan vs. Sps. Norberto and Carmen Tibajia."Ê

Stated briefly, the relevant facts are as follows:Ê

Case No. 54863 was a suit for collection of a sum of money filed by
den Tan against the Tibajia
spouses. A writ of attachment was issued by the trial court on 17 August 1987 and on 17 September
1987, the Deputy Sheriff filed a return stating that a deposit made by the Tibajia spouses in the
Regional Trial Court of Kalookan City in the amount of Four undred Forty Two Thousand Seven
undred and Fifty Pesos (P442,750.00) in another case, had been garnished by him. On 10 March
1988, the Regional Trial Court, Branch 151 of Pasig, Metro Manila rendered its decision in Civil Case
No. 54863 in favor of the plaintiff
den Tan, ordering the Tibajia spouses to pay her an amount in
excess of Three undred Thousand Pesos (P300,000.00). On appeal, the Court of Appeals modified
the decision by reducing the award of moral and exemplary damages. The decision having become
final,
den Tan filed the corresponding motion for execution and thereafter, the garnished funds
which by then were on deposit with the cashier of the Regional Trial Court of Pasig, Metro Manila,
were levied upon.Ê

On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff
duardo Bolima the total
money judgment in the following form:Ê

Cashier's Check P262,750.00

Cash 135,733.70
²²²²
Total P398,483.70Ê

Private respondent,
den Tan, refused to accept the payment made by the Tibajia spouses and
instead insisted that the garnished funds deposited with the cashier of the Regional Trial Court of
Pasig, Metro Manila be withdrawn to satisfy the judgment obligation. On 15 January 1991, defendant
spouses (petitioners) filed a motion to lift the writ of execution on the ground that the judgment debt
had already been paid. On 29 January 1991, the motion was denied by the trial court on the ground
that payment in cashier's check is not payment in legal tender and that payment was made by a third
party other than the defendant. A motion for reconsideration was denied on 8 February 1991.
Thereafter, the spouses Tibajia filed a petition for r
rar
, prohibition and injunction in the Court of
Appeals. The appellate court dismissed the petition on 24 April 1991 holding that payment by
cashier's check is not payment in legal tender as required by Republic Act No. 529. The motion for
reconsideration was denied on 27 May 1991.Ê
Mn this petition for review, the Tibajia spouses raise the following issues:Ê

M î
T
R OR NOT T
BPM CAS M
R'S C
CK NO. 014021 MN T
AMOUNT OF P262,750.00

T
ND
R
D BY P
TMTMON
RS FOR PAYM
NT OF T
JUDGM
NT D
BT, MS "L
GAL T
ND
R".Ê

MM î
T
R OR NOT T
PRMVAT
R
SPOND
NT MAY VALMDLY R
FUS
T
T
ND
R OF

PAYM
NT PARTLY MN C
CK AND PARTLY MN CAS MAD
BY P
TMTMON
RS, T RU AURORA
VMTO AND COUNS
L, FOR T
SATMSFACTMON OF T
MON
TARY OBLMGATMON OF

m
P
TMTMON
RS-SPOUS
S. Ê

The only issue to be resolved in this case is whether or not payment by means of check (even by
cashier's check) is considered payment in legal tender as required by the Civil Code, Republic Act
No. 529, and the Central Bank Act.Ê

Mt is contended by the petitioners that the check, which was a cashier's check of the Bank of the
Philippine Mslands, undoubtedly a bank of good standing and reputation, and which was a crossed
check marked "For Payee's Account Only" and payable to private respondent
den Tan, is
considered legal tender, payment with which operates to discharge their monetary obligation.
!

Petitioners, to support their contention, cite the case of Nw a
f
 
m r a Suppl C. M. v.
Sr
s
#
where this Court held through Mr. Justice ermogenes Concepcion, Jr. that "Mt is a well-
known and accepted practice in the business sector that a cashier's check is deemed as cash".Ê

The provisions of law applicable to the case at bar are the following:Ê

a. Article 1249 of the Civil Code which provides:Ê

Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is legal tender in the Philippines.Ê

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents
shall produce the effect of payment only when they have been cashed, or when through the fault of the
creditor they have been impaired.Ê

Mn the meantime, the action derived from the original obligation shall be held in abeyance.;Ê

b. Section 1 of Republic Act No. 529, as amended, which provides:Ê

Sec. 1.
very provision contained in, or made with respect to, any obligation which purports to give the
obligee the right to require payment in gold or in any particular kind of coin or currency other than
Philippine currency or in an amount of money of the Philippines measured thereby, shall be as it is hereby
declared against public policy null and void, and of no effect, and no such provision shall be contained in,
or made with respect to, any obligation thereafter incurred.
very obligation heretofore and hereafter
incurred, whether or not any such provision as to payment is contained therein or made with respect
thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal
tender for public and private debts.Ê

c. Section 63 of Republic Act No. 265, as amended (Central Bank Act) which provides:Ê

Sec. 63. {gal  arar ² Checks representing deposit money do not have legal tender power and their
acceptance in the payment of debts, both public and private, is at the option of the creditor: Provided,
however, that a check which has been cleared and credited to the account of the creditor shall be
equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account.Ê

From the aforequoted provisions of law, it is clear that this petition must fail.Ê
Mn the recent cases of 
l
pp
 A
rl
s M. vs. Cur f Appals


and ©ma Ca l
 B
s p f
Malls M. vs. Mrm
a Applla Cur,
"
this Court held that ²Ê

A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor.Ê

The ruling in these two (2) cases merely applies the statutory provisions which lay down the rule that
a check is not legal tender and that a creditor may validly refuse payment by check, whether it be a
manager's, cashier's or personal check.Ê

Petitioners erroneously rely on one of the dissenting opinions in the 
l
pp
 A
rl
s case

to
support their cause. The dissenting opinion however does not in any way support the contention that
a check is legal tender but, on the contrary, states that "Mf the PAL checks in question had not been
encashed by Sheriff Reyes, there would be no payment by PAL and, consequently, no discharge or
satisfaction of its judgment obligation."

Moreover, the circumstances in the 
l
pp
 A
rl
s case
are quite different from those in the case at bar for in that case the checks issued by the judgment
debtor were made payable to the sheriff,
milio Z. Reyes, who encashed the checks but failed to
deliver the proceeds of said encashment to the judgment creditor.Ê

Mn the more recent case of Frua vs. Cur f Appals,
)
this Court stressed that, "îe are not, by
this decision, sanctioning the use of a check for the payment of obligations over the objection of the
creditor."Ê

î
R
FOR
, the petition is D
NM
D. The appealed decision is hereby AFFMRM
D, with costs
against the petitioners.Ê

SO ORD
R
D.Ê

"



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+


petitioner,
vs.
+



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2

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respondents.
Ê

Behind the simple issue of validity of an alias writ of execution in this case is a more fundamental
question. Should the Court allow a too literal interpretation of the Rules with an open invitation to
knavery to prevail over a more discerning and just approach? Should we not apply the ancient rule of
statutory construction that laws are to be interpreted by the spirit which vivifies and not by the letter
which killeth?Ê

This is a petition to review on r
rar
the decision of the Court of Appeals in CA-G.R. No. 07695
entitled "
l
pp
 A
rl
s M. v. . Jug ©
ar D. Gala  al." dismissing the petition for
certiorari against the order of the Court of First Mnstance of Manila which issued an alias writ of
execution against the petitioner.Ê
The petition involving the alias writ of execution had its beginnings on November 8, 1967, when
respondent Amelia Tan, under the name and style of Able Printing Press commenced a complaint for
damages before the Court of First Mnstance of Manila. The case was docketed as Civil Case No.
71307, entitled Aml
a a  al. v. 
l
pp
 A
rl
s M. Ê

After trial, the Court of First Mnstance of Manila, Branch 13, then presided over by the late Judge
Jesus P. Morfe rendered judgment on June 29, 1972, in favor of private respondent Amelia Tan and
against petitioner Philippine Airlines, Mnc. (PAL) as follows: Ê

î
R
FOR
, judgment is hereby rendered, ordering the defendant Philippine Air Lines: Ê

1. On the first cause of action, to pay to the plaintiff the amount of P75,000.00 as actual damages, with
legal interest thereon from plaintiffs extra-judicial demand made by the letter of July 20, 1967; Ê

2. On the third cause of action, to pay to the plaintiff the amount of P18,200.00, representing the
unrealized profit of 10% included in the contract price of P200,000.00 plus legal interest thereon from July
20,1967; Ê

3. On the fourth cause of action, to pay to the plaintiff the amount of P20,000.00 as and for moral
damages, with legal interest thereon from July 20, 1 967; Ê

4. On the sixth cause of action, to pay to the plaintiff the amount of P5,000.00 damages as and for
attorney's fee. Ê

Plaintiffs second and fifth causes of action, and defendant's counterclaim, are dismissed.Ê

îith costs against the defendant. (CA Rollo, p. 18) Ê

On July 28, 1972, the petitioner filed its appeal with the Court of Appeals. The case was docketed as
CA-G.R. No. 51079-R.Ê

On February 3, 1977, the appellate court rendered its decision, the dispositive portion of which reads: Ê

MN VM
î î
R
OF, with the modification that PAL is condemned to pay plaintiff the sum of P25,000.00
as damages and P5,000.00 as attorney's fee, judgment is affirmed, with costs. (CA Rollo, p. 29) Ê

Notice of judgment was sent by the Court of Appeals to the trial court and on dates subsequent
thereto, a motion for reconsideration was filed by respondent Amelia Tan, duly opposed by petitioner
PAL.Ê

On May 23,1977, the Court of Appeals rendered its resolution denying the respondent's motion for
reconsideration for lack of merit.Ê

No further appeal having been taken by the parties, the judgment became final and executory and on
May 31, 1977, judgment was correspondingly entered in the case.Ê

The case was remanded to the trial court for execution and on September 2,1977, respondent Amelia
Tan filed a motion praying for the issuance of a writ of execution of the judgment rendered by the
Court of Appeals. On October 11, 1977, the trial court, presided over by Judge Galano, issued its
order of execution with the corresponding writ in favor of the respondent. The writ was duly referred to
Deputy Sheriff
milio Z. Reyes of Branch 13 of the Court of First Mnstance of Manila for enforcement. Ê
Four months later, on February 11, 1978, respondent Amelia Tan moved for the issuance of an alias
writ of execution stating that the judgment rendered by the lower court, and affirmed with modification
by the Court of Appeals, remained unsatisfied.Ê

On March 1, 1978, the petitioner filed an opposition to the motion for the issuance of an alias writ of
execution stating that it had already fully paid its obligation to plaintiff through the deputy sheriff of the
respondent court,
milio Z. Reyes, as evidenced by cash vouchers properly signed and receipted by
said
milio Z. Reyes. Ê

On March 3,1978, the Court of Appeals denied the issuance of the alias writ for being premature,
ordering the executing sheriff
milio Z. Reyes to appear with his return and explain the reason for his
failure to surrender the amounts paid to him by petitioner PAL. owever, the order could not be
served upon Deputy Sheriff Reyes who had absconded or disappeared.Ê

On March 28, 1978, motion for the issuance of a partial alias writ of execution was filed by
respondent Amelia Tan.Ê

On April 19, 1978, respondent Amelia Tan filed a motion to withdraw "Motion for Partial Alias îrit of

xecution" with Substitute Motion for Alias îrit of
xecution. On May 1, 1978, the respondent Judge
issued an order which reads: Ê

As prayed for by counsel for the plaintiff, the Motion to îithdraw 'Motion for Partial Alias îrit of
xecution
with Substitute Motion for Alias îrit of
xecution is hereby granted, and the motion for partial alias writ of
execution is considered withdrawn. Ê

Let an Alias îrit of
xecution issue against the defendant for the fall satisfaction of the judgment
rendered. Deputy Sheriff Jaime K. del Rosario is hereby appointed Special Sheriff for the enforcement
thereof. (CA Rollo, p. 34) Ê

On May 18, 1978, the petitioner received a copy of the first alias writ of execution issued on the same
day directing Special Sheriff Jaime K. del Rosario to levy on execution in the sum of P25,000.00 with
legal interest thereon from July 20,1967 when respondent Amelia Tan made an extra-judicial demand
through a letter. Levy was also ordered for the further sum of P5,000.00 awarded as attorney's fees. Ê

On May 23, 1978, the petitioner filed an urgent motion to quash the alias writ of execution stating that
no return of the writ had as yet been made by Deputy Sheriff
milio Z. Reyes and that the judgment
debt had already been fully satisfied by the petitioner as evidenced by the cash vouchers signed and
receipted by the server of the writ of execution, Deputy Sheriff
milio Z. Reyes. Ê

On May 26,1978, the respondent Jaime K. del Rosario served a notice of garnishment on the
depository bank of petitioner, Far
ast Bank and Trust Company, Rosario Branch, Binondo, Manila,
through its manager and garnished the petitioner's deposit in the said bank in the total amount of
P64,408.00 as of May 16, 1978. ence, this petition for certiorari filed by the Philippine Airlines, Mnc.,
on the grounds that: Ê

MÊ

AN ALMAS îRMT OF

CUTMON CANNOT B
MSSU
D îMT OUT PRMOR R
TURN OF T

ORMGMNAL îRMT BY T
MMPL
M
NTMNG OFFMC
R.Ê

MM Ê
 PAYM
NT OF JUDGM
NT TO T
MMPL
M
NTMNG OFFMC
R AS DMR
CT
D MN T
îRMT OF


CUTMON CONSTMTUT
S SATMSFACTMON OF JUDGM
NT. Ê

MMM Ê

MNT
R
ST MS NOT PAYABL
î
N T
D
CMSMON MS SML
NT AS TO T
PAYM
NT T
R
OF. Ê

MV Ê

S
CTMON 5, RUL
39, PARTMCULARLY R
F
RS TO L
VY OF PROP
RTY OF JUDGM
NT D
BTOR

AND DMSPOSAL OR SAL
T
R
OF TO SATMSFY JUDGM
NT. Ê

Can an alias writ of execution be issued without a prior return of the original writ by the implementing
officer?Ê

îe rule in the affirmative and we quote the respondent court's decision with approval: Ê

The issuance of the questioned alias writ of execution under the circumstances here obtaining is justified
because even with the absence of a Sheriffs return on the original writ, the unalterable fact remains that
such a return is incapable of being obtained (sic) because the officer who is to make the said return has
absconded and cannot be brought to the Court despite the earlier order of the court for him to appear for
this purpose. (Order of Feb. 21, 1978, Annex C, Petition). Obviously, taking cognizance of this
circumstance, the order of May 11, 1978 directing the issuance of an alias writ was therefore issued.
(Annex D. Petition). The need for such a return as a condition precedent for the issuance of an alias writ
was justifiably dispensed with by the court below and its action in this regard meets with our concurrence.
A contrary view will produce an abhorent situation whereby the mischief of an erring officer of the court
could be utilized to impede indefinitely the undisputed and awarded rights which a prevailing party
rightfully deserves to obtain and with dispatch. The final judgment in this case should not indeed be
permitted to become illusory or incapable of execution for an indefinite and over extended period, as had
already transpired. (Rollo, pp. 35-36) Ê

Ju

um    ss
llusr
um suum ffum a r   (A judgment ought not to be illusory
it ought to have its proper effect). Ê

Mndeed, technicality cannot be countenanced to defeat the execution of a judgment for execution is
the fruit and end of the suit and is very aptly called the life of the law (Mpekdjian Merchandising Co. v.
Court of Tax Appeals, 8 SCRA 59 [1963]; Commissioner of Mnternal Revenue v. Visayan
lectric Co.,
19 SCRA 697, 698 [1967]). A judgment cannot be rendered nugatory by the unreasonable application
of a strict rule of procedure. Vested rights were never intended to rest on the requirement of a return,
the office of which is merely to inform the court and the parties, of any and all actions taken under the
writ of execution. îhere such information can be established in some other manner, the absence of
an executing officer's return will not preclude a judgment from being treated as discharged or being
executed through an alias writ of execution as the case may be. More so, as in the case at bar.
îhere the return cannot be expected to be forthcoming, to require the same would be to compel the
enforcement of rights under a judgment to rest on an impossibility, thereby allowing the total
avoidance of judgment debts. So long as a judgment is not satisfied, a plaintiff is entitled to other writs
of execution (Government of the Philippines v.
chaus and Gonzales, 71 Phil. 318). Mt is a well known
legal maxim that he who cannot prosecute his judgment with effect, sues his case vainly.Ê

More important in the determination of the propriety of the trial court's issuance of an alias writ of
execution is the issue of satisfaction of judgment.Ê

Under the peculiar circumstances surrounding this case, did the payment made to the absconding
sheriff by check in his name operate to satisfy the judgment debt? The Court rules that the plaintiff
who has won her case should not be adjudged as having sued in vain. To decide otherwise would not
only give her an empty but a pyrrhic victory.Ê

Mt should be emphasized that under the initial judgment, Amelia Tan was found to have been wronged
by PAL.Ê

She filed her complaint in 1967.Ê

After ten (10) years of protracted litigation in the Court of First Mnstance and the Court of Appeals, Ms.
Tan won her case.Ê

Mt is now 1990. Ê

Almost twenty-two (22) years later, Ms. Tan has not seen a centavo of what the courts have solemnly
declared as rightfully hers. Through absolutely no fault of her own, Ms. Tan has been deprived of
what, technically, she should have been paid from the start, fr 1967, without need of her going to
court to enforce her rights. And all because PAL did not issue the checks intended for her, in her
name.Ê

Under the peculiar circumstances of this case, the payment to the absconding sheriff by check in his
name did not operate as a satisfaction of the judgment debt. Ê

Mn general, a payment, in order to be effective to discharge an obligation, must be made to the proper
person. Article 1240 of the Civil Code provides: Ê

Payment shall be made to the person in whose favor the obligation has been constituted, or his
successor in interest, or any person au r
  r
v
. (
mphasis supplied) Ê

Thus, payment must be made to the obligee himself or to an agent having authority, express or
implied, to receive the particular payment (Ulen v. Knecttle 50 îyo 94, 58 [2d] 446, 111 ALR 65).
Payment made to one having apparent authority to receive the money will, as a rule, be treated as
though actual authority had been given for its receipt. Likewise, if payment is made to one who by law
is authorized to act for the creditor, it will work a discharge ( endry v. Benlisa 37 Fla. 609, 20 SO
800,34 LRA 283). The receipt of money due on ajudgment by an officer authorized by law to accept it
will, therefore, satisfy the debt (See 40 Am Jm 729, 25; endry v. Benlisa supra; Seattle v. Stirrat 55
îash. 104 p. 834,24 LRA [NS] 1275).Ê

The theory is where payment is made to a person authorized and recognized by the creditor, the
payment to such a person so authorized is deemed payment to the creditor. Under ordinary
circumstances, payment by the judgment debtor in the case at bar, to the sheriff should be valid
payment to extinguish the judgment debt. Ê

There are circumstances in this case, however, which compel a different conclusion. Ê

The payment made by the petitioner to the absconding sheriff was not in cash or legal tender but in
checks. The checks were not payable to Amelia Tan or Able Printing Press but to the absconding
sheriff. Ê

Did such payments extinguish the judgment debt? Ê

Article 1249 of the Civil Code provides: Ê

 The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver
such currency, then in the currency which is legal tender in the Philippines.Ê

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents
shall produce the effect of payment only when they have been cashed, or when through the fault of the
creditor they have been impaired. Ê

Mn the meantime, the action derived from the original obligation shall be held in abeyance. Ê

Mn the absence of an agreement, either express or implied, payment means the discharge of a debt or
obligation in money (US v. Robertson, 5 Pet. [US] 641, 8 L. ed. 257) and unless the parties so agree,
a debtor has no rights, except at his own peril, to substitute something in lieu of cash as medium of
payment of his debt (Anderson v. Gill, 79 Md.. 312, 29 A 527, 25 LRA 200,47 Am. St. Rep. 402).
Consequently, unless authorized to do so by law or by consent of the obligee a public officer has no
authority to accept anything other than money in payment of an obligation under a judgment being
executed. Strictly speaking, the acceptance by the sheriff of the petitioner's checks, in the case at bar,
does not, pr s, operate as a discharge of the judgment debt. Ê

Since a negotiable instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment (See. 189, Act 2031 on Negs. Mnsts.; Art. 1249,
Civil Code; Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21
R.C.L. 60, 61). A check, whether a manager's check or ordinary cheek, is not legal tender, and an
offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by
the obligee or creditor. Mere delivery of checks does not discharge the obligation under a judgment.
The obligation is not extinguished and remains suspended until the payment by commercial
document is actually realized (Art. 1249, Civil Code, par. 3).Ê

Mf bouncing checks had been issued in the name of Amelia Tan and not the Sheriff's, there would
have been no payment. After dishonor of the checks, Ms. Tan could have run after other properties of
PAL. The theory is that she has received no value for what had been awarded her. Because the
checks were drawn in the name of
milio Z. Reyes, neither has she received anything. The same rule
should apply.Ê

Mt is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in full legal
contemplation. The reasoning is logical but is it valid and proper? Logic has its limits in decision
making. îe should not follow rulings to their logical extremes if in doing so we arrive at unjust or
absurd results.Ê

Mn the first place, PAL 
  pa
 as . Mt paid in cheeks. Ê

And second, payment in cash always carries with it certain cautions. Nobody hands over big amounts
of cash in a careless and inane manner. Mature thought is given to the possibility of the cash being
lost, of the bearer being waylaid or running off with what he is carrying for another. Payment in
checks is precisely intended to avoid the possibility of the money going to the wrong party. The
situation is entirely different where a Sheriff seizes a car, a tractor, or a piece of land. Logic often has
to give way to experience and to reality. aving paid with checks, PAL should have done so properly.Ê

Payment in money or cash to the implementing officer may be deemed absolute payment of the
judgment debt but the Court has never, in the least bit, suggested that judgment debtors should settle
their obligations by turning over huge amounts of cash or legal tender to sheriffs and other executing
officers. Payment in cash would result in damage or interminable litigations each time a sheriff with
huge amounts of cash in his hands decides to abscond.Ê
As a protective measure, therefore, the courts encourage the practice of payments by cheek provided
adequate controls are instituted to prevent wrongful payment and illegal withdrawal or disbursement
of funds. Mf particularly big amounts are involved, escrow arrangements with a bank and carefully
supervised by the court would be the safer procedure. Actual transfer of funds takes place within the
safety of bank premises. These practices are perfectly legal. The object is always the safe and
incorrupt execution of the judgment. Ê

Mt is, indeed, out of the ordinary that checks intended for a particular payee are made out in the name
of another. Making the checks payable to the judgment creditor would have prevented the
encashment or the taking of undue advantage by the sheriff, or any person into whose hands the
checks may have fallen, whether wrongfully or in behalf of the creditor. The issuance of the checks in
the name of the sheriff clearly made possible the misappropriation of the funds that were withdrawn. Ê

As explained and held by the respondent court: Ê

... [K]nowing as it does that the intended payment was for the private party respondent Amelia Tan, the
petitioner corporation, utilizing the services of its personnel who are or should be knowledgeable about
the accepted procedures and resulting consequences of the checks drawn, nevertheless, in this instance,
without prudence, departed from what is generally observed and done, and placed as payee in the
checks the name of the errant Sheriff and not the name of the rightful payee. Petitioner thereby created a
situation which permitted the said Sheriff to personally encash said checks and misappropriate the
proceeds thereof to his exclusive personal benefit. For the prejudice that resulted, the petitioner himself
must bear the fault. The judicial guideline which we take note of states as follows: Ê

As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the
one who made it possible by his act of confidence must bear the loss. (Blondeau, et al. v. Nano, et al., L-
41377, July 26, 1935, 61 Phil. 625) Ê

aving failed to employ the proper safeguards to protect itself, the judgment debtor whose act made
possible the loss had but itself to blame.Ê

The attention of this Court has been called to the bad practice of a number of executing officers, of
requiring checks in satisfaction of judgment debts to be made out in their own names. Mf a sheriff
directs a judgment debtor to issue the checks in the sheriff's name, claiming he must get his
commission or fees, the debtor must report the sheriff immediately to the court which ordered the
execution or to the Supreme Court for appropriate disciplinary action. Fees, commissions, and
salaries are paid through regular channels. This improper procedure also allows such officers, who
have sixty (60) days within which to make a return, to treat the moneys as their personal finds and to
deposit the same in their private accounts to earn sixty (60) days interest, before said finds are turned
over to the court or judgment creditor (See Balgos v. Velasco, 108 SCRA 525 [1981]). uite as
easily, such officers could put up the defense that said checks had been issued to them in their
private or personal capacity. îithout a receipt evidencing payment of the judgment debt, the
misappropriation of finds by such officers becomes clean and complete. The practice is ingenious but
evil as it unjustly enriches court personnel at the expense of litigants and the proper administration of
justice. The temptation could be far greater, as proved to be in this case of the absconding sheriff.
The correct and prudent thing for the petitioner was to have issued the checks in the intended payee's
name. Ê

The pernicious effects of issuing checks in the name of a person other than the intended payee,
without the latter's agreement or consent, are as many as the ways that an artful mind could concoct
to get around the safeguards provided by the law on negotiable instruments. An angry litigant who
loses a case, as a rule, would not want the winning party to get what he won in the judgment. e
would think of ways to delay the winning party's getting what has been adjudged in his favor. îe
cannot condone that practice especially in cases where the courts and their officers are involved. îe
rule against the petitioner. Ê

Anent the applicability of Section 15, Rule 39, as follows: Ê

Section 15. 
u
 f m jugms. ² The officer must enforce an execution of a money
judgment by levying on all the property, real and personal of every name and nature whatsoever, and
which may be disposed of for value, of the judgment debtor not exempt from execution, or on a sufficient
amount of such property, if they be sufficient, and selling the same, a pa
g    jugm r
r,
or his attorney, so much of the proceeds as will satisfy the judgment. ...

the respondent court held: Ê

îe are obliged to rule that the judgment debt cannot be considered satisfied and therefore the orders of
the respondent judge granting the alias writ of execution may not be pronounced as a nullity. Ê

xxx xxx xxxÊ

Mt is clear and manifest that after levy or garnishment, for a judgment to be executed there is the requisite
of payment by the officer to the judgment creditor, or his attorney, so much of the proceeds as will satisfy
the judgment and none such payment had been concededly made yet by the absconding Sheriff to the
private respondent Amelia Tan. The ultimate and essential step to complete the execution of the
judgment not having been performed by the City Sheriff, the judgment debt legally and factually remains
unsatisfied. Ê

Strictly speaking execution cannot be equated with satisfaction of a judgment. Under unusual
circumstances as those obtaining in this petition, the distinction comes out clearly.Ê

xecution is the process which carries into effect a decree or judgment (Painter v. Berglund, 31 Cal.
App. 2d. 63, 87 P 2d 360, 363; Miller v. London, 294 Mass 300, 1 N
2d 198, 200; Black's Law
Dictionary), whereas the satisfaction of a judgment is the payment of the amount of the writ, or a
lawful tender thereof, or the conversion by sale of the debtor's property into an amount equal to that
due, and, it may be done otherwise than upon an execution (Section 47, Rule 39). Levy and delivery
by an execution officer are not prerequisites to the satisfaction of a judgment when the same has
already been realized in fact (Section 47, Rule 39).
xecution is for the sheriff to accomplish while
satisfaction of the judgment is for the creditor to achieve. Section 15, Rule 39 merely provides the
sheriff with his duties as executing officer including delivery of the proceeds of his levy on the debtor's
property to satisfy the judgment debt. Mt is but to stress that the implementing officer's duty should not
stop at his receipt of payments but must continue until payment is delivered to the obligor or creditor. Ê

Finally, we find no error in the respondent court's pronouncement on the inclusion of interests to be
recovered under the alias writ of execution. This logically follows from our ruling that PAL is liable for
both the lost checks and interest. The respondent court's decision in CA-G.R. No. 51079-R does not
totally supersede the trial court's judgment in Civil Case No. 71307. Mt merely modified the same as to
the principal amount awarded as actual damages. Ê

î
R
FOR
, MN VM
î OF T
FOR
GOMNG, the petition is hereby DMSMMSS
D. The judgment of

the respondent Court of Appeals is AFFMRM
D and the trial court's issuance of the alias writ of
execution against the petitioner is upheld without prejudice to any action it should take against the
errant sheriff
milio Z. Reyes. The Court Administrator is ordered to follow up the actions taken
against
milio Z. Reyes. Ê

SO ORD
R
D. Ê






) !"!
,1
!

m #Ê


d7
petitioner,
vs.
+








d6

respondents.Ê

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:Ê

(a) the Certificate of Confirmation of Sale, "without recourse," No. 20496 of one (1) Delta Motors
Corporation Promissory Note ("DMC PN") No. 2731 for a term of 32 days at 17.0% pr aum;Ê

(b) the Certificate of securities Delivery Receipt No. 16587 indicating the sale of DMC PN No. 2731 to
petitioner, with the notation that the said security was in custodianship of Pilipinas Bank, as per
Denominated Custodian Receipt ("DCR") No. 10805 dated 9 February 1981; andÊ

(c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of petitioner's investment), with
petitioner as payee, Philfinance as drawer, and Mnsular Bank of Asia and America as drawee, in the total
amount of P304,533.33.Ê

On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance.
owever, the checks were dishonored for having been drawn against insufficient funds.Ê

On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private
respondent Pilipinas Bank ("Pilipinas"). Mt reads as follows:Ê

PMLMPMNAS BANK
Makati Stock
xchange Bldg.,
Ayala Avenue, Makati,
Metro Manila

TO Raul Sesbreño
 D
NOMMNAT
D CUSTODMAN R
C
MPTÊ

This confirms that as a duly Custodian Bank, and upon instruction of P MLMPPMN
UND
RîRMT
S
FMNANC
CORPORATMON, we have in our custody the following securities to you [s
] the extent herein
indicated.Ê

S
RMAL MAT. FAC
MSSU
D R
GMST
R
D AMOUNT

NUMB
R DAT
VALU
BY OLD
R PAY

Ê

2731 4-6-81 2,300,833.34 DMC P ML. 307,933.33

UND
RîRMT
RS
FMNANC
CORP.Ê

îe further certify that these securities may be inspected by you or your duly authorized representative at
any time during regular banking hours.Ê

Upon your written instructions we shall undertake physical delivery of the above securities fully assigned
to you should this Denominated Custodianship Receipt remain outstanding in your favor thirty (30) days
after its maturity.

On 2 April 1981, petitioner approached Ms.
lizabeth de Villa of private respondent Pilipinas, Makati
Branch, and handed her a demand letter informing the bank that his placement with Philfinance in the
amount reflected in the DCR No. 10805 had remained unpaid and outstanding, and that he in effect
was asking for the physical delivery of the underlying promissory note. Petitioner then examined the
original of the DMC PN No. 2731 and found: that the security had been issued on 10 April 1980; that
it would mature on 6 April 1981; that it had a face value of P2,300,833.33, with the Philfinance as
"payee" and private respondent Delta Motors Corporation ("Delta") as "maker;" and that on face of the
promissory note was stamped "NON N
GOTMABL
." Pilipinas did not deliver the Note, nor any
certificate of participation in respect thereof, to petitioner.Ê

Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981,
! again asking
private respondent Pilipinas for physical delivery of the original of DMC PN No. 2731. Pilipinas
allegedly referred all of petitioner's demand letters to Philfinance for written instructions, as has been
supposedly agreed upon in "Securities Custodianship Agreement" between Pilipinas and Philfinance.
Philfinance did not provide the appropriate instructions; Pilipinas never released DMC PN No. 2731,
nor any other instrument in respect thereof, to petitioner.Ê

Petitioner also made a written demand on 14 July 1981
# upon private respondent Delta for the partial
satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had assigned to him
said Note to the extent of P307,933.33. Delta, however, denied any liability to petitioner on the
promissory note, and explained in turn that it had previously agreed with Philfinance to offset its DMC
PN No. 2731 (along with DMC PN No. 2730) against Philfinance PN No. 143-A issued in favor of
Delta.Ê

Mn the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the
Securities and exchange commission ("S
C") and the Central Bank. Pilipinas delivered to the S
C
DMC PN No. 2731, which to date apparently remains in the custody of the S
C.

