CALTEX vs CA

FACTS:

Security Bank and Trust Company (Security Bank), a commercial banking institution, through its Sucat Branch
issued 280 certificates of time deposit (CTDs) in favor of Angel dela Cruz who deposited with Security Bank
the total amount of P1,120,000
Angel delivered the CTDs to Caltex for his purchase of fuel products

March 18, 1982: Angel informed Mr. Tiangco, the Sucat Branch Manager that he lost all CTDs, submitted the
required Affidavit of Loss and received the replacement

March 25, 1982: Angel dela Cruz negotiated and obtained a loan from Security Bank in the amount of
P875,000 and executed a notarized Deed of Assignment of Time Deposit

November, 1982: Mr. Aranas, Credit Manager of Caltex went to the Sucat branch to verifythe CTDs declared
lost by Angel

November 26, 1982: Security Bank received a letter from Caltex formally informing it of its possession of the
CTDs in question and of its decision to pre-terminate the same.
December 8, 1982: Caltex was requested by Security Bank to furnish:

a copy of the document evidencing the guarantee agreement with Mr. Angel dela Cruz

the details of Mr. Angel's obligation against which Caltex proposed to apply the time deposits

Security Bank rejected Caltex demand for payment bec. it failed to furnish a copy of its agreement w/ Angel

April 1983, the loan of Angel dela Cruz with Security Bank matured

August 5, 1983: CTD were set-off w/ the matured loan

Caltex filed a complaint praying the bank to pay 1,120,000 plus 16% interest

CA affirmed RTC to dismiss complaint

ISSUE:
1.

W/N the CTDs are negotiable

2.

W/N Caltex as holder in due course can rightfully recover on the CTDs

HELD: Petition is Denied and appealed decision is affirmed.

1. YES.
Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites for an
instrument to become negotiable, viz:

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

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

The documents provide that the amounts deposited shall be repayable to the depositor
depositor = bearer

If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it
could have with facility so expressed that fact in clear and categorical terms in the documents, instead of having
the word "BEARER" stamped on the space provided for the name of the depositor in each CTD

negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the
instrument itself

2. NO.

although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement
between it and De la Cruz, as ultimately ascertained, requires both deliveryand indorsement
CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products

There was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in
which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed.

Where the holder has a lien on the instrument arising from contract, he is deemed a holder for value to the
extent of his lien.

As such holder of collateral security, he would be a pledgee but the requirements therefor and the
effects thereof, not being provided for by the Negotiable Instruments Law, shall be governed by the Civil Code
provisions on pledge of incorporeal rights:

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The instrument proving
the right pledged shall be delivered to the creditor, and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged and the date of the
pledge do not appear in a public instrument.
Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless it appears in
a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real
property.
CONSOLIDATED PLYWOOD V. IFC 149 SCRA 448
FACTS:
Petitioner bought from Atlantic Gulf and Pacific Company, through its sister company Industrial Products Marketing,
two used tractors. Petitioner was issued a sales invoice for the two used tractors. At the same time, the
deed of sale with chattel mortgage with promissory note was issued.
Simultaneously, the seller assigned the deed of sale with chattel mortgage and promissory note to respondent. The
used tractors were then delivered but barely 14 days after, the tractors broke down. The seller sent mechanics

but the tractors were not repaired accordingly as they were no

longer serviceable. Petitioner would delay the payments on the promissory notes until the seller completes its
obligation under the warranty.
Thereafter, a collection suit was filed against petitioner for the payment of the promissory note.

HELD:
It is patent that the seller is liable for the breach in 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 latters rights
are based on a negotiable instrument and assuming further that the petitioners defense may not prevail
against it.
The promissory note in question is not a negotiable instrument. The promissory note in question lacks the socalled words of negotiability. And as such, it follows that the respondent can never be a holder in due course but
remains merely an assignee of the note in question. Thus, the petitioner may raise against the respondents
all defenses available to it against the seller.

GARCIA VS LLAMAS

FACTS:

Romeo Garcia and Eduardo de Jesus borrowed P400K and issued a promissory note binding themselves
solidarily to Dionisio Llamas

Llamas filed a complaint for sum of money and damages against Garcia and de Jesus.
Garcia: signed merely as an accommodation party

RTC: favored Llamas against de Jesus

CA: no novation

ISSUE: W/N de Jesus is not be liable as an accomodation party because note is non-negotiable

HELD: YES. CA Affirmed

Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by

substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor NOT in this case

By its terms, the note was made payable to a specific person rather than to bearer or to order- a requisite for
negotiability under Act 2031, the Negotiable Instruments Law (NIL). Hence, petitioner cannot avail himself of the
NILs provisions on the liabilities and defenses of an accommodation party.

Besides, a non-negotiable note is merely a simple contract in writing and is evidence of suchintangible rights
as may have been created by the assent of the parties

The promissory note is thus covered by the general provisions of the Civil Code, not by the NIL
Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the promissory note.

Under Article 29 of Act 2031, an accommodation party is liable for the instrument to a holder for value
even if, at the time of its taking, the latter knew the former to be only anaccommodation party.

The relation between an accommodation party and the party accommodated is, in effect, one
of principal and surety