COMMERCIAL LAW REVIEW: COMPILATION OF DIGESTS (SRC NEGO BATCH 4)

DISCLAIMER: This document is merely a compilation.

Code, it should have first registered such contract or
I do not claim authorship over the case digests.
securities with the SEC.

SECURITIES AND EXCHANGE COMMISSION VS. ISSUE:

PROSPERITY.COM, INC. GR 164197, JANUARY 25,
2012
Whether or not PCI's scheme constitutes an investment
contract
FACTS:

RULING:
Prosperity.Com, Inc. (PCI) sold computer software and
hosted websites. To make a profit, PCI devised a scheme in No. An investment contract is a contract, transaction, or
which for the price of US$234.00, a buyer would acquire scheme where a person invests his money in
from it an internet website of a 15-mega byte (MB) a common enterprise and is led to expect profits primarily
capacity. At the same time, by referring to PCI his own from the efforts of others. The United States
down-line buyers, a first-time buyer could earn commission, Supreme Court held in Securities and Exchange Commission
interest in real estate, and insurance coverage. To benefit v. W.J. Howey Co. that, for an investment contract to exist,
from this scheme, a PCI buyer must enlist and sponsor at the following elements, referred to as the Howey test must
least two other buyers as his own downlines. These second concur: (a) a contract, transaction, or scheme; (b) an
tier of buyers could in turn build up their own downlines. For investment of money; (c) investment is made in
each pair of downlines, the buyer-sponsor receives at a common enterprise; (d) expectation of profits; and (e)
US$92.00 commission. But referrals in a day by the buyer- profits arising primarily from the efforts of others.
sponsor should not exceed 16 since the commissions due
In this case, PCI's clients do not make such investments.
from excess referrals inure to PCI, not to the buyer-
They buy a product of some value to them: an internet
sponsor. SEC ruled that PCI's scheme constitutes an
website of a 15-MB capacity. The client can use this website
investment contract and, following the Securities Regulation
to enable people to have internet access to what he has to

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offer to them. The buyers of the website do not invest PHILIPPINE STOCK EXCHANGE V CA, 281 SCRA 231
money in PCI that it could use for running some business (1997)
that would generate profits for the investors. The price of
FACTS:
US$234 is what the buyer pays for the use of the website, a
tangible asset that PCI creates, using the computer facilities Puerto Azul Land, Inc. (PALI) is a corporation engaged in
and technical skills. the real estate business. PALI was granted permission by
the Securities and Exchange Commission (SEC) to sell its
The commission, interest in real estate, and insurance
shares to the public in order for PALI to develop its
coverage are incentives to downline sellers to bring in other
properties.
customers. These can hardly be regarded as profits from
investment of money under the Howey test. The CA is right PALI then asked the Philippine Stock Exchange (PSE) to list
in ruling that the last requisite in the Howey test is lacking PALIs stocks/shares to facilitate exchange. The PSE Board
in the marketing scheme that PCI has adopted. Evidently, it of Governors denied PALIs application on the ground that
is PCI that expects profit from the network marketing of its there were multiple claims on the assets of PALI.
products. PCI is correct in saying that the US$234 it gets Apparently, the Marcoses, Rebecco Panlilio (trustee of the
from its clients is merely a consideration for the sale of the Marcoses), and some other corporations were claiming
websites that it provides. assets if not ownership over PALI.

PALI then wrote a letter to the SEC asking the latter to

review PSEs decision. The SEC reversed PSEs decisions
and ordered the latter to cause the listing of PALI shares in
the Exchange.

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ISSUE: adverse claims against the assets of PALI, PSE deemed that
granting PALIs application will only be contrary to the best
Whether or not it is within the power of the SEC to reverse
interest of the general public. It was reasonable for the PSE
actions done by the PSE.
to exercise its judgment in the manner it deems appropriate
for its business identity, as long as no rights are trampled
upon, and public welfare is safeguarded.
HELD:

Yes. The SEC has both jurisdiction and authority to look into
the decision of PSE pursuant to the Revised Securities Act
and for the purpose of ensuring fair administration of the
exchange. PSE, as a corporation itself and as a stock
exchange is subject to SECs jurisdiction, regulation, and
control. In order to insure fair dealing of securities and a
fair administration of exchanges in the PSE, the SEC has the
authority to look into the rulings issued by the PSE. The SEC
is the entity with the primary say as to whether or not
securities, including shares of stock of a corporation, may
be traded or not in the stock exchange.