Ê

As petitioner had failed to collect his investment and interest thereon, he filed on 28 September 1982
an action for damages with the Regional Trial Court ("RTC") of Cebu City, Branch 21, against private
respondents Delta and Pilipinas.
" The trial court, in a decision dated 5 August 1987, dismissed the
complaint and counterclaims for lack of merit and for lack of cause of action, with costs against
petitioner.Ê

Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. Mn a Decision dated
21 March 1989, the Court of Appeals denied the appeal and held:
Ê

Be that as it may, from the evidence on record, if there is anyone that appears liable for the travails of
plaintiff-appellant, it is Philfinance. As correctly observed by the trial court:Ê

This act of Philfinance in accepting the investment of plaintiff and charging it against
DMC PN No. 2731 when its entire face value was already obligated or earmarked for set-
off or compensation is difficult to comprehend and may have been motivated with bad
faith. Philfinance, therefore, is solely and legally obligated to return the investment of
plaintiff, together with its earnings, and to answer all the damages plaintiff has suffered
incident thereto. Unfortunately for plaintiff, Philfinance was not impleaded as one of the
defendants in this case at bar; hence, this Court is without jurisdiction to pronounce
judgement against it. (p. 11, Decision)Ê

î
R
FOR
, finding no reversible error in the decision appealed from, the same is hereby affirmed

. Cost against plaintiff-appellant.Ê

Petitioner moved for reconsideration of the above Decision, without success.Ê

ence, this Petition for Review on Cr
rar
.Ê

After consideration of the allegations contained and issues raised in the pleadings, the Court resolved
to give due course to the petition and required the parties to file their respective memoranda.
Ê

Petitioner reiterates the assignment of errors he directed at the trial court decision, and contends that
respondent court of Appeals gravely erred: (i) in concluding that he cannot recover from private
respondent Delta his assigned portion of DMC PN No. 2731; (ii) in failing to hold private respondent
Pilipinas solidarily liable on the DMC PN No. 2731 in view of the provisions stipulated in DCR No.
10805 issued in favor r of petitioner, and (iii) in refusing to pierce the veil of corporate entity between
Philfinance, and private respondents Delta and Pilipinas, considering that the three (3) entities belong
to the "Silverio Group of Companies" under the leadership of Mr. Ricardo Silverio, Sr.
)Ê

There are at least two (2) sets of relationships which we need to address: firstly, the relationship of
petitioner v
sav
s Delta; secondly, the relationship of petitioner in respect of Pilipinas. Actually, of
course, there is a third relationship that is of critical importance: the relationship of petitioner and
Philfinance. owever, since Philfinance has not been impleaded in this case, neither the trial court
nor the Court of Appeals acquired jurisdiction over the person of Philfinance. Mt is, consequently, not
necessary for present purposes to deal with this third relationship, except to the extent it necessarily
impinges upon or intersects the first and second relationships.Ê

M.Ê

îe consider first the relationship between petitioner and Delta.Ê

The Court of appeals in effect held that petitioner acquired no rights v
sav
s Delta in respect of the
Delta promissory note (DMC PN No. 2731) which Philfinance sold "without recourse" to petitioner, to
the extent of P304,533.33. The Court of Appeals said on this point:Ê
 Nor could plaintiff-appellant have acquired any right over DMC PN No. 2731 as the same is "non-
negotiable" as stamped on its face (
xhibit "6"), negotiation being defined as the transfer of an instrument
from one person to another so as to constitute the transferee the holder of the instrument (Sec. 30,
Negotiable Mnstruments Law). A person not a holder cannot sue on the instrument in his own name and
cannot demand or receive payment (Section 51,
.)
Ê

Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that the Note had been
validly transferred, in part to him by assignment and that as a result of such transfer, Delta as debtor-
maker of the Note, was obligated to pay petitioner the portion of that Note assigned to him by the
payee Philfinance.Ê

Delta, however, disputes petitioner's contention and argues:Ê

(1) that DMC PN No. 2731 was not intended to be negotiated or otherwise transferred by Philfinance as

m(
manifested by the word "non-negotiable" stamp across the face of the Note and because maker Delta
and payee Philfinance intended that this Note would be offset against the outstanding obligation of
Philfinance represented by Philfinance PN No. 143-A issued to Delta as payee;Ê

(2) that the assignment of DMC PN No. 2731 by Philfinance was without Delta's consent, if not against its
instructions; andÊ

(3) assuming (argu only) that the partial assignment in favor of petitioner was valid, petitioner took
the Note subject to the defenses available to Delta, in particular, the offsetting of DMC PN No. 2731
against Philfinance PN No. 143-A.
mmÊ

îe consider Delta's arguments sr
a
m.Ê

Firstly, it is important to bear in mind that the g
a
 of a negotiable instrument must be
distinguished from the ass
gm or rasfr of an instrument whether that be negotiable or non-
negotiable. Only an instrument qualifying as a negotiable instrument under the relevant statute may
be g
a either by indorsement thereof coupled with delivery, or by delivery alone where the
negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being
negotiated, also be ass
g or rasfrr. 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:Ê

The words " g
a l " stamped on the face of the bill of lading, 
  sr
s ass
ga
l
, but
the sole effect was to exempt the bill from the statutory provisions relative thereto, a a
ll, though 
g
a l, ma  rasfrr  ass
gm; the assignee taking subject to the equities between the

m!
original parties. (
mphasis added)Ê

DMC PN No. 2731, while marked "non-negotiable," was  at the same time stamped "non-
transferable" or "non-assignable." Mt contained no stipulation which prohibited Philfinance from
assigning or transferring, in whole or in part, that Note.Ê

Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and which should
be quoted in full:Ê

April
10,
1980Ê

Philippine Underwriters Finance Corp.

Benavidez St., Makati,
Metro Manila.Ê
 Attention: Mr. Alfredo O. Banaria
SVP-TreasurerÊ

G
NTL
M
N:Ê

This refers to our outstanding placement of P4,601,666.67 as evidenced by your Promissory Note No.
143-A, dated April 10, 1980, to mature on April 6, 1981.Ê

As agreed upon, we enclose our non-negotiable Promissory Note No. 2730 and 2731 for P2,000,000.00
each, dated April 10, 1980, to be offsetted [s
] against your PN No. 143-A upon co-terminal maturity.Ê

Please deliver the proceeds of our PNs to our representative, Mr.
ric Castillo.

îe find nothing in his "Letter of Agreement" which can be reasonably construed as a prohibition upon
Philfinance assigning or transferring all or part of DMC PN No. 2731, before the maturity thereof. Mt is
scarcely necessary to add that, even had this "Letter of Agreement" set forth an explicit prohibition of
transfer upon Philfinance, such a prohibition cannot be invoked against an assignee or transferee of
the Note who parted with valuable consideration in good faith and without notice of such prohibition. Mt
is not disputed that petitioner was such an assignee or transferee. Our conclusion on this point is
reinforced by the fact that what Philfinance and Delta were doing by their exchange of their
promissory notes was this: Delta invested, by making a money market placement with Philfinance,
approximately P4,600,000.00 on 10 April 1980; but promptly, on the same day, borrowed back the
bulk of that placement, i.e., P4,000,000.00, by issuing its two (2) promissory notes: DMC PN No.
2730 and DMC PN No. 2731, both also dated 10 April 1980. Thus, Philfinance was left with not
P4,600,000.00 but only P600,000.00 in cash and the two (2) Delta promissory notes.Ê

Aprps Delta's complaint that the partial assignment by Philfinance of DMC PN No. 2731 had been
effected without the consent of Delta, we note that such consent was not necessary for the validity
and enforceability of the assignment in favor of petitioner.
m
Delta's argument that Philfinance's sale or
assignment of part of its rights to DMC PN No. 2731 constituted conventional subrogation, which
required its (Delta's) consent, is quite mistaken. Conventional subrogation, which in the first place is
never lightly inferred,
m" must be clearly established by the unequivocal terms of the substituting
obligation or by the evident incompatibility of the new and old obligations on every point.
m Nothing of
the sort is present in the instant case.Ê

Mt is in fact difficult to be impressed with Delta's complaint, since it released its DMC PN No. 2731 to
Philfinance, an entity engaged in the business of buying and selling debt instruments and other
securities, and more generally, in money market transactions. Mn r v. Cur f Appals,
m the
Court, speaking through Mme. Justice errera, made the following important statement:Ê

There is another aspect to this case. îhat is involved here is a money market transaction. As defined by
Lawrence Smith "the money market is a market dealing in standardized short-term credit instruments
(involving large amounts) where lenders and borrowers do not deal directly with each other but through a
middle manor a dealer in the open market." Mt involves "commercial papers" which are instruments
"evidencing indebtness of any person or entity. . ., which are issued, endorsed, sold or transferred or in
any manner conveyed to another person or entity, with or without recourse". The fundamental function of
the money market device in its operation is to match and bring together in a most impersonal manner
both the "fund users" and the "fund suppliers."   m mark
s a "
mprsal mark" fr frm
prsal s
ra
s. "  mark m a
sm
s
  prv
 qu
k m
l
 f m a
sur

s."Ê

The impersonal character of the money market device overlooks the individuals or entities concerned.
 
ssur f a mmr
al papr
   m mark ssar
l kws
 ava  a
 wul 

p

usl rasa a rasfrr  a
vsr/lr w
 u  f 
  sa

ssur. M
 pra
  
f
a

s g
v    rrwr r
ssur f mmr
al papr f   sal r rasfr 
 
vsr.Ê

xxx xxx xxxÊ

There is need to individuate a money market transaction, a relatively novel institution in the Philippine
commercial scene. M as 
  fa
l
a   flw a aqu
s

 f ap
al  a
mprsal
as
s. And as specifically required by Presidential Decree No. 678,  
vs
g pu l
 mus  g
v
aqua a ff
v pr

 ava
l
g f   r
 f a rrwr
   mmr
al papr mark.
m)
(Citations omitted; emphasis supplied)Ê

îe turn to Delta's arguments concerning alleged compensation or offsetting between DMC PN No.
2731 and Philfinance PN No. 143-A. Mt is important to note that a   
m 
lf
a sl par f
s
r
g s ur DMC N N. 2731  p

r  9 F ruar 1981  mpsa
 a as  ak
pla a
  ul av ak pla. The essential requirements of compensation are
listed in the Civil Code as follows:Ê

Art. 1279. Mn order that compensation may be proper, it is necessary: Ê

(1) That a  f    l
grs  u pr

pall a  a   a   sam 
m a pr

pal r
r
f    rÊ

(2) That both debts consists in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;Ê

(3)  a   w  s ar uÊ

(4) That they be liquidated and demandable;Ê

(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor. (
mphasis supplied)Ê

On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This was
explicitly recognized by Delta in its 10 April 1980 "Letter of Agreement" with Philfinance, where Delta
acknowledged that the relevant promissory notes were "to be offsetted (s
) against [Philfinance] PN
No. 143-A up rm
al maur
."Ê

As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days
before the "co-terminal maturity" date, that is to say, before any compensation had taken place.
Further, the assignment to petitioner would have prevented compensation had taken place between
Philfinance and Delta, to the extent of P304,533.33, because upon execution of the assignment in
favor of petitioner, Philfinance and Delta would have ceased to be creditors and debtors of each other
in their own right to the extent of the amount assigned by Philfinance to petitioner. Thus, we conclude
that the assignment effected by Philfinance in favor of petitioner was a valid one and that petitioner
accordingly became owner of DMC PN No. 2731 to the extent of the portion thereof assigned to him.Ê

The record shows, however, that petitioner notified Delta of the fact of the assignment to him only on
14 July 1981, m that is, after the maturity not only of the money market placement made by petitioner
but also of both DMC PN No. 2731 and Philfinance PN No. 143-A. Mn other words, p

r 
f

Dla f
s r
g s as ass
g afr mpsa
 a ak pla  pra
 f law aus  
ffs
g
srums a  ra  maur
. Mt is a firmly settled doctrine that the rights of an
assignee are not any greater that the rights of the assignor, since the assignee is merely substituted
in the place of the assignor !( and that the assignee acquires his rights subject to the equities ² i.e.,
the defenses ² which the debtor could have set up against the original assignor before notice of the
assignment was given to the debtor. Article 1285 of the Civil Code provides that:Ê

Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third
person, cannot set up against the assignee the compensation which would pertain to him against the
assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved
his right to the compensation.Ê

Mf the creditor communicated the cession to him but the  r 
  s thereto, the latter ma s
up   mpsa
 f  s previous to the cession, but not of subsequent ones.Ê

Mf the ass
gm is made w
 u   kwlg f    r  ma s up   mpsa
 f all
r
s pr
r    same and also later ones until he had kwlg f   ass
gm. (
mphasis
supplied)Ê

Article 1626 of the same code states that: "the debtor who, before having knowledge of the
assignment, pays his creditor shall be released from the obligation." Mn S
s v. Yap
,
!m the Court
explained that:Ê

[n]o man is bound to remain a debtor; he may pay to him with whom he contacted to pay; and if he pay
before notice that his debt has been assigned, the law holds him exonerated, for the reason that it is the
duty of the person who has acquired a title by transfer to demand payment of the debt, to give his debt or

!!
notice. Ê

At the time that Delta was first put to notice of the assignment in petitioner's favor on 14 July 1981,
DMC PN No. 2731 had already been discharged by compensation. Since the assignor Philfinance
could not have then compelled payment anew by Delta of DMC PN No. 2731, petitioner, as assignee
of Philfinance, is similarly disabled from collecting from Delta the portion of the Note assigned to him.Ê

Mt bears some emphasis that petitioner could have notified Delta of the assignment or sale was
effected on 9 February 1981. e could have notified Delta as soon as his money market placement
matured on 13 March 1981 without payment thereof being made by Philfinance; at that time,
compensation had yet to set in and discharge DMC PN No. 2731. Again petitioner could have notified
Delta on 26 March 1981 when petitioner received from Philfinance the Denominated Custodianship
Receipt ("DCR") No. 10805 issued by private respondent Pilipinas in favor of petitioner. Petitioner
could, in fine, have notified Delta at any time before the maturity date of DMC PN No. 2731. Because
petitioner failed to do so, and because the record is bare of any indication that Philfinance had itself
notified Delta of the assignment to petitioner, the Court is compelled to uphold the defense of
compensation raised by private respondent Delta. Of course, Philfinance remains liable to petitioner
under the terms of the assignment made by Philfinance to petitioner.Ê

MM.Ê

îe turn now to the relationship between petitioner and private respondent Pilipinas. Petitioner
contends that Pilipinas became solidarily liable with Philfinance and Delta when Pilipinas issued DCR
No. 10805 with the following words:Ê

Upon your written instruction, we [Pilipinas] s all urak physical delivery of the above securities full

!#
ass
g  u ². Ê

The Court is not persuaded. îe find nothing in the DCR that establishes an obligation on the part of
Pilipinas to pay petitioner the amount of P307,933.33 nor any assumption of liability
 sl
um with
Philfinance and Delta under DMC PN No. 2731. îe read the DCR as a confirmation on the part of
Pilipinas that:Ê
 (1) it has in its custody, as duly constituted custodian bank, DMC PN No. 2731 of a certain face value, to
mature on 6 April 1981 and payable to the order of Philfinance;Ê

(2) 
l
p
as was, from and after said date of the assignment by Philfinance to petitioner (9 February
1981), l
g  a N   alf a fr   f
 f p

r a las    

 a 
ass
g  p

r  pa 
lf
a;
!
Ê

(3) petitioner may inspect the Note either "personally or by authorized representative", at any time during
regular bank hours; and

(4) up wr

sru
s f p

r 
l
p
as wul p s
all l
vr   DMC N N. 2731 (r a
par

pa
  r
    
 f 307 933.33 "should this Denominated Custodianship receipt remain
outstanding in [petitioner's] favor thirty (30) days after its maturity."

Thus, we find nothing written in printers ink on the DCR which could reasonably be read as
converting Pilipinas into an obligor under the terms of DMC PN No. 2731 assigned to petitioner, either
upon maturity thereof or any other time. îe note that both in his complaint and in his testimony
before the trial court, petitioner referred merely to the obligation of private respondent Pilipinas to
effect the physical delivery to him of DMC PN No. 2731.
!" Accordingly, petitioner's theory that
Pilipinas had assumed a solidary obligation to pay the amount represented by a portion of the Note
assigned to him by Philfinance, appears to be a new theory constructed only after the trial court had
ruled against him. The solidary liability that petitioner seeks to impute Pilipinas cannot, however, be
lightly inferred. Under article 1207 of the Civil Code, "there is a solidary liability only when the law or
the nature of the obligation requires solidarity," The record here exhibits no express assumption of
solidary liability v
sav
s petitioner, on the part of Pilipinas. Petitioner has not pointed to us to any law
which imposed such liability upon Pilipinas nor has petitioner argued that the very nature of the
custodianship assumed by private respondent Pilipinas necessarily implies solidary liability under the
securities, custody of which was taken by Pilipinas. Accordingly, we are unable to hold Pilipinas
solidarily liable with Philfinance and private respondent Delta under DMC PN No. 2731.Ê

îe do not, however, mean to suggest that Pilipinas has no responsibility and liability in respect of
petitioner under the terms of the DCR. To the contrary, we find, after prolonged analysis and
deliberation, that private respondent Pilipinas had breached its undertaking under the DCR to
petitioner Sesbreño.Ê

îe believe and so hold that a contract of deposit was constituted by the act of Philfinance in
designating Pilipinas as custodian or depositary bank. The depositor was initially Philfinance; the
obligation of the depository was owed, however, to petitioner Sesbreño as beneficiary of the
custodianship or depository agreement. îe do not consider that this is a simple case of a stipulation
pur aur
. The custodianship or depositary agreement was established as an integral part of the
money market transaction entered into by petitioner with Philfinance. Petitioner bought a portion of
DMC PN No. 2731; Philfinance as assignor-vendor deposited that Note with Pilipinas in order that the
thing sold would be placed outside the control of the vendor. Mndeed, the constituting of the depositary
or custodianship agreement was equivalent to constructive delivery of the Note (to the extent it had
been sold or assigned to petitioner) to petitioner. Mt will be seen that custodianship agreements are
designed to facilitate transactions in the money market by providing a basis for confidence on the part
of the investors or placers that the instruments bought by them are effectively taken out of the pocket,
as it were, of the vendors and placed safely beyond their reach, that those instruments will be there
available to the placers of funds should they have need of them. The depositary in a contract of
deposit is obliged to return the security or the thing deposited upon demand of the depositor (or, in
the presented case, of the beneficiary) of the contract, even though a term for such return may have
been established in the said contract.
! Accordingly, any stipulation in the contract of deposit or
custodianship that runs counter to the fundamental purpose of that agreement or which was not
brought to the notice of and accepted by the placer-beneficiary, cannot be enforced as against such
beneficiary-placer.Ê

îe believe that the position taken above is supported by considerations of public policy. Mf there is
any party that needs the equalizing protection of the law in money market transactions, it is the
members of the general public whom place their savings in such market for the purpose of generating
interest revenues.
! The custodian bank, if it is not related either in terms of equity ownership or
management control to the borrower of the funds, or the commercial paper dealer, is normally a
preferred or traditional banker of such borrower or dealer (here, Philfinance). The custodian bank
would have every incentive to protect the interest of its client the borrower or dealer as against the
placer of funds. The providers of such funds must be safeguarded from the impact of stipulations
privately made between the borrowers or dealers and the custodian banks, and disclosed to fund-
providers only after trouble has erupted.Ê

Mn the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security deposited
with it when petitioner first demanded physical delivery thereof on 2 April 1981. îe must again note,
in this connection, that on 2 April 1981, DMC PN No. 2731 had  yet matured and therefore,
compensation or offsetting against Philfinance PN No. 143-A had  yet taken place. Mnstead of
complying with the demand of the petitioner, Pilipinas purported to require and await the instructions
of Philfinance, in obvious contravention of its undertaking under the DCR to effect physical delivery of
the Note upon receipt of "written instructions" from p

r Ss r. The ostensible term written
into the DCR (i.e., "should this [DCR] remain outstanding in your favor thirty [30] days after its
maturity") was not a defense against petitioner's demand for physical surrender of the Note on at
least three grounds: firstly, such term was never brought to the attention of petitioner Sesbreño at the
time the money market placement with Philfinance was made; secondly, such term runs counter to
the very purpose of the custodianship or depositary agreement as an integral part of a money market
transaction; and thirdly, it is inconsistent with the provisions of Article 1988 of the Civil Code noted
above. Mndeed, in principle, petitioner became entitled to demand physical delivery of the Note held by
Pilipinas as soon as petitioner's money market placement matured on 13 March 1981 without
payment from Philfinance.Ê

îe conclude, therefore, that private respondent Pilipinas must respond to petitioner for damages
sustained by arising out of its breach of duty. By failing to deliver the Note to the petitioner as
depositor-beneficiary of the thing deposited, Pilipinas effectively and unlawfully deprived petitioner of
the Note deposited with it. îhether or not Pilipinas itself benefitted from such conversion or unlawful
deprivation inflicted upon petitioner, is of no moment for present purposes. r
ma fa
, the damages
suffered by petitioner consisted of P304,533.33, the portion of the DMC PN No. 2731 assigned to
petitioner but lost by him by reason of discharge of the Note by compensation, plus legal interest of
six percent (6%) pr aum containing from 14 March 1981.Ê

The conclusion we have reached is, of course, without prejudice to such right of reimbursement as
Pilipinas may have v
sav
s Philfinance.Ê

MMM.Ê

The third principal contention of petitioner ² that Philfinance and private respondents Delta and
Pilipinas should be treated as one corporate entity ² need not detain us for long.Ê

Mn the first place, as already noted, jurisdiction over the person of Philfinance was never acquired
either by the trial court nor by the respondent Court of Appeals. Petitioner similarly did not seek to
implead Philfinance in the Petition before us.Ê
Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas have been
organized as separate corporate entities. Petitioner asks us to pierce their separate corporate
entities, but has been able only to cite the presence of a common Director ² Mr. Ricardo Silverio,
Sr., sitting on the Board of Directors of all three (3) companies. Petitioner has neither alleged nor
proved that one or another of the three (3) concededly related companies used the other two (2) as
mere alr gs or that the corporate affairs of the other two (2) were administered and managed for
the benefit of one. There is simply not enough evidence of record to justify disregarding the separate
corporate personalities of delta and Pilipinas and to hold them liable for any assumed or
undetermined liability of Philfinance to petitioner.
!)Ê

î
R
FOR
, for all the foregoing, the Decision and Resolution of the Court of Appeals in C.A.-G.R.
CV No. 15195 dated 21 march 1989 and 17 July 1989, respectively, are hereby MODMFM
D and S
T
ASMD
, to the extent that such Decision and Resolution had dismissed petitioner's complaint against
Pilipinas Bank. Private respondent Pilipinas bank is hereby ORD
R
D to indemnify petitioner for
damages in the amount of P304,533.33, plus legal interest thereon at the rate of six percent (6%) pr
aum counted from 2 April 1981. As so modified, the Decision and Resolution of the Court of
Appeals are hereby AFFMRM
D. No pronouncement as to costs.Ê

SO ORD
R
D.Ê





)))
08%,%1
m)
m mÊ

d6
9


petitioner,
vs.




 
9








,-.


respondentsÊ

This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned
of all non-essentials, are easily told.Ê

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.Ê

Mn January 1979, a certain
duardo 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. mÊ

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. !Ê

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. # 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.
Ê

Mn 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.Ê

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.Ê

The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of
Mindoro. " 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:Ê

ACCORDMNGLY, judgment is hereby rendered:Ê

1. Dismissing the complaint with costs against the plaintiff;Ê

2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings and Loan
Association, Mnc. and defendant Spouses Magno Castillo and Lucia Castillo;Ê
 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,
Mnc. and thereafter, to allow defendant Golden Savings and Loan Association, Mnc. to withdraw the amount
outstanding thereon before the debit;Ê

4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Mnc. attorney's fees
and expenses of litigation in the amount of P200,000.00.Ê

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.Ê

SO ORD
R
D.Ê

On appeal to the respondent court,  the decision was affirmed, prompting Metrobank to file this
petition for review on the following grounds:Ê

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.Ê

(a) Metrobank's right to charge back is not limited to instances where the checks or treasury warrants are
forged or unauthorized.Ê

(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.Ê

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
duardo Gomez.Ê

3. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden Savings, the
latter should bear the loss. Ê

4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this case are not
negotiable instruments.Ê

The petition has no merit.Ê

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.
îithout such assurance, Golden Savings would not have allowed the withdrawals; with such
assurance, there was no reason not to allow the withdrawal. Mndeed, 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.Ê

Mt 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. Mt 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.  Mt was only when Metrobank gave the go-signal that Gomez was finally allowed
by Golden Savings to withdraw them from his own account.Ê

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. Mt 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. Mn 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.Ê

By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling ²
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 ² and notwithstanding that it had not received a
single centavo from the proceeds of the treasury warrants, as it now repeatedly stresses ² it allowed
Golden Savings to withdraw ² not once, not twice, but  r
 ² from the ular treasury warrants
in the total amount of P968,000.00Ê

Mts reason? Mt was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance
and it also wanted to "accommodate" a valued client. Mt "presumed" that the warrants had been
cleared simply because of "the lapse of one week." ) For a bank with its long experience, this
explanation is unbelievably naive.Ê

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:Ê

X
l   a
 r
v
g
ms  ps
   ak  l
gas
slf l as   ps
r's ll
g
ag assum
g  rsps

l
  ar
 sl
g rrsps and until such time as actual
payment shall have come into possession of this bank,   r
g 
s rsrv   arg ak   
ps
r's au a amu prv
usl r
 w  r r  su
m
s rur. 
s als
appl
s   ks drawn on local banks and bankers and their branches as well as on this bank, w

ar upa
 u  insufficiency of funds, forgery, unauthorized overdraft or a  r ras. (
mphasis
supplied.)Ê

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." Mt 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.Ê

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. Mndeed, 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. îe 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.Ê

Mn 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 ²Ê
 Art. 1909. ² 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.Ê

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 m
sl 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  r 
ms. 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.Ê

Metrobank's argument that it may recover the disputed amount if the warrants are not paid fr a
ras 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.Ê

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. This was the finding of the lower courts which we see no reason to disturb. And as we
said in MîSS v. Court of Appeals: m(Ê

Forgery cannot be presumed (Siasat, et al. v. MAC, et al., 139 SCRA 238). Mt must be established by clear,
positive and convincing evidence. This was not done in the present case.Ê

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.Ê

The following sections of the Negotiable Mnstruments Law, especially the underscored parts, are
pertinent:Ê

Sec. 1. ² Frm f g
a l
srums. ² An instrument to be negotiable must conform to the

following requirements:Ê

(a) Mt must be in writing and signed by the maker or drawer; Ê

(b) Mus a
 a u

al prm
s r rr  pa a sum ra

 m;Ê

(c) Must be payable on demand, or at a fixed or determinable future time;Ê

(d) Must be payable to order or to bearer; andÊ

(e) îhere the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.Ê
 xxx xxx xxxÊ

Sec. 3. î  prm
s
s u

al. ² An unqualified order or promise to pay is unconditional within

the meaning of this Act though coupled with ²Ê

(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; orÊ

(b) A statement of the transaction which gives rise to the instrument judgment.Ê

Bu a rr r prm
s  pa u f a par
ular fu
s  u

al.Ê

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 Mnstruments Law is
applicable in the case at bar. This conclusion conforms to Abubakar vs. Auditor General mm where the
Court held:Ê

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 Mnstruments Law).Ê

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 Mnstruments 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. Mt 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."Ê

The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Mslands, m! but we
feel this case is inapplicable to the present controversy. 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 Mnter-Msland Gas Services, Mnc. and it did not appear that he was authorized to indorse
it. No similar negligence can be imputed to Golden Savings.Ê

îe find the challenged decision to be basically correct. owever, 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.Ê

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.Ê

î
R
FOR
, the challenged decision is AFFMRM
D, with the modification that Paragraph 3 of the
dispositive portion of the judgment of the lower court shall be reworded as follows:Ê

3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter allowing defendant
Golden Savings & Loan Association, Mnc. to withdraw the amount outstanding thereon, if any, after the
debit.Ê

SO ORD
R
D.Ê

8) G.R. No. L-18103 June 8, 1922Ê

PHILIPPINE NATIONAL BANK,Ê
 

 ÊÊ

Ê
MANILA OIL REFINING & BY-PRODUCTS COMPANY, INC.,Ê   

Ê

ÊÊÊÊ Ê ÊÊÊÊÊÊ


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Ê

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m




m

 
m
m mÊ




petitioner,

vs.
d









d






 

 
respondents.
Ê

Mn this petition for review on certiorari, petitioner challenges the April 22, 1985 decision  and the July
16, 1985 resolution  of the then Mntermediate Appellate Court in AC-G.R. CV No. 02553 entitled "BA
Finance Corporation v. Nyco Sales Corporation, et al." which affirmed with modification the July 20,
1983 decision  of the Regional Trial Court, National Capital Region, Manila, Branch MM in the same
case docketed as Civil Case No. 125909 ordering petitioner to pay respondent the amount of
P60,000.00 as principal obligation plus corresponding interest, the sum of P10,000.00 as and for,
attomey's fees and 1/3 of the costs of suit. Ê

Mt appears on record that petitioner Nyco Sales Corporation (hereinafter referred to as Nyco) whose
president and general manager is Rufino Yao, is engaged in the business of selling construction
materials with principal office in Davao City. Sometime in 1978, the brothers Santiago and Renato
Fernandez (hereinafter referred to as the Fernandezes), both acting in behalf of Sanshell
Corporation, approached Rufino Yao for credit accommodation. They requested Nyco, thru Yao, to
grant Sanshell discounting privileges which Nyco had with BA Finance Corporation (hereinafter
referred to as BA Finance). Yao apparently acquiesced, hence on or about November 15, 1978, the
Fernandezes went to Yao for the purpose of discounting Sanshell's post-dated check which was a
BPM-Davao Branch Check No. 499648 dated February 17, 1979 for the amount of P60,000.00. The
said check was payable to Nyco. Following the discounting process agreed upon, Nyco, thru Yao,
endorsed the check in favor of BA Finance. Thereafter, BA Finance issued a check payable to Nyco
which endorsed it in favor of Sanshell. Sanshell then made use of and/or negotiated the check.
Accompanying the exchange of checks was a Deed of Assignment executed by Nyco in favor of BA
Finance with the conformity of Sanshell. Nyco was represented by Rufino Yao, while Sanshell was
represented by the Fernandez brothers. Under the said Deed, the subject of the discounting was the
aforecited check (Rollo, pp- 26-28). At the back thereof and of every deed of assignment was the
Continuing Suretyship Agreement whereby the Fernandezes unconditionally guaranteed to BA
Finance the full, faithful and prompt payment and discharge of any and all indebtedness of Nyco
(M
., pp. 36, 46). The BPM check, however, was dishonored by the drawee bank upon presentment
for payment. BA Finance immediately reported the matter to the Fernandezes who thereupon issued
a substitute check dated February 19,1979 for the same amount in favor of BA Finance. Mt was a
Security Bank and Trust Company check bearing the number 183157, which was again dishonored
when it was presented for payment. Despite repeated demands, Nyco and the Fernandezes failed to
settle the obligation with BA Finance, thus prompting the latter to institute an action in court (M
., p
28). Nyco and the Fernandezes, despite having been served with summons and copies of the
complaint, failed to file their answer and were consequently declared in default. On May 16, 1980, the
lower court ruled in favor of BA Finance ordering them to pay the former jointly and severally, the sum
of P65,536.67 plus 14% interest per annum from July 1, 1979 and attorney's fees in the amount of
P3, 000. 00 as well as the costs of suit (Rollo, pp. 51-52). Nyco, however, moved to set aside the
order of default, to have its answer admitted and to be able to implead Sanshell. The prayer was
granted through an order dated June 23, 1980, wherein the decision of the court was set aside only
as regards Nyco. Trial ensued once more until the court reached a second decision which states: Ê

î
R
FOR
, judgment is hereby rendered in favor of the plaintiff and against the defendant Nyco Sales
Corporation by ordering the latter to pay the former the following: Ê

1) P60,000.00 as principal obligation, plus interest thereon at the rate of 14% per annum from February 1,
1979 until fully paid; Ê

2) The amount of P100,000.00 as and for attorney's fees; and Ê

3) One-third (1/3) of the costs of this suit. Ê

îith respect to defendants Santiago and Renato Fernandez, the decision of May 16, 1980 stands. Ê

The cross-claim of defendant Nyco Sales Corporation against codefendants Santiago B. Fernandez and
Renato B. Fernandez is hereby denied, as there is no showing that Nyco's Answer with cross-claim dated
May 29, 1980 was ever received by said Fernandez brothers, even as it is noted that the latter have not
been declared in default with respect to said cross-claim, nor were evidence adduced in connection
therewith. Ê

As to the would-be litigant Sanshell Construction and Development Corporation, defendant Nyco Sales
Corporation did not properly implead said corporation which should have been by way of a third-party
complaint instead of a mere cross-claim. The same observations are noted as regard this cross-claim
against Sanshell as those made with respect to the Fernandez brothers. Ê

SO ORD
R
D. Ê

On appeal, the appellate court also upheld BA Finance but modified the lower court's decision by
ordering that the interest should run from February 19, 1979 until paid and not from February 1, 1979.
Nyco's subsequent motion for reconsideration was denied (M
., pp. 33, 62). ence, the present
recourse. Ê

The crux of the controversy is whether or not the assignor is liable to its assignee for its dishonored
checks. Ê

