NEGOTIABLE INSTRUMENTS LAW, SECTION 1

ROMAN CATHOLIC BISHOP OF MALOLOS, INC., v. INTERMEDIATE APPELLATE COURT [G.R. No.
72110]
FACTS: A contract over the land in question was executed between the petitioner as vendor and the
private respondent as vendee, stipulating for a downpayment of P23,930.00 and the balance of
P100,000.00 plus 12% interest per annum to be paid within four (4) years from execution of the contract.
The contract likewise provides for cancellation, forfeiture of previous payments, and reconveyance of the
land in question in case the private respondent would fail to complete payment within the said period.
After the expiration of the stipulated period for payment, private respondent wrote the petitioner a formal
request that they be allowed to pay the principal amount of P100,000.00 in three (3) equal installments of
six (6) months each with the first installment and the accrued interest of P24,000.00 to be paid
immediately upon approval of the said request. This was denied but they were given 5-day grace period.
Their subsequent request for a 30-day extension was likewise denied by petitioner.
Consequently, the private respondent wrote a letter directly addressed to the petitioner, protesting the
alleged refusal of the latter to accept tender of payment purportedly made by the on the last day of the
grace period.
The petitioners counsel, wrote a reply to the private respondent stating the refusal of his client to execute
the deed of absolute sale due to its (private respondents) failure to pay its full obligation. Moreover, the
petitioner denied that the private respondent had made any tender of payment whatsoever within the
grace period. In view of this alleged breach of contract, the petitioner cancelled the contract and
considered all previous payments forfeited and the land as ipso facto reconveyed.
The trial court, in its ratiocination, preferred not to give credence to the evidence presented by the private
Respondent and ruled in favor of petitioner. The IAC (now CA) reversed such ruling relying on its finding
that the private respondent had sufficient available funds, ipso facto concluded that the latter had
tendered payment
ISSUE: Is an offer of a check a valid tender of payment of an obligation under a contract which stipulates
that the consideration of the sale is in Philippine Currency?
HELD: NO The private respondent used a certified personal check which is not legal tender nor the
currency stipulated, and therefore, can not constitute valid tender of payment. The first paragraph of Art.
1249 of the Civil Code provides that "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.
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. A check, whether a managers 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.
Hence, where the tender of payment by the private respondent was not valid for failure to comply with the
requisite payment in legal tender or currency stipulated within the grace period and as such, was validly
refused receipt by the petitioner, the subsequent consignation did not operate to discharge the former
from its obligation to the latter.