HOWEVER, in the case at bar, the Supreme Court

emphasized that the SEC may only reverse decisions issued
by the PSE if such are tainted with bad faith. In this case,
there was no showing that PSE acted with bad faith when it
denied the application of PALI. Based on the multiple

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CEMCO HOLDINGS, INC. vs. NATIONAL LIFE National Life Insurance Company of the Philippines, Inc., a
INSURANCE COMPANY OF THE PHILIPPINES, INC. minority stockholder of UCC, sent a letter
toCemco demanding the latter to comply with the rule on
GR No. 171815, August 7, 2007
mandatory tender offer. Cemco, however, refused.

FACTS:
Respondent National Life Insurance Company of the

Union Cement Corporation (UCC), a publicly-listed Philippines, Inc. filed a complaint with the SEC asking it to

company, has two principal stockholders UCHC, a non- reverse its 27 July 2004 Resolution and to declare the

listed company, with shares amounting to 60.51%, and purchase agreement of Cemco void and praying that the

petitioner Cemco with 17.03%. Majority of UCHCs stocks mandatory tender offer rule be applied to its UCC shares.
were owned by BCI with 21.31% and ACC with
The SEC ruled in favor of the respondent by reversing and
29.69%. Cemco, on the other hand, owned 9% of UCHC
setting aside its 27 July 2004 Resolution and directed
stocks. In a disclosure letter, BCI informed the Philippine
petitioner Cemco to make a tender offer for UCC shares to
Stock Exchange (PSE) that it and its subsidiary ACC had
respondent and other holders of UCC shares similar to the
passed resolutions to sell to Cemco BCIsstocks in UCHC
class held by UCHC in accordance with Section 9(E), Rule 19
equivalent to 21.31% and ACCs stocks in UCHC equivalent
of the Securities Regulation Code.
to 29.69%.
On petition to the Court of Appeals, the CA rendered a
As a consequence of this disclosure, the PSE inquired as to
decision affirming the ruling of the SEC. It ruled that the
whether the Tender Offer Rule under Rule 19 of the
SEC has jurisdiction to render the questioned decision and,
Implementing Rules of the Securities Regulation Code is not
in any event, Cemcowas barred by estoppel from
applicable to the purchase by petitioner of the majority of
questioning the SECs jurisdiction. It, likewise, held that the
shares of UCC. The SEC en banc had resolved that
tender offer requirement under the Securities Regulation
the Cemco transaction was not covered by the tender offer
Code and its Implementing Rules applies
rule. Feeling aggrieved by the transaction, respondent

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to Cemcos purchase of UCHC stocks. Cemcos motion for 13. Violation

reconsideration was likewise denied.
If there shall be violation of this Rule by pursuing a
ISSUES: purchase of equity shares of a public company at threshold
amounts without the required tender offer, the Commission,
1. Whether or not the SEC has jurisdiction over
upon complaint, may nullify the said acquisition and direct
respondents complaint and to require Cemco to
the holding of a tender offer. This shall be without
make a tender offer for respondents UCC shares.
prejudice to the imposition of other sanctions under the
Code.

2. Whether or not the rule on mandatory tender offer The foregoing rule emanates from the SECs power and
applies to the indirect acquisition of shares in a listed authority to regulate, investigate or supervise the activities
company, in this case, the indirect acquisition of persons to ensure compliance with the Securities

by Cemco of 36% of UCC, a publicly-listed company, Regulation Code, more specifically the provision on

through its purchase of the shares in UCHC, a non- mandatory tender offer under Section 19 thereof. Moreover,

listed company. petitioner is barred from questioning the jurisdiction of the

SEC. It must be pointed out that petitioner had participated
HELD:
in all the proceedings before the SEC and had prayed for