For its defense, Nyco anchors its arguments on the following premises: a) that the appellate court
erred in affirming its liability for the BPM check despite a similar finding of liability for the SBTC check
rendered by the same lower court; b) that it was actually discharged of its liability over the SBTC
check when BA Finance failed to give it a notice of dishonor; c) that there was novation when BA
Finance accepted the SBTC check in replacement of the BPM check; and d) that it cannot be held
liable for its Presidents unauthorized acts.Ê

The petition is devoid of merit. Ê

An assignment of credit is the process of transferring the right of the assignor to the assignee, who
would then be allowed to proceed against the debtor. Mt may be done either gratuitously or
generously, in which case, the assignment has an effect similar to that of a sale. Ê

According to Article 1628 of the Civil Code, the assignor-vendor warrants both the credit itself (its
existence and legality) and the person of the debtor (his solvency), if so stipulated, as in the case at
bar. Consequently, if there be any breach of the above warranties, the assignor-vendor should be
held answerable therefor. There is no question then that the assignor-vendor is indeed liable for the
invalidity of whatever he as signed to the assignee-vendee. Ê

Considering now the facts of the case at bar, it is beyond dispute that Nyco executed a deed of
assignment in favor of BA Finance with Sanshell Corporation as the debtor-obligor. BA Finance is
actually enforcing said deed and the check covered thereby is merely an incidental or collateral
matter. This particular check merely evidenced the credit which was actually assigned to BA Finance.
Thus, the designation is immaterial as it could be any other check. Both the lower and the appellate
courts recognized this and so it is utterly misplaced to say that Nyco is being held liable for both the
BPM and the SBTC checks. Mt is only what is represented by the said checks that Nyco is being asked
to pay. Mndeed, nowhere in the dispositive parts of the decisions of the courts can it be gleaned that
BA Finance may recover from the two checks. Ê

Nyco's pretension that it had not been notified of the fact of dishonor is belied not only by the formal
demand letter but also by the findings of the trial court that Rufino Yao of Nyco and the Fernandez
Brothers of Sanshell had frequent contacts before, during and after the dishonor (Rollo, p. 40). More
importantly, it fails to realize that for as long as the credit remains outstanding, it shall continue to be
liable to BA Finance as its assignor. The dishonor of an assigned check simply stresses its liability
and the failure to give a notice of dishonor will not discharge it from such liability. This is because the
cause of action stems from the breach of the warranties embodied in the Deed of Assignment, and
not from the dishonoring of the check alone (See Art. 1628, Civil Code). Ê

Novation is the third defense set up by petitioner Nyco. Mt insists that novation took place when BA
Finance accepted the SBTC check in replacement of the BPM cheek. Such is manifestly untenable. Ê

There are only two ways which indicate the presence of novation and thereby produce the effect of
extinguishing an obligation by another which substitutes the same. First, novation must be explicitly
stated and declared in unequivocal terms as novation is never presumed (Mondragon v. Mntermediate
Appellate Court, G.R. No. 71889, April 17, 1990; Caneda Jr. v. Court of Appeals, G.R. No. 81322,
February 5, 1990). Secondly, the old and the new obligations must be incompatible on every point.
The test of incompatibility is whether or not the two obligations can stand together, each one having
its independent existence Mf they cannot, they are incompatible and the latter obligation novates the
first (Mondragon v. Mntermediate Appellate Court, supra; Caneda Jr. v. Court of Appeals, supra). Mn
the instant case, there was no express agreement that BA Finance's acceptance of the SBTC check
will discharge Nyco from liability. Neither is there incompatibility because both checks were given
precisely to terminate a single obligation arising from Nyco's sale of credit to BA Finance. As novation
speaks of two distinct obligations, such is inapplicable to this case. Ê

Finally, Nyco disowns its President's acts claiming that it never authorized Rufino Yao (Nyco's
President) to even apply to BA Finance for credit accommodation. Mt supports its argument with the
fact that it did not issue a Board resolution giving Yao such authority. owever, the very evidence on
record readily belies Nyco's contention. Mts corporate By-Laws clearly provide for the powers of its
President, which include,
r al
a, executing contracts and agreements, borrowing money, signing,
indorsing and delivering checks, all in behalf of the corporation. Furthermore, the appellate court
correctly adopted the lower court's observation that there was already a previous transaction of
discounting of checks involving the same personalities wherein any enabling resolution from Nyco
was dispensed with and yet BA Finance was able to collect from Nyco and Sanshell was able to
discharge its own undertakings. Such effectively places Nyco under estoppel
 pa
s which arises
when one, by his acts, representations or admissions, or by his silence when he ought to speak out,
intentionally or through culpable negligence, induces another to believe certain facts to exist and such
other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to
deny the existence of such facts (Panay
lectric Co., Mnc. v. Court of Appeals, G.R. No. 81939, June
29,1989). Nyco remained silent in the course of the transaction and spoke out only later to escape
liability. This cannot be countenanced. Nyco is estopped from denying Rufino Yao's authority as far
as the latter's transactions with BA Finance are concerned. Ê

PR
MMS
S CONSMD
R
D, the decision appealed from is AFFMRM
D. Ê

SO ORD
R
D. Ê

!



!" #
$%&'
#(
m )Ê


*


+
*
,-.




petitioners,
vs.





respondent. Ê

This is a petition for certiorari under Rule 45 of the Rules of Court which assails on questions of law a
decision of the Mntermediate Appellate Court in AC-G.R. CV No. 68609 dated July 17, 1985, as well
as its resolution dated October 17, 1985, denying the motion for reconsideration. Ê

The antecedent facts culled from the petition are as follows: Ê

The petitioner is a corporation engaged in the logging business. Mt had for its program of logging
activities for the year 1978 the opening of additional roads, and simultaneous logging operations
along the route of said roads, in its logging concession area at Baganga, Manay, and Caraga, Davao
Oriental. For this purpose, it needed two (2) additional units of tractors. Ê

Cognizant of petitioner-corporation's need and purpose, Atlantic Gulf & Pacific Company of Manila,
through its sister company and marketing arm, Mndustrial 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 DD-21-B and the other an DD-16-B. Ê

Mn order to ascertain the extent of work to which the tractors were to be exposed, (t.s.n., May 28,
1980, p. 44) and to determine the capability of the "Used" tractors being offered, petitioner-
corporation requested the seller-assignor to inspect the job site. After conducting said inspection, the
seller-assignor assured petitioner-corporation that the "Used" Allis Crawler Tractors which were being
offered were fit for the job, and gave the corresponding warranty of ninety (90) days performance of
the machines and availability of parts. (t.s.n., May 28, 1980, pp. 59-66). Ê

îith said assurance and warranty, and relying on the seller-assignor's skill and judgment, petitioner-
corporation through petitioners îee and Vergara, president and vice- president, respectively, agreed
to purchase on installment said two (2) units of "Used" Allis Crawler Tractors. Mt also paid the down
payment of Two undred Ten Thousand Pesos (P210,000.00). Ê

On April 5, 1978, the seller-assignor issued the sales invoice for the two 2) units of tractors (
xh. "3-
A"). At the same time, the deed of sale with chattel mortgage with promissory note was executed
(
xh. "2"). Ê

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 (
exh. " 1 "), assigned its rights and interest in
the chattel mortgage in favor of the respondent. Ê

Mmmediately thereafter, the seller-assignor delivered said two (2) units of "Used" tractors to the
petitioner-corporation's job site and as agreed, the seller-assignor stationed its own mechanics to
supervise the operations of the machines. Ê

Barely fourteen (14) days had elapsed after their delivery when one of the tractors broke down and
after another nine (9) days, the other tractor likewise broke down (t.s.n., May 28, 1980, pp. 68-69). Ê

On April 25, 1978, petitioner Rodolfo T. Vergara formally advised the seller-assignor of the fact that
the tractors broke down and requested for the seller-assignor's usual prompt attention under the
warranty (
exh. " 5 "). Ê

Mn response to the formal advice by petitioner Rodolfo T. Vergara,
xhibit "5," the seller-assignor sent
to the job site its mechanics to conduct the necessary repairs (
xhs. "6," "6-A," "6-B," 16 C," "16-C-1,"
"6-D," and "6-
"), but the tractors did not come out to be what they should be after the repairs were
undertaken because the units were no longer serviceable (t. s. n., May 28, 1980, p. 78). Ê

Because of the breaking down of the tractors, the road building and simultaneous logging operations
of petitioner-corporation 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 until the
seller-assignor completely fulfills its obligation under its warranty (t.s.n, May 28, 1980, p. 79). Ê
Since the tractors were no longer serviceable, on April 7, 1979, petitioner îee asked the seller-
assignor 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 (

exh. " 7 ").Ê

No response to this letter,
xhibit "7," was received by the petitioner-corporation and despite several
follow-up calls, the seller-assignor did nothing with regard to the request, until the complaint in this
case was filed by the respondent against the petitioners, the corporation, îee, and Vergara. Ê

The complaint was filed by the respondent against the petitioners for the recovery of the principal sum
of One Million Ninety Three Thousand Seven undred
ighty Nine Pesos & 71/100 (P1,093,789.71),
accrued interest of One undred Fifty One Thousand Six undred
ighteen Pesos & 86/100
(P151,618.86) as of August 15, 1979, accruing interest thereafter at the rate of twelve (12%) percent
per annum, attorney's fees of Two undred Forty Nine Thousand
ighty One Pesos & 71/100
(P249,081.7 1) and costs of suit. Ê

The petitioners filed their amended answer praying for the dismissal of the complaint and asking the
trial court to order the respondent to pay the petitioners damages in an amount at the sound
discretion of the court, Twenty Thousand Pesos (P20,000.00) as and for attorney's fees, and Five
Thousand Pesos (P5,000.00) for expenses of litigation. The petitioners likewise prayed for such other
and further relief as would be just under the premises. Ê

Mn a decision dated April 20, 1981, the trial court rendered the following judgment: Ê

î
R
FOR
, judgment is hereby rendered: Ê

1. ordering defendants to pay jointly and severally in their official and personal capacities the principal
sum of ON
MMLLMON NMN
TY T R

T OUSAND S
V
N UNDR
D NMN
TY
MG T P
SOS &
71/100 (P1,093,798.71) with accrued interest of ON
UNDR
D FMFTY ON
T OUSAND SM
UNDR
D
MG T

N P
SOS & 86/100 (P151,618.,86) as of August 15, 1979 and accruing interest
thereafter at the rate of 12% per annum; Ê

2. ordering defendants to pay jointly and severally attorney's fees equivalent to ten percent (10%) of the
principal and to pay the costs of the suit. Ê

Defendants' counterclaim is disallowed. (pp. 45-46, Rollo) Ê

On June 8, 1981, the trial court issued an order denying the motion for reconsideration filed by the
petitioners. Ê

Thus, the petitioners appealed to the Mntermediate Appellate Court and assigned therein the following
errors: Ê

MÊ

T AT T
LOî
R COURT
RR
D MN FMNDMNG T AT T
S
LL
R ATLANTMC GULF AND

PACMFMC COMPANY OF MANMLA DMD NOT APPROV
D
F
NDANTS-APP
LLANTS CLAMM OF
îARRANTY. Ê

MMÊ
T AT T
LOî
R COURT
RR
D MN FMNDMNG T AT PLAMNTMFF- APP
LL

MS A OLD
R MN
DU
COURS
OF T
PROMMSSORY NOT
AND SU
D UND
R SAMD NOT
AS OLD
R
T
R
OF MN DU
COURS
. Ê

On July 17, 1985, the Mntermediate Appellate Court issued the challenged decision affirming
 
the decision of the trial court. The pertinent portions of the decision are as follows: Ê

xxx xxx xxxÊ

From the evidence presented by the parties on the issue of warranty, îe are of the considered opinion
that aside from the fact that no provision of warranty appears or is provided in the Deed of Sale of the
tractors and even admitting that in a contract of sale unless a contrary intention appears, there is an
implied warranty, the defense of breach of warranty, if there is any, as in this case, does not lie in favor of
the appellants and against the plaintiff-appellee who is the assignee of the promissory note and a holder
of the same in due course. îarranty lies in this case only between Mndustrial Products Marketing and
Consolidated Plywood Mndustries, Mnc. The plaintiff-appellant herein upon application by appellant
corporation granted financing for the purchase of the questioned units of Fiat-Allis Crawler,Tractors. Ê

xxx xxx xxxÊ

olding that breach of warranty if any, is not a defense available to appellants either to withdraw from the
contract and/or demand a proportionate reduction of the price with damages in either case (Art. 1567,
New Civil Code). îe now come to the issue as to whether the plaintiff-appellee is a holder in due course
of the promissory note. Ê

To begin with, it is beyond arguments that the plaintiff-appellee is a financing corporation engaged in
financing and receivable discounting extending credit facilities to consumers and industrial, commercial or
agricultural enterprises by discounting or factoring commercial papers or accounts receivable duly
authorized pursuant to R.A. 5980 otherwise known as the Financing Act. Ê

A study of the questioned promissory note reveals that it is a negotiable instrument which was discounted
or sold to the MFC Leasing and Acceptance Corporation for P800,000.00 (
xh. "A") considering the
following. it is in writing and signed by the maker; it contains an unconditional promise to pay a certain
sum of money payable at a fixed or determinable future time; it is payable to order (Sec. 1, NML); the
promissory note was negotiated when it was transferred and delivered by MPM to the appellee and duly
endorsed to the latter (Sec. 30, NML); it was taken in the conditions that the note was complete and
regular upon its face before the same was overdue and without notice, that it had been previously
dishonored and that the note is in good faith and for value without notice of any infirmity or defect in the
title of MPM (Sec. 52, NML); that MFC Leasing and Acceptance Corporation held the instrument free from
any defect of title of prior parties and free from defenses available to prior parties among themselves and
may enforce payment of the instrument for the full amount thereof against all parties liable thereon (Sec.
57, NML); the appellants engaged that they would pay the note according to its tenor, and admit the
existence of the payee MPM and its capacity to endorse (Sec. 60, NML). Ê

Mn view of the essential elements found in the questioned promissory note, îe opine that the same is
legally and conclusively enforceable against the defendants-appellants. Ê

î
R
FOR
, finding the decision appealed from according to law and evidence, îe find the appeal
without merit and thus affirm the decision
 . îith costs against the appellants. (pp. 50-55, Rollo) Ê

The petitioners' motion for reconsideration of the decision of July 17, 1985 was denied by the
Mntermediate Appellate Court in its resolution dated October 17, 1985, a copy of which was received
by the petitioners on October 21, 1985. Ê

ence, this petition was filed on the following grounds: Ê

M. Ê
ON MTS FAC
, T
PROMMSSORY NOT
MS CL
ARLY NOT A N
GOTMABL
MNSTRUM
NT AS
D
FMN
D UND
R T
LAî SMNC
MT MS N
MT
R PAYABL
TO ORD
R NOR TO B
AR
R. Ê

MMÊ

T
R
SPOND
NT MS NOT A OLD
R MN DU
COURS
: AT B
ST, MT MS A M
R
ASSMGN

OF T
SUBJ
CT PROMMSSORY NOT
. Ê

MMM.Ê

SMNC
T
MNSTANT CAS
MNVOLV
S A NON-N
GOTMABL
MNSTRUM
NT AND T

TRANSF
R OF RMG TS îAS T ROUG A M
R
ASSMGNM
NT, T
P
TMTMON
RS MAY
RAMS
AGAMNST T
R
SPOND
NT ALL D
F
NS
S T AT AR
AVAMLABL
TO MT AS AGAMNST
T
S
LL
R- ASSMGNOR, MNDUSTRMAL PRODUCTS MARK
TMNG. Ê

MV. Ê

T
P
TMTMON
RS AR
NOT LMABL
FOR T
PAYM
NT OF T
PROMMSSORY NOT

B
CAUS
: Ê

A) T
S
LL
R-ASSMGNOR MS GUMLTY OF BR
AC OF îARRANTY UND
R T
LAî; Ê

B) MF AT ALL, T
R
SPOND
NT MAY R
COV
R ONLY FROM T
S
LL
R-ASSMGNOR OF

T
PROMMSSORY NOT
. Ê

V. Ê

T
ASSMGNM
NT OF T
C ATT
L MORTGAG
BY T
S
LL
R- ASSMGNOR MN FAVOR OF

T
R
SPOND
NT DO
S NOT C ANG
T
NATUR
OF T
TRANSACTMON FROM B
MNG A
SAL
ON MNSTALLM
NTS TO A PUR
LOAN. Ê

VM. Ê

T
PROMMSSORY NOT
CANNOT B
ADMMTT
D OR US
D MN
VMD
NC
MN ANY COURT

B
CAUS
T
R
UMSMT
DOCUM
NTARY STAMPS AV
NOT B

N AFFM
D T
R
ON
OR CANC
LL
D. Ê

The petitioners prayed that judgment be rendered setting aside the decision dated July 17, 1985, as
well as the resolution dated October 17, 1985 and dismissing the complaint but granting petitioners'
counterclaims before the court of origin. Ê

On the other hand, the respondent corporation in its comment to the petition filed on February 20,
1986, contended that the petition was filed out of time; that the promissory note is a negotiable
instrument and respondent a holder in due course; that respondent is not liable for any breach of
warranty; and finally, that the promissory note is admissible in evidence. Ê

The core issue herein is 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. Ê
Preliminarily, it must be established at the outset that we consider the instant petition to have been
filed on time because the petitioners' motion for reconsideration actually raised new issues. Mt cannot,
therefore, be considered pro- formal. Ê

The petition is impressed with merit. Ê

First, there is no question that the seller-assignor breached its express 90-day warranty because the
findings of the trial court, adopted by the respondent appellate court, that "14 days after delivery, the
first tractor broke down and 9 days, thereafter, the second tractor became inoperable" are sustained
by the records. The petitioner was clearly a victim of a warranty not honored by the maker. Ê

The Civil Code provides that: Ê

ART. 1561.   vr s all  rsps
l fr warra aga
s  
 fs w
   
g sl
ma av s ul   rr
 uf
 fr   us fr w


s
, or should they diminish its fitness
for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or
would have given a lower price for it; but said vendor shall not be answerable for patent defects or those
which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his
trade or profession, should have known them.Ê

ART. 1562. M a sal f gs  r
s a
mpl
 warra r 

 as    qual
 r f
ss f  
gs as fllws:Ê

(1) î r   ur 

prssl r 
mpl
a
 maks kw    sllr   par
ular purps fr
w
   gs ar aqu
r a
 appars  a   ur rl
s    sllrs sk
ll r jug jugm
(w  r     grwr r maufaurr r   r
s a
mpl
 warra  a   gs s all 
rasa l f
 fr su purpsÊ

xxx xxx xxxÊ

ART. 1564. An implied warranty or condition as to the quality or fitness for a particular purpose may be
annexed by the usage of trade.Ê

xxx xxx xxxÊ

ART. 1566.   vr
s rsps
l    v fr a
 fauls r fs
   
g sl
v  ug  was  awar  rf.Ê

This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the
hidden faults or defects in the thing sold. (
mphasis supplied). Ê

Mt is patent then, that the seller-assignor is liable for its breach of warranty against the petitioner. This
liability as a general rule, extends to the corporation to whom it assigned its rights and interests
unless the assignee is a holder in due course of the promissory note in question, assuming the note
is negotiable, in which case the latter's rights are based on the negotiable instrument and assuming
further that the petitioner's defenses may not prevail against it. Ê

Secondly, it likewise cannot be denied that as soon as the tractors broke down, the petitioner-
corporation notified the seller-assignor's sister company, AG & P, about the breakdown based on the
seller-assignor's express 90-day warranty, with which the latter complied by sending its mechanics.
owever, due to the seller-assignor's delay and its failure to comply with its warranty, the tractors
became totally unserviceable and useless for the purpose for which they were purchased. Ê

Thirdly, the petitioner-corporation, thereafter, unilaterally rescinded its contract with the seller-
assignor. Ê
Articles 1191 and 1567 of the Civil Code provide that: Ê

ART. 1191.   pwr  rs
  l
ga
s
s
mpl

 r
pral s in case one of the obligors
should not comply with what is incumbent upon him. Ê

 
jur par ma  s w   fulf
llm a   rs
ss
 f    l
ga
 w
  
pam f amags
 
 r as. e may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible. Ê

xxx xxx xxxÊ

ART. 1567. Mn the cases of articles 1561, 1562, 1564, 1565 and 1566,   v ma l w
w
 raw
g frm   ra a ma
g a prpr
a ru
 f   pr
 w
 amags


 r as. (
mphasis supplied) Ê

Petitioner, having unilaterally and extrajudicially rescinded its contract with the seller-assignor,
necessarily can no longer sue the seller-assignor except by way of counterclaim if the seller-assignor
sues it because of the rescission. Ê

Mn the case of the University of the 
l
pp
s v. D ls Agls (35 SCRA 102) we held: Ê

Mn other words, the party who deems the contract violated may consider it resolved or rescinded, and act
accordingly, w
 u prv
us ur a
 u
 prs a
s w r
sk. For it is only the final judgment
of the corresponding court that will conclusively and finally settle whether the action taken was or was not
correct in law. But   law f

l s  rqu
r  a   ra
g par w  l
vs
slf
jur
mus f
rs f
l su
 a wa
 fr ajugm fr ak
g 
raju

al sps  pr
s
rs.
O rw
s   par
jur     r's ra w
ll av  pass
vl s
 a wa
s amags
aumula ur
g   p f   su
 u
l   f
al jugm f rs
ss

s rr w    law

slf rqu
rs  a  s ul 
r
s u 
l
g  m

m

s w amags (C
v
l C Ar
l
2203. (
mphasis supplied) Ê

Going back to the core issue, we rule that the promissory note in question is not a negotiable
instrument. Ê

The pertinent portion of the note is as follows: Ê

FOR VALU
R
C
MV
D, M/we jointly and severally promise to pay to the MNDUSTRMAL PRODUCTS
MARK
TMNG, the sum of ON
MMLLMON NMN
TY T R

T OUSAND S
V
N UNDR
D
MG TY
NMN
P
SOS & 71/100 only (P 1,093,789.71), Philippine Currency, the said principal sum, to be payable
in 24 monthly installments starting July 15, 1978 and every 15th of the month thereafter until fully paid. ... Ê

Considering that paragraph (d), Section 1 of the Negotiable Mnstruments Law requires that a
promissory note "must be payable to order or bearer, " it cannot be denied that the promissory note in
question is not a negotiable instrument. Ê

The instrument in order to be considered negotiablility-i.e. must contain the so-called 'words of negotiable,
must be payable to 'order' or 'bearer'. These words serve as an expression of consent that the instrument
may be transferred. This consent is indispensable since a maker assumes greater risk under a negotiable
instrument than under a non-negotiable one. ...Ê

xxx xxx xxxÊ

îhen instrument is payable to order. Ê

S
C. 8. î
N PAYABL
TO ORD
R. ² The instrument is payable to order where it is drawn payable
to the order of a specified person or to him or his order. . . . Ê
 xxx xxx xxxÊ

These are the only two ways by which an instrument may be made payable to order. There must always
be a specified person named in the instrument. Mt 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. î
 u
  wrs "r rr" r"   rr f " 
srum
s paa l l    prs s
ga  r

a
s  rfr g
a l. A su squ pur asr  rf w
ll  j   avaags f 
g
a lr f a g
a l
srum u w
ll mrl "step into the shoes" of the person designated in the
instrument and will thus be open to all defenses available against the latter." (Campos and Campos,
Notes and Selected Cases on Negotiable Mnstruments Law, Third
dition, page 38). (
mphasis supplied) Ê

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 Mndustrial Products Marketing. Ê

This being so, there was no need for the petitioner to implied the seller-assignor when it was sued by
the respondent-assignee because the petitioner's defenses apply to both or either of either of them.
Auall   rrs s w  a v   rsp
slf am
  
g a mr ass
g f  
prm
ssr 
 qus
  w
: Ê
ATTY. PALACA: Ê
Did we get it right from the counsel that what is being assigned is the Deed of Sale with Chattel Mortgage with the
promissory note which is as testified to by the witness was indorsed? (Counsel for Plaintiff nodding his head.) Then we
have no further questions on cross, Ê
COURT: Ê
You confirm his manifestation? You are nodding your head? Do you confirm that? Ê
ATTY. MLAGAN: Ê
The Deed of Sale cannot be assigned. A deed of sale is a transaction between two persons; what is assigned are
rights, the rights of the mortgagee were assigned to the MFC Leasing & Acceptance Corporation. Ê
COURT: Ê
e puts it in a simple way as one-deed of sale and chattel mortgage were assigned; . . . you want to make a distinction,
one is an assignment of mortgage right and the other one is indorsement of the promissory note. îhat counsel for
defendants wants is that you stipulate that it is contained in one single transaction? Ê
ATTY. MLAGAN: Ê
îe stipulate it is one single transaction. (pp. 27-29, TSN., February 13, 1980). Ê

Secondly, even conceding for purposes of discussion that the promissory note in question is a
negotiable instrument, the respondent cannot be a holder in due course for a more significant reason. Ê

The evidence presented in the instant case shows that prior to the sale on installment of the tractors,
there was an arrangement between the seller-assignor, Mndustrial Products Marketing, and the
respondent whereby the latter would pay the seller-assignor the entire purchase price and the seller-
assignor, in turn, would assign its rights to the respondent which acquired the right to collect the price
from the buyer, herein petitioner Consolidated Plywood Mndustries, Mnc. Ê

A mere perusal of the Deed of Sale with Chattel Mortgage with Promissory Note, the Deed of
Assignment and the Disclosure of Loan/Credit Transaction shows that said documents evidencing the
sale on installment of the tractors were all executed on the same day by and among the buyer, which
is herein petitioner Consolidated Plywood Mndustries, Mnc.; the seller-assignor which is the Mndustrial
Products Marketing; and the assignee-financing company, which is the respondent. Therefore, the
respondent had actual knowledge of the fact that the seller-assignor's right to collect the purchase
price was not unconditional, and that it was subject to the condition that the tractors -sold were not
defective. The respondent knew that when the tractors turned out to be defective, it would be subject
to the defense of failure of consideration and cannot recover the purchase price from the petitioners.

ven assuming for the sake of argument that the promissory note is negotiable, the respondent,
which took the same with actual knowledge of the foregoing facts so that its action in taking the
instrument amounted to bad faith, is not a holder in due course. As such, the respondent is subject to
all defenses which the petitioners may raise against the seller-assignor. Any other interpretation
would be most inequitous to the unfortunate buyer who is not only saddled with two useless tractors
but must also face a lawsuit from the assignee for the entire purchase price and all its incidents
without being able to raise valid defenses available as against the assignor.Ê

Lastly, the respondent failed to present any evidence to prove that it had no knowledge of any fact,
which would justify its act of taking the promissory note as not amounting to bad faith. Ê

Sections 52 and 56 of the Negotiable Mnstruments Law provide that: negotiating it. Ê

xxx xxx xxxÊ

S
C. 52. î AT CONSTMTUT
S A OLD
R MN DU
COURS
. ² A holder in due course is a holder
who has taken the instrument under the following conditions: Ê

xxx xxx xxxÊ

xxx xxx xxxÊ

(c)  a  k

 g fa
 a fr valuÊ

(d)  a   
m
 was g
a 
m  a  
 f a
f
rm

  
srum f ff


  
l f   prs g
a
g
Ê

S
C. 56. î A CONSM
S NOMC OF DFFC. ²  s
u 
 f a
f
rm

  

srum r f
   
l f   prs g
a
g   sam   prs  w m

s g
a
mus av a aual kwlg f  
f
rm
 r f r kwlg f su fas  a
s a


ak
g  
srum amus  a fa
 . (
mphasis supplied) Ê

îe subscribe to the view of Camps a Camps that a financing company is not a holder in good
faith as to the buyer, to wit: Ê

Mn installment sales, the buyer usually issues a note payable to the seller to cover the purchase price.
Many times, in pursuance of a previous arrangement with the seller, a finance company pays the full price
and the note is indorsed to it, subrogating it to the right to collect the price from the buyer, with interest.
îith the increasing frequency of installment buying in this country, it is most probable that the tendency of
the courts in the United States to protect the buyer against the finance company will , the finance
company will be subject to the defense of failure of consideration and cannot recover the purchase price
from the buyer. As against the argument that such a rule would seriously affect "a certain mode of
transacting business adopted throughout the State," a court in one case stated: Ê

Mt may be that our holding here will require some changes in business methods and will
impose a greater burden on the finance companies. îe think the buyer-Mr. & Mrs.
General Public-should have some protection somewhere along the line. îe believe the
finance company is better able to bear the risk of the dealer's insolvency than the buyer
and in a far better position to protect his interests against unscrupulous and insolvent
dealers. . . . Ê
 Mf this opinion imposes great burdens on finance companies it is a potent argument in
favor of a rule which win afford public protection to the general buying public against
unscrupulous dealers in personal property. . . . (Mutual Finance Co. v. Martin, 63 So. 2d
649, 44 ALR 2d 1 [1953]) (Campos and Campos, Notes and Selected Cases on
Negotiable Mnstruments Law, Third
dition, p. 128). Ê

Mn the case of Cmmr
al Cr
 Crpra
 v. Orag Cur Ma
 îrks (34 Cal. 2d 766)
involving similar facts, it was held that in a very real sense, the finance company was a moving force
in the transaction from its very inception and acted as a party to it. îhen a finance company actively
participates in a transaction of this type from its inception, it cannot be regarded as a holder in due
course of the note given in the transaction. Ê

Mn like manner, therefore, even assuming that the subject promissory note is negotiable, the
respondent, a financing company which actively participated in the sale on installment of the subject
two Allis Crawler tractors, cannot be regarded as a holder in due course of said note. Mt follows that
the respondent's rights under the promissory note involved in this case are subject to all defenses
that the petitioners have against the seller-assignor, Mndustrial Products Marketing. For Section 58 of
the Negotiable Mnstruments Law provides that "in the hands of any holder other than a holder in due
course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. ... " Ê

Prescinding from the foregoing and setting aside other peripheral issues, we find that both the trial
and respondent appellate court erred in holding the promissory note in question to be negotiable.
Such a ruling does not only violate the law and applicable jurisprudence, but would result in unjust
enrichment on the part of both the assigner- assignor and respondent assignee at the expense of the
petitioner-corporation which rightfully rescinded an inequitable contract. îe note, however, that since
the seller-assignor has not been impleaded herein, there is no obstacle for the respondent to file a
civil Suit and litigate its claims against the seller- assignor in the rather unlikely possibility that it so
desires, Ê

î
R
FOR
, in view of the foregoing, the decision of the respondent appellate court dated July 17,
1985, as well as its resolution dated October 17, 1986, are hereby ANNULL
D and S
T ASMD
. The
complaint against the petitioner before the trial court is DMSMMSS
D. Ê

SO ORD
R
D. Ê

#



/!!
("
-0
#(
m mÊ

+



plaintiff-appellant,
vs.





defendant-appellees.Ê

An appeal from a decision of the Court of First Mnstance of Manila dismissing the complaint filed by
the Philippine
ducation Co., Mnc. against Mauricio A. Soriano,
nrico Palomar and Rafael Contreras.Ê

On April 18, 1958
nrique Montinola sought to purchase from the Manila Post Office ten (10) money
orders of P200.00 each payable to
.P. Montinola withaddress at Lucena, uezon. 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.Ê
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.Ê

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.Ê

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
nrico 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.Ê

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
îorks and Communications, but the latter sustained the actions taken by the postal officers.Ê

Mn connection with the events set forth above, Montinola was charged with theft in the Court of First
Mnstance of Manila (Criminal Case No. 43866) but after trial he was acquitted on the ground of
reasonable doubt.Ê

On January 8, 1962 appellant filed an action against appellees in the Municipal Court of Manila
praying for judgment as follows:Ê

î
R
FOR
, plaintiff prays that after hearing defendants be ordered:Ê

(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 8-½% per annum from
September 27, 1961, which is the rate of interest being paid by plaintiff on its overdraft account;Ê

(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 onorable
Court: exemplary damages in the amount of P1,000.00, attorney's fees of P1,000.00, and the costs of
action.Ê

Plaintiff also prays for such other and further relief as may be deemed just and equitable.Ê

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:Ê

î
R
FOR
, 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 8-½% per annum from
September 27, 1961 until fully paid; without any pronouncement as to cost and attorney's fees.Ê
The case was appealed to the Court of First Mnstance of Manila where, after the parties had
resubmitted the same stipulation of facts, the appealed decision dismissing the complaint, with costs,
was rendered.Ê

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.Ê

Mt 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.Ê

Mt 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).Ê

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 (
xhibit 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.Ê

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 ead in accordance with Sec. 79 (B) of the Revised Administrative
Code. Mn 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.Ê

Mn view of the foregoing, îe do not find it necessary to resolve the issues raised in the third and
fourth assignments of error.Ê
î
R
FOR
, the appealed decision being in accordance with law, the same is hereby affirmed with
costs.Ê



m((! (
-0


m #Ê

d
d

,-.

d
petitioners,

vs.
+
+d



,-.


respondents.Ê

Petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia, are before this Court assailing the
decision 
of respondent appellate court dated 24 April 1991 in CA-G.R. SP No. 24164 denying their
petition for r
rar
prohibition, and injunction which sought to annul the order of Judge
utropio
Migriño of the Regional Trial Court, Branch 151, Pasig, Metro Manila in Civil Case No. 54863 entitled
"
den Tan vs. Sps. Norberto and Carmen Tibajia."Ê

Stated briefly, the relevant facts are as follows:Ê

Case No. 54863 was a suit for collection of a sum of money filed by
den Tan against the Tibajia
spouses. A writ of attachment was issued by the trial court on 17 August 1987 and on 17 September
1987, the Deputy Sheriff filed a return stating that a deposit made by the Tibajia spouses in the
Regional Trial Court of Kalookan City in the amount of Four undred Forty Two Thousand Seven
undred and Fifty Pesos (P442,750.00) in another case, had been garnished by him. On 10 March
1988, the Regional Trial Court, Branch 151 of Pasig, Metro Manila rendered its decision in Civil Case
No. 54863 in favor of the plaintiff
den Tan, ordering the Tibajia spouses to pay her an amount in
excess of Three undred Thousand Pesos (P300,000.00). On appeal, the Court of Appeals modified
the decision by reducing the award of moral and exemplary damages. The decision having become
final,
den Tan filed the corresponding motion for execution and thereafter, the garnished funds
which by then were on deposit with the cashier of the Regional Trial Court of Pasig, Metro Manila,
were levied upon.Ê

On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff
duardo Bolima the total
money judgment in the following form:Ê

Cashier's Check P262,750.00

Cash 135,733.70
²²²²
Total P398,483.70Ê

Private respondent,
den Tan, refused to accept the payment made by the Tibajia spouses and
instead insisted that the garnished funds deposited with the cashier of the Regional Trial Court of
Pasig, Metro Manila be withdrawn to satisfy the judgment obligation. On 15 January 1991, defendant
spouses (petitioners) filed a motion to lift the writ of execution on the ground that the judgment debt
had already been paid. On 29 January 1991, the motion was denied by the trial court on the ground
that payment in cashier's check is not payment in legal tender and that payment was made by a third
party other than the defendant. A motion for reconsideration was denied on 8 February 1991.
Thereafter, the spouses Tibajia filed a petition for r
rar
, prohibition and injunction in the Court of
Appeals. The appellate court dismissed the petition on 24 April 1991 holding that payment by
cashier's check is not payment in legal tender as required by Republic Act No. 529. The motion for
reconsideration was denied on 27 May 1991.Ê
Mn this petition for review, the Tibajia spouses raise the following issues:Ê

M î
T
R OR NOT T
BPM CAS M
R'S C
CK NO. 014021 MN T
AMOUNT OF P262,750.00

T
ND
R
D BY P
TMTMON
RS FOR PAYM
NT OF T
JUDGM
NT D
BT, MS "L
GAL T
ND
R".Ê

MM î
T
R OR NOT T
PRMVAT
R
SPOND
NT MAY VALMDLY R
FUS
T
T
ND
R OF

PAYM
NT PARTLY MN C
CK AND PARTLY MN CAS MAD
BY P
TMTMON
RS, T RU AURORA
VMTO AND COUNS
L, FOR T
SATMSFACTMON OF T
MON
TARY OBLMGATMON OF

m
P
TMTMON
RS-SPOUS
S. Ê

The only issue to be resolved in this case is whether or not payment by means of check (even by
cashier's check) is considered payment in legal tender as required by the Civil Code, Republic Act
No. 529, and the Central Bank Act.Ê

Mt is contended by the petitioners that the check, which was a cashier's check of the Bank of the
Philippine Mslands, undoubtedly a bank of good standing and reputation, and which was a crossed
check marked "For Payee's Account Only" and payable to private respondent
den Tan, is
considered legal tender, payment with which operates to discharge their monetary obligation.
!