BPI EXPRESS CARD CORPORATION vs. COURT OF APPEALS [G.R. No. 120639]
FACTS: The plaintiff is a lawyer by profession was a complimentary member of BPI Express Card
Corporation (BECC) and was issued with a Credit Card. Their contractual relations went on smoothly until
his statement of account for October, 1989 amounting to P8,987.84 was not paid in due time. The
defendant demanded immediate payment of his outstanding account, and required him to issue a check
for P15,000.00 which would include his future bills, or his credit card suspended. Plaintiff issued Far East
Bank and Trust Co. Check in the amount of P15,000.00, postdated December 15, 1989 which was
received on November 23, 1989 by an employee of the defendant who in turn gave the said check to a
co-employee who handles the account of the plaintiff. The check remained in the custody of head of the
collection department of defendant.On November 28, 1989, defendant served plaintiff a letter by ordinary
mail informing him of the temporary suspension of the privileges of his credit card and the inclusion of his
account number in their Caution List. He was also told to refrain from further use of his credit card to
avoid any inconvenience/embarrassment and that unless he settles his outstanding account with the
defendant within 5 days from receipt of the letter, his membership will be permanently cancelled. There is
no showing that the plaintiff received this letter before December 8, 1989. Confident that he had settled
his account with the issuance of the postdated check, plaintiff invited some guests on December 8, 1989
and entertained them at Caf Adriatico. When he presented his credit card to Caf Adriatico for the bill
amounting to P735.32, said card was dishonored.
Thus, soon after, private respondent filed a complaint for damages against petitioner before the Regional
Trial Court of Makati. The trial court ruled for private respondent, finding that herein petitioner abused its
right in contravention of Article 19 of the Civil Code.
ISSUE: 1) W/N petitioner had the right to suspend the credit card of the private respondent.
HELD: 1) YES Any CARD with outstanding balances unpaid after thirty (30) days from original
billing/statement date shall automatically be suspended, and those with accounts unpaid after sixty (60)
days from said original billing/statement date shall automatically be cancelled, without prejudice to
BECC's right to suspend or cancel any CARD any time and for whatever reason. The aforequoted
provision of the credit card cannot be any clearer. By his own admission, private respondent made no
payment within thirty days for his original billing/statement dated 27 September 1989. Neither did he
make payment for his original billing/statement dated 27 October 1989. Consequently, as early as 28
October 1989, thirty days from the non-payment of his billing dated 27 September 1989, petitioner
corporation could automatically suspend his credit card.
There was an arrangement between the parties, wherein the petitioner required the private respondent to
issue a check worth P15,000 as payment for the latter's billings. However, we find that the private
respondent was not able to comply with his obligation. As agreed upon by the parties, on the following
day, private respondent did issue a check for P15,000. However, the check was postdated 15 December
1989. Settled is the doctrine that a check is only a substitute for money and not money, the delivery of
such an instrument does not, by itself operate as payment. This is especially true in the case of a
postdated check.
Thus, the issuance by the private respondent of the postdated check was not effective payment. It did not
comply with his obligation under the arrangement with Miss Lorenzo. Petitioner corporation was therefore
justified in suspending his credit card.

CALTEX vs.COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY [G.R. No. 97753]
FACTS: On various dates, defendant, a commercial banking institution issued 280 certificates of
time deposit (CTDs) in favor of one Angel dela Cruz who deposited with herein defendant the
aggregate amount of P1,120,000.00
Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in connection with his
purchased of fuel products from the latter
Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch Manger,
that he lost all the certificates of time deposit in dispute. Mr. Tiangco advised said depositor to
execute and submit a notarized Affidavit of Loss, as required by defendant bank's procedure, if he
desired replacement of said lost CTDs Angel dela Cruz executed and delivered to defendant bank
the required Affidavit of Loss (Defendant's Exhibit 281). On the basis of said affidavit of loss, 280
replacement CTDs were issued in favor of said depositor
On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from defendant bank in the
amount of Eight Hundred Seventy Five Thousand Pesos (P875,000.00). On the same date, said
depositor executed a notarized Deed of Assignment of Time Deposit which stated, among others,
that he (de la Cruz) surrenders to defendant bank "full control of the indicated time deposits from and
after date" of the assignment and further authorizes said bank to pre-terminate, set-off and "apply
the said time deposits to the payment of whatever amount or amounts may be due" on the loan upon
its maturity
Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to the
defendant bank's Sucat branch and presented for verification the CTDs declared lost by Angel dela
Cruz alleging that the same were delivered to herein plaintiff "as security for purchases made with
Caltex Philippines, Inc." by said depositor
On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from herein plaintiff
formally informing it of its possession of the CTDs in question and of its decision to pre-terminate the
same.
On December 8, 1982, plaintiff was requested by herein defendant to furnish the former "a copy of
the document evidencing the guarantee agreement with Mr. Angel dela Cruz" as well as "the details
of Mr. Angel dela Cruz" obligation against which plaintiff proposed to apply the time deposits. No
copy of the requested documents was furnished herein defendant. Accordingly, defendant bank
rejected the plaintiff's demand and claim for payment of the value of the CTDs in a letter dated
February 7, 1983 (Defendant's Exhibit 566).
In April 1983, the loan of Angel dela Cruz with the defendant bank matured and fell due and on
August 5, 1983, the latter set-off and applied the time deposits in question to the payment of the
matured loan. In view of the foregoing, plaintiff filed the instant complaint, praying that defendant
bank be ordered to pay it the aggregate value of the certificates of time deposit of P1,120,000.00
plus accrued interest and compounded interest therein at 16% per annum, moral and exemplary
damages as well as attorney's fees. After trial, the court a quo rendered its decision dismissing the
instant complaint. 3