1. YES. In taking cognizance of respondents complaint affirmative relief.

against petitioner and eventually rendering a

2. YES. Tender offer is a publicly announced intention
judgment which ordered the latter to make a tender
by a person acting alone or in concert with other
offer, the SEC was acting pursuant to Rule 19(13) of
persons to acquire equity securities of a public
the Amended Implementing Rules and Regulations of
company.[ A public company is defined as a
the Securities Regulation Code, to wit:
corporation which is listed on an exchange, or a

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corporation with assets exceeding P50,000,000.00 obtained, either through the direct purchase of its stocks or
and with 200 or more stockholders, at least 200 of through an indirect means, mandatory tender offer
them holding not less than 100 shares of such applies. As appropriately held by the Court of Appeals:
company. Stated differently, a tender offer is an
What is decisive is the determination of the power of
offer by the acquiring person to stockholders of a
control. The legislative intent behind the tender offer rule
public company for them to tender their shares
makes clear that the type of activity intended to be
therein on the terms specified in the
regulated is the acquisition of control of the listed company
offer.[14] Tender offer is in place to protect minority
through the purchase of shares. Control may [be] effected
shareholders against any scheme that dilutes the
through a direct and indirect acquisition of stock, and when
share value of their investments. It gives the
this takes place, irrespective of the means, a tender offer
minority shareholders the chance to exit the
must occur. The bottomline of the law is to give the
company under reasonable terms, giving them the
shareholder of the listed company the opportunity to decide
opportunity to sell their shares at the same price as
whether or not to sell in connection with a transfer of
those of the majority shareholders.
control.xxx
The SEC and the Court of Appeals ruled that the indirect
acquisition by petitioner of 36% of UCC shares through the
acquisition of the non-listed UCHC shares is covered by the
mandatory tender offer rule.

The legislative intent of Section 19 of the Code is to

regulate activities relating to acquisition of control of the
listed company and for the purpose of protecting the
minority stockholders of a listed corporation. Whatever
may be the method by which control of a public company is

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ABACUS SECURITIES CORP V AMPIL, GR NO 160016 committed when it failed 1) to require respondent to pay for
his stock purchases within three (T+3) or four days (T+4)
FACTS:
from trading; and 2) to request from the appropriate

Petitioner corporation was engaged in business as a broker authority an extension of time for the payment of his cash

and dealer of securities of listed companies at the Philippine purchases. The trial court noted that despite his

Stock Exchange Center. On April 8, 1997, respondent nonpayment within the required period, petitioner did not

opened a cash account with petitioner for his transactions in cancel his purchases. Neither did it require him to deposit

securities and, on April 10, started trading on that account. cash payments before it executed buy and/or sell orders

As a result of his trading activities, he accumulated an subsequent to the first unsettled transaction. The Issues

outstanding obligation in favor of the corporation in the Two issues were raised by the parties: (1) whether the pari

principal sum of P6,617,036.22 as of April 30, 1997. delicto rule was applicable to the present case; and (2)

Respondent failed to settle his account upon the lapse of the whether the trial court had jurisdiction over the case.
required period and the extension given by petitioner,
FIRST ISSUE: PARI DELICTO
prompting it to sell his securities on May 6, 1997, to offset
his unsettled obligations. After the sale of his securities and Sections 23 and 25 and Rule 25-1, otherwise known as the
the application of the proceeds against his account, his mandatory close-out rule,[1] clearly vested an obligation,
remaining accountabilities to petitioner totalled not just a right, in petitioner. That obligation was to cancel
P3,364,313.56. This obligation he failed to settle despite its or otherwise liquidate a customers order, if payment was
demands. The trial court and the Court of Appeals (CA) both not received within three days from the date of purchase.
held that the parties were in pari delicto and, hence, without Subsequent to an unpaid order, the broker should require
recourse against each other. The lower courts said that its customer to deposit funds in the account sufficient to
petitioner had violated Sections 23 and 25 of the Revised cover each purchase, prior to the execution of the
Securities Act (RSA) and Rule 25-1 of the Rules transaction. These duties were imposed upon the broker to
Implementing the Act (RSA Rules). The violation was ensure faithful compliance with the margin requirements of