Petitioners, to support their contention, cite the case of Nw a
f
 
m r a Suppl C. M. v.
Sr
s
#
where this Court held through Mr. Justice ermogenes Concepcion, Jr. that "Mt is a well-
known and accepted practice in the business sector that a cashier's check is deemed as cash".Ê

The provisions of law applicable to the case at bar are the following:Ê

a. Article 1249 of the Civil Code which provides:Ê

Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is legal tender in the Philippines.Ê

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents
shall produce the effect of payment only when they have been cashed, or when through the fault of the
creditor they have been impaired.Ê

Mn the meantime, the action derived from the original obligation shall be held in abeyance.;Ê

b. Section 1 of Republic Act No. 529, as amended, which provides:Ê

Sec. 1.
very provision contained in, or made with respect to, any obligation which purports to give the
obligee the right to require payment in gold or in any particular kind of coin or currency other than
Philippine currency or in an amount of money of the Philippines measured thereby, shall be as it is hereby
declared against public policy null and void, and of no effect, and no such provision shall be contained in,
or made with respect to, any obligation thereafter incurred.
very obligation heretofore and hereafter
incurred, whether or not any such provision as to payment is contained therein or made with respect
thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal
tender for public and private debts.Ê

c. Section 63 of Republic Act No. 265, as amended (Central Bank Act) which provides:Ê

Sec. 63. {gal  arar ² Checks representing deposit money do not have legal tender power and their
acceptance in the payment of debts, both public and private, is at the option of the creditor: Provided,
however, that a check which has been cleared and credited to the account of the creditor shall be
equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account.Ê

From the aforequoted provisions of law, it is clear that this petition must fail.Ê
Mn the recent cases of 
l
pp
 A
rl
s M. vs. Cur f Appals


and ©ma Ca l
 B
s p f
Malls M. vs. Mrm
a Applla Cur,
"
this Court held that ²Ê

A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor.Ê

The ruling in these two (2) cases merely applies the statutory provisions which lay down the rule that
a check is not legal tender and that a creditor may validly refuse payment by check, whether it be a
manager's, cashier's or personal check.Ê

Petitioners erroneously rely on one of the dissenting opinions in the 
l
pp
 A
rl
s case

to
support their cause. The dissenting opinion however does not in any way support the contention that
a check is legal tender but, on the contrary, states that "Mf the PAL checks in question had not been
encashed by Sheriff Reyes, there would be no payment by PAL and, consequently, no discharge or
satisfaction of its judgment obligation."

Moreover, the circumstances in the 
l
pp
 A
rl
s case
are quite different from those in the case at bar for in that case the checks issued by the judgment
debtor were made payable to the sheriff,
milio Z. Reyes, who encashed the checks but failed to
deliver the proceeds of said encashment to the judgment creditor.Ê

Mn the more recent case of Frua vs. Cur f Appals,
)
this Court stressed that, "îe are not, by
this decision, sanctioning the use of a check for the payment of obligations over the objection of the
creditor."Ê

î
R
FOR
, the petition is D
NM
D. The appealed decision is hereby AFFMRM
D, with costs
against the petitioners.Ê

SO ORD
R
D.Ê

"



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respondents.
Ê

Behind the simple issue of validity of an alias writ of execution in this case is a more fundamental
question. Should the Court allow a too literal interpretation of the Rules with an open invitation to
knavery to prevail over a more discerning and just approach? Should we not apply the ancient rule of
statutory construction that laws are to be interpreted by the spirit which vivifies and not by the letter
which killeth?Ê

This is a petition to review on r
rar
the decision of the Court of Appeals in CA-G.R. No. 07695
entitled "
l
pp
 A
rl
s M. v. . Jug ©
ar D. Gala  al." dismissing the petition for
certiorari against the order of the Court of First Mnstance of Manila which issued an alias writ of
execution against the petitioner.Ê
The petition involving the alias writ of execution had its beginnings on November 8, 1967, when
respondent Amelia Tan, under the name and style of Able Printing Press commenced a complaint for
damages before the Court of First Mnstance of Manila. The case was docketed as Civil Case No.
71307, entitled Aml
a a  al. v. 
l
pp
 A
rl
s M. Ê

After trial, the Court of First Mnstance of Manila, Branch 13, then presided over by the late Judge
Jesus P. Morfe rendered judgment on June 29, 1972, in favor of private respondent Amelia Tan and
against petitioner Philippine Airlines, Mnc. (PAL) as follows: Ê

î
R
FOR
, judgment is hereby rendered, ordering the defendant Philippine Air Lines: Ê

1. On the first cause of action, to pay to the plaintiff the amount of P75,000.00 as actual damages, with
legal interest thereon from plaintiffs extra-judicial demand made by the letter of July 20, 1967; Ê

2. On the third cause of action, to pay to the plaintiff the amount of P18,200.00, representing the
unrealized profit of 10% included in the contract price of P200,000.00 plus legal interest thereon from July
20,1967; Ê

3. On the fourth cause of action, to pay to the plaintiff the amount of P20,000.00 as and for moral
damages, with legal interest thereon from July 20, 1 967; Ê

4. On the sixth cause of action, to pay to the plaintiff the amount of P5,000.00 damages as and for
attorney's fee. Ê

Plaintiffs second and fifth causes of action, and defendant's counterclaim, are dismissed.Ê

îith costs against the defendant. (CA Rollo, p. 18) Ê

On July 28, 1972, the petitioner filed its appeal with the Court of Appeals. The case was docketed as
CA-G.R. No. 51079-R.Ê

On February 3, 1977, the appellate court rendered its decision, the dispositive portion of which reads: Ê

MN VM
î î
R
OF, with the modification that PAL is condemned to pay plaintiff the sum of P25,000.00
as damages and P5,000.00 as attorney's fee, judgment is affirmed, with costs. (CA Rollo, p. 29) Ê

Notice of judgment was sent by the Court of Appeals to the trial court and on dates subsequent
thereto, a motion for reconsideration was filed by respondent Amelia Tan, duly opposed by petitioner
PAL.Ê

On May 23,1977, the Court of Appeals rendered its resolution denying the respondent's motion for
reconsideration for lack of merit.Ê

No further appeal having been taken by the parties, the judgment became final and executory and on
May 31, 1977, judgment was correspondingly entered in the case.Ê

The case was remanded to the trial court for execution and on September 2,1977, respondent Amelia
Tan filed a motion praying for the issuance of a writ of execution of the judgment rendered by the
Court of Appeals. On October 11, 1977, the trial court, presided over by Judge Galano, issued its
order of execution with the corresponding writ in favor of the respondent. The writ was duly referred to
Deputy Sheriff
milio Z. Reyes of Branch 13 of the Court of First Mnstance of Manila for enforcement. Ê
Four months later, on February 11, 1978, respondent Amelia Tan moved for the issuance of an alias
writ of execution stating that the judgment rendered by the lower court, and affirmed with modification
by the Court of Appeals, remained unsatisfied.Ê

On March 1, 1978, the petitioner filed an opposition to the motion for the issuance of an alias writ of
execution stating that it had already fully paid its obligation to plaintiff through the deputy sheriff of the
respondent court,
milio Z. Reyes, as evidenced by cash vouchers properly signed and receipted by
said
milio Z. Reyes. Ê

On March 3,1978, the Court of Appeals denied the issuance of the alias writ for being premature,
ordering the executing sheriff
milio Z. Reyes to appear with his return and explain the reason for his
failure to surrender the amounts paid to him by petitioner PAL. owever, the order could not be
served upon Deputy Sheriff Reyes who had absconded or disappeared.Ê

On March 28, 1978, motion for the issuance of a partial alias writ of execution was filed by
respondent Amelia Tan.Ê

On April 19, 1978, respondent Amelia Tan filed a motion to withdraw "Motion for Partial Alias îrit of

xecution" with Substitute Motion for Alias îrit of
xecution. On May 1, 1978, the respondent Judge
issued an order which reads: Ê

As prayed for by counsel for the plaintiff, the Motion to îithdraw 'Motion for Partial Alias îrit of
xecution
with Substitute Motion for Alias îrit of
xecution is hereby granted, and the motion for partial alias writ of
execution is considered withdrawn. Ê

Let an Alias îrit of
xecution issue against the defendant for the fall satisfaction of the judgment
rendered. Deputy Sheriff Jaime K. del Rosario is hereby appointed Special Sheriff for the enforcement
thereof. (CA Rollo, p. 34) Ê

On May 18, 1978, the petitioner received a copy of the first alias writ of execution issued on the same
day directing Special Sheriff Jaime K. del Rosario to levy on execution in the sum of P25,000.00 with
legal interest thereon from July 20,1967 when respondent Amelia Tan made an extra-judicial demand
through a letter. Levy was also ordered for the further sum of P5,000.00 awarded as attorney's fees. Ê

On May 23, 1978, the petitioner filed an urgent motion to quash the alias writ of execution stating that
no return of the writ had as yet been made by Deputy Sheriff
milio Z. Reyes and that the judgment
debt had already been fully satisfied by the petitioner as evidenced by the cash vouchers signed and
receipted by the server of the writ of execution, Deputy Sheriff
milio Z. Reyes. Ê

On May 26,1978, the respondent Jaime K. del Rosario served a notice of garnishment on the
depository bank of petitioner, Far
ast Bank and Trust Company, Rosario Branch, Binondo, Manila,
through its manager and garnished the petitioner's deposit in the said bank in the total amount of
P64,408.00 as of May 16, 1978. ence, this petition for certiorari filed by the Philippine Airlines, Mnc.,
on the grounds that: Ê

MÊ

AN ALMAS îRMT OF

CUTMON CANNOT B
MSSU
D îMT OUT PRMOR R
TURN OF T

ORMGMNAL îRMT BY T
MMPL
M
NTMNG OFFMC
R.Ê

MM Ê
 PAYM
NT OF JUDGM
NT TO T
MMPL
M
NTMNG OFFMC
R AS DMR
CT
D MN T
îRMT OF


CUTMON CONSTMTUT
S SATMSFACTMON OF JUDGM
NT. Ê

MMM Ê

MNT
R
ST MS NOT PAYABL
î
N T
D
CMSMON MS SML
NT AS TO T
PAYM
NT T
R
OF. Ê

MV Ê

S
CTMON 5, RUL
39, PARTMCULARLY R
F
RS TO L
VY OF PROP
RTY OF JUDGM
NT D
BTOR

AND DMSPOSAL OR SAL
T
R
OF TO SATMSFY JUDGM
NT. Ê

Can an alias writ of execution be issued without a prior return of the original writ by the implementing
officer?Ê

îe rule in the affirmative and we quote the respondent court's decision with approval: Ê

The issuance of the questioned alias writ of execution under the circumstances here obtaining is justified
because even with the absence of a Sheriffs return on the original writ, the unalterable fact remains that
such a return is incapable of being obtained (sic) because the officer who is to make the said return has
absconded and cannot be brought to the Court despite the earlier order of the court for him to appear for
this purpose. (Order of Feb. 21, 1978, Annex C, Petition). Obviously, taking cognizance of this
circumstance, the order of May 11, 1978 directing the issuance of an alias writ was therefore issued.
(Annex D. Petition). The need for such a return as a condition precedent for the issuance of an alias writ
was justifiably dispensed with by the court below and its action in this regard meets with our concurrence.
A contrary view will produce an abhorent situation whereby the mischief of an erring officer of the court
could be utilized to impede indefinitely the undisputed and awarded rights which a prevailing party
rightfully deserves to obtain and with dispatch. The final judgment in this case should not indeed be
permitted to become illusory or incapable of execution for an indefinite and over extended period, as had
already transpired. (Rollo, pp. 35-36) Ê

Ju

um    ss
llusr
um suum ffum a r   (A judgment ought not to be illusory
it ought to have its proper effect). Ê

Mndeed, technicality cannot be countenanced to defeat the execution of a judgment for execution is
the fruit and end of the suit and is very aptly called the life of the law (Mpekdjian Merchandising Co. v.
Court of Tax Appeals, 8 SCRA 59 [1963]; Commissioner of Mnternal Revenue v. Visayan
lectric Co.,
19 SCRA 697, 698 [1967]). A judgment cannot be rendered nugatory by the unreasonable application
of a strict rule of procedure. Vested rights were never intended to rest on the requirement of a return,
the office of which is merely to inform the court and the parties, of any and all actions taken under the
writ of execution. îhere such information can be established in some other manner, the absence of
an executing officer's return will not preclude a judgment from being treated as discharged or being
executed through an alias writ of execution as the case may be. More so, as in the case at bar.
îhere the return cannot be expected to be forthcoming, to require the same would be to compel the
enforcement of rights under a judgment to rest on an impossibility, thereby allowing the total
avoidance of judgment debts. So long as a judgment is not satisfied, a plaintiff is entitled to other writs
of execution (Government of the Philippines v.
chaus and Gonzales, 71 Phil. 318). Mt is a well known
legal maxim that he who cannot prosecute his judgment with effect, sues his case vainly.Ê

More important in the determination of the propriety of the trial court's issuance of an alias writ of
execution is the issue of satisfaction of judgment.Ê

Under the peculiar circumstances surrounding this case, did the payment made to the absconding
sheriff by check in his name operate to satisfy the judgment debt? The Court rules that the plaintiff
who has won her case should not be adjudged as having sued in vain. To decide otherwise would not
only give her an empty but a pyrrhic victory.Ê

Mt should be emphasized that under the initial judgment, Amelia Tan was found to have been wronged
by PAL.Ê

She filed her complaint in 1967.Ê

After ten (10) years of protracted litigation in the Court of First Mnstance and the Court of Appeals, Ms.
Tan won her case.Ê

Mt is now 1990. Ê

Almost twenty-two (22) years later, Ms. Tan has not seen a centavo of what the courts have solemnly
declared as rightfully hers. Through absolutely no fault of her own, Ms. Tan has been deprived of
what, technically, she should have been paid from the start, fr 1967, without need of her going to
court to enforce her rights. And all because PAL did not issue the checks intended for her, in her
name.Ê

Under the peculiar circumstances of this case, the payment to the absconding sheriff by check in his
name did not operate as a satisfaction of the judgment debt. Ê

Mn general, a payment, in order to be effective to discharge an obligation, must be made to the proper
person. Article 1240 of the Civil Code provides: Ê

Payment shall be made to the person in whose favor the obligation has been constituted, or his
successor in interest, or any person au r
  r
v
. (
mphasis supplied) Ê

Thus, payment must be made to the obligee himself or to an agent having authority, express or
implied, to receive the particular payment (Ulen v. Knecttle 50 îyo 94, 58 [2d] 446, 111 ALR 65).
Payment made to one having apparent authority to receive the money will, as a rule, be treated as
though actual authority had been given for its receipt. Likewise, if payment is made to one who by law
is authorized to act for the creditor, it will work a discharge ( endry v. Benlisa 37 Fla. 609, 20 SO
800,34 LRA 283). The receipt of money due on ajudgment by an officer authorized by law to accept it
will, therefore, satisfy the debt (See 40 Am Jm 729, 25; endry v. Benlisa supra; Seattle v. Stirrat 55
îash. 104 p. 834,24 LRA [NS] 1275).Ê

The theory is where payment is made to a person authorized and recognized by the creditor, the
payment to such a person so authorized is deemed payment to the creditor. Under ordinary
circumstances, payment by the judgment debtor in the case at bar, to the sheriff should be valid
payment to extinguish the judgment debt. Ê

There are circumstances in this case, however, which compel a different conclusion. Ê

The payment made by the petitioner to the absconding sheriff was not in cash or legal tender but in
checks. The checks were not payable to Amelia Tan or Able Printing Press but to the absconding
sheriff. Ê

Did such payments extinguish the judgment debt? Ê

Article 1249 of the Civil Code provides: Ê

 The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver
such currency, then in the currency which is legal tender in the Philippines.Ê

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents
shall produce the effect of payment only when they have been cashed, or when through the fault of the
creditor they have been impaired. Ê

Mn the meantime, the action derived from the original obligation shall be held in abeyance. Ê

Mn the absence of an agreement, either express or implied, payment means the discharge of a debt or
obligation in money (US v. Robertson, 5 Pet. [US] 641, 8 L. ed. 257) and unless the parties so agree,
a debtor has no rights, except at his own peril, to substitute something in lieu of cash as medium of
payment of his debt (Anderson v. Gill, 79 Md.. 312, 29 A 527, 25 LRA 200,47 Am. St. Rep. 402).
Consequently, unless authorized to do so by law or by consent of the obligee a public officer has no
authority to accept anything other than money in payment of an obligation under a judgment being
executed. Strictly speaking, the acceptance by the sheriff of the petitioner's checks, in the case at bar,
does not, pr s, operate as a discharge of the judgment debt. Ê

Since a negotiable instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment (See. 189, Act 2031 on Negs. Mnsts.; Art. 1249,
Civil Code; Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21
R.C.L. 60, 61). A check, whether a manager's check or ordinary cheek, is not legal tender, and an
offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by
the obligee or creditor. Mere delivery of checks does not discharge the obligation under a judgment.
The obligation is not extinguished and remains suspended until the payment by commercial
document is actually realized (Art. 1249, Civil Code, par. 3).Ê

Mf bouncing checks had been issued in the name of Amelia Tan and not the Sheriff's, there would
have been no payment. After dishonor of the checks, Ms. Tan could have run after other properties of
PAL. The theory is that she has received no value for what had been awarded her. Because the
checks were drawn in the name of
milio Z. Reyes, neither has she received anything. The same rule
should apply.Ê

Mt is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in full legal
contemplation. The reasoning is logical but is it valid and proper? Logic has its limits in decision
making. îe should not follow rulings to their logical extremes if in doing so we arrive at unjust or
absurd results.Ê

Mn the first place, PAL 
  pa
 as . Mt paid in cheeks. Ê

And second, payment in cash always carries with it certain cautions. Nobody hands over big amounts
of cash in a careless and inane manner. Mature thought is given to the possibility of the cash being
lost, of the bearer being waylaid or running off with what he is carrying for another. Payment in
checks is precisely intended to avoid the possibility of the money going to the wrong party. The
situation is entirely different where a Sheriff seizes a car, a tractor, or a piece of land. Logic often has
to give way to experience and to reality. aving paid with checks, PAL should have done so properly.Ê

Payment in money or cash to the implementing officer may be deemed absolute payment of the
judgment debt but the Court has never, in the least bit, suggested that judgment debtors should settle
their obligations by turning over huge amounts of cash or legal tender to sheriffs and other executing
officers. Payment in cash would result in damage or interminable litigations each time a sheriff with
huge amounts of cash in his hands decides to abscond.Ê
As a protective measure, therefore, the courts encourage the practice of payments by cheek provided
adequate controls are instituted to prevent wrongful payment and illegal withdrawal or disbursement
of funds. Mf particularly big amounts are involved, escrow arrangements with a bank and carefully
supervised by the court would be the safer procedure. Actual transfer of funds takes place within the
safety of bank premises. These practices are perfectly legal. The object is always the safe and
incorrupt execution of the judgment. Ê

Mt is, indeed, out of the ordinary that checks intended for a particular payee are made out in the name
of another. Making the checks payable to the judgment creditor would have prevented the
encashment or the taking of undue advantage by the sheriff, or any person into whose hands the
checks may have fallen, whether wrongfully or in behalf of the creditor. The issuance of the checks in
the name of the sheriff clearly made possible the misappropriation of the funds that were withdrawn. Ê

As explained and held by the respondent court: Ê

... [K]nowing as it does that the intended payment was for the private party respondent Amelia Tan, the
petitioner corporation, utilizing the services of its personnel who are or should be knowledgeable about
the accepted procedures and resulting consequences of the checks drawn, nevertheless, in this instance,
without prudence, departed from what is generally observed and done, and placed as payee in the
checks the name of the errant Sheriff and not the name of the rightful payee. Petitioner thereby created a
situation which permitted the said Sheriff to personally encash said checks and misappropriate the
proceeds thereof to his exclusive personal benefit. For the prejudice that resulted, the petitioner himself
must bear the fault. The judicial guideline which we take note of states as follows: Ê

As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the
one who made it possible by his act of confidence must bear the loss. (Blondeau, et al. v. Nano, et al., L-
41377, July 26, 1935, 61 Phil. 625) Ê

aving failed to employ the proper safeguards to protect itself, the judgment debtor whose act made
possible the loss had but itself to blame.Ê

The attention of this Court has been called to the bad practice of a number of executing officers, of
requiring checks in satisfaction of judgment debts to be made out in their own names. Mf a sheriff
directs a judgment debtor to issue the checks in the sheriff's name, claiming he must get his
commission or fees, the debtor must report the sheriff immediately to the court which ordered the
execution or to the Supreme Court for appropriate disciplinary action. Fees, commissions, and
salaries are paid through regular channels. This improper procedure also allows such officers, who
have sixty (60) days within which to make a return, to treat the moneys as their personal finds and to
deposit the same in their private accounts to earn sixty (60) days interest, before said finds are turned
over to the court or judgment creditor (See Balgos v. Velasco, 108 SCRA 525 [1981]). uite as
easily, such officers could put up the defense that said checks had been issued to them in their
private or personal capacity. îithout a receipt evidencing payment of the judgment debt, the
misappropriation of finds by such officers becomes clean and complete. The practice is ingenious but
evil as it unjustly enriches court personnel at the expense of litigants and the proper administration of
justice. The temptation could be far greater, as proved to be in this case of the absconding sheriff.
The correct and prudent thing for the petitioner was to have issued the checks in the intended payee's
name. Ê

The pernicious effects of issuing checks in the name of a person other than the intended payee,
without the latter's agreement or consent, are as many as the ways that an artful mind could concoct
to get around the safeguards provided by the law on negotiable instruments. An angry litigant who
loses a case, as a rule, would not want the winning party to get what he won in the judgment. e
would think of ways to delay the winning party's getting what has been adjudged in his favor. îe
cannot condone that practice especially in cases where the courts and their officers are involved. îe
rule against the petitioner. Ê

Anent the applicability of Section 15, Rule 39, as follows: Ê

Section 15. 
u
 f m jugms. ² The officer must enforce an execution of a money
judgment by levying on all the property, real and personal of every name and nature whatsoever, and
which may be disposed of for value, of the judgment debtor not exempt from execution, or on a sufficient
amount of such property, if they be sufficient, and selling the same, a pa
g    jugm r
r,
or his attorney, so much of the proceeds as will satisfy the judgment. ...

the respondent court held: Ê

îe are obliged to rule that the judgment debt cannot be considered satisfied and therefore the orders of
the respondent judge granting the alias writ of execution may not be pronounced as a nullity. Ê

xxx xxx xxxÊ

Mt is clear and manifest that after levy or garnishment, for a judgment to be executed there is the requisite
of payment by the officer to the judgment creditor, or his attorney, so much of the proceeds as will satisfy
the judgment and none such payment had been concededly made yet by the absconding Sheriff to the
private respondent Amelia Tan. The ultimate and essential step to complete the execution of the
judgment not having been performed by the City Sheriff, the judgment debt legally and factually remains
unsatisfied. Ê

Strictly speaking execution cannot be equated with satisfaction of a judgment. Under unusual
circumstances as those obtaining in this petition, the distinction comes out clearly.Ê

xecution is the process which carries into effect a decree or judgment (Painter v. Berglund, 31 Cal.
App. 2d. 63, 87 P 2d 360, 363; Miller v. London, 294 Mass 300, 1 N
2d 198, 200; Black's Law
Dictionary), whereas the satisfaction of a judgment is the payment of the amount of the writ, or a
lawful tender thereof, or the conversion by sale of the debtor's property into an amount equal to that
due, and, it may be done otherwise than upon an execution (Section 47, Rule 39). Levy and delivery
by an execution officer are not prerequisites to the satisfaction of a judgment when the same has
already been realized in fact (Section 47, Rule 39).
xecution is for the sheriff to accomplish while
satisfaction of the judgment is for the creditor to achieve. Section 15, Rule 39 merely provides the
sheriff with his duties as executing officer including delivery of the proceeds of his levy on the debtor's
property to satisfy the judgment debt. Mt is but to stress that the implementing officer's duty should not
stop at his receipt of payments but must continue until payment is delivered to the obligor or creditor. Ê

Finally, we find no error in the respondent court's pronouncement on the inclusion of interests to be
recovered under the alias writ of execution. This logically follows from our ruling that PAL is liable for
both the lost checks and interest. The respondent court's decision in CA-G.R. No. 51079-R does not
totally supersede the trial court's judgment in Civil Case No. 71307. Mt merely modified the same as to
the principal amount awarded as actual damages. Ê

î
R
FOR
, MN VM
î OF T
FOR
GOMNG, the petition is hereby DMSMMSS
D. The judgment of

the respondent Court of Appeals is AFFMRM
D and the trial court's issuance of the alias writ of
execution against the petitioner is upheld without prejudice to any action it should take against the
errant sheriff
milio Z. Reyes. The Court Administrator is ordered to follow up the actions taken
against
milio Z. Reyes. Ê

SO ORD
R
D. Ê






) !"!
,1
!

m #Ê


d7
petitioner,
vs.
+








d6

respondents.Ê

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:Ê

(a) the Certificate of Confirmation of Sale, "without recourse," No. 20496 of one (1) Delta Motors
Corporation Promissory Note ("DMC PN") No. 2731 for a term of 32 days at 17.0% pr aum;Ê

(b) the Certificate of securities Delivery Receipt No. 16587 indicating the sale of DMC PN No. 2731 to
petitioner, with the notation that the said security was in custodianship of Pilipinas Bank, as per
Denominated Custodian Receipt ("DCR") No. 10805 dated 9 February 1981; andÊ

(c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of petitioner's investment), with
petitioner as payee, Philfinance as drawer, and Mnsular Bank of Asia and America as drawee, in the total
amount of P304,533.33.Ê

On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance.
owever, the checks were dishonored for having been drawn against insufficient funds.Ê

On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private
respondent Pilipinas Bank ("Pilipinas"). Mt reads as follows:Ê

PMLMPMNAS BANK
Makati Stock
xchange Bldg.,
Ayala Avenue, Makati,
Metro Manila
 A
T

TO Raul SesbreñoÊ

A
p
r
i
l

6
,

1
9
8
1

²
²
²
²
²
²
²
²

M
A
T
U
R
M
T
Y

D
A
T

N
O
.

1
0
8
0
5

D
NOMMNAT
D CUSTODMAN R
C
MPTÊ

 This confirms that as a duly Custodian Bank, and upon instruction of P MLMPPMN
UND
RîRMT
S
FMNANC
CORPORATMON, we have in our custody the following securities to you [s
] the extent herein
indicated.Ê

S
RMAL MAT. FAC
MSSU
D R
GMST
R
D AMOUNT

NUMB
R DAT
VALU
BY OLD
R PAY

Ê

2731 4-6-81 2,300,833.34 DMC P ML. 307,933.33

UND
RîRMT
RS
FMNANC
CORP.Ê

îe further certify that these securities may be inspected by you or your duly authorized representative at
any time during regular banking hours.Ê

Upon your written instructions we shall undertake physical delivery of the above securities fully assigned
to you should this Denominated Custodianship Receipt remain outstanding in your favor thirty (30) days
after its maturity.Ê

PMLMPMN
AS
BANK
(By

lizabet
h De
Villa
Mllegible
Signatu

m
re) Ê

On 2 April 1981, petitioner approached Ms.
lizabeth de Villa of private respondent Pilipinas, Makati
Branch, and handed her a demand letter informing the bank that his placement with Philfinance in the
amount reflected in the DCR No. 10805 had remained unpaid and outstanding, and that he in effect
was asking for the physical delivery of the underlying promissory note. Petitioner then examined the
original of the DMC PN No. 2731 and found: that the security had been issued on 10 April 1980; that
it would mature on 6 April 1981; that it had a face value of P2,300,833.33, with the Philfinance as
"payee" and private respondent Delta Motors Corporation ("Delta") as "maker;" and that on face of the
promissory note was stamped "NON N
GOTMABL
." Pilipinas did not deliver the Note, nor any
certificate of participation in respect thereof, to petitioner.Ê

Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981,
! again asking
private respondent Pilipinas for physical delivery of the original of DMC PN No. 2731. Pilipinas
allegedly referred all of petitioner's demand letters to Philfinance for written instructions, as has been
supposedly agreed upon in "Securities Custodianship Agreement" between Pilipinas and Philfinance.
Philfinance did not provide the appropriate instructions; Pilipinas never released DMC PN No. 2731,
nor any other instrument in respect thereof, to petitioner.Ê

Petitioner also made a written demand on 14 July 1981
# upon private respondent Delta for the partial
satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had assigned to him
said Note to the extent of P307,933.33. Delta, however, denied any liability to petitioner on the
promissory note, and explained in turn that it had previously agreed with Philfinance to offset its DMC
PN No. 2731 (along with DMC PN No. 2730) against Philfinance PN No. 143-A issued in favor of
Delta.Ê
Mn the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the
Securities and exchange commission ("S
C") and the Central Bank. Pilipinas delivered to the S
C
DMC PN No. 2731, which to date apparently remains in the custody of the S
C.