ISSUE: W/N the subject certificates of deposit are non-negotiable despite being clearly negotiable
instruments;
HELD: The Court held that the CTDs in question are negotiable instruments. Section 1 Act No. 2031,
otherwise known as the Negotiable Instruments Law, enumerates the requisites for an instrument to
become negotiable, viz:
(a)

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

(b)

Must contain an unconditional promise or order to pay a sum certain in money;

(c)

Must be payable on demand, or at a fixed or determinable future time;

(d)

Must be payable to order or to bearer; and

(e)
Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.
The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties'
bone of contention is with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P.
Tiangco, Security Bank's Branch Manager way back in 1982, testified in open court that the
depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz. Contrary to what respondent
court held, the CTDs are negotiable instruments. The documents provide that the amounts
deposited shall be repayable to the depositor. And who, according to the document, is the depositor?
It is the "bearer." The documents do not say that the depositor is Angel de la Cruz and that the
amounts deposited are repayable specifically to him. Rather, the amounts are to be repayable to the
bearer of the documents or, for that matter, whosoever may be the bearer at the time of
presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could
have with facility so expressed that fact in clear and categorical terms in the documents, instead of
having the word "BEARER" stamped on the space provided for the name of the depositor in each
CTD. On the wordings of the documents, therefore, the amounts deposited are repayable to
whoever may be the bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel
de la Cruz is the depositor "insofar as the bank is concerned," but obviously other parties not privy to
the transaction between them would not be in a position to know that the depositor is not the bearer
stated in the CTDs.

INCIONG v. COURT OF APPEALS & PHILIPPINE BANK OF COMMUNICATIONS

[G.R. No. 96405]
In February 1983, Rene Naybe took out a loan from Philippine Bank of Communications (PBC) in
the amount of P50k. For that he executed a promissory note in the same amount. Naybe was able to
convince Baldomero Inciong, Jr. and Gregorio Pantanosas to co-sign with him as co-makers. The
promissory note went due and it was left unpaid. PBC demanded payment from the three but still no
payment was made. PBC then sue the three but PBC later released Pantanosas from its obligations.
Naybe left for Saudi Arabia hence cant be issued summons and the complaint against him was
subsequently dropped. Inciong was left to face the suit. He argued that that since the complaint
against Naybe was dropped, and that Pantanosas was released from his obligations, he too should
have been released.
ISSUE: Whether or not Inciong should be held liable.
HELD: Yes. Inciong is considering himself as a guarantor in the promissory note. And he was basing
his argument based on Article 2080 of the Civil Code which provides that guarantors are released
from their obligations if the creditors shall release their debtors. It is to be noted however that Inciong
did not sign the promissory note as a guarantor. He signed it as a solidary co-maker.
A guarantor who binds himself in solidum with the principal debtor does not become a solidary codebtor to all intents and purposes. There is a difference between a solidary co-debtor and a fiador in
solidum (surety). The latter, outside of the liability he assumes to pay the debt before the property of
the principal debtor has been exhausted, retains all the other rights, actions and benefits which
pertain to him by reason of the fiansa; while a solidary co-debtor has no other rights than those
bestowed upon him.
Because the promissory note involved in this case expressly states that the three signatories therein
are jointly and severally liable, any one, some or all of them may be proceeded against for the entire
obligation. The choice is left to the solidary creditor (PBC) to determine against whom he will
enforce collection. Consequently, the dismissal of the case against Pontanosas may not be deemed
as having discharged Inciong from liability as well. As regards Naybe, suffice it to say that the court
never acquired jurisdiction over him. Inciong, therefore, may only have recourse against his comakers, as provided by law.