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the law, which forbade the broker from extending undue obligation.[3] Elucidating further, since the buyer was not
credit to a cash customer. Respondent Liable for the First able to pay for the transactions that had taken place on
Respondent Liable for the First But Not for the Subsequent April 10 and 11 -- that is, at T+4 -- the broker was duty-
Trade But Not for the Subsequent Trade Nonetheless, these bound to advance the payment to the settlement banks,
margin requirements were applicable only to transactions without prejudice to its right to collect from the client later
entered into by the parties subsequent to the initial trades on.[4] It should be clear that Congress had imposed the
of April 10 and 11, 1997. Thus, petitioner could still collect margin requirements to protect the general economy, not to
from respondent to the extent of the difference between his give the customer a free ride at the expense of the
outstanding obligation as of April 11, 1997, less the broker.[5] Not to require respondent to pay for his April 10
proceeds from the mandatory sellout of the shares pursuant and 11 trades would put a premium on his circumvention of
to the RSA Rules. Its right to collect was justified under the the laws and would enable him to enrich himself unjustly at
general law on obligations and contracts.[2] Petitioner could the expense of petitioner. By failing to ensure his payment
not be denied the right to collect, as the initial transactions of his first purchase transactions within the period
had been entered into pursuant to the instructions of prescribed by law, thereby allowing him to make
respondent. His obligation for stock transactions made and subsequent purchases, petitioner effectively converted his
entered into on April 10 and 11, 1997, remained cash account into a credit account. The extension or
outstanding. Those transactions were valid, and the maintenance of credits on nonmargin transactions,
obligations he incurred in regard to his stock purchases on however, were specifically prohibited under Section 23(b).
those dates subsisted. At the time, there was yet no Thus, petitioner was remiss in its duty and could not be said
violation of the RSA. Petitioner committed a fault only when to have come to court with clean hands, insofar as it
it failed 1) to liquidate the transactions on April 14 and 15, intended to collect on transactions subsequent to the initial
1997, or the fourth day following the stock purchases; and trades of April 10 and 11, 1997. Respondent Equally Guilty
2) to complete its liquidation no later than ten days after, Respondent Equally Guilty for Subsequent Trades for
by applying the proceeds as payment for his outstanding Subsequent Trades On the other hand, respondent was

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found to be equally guilty of entering into transactions in
violation of the RSA and RSA Rules. The Court was not
prepared to accept his self-serving assertions of being an
innocent victim in all the transactions. Obviously, he
knowingly speculated on the market by taking advantage of
the nocash-out arrangement extended to him by
petitioner. It was respondents privilege to gamble or
speculate, as he apparently did by asking for extensions of
time and refraining from giving orders to his broker to sell,
in the hope that the prices would rise. Sustaining his
argument would have amounted to relieving him of the risks
of his own speculation and saddling petitioner with the
consequences after the result turned out to be
unfavorable.[6] His conduct as an investor was precisely the
sort deplored by the law. Thus, with respect to his
counterclaim for damages for having been allegedly induced
by petitioner to generate additional purchases despite his
outstanding obligations, the Court held that he deserved no
legal or equitable relief. In the final analysis, both parties
had acted in violation of the law and did not come to court
with clean hands as regards the transactions subsequent to
the initial one made on April 10 and 11, 1997. In this case,
the pari delicto rule applied only to transactions entered into
after those initial trades. Pursuant to RSA Rule 25-1,
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petitioner should have liquidated the transactions (sold the
stocks) on the fourth day after (at T+4) and completed its
liquidation not later than ten days following the last day for
the customer to pay (effectively at T+14). Respondents
outstanding obligation, therefore, was to be determined on
the basis of the closing prices -- at T+14 -- of the stocks
purchased.
SECOND ISSUE: JURISDICTION
The instant controversy related to acts committed by the
parties in the course of their business relationship. An
ordinary civil case seeking to enforce rights arising from the
Agreement (AOF) between the parties, the suit was
intended to enable petitioner to collect on the alleged
outstanding debt incurred by respondent for his stock
purchases. To be sure, the RSA and its Rules were to be
read into the Agreement that the parties had entered into.
Thus, to determine whether they had fulfilled their
obligations under this Agreement, the Court passed upon
their compliance with the RSA and its Rules. In no way did it
thereby deprive the Securities and Exchange Commission
(SEC) of the authority to determine willful violations of the
RSA and impose appropriate sanctions, as provided under
Sections 45 and 46 of the Act. Thus, the Court upheld the
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SEC in its Opinion, as follows: As to the issue of
jurisdiction, it is settled that a party cannot invoke the
jurisdiction of a court to secure affirmative relief against his
opponent and after obtaining or failing to obtain such relief,
repudiate or question that same jurisdiction. Indeed, after
voluntarily submitting a cause and encountering an adverse
decision on the merits, it is too late for petitioner to
question the jurisdictional power of the court. It is not right
for a party who has affirmed and invoked the jurisdiction of
a court in a particular matter to secure an affirmative relief,
to afterwards deny that same jurisdiction to escape a
penalty.
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CALTEX (PHILIPPINES) INC. VS. CA, GR 97753, 10
AUGUST 1992
FACTS:
Security Bank and Trust Co. issued 280 certificates of time
deposit (CTD) in favor of one Mr. Angel dela Cruz who
deposited with the bank P1.12 million. Dela Cruz delivered
the CTDs to Caltex in connection with his purchase of fuel
products from the latter. Subsequently, dela Cruz informed
the bank that he lost all the CTDs, and thus executed an
affidavit of loss to facilitate the issuance of the replacement
CTDs. When Caltex presented said CTDs for verification
with the bank and formally informed the bank of its decision
to preterminate the same, the bank rejected Caltex claim
and demand as Caltex failed to furnish copies of certain
requested documents. In 1983, dela Cruz loan matured
and the bank set-off and applied the time deposits as
payment for the loan. Caltex filed a complaint which was
dismissed on the ground that the subject certificates of
deposit are non-negotiable.
ISSUE:
Whether the Certificates of Time Deposit (CTDs) are
negotiable instruments.
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RULING: the requirements of the law for negotiability as provided for