Ê

As petitioner had failed to collect his investment and interest thereon, he filed on 28 September 1982
an action for damages with the Regional Trial Court ("RTC") of Cebu City, Branch 21, against private
respondents Delta and Pilipinas.
" The trial court, in a decision dated 5 August 1987, dismissed the
complaint and counterclaims for lack of merit and for lack of cause of action, with costs against
petitioner.Ê

Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. Mn a Decision dated
21 March 1989, the Court of Appeals denied the appeal and held:
Ê

Be that as it may, from the evidence on record, if there is anyone that appears liable for the travails of
plaintiff-appellant, it is Philfinance. As correctly observed by the trial court:Ê

This act of Philfinance in accepting the investment of plaintiff and charging it against
DMC PN No. 2731 when its entire face value was already obligated or earmarked for set-
off or compensation is difficult to comprehend and may have been motivated with bad
faith. Philfinance, therefore, is solely and legally obligated to return the investment of
plaintiff, together with its earnings, and to answer all the damages plaintiff has suffered
incident thereto. Unfortunately for plaintiff, Philfinance was not impleaded as one of the
defendants in this case at bar; hence, this Court is without jurisdiction to pronounce
judgement against it. (p. 11, Decision)Ê

î
R
FOR
, finding no reversible error in the decision appealed from, the same is hereby affirmed

. Cost against plaintiff-appellant.Ê

Petitioner moved for reconsideration of the above Decision, without success.Ê

ence, this Petition for Review on Cr
rar
.Ê

After consideration of the allegations contained and issues raised in the pleadings, the Court resolved
to give due course to the petition and required the parties to file their respective memoranda.
Ê

Petitioner reiterates the assignment of errors he directed at the trial court decision, and contends that
respondent court of Appeals gravely erred: (i) in concluding that he cannot recover from private
respondent Delta his assigned portion of DMC PN No. 2731; (ii) in failing to hold private respondent
Pilipinas solidarily liable on the DMC PN No. 2731 in view of the provisions stipulated in DCR No.
10805 issued in favor r of petitioner, and (iii) in refusing to pierce the veil of corporate entity between
Philfinance, and private respondents Delta and Pilipinas, considering that the three (3) entities belong
to the "Silverio Group of Companies" under the leadership of Mr. Ricardo Silverio, Sr.
)Ê

There are at least two (2) sets of relationships which we need to address: firstly, the relationship of
petitioner v
sav
s Delta; secondly, the relationship of petitioner in respect of Pilipinas. Actually, of
course, there is a third relationship that is of critical importance: the relationship of petitioner and
Philfinance. owever, since Philfinance has not been impleaded in this case, neither the trial court
nor the Court of Appeals acquired jurisdiction over the person of Philfinance. Mt is, consequently, not
necessary for present purposes to deal with this third relationship, except to the extent it necessarily
impinges upon or intersects the first and second relationships.Ê

M.Ê

îe consider first the relationship between petitioner and Delta.Ê

The Court of appeals in effect held that petitioner acquired no rights v
sav
s Delta in respect of the
Delta promissory note (DMC PN No. 2731) which Philfinance sold "without recourse" to petitioner, to
the extent of P304,533.33. The Court of Appeals said on this point:Ê

Nor could plaintiff-appellant have acquired any right over DMC PN No. 2731 as the same is "non-
negotiable" as stamped on its face (
xhibit "6"), negotiation being defined as the transfer of an instrument
from one person to another so as to constitute the transferee the holder of the instrument (Sec. 30,
Negotiable Mnstruments Law). A person not a holder cannot sue on the instrument in his own name and
cannot demand or receive payment (Section 51,
.)
Ê

Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that the Note had been
validly transferred, in part to him by assignment and that as a result of such transfer, Delta as debtor-
maker of the Note, was obligated to pay petitioner the portion of that Note assigned to him by the
payee Philfinance.Ê

Delta, however, disputes petitioner's contention and argues:Ê

(1) that DMC PN No. 2731 was not intended to be negotiated or otherwise transferred by Philfinance as
manifested by the word "non-negotiable" stamp across the face of the Note
m( and because maker Delta
and payee Philfinance intended that this Note would be offset against the outstanding obligation of
Philfinance represented by Philfinance PN No. 143-A issued to Delta as payee;Ê

(2) that the assignment of DMC PN No. 2731 by Philfinance was without Delta's consent, if not against its
instructions; andÊ

(3) assuming (argu only) that the partial assignment in favor of petitioner was valid, petitioner took
the Note subject to the defenses available to Delta, in particular, the offsetting of DMC PN No. 2731
against Philfinance PN No. 143-A.
mmÊ

îe consider Delta's arguments sr
a
m.Ê

Firstly, it is important to bear in mind that the g
a
 of a negotiable instrument must be
distinguished from the ass
gm or rasfr of an instrument whether that be negotiable or non-
negotiable. Only an instrument qualifying as a negotiable instrument under the relevant statute may
be g
a either by indorsement thereof coupled with delivery, or by delivery alone where the
negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being
negotiated, also be ass
g or rasfrr. 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:Ê

The words " g
a l " stamped on the face of the bill of lading, 
  sr
s ass
ga
l
, but
the sole effect was to exempt the bill from the statutory provisions relative thereto, a a
ll, though 
g
a l, ma  rasfrr  ass
gm; the assignee taking subject to the equities between the

m!
original parties. (
mphasis added)Ê

DMC PN No. 2731, while marked "non-negotiable," was  at the same time stamped "non-
transferable" or "non-assignable." Mt contained no stipulation which prohibited Philfinance from
assigning or transferring, in whole or in part, that Note.Ê

Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and which should
be quoted in full:Ê
 April
10,
1980Ê

Philippine Underwriters Finance Corp.

Benavidez St., Makati,
Metro Manila.Ê

Attention: Mr. Alfredo O. Banaria

SVP-TreasurerÊ

G
NTL
M
N:Ê

This refers to our outstanding placement of P4,601,666.67 as evidenced by your Promissory Note No.
143-A, dated April 10, 1980, to mature on April 6, 1981.Ê

As agreed upon, we enclose our non-negotiable Promissory Note No. 2730 and 2731 for P2,000,000.00
each, dated April 10, 1980, to be offsetted [s
] against your PN No. 143-A upon co-terminal maturity.Ê

Please deliver the proceeds of our PNs to our representative, Mr.
ric Castillo.Ê

Very
Truly
Yours,Ê

(Sgd.)
Florenci
o B.
Biagan
Senior
Vice
Preside
nt
m#Ê

îe find nothing in his "Letter of Agreement" which can be reasonably construed as a prohibition upon
Philfinance assigning or transferring all or part of DMC PN No. 2731, before the maturity thereof. Mt is
scarcely necessary to add that, even had this "Letter of Agreement" set forth an explicit prohibition of
transfer upon Philfinance, such a prohibition cannot be invoked against an assignee or transferee of
the Note who parted with valuable consideration in good faith and without notice of such prohibition. Mt
is not disputed that petitioner was such an assignee or transferee. Our conclusion on this point is
reinforced by the fact that what Philfinance and Delta were doing by their exchange of their
promissory notes was this: Delta invested, by making a money market placement with Philfinance,
approximately P4,600,000.00 on 10 April 1980; but promptly, on the same day, borrowed back the
bulk of that placement, i.e., P4,000,000.00, by issuing its two (2) promissory notes: DMC PN No.
2730 and DMC PN No. 2731, both also dated 10 April 1980. Thus, Philfinance was left with not
P4,600,000.00 but only P600,000.00 in cash and the two (2) Delta promissory notes.Ê

Aprps Delta's complaint that the partial assignment by Philfinance of DMC PN No. 2731 had been
effected without the consent of Delta, we note that such consent was not necessary for the validity
and enforceability of the assignment in favor of petitioner.
m
Delta's argument that Philfinance's sale or
assignment of part of its rights to DMC PN No. 2731 constituted conventional subrogation, which
required its (Delta's) consent, is quite mistaken. Conventional subrogation, which in the first place is
never lightly inferred,
m" must be clearly established by the unequivocal terms of the substituting
obligation or by the evident incompatibility of the new and old obligations on every point.
m Nothing of
the sort is present in the instant case.Ê
Mt is in fact difficult to be impressed with Delta's complaint, since it released its DMC PN No. 2731 to
Philfinance, an entity engaged in the business of buying and selling debt instruments and other
securities, and more generally, in money market transactions. Mn r v. Cur f Appals,
m the
Court, speaking through Mme. Justice errera, made the following important statement:Ê

There is another aspect to this case. îhat is involved here is a money market transaction. As defined by
Lawrence Smith "the money market is a market dealing in standardized short-term credit instruments
(involving large amounts) where lenders and borrowers do not deal directly with each other but through a
middle manor a dealer in the open market." Mt involves "commercial papers" which are instruments
"evidencing indebtness of any person or entity. . ., which are issued, endorsed, sold or transferred or in
any manner conveyed to another person or entity, with or without recourse". The fundamental function of
the money market device in its operation is to match and bring together in a most impersonal manner
both the "fund users" and the "fund suppliers."   m mark
s a "
mprsal mark" fr frm
prsal s
ra
s. "  mark m a
sm
s
  prv
 qu
k m
l
 f m a
sur

s."Ê

The impersonal character of the money market device overlooks the individuals or entities concerned.
 
ssur f a mmr
al papr
   m mark ssar
l kws
 ava  a
 wul 

p

usl rasa a rasfrr  a
vsr/lr w
 u  f 
  sa

ssur. M
pra
  
f
a

s g
v    rrwr r
ssur f mmr
al papr f   sal r rasfr 
 
vsr.Ê

xxx xxx xxxÊ

There is need to individuate a money market transaction, a relatively novel institution in the Philippine
commercial scene. M as 
  fa
l
a   flw a aqu
s

 f ap
al  a
mprsal
as
s. And as specifically required by Presidential Decree No. 678,  
vs
g pu l
 mus  g
v
aqua a ff
v pr

 ava
l
g f   r
 f a rrwr
   mmr
al papr mark.
m)
(Citations omitted; emphasis supplied)Ê

îe turn to Delta's arguments concerning alleged compensation or offsetting between DMC PN No.
2731 and Philfinance PN No. 143-A. Mt is important to note that a   
m 
lf
a sl par f
s
r
g s ur DMC N N. 2731  p

r  9 F ruar 1981  mpsa
 a as  ak
pla a
  ul av ak pla. The essential requirements of compensation are
listed in the Civil Code as follows:Ê

Art. 1279. Mn order that compensation may be proper, it is necessary: Ê

(1) That a  f    l
grs  u pr

pall a  a   a   sam 
m a pr

pal r
r
f    rÊ

(2) That both debts consists in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;Ê

(3)  a   w  s ar uÊ

(4) That they be liquidated and demandable;Ê

(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor. (
mphasis supplied)Ê

On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This was
explicitly recognized by Delta in its 10 April 1980 "Letter of Agreement" with Philfinance, where Delta
acknowledged that the relevant promissory notes were "to be offsetted (s
) against [Philfinance] PN
No. 143-A up rm
al maur
."Ê
As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days
before the "co-terminal maturity" date, that is to say, before any compensation had taken place.
Further, the assignment to petitioner would have prevented compensation had taken place between
Philfinance and Delta, to the extent of P304,533.33, because upon execution of the assignment in
favor of petitioner, Philfinance and Delta would have ceased to be creditors and debtors of each other
in their own right to the extent of the amount assigned by Philfinance to petitioner. Thus, we conclude
that the assignment effected by Philfinance in favor of petitioner was a valid one and that petitioner
accordingly became owner of DMC PN No. 2731 to the extent of the portion thereof assigned to him.Ê

The record shows, however, that petitioner notified Delta of the fact of the assignment to him only on
14 July 1981, m that is, after the maturity not only of the money market placement made by petitioner
but also of both DMC PN No. 2731 and Philfinance PN No. 143-A. Mn other words, p

r 
f

Dla f
s r
g s as ass
g afr mpsa
 a ak pla  pra
 f law aus  
ffs
g
srums a  ra  maur
. Mt is a firmly settled doctrine that the rights of an
assignee are not any greater that the rights of the assignor, since the assignee is merely substituted
in the place of the assignor !( and that the assignee acquires his rights subject to the equities ² i.e.,
the defenses ² which the debtor could have set up against the original assignor before notice of the
assignment was given to the debtor. Article 1285 of the Civil Code provides that:Ê

Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third
person, cannot set up against the assignee the compensation which would pertain to him against the
assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved
his right to the compensation.Ê

Mf the creditor communicated the cession to him but the  r 
  s thereto, the latter ma s
up   mpsa
 f  s previous to the cession, but not of subsequent ones.Ê

Mf the ass
gm is made w
 u   kwlg f    r  ma s up   mpsa
 f all
r
s pr
r    same and also later ones until he had kwlg f   ass
gm. (
mphasis
supplied)Ê

Article 1626 of the same code states that: "the debtor who, before having knowledge of the
assignment, pays his creditor shall be released from the obligation." Mn S
s v. Yap
,
!m the Court
explained that:Ê

[n]o man is bound to remain a debtor; he may pay to him with whom he contacted to pay; and if he pay
before notice that his debt has been assigned, the law holds him exonerated, for the reason that it is the
duty of the person who has acquired a title by transfer to demand payment of the debt, to give his debt or
notice.
!!Ê

At the time that Delta was first put to notice of the assignment in petitioner's favor on 14 July 1981,
DMC PN No. 2731 had already been discharged by compensation. Since the assignor Philfinance
could not have then compelled payment anew by Delta of DMC PN No. 2731, petitioner, as assignee
of Philfinance, is similarly disabled from collecting from Delta the portion of the Note assigned to him.Ê

Mt bears some emphasis that petitioner could have notified Delta of the assignment or sale was
effected on 9 February 1981. e could have notified Delta as soon as his money market placement
matured on 13 March 1981 without payment thereof being made by Philfinance; at that time,
compensation had yet to set in and discharge DMC PN No. 2731. Again petitioner could have notified
Delta on 26 March 1981 when petitioner received from Philfinance the Denominated Custodianship
Receipt ("DCR") No. 10805 issued by private respondent Pilipinas in favor of petitioner. Petitioner
could, in fine, have notified Delta at any time before the maturity date of DMC PN No. 2731. Because
petitioner failed to do so, and because the record is bare of any indication that Philfinance had itself
notified Delta of the assignment to petitioner, the Court is compelled to uphold the defense of
compensation raised by private respondent Delta. Of course, Philfinance remains liable to petitioner
under the terms of the assignment made by Philfinance to petitioner.Ê

MM.Ê

îe turn now to the relationship between petitioner and private respondent Pilipinas. Petitioner
contends that Pilipinas became solidarily liable with Philfinance and Delta when Pilipinas issued DCR
No. 10805 with the following words:Ê

Upon your written instruction, we [Pilipinas] s all urak physical delivery of the above securities full
ass
g  u ².
!#Ê

The Court is not persuaded. îe find nothing in the DCR that establishes an obligation on the part of
Pilipinas to pay petitioner the amount of P307,933.33 nor any assumption of liability
 sl
um with
Philfinance and Delta under DMC PN No. 2731. îe read the DCR as a confirmation on the part of
Pilipinas that:Ê

(1) it has in its custody, as duly constituted custodian bank, DMC PN No. 2731 of a certain face value, to
mature on 6 April 1981 and payable to the order of Philfinance;Ê

(2) 
l
p
as was, from and after said date of the assignment by Philfinance to petitioner (9 February
1981), l
g  a N   alf a fr   f
 f p

r a las    

 a 
ass
g  p

r  pa 
lf
a;
!
Ê

(3) petitioner may inspect the Note either "personally or by authorized representative", at any time during
regular bank hours; and

(4) up wr

sru
s f p

r 
l
p
as wul p s
all l
vr   DMC N N. 2731 (r a
par

pa
  r
    
 f 307 933.33 "should this Denominated Custodianship receipt remain
outstanding in [petitioner's] favor thirty (30) days after its maturity."

Thus, we find nothing written in printers ink on the DCR which could reasonably be read as
converting Pilipinas into an obligor under the terms of DMC PN No. 2731 assigned to petitioner, either
upon maturity thereof or any other time. îe note that both in his complaint and in his testimony
before the trial court, petitioner referred merely to the obligation of private respondent Pilipinas to
effect the physical delivery to him of DMC PN No. 2731.
!" Accordingly, petitioner's theory that
Pilipinas had assumed a solidary obligation to pay the amount represented by a portion of the Note
assigned to him by Philfinance, appears to be a new theory constructed only after the trial court had
ruled against him. The solidary liability that petitioner seeks to impute Pilipinas cannot, however, be
lightly inferred. Under article 1207 of the Civil Code, "there is a solidary liability only when the law or
the nature of the obligation requires solidarity," The record here exhibits no express assumption of
solidary liability v
sav
s petitioner, on the part of Pilipinas. Petitioner has not pointed to us to any law
which imposed such liability upon Pilipinas nor has petitioner argued that the very nature of the
custodianship assumed by private respondent Pilipinas necessarily implies solidary liability under the
securities, custody of which was taken by Pilipinas. Accordingly, we are unable to hold Pilipinas
solidarily liable with Philfinance and private respondent Delta under DMC PN No. 2731.Ê

îe do not, however, mean to suggest that Pilipinas has no responsibility and liability in respect of
petitioner under the terms of the DCR. To the contrary, we find, after prolonged analysis and
deliberation, that private respondent Pilipinas had breached its undertaking under the DCR to
petitioner Sesbreño.Ê

îe believe and so hold that a contract of deposit was constituted by the act of Philfinance in
designating Pilipinas as custodian or depositary bank. The depositor was initially Philfinance; the
obligation of the depository was owed, however, to petitioner Sesbreño as beneficiary of the
custodianship or depository agreement. îe do not consider that this is a simple case of a stipulation
pur aur
. The custodianship or depositary agreement was established as an integral part of the
money market transaction entered into by petitioner with Philfinance. Petitioner bought a portion of
DMC PN No. 2731; Philfinance as assignor-vendor deposited that Note with Pilipinas in order that the
thing sold would be placed outside the control of the vendor. Mndeed, the constituting of the depositary
or custodianship agreement was equivalent to constructive delivery of the Note (to the extent it had
been sold or assigned to petitioner) to petitioner. Mt will be seen that custodianship agreements are
designed to facilitate transactions in the money market by providing a basis for confidence on the part
of the investors or placers that the instruments bought by them are effectively taken out of the pocket,
as it were, of the vendors and placed safely beyond their reach, that those instruments will be there
available to the placers of funds should they have need of them. The depositary in a contract of
deposit is obliged to return the security or the thing deposited upon demand of the depositor (or, in
the presented case, of the beneficiary) of the contract, even though a term for such return may have
been established in the said contract.
! Accordingly, any stipulation in the contract of deposit or
custodianship that runs counter to the fundamental purpose of that agreement or which was not
brought to the notice of and accepted by the placer-beneficiary, cannot be enforced as against such
beneficiary-placer.Ê

îe believe that the position taken above is supported by considerations of public policy. Mf there is
any party that needs the equalizing protection of the law in money market transactions, it is the
members of the general public whom place their savings in such market for the purpose of generating
interest revenues.
! The custodian bank, if it is not related either in terms of equity ownership or
management control to the borrower of the funds, or the commercial paper dealer, is normally a
preferred or traditional banker of such borrower or dealer (here, Philfinance). The custodian bank
would have every incentive to protect the interest of its client the borrower or dealer as against the
placer of funds. The providers of such funds must be safeguarded from the impact of stipulations
privately made between the borrowers or dealers and the custodian banks, and disclosed to fund-
providers only after trouble has erupted.Ê

Mn the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security deposited
with it when petitioner first demanded physical delivery thereof on 2 April 1981. îe must again note,
in this connection, that on 2 April 1981, DMC PN No. 2731 had  yet matured and therefore,
compensation or offsetting against Philfinance PN No. 143-A had  yet taken place. Mnstead of
complying with the demand of the petitioner, Pilipinas purported to require and await the instructions
of Philfinance, in obvious contravention of its undertaking under the DCR to effect physical delivery of
the Note upon receipt of "written instructions" from p

r Ss r. The ostensible term written
into the DCR (i.e., "should this [DCR] remain outstanding in your favor thirty [30] days after its
maturity") was not a defense against petitioner's demand for physical surrender of the Note on at
least three grounds: firstly, such term was never brought to the attention of petitioner Sesbreño at the
time the money market placement with Philfinance was made; secondly, such term runs counter to
the very purpose of the custodianship or depositary agreement as an integral part of a money market
transaction; and thirdly, it is inconsistent with the provisions of Article 1988 of the Civil Code noted
above. Mndeed, in principle, petitioner became entitled to demand physical delivery of the Note held by
Pilipinas as soon as petitioner's money market placement matured on 13 March 1981 without
payment from Philfinance.Ê

îe conclude, therefore, that private respondent Pilipinas must respond to petitioner for damages
sustained by arising out of its breach of duty. By failing to deliver the Note to the petitioner as
depositor-beneficiary of the thing deposited, Pilipinas effectively and unlawfully deprived petitioner of
the Note deposited with it. îhether or not Pilipinas itself benefitted from such conversion or unlawful
deprivation inflicted upon petitioner, is of no moment for present purposes. r
ma fa
, the damages
suffered by petitioner consisted of P304,533.33, the portion of the DMC PN No. 2731 assigned to
petitioner but lost by him by reason of discharge of the Note by compensation, plus legal interest of
six percent (6%) pr aum containing from 14 March 1981.Ê

The conclusion we have reached is, of course, without prejudice to such right of reimbursement as
Pilipinas may have v
sav
s Philfinance.Ê

MMM.Ê

The third principal contention of petitioner ² that Philfinance and private respondents Delta and
Pilipinas should be treated as one corporate entity ² need not detain us for long.Ê

Mn the first place, as already noted, jurisdiction over the person of Philfinance was never acquired
either by the trial court nor by the respondent Court of Appeals. Petitioner similarly did not seek to
implead Philfinance in the Petition before us.Ê

Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas have been
organized as separate corporate entities. Petitioner asks us to pierce their separate corporate
entities, but has been able only to cite the presence of a common Director ² Mr. Ricardo Silverio,
Sr., sitting on the Board of Directors of all three (3) companies. Petitioner has neither alleged nor
proved that one or another of the three (3) concededly related companies used the other two (2) as
mere alr gs or that the corporate affairs of the other two (2) were administered and managed for
the benefit of one. There is simply not enough evidence of record to justify disregarding the separate
corporate personalities of delta and Pilipinas and to hold them liable for any assumed or
undetermined liability of Philfinance to petitioner.
!)Ê

î
R
FOR
, for all the foregoing, the Decision and Resolution of the Court of Appeals in C.A.-G.R.
CV No. 15195 dated 21 march 1989 and 17 July 1989, respectively, are hereby MODMFM
D and S
T
ASMD
, to the extent that such Decision and Resolution had dismissed petitioner's complaint against
Pilipinas Bank. Private respondent Pilipinas bank is hereby ORD
R
D to indemnify petitioner for
damages in the amount of P304,533.33, plus legal interest thereon at the rate of six percent (6%) pr
aum counted from 2 April 1981. As so modified, the Decision and Resolution of the Court of
Appeals are hereby AFFMRM
D. No pronouncement as to costs.Ê

SO ORD
R
D.Ê





)))
08%,%1
m)
m mÊ

d6
9


petitioner,
vs.




 
9








,-.


respondentsÊ

This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned
of all non-essentials, are easily told.Ê

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.Ê

Mn January 1979, a certain
duardo 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. mÊ

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. !Ê

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. # 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.
Ê

Mn 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.Ê

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.Ê

The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of
Mindoro. " 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:Ê

ACCORDMNGLY, judgment is hereby rendered:Ê

1. Dismissing the complaint with costs against the plaintiff;Ê

2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings and Loan
Association, Mnc. and defendant Spouses Magno Castillo and Lucia Castillo;Ê
 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,
Mnc. and thereafter, to allow defendant Golden Savings and Loan Association, Mnc. to withdraw the amount
outstanding thereon before the debit;Ê

4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Mnc. attorney's fees
and expenses of litigation in the amount of P200,000.00.Ê

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.Ê

SO ORD
R
D.Ê

On appeal to the respondent court,  the decision was affirmed, prompting Metrobank to file this
petition for review on the following grounds:Ê

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.Ê

(a) Metrobank's right to charge back is not limited to instances where the checks or treasury warrants are
forged or unauthorized.Ê

(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.Ê

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
duardo Gomez.Ê

3. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden Savings, the
latter should bear the loss. Ê

4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this case are not
negotiable instruments.Ê

The petition has no merit.Ê

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.
îithout such assurance, Golden Savings would not have allowed the withdrawals; with such
assurance, there was no reason not to allow the withdrawal. Mndeed, 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.Ê

Mt 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. Mt 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.  Mt was only when Metrobank gave the go-signal that Gomez was finally allowed
by Golden Savings to withdraw them from his own account.Ê

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. Mt 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. Mn 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.Ê

By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling ²
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 ² and notwithstanding that it had not received a
single centavo from the proceeds of the treasury warrants, as it now repeatedly stresses ² it allowed
Golden Savings to withdraw ² not once, not twice, but  r
 ² from the ular treasury warrants
in the total amount of P968,000.00Ê

Mts reason? Mt was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance
and it also wanted to "accommodate" a valued client. Mt "presumed" that the warrants had been
cleared simply because of "the lapse of one week." ) For a bank with its long experience, this
explanation is unbelievably naive.Ê

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:Ê

X
l   a
 r
v
g
ms  ps
   ak  l
gas
slf l as   ps
r's ll
g
ag assum
g  rsps

l
  ar
 sl
g rrsps and until such time as actual
payment shall have come into possession of this bank,   r
g 
s rsrv   arg ak   
ps
r's au a amu prv
usl r
 w  r r  su
m
s rur. 
s als
appl
s   ks drawn on local banks and bankers and their branches as well as on this bank, w

ar upa
 u  insufficiency of funds, forgery, unauthorized overdraft or a  r ras. (
mphasis
supplied.)Ê

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." Mt 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.Ê

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. Mndeed, 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. îe 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.Ê

Mn 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 ²Ê
 Art. 1909. ² 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.Ê

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 m
sl 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  r 
ms. 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.Ê

Metrobank's argument that it may recover the disputed amount if the warrants are not paid fr a
ras 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.Ê

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. This was the finding of the lower courts which we see no reason to disturb. And as we
said in MîSS v. Court of Appeals: m(Ê

Forgery cannot be presumed (Siasat, et al. v. MAC, et al., 139 SCRA 238). Mt must be established by clear,
positive and convincing evidence. This was not done in the present case.Ê

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.Ê

The following sections of the Negotiable Mnstruments Law, especially the underscored parts, are
pertinent:Ê

Sec. 1. ² Frm f g
a l
srums. ² An instrument to be negotiable must conform to the

following requirements:Ê

(a) Mt must be in writing and signed by the maker or drawer; Ê

(b) Mus a
 a u

al prm
s r rr  pa a sum ra

 m;Ê

(c) Must be payable on demand, or at a fixed or determinable future time;Ê

(d) Must be payable to order or to bearer; andÊ

(e) îhere the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.Ê
 xxx xxx xxxÊ

Sec. 3. î  prm
s
s u

al. ² An unqualified order or promise to pay is unconditional within

the meaning of this Act though coupled with ²Ê

(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; orÊ

(b) A statement of the transaction which gives rise to the instrument judgment.Ê

Bu a rr r prm
s  pa u f a par
ular fu
s  u

al.Ê

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 Mnstruments Law is
applicable in the case at bar. This conclusion conforms to Abubakar vs. Auditor General mm where the
Court held:Ê

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 Mnstruments Law).Ê

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 Mnstruments 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. Mt 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."Ê

The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Mslands, m! but we
feel this case is inapplicable to the present controversy. 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 Mnter-Msland Gas Services, Mnc. and it did not appear that he was authorized to indorse
it. No similar negligence can be imputed to Golden Savings.Ê

îe find the challenged decision to be basically correct. owever, 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.Ê

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.Ê

î
R
FOR
, the challenged decision is AFFMRM
D, with the modification that Paragraph 3 of the
dispositive portion of the judgment of the lower court shall be reworded as follows:Ê

3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter allowing defendant
Golden Savings & Loan Association, Mnc. to withdraw the amount outstanding thereon, if any, after the
debit.Ê

SO ORD
R
D.Ê

8) G.R. No. L-18103 June 8, 1922Ê

PHILIPPINE NATIONAL BANK,Ê
 

 ÊÊ

Ê
MANILA OIL REFINING & BY-PRODUCTS COMPANY, INC.,Ê   

Ê

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respondents. Ê

Mn this Petition for Review on certiorari petitioner,
quitable Banking Corporation, prays that the
adverse judgment against it rendered by respondent Appellate Court, m dated 4 October 1985, and its
majority Resolution, dated 28 April 1986, denying petitioner's Motion for Reconsideration, !
be
annulled and set aside. Ê

The facts pertinent to this Petition, as summarized by the Trial Court and adopted by reference by
Respondent Appellate Court, emanated from the case entitled "
dward J. Nell Co. vs. Liberato V.
Casals, Casville
nterprises, Mnc., and
quitable Banking Corporation" of the Court of First Mnstance
of Rizal (Civil Case No. 25112), and read: Ê

From the evidence submitted by the parties, the Court finds that sometime in 1975 defendant Liberato
Casals went to plaintiff
dward J. Nell Company and told its senior sales engineer, Amado Claustro that
he was interested in buying one of the plaintiff's garrett skidders. Plaintiff was a dealer of machineries,
equipment and supplies. Defendant Casals represented himself as the majority stockholder, president
and general manager of Casville
nterprises, Mnc., a firm engaged in the large scale production,
procurement and processing of logs and lumber products, which had a plywood plant in Sta. Ana, Metro
Manila. Ê

After defendant Casals talked with plaintiff's sales engineer, he was referred to plaintiffs executive vice-
president, Apolonio Javier, for negotiation in connection with the manner of payment. îhen Javier asked
for cash payment for the skidders, defendant Casals informed him that his corporation, defendant Casville

nterprises, Mnc., had a credit line with defendant
quitable Banking Corporation. Apparently, impressed
with this assertion, Javier agreed to have the skidders paid by way of a domestic letter of credit which
defendant Casals promised to open in plaintiffs favor, in lieu of cash payment. Accordingly, on December
22, 1975, defendant Casville, through its president, defendant Casals, ordered from plaintiff two units of
garrett skidders ... Ê

The purchase order for the garrett skidders bearing No. 0051 and dated December 22, 1975 (
xhibit "A")
contained the following terms and conditions: Ê

Two (2) units GARR
TT Skidders Model 30A complete as basically described in the bulletin Ê

PRMC
: F.O.B. dock Ê

Manila P485,000.00/unit Ê

For two (2) units P970,000.00 Ê

S MPM
NT: îe will inform you the date and name of the vessel as soon as arranged. Ê

T
RMS: By irrevocable domestic letter of credit to be issued in favor of T

DîARD J. N
LL CO. or
ORD
R payable in thirty six (36) months and will be opened within ninety (90) days after date of
shipment. at first installment will be due one hundred eighty (180) days after date of shipment. Mnterest-
14% per annum (
xhibit A) Ê

xxx xxx xxxÊ

... in a letter dated April 21, 1976, defendants Casals and Casville requested from plaintiff the delivery of
one (1) unit of the bidders, complete with tools and cables, to Cagayan de Oro, on or before Saturday,
April 24,1976, on board a Lorenzo shipping vessel, with the information that an irrevocable Domestic
Letter of Credit would be opened in plaintiff's favor on or before June 30, 1976 under the terms and
conditions agreed upon (
xhibit "B") Ê

On May 3, 1976, in compliance with defendant Casvile's recognition request, plaintiff shipped to Cagayan
de Oro City a Garrett skidder. Plaintiff paid the shipping cost in the amount of P10,640.00 because of the
verbal assurance of defendant Casville that it would be covered by the letter of credit soon to be opened. Ê

xxx xxx xxxÊ

On July 15, 1976, defendant Casals handed to plaintiff a check in the amount of P300,000.00 postdated
August 4, 1976, which was followed by another check of same date. Plaintiff considered these checks
either as partial payment for the skidder that was already delivered to Cagayan de Oro or as
reimbursement for the marginal deposit that plaintiff was supposed to pay. Ê

Mn a letter dated August 3, 1976 (
xhibit "C"), defendants Casville informed the plaintiff that their
application for a letter of credit for the payment of the Garrett skidders had been approved by the

quitable Banking Corporation. owever, the defendants said that they would need the sum of
P300,000.00 to stand as collateral or marginal deposit in favor of
quitable Banking Corporation and an
additional amount of P100,000.00, also in favor of
quitable Banking Corporation, to clear the title of the

strada property belonging to defendant Casals which had been approved as security for the trust
receipts to be issued by the bank, covering the above-mentioned equipment. Ê