TRADERS ROYAL BANK V CA G.R. No. 93397

FACTS:
Filriters registered owner of Central Bank Certificate of Indebtedness (CBCI). Filriters transferred it to
Philfinance by one of its officers without authorization from the company. Subsequently, Philfinance
transferred same CBCI to Traders Royal Bank (TRB) under a repurchase agreement. When
Philfinance failed to do so, The TRB tried to register in its name in the CBCI. The Central Bank did
not want to recognize the transfer.
Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action
was originally filed as a Petition for Mandamus 5 under Rule 65 of the Rules of Court, to compel the
Central Bank of the Philippines to register the transfer of the subject CBCI to petitioner Traders
Royal Bank (TRB).
DECISION OF LOWER COURTS: * RTC: transfer is null and void. * CA: The appellate court ruled
that the subject CBCI is not a negotiable instrument. Philfinance acquired no title or rights under
CBCI No. D891 which it could assign or transfer to Traders Royal Bank and which the latter can
register with the Central Bank. Thus, the transfer of the instrument from Philfinance to TRB was
merely an assignment, and is not governed by the negotiable instruments law.
APPLICABLE LAWS:
Under section 1 of Act no. 2031 an instrument to be negotiable must conform to the following
requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an
unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at
a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e) Where the
instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.
Under section 3, Article V of Rules and Regulations Governing Central Bank Certificates of
Indebtedness states that the assignment of registered certificates shall not be valid unless made at
the office where the same have been issued and registered or at the Securities Servicing
Department, Central Bank of the Philippines, and by the registered owner thereof, in person or by his
representative, duly authorized in writing. For this purpose, the transferee may be designated as the
representative of the registered owner.
ISSUES & RULING: 1. Whether the CBCI is negotiable instrument or not.
The pertinent portions of the subject CBCI read: The Central Bank of the Philippines (the Bank) for
value received, hereby promises to pay bearer, of if this Certificate of indebtedness be registered, to
FILRITERS GUARANTY ASSURANCE CORPORATION, the registered owner hereof, the principal
sum of FIVE HUNDRED THOUSAND PESOS.
NO. The CBCI is not a negotiable instrument, since the instrument clearly stated that it was payable
to Filriters, and the certificate lacked the words of negotiability which serve as an expression of
consent that the instrument may be transferred by negotiation.

Before the instruments become negotiable instruments, the instrument must conform to the
requirements under the Negotiable Instrument Law. Otherwise instrument shall not bind the parties.

RAUL SESBREO vs.COURT OF APPEALS [G.R. No. 89252]