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

**The accepted rule is that the negotiability or non-

negotiability of an instrument is determined from the
writing, that is, from the face of the instrument itself. The
CTDs in question are negotiable instruments as they meet

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PHILIPPINE EDUCATION CO. VS. SORIANO L- ISSUE:

22405 JUNE 30, 1971 DIZON, J.: Whether or not the postal money order in question
is a negotiable instrument
FACTS:
Enrique Montinola sought to purchase from Manila HELD:
Post Office ten money orders of 200php each payable to E.
P. Montinola. Montinola offered to pay with the money No. It is not disputed that the Philippine postal statutes
orders with a private check. Private check were not were patterned after similar statutes in force in United
generally accepted in payment of money orders, the teller States. The Weight of authority in the United States is that
advised him to see the Chief of the Money Order Division, postal money orders are not negotiable instruments, the
but instead of doing so, Montinola managed to leave the reason being that in establishing and operating a postal
building without the knowledge of the teller. Upon the money order system, the government is not engaged in
disappearance of the unpaid money order, a message was commercial transactions but merely exercises a
sent to instruct all banks that it must not pay for the money governmental power for the public benefit. Moreover, some
order stolen upon presentment. The Bank of America of the restrictions imposed upon money orders by postal
received a copy of said notice. However, The Bank of laws and regulations are inconsistent with the character of
America received the money order and deposited it to the negotiable instruments. For instance, such laws and
appellants account upon clearance. Mauricio Soriano, Chief regulations usually provide for not more than one
of the Money Order Division notified the Bank of America endorsement; payment of money orders may be withheld
that the money order deposited had been found to have under a variety of circumstances.
been irregularly issued and that, the amount it represented
had been deducted from the banks clearing account. The
Bank of America debited appellants account with the same
account and give notice by mean of debit memo.