Although the marginal deposit was supposed to be produced by defendant Casville
nterprises, plaintiff
agreed to advance the necessary amount in order to facilitate the transaction. Accordingly, on August
5,1976, plaintiff issued a check in the amount of P400,000.00 (
xhibit "2") drawn against the First
National City Bank and made payable to the order of
quitable Banking Corporation and with the
following notation or memorandum: Ê

a/c of Casville
nterprises Mnc. for Marginal deposit and payment of balance on
strada
Property to be used as security for trust receipt for opening L/C of Garrett Skidders in
favor of the
dward J. Nell Co." Said check together with the cash disbursement voucher
(
xhibit "2-A") containing the explanation: Ê

Payment for marginal deposit and other expenses re opening of L/C for account of
Casville
nt..Ê

A covering letter (
xhibit "3") was also sent and when the three documents were presented to Severino
Santos, executive vice president of defendant bank, Santos did not accept them because the terms and
conditions required by the bank for the opening of the letter of credit had not yet been agreed on. Ê

On August 9, 1976, defendant Casville wrote the bank applying for two letters of credit to cover its
purchase from plaintiff of two Garrett skidders, under the following terms and conditions: Ê

a) On sight Letter of Credit for P485,000.00; b) One 36 months Letter of Credit for P606,000.00; c)
P300,000.00 CAS marginal deposit1 d) Real
state Collateral to secure the Trust Receipts; e) îe shall
chattel mortgage the equipments purchased even after payment of the first L/C as additional security for
the balance of the second L/C and f) Other conditions you deem necessary to protect the interest of the
bank." Ê

Mn a letter dated August 11, 1976 (
xhibit "D-l"), defendant bank replied stating that it was ready to open
the letters of credit upon defendant's compliance of the following terms and conditions: Ê

c) 30% cash margin deposit; d) Acceptable Real
state Collateral to secure the Trust Receipts; e) Chattel
Mortgage on the equipment; and Ashville f) Other terms and conditions that our bank may impose.Ê

Defendant Casville sent a copy of the foregoing letter to the plaintiff enclosing three postdated checks. Mn
said letter, plaintiff was informed of the requirements imposed by the defendant bank pointing out that the
"cash marginal required under paragraph (c) is 30% of Pl,091,000.00 or P327,300.00 plus another
P100,000.00 to clean up the
strada property or a total of P427,300.00" and that the check covering said
amount should be made payable "to the Order of
UMTABL
BANKMNG CORPORATMON for the
account of Casville
nterprises Mnc." Defendant Casville also stated that the three (3) enclosed postdated
checks were intended as replacement of the checks that were previously issued to plaintiff to secure the
sum of P427,300.00 that plaintiff would advance to defendant bank for the account of defendant Casville.
All the new checks were postdated November 19, 1976 and drawn in the sum of Pl45,500.00 (
xhibit
"F"), P181,800.00 (
xhibit "G") and P100,000.00 (
xhibit " "). Ê

On the same occasion, defendant Casals delivered to plaintiff TCT No. 11891 of the Register of Deeds of
uezon City and TCT No. 50851 of the Register of Deeds of Rizal covering two pieces of real estate
properties. Ê

Subsequently, Cesar Umali, plaintiffs credit and collection manager, accompanied by a representative of
defendant Casville, went to see Severino Santos to find out the status of the credit line being sought by
defendant Casville. Santos assured Umali that the letters of credit would be opened as soon as the
requirements imposed by defendant bank in its letter dated August 11, 1976 had been complied with by
defendant Casville. Ê

On August 16, 1976, plaintiff issued a check for P427,300.00, payable to the "order of
UMTABL

BANKMNG CORPORATMON A/C CASVMLL

NT
RPRMS
S, MNC." and drawn against the first National
City Bank (
xhibit "
-l"). The check did not contain the notation found in the previous check issued by the
plaintiff (
xhibit "2") but the substance of said notation was reproduced in a covering letter dated August
16,1976 that went with the check (
xhibit "
"). ra1àw> Both the check and the covering letter were
sent to defendant bank through defendant Casals. Plaintiff entrusted the delivery of the check and the
latter to defendant Casals because it believed that no one, including defendant Casals, could encash the
same as it was made payable to the defendant bank alone. Besides, defendant Casals was known to the
bank as the one following up the application for the letters of credit. Ê

Upon receiving the check for P427,300.00 entrusted to him by plaintiff defendant Casals immediately
deposited it with the defendant bank and the bank teller accepted the same for deposit in defendant
Casville's checking account. After depositing said check, defendant Casville, acting through defendant
Casals, then withdrew all the amount deposited. Ê

Meanwhile, upon their presentation for encashment, plaintiff discovered that the three checks (
xhibits "F,
"G" and " ") in the total amount of P427,300.00, that were issued by defendant Casville as collateral were
all dishonored for having been drawn against a closed account.Ê

As defendant Casville failed to pay its obligation to defendant bank, the latter foreclosed the mortgage
executed by defendant Casville on the
strada property which was sold in a public auction sale to a third
party. Ê

Plaintiff allowed some time before following up the application for the letters of credit knowing that it took
time to process the same. owever, when the three checks issued to it by defendant Casville were
dishonored, plaintiff became apprehensive and sent Umali on November 29, 1976, to inquire about the
status of the application for the letters of credit. îhen plaintiff was informed that no letters of credit were
opened by the defendant bank in its favor and then discovered that defendant Casville had in the
meanwhile withdrawn the entire amount of P427,300.00, without paying its obligation to the bank plaintiff
filed the instant action. Ê
 îhile the the instant case was being tried, defendants Casals and Casville assigned the garrett skidder to
plaintiff which credited in favor of defendants the amount of P450,000.00, as partial satisfaction of
plaintiff's claim against them. Ê

Defendants Casals and Casville hardly disputed their liability to plaintiff. Not only did they show lack of
interest in disputing plaintiff's claim by not appearing in most of the hearings, but they also assigned to
plaintiff the garrett skidder which is an action of clear recognition of their liability. Ê

îhat is left for the Court to determine, therefore, is only the liability of defendant bank to plaintiff. Ê

xxx xxx xxxÊ

Resolving that issue, the Trial Court rendered judgment, affirmed by Respondent Court in toto, the
pertinent portion of which reads: Ê

xxx xxx xxxÊ

Defendants Casals and Casville
nterprises and
quitable Banking Corporation are ordered to pay
plaintiff, jointly and severally, the sum of P427,300.00, representing the amount of plaintiff's check which
defendant bank erroneously credited to the account of defendant Casville and which defendants Casal
and Casville misappropriated, with 12% interest thereon from April 5, 1977, until the said sum is fully paid. Ê

Defendant
quitable Banking Corporation is ordered to pay plaintiff attorney's fees in the sum of
P25,000.00 .Ê

Proportionate cost against all the defendants. Ê

SO ORD
R
D. Ê

The crucial issue to resolve is whether or not petitioner
quitable Banking Corporation (briefly, the
Bank) is liable to private respondent
dward J. Nell Co. (N
LL, for short) for the value of the second
check issued by N
LL,
xhibit "
-l," which was made payable Ê

to the order of
UMTABL
Ashville BANMUNG CORPORATMON A/C OF CASVMLL

NT
RPRMS
S MNC. Ê

and which the Bank teller credited to the account of Casville. Ê

The Trial Court found that the amount of the second check had been erroneously credited to the
Casville account; held the Bank liable for the mistake of its employees; and ordered the Bank to pay
N
LL the value of the check in the sum of P427,300.00, with legal interest.
xplained the Trial Court: Ê

The Court finds that the check in question was payable only to the defendant bank and to no one else.
Although the words "A/C OF CASVMLL

NT
RPRMS
S MNC. "appear on the face of the check after or
under the name of defendant bank, the payee was still the latter. The addition of said words did not in any
way make Casville
nterprises, Mnc. the Payee of the instrument for the words merely indicated for whose
account or in connection with what account the check was issued by the plaintiff. Ê

Mndeed, the bank teller who received it was fully aware that the check was not negotiable since he
stamped thereon the words "NON-N
GOTMABL
For Payee's Account Only" and "NON-N
GOTMABL

T
LL
R NO. 4, August 17,1976
UMTABL
BANKMNG CORPORATMON. Ê

But said teller should have exercised more prudence in the handling of Md check because it was not made
out in the usual manner. The addition of the words A/C OF CASVMLL

NT
RPRMS
S MNC." should have
placed the teller on guard and he should have clarified the matter with his superiors. Mnstead of doing so,
however, the teller decided to rely on his own judgment and at the risk of making a wrong decision,
credited the entire amount in the name of defendant Casville although the latter was not the payee named
 in the check. Such mistake was crucial and was, without doubt, the proximate cause of plaintiffs
defraudation. Ê

xxx xxx xxxÊ

Respondent Appellate Court upheld the above conclusions stating in addition: Ê

1) The appellee made the subject check payable to appellant's order, for the account of Casville

nterprises, Mnc. Mn the light of the other facts, the directive was for the appellant bank to apply the value
of the check as payment for the letter of credit which Casville
nterprises, Mnc. had previously applied for
in favor of the appellee (
xhibit D-1, p. 5). The issuance of the subject check was precisely to meet the
bank's prior requirement of payment before issuing the letter of credit previously applied for by Casville

nterprises in favor of the appellee; Ê

xxx xxx xxxÊ

îe disagree. Ê

1) The subject check was equivocal and patently ambiguous. By making the check read: Ê

Pay to the
UMTABL
BANKMNG CORPORATMON Order of A/C OF CASVMLL

NT
RPRMS
S, MNC. Ê

the payee ceased to be indicated with reasonable certainty in contravention of Section 8 of the
Negotiable Mnstruments Law. # As worded, it could be accepted as deposit to the account of the party
named after the symbols "A/C," or payable to the Bank as trustee, or as an agent, for Casville

nterprises, Mnc., with the latter being the ultimate beneficiary. That ambiguity is to be taken ra
prfrm that is, construed against N
LL who caused the ambiguity and could have also avoided
it by the exercise of a little more care. Thus, Article 1377 of the Civil Code, provides: Ê

Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity.Ê

2) Contrary to the finding of respondent Appellate Court, the subject check was, initially, not non-
negotiable. Neither was it a crossed check. The rubber-stamping transversall on the face of the
subject check of the words "Non-negotiable for Payee's Account Only" between two (2) parallel lines,
and "Non-negotiable, Teller- No. 4, August 17, 1976," separately boxed, was made only by the Bank
teller in accordance with customary bank practice, and not by N
LL as the drawer of the check, and
simply meant that thereafter the same check could no longer be negotiated. Ê

3) N
LL's own acts and omissions in connection with the drawing, issuance and delivery of the 16
August 1976 check,
xhibit "
-l," and its implicit trust in Casals, were the proximate cause of its own
defraudation: (a) The original check of 5 August 1976,
xhibit "2," was payable to the order solely of
"
quitable Banking Corporation." N
LL changed the payee in the subject check,
xhibit "
",
however, to "
quitable Banking Corporation, A/C of Casville
nterprises Mnc.," upon Casals request.
N
LL also eliminated both the cash disbursement voucher accompanying the check which read: Ê

Payment for marginal deposit and other expense re opening of L/C for account of Casville
nterprises.Ê

and the memorandum: Ê

a/c of Casville
nterprises Mnc. for Marginal deposit and payment of balance on
strada Property to be
used as security for trust receipt for opening L/C of Garrett Skidders in favor of the
dward Ashville J Nell
Co. Ê

videncing the real nature of the transaction was merely a separate covering letter, dated 16 August
1976, which Casals, sinisterly enough, suppressed from the Bank officials and teller. Ê

(b) N
LL entrusted the subject check and its covering letter,
xhibit "
," to Casals who, obviously,
had his own antagonistic interests to promote. Thus it was that Casals did not purposely present the
subject check to the
xecutive Vice-President of the Bank, who was aware of the negotiations
regarding the Letter of Credit, and who had rejected the previous check,
xhibit "2," including its three
documents because the terms and conditions required by the Bank for the opening of the Letter of
Credit had not yet been agreed on. Ê

(c) N
LL was extremely accommodating to Casals. Thus, to facilitate the sales transaction, N
LL
even advanced the marginal deposit for the garrett skidder. Mt is, indeed, abnormal for the seller of
goods, the price of which is to be covered by a letter of credit, to advance the marginal deposit for the
same. Ê

(d) N
LL had received three (3) postdated checks all dated 16 November, 1976 from Casvine to
secure the subject check and had accepted the deposit with it of two (2) titles of real properties as
collateral for said postdated checks. Thus, N
LL was erroneously confident that its interests were
sufficiently protected. Never had it suspected that those postdated checks would be dishonored, nor
that the subject check would be utilized by Casals for a purpose other than for opening the letter of
credit. Ê

Mn the last analysis, it was N
LL's own acts, which put it into the power of Casals and Casville

nterprises to perpetuate the fraud against it and, consequently, it must bear the loss (Blondeau, et
al., vs. Nano, et al., 61 Phil. 625 [1935]; Sta. Maria vs. ongkong and Shanghai Banking Corporation,
89 Phil. 780 [1951]; Republic of the Philippines vs.
quitable Banking Corporation, L-15895, January
30,1964, 10 SCRA 8). Ê

... As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the
one who made it possible by his act of confidence must bear the loss. Ê

î
R
FOR
, the Petition is granted and the Decision of respondent Appellate Court, dated 4
October 1985, and its majority Resolution, dated 28 April 1986, denying petitioner's Motion for
Reconsideration, are hereby S
T ASMD
. The Decision of the then Court of First Mnstance of Rizal,
Branch M. is modified in that petitioner
quitable Banking Corporation is absolved from any and all
liabilities to the private respondent,
dward J. Nell Company, and the Amended Complaint against
petitioner bank is hereby ordered dismissed. No costs. Ê

SO ORD
R
D.Ê

10) ANG TEK LIAN V. CA

87 PHIL 383
ÊÊ
FACTS:
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mm



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m
,%34

m #Ê

 
d6

;
plaintiff-petitioner,

vs.

*
,-.<%

6
+

+








,-.

d6

+
+
defendants-
respondents.Ê

On July 6, 1986, the Development Bank of Rizal (petitioner Bank for brevity) filed a complaint for a
sum of money against respondents Sima îei and/or Lee Kian uat, Mary Cheng Uy, Samson Tung,
Asian Mndustrial Plastic Corporation (Plastic Corporation for short) and the Producers Bank of the
Philippines, on two causes of action:Ê
 (1) To enforce payment of the balance of P1,032,450.02 on a promissory note executed by respondent
Sima îei on June 9, 1983; andÊ

(2) To enforce payment of two checks executed by Sima îei, payable to petitioner, and drawn against
the China Banking Corporation, to pay the balance due on the promissory note.Ê

xcept for Lee Kian uat, defendants filed their separate Motions to Dismiss alleging a common
ground that the complaint states no cause of action. The trial court granted the defendants' Motions to
Dismiss. The Court of Appeals affirmed this decision,  to which the petitioner Bank, represented by
its Legal Liquidator, filed this Petition for Review by Cr
rar
, assigning the following as the alleged
errors of the Court of Appeals:
mÊ

(1) T
COURT OF APP
ALS
RR
D MN OLDMNG T AT T
PLAMNTMFF-P
TMTMON
R AS NO

CAUS
OF ACTMON AGAMNST D
F
NDANTS-R
SPOND
NTS
R
MN.Ê

(2) T
COURT OF APP
ALS
RR
D MN OLDMNG T AT S
CTMON 13, RUL
3 OF T
R
VMS
D

RUL
S OF COURT ON ALT
RNATMV
D
F
NDANTS MS NOT APPLMCABL
TO
R
MN
D
F
NDANTS-R
SPOND
NTS.Ê

The antecedent facts of this case are as follows:Ê

Mn consideration for a loan extended by petitioner Bank to respondent Sima îei, the latter executed
and delivered to the former a promissory note, engaging to pay the petitioner Bank or order the
amount of P1,820,000.00 on or before June 24, 1983 with interest at 32% pr aum. Sima îei
made partial payments on the note, leaving a balance of P1,032,450.02. On November 18, 1983,
Sima îei issued two crossed checks payable to petitioner Bank drawn against China Banking
Corporation, bearing respectively the serial numbers 384934, for the amount of P550,000.00 and
384935, for the amount of P500,000.00. The said checks were allegedly issued in full settlement of
the drawer's account evidenced by the promissory note. These two checks were not delivered to the
petitioner-payee or to any of its authorized representatives. For reasons not shown, these checks
came into the possession of respondent Lee Kian uat, who deposited the checks without the
petitioner-payee's indorsement (forged or otherwise) to the account of respondent Plastic
Corporation, at the Balintawak branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch
Manager of the Balintawak branch of Producers Bank, relying on the assurance of respondent
Samson Tung, President of Plastic Corporation, that the transaction was legal and regular, instructed
the cashier of Producers Bank to accept the checks for deposit and to credit them to the account of
said Plastic Corporation, inspite of the fact that the checks were crossed and payable to petitioner
Bank and bore no indorsement of the latter. ence, petitioner filed the complaint as aforestated.Ê

The main issue before Us is whether petitioner Bank has a cause of action against any or all of the
defendants, in the alternative or otherwise.Ê

A cause of action is defined as an act or omission of one party in violation of the legal right or rights of
another. The essential elements are: (1) legal right of the plaintiff; (2) correlative obligation of the
defendant; and (3) an act or omission of the defendant in violation of said legal right.
!Ê

The normal parties to a check are the drawer, the payee and the drawee bank. Courts have long
recognized the business custom of using printed checks where blanks are provided for the date of
issuance, the name of the payee, the amount payable and the drawer's signature. All the drawer has
to do when he wishes to issue a check is to properly fill up the blanks and sign it. owever, the mere
fact that he has done these does not give rise to any liability on his part, until and unless the check is
delivered to the payee or his representative. A negotiable instrument, of which a check is, is not only
a written evidence of a contract right but is also a species of property. Just as a deed to a piece of
land must be delivered in order to convey title to the grantee, so must a negotiable instrument be
delivered to the payee in order to evidence its existence as a binding contract. Section 16 of the
Negotiable Mnstruments Law, which governs checks, provides in part:Ê

very contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for
the purpose of giving effect thereto. . . .Ê

Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery
to him.
# Delivery of an instrument means transfer of possession, actual or constructive, from one
person to another.

îithout the initial delivery of the instrument from the drawer to the payee, there
can be no liability on the instrument. Moreover, such delivery must be intended to give effect to the
instrument.Ê

The allegations of the petitioner in the original complaint show that the two (2) China Bank checks,
numbered 384934 and 384935, were not delivered to the payee, the petitioner herein. îithout the
delivery of said checks to petitioner-payee, the former did not acquire any right or interest therein and
cannot therefore assert any cause of action, fu  sa
  ks, whether against the drawer
Sima îei or against the Producers Bank or any of the other respondents.Ê

Mn the original complaint, petitioner Bank, as plaintiff, sued respondent Sima îei on the promissory
note, and the alternative defendants, including Sima îei, on the two checks. On appeal from the
orders of dismissal of the Regional Trial Court, petitioner Bank alleged that its cause of action was not
based on collecting the sum of money evidenced by the negotiable instruments stated but on quas

l
 ² a claim for damages on the ground of fraudulent acts and evident bad faith of the alternative
respondents. This was clearly an attempt by the petitioner Bank to change not only the theory of its
case but the basis of his cause of action. Mt is well-settled that a party cannot change his theory on
appeal, as this would in effect deprive the other party of his day in court.
"Ê

Notwithstanding the above, it does not necessarily follow that the drawer Sima îei is freed from
liability to petitioner Bank under the loan evidenced by the promissory note agreed to by her. er
allegation that she has paid the balance of her loan with the two checks payable to petitioner Bank
has no merit for, as îe have earlier explained, these checks were never delivered to petitioner Bank.
And even granting, without admitting, that there was delivery to petitioner Bank, the delivery of checks
in payment of an obligation does not constitute payment unless they are cashed or their value is
impaired through the fault of the creditor.
 None of these exceptions were alleged by respondent
Sima îei.Ê

Therefore, unless respondent Sima îei proves that she has been relieved from liability on the
promissory note by some other cause, petitioner Bank has a right of action against her for the
balance due thereon.Ê

owever, insofar as the other respondents are concerned, petitioner Bank has no privity with them.
Since petitioner Bank never received the checks on which it based its action against said
respondents, it never owned them (the checks) nor did it acquire any interest therein. Thus, anything
which the respondents may have done with respect to said checks could not have prejudiced
petitioner Bank. Mt had no right or interest in the checks which could have been violated by said
respondents. Petitioner Bank has therefore no cause of action against said respondents, in the
alternative or otherwise. Mf at all, it is Sima îei, the drawer, who would have a cause of action against
her
co-respondents, if the allegations in the complaint are found to be true.Ê
îith respect to the second assignment of error raised by petitioner Bank regarding the applicability of
Section 13, Rule 3 of the Rules of Court, îe find it unnecessary to discuss the same in view of Our
finding that the petitioner Bank did not acquire any right or interest in the checks due to lack of
delivery. Mt therefore has no cause of action against the respondents, in the alternative or otherwise.Ê

Mn the light of the foregoing, the judgment of the Court of Appeals dismissing the petitioner's complaint
is AFFMRM
D insofar as the second cause of action is concerned. On the first cause of action, the
case is R
MAND
D to the trial court for a trial on the merits, consistent with this decision, in order to
determine whether respondent Sima îei is liable to the Development Bank of Rizal for any amount
under the promissory note allegedly signed by her.Ê

SO ORD
R
D.Ê



m!



#(#
030=80%
!m
m !Ê

d

d6
petitioner, vs.




,-.


respondents.Ê

This is an appeal by way of a Petition for Review on Cr
rar
from the decision 
of the Court of
Appeals in CA G.R. CV No. 07302, entitled "Republic Planters Bank.Plaintiff-Appellee vs. Pinch
Manufacturing Corporation, et al., Defendants, and Fermin Canlas, Defendant-Appellant", which
affirmed the decision 
in Civil Case No. 82-5448 except that it completely absolved Fermin Canlas
from liability under the promissory notes and reduced the award for damages and attorney's fees. The
RTC decision, rendered on June 20, 1985, is quoted hereunder:Ê

î
R
FOR
, premises considered, judgment is hereby rendered in favor of the plaintiff Republic
Planters Bank, ordering defendant Pinch Manufacturing Corporation (formerly îorldwide Garment
Manufacturing, Mnc.) and defendants Shozo Yamaguchi and Fermin Canlas to pay, jointly and severally,
the plaintiff bank the following sums with interest thereon at 16% per annum from the dates indicated, to
wit:Ê

Under the promissory note (
xhibit "A"), the sum of P300,000.00 with interest from January 29, 1981 until
fully paid; under promissory note (
xhibit "B"), the sum of P40,000.00 with interest from November 27,
1980; under the promissory note (
xhibit "C"), the sum of P166,466.00 which interest from January 29,
1981; under the promissory note (
xhibit "
"), the sum of P86,130.31 with interest from January 29, 1981;
under the promissory note (
xhibit "G"), the sum of P12,703.70 with interest from November 27, 1980;
under the promissory note (
xhibit " "), the sum of P281,875.91 with interest from January 29, 1981; and
under the promissory note (
xhibit "M"), the sum of P200,000.00 with interest from January 29, 1981.Ê

Under the promissory note (
xhibit "D") defendants Pinch Manufacturing Corporation (formerly named
îorldwide Garment Manufacturing, Mnc.), and Shozo Yamaguchi are ordered to pay jointly and severally,
the plaintiff bank the sum of P367,000.00 with interest of 16% per annum from January 29, 1980 until fully
paid Ê

Under the promissory note (
xhibit "F") defendant corporation Pinch (formerly îorldwide) is ordered to
pay the plaintiff bank the sum of P140,000.00 with interest at 16% per annum from November 27, 1980
until fully paid.Ê

Defendant Pinch (formely îorldwide) is hereby ordered to pay the plaintiff the sum of P231,120.81 with
interest at 12% per annum from July 1, 1981, until fully paid and the sum of P331,870.97 with interest
from March 28, 1981, until fully paid.Ê

All the defendants are also ordered to pay, jointly and severally, the plaintiff the sum of P100,000.00 as
and for reasonable attorney's fee and the further sum equivalent to 3% per annum of the respective
principal sums from the dates above stated as penalty charge until fully paid, plus one percent (1%) of the
principal sums as service charge.Ê

îith costs against the defendants.Ê

m
SO ORD
R
D.
Ê

From the above decision only defendant Fermin Canlas appealed to the then Mntermediate Court (now
the Court Appeals). is contention was that inasmuch as he signed the promissory notes in his
capacity as officer of the defunct îorldwide Garment Manufacturing, Mnc, he should not be held
personally liable for such authorized corporate acts that he performed. Mt is now the contention of the
petitioner Republic Planters Bank that having unconditionally signed the nine (9) promissory notes
with Shozo Yamaguchi, jointly and severally, defendant Fermin Canlas is solidarity liable with Shozo
Yamaguchi on each of the nine notes.Ê

îe find merit in this appeal.Ê

From the records, these facts are established: Defendant Shozo Yamaguchi and private respondent
Fermin Canlas were President/Chief Operating Officer and Treasurer respectively, of îorldwide
Garment Manufacturing, Mnc.. 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
xhibits A to M
inclusive, each of which were uniformly worded in the following manner:Ê

___________, after date, for value received, M/we, jointly and severaMly promise to pay to the ORD
R of
the R
PUBLMC PLANT
RS BANK, at its office in Manila, Philippines, the sum of ___________
P
SOS(....) Philippine Currency... Ê

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: Ê

________ Savings Account ______ Current Account Ê

No. 1372-00257-6Ê

of îORLDîMD
GARM
NT MFG. CORP.Ê

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

Mn the promissory notes marked as
xhibits C, D and F, the name îorldwide Garment Manufacturing,
Mnc. was apparently rubber stamped above the signatures of defendant and private respondent.Ê

On December 20, 1982, îorldwide Garment Manufacturing, Mnc. noted to change its corporate name
to Pinch Manufacturing Corporation. Ê

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 îorldwide Garment Manufacturing, Mnc.

r al
a, but it was later amended to drop îorldwide Manufacturing, Mnc. 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 îorldwide Garment Manufacturing,
Mnc., and that when he issued said promissory notes in behalf of îorldwide Garment Manufacturing,
Mnc., the same were in blank, the typewritten entries not appearing therein prior to the time he affixed
his signature.Ê
Mn the mind of this Court, the only issue material to the resolution of this appeal is whether private
respondent Fermin Canlas is solidarily liable with the other defendants, namely Pinch Manufacturing
Corporation and Shozo Yamaguchi, on the nine promissory notes.Ê

îe hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes
bearing his signature for the following reasons: Ê

The promissory motes are negotiable instruments and must be governed by the Negotiable
Mnstruments Law. !
Ê

Under the Negotiable lnstruments 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.Ê

îhere an instrument containing the words "M 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 "M" ,îe" , or
"
ither 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.Ê

Mn 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 note 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 obligation 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.
By making a joint and several promise to pay to the order of Republic Planters
Bank, private respondent Fermin Canlas assumed the solidary liability of a debtor and the payee may
choose to enforce the notes against him alone or jointly with Yamaguchi and Pinch Manufacturing
Corporation as solidary debtors.Ê

As to whether the interpolation of the phrase "and (in) his personal capacity" below the signatures of
the makers in the notes will affect the liability of the makers, îe do not find it necessary to resolve
and decide, because it is immaterial and will not affect to the liability of private respondent Fermin
Canlas as a joint and several debtor of the notes. îith or without the presence of said phrase, private
respondent Fermin Canlas is primarily liable as a co-maker of each of the notes and his liability is that
of a solidary debtor.Ê

Finally, the respondent Court made a grave error in holding that an amendment in a corporation's
Articles of Mncorporation effecting a change of corporate name, in this case from îorldwide Garment
manufacturing Mnc to Pinch Manufacturing Corporation extinguished the personality of the original
corporation. Ê

The corporation, upon such change in its name, is in no sense a new corporation, nor the successor
of the original corporation. Mt is the same corporation with a different name, and its character is in no
respect changed.
m( Ê
A change in the corporate name does not make a new corporation, and whether effected by special
act or under a general law, has no affect on the identity of the corporation, or on its property, rights, or
l
a
l

s. mm
Ê

The corporation continues, as before, responsible in its new name for all debts or other liabilities
which it had previously contracted or incurred.
m!
Ê

As a general rule, officers or directors under the old corporate name bear no personal liability for acts
done or contracts entered into by officers of the corporation, if duly authorized. Mnasmuch as such
officers acted in their capacity as agent of the old corporation and the change of name meant only the
continuation of the old juridical entity, the corporation bearing the same name is still bound by the
acts of its agents if authorized by the Board. Under the Negotiable Mnstruments Law, the liability of a
person signing as an agent is specifically provided for as follows:Ê

Sec. 20. {
a
l
 f a prs s
g
g as ag a s fr . îhere the instrument contains or a person
adds to his signature words indicating that he signs for or on behalf of a principal , or in a representative
capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words
describing him as an agent, or as filling a representative character, without disclosing his principal, does
not exempt him from personal liability.Ê

îhere the agent signs his name but nowhere in the instrument has he disclosed the fact that he is
acting in a representative capacity or the name of the third party for whom he might have acted as
agent, the agent is personally liable to take holder of the instrument and cannot be permitted to prove
that he was merely acting as agent of another and parol or extrinsic evidence is not admissible to
avoid the agent's personal liability. m#
Ê

On the private respondent's contention that the promissory notes were delivered to him in blank for
his signature, we rule otherwise. A careful examination of the notes in question shows that they are
the stereotype printed form of promissory notes generally used by commercial banking institutions to
be signed by their clients in obtaining loans. Such printed notes are incomplete because there are
blank spaces to be filled up on material particulars such as payee's name, amount of the loan, rate of
interest, date of issue and the maturity date. The terms and conditions of the loan are printed on the
note for the borrower-debtor 's perusal. An incomplete instrument which has been delivered to the
borrower for his signature is governed by Section 14 of the Negotiable Mnstruments Law which
provides, in so far as relevant to this case, thus:Ê

Sec. 14. Blaks: w  ma  f
ll. ² îhere the instrument is wanting in any material particular, the
person in possesion thereof has a pr
ma fa
 authority to complete it by filling up the blanks therein. ... Mn
order, however, that any such instrument when completed may be enforced against any person who
became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority
given and within a reasonable time... Ê

Proof that the notes were signed in blank was only the self-serving testimony of private respondent
Fermin Canlas, as determined by the trial court, so that the trial court ''doubts the defendant (Canlas)
signed in blank the promissory notes". îe chose to believe the bank's testimony that the notes were
filled up before they were given to private respondent Fermin Canlas and defendant Shozo
Yamaguchi for their signatures as joint and several promissors. For signing the notes above their
typewritten names, they bound themselves as unconditional makers. îe take judicial notice of the
customary procedure of commercial banks of requiring their clientele to sign promissory notes
prepared by the banks in printed form with blank spaces already filled up as per agreed terms of the
loan, leaving the borrowers-debtors to do nothing but read the terms and conditions therein printed
and to sign as makers or co-makers. îhen the notes were given to private respondent Fermin
Canlas for his signature, the notes were complete in the sense that the spaces for the material
particular had been filled up by the bank as per agreement. The notes were not incomplete
instruments; neither were they given to private respondent Fermin Canlas in blank as he claims.
Thus, Section 14 of the NegotiabMe Mnstruments Law is not applicable.Ê

The ruling in case of ©frm
a vs. ml relied upon by the appellate court in reducing the interest
rate on the promissory notes from 16% to 12% per annum does not squarely apply to the instant
petition. Mn the abovecited case, the rate of 12% was applied to forebearances of money, goods or
credit and court judgemets thereon, only in the absence of any stipulation between the parties. Ê

Mn the case at bar however , it was found by the trial court that the rate of interest is 9% per annum,
which interest rate the plaintiff may at any time without notice, raise within the limits allowed law. And
so, as of February 16, 1984 , the plaintiff had fixed the interest at 16% per annum.Ê

This Court has held that the rates under the Usury Law, as amended by Presidential Decree No. 116,
are applicable only to interests by way of compensation for the use or forebearance of money. Article
2209 of the Civil Code, on the other hand, governs interests by way of damages.
m"
This fine
distinction was not taken into consideration by the appellate court, which instead made a general
statement that the interest rate be at 12% per annum. Ê

Mnasmuch as this Court had declared that increases in interest rates are not subject to any ceiling
prescribed by the Usury Law, the appellate court erred in limiting the interest rates at 12% per annum.
Central Bank Circular No. 905, Series of 1982 removed the Usury Law ceiling on interest rates. m
Ê

Mn the 1ight of the foregoing analysis and under the plain language of the statute and jurisprudence on
the matter, the decision of the respondent: Court of Appeals absolving private respondent Fermin
Canlas is R
V
RS
D and S
T ASMD
. Judgement is hereby rendered declaring private respondent
Fermin Canlas jointly and severally liable on all the nine promissory notes with the following sums
and at 16% interest per annum from the dates indicated, to wit:Ê

Under the promissory note marked as exhibit A, the sum of P300,000.00 with interest from January
29, 1981 until fully paid; under promissory note marked as
xhibit B, the sum of P40,000.00 with
interest from November 27, 1980: under the promissory note denominated as
xhibit C, the amount
of P166,466.00 with interest from January 29, 1981; under the promissory note denominated as

xhibit D, the amount of P367,000.00 with interest from January 29, 1981 until fully paid; under the
promissory note marked as
xhibit
, the amount of P86,130.31 with interest from January 29, 1981;
under the promissory note marked as
xhibit F, the sum of P140,000.00 with interest from November
27, 1980 until fully paid; under the promissory note marked as
xhibit G, the amount of P12,703.70
with interest from November 27, 1980; the promissory note marked as
xhibit , the sum of
P281,875.91 with interest from January 29, 1981; and the promissory note marked as
xhibit M, the
sum of P200,000.00 with interest on January 29, 1981.Ê

The liabilities of defendants Pinch Manufacturing Corporation (formerly îorldwide Garment

Manufacturing, Mnc.) and Shozo Yamaguchi, for not having appealed from the decision of the trial
court, shall be adjudged in accordance with the judgment rendered by the Court a qu.Ê

îith respect to attorney's fees, and penalty and service charges, the private respondent Fermin
Canlas is hereby held jointly and solidarity liable with defendants for the amounts found, by the Court
a qu. îith costs against private respondent. So Ordered. Ê

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<|Ê|%7-%-7Ê

c
 Ê
February 03, 1911Ê
Ê
THE NEGOTIABLE INSTRUMENTS LAWÊ
Ê
I. FORM AND INTERPRETATIONÊ
ÊÊ
Section 1. "
  
  
  An instrument to be negotiable must
conform to the following requirements:ÊÊ

(a) It must be in writing and signed by the maker or drawer;ÊÊ

ÊÊ
(b) Must contain an unconditional promise or order to pay a sum certain in
money;ÊÊ
ÊÊ
(c) Must be payable on demand, or at a fixed or determinable future time;ÊÊ
ÊÊ
(d) Must be payable to order or to bearer; andÊÊ
ÊÊ
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.ÊÊ

Sec. 2. î
    


   - The sum payable is a sum certain
within the meaning of this Act, although it is to be paid:ÊÊ

(a) with interest; orÊÊ

ÊÊ
(b) by stated installments; orÊÊ
ÊÊ
(c) by stated installments, with a provision that, upon default in payment of any
installment or of interest, the whole shall become due; orÊÊ
ÊÊ
(d) with exchange, whether at a fixed rate or at the current rate; orÊÊ
ÊÊ
(e) with costs of collection or an attorney's fee, in case payment shall not be
made at maturity.ÊÊ

Sec. 3. î 
     

 An unqualified order or promise to pay is
unconditional within the meaning of this Act though coupled with:ÊÊ

(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; orÊÊ
ÊÊ
(b) A statement of the transaction which gives rise to the instrument.ÊÊ
But an order or promise to pay out of a particular fund is not unconditional.chan robles
virtual law libraryÊ
ÊÊ
Sec. 4. 
 