FACTS: petitioner Raul Sesbreo made a money market placement in the amount of
P300,000.00 with Philfinance. Philfinance issued the following documents to petitioner:
(a)the Certificate of Confirmation of Sale, "without recourse,"
(b)the Certificate of Securities
(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 Insular Bank of Asia and
America as drawee, in the total amount of P304,533.33.
On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance.
However, the checks were dishonored for having been drawn against insufficient funds.
On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private
respondent Pilipinas Bank ("Pilipinas"). On 2 April 1981, petitioner approached private
respondent Pilipinas, Makati Branch, and handed her a demand letter informing the bank that
his placement with Philfinance in the amount 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 (Denominated Custodian Receipt) PN No. 2731 and found:
that the security had been issued with 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 NEGOTIABLE." Pilipinas did not deliver the Note,
nor any certificate of participation in respect thereof, to petitioner.
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.
Thee trial court, dismissed the complaint. Petitioner appealed to respondent Court of Appeals
which later denied the appeal
The Court of appeals in effect held that petitioner acquired no rights vis-a-vis 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:
Nor could plaintiff-appellant have acquired any right over DMC PN No. 2731 as the same is
"non-negotiable" as stamped on its face (Exhibit "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 Instruments Law). A person not a holder cannot sue on the
instrument in his own name and cannot demand or receive payment (Section 51, id.) 9
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. Delta, however, disputes petitioner's contention and argues 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
ISSUE: W/N the security (Denominated Custodian Receipt) is negotiable.
HELD: NO It is important to bear in mind that the negotiation of a negotiable instrument must
be distinguished from the assignment or transfer of an instrument whether that be negotiable or
non-negotiable. Only an instrument qualifying as a negotiable instrument under the relevant
statute may be negotiated 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 assigned or transferred. The legal consequences of
negotiation as distinguished from assignment of a negotiable instrument are, of course,
different. A non-negotiable instrument may, obviously, not be negotiated; but it may be assigned
or transferred, absent an express prohibition against assignment or transfer written in the face
of the instrument:
The words "not negotiable," stamped on the face of the bill of lading, did not destroy its
assignability, but the sole effect was to exempt the bill from the statutory provisions relative
thereto, and a bill, though not negotiable, may be transferred by assignment; the assignee
taking subject to the equities between the original parties.
DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "nontransferable" or "non-assignable." It contained no stipulation which prohibited Philfinance from
assigning or transferring, in whole or in part, that Note.

SERRANO V. CA [G.R. No. 45125]

FACTS: Petitioner Serrano bought some pieces of jewelry for P48,500.00 from Niceta Ribaya. Petitioner,
then in need of money, instructed her private secretary, Josefina Rocco, to pawn the jewelry. Josefina
Rocco went to private respondent Long Life Pawnshop, Inc. ("Long Life"), pledged the jewelry for
P22,000.00 and then absconded with said amount and the pawn ticket. The pawnshop ticket issued to
Josefina Rocco stipulated that it was redeemable "on presentation by the bearer."
Three (3) months later, Gloria Duque and Amalia Celeste informed Niceta Ribaya that a pawnshop ticket
issued by private respondent was being offered for sale. They told Niceta the ticket probably covered
jewelry once owned by the latter which jewelry had been pawned by one Josefina Rocco. Suspecting that
it was the same jewelry she had sold to petitioner, Niceta informed the latter of this offer and suggested
that petitioner go to the Long Life pawnshop to check the matter out. Petitioner claims she went to private
respondent pawnshop, verified that indeed her missing jewelry was pledged there and told Yu An Kiong
not to permit anyone to redeem the jewelry because she was the lawful owner thereof. Petitioner claims
that Yu An Kiong agreed.
On 9 July 1968, petitioner went to the Manila Police Department to report the loss, and a complaint first
for qualified theft and later changed to estafa was subsequently filed against Josefina Rocco. On the
same date, Detective Corporal Oswaldo Mateo of the Manila Police also claims to have gone to the
pawnshop, showed Yu An Kiong petitioner's report and left the latter a note asking him to hold the jewelry
and notify the police in case some one should redeem the same. The next day, on 10 July 1968, Yu An
Kiong permitted one Tomasa de Leon, exhibiting the appropriate pawnshop ticket, to redeem the jewelry.
On 4 October 1968, petitioner filed a complaint with the then Court of First Instance of Manila for
damages against private respondent Long Life for failure to hold the jewelry and for allowing its
redemption without first notifying petitioner or the police. After trial, the trial judge, Hon. Luis B. Reyes,
rendered a decision in favor of petitioner. Judge L.B. Reyes' decision was reversed on appeal and the
complaint dismissed by the public respondent Court of Appeals.
In this Petition for Review, petitioner seeks reversal of the Public respondent's findings relating to the
credibility of witnesses and the restoration of the trial court's decision.
ISSUE: W/N the pawn ticket is a negotiable instrument.
HELD: NO Turning to the substantive legal rights and duties of the parties, we believe and so hold that,
having been notified by petitioner and the police that jewelry pawned to it was either stolen or involved in
an embezzlement of the proceeds of the pledge, private respondent pawnbroker became duty bound to
hold the things pledged and to give notice to petitioner and the police of any effort to redeem them. Such
a duty was imposed by Article 21 of the Civil Code. The circumstance that the pawn ticket stated that the
pawn was redeemable by the bearer, did not dissolve that duty. The pawn ticket was not a negotiable
instrument under the Negotiable Instruments Law nor a negotiable document of title under Articles
1507 et seq. of the Civil Code. If the third person Tomasa de Leon, who redeemed the things pledged a
day after petitioner and the police had notified Long Life, claimed to be owner thereof, the prudent
recourse of the pawnbroker was to file an interpleader suit, impleading both petitioner and Tomasa de
Leon. The respondent pawnbroker was, of course, entitled to demand payment of the loan extended on
the security of the pledge before surrendering the jewelry, upon the assumption that it had given the loan
in good faith and was not a "fence" for stolen articles and had not conspired with the faithless Josefina
Rocco or with Tomasa de Leon. Respondent pawnbroker acted in reckless disregard of that duty in the
instant case and must bear the consequences, without prejudice to its right to recover damages from
Josefina Rocco.
6