 
     - An instrument is payable at a
determinable future time, within the meaning of this Act, which is expressed to be
payable:ÊÊ
(a) At a fixed period after date or sight; orÊÊ
ÊÊ
(b) On or before a fixed or determinable future time specified therein; orÊÊ
ÊÊ
(c) On or at a fixed period after the occurrence of a specified event which is
certain to happen, though the time of happening be uncertain.ÊÊ

An instrument payable upon a contingency is not negotiable, and the happening of

the event does not cure the defect.ÊÊ
ÊÊ
Sec. 5. c  

   
  
   - An instrument which
contains an order or promise to do any act in addition to the payment of money is
not negotiable. But the negotiable character of an instrument otherwise negotiable is
not affected by a provision which:ÊÊ

(a) authorizes the sale of collateral securities in case the instrument be not paid
at maturity; orÊÊ
ÊÊ
(b) authorizes a confession of judgment if the instrument be not paid at
maturity; orÊÊ
ÊÊ
(c) waives the benefit of any law intended for the advantage or protection of the
obligor; orÊÊ
ÊÊ
(d) gives the holder an election to require something to be done in lieu of
payment of money.ÊÊ

But nothing in this section shall validate any provision or stipulation otherwise
illegal.ÊÊ
ÊÊ
Sec. 6. |   


 

  The validity and negotiable character of
an instrument are not affected by the fact that:ÊÊ
(a) it is not dated; orÊÊ
ÊÊ
(b) does not specify the value given, or that any value had been given therefor;
orÊÊ
ÊÊ
(c) does not specify the place where it is drawn or the place where it is payable;
orÊÊ
ÊÊ
(d) bears a seal; orÊÊ
ÊÊ
(e) designates a particular kind of current money in which payment is to be
made.ÊÊ
But nothing in this section shall alter or repeal any statute requiring in certain cases
the nature of the consideration to be stated in the instrument.ÊÊ
ÊÊ
Sec. 7. î 

 
 - An instrument is payable onÊÊ
demand:ÊÊ
(a) When it is so expressed to be payable on demand, or at sight, or on
presentation; orÊÊ
ÊÊ
(b) In which no time for payment is expressed.ÊÊ
Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards
the person so issuing, accepting, or indorsing it, payable on demand.ÊÊ
ÊÊ
Sec. 8. î 

 

 - The instrument is payable to order where it is drawn
payable to the order of a specified person or to him or his order. It may be drawn
payable to the order of:ÊÊ

(a) A payee who is not maker, drawer, or drawee; orÊÊ

ÊÊ
(b) The drawer or maker; orÊÊ
ÊÊ
(c) The drawee; orÊÊ
ÊÊ
(d) Two or more payees jointly; orÊÊ
ÊÊ
(e) One or some of several payees; orÊÊ
ÊÊ
(f) The holder of an office for the time being.ÊÊ

Where the instrument is payable to order, the payee must be named or otherwise
indicated therein with reasonable certainty.ÊÊ
ÊÊ
Sec. 9. î 

 


 - The instrument is payable toÊÊ
bearer:ÊÊ

(a) When it is expressed to be so payable; orÊÊ

ÊÊ
(b) When it is payable to a person named therein or bearer; orÊÊ
ÊÊ
(c) When it is payable to the order of a fictitious or non-existing person, and
such fact was known to the person making it so payable; orÊÊ
ÊÊ
(d) When the name of the payee does not purport to be the name of anyÊÊ
person; orÊÊ
ÊÊ
(e) When the only or last indorsement is an indorsement in blank.ÊÊ

Sec. 10. 
      - The instrument need not follow the language of
this Act, but any terms are sufficient which clearly indicate an intention to conform
to the requirements hereof.ÊÊ
ÊÊ
Sec. 11. 

  
  - Where the instrument or an acceptance or any
indorsement thereon is dated, such date is deemed prima facie to be the true date of
the making, drawing, acceptance, or indorsement, as the case may be. 
 ÊÊ
ÊÊ
Sec. 12. c

 
 The instrument is not invalid for the reason
only that it is ante-dated or post-dated, provided this is not done for an illegal or
fraudulent purpose. The person to whom an instrument so dated is delivered acquires
the title thereto as of the date of delivery.ÊÊ
ÊÊ
Sec. 13. î 

  
 - Where an instrument expressed to be payable
at a fixed period after date is issued undated, or where the acceptance of an
instrument payable at a fixed period after sight is undated, any holder may insert
therein the true date of issue or acceptance, and the instrument shall be payable
accordingly. The insertion of a wrong date does not avoid the instrument in the
hands of a subsequent holder in due course; but as to him, the date so inserted is to
be regarded as the true date.ÊÊ
ÊÊ
Sec. 14. d
  
  - Where the instrument is wanting in any
material particular, the person in possession thereof has a prima facie authority to
complete it by filling up the blanks therein. And a signature on a blank paper
delivered by the person making the signature in order that the paper may be
converted into a negotiable instrument operates as a prima facie authority to fill it
up as such for any amount. In order, however, that any such instrument when
completed may be enforced against any person who became a party thereto prior to
its completion, it must be filled up strictly in accordance with the authority given
and within a reasonable time. But if any such instrument, after completion, is
negotiated to a holder in due course, it is valid and effectual for all purposes in his
hands, and he may enforce it as if it had been filled up strictly in accordance with the
authority given and within a reasonable time.ÊÊ
ÊÊ
Sec. 15. M   
  
 - Where an incomplete instrument has
not been delivered, it will not, if completed and negotiated without authority, be a
valid contract in the hands of any holder, as against any person whose signature was
placed thereon before delivery.ÊÊ
ÊÊ
Sec. 16.  
 
 
  Every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the
purpose of giving effect thereto. As between immediate parties and as regards a
remote party other than a holder in due course, the delivery, in order to be effectual,
must be made either by or under the authority of the party making, drawing,
accepting, or indorsing, as the case may be; and, in such case, the delivery may be
shown to have been conditional, or for a special purpose only, and not for the
purpose of transferring the property in the instrument. But where the instrument is
in the hands of a holder in due course, a valid delivery thereof by all parties prior to
him so as to make them liable to him is conclusively presumed. And where the
instrument is no longer in the possession of a party whose signature appears thereon,
a valid and intentional delivery by him is presumed until the contrary is proved.ÊÊ
ÊÊ
Sec. 17. ‘  
  
  
 
    - Where the language of the
instrument is ambiguous or there are omissions therein, the following rules of
construction apply:ÊÊ
 (a) Where the sum payable is expressed in words and also in figures and there is
a discrepancy between the two, the sum denoted by the words is the sum
payable; but if the words are ambiguous or uncertain, reference may be had to
the figures to fix the amount;ÊÊ
ÊÊ
(b) Where the instrument provides for the payment of interest, without
specifying the date from which interest is to run, the interest runs from the
date of the instrument, and if the instrument is undated, from the issue
thereof;ÊÊ
ÊÊ
(c) Where the instrument is not dated, it will be considered to be dated as of the
time it was issued;ÊÊ
ÊÊ
(d) Where there is a conflict between the written and printed provisions of the
instrument, the written provisions prevail;ÊÊ
ÊÊ
(e) Where the instrument is so ambiguous that there is doubt whether it is a bill
or note, the holder may treat it as either at his election;ÊÊ
ÊÊ
(f) Where a signature is so placed upon the instrument that it is not clear in
what capacity the person making the same intended to sign, he is to be deemed
an indorser;ÊÊ
ÊÊ
(g) Where an instrument containing the wordM
  
 is signed by two
or more persons, they are deemed to be jointly and severally liable thereon.ÊÊ
ÊÊ
Sec. 18. {
   
   




 - No person is liable
on the instrument whose signature does not appear thereon, except as herein
otherwise expressly provided. But one who signs in a trade or assumed name will be
liable to the same extent as if he had signed in his own name.ÊÊ
ÊÊ
Sec. 19. ’ 




   - The signature of any party may
be made by a duly authorized agent. No particular form of appointment is necessary
for this purpose; and the authority of the agent may be established as in other cases
of agency.ÊÊ
ÊÊ
Sec. 20. {
   
  


 
  - Where the instrument
contains or a person adds to his signature words indicating that he signs for or on
behalf of a principal or in a representative capacity, he is not liable on the
instrument if he was duly authorized; but the mere addition of words describing him
as an agent, or as filling a representative character, without disclosing his principal,
does not exempt him from personal liability.ÊÊ
ÊÊ
Sec. 21. ’ 




   - A signature by 


  operates
as notice that the agent has but a limited authority to sign, and the principal is
bound only in case the agent in so signing acted within the actual limits of his
authority.ÊÊ
ÊÊ
Sec. 22.   
 




  The indorsement or
assignment of the instrument by a corporation or by an infant passes the property
therein, notwithstanding that from want of capacity, the corporation or infant may
incur no liability thereon.ÊÊ
ÊÊ
Sec. 23. "
 

  - When a signature is forged or made without the
authority of the person whose signature it purports to be, it is wholly inoperative,
and no right to retain the instrument, or to give a discharge therefor, or to enforce
payment thereof against any party thereto, can be acquired through or under such
signature, unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.ÊÊ
ÊÊ
II. CONSIDERATIONÊ
Ê
Sec. 24. 
     

  - Every negotiable instrument is deemed



  to have been issued for a valuable consideration; and every person whose
signature appears thereon to have become a party thereto for value.ÊÊ
ÊÊ
Sec. 25. *

    . ³ Value is any consideration sufficient to support a
simple contract. An antecedent or pre-existing debt constitutes value; and is deemed
such whether the instrument is payable on demand or at a future time.ÊÊ
ÊÊ
Sec. 26. î
     


 - Where value has at any time been given
for the instrument, the holder is deemed a holder for value in respect to all parties
who become such prior to that time.ÊÊ
Sec. 27. When lien on instrument constitutes holder for value. ³ Where the holder
has a lien on the instrument arising either from contract or by implication of law, he
is deemed a holder for value to the extent of his lien.ÊÊ
ÊÊ
Sec. 28.  
   

  Absence or failure of consideration is a
matter of defense as against any person not a holder in due course; and partial failure
of consideration is a defense pro tanto, whether the failure is an ascertained and
liquidated amount or otherwise.ÊÊ
ÊÊ
Sec. 29. {
   
  
 

 - An accommodation party is one who has
signed the instrument as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other person. Such a
person is liable on the instrument to a holder for value, notwithstanding such holder,
at the time of taking the instrument, knew him to be only an accommodation party.ÊÊ
ÊÊ
III. NEGOTIATIONÊ
ÊÊ
Sec. 30. î
     
  - An instrument is negotiated when it is
transferred from one person to another in such manner as to constitute the
transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if
payable to order, it is negotiated by the indorsement of the holder and completed by
delivery.ÊÊ
ÊÊ
Sec. 31. M
 
 The indorsement must be written on the
instrument itself or upon a paper attached thereto. The signature of the indorser,
without additional words, is a sufficient indorsement.ÊÊ
ÊÊ
Sec. 32. M
  
  
 The indorsement must be an
indorsement of the entire instrument. An indorsement which purports to transfer to
the indorsee a part only of the amount payable, or which purports to transfer the
instrument to two or more indorsees severally, does not operate as a negotiation of
the instrument. But where the instrument has been paid in part, it may be indorsed
as to the residue.ÊÊ
ÊÊ
Sec. 33. X    
 - An indorsement may be either special or in blank;
and it may also be either restrictive or qualified or conditional.ÊÊ
ÊÊ
Sec. 34. ’
 
 
 
 - A special indorsement
specifies the person to whom, or to whose order, the instrument is to be payable, and
the indorsement of such indorsee is necessary to the further negotiation of the
instrument. An indorsement in blank specifies no indorsee, and an instrument so
indorsed is payable to bearer, and may be negotiated by delivery.ÊÊ
ÊÊ
Sec. 35. d
 
 
  
 
 - The holder may
convert a blank indorsement into a special indorsement by writing over the signature
of the indorser in blank any contract consistent with the character of the
indorsement.ÊÊ
ÊÊ
Sec. 36. î  

 
  - An indorsement is restrictive which either:ÊÊ

(a) Prohibits the further negotiation of the instrument; orÊÊ

ÊÊ
(b) Constitutes the indorsee the agent of the indorser; orÊÊ
ÊÊ
(c) Vests the title in the indorsee in trust for or to the use of some other
persons.ÊÊ
But the mere absence of words implying power to negotiate does not make an
indorsement restrictive.ÊÊ
ÊÊ
Sec. 37.  
 
  

    
 - A restrictive
indorsement confers upon the indorsee the right:ÊÊ
(a) to receive payment of the instrument;ÊÊ
ÊÊ
(b) to bring any action thereon that the indorser could bring;ÊÊ
ÊÊ
(c) to transfer his rights as such indorsee, where the form of the indorsement
authorizes him to do so.ÊÊ

But all subsequent indorsees acquire only the title of the first indorsee under the
restrictive indorsement.ÊÊ
ÊÊ
Sec. 38. o
   
 - A qualified indorsement constitutes the indorser a
mere assignor of the title to the instrument. It may be made by adding to the
indorser's signature the words "without recourse" or any words of similar import.
Such an indorsement does not impair the negotiable character of the instrument.ÊÊ
ÊÊ
Sec. 39. ‘   
 
 Where an indorsement is conditional, the party
required to pay the instrument may disregard the condition and make payment to
the indorsee or his transferee whether the condition has been fulfilled or not. But any
person to whom an instrument so indorsed is negotiated will hold the same, or the
proceeds thereof, subject to the rights of the person indorsing conditionally.ÊÊ
ÊÊ
Sec. 40. M
   


 


 - Where an instrument,
payable to bearer, is indorsed specially, it may nevertheless be further negotiated by
delivery; but the person indorsing specially is liable as indorser to only such holders
as make title through his indorsement.ÊÊ
ÊÊ
Sec. 41. M
 


  


  - Where an instrument
is payable to the order of two or more payees or indorsees who are not partners, all
must indorse unless the one indorsing has authority to indorse for the others.ÊÊ
ÊÊ
Sec. 42.    



 
 


ÊÊ


 - Where an instrument is drawn or indorsed to a person as 

or other
fiscal officer of a bank or corporation, it is deemed prima facie to be payable to the
bank or corporation of which he is such officer, and may be negotiated by either the
indorsement of the bank or corporation or the indorsement of the officer.ÊÊ
ÊÊ
Sec. 43. M
 

  
 
  - Where the name of a
payee or indorsee is wrongly designated or misspelled, he may indorse the
instrument as therein described adding, if he thinks fit, his proper signature.ÊÊ
ÊÊ
Sec. 44. M
 

 
 

  - Where any person is under
obligation to indorse in a representative capacity, he may indorse in such terms as to
negative personal liability.Êrobles virtual law libraryÊ
ÊÊ
Sec. 45.    

   - Except where an indorsement bears
date after the maturity of the instrument, every negotiation is deemed prima facie to
have been effected before the instrument was overdue.ÊÊ
ÊÊ
Sec. 46. 
  

   - Except where the contrary appears,
every indorsement is presumed prima facie to have been made at the place where the
instrument is dated.ÊÊ
ÊÊ
Sec. 47. ‘  
   




 An instrument negotiable in its
origin continues to be negotiable until it has been restrictively indorsed or
discharged by payment or otherwise.ÊÊ
ÊÊ
Sec. 48. ’
   
 - The holder may at any time strike out any
indorsement which is not necessary to his title. The indorser whose indorsement is
struck out, and all indorsers subsequent to him, are thereby relieved from liability on
the instrument.ÊÊ
ÊÊ
Sec. 49. 

 
   
  - Where the holder of an instrument
payable to his order transfers it for value without indorsing it, the transfer vests in
the transferee such title as the transferor had therein, and the transferee acquires in
addition, the right to have the indorsement of the transferor. But for the purpose of
determining whether the transferee is a holder in due course, the negotiation takes
effect as of the time when the indorsement is actually made.ÊÊ
ÊÊ
Sec. 50. î 




 
  
 - Where an instrument is
negotiated back to a prior party, such party may, subject to the provisions of this
Act, reissue and further negotiable the same. But he is not entitled to enforce
payment thereof against any intervening party to whom he was personally liable.ÊÊ
ÊÊ

IV. RIGHTS OF THE HOLDERÊ

Ê
Sec. 51. ©    
  
 - The holder of a negotiable instrument may
to sue thereon in his own name; and payment to him in due course discharges the
instrument.ÊÊ
ÊÊ
Sec. 52. î
    
 
  
 - A holder in due course is a holder
who has taken the instrument under the following conditions:ÊÊ
(
a) That it is complete and regular upon its face;ÊÊ
ÊÊ
(b) That he became the holder of it before it was overdue, and without notice
that it has been previously dishonored, if such was the fact;ÊÊ
ÊÊ
(c) That he took it in good faith and for value;ÊÊ
ÊÊ
(d) That at the time it was negotiated to him, he had no notice of any infirmity
in the instrument or defect in the title of the person negotiating it.ÊÊ

Sec. 53. î 
  
  
 Where an instrument
payable on demand is negotiated on an unreasonable length of time after its issue,
the holder is not deemed a holder in due course.ÊÊ
ÊÊ
Sec. 54.   

  
 - Where the transferee receives notice of
any infirmity in the instrument or defect in the title of the person negotiating the
same before he has paid the full amount agreed to be paid therefor, he will be deemed
a holder in due course only to the extent of the amount therefore paid by him.ÊÊ
ÊÊ
Sec. 55. î    The title of a person who negotiates an instrument is
defective within the meaning of this Act when he obtained the instrument, or any
signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for
an illegal consideration, or when he negotiates it in breach of faith, or under such
circumstances as amount to a fraud.ÊÊ
ÊÊ
Sec. 56. î
        - To constitutes notice of an infirmity in
the instrument or defect in the title of the person negotiating the same, the person
to whom it is negotiated must have had actual knowledge of the infirmity or defect,
or knowledge of such facts that his action in taking the instrument amounted to bad
faith.ÊÊ
ÊÊ
Sec. 57. ©     
  
 - A holder in due course holds the
instrument free from any defect of title of prior parties, and free from defenses
available to prior parties among themselves, and may enforce payment of the
instrument for the full amount thereof against all parties liable thereon. robles virtual law
libraryÊ
ÊÊ
Sec. 58. î   
 
  In the hands of any holder other than a
holder in due course, a negotiable instrument is subject to the same defenses as if it
were non-negotiable. But a holder who derives his title through a holder in due
course, and who is not himself a party to any fraud or illegality affecting the
instrument, has all the rights of such former holder in respect of all parties prior to
the latter.ÊÊ
ÊÊ
Sec. 59. î   
  
 - Every holder is deemed prima facie to
be a holder in due course; but when it is shown that the title of any person who has
negotiated the instrument was defective, the burden is on the holder to prove that he
or some person under whom he claims acquired the title as holder in due course. But
the last-mentioned rule does not apply in favor of a party who became bound on the
instrument prior to the acquisition of such defective title.ÊÊ
ÊÊ
V. LIABILITIES OF PARTIESÊ
Ê
Sec. 60. {
   

 - The maker of a negotiable instrument, by making it,
engages that he will pay it according to its tenor, and admits the existence of the
payee and his then capacity to indorse.ÊÊ
ÊÊ
Sec. 61. {
   


 - The drawer by drawing the instrument admits the
existence of the payee and his then capacity to indorse; and engages that, on due
presentment, the instrument will be accepted or paid, or both, according to its tenor,
and that if it be dishonored and the necessary proceedings on dishonor be duly taken,
he will pay the amount thereof to the holder or to any subsequent indorser who may
be compelled to pay it. But the drawer may insert in the instrument an express
stipulation negativing or limiting his own liability to the holder.ÊÊ
ÊÊ
Sec. 62. {
   

 - The acceptor, by accepting the instrument, engages
that he will pay it according to the tenor of his acceptance and admits:ÊÊ

(a) The existence of the drawer, the genuineness of his signature, and his
capacity and authority to draw the instrument; andÊÊ
ÊÊ
(b) The existence of the payee and his then capacity to indorse.ÊÊ

Sec. 63. î 


 

 - A person placing his signature upon an
instrument otherwise than as maker, drawer, or acceptor, is deemed to be indorser
unless he clearly indicates by appropriate words his intention to be bound in some
other capacity.ÊÊ
ÊÊ
Sec. 64. {
   



 

. - Where a person, not otherwise a party to an
instrument, places thereon his signature in blank before delivery, he is liable as
indorser, in accordance with the following rules:ÊÊ

(a) If the instrument is payable to the order of a third person, he is liable to the
payee and to all subsequent parties.ÊÊ
ÊÊ
(b) If the instrument is payable to the order of the maker or drawer, or is
payable to bearer, he is liable to all parties subsequent to the maker or drawer.ÊÊ
ÊÊ
 (c) If he signs for the accommodation of the payee, he is liable to all parties
subsequent to the payee.ÊÊ

Sec. 65. î



 
 
  

 
  ³ Every person
negotiating an instrument by delivery or by a qualified indorsement warrants:ÊÊ
(a) That the instrument is genuine and in all respects what it purports to be;ÊÊ
ÊÊ
(b) That he has a good title to it;ÊÊ
ÊÊ
(c) That all prior parties had capacity to contract;ÊÊ
ÊÊ
(d) That he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless.ÊÊ

But when the negotiation is by delivery only, the warranty extends in favor of no
holder other than the immediate transferee.ÊÊ
ÊÊ
The provisions of subdivision (c) of this section do not apply to a person negotiating
public or corporation securities other than bills and notes.ÊÊ
ÊÊ
Sec. 66. {
   

 

 - Every indorser who indorses without
qualification, warrants to all subsequent holders in due course:ÊÊ

(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next
preceding section; andÊÊ
ÊÊ
(b) That the instrument is, at the time of his indorsement, valid and subsisting;ÊÊ

And, in addition, he engages that, on due presentment, it shall be accepted or paid,

or both, as the case may be, according to its tenor, and that if it be dishonored and
the necessary proceedings on dishonor be duly taken, he will pay the amount thereof
to the holder, or to any subsequent indorser who may be compelled to pay it.ÊÊ
ÊÊ
Sec. 67. {
    

 


 
 
 ³ Where a person
places his indorsement on an instrument negotiable by delivery, he incurs all the
liability of an indorser.ÊÊ
ÊÊ
Sec. 68. |

    




 - As respect one another, indorsers are
liable


 in the order in which they indorse; but evidence is admissible to
show that, as between or among themselves, they have agreed otherwise. Joint
payees or joint indorsees who indorse are deemed to indorse jointly and severally.
robles virtual law libraryÊ
ÊÊ
Sec. 69. {
   




 - Where a broker or other agent negotiates
an instrument without indorsement, he incurs all the liabilities prescribed by Section
Sixty-five of this Act, unless he discloses the name of his principal and the fact that
he is acting only as agent.ÊÊ
ÊÊ
VI. PRESENTATION FOR PAYMENTÊ
Ê
Sec. 70.  
 
 
 

 - Presentment for payment is
not necessary in order to charge the person primarily liable on the instrument; but if
the instrument is, by its terms, payable at a special place, and he is able and willing
to pay it there at maturity, such ability and willingness are equivalent to a tender of
payment upon his part. But except as herein otherwise provided, presentment for
payment is necessary in order to charge the drawer and indorsers.ÊÊ
ÊÊ
Sec. 71. 
  
  
  

 

 



 
 Where the instrument is not payable on demand, presentment
must be made on the day it falls due. Where it is payable on demand, presentment
must be made within a reasonable time after its issue, except that in the case of a bill
of exchange, presentment for payment will be sufficient if made within a reasonable
time after the last negotiation thereof.ÊÊ
ÊÊ
Sec. 72. î
    
   
  - Presentment for payment, to be
sufficient, must be made:ÊÊ

(a) By the holder, or by some person authorized to receive payment on his

behalf;ÊÊ
ÊÊ
(b) At a reasonable hour on a business day;ÊÊ
ÊÊ
(c) At a proper place as herein defined;ÊÊ
ÊÊ
(d) To the person primarily liable on the instrument, or if he is absent or
inaccessible, to any person found at the place where the presentment is made.ÊÊ

Sec. 73. 
 
  Presentment for payment is made at the proper
place:ÊÊ

(a) Where a place of payment is specified in the instrument and it is there

presented;ÊÊ
ÊÊ
(b) Where no place of payment is specified but the address of the person to
make payment is given in the instrument and it is there presented;ÊÊ
ÊÊ
(c) Where no place of payment is specified and no address is given and the
instrument is presented at the usual place of business or residence of the
person to make payment;ÊÊ
ÊÊ
(d) In any other case if presented to the person to make payment wherever he
can be found, or if presented at his last known place of business or residence.ÊÊ

Sec. 74. M 
    - The instrument must be exhibited to the
person from whom payment is demanded, and when it is paid, must be delivered up
to the party paying it.ÊÊ
ÊÊ
Sec. 75. 
  
  




 - Where the instrument is
payable at a bank, presentment for payment must be made during banking hours,
unless the person to make payment has no funds there to meet it at any time during
the day, in which case presentment at any hour before the bank is closed on that day
is sufficient.ÊÊ
ÊÊ
Sec. 76. 
  

 

 
 - Where the person primarily
liable on the instrument is dead and no place of payment is specified, presentment
for payment must be made to his personal representative, if such there be, and if,
with the exercise of reasonable diligence, he can be found.ÊÊ
ÊÊ
Sec. 77. 
  
 




 - Where the persons primarily
liable on the instrument are liable as partners and no place of payment is specified,
presentment for payment may be made to any one of them, even though there has
been a dissolution of the firm.ÊÊ
ÊÊ
Sec. 78. 
   
 - Where there are several persons, not partners,
primarily liable on the instrument and no place of payment is specified, presentment
must be made to them all.ÊÊ
ÊÊ
Sec. 79. î 
  

 

 


 Presentment for
payment is not required in order to charge the drawer where he has no right to
expect or require that the drawee or acceptor will pay the instrument.ÊÊ
ÊÊ
Sec. 80. î 
  

 

  

 Presentment is not
required in order to charge an indorser where the instrument was made or accepted
for his accommodation and he has no reason to expect that the instrument will be
paid if presented.ÊÊ
ÊÊ
Sec. 81. î 
 
 
    - Delay in making
presentment for payment is excused when the delay is caused by circumstances
beyond the control of the holder and not imputable to his default, misconduct, or
negligence. When the cause of delay ceases to operate, presentment must be made
with reasonable diligence.ÊÊ
ÊÊ
Sec. 82. î 
 

   - Presentment for payment is
excused:ÊÊ

(a) Where, after the exercise of reasonable diligence, presentment, as required

by this Act, cannot be made;ÊÊ
ÊÊ
(b) Where the drawee is a fictitious person;ÊÊ
ÊÊ
(c) By waiver of presentment, express or implied.ÊÊ

Sec. 83. î   
 
 

 - The instrument is
dishonored by non-payment when:ÊÊ

(a) It is duly presented for payment and payment is refused or cannot be

obtained; orÊÊ
ÊÊ
(b) Presentment is excused and the instrument is overdue and unpaid.ÊÊ

Sec. 84. {
   
  


   
 
 -
Subject to the provisions of this Act, when the instrument is dishonored by non-
payment, an immediate right of recourse to all parties secondarily liable thereon
accrues to the holder.Êrobles virtual law libraryÊ
ÊÊ
Sec. 85.   

 - Every negotiable instrument is payable at the time fixed
therein without grace. When the day of maturity falls upon Sunday or a holiday, the
instruments falling due or becoming payable on Saturday are to be presented for
payment on the next succeeding business day except that instruments payable on
demand may, at the option of the holder, be presented for payment before twelve
o'clock noon on Saturday when that entire day is not a holiday.ÊÊ
ÊÊÊ
Sec. 86.     - When the instrument is payable at a fixed period
after date, after sight, or after that happening of a specified event, the time of
payment is determined by excluding the day from which the time is to begin to run,
and by including the date of payment.ÊÊ
ÊÊÊ
Sec. 87. © 
  




 - Where the instrument is made
payable at a bank, it is equivalent to an order to the bank to pay the same for the
account of the principal debtor thereon.ÊÊ
ÊÊÊ
Sec. 88. î
    
  
 - Payment is made in due course
when it is made at or after the maturity of the payment to the holder thereof in good
faith and without notice that his title is defective.ÊÊ
ÊÊÊ
VII. NOTICE OF DISHONORÊ
ÊÊ
Sec. 89.       
   Except as herein otherwise
provided, when a negotiable instrument has been dishonored by non-acceptance or
non-payment, notice of dishonor must be given to the drawer and to each indorser,
and any drawer or indorser to whom such notice is not given is discharged.ÊÊ
ÊÊÊ
Sec. 90. d   - The notice may be given by or on behalf of the holder, or
by or on behalf of any party to the instrument who might be compelled to pay it to
the holder, and who, upon taking it up, would have a right to reimbursement from
the party to whom the notice is given.ÊÊ
ÊÊÊ
Sec. 91.    
 - Notice of dishonor may be given by any agent either
in his own name or in the name of any party entitled to given notice, whether that
party be his principal or not.ÊÊ
ÊÊÊ
Sec. 92.     
  
. - Where notice is given by or on behalf
of the holder, it inures to the benefit of all subsequent holders and all prior parties
who have a right of recourse against the party to whom it is given.ÊÊ
ÊÊÊ
Sec. 93.  
    

  
  - Where notice is
given by or on behalf of a party entitled to give notice, it inures to the benefit of the
holder and all parties subsequent to the party to whom notice is given.Ê
 ÊÊ
ÊÊÊ
Sec. 94. î 

    - Where the instrument has been dishonored in
the hands of an agent, he may either himself give notice to the parties liable thereon,
or he may give notice to his principal. If he gives notice to his principal, he must do
so within the same time as if he were the holder, and the principal, upon the receipt
of such notice, has himself the same time for giving notice as if the agent had been
an independent holder.ÊÊ
ÊÊÊ
Sec. 95. î       - A written notice need not be signed and an
insufficient written notice may be supplemented and validated by verbal
communication. A misdescription of the instrument does not vitiate the notice
unless the party to whom the notice is given is in fact misled thereby.ÊÊ
ÊÊÊ
Sec. 96. "
    - The notice may be in writing or merely oral and may be
given in any terms which sufficiently identify the instrument, and indicate that it
has been dishonored by non-acceptance or non-payment. It may in all cases be given
by delivering it personally or through the mails.ÊÊ
ÊÊÊ
Sec. 97.     
  - Notice of dishonor may be given either to
the party himself or to his agent in that behalf.ÊÊ
ÊÊÊ
Sec. 98.    


 
 When any party is dead and his death is known
to the party giving notice, the notice must be given to a personal representative, if
there be one, and if with reasonable diligence, he can be found. If there be no
personal representative, notice may be sent to the last residence or last place of
business of the deceased.ÊÊ
ÊÊÊ
Sec. 99.    


 - Where the parties to be notified are partners, notice to
any one partner is notice to the firm, even though there has been a dissolution.ÊÊ
ÊÊÊ
Sec. 100.    
  
 - Notice to joint persons who are not
partners must be given to each of them unless one of them has authority to receive
such notice for the others.ÊÊ
ÊÊÊ
Sec. 101.    

 - Where a party has been adjudged a bankrupt or an
insolvent, or has made an assignment for the benefit of creditors, notice may be
given either to the party himself or to his trustee or assignee.ÊÊ
ÊÊÊ
Sec. 102.           - Notice may be given as soon as
the instrument is dishonored and, unless delay is excused as hereinafter provided,
must be given within the time fixed by this Act.ÊÊ
ÊÊÊ
Sec. 103. î 


  
  

 Where the person giving and the
person to receive notice reside in the same place, notice must be given within the
following times:ÊÊ

(a) If given at the place of business of the person to receive notice, it must be
given before the close of business hours on the day following.ÊÊ
ÊÊÊ
(b) If given at his residence, it must be given before the usual hours of rest on
the day following.ÊÊ
ÊÊÊ
(c) If sent by mail, it must be deposited in the post office in time to reach him
in usual course on the day following.ÊÊ
Sec. 104. î 


  
   

  - Where the person giving and the
person to receive notice reside in different places, the notice must be given within
the following times:ÊÊ

(a) If sent by mail, it must be deposited in the post office in time to go by mail
the day following the day of dishonor, or if there be no mail at a convenient
hour on last day, by the next mail thereafter.ÊÊ
ÊÊÊ
(b) If given otherwise than through the post office, then within the time that
notice would have been received in due course of mail, if it had been deposited
in the post office within the time specified in the last subdivision.ÊÊ

Sec. 105. î  
 

    - Where notice of dishonor
is duly addressed and deposited in the post office, the sender is deemed to have given
due notice, notwithstanding any miscarriage in the mails.ÊÊ
ÊÊÊ
Sec. 106.      
     - Notice is deemed to have been
deposited in the post-office when deposited in any branch post office or in any letter
box under the control of the post-office department.ÊÊ
ÊÊÊ
Sec. 107.      

   - Where a party receives notice of
dishonor, he has, after the receipt of such notice, the same time for giving notice to
antecedent parties that the holder has after the dishonor.ÊÊ
ÊÊÊ
Sec. 108. î 
     - Where a party has added an address to his
signature, notice of dishonor must be sent to that address; but if he has not given
such address, then the notice must be sent as follows:ÊÊ

(a) Either to the post-office nearest to his place of residence or to the post-
office where he is accustomed to receive his letters; orÊÊ
ÊÊÊ
(b) If he lives in one place and has his place of business in another, notice may
be sent to either place; orÊÊ
ÊÊÊ
(c) If he is sojourning in another place, notice may be sent to the place where
he is so sojourning.ÊÊ

But where the notice is actually received by the party within the time specified in
this Act, it will be sufficient, though not sent in accordance with the requirement of
this section.ÊÊ
ÊÊ
Sec. 109. î

   . - Notice of dishonor may be waived either before the time
of giving notice has arrived or after the omission to give due notice, and the waiver
may be expressed or implied.ÊÊ
ÊÊÊ
Sec. 110. î 


. - Where the waiver is embodied in the
instrument itself, it is binding upon all parties; but, where it is written above the
signature of an indorser, it binds him only.ÊÊ
ÊÊÊ
Sec. 111. î

 
  A waiver of protest, whether in the case of a foreign bill
of exchange or other negotiable instrument, is deemed to be a waiver not only of a
formal protest but also of presentment and notice of dishonor.ÊÊ
ÊÊÊ
Sec. 112. î         - Notice of dishonor is dispensed with
when, after the exercise of reasonable diligence, it cannot be given to or does not
reach the parties sought to be charged.ÊÊ
ÊÊÊ
Sec. 113. 
        - Delay in giving notice of dishonor is
excused when the delay is caused by circumstances beyond the control of the holder
and not imputable to his default, misconduct, or negligence. When the cause of delay
ceases to operate, notice must be given with reasonable diligence.ÊÊ
ÊÊÊ
Sec. 114. î      


 - Notice of dishonor is not
required to be given to the drawer in either of the following cases:ÊÊ

(a) Where the drawer and drawee are the same person;ÊÊ
ÊÊÊ
(b) When the drawee is fictitious person or a person not having capacity to
contract;ÊÊ
ÊÊÊ
(c) When the drawer is the person to whom the instrument is presented for
payment;ÊÊ
ÊÊÊ
(d) Where the drawer has no right to expect or require that the drawee or
acceptor will honor the instrument;ÊÊ
ÊÊÊ
(e) Where the drawer has countermanded payment.ÊÊ

Sec. 115. î       

 ³ Notice of dishonor is not
required to be given to an indorser in either of the following cases:ÊÊ

(a) When the drawee is a fictitious person or person not having capacity to
contract, and the indorser was aware of that fact at the time he indorsed the
instrument;ÊÊ
ÊÊÊ
(b) Where the indorser is the person to whom the instrument is presented for
payment;ÊÊ
ÊÊÊ
(c) Where the instrument was made or accepted for his accommodation.ÊÊ

Sec. 116.     

 



  - Where due notice of
dishonor by non-acceptance has been given, notice of a subsequent dishonor by non-
payment is not necessary unless in the meantime the instrument has been accepted.ÊÊ
ÊÊÊ
Sec. 117.          

 - An omission to give
notice of dishonor by non-acceptance does not prejudice the rights of a holder in due
course subsequent to the omission.ÊÊ
ÊÊÊ
Sec. 118. î 
  
  
 - Where any
negotiable instrument has been dishonored, it may be protested for non-acceptance
or non-payment, as the case may be; but protest is not required except in the case of
foreign bills of exchange.Êrobles virtual law libraryÊ
ÊÊ
VIII. DISCHARGE OF NEGOTIABLEÊINSTRUMENTSÊ
ÊÊ
Sec. 119. M 
  

 - A negotiable instrument is discharged:ÊÊ

(a) By payment in due course by or on behalf of the principal debtor;ÊÊ

ÊÊÊ
(b) By payment in due course by the party accommodated, where the
instrument is made or accepted for his accommodation;ÊÊ
ÊÊÊ
(c) By the intentional cancellation thereof by the holder;ÊÊ
ÊÊÊ
(d) By any other act which will discharge a simple contract for the payment of
money;ÊÊ
ÊÊÊ
(e) When the principal debtor becomes the holder of the instrument at or after
maturity in his own right.ÊÊ

Sec. 120. î 
   


    


 

 A
person secondarily liable on the instrument is discharged:ÊÊ

(a) By any act which discharges the instrument;ÊÊ

ÊÊÊ
(b) By the intentional cancellation of his signature by the holder;ÊÊ
ÊÊÊ
(c) By the discharge of a prior party;ÊÊ
ÊÊÊ
(d) By a valid tender or payment made by a prior party;ÊÊ
ÊÊÊ
(e) By a release of the principal debtor unless the holder's right of recourse
against the party secondarily liable is expressly reserved;ÊÊ
ÊÊÊ
(f) By any agreement binding upon the holder to extend the time of payment or
to postpone the holder's right to enforce the instrument unless made with the
assent of the party secondarily liable or unless the right of recourse against
such party is expressly reserved.ÊÊ

Sec. 121. ©   

  

   
 - Where the instrument is paid
by a party secondarily liable thereon, it is not discharged; but the party so paying it
is remitted to his former rights as regard all prior parties, and he may strike out his
own and all subsequent indorsements and against negotiate the instrument, except:ÊÊ

(a) Where it is payable to the order of a third person and has been paid by the
drawer; andÊÊ
ÊÊÊ
(b) Where it was made or accepted for accommodation and has been paid by the
party accommodated.ÊÊ

Sec. 122. ©

  
 - The holder may expressly renounce his rights
against any party to the instrument before, at, or after its maturity. An absolute and
unconditional renunciation of his rights against the principal debtor made at or after
the maturity of the instrument discharges the instrument. But a renunciation does
not affect the rights of a holder in due course without notice. A renunciation must be
in writing unless the instrument is delivered up to the person primarily liable
thereon.ÊÊ
ÊÊÊ
Sec. 123. ‘

   

 
 - A cancellation made
unintentionally or under a mistake or without the authority of the holder, is
inoperative but where an instrument or any signature thereon appears to have been
cancelled, the burden of proof lies on the party who alleges that the cancellation was
made unintentionally or under a mistake or without authority.ÊÊ
ÊÊÊ
Sec. 124. c

    
  - Where a negotiable instrument is
materially altered without the assent of all parties liable thereon, it is avoided,
except as against a party who has himself made, authorized, or assented to the
alteration and subsequent indorsers.ÊÊ
But when an instrument has been materially altered and is in the hands of a holder in
due course not a party to the alteration, he may enforce payment thereof according
to its original tenor.ÊÊ
ÊÊÊ
Sec. 125. î
    






  Any alteration which changes:ÊÊ

(a) The date;ÊÊ

ÊÊÊ
(b) The sum payable, either for principal or interest;ÊÊ
ÊÊÊ
(c) The time or place of payment:ÊÊ
ÊÊÊ
(d) The number or the relations of the parties;ÊÊ
ÊÊÊ
(e) The medium or currency in which payment is to be made;ÊÊ
ÊÊÊ
(f) Or which adds a place of payment where no place of payment is specified, or
any other change or addition which alters the effect of the instrument in any
respect, is a material alteration.ÊÊ

BILLS OF EXCHANGEÊ
ÊÊ
IX. FORM AND INTERPRETATIONÊ
ÊÊ
Sec. 126. d  
  - A bill of exchange is an unconditional order in
writing addressed by one person to another, signed by the person giving it, requiring
the person to whom it is addressed to pay on demand or at a fixed or determinable
future time a sum certain in money to order or to bearer.ÊÊ
ÊÊÊ
Sec. 127. d  

   
  

 - A bill of itself does
not operate as an assignment of the funds in the hands of the drawee available for
the payment thereof, and the drawee is not liable on the bill unless and until he
accepts the same.ÊÊ
ÊÊÊ
Sec. 128. d 

  

 

 A bill may be addressed to two or
more drawees jointly, whether they are partners or not; but not to two or more
drawees in the alternative or in succession.ÊÊ
ÊÊÊ
Sec. 129. M


    
 An inland bill of exchange is a bill
which is, or on its face purports to be, both drawn and payable within the Philippines.
Any other bill is a foreign bill. Unless the contrary appears on the face of the bill, the
holder may treat it as an inland bill.ÊÊ
ÊÊÊ
Sec. 130. î  





  - Where in a bill the drawer
and drawee are the same person or where the drawee is a fictitious person or a person
not having capacity to contract, the holder may treat the instrument at his option
either as a bill of exchange or as a promissory note.ÊÊ
ÊÊÊ
Sec. 131. ©
 
  The drawer of a bill and any indorser may insert
thereon the name of a person to whom the holder may resort in case of need; that is
to say, in case the bill is dishonored by non-acceptance or non-payment. Such person
is called a referee in case of need. It is in the option of the holder to resort to the
referee in case of need or not as he may see fit.ÊÊ
ÊÊÊ
X. ACCEPTANCEÊ
ÊÊ
Sec. 132. c
 

 
  - The acceptance of a bill is the
signification by the drawee of his assent to the order of the drawer. The acceptance
must be in writing and signed by the drawee. It must not express that the drawee will
perform his promise by any other means than the payment of money.ÊÊ
ÊÊÊ
Sec. 133.  
  

 
   - The holder of a bill
presenting the same for acceptance may require that the acceptance be written on
the bill, and, if such request is refused, may treat the bill as dishonored.ÊÊ
ÊÊÊ
Sec. 134. c
 


  
 Where an acceptance is written on a
paper other than the bill itself, it does not bind the acceptor except in favor of a
person to whom it is shown and who, on the faith thereof, receives the bill for value.ÊÊ
ÊÊÊ
Sec. 135. 
  
  
 

 - An unconditional
promise in writing to accept a bill before it is drawn is deemed an actual acceptance
in favor of every person who, upon the faith thereof, receives the bill for value.ÊÊ
ÊÊÊ
Sec. 136.  
 

 
 - The drawee is allowed twenty-four hours
after presentment in which to decide whether or not he will accept the bill; the
acceptance, if given, dates as of the day of presentation.ÊÊ
ÊÊÊ
Sec. 137. {
   



 
 
   - Where a drawee to whom
a bill is delivered for acceptance destroys the same, or refuses within twenty-four
hours after such delivery or within such other period as the holder may allow, to
return the bill accepted or non-accepted to the holder, he will be deemed to have
accepted the same.ÊÊ
ÊÊÊ
Sec. 138. c
    . - A bill may be accepted before it has been
signed by the drawer, or while otherwise incomplete, or when it is overdue, or after it
has been dishonored by a previous refusal to accept, or by non payment. But when a
bill payable after sight is dishonored by non-acceptance and the drawee subsequently
accepts it, the holder, in the absence of any different agreement, is entitled to have
the bill accepted as of the date of the first presentment.ÊÊ
ÊÊÊ
Sec. 139. X   

 An acceptance is either general or qualified. A
general acceptance assents without qualification to the order of the drawer. A
qualified acceptance in express terms varies the effect of the bill as drawn.ÊÊ
ÊÊÊ
Sec. 140. î
    




 - An acceptance to pay at a
particular place is a general acceptance unless it expressly states that the bill is to be
paid there only and not elsewhere.ÊÊ
ÊÊÊ
Sec. 141. o
  

 - An acceptance is qualified which is:ÊÊ

(a) Conditional; that is to say, which makes payment by the acceptor dependent
on the fulfillment of a condition therein stated;ÊÊ
ÊÊÊ
(b) Partial; that is to say, an acceptance to pay part only of the amount for
which the bill is drawn;ÊÊ
ÊÊÊ
(c) Local; that is to say, an acceptance to pay only at a particular place;ÊÊ
ÊÊÊ
(d) Qualified as to time;ÊÊ
ÊÊÊ
(e) The acceptance of some, one or more of the drawees but not of all.ÊÊ
Sec. 142. ©    

  
 
  

 - The holder may refuse to
take a qualified acceptance and if he does not obtain an unqualified acceptance, he
may treat the bill as dishonored by non-acceptance. Where a qualified acceptance is
taken, the drawer and indorsers are discharged from liability on the bill unless they
have expressly or impliedly authorized the holder to take a qualified acceptance, or
subsequently assent thereto. When the drawer or an indorser receives notice of a
qualified acceptance, he must, within a reasonable time, express his dissent to the
holder or he will be deemed to have assented thereto.ÊÊ
ÊÊÊ
XI. PRESENTMENT FOR ACCEPTANCEÊ
ÊÊ
Sec. 143. î 
 


 
 - Presentment for
acceptance must be made:ÊÊ

(a) Where the bill is payable after sight, or in any other case, where presentment
for acceptance is necessary in order to fix the maturity of the instrument; orÊÊ
ÊÊÊ
(b) Where the bill expressly stipulates that it shall be presented for acceptance;
orÊÊ
ÊÊÊ
(c) Where the bill is drawn payable elsewhere than at the residence or place of
business of the drawee.ÊÊ

In no other case is presentment for acceptance necessary in order to render any

party to the bill liable.ÊÊ
ÊÊÊ
Sec. 144. î 

 
 

 



 

 - Except as herein
otherwise provided, the holder of a bill which is required by the next preceding
section to be presented for acceptance must either present it for acceptance or
negotiate it within a reasonable time. If he fails to do so, the drawer and all indorsers
are discharged.ÊÊ
ÊÊÊ
Sec. 145. 
  
 - Presentment for acceptance must be made by or
on behalf of the holder at a reasonable hour, on a business day and before the bill is
overdue, to the drawee or some person authorized to accept or refuse acceptance on
his behalf; andÊÊ

(a) Where a bill is addressed to two or more drawees who are not partners,
presentment must be made to them all unless one has authority to accept or
refuse acceptance for all, in which case presentment may be made to him only;ÊÊ
ÊÊÊ
(b) Where the drawee is dead, presentment may be made to his personal
representative;ÊÊ
ÊÊÊ
(c) Where the drawee has been adjudged a bankrupt or an insolvent or has made
an assignment for the benefit of creditors, presentment may be made to him or
to his trustee or assignee.ÊÊ

Sec. 146. |


 
 

- A bill may be presented for
acceptance on any day on which negotiable instruments may be presented for
payment under the provisions of Sections seventy-two and eighty-five of this Act.
When Saturday is not otherwise a holiday, presentment for acceptance may be made
before twelve o'clock noon on that day.ÊÊ
ÊÊÊ
Sec. 147. 
  
       - Where the holder of a bill drawn
payable elsewhere than at the place of business or the residence of the drawee has no
time, with the exercise of reasonable diligence, to present the bill for acceptance
before presenting it for payment on the day that it falls due, the delay caused by
presenting the bill for acceptance before presenting it for payment is excused and
does not discharge the drawers and indorsers.ÊÊ
ÊÊÊ
Sec. 148. î 

    Presentment for acceptance is excused
and a bill may be treated as dishonored by non-acceptance in either of the following
cases:ÊÊ

(a) Where the drawee is dead, or has absconded, or is a fictitious person or a

person not having capacity to contract by bill.ÊÊ
ÊÊÊ
(b) Where, after the exercise of reasonable diligence, presentment can not be
made.ÊÊ
ÊÊÊ
(c) Where, although presentment has been irregular, acceptance has been
refused on some other ground.ÊÊ

Sec. 149. î  
 


 - A bill is dishonored by non-
acceptance:ÊÊ
 (a) When it is duly presented for acceptance and such an acceptance as is
prescribed by this Act is refused or can not be obtained; orÊÊ
ÊÊÊ
(b) When presentment for acceptance is excused and the bill is not accepted.ÊÊ

Sec. 150.   
 
  

 Where a bill is duly presented for
acceptance and is not accepted within the prescribed time, the person presenting it
must treat the bill as dishonored by nonacceptance or he loses the right of recourse
against the drawer and indorsers.ÊÊ
ÊÊÊ
Sec. 151. ©     
 
  
 - When a bill is dishonored by
nonacceptance, an immediate right of recourse against the drawer and indorsers
accrues to the holder and no presentment for payment is necessary.ÊÊ
ÊÊÊ
XII. PROTESTÊ
ÊÊ
Sec. 152.M

 
 

- Where a foreign bill appearing on its face
to be such is dishonored by nonacceptance, it must be duly protested for
nonacceptance, by nonacceptance is dishonored and where such a bill which has not
previously been dishonored by nonpayment, it must be duly protested for
nonpayment. If it is not so protested, the drawer and indorsers are discharged. Where
a bill does not appear on its face to be a foreign bill, protest thereof in case of
dishonor is unnecessary.ÊÊ
ÊÊÊ
Sec. 153. 
  
 The protest must be annexed to the bill or must
contain a copy thereof, and must be under the hand and seal of the notary making it
and must specify:ÊÊ

(a) The time and place of presentment;ÊÊ

ÊÊÊ
(b) The fact that presentment was made and the manner thereof;ÊÊ
ÊÊÊ
(c) The cause or reason for protesting the bill;ÊÊ
ÊÊÊ
(d) The demand made and the answer given, if any, or the fact that the drawee
or acceptor could not be found.ÊÊ

Sec. 154. 
  

- Protest may be made by:ÊÊ

(a) A notary public; orÊÊ

ÊÊÊ
(b) By any respectable resident of the place where the bill is dishonored, in the
presence of two or more credible witnesses.ÊÊ

Sec. 155. 
   

 - When a bill is protested, such protest must be
made on the day of its dishonor unless delay is excused as herein provided. When a
bill has been duly noted, the protest may be subsequently extended as of the date of
the noting.ÊÊ
ÊÊÊ
Sec. 156. 
  

 A bill must be protested at the place where it is
dishonored, except that when a bill drawn payable at the place of business or
residence of some person other than the drawee has been dishonored by
nonacceptance, it must be protested for non-payment at the place where it is
expressed to be payable, and no further presentment for payment to, or demand on,
the drawee is necessary.ÊÊ
ÊÊÊ
Sec. 157. 
   
 


 
 A bill which has been
protested for non-acceptance may be subsequently protested for non-payment.ÊÊ
ÊÊÊ
Sec. 158. 
 


 


   - Where the acceptor has
been adjudged a bankrupt or an insolvent or has made an assignment for the benefit
of creditors before the bill matures, the holder may cause the bill to be protested for
better security against the drawer and indorsers.Êrobles virtual law libraryÊ
ÊÊÊ
Sec. 159. î 
      - Protest is dispensed with by any
circumstances which would dispense with notice of dishonor. Delay in noting or
protesting is excused when delay is caused by circumstances beyond the control of
the holder and not imputable to his default, misconduct, or negligence. When the
cause of delay ceases to operate, the bill must be noted or protested with reasonable
diligence.ÊÊ
ÊÊÊ
Sec. 160. 
  
   
 
  - When a bill is lost or destroyed or
is wrongly detained from the person entitled to hold it, protest may be made on a
copy or written particulars thereof.ÊÊ
ÊÊÊ
XIII. ACCEPTANCE FOR HONORÊ
ÊÊÊ
Sec. 161. î  


 
 - When a bill of exchange has been
protested for dishonor by non-acceptance or protested for better security and is not
overdue, any person not being a party already liable thereon may, with the consent of
the holder, intervene and accept the bill 

protest for the honor of any party
liable thereon or for the honor of the person for whose account the bill is drawn. The
acceptance for honor may be for part only of the sum for which the bill is drawn; and
where there has been an acceptance for honor for one party, there may be a further
acceptance by a different person for the honor of another party.ÊÊ
ÊÊÊ
Sec. 162. c

 
 
 - An acceptance for honor supra protest
must be in writing and indicate that it is an acceptance for honor and must be signed
by the acceptor for honor.Ê
 ÊÊ
ÊÊÊ
Sec. 163. î  



 
  


 - Where an
acceptance for honor does not expressly state for whose honor it is made, it is
deemed to be an acceptance for the honor of the drawer.ÊÊ
ÊÊÊ
Sec. 164. {
    


 
 The acceptor for honor is liable to the
holder and to all parties to the bill subsequent to the party for whose honor he has
accepted.ÊÊ
ÊÊÊ
Sec. 165. c
 


 
 - The acceptor for honor, by such
acceptance, engages that he will, on due presentment, pay the bill according to the
terms of his acceptance provided it shall not have been paid by the drawee and
provided also that is shall have been duly presented for payment and protested for
non-payment and notice of dishonor given to him.ÊÊ
ÊÊÊ
Sec. 166. ×

  



  

 
 - Where a bill
payable after sight is accepted for honor, its maturity is calculated from the date of
the noting for non-acceptance and not from the date of the acceptance for honor.ÊÊ
ÊÊÊ
Sec. 167. 
   

 

 
  - Where a dishonored bill
has been accepted for honor supra protest or contains a referee in case of need, it
must be protested for non-payment before it is presented for payment to the acceptor
for honor or referee in case of need.ÊÊ
ÊÊÊ
Sec. 168. 
 

 


 
 Ê
 - Presentment
for payment to the acceptor for honor must be made as follows:ÊÊ

(a) If it is to be presented in the place where the protest for non-payment was
made, it must be presented not later than the day following its maturity.ÊÊ
ÊÊÊ
(b) If it is to be presented in some other place than the place where it was
protested, then it must be forwarded within the time specified in Section one
hundred and four.ÊÊ

Sec. 169. î 

 
 
    - The provisions of Section
eighty-one apply where there is delay in making presentment to the acceptor for
honor or referee in case of need.ÊÊ
ÊÊÊ
Sec. 170.  
  


 
 - When the bill is dishonored by the
acceptor for honor, it must be protested for non-payment by him.ÊÊ
ÊÊÊ
XIV. PAYMENT FOR HONORÊ
ÊÊ
Sec. 171.î 



 
- Where a bill has been protested for
non-payment, any person may intervene and pay it 

protest for the honor of
any person liable thereon or for the honor of the person for whose account it was
drawn.ÊÊ
ÊÊÊ
Sec. 172. 

 
 
- The payment for honor 

protest, in
order to operate as such and not as a mere voluntary payment, must be attested by a
notarial act of honor which may be appended to the protest or form an extension to
it.ÊÊ
ÊÊÊ
Sec. 173. 


 


 
 The notarial act of honor must be
founded on a declaration made by the payer for honor or by his agent in that behalf
declaring his intention to pay the bill for honor and for whose honor he pays.ÊÊ
ÊÊÊ
Sec. 174. 

 

   
 

 
 - Where two or more
persons offer to pay a bill for the honor of different parties, the person whose
payment will discharge most parties to the bill is to be given the preference.ÊÊ
ÊÊÊ
Sec. 175.    

   
  

Ê 
 - Where a bill has
been paid for honor, all parties subsequent to the party for whose honor it is paid are
discharged but the payer for honor is subrogated for, and succeeds to, both the rights
and duties of the holder as regards the party for whose honor he pays and all parties
liable to the latter.ÊÊ
ÊÊÊ
Sec. 176. î 
 

   
 
 


  Where the holder
of a bill refuses to receive payment 

protest, he loses his right of recourse
against any party who would have been discharged by such payment.ÊÊ
ÊÊÊ
Sec. 177. ©    


 
 - The payer for honor, on paying to the holder
the amount of the bill and the notarial expenses incidental to its dishonor, is entitled
to receive both the bill itself and the protest.ÊÊ
ÊÊÊ
XV. BILLS IN SETÊ
ÊÊ
Sec. 178. d          - Where a bill is drawn in a set, each part of
the set being numbered and containing a reference to the other parts, the whole of
the parts constitutes one bill.ÊÊ
ÊÊÊ
Sec. 179. ©    
 
 


 

 
 - Where two or more
parts of a set are negotiated to different holders in due course, the holder whose title
first accrues is, as between such holders, the true owner of the bill. But nothing in
this section affects the right of a person who, in due course, accepts or pays the parts
first presented to him.ÊÊ
ÊÊÊ
Sec. 180. {
    
  
  



  
   


  - Where the holder of a set indorses two or more parts to different persons
he is liable on every such part, and every indorser subsequent to him is liable on the
part he has himself indorsed, as if such parts were separate bills.ÊÊ
ÊÊÊ
Sec. 181. c
  

    - The acceptance may be written on any
part and it must be written on one part only. If the drawee accepts more than one
part and such accepted parts negotiated to different holders in due course, he is
liable on every such part as if it were a separate bill.ÊÊ
ÊÊÊ
Sec. 182. 


   

    - When the acceptor of a bill
drawn in a set pays it without requiring the part bearing his acceptance to be
delivered up to him, and the part at maturity is outstanding in the hands of a holder
in due course, he is liable to the holder thereon.ÊÊ
ÊÊÊ
Sec. 183.   

   
  - Except as herein otherwise provided,
where any one part of a bill drawn in a set is discharged by payment or otherwise, the
whole bill is discharged.ÊÊ
ÊÊÊ
XVI. PROMISSORY NOTES AND CHECKSÊ
ÊÊ
Sec. 184. 

   - A negotiable promissory note within the
meaning of this Act is an unconditional promise in writing made by one person to
another, signed by the maker, engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money to order or to bearer. Where a note
is drawn to the maker's own order, it is not complete until indorsed by him.ÊÊ
ÊÊÊ
Sec. 185. ‘   - A check is a bill of exchange drawn on a bank payable on
demand. Except as herein otherwise provided, the provisions of this Act applicable to
a bill of exchange payable on demand apply to a check.ÊÊ
ÊÊÊ
Sec. 186. î  
 
  
  A check must be presented
for payment within a reasonable time after its issue or the drawer will be discharged
from liability thereon to the extent of the loss caused by the delay.ÊÊ
ÊÊÊ
Sec. 187. ‘
  
     - Where a check is certified by the bank on
which it is drawn, the certification is equivalent to an acceptance.ÊÊ
ÊÊÊ
Sec. 188.  
  
  

   
   Where the
holder of a check procures it to be accepted or certified, the drawer and all indorsers
are discharged from liability thereon.ÊÊ
ÊÊÊ
Sec. 189. î   

 


 - A check of itself does not operate
as an assignment of any part of the funds to the credit of the drawer with the bank,
and the bank is not liable to the holder unless and until it accepts or certifies the
check.ÊÊ
ÊÊÊ

XVII. GENERAL PROVISIONSÊ

ÊÊ
Sec. 190. ’
  - This Act shall be known as the Negotiable Instruments Law.ÊÊ
ÊÊÊ
Sec. 191.    

  
  - In this Act, unless the contract
otherwise requires:ÊÊ

c
 means an acceptance completed by delivery or notification;ÊÊ
ÊÊÊ
c includes counterclaim and set-off;ÊÊ
ÊÊÊ
d
includes any person or association of persons carrying on the business
of banking, whether incorporated or not;ÊÊ
ÊÊÊ
d


 means the person in possession of a bill or note which is payable to
bearer;ÊÊ
ÊÊÊ
d  means bill of exchange, and "note" means negotiable promissory note;ÊÊ
ÊÊÊ
 
 means transfer of possession, actual or constructive, from one person
to another;ÊÊ
ÊÊÊ
 
means the payee or indorsee of a bill or note who is in possession of it,
or the bearer thereof;ÊÊ
ÊÊÊ
M
 means an indorsement completed by delivery;ÊÊ
ÊÊÊ
M 
 means negotiable instrument;ÊÊ
ÊÊÊ
M means the first delivery of the instrument, complete in form, to a
 person who takes it as a holder;ÊÊ
ÊÊÊ

includes a body of persons, whether incorporated or not;ÊÊ
ÊÊÊ
*
 means valuable consideration;ÊÊ
ÊÊÊ
î
includes printed, and 
 includes print.ÊÊ

Sec. 192. 
 



   
 - The person 


 liable on
an instrument is the person who, by the terms of the instrument, is absolutely
required to pay the same. All other parties are   

 liable.ÊÊ
ÊÊÊ
Sec. 193. ©

 
     - In determining what is a 



  regard is to be had to the nature of the instrument, the usage of trade or
business with respect to such instruments, and the facts of the particular case.ÊÊ
ÊÊÊ
Sec. 194.     


    
 - Where the day, or
the last day for doing any act herein required or permitted to be done falls on a
Sunday or on a holiday, the act may be done on the next succeeding secular or
business day.ÊÊ
ÊÊÊ
Sec. 195. c 
  c - The provisions of this Act do not apply to negotiable
instruments made and delivered prior to the taking effect hereof.Ê
 ÊÊ
ÊÊÊ
Sec. 196. ‘
  
 
 c Any case not provided for in this Act shall
be governed by the provisions of existing legislation or in default thereof, by the rules
of the law merchant.ÊÊ
ÊÊ
Sec. 197. ©
  - All acts and laws and parts thereof inconsistent with this Act are
hereby repealed.ÊÊ
ÊÊÊ
Sec. 198.   c
  - This Act shall take effect ninety days after its
publication in the Official Gazette of the Philippine Islands shall have been
completed.ÊÊ
ÊÊÊ

: February 3, 1911ÊÊ
Ê
Haystacks and Short Digests: Negotiable
Instruments
¬ Nature and Coverage of Act 2031, the Negotiable Instruments Law (NIL)Ê
¬ he function of Negotiable InstrumentsÊ

Traders Royal Bank vs. CA, 269 SCRAÊÊÊÊ

‘
Ê
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ew Pacific Timber vs. Seneris, 101 SCRAÊÊÊÊ

Roman Catholic Church of Malolos vs. IAC, 191 SCRAÊÊÊÊ

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Associated Bank vs. CA (252 SCRA), supra [See 49]Ê

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