Bachrach vs. Golingco [G.R. No. L-13660]

This is a suit for the recovery of a sum of money claimed as a balance due to the plaintiff on a
promissory note. The note in question represents the purchase price of an automobile truck which
the plaintiff sold to the defendant at the time the note was executed. As security for the payment of
said indebtedness, the plaintiff took a chattel mortgage on the truck; and after the note had matured
this chattel mortgage was foreclosed. At the foreclosure sale the plaintiff himself became the
purchaser for the sum of P539, which amount was credited upon the indebtedness.
Of the questions raised by the defense only two in our opinion require serious consideration. The
first has reference to irregularities in the foreclosure of the chattel mortgage; the second to the
validity of the agreement for 25 per cent as an attorney's fee for collection.
This brings us to the question of the amount of the attorney's fee allowed by the trial court. It is
provided in the note given by the defendant for the purchase price of the truck that, in the event it
becoming necessary to employ counsel to enforce its collection, the maker is to pay an additional
twenty-five per cent "as fees for the attorney collecting the same." The trial court gave judgment for
the full amount due on the note and for an additional sum of P2,115.25, for attorney's fees. The
appellant assigns this as error and argues that the agreement to pay an attorney's fee, in addition to
the principal and stipulated interest, is void as usurious and as being grossly excessive.
We are of the opinion that it may lawfully be stipulated in favor of the creditor, whether the obligation
be evidenced by promissory note or otherwise, that in the event that it becomes necessary, by
reason of the delinquency of the debtor, to employ counsel to enforce payment of the obligation, a
reasonable attorney's fee shall be paid by the debtor, in addition to the amount due for principal and
interest. The legality of such a stipulation, when annexed to a negotiate instrument is expressly
recognized by the Negotiable Instruments Law ((Act No. 2031, sec. 2, par. E). Inasmuch as the
statutory allowance for attorney's fees, as costs, is notoriously less than the amount which attorneys
are entitled to receive from their clients, unless such a stipulation is made and enforced, it follows
that a creditor may be compelled to pay, out of the money due him, a considerable sum as the
necessary cost of enforcing payment by the delinquent debtor.
Such a stipulation is not void as usurious, even when added to a contract for the payment of the
highest rate of interest permissible. The purpose of such a stipulation is not to increase in any
respect the benefits ultimately to accrue to the creditor. It is true that such a stipulation may be made
for the purpose of concealing usury; but that is a matter of proof to be determined in each case upon
the evidence.

Abubakar vs. Auditor General [GR L-1405] 31 July 1948

Facts: Treasury Warrant A-2867376 was issued in favor of Placide S. Urbanes on 10 December
1941 for P1,000, but is now in the hands of Benjamin Abubakar. The Auditor refused to
authorize the payment of the treasury warrant. Abubakar contends he is a holder in good faith
and for value and thus, entitled to the rights and privileges of a holder in due course.
Issue: Whether Abubakar is a holder in due course.
Held: A treasury warrant is not a negotiable instrument; it being 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. Therefore, a holder of a treasury warrant cannot argue that he is a
holder in good faith and for value of a negotiable instrument and thus entitled to the rights and
privileges of a holder in due course, free from defenses.
There is no doubt as to the authenticity and date of the treasury warrant. There is no question
that it was regularly indorsed by the payee and is now in the custody of the herein petitioner
who is a private individual. On the other hand, it is admitted that the warrant was originally made
payable to Placido S. Urbanes in his capacity as disbursing officer of the Food Administration for
"additional cash advance for Food Production Campaign in La Union" (Annex A). It is thus
apparent that this is a treasury warrant issued in favor of a public officer or employee and held
in possession by a private individual. Such being the case, the Auditor General can hardly be
blamed for not authorizing its redemption out of an appropriation specifically for "treasury
warrants issued ... in favor of and held in possession by private individuals." (Republic Act No.
80, Item F-IV-8.) This warrant was not issued in favor of a private individual. It was issued in
favor of a government employee.
The distinction is not without a difference. Outstanding treasury warrants issued prior to January
2, 1942, amount to more than four million pesos. The appropriation herein mentioned is only for
P1,750,000. Obviously Congress wished to provide for redemption of one class of warrants
those issued to private individuals as distinguished from those issued in favor of government
officials. Basis for the discrimination is not lacking. Probably the Government is not so sure that
those warrants to officials have all been properly used by the latter during the Japanese
occupation or maybe it wants to conduct further inquiries as to the equities of the present
holders thereof.
The petitioner argues that he is a holder in good faith and for value of a negotiable instrument
an disentitled 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 instruments 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. (Section 3 last sentenced
and section 1[b] of the Negotiable Instruments Law.) In the United States, government warrants
for the payment of money are not negotiable instruments nor commercial proper

Metropolitan Bank & Trust Company vs. Court of Appeals [G.R. No. 88866]
Facts: he 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.
Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury warrants
with a total value of P1,755,228.37. All warrants were subsequently indorsed by Gloria Castillo
as Cashier of Golden Savings and deposited to its Savings account in Metrobank branch in
Calapan, Mindoro. They were sent for clearance. Meanwhile, Gomez is not allowed to withdraw
from his account, later, however, exasperated over Floria repeated inquiries and also as an
accommodation for a valued client Metrobank decided to allow Golden Savings to withdraw
from proceeds of the warrants. In turn, Golden Savings subsequently allowed Gomez to make
withdrawals from his own account. Metrobank informed Golden Savings that 32 of the warrants
had been dishonored by the Bureau of Treasury and demanded the refund by Golden Savings
of the amount it had previously withdrawn, to make up the deficit in its account. The demand
was rejected. Metrobank then sued Golden Savings.

Issue: Whether or not treasury warrants are negotiable instruments

Held: No. The treasury warrants are not negotiable instruments. Clearly stamped on their face is
the word: non negotiable. Moreover, and this is equal significance, it is indicated that they are
payable from a particular fund, to wit, Fund 501. An instrument to be negotiable instrument must
contain an unconditional promise or orders to pay a sum certain in money. As provided by Sec 3
of NIL an unqualified order or promise to pay is unconditional though coupled with: 1st, an
indication of a particular fund out of which reimbursement is to be made or a particular account
to be debited with the amount; or 2nd, a statement of the transaction which give rise to the
instrument. But an order to promise to pay out of particular fund is not unconditional. The
indication of Fund 501 as the source of the payment to be made on the treasury warrants
makes the order or promise to pay not conditional and the warrants themselves nonnegotiable. There should be no question that the exception on Section 3 of NIL is applicable in
the case at bar.