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It paid the down payment of P210,000

CONSOLIDATED PLYWOOD INDUSTRIES, INC V. IFC
April 5, 1978: IPM issued the sales invoice and the
LEASING AND ACCEPTANCE CORP. (1987) G.R. NO.
deed of sale with chattel mortgage with promissory
72593 APRIL 30, 1987
note was executed
IPM, by means of a deed of assignment,
assigned its rights and interest in the chattel
FACTS:
mortgage in favor of IFC Leasing and
Consolidated (buyer pays promossor note) > IPM (seller- Acceptance Corp. (IFC)
assignor who violated warranty) > IFC (holder in due course After 14 days, one of the tractors broke down and
or merely an assignee?) after another 9 days, the other tractor too
Consolidated Plywood Industries, Inc Because of the breaking down of the tractors, the
(Consolidated) is a corporation engaged in the road building and simultaneous logging operations
logging business were delayed
For the purpose of opening of additional roads Consolidated unilaterally rescinded the contract w/
and simultaneous logging operations along IPM
the route of roads, it needed 2 additional April 7, 1979: Wee of Consolidated asked IPM to pull
units of tractors out the units and have them reconditioned, and
Atlantic Gulf & Pacific Company of Manila, through its thereafter to offer them for sale.
sister company and marketing arm, Industrial The proceeds were to be given to IFC and the
Products Marketing (IPM) (seller-assignor) offered to excess will be divided between:
sell 2 "Used" Allis Crawler Tractors IPM
IPM inspected the job site and assured that Consolidated which offered to bear
the tractors were fit for the job and gave a one-half 1/2 of the reconditioning cost
90-days performance warranty of the IPM didn't do anything
machines and availability of parts.
Consolidated purchased on installment.

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IFC filed against Consolidated for the recovery of the
principal sum P1,093,789.71, interest and attorney's
fees
RTC and CA: favored IFC
breach of warranty if any, is not a defense available
to Consolidated either to withdraw from the contract
and/or demand a proportionate reduction of the price
with damages in either case
ISSUE:
W/N IFC is a holder in due course of the negotiable
promissory note so as to bar completely all the available
defenses of the Consolidated against IPM
HELD:
CA reversed and set aside
Consolidated is a victim of warranrty
The Civil Code provides that:
ART. 1561. The vendor shall be responsible for warranty
against the hidden defects which the thing sold may have,
should they render it unfit for the use for which it is
intended, 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
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which are not visible if the vendee is an expert who, by
reason of his trade or profession, should have known
them.chanroblesvirtualawlibrary
ART. 1562. In a sale of goods, there is an implied warranty
or condition as to the quality or fitness of the goods, as
follows:
(1) Where the buyer, expressly or by implication makes
known to the seller the particular purpose for which the
goods are acquired, and it appears that the buyer relies on
the sellers skill or judge judgment (whether he be the
grower or manufacturer or not), there is an implied
warranty that the goods shall be reasonably fit for such
purpose;
xxx xxx xxx
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.chanroblesvirtualawlibrary
xxx xxx xxx
ART. 1566. The vendor is responsible to the vendee for any
hidden faults or defects in the thing sold even though he
was not aware thereof.
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. (Emphasis supplied).
GR: extends to the corporation to whom it assigned
its rights and interests
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EX: assignee is a holder in due course of the
promissory note
assuming the note is negotiable
Consolidated's defenses may not
prevail against it.
Articles 1191 and 1567 of the Civil Code provide
that:
ART. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation with the payment of
damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become
impossible.
xxx xxx xxx
ART. 1567. In the cases of articles 1561, 1562, 1564, 1565
and 1566, the vendee may elect between withdrawing from
the contract and demanding a proportionate reduction of
the price, with damages in either case. (Emphasis supplied)
Consolidated, having unilaterally and extrajudicially
rescinded its contract with the seller-assignor, can
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no longer sue IPM except by way of counterclaim if
IPM sues it because of the rescission
Considering that paragraph (d), Section 1 of the
Negotiable Instruments Law requires that a
promissory note "must be payable to order or
bearer" - in this case it is non-negotiable
= expression of consent that the instrument
may be transferred
consent is indispensable since a maker
assumes greater risk under a
negotiable instrument than under a
non-negotiable one
When instrument is payable to order
SEC. 8. WHEN PAYABLE TO ORDER. - The instrument is
payable to order where it is drawn payable to the order of a
specified person or to him or his order. . . .
Without the words "or order" or"to the order of, "the
instrument is payable only to the person designated
therein and is therefore non-negotiable.
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Any subsequent purchaser thereof will not enjoy the in the title of the person negotiating the same, the person
advantages of being a holder of a negotiable to whom it is negotiated must have had actual knowledge of
instrument but will merely "step into the shoes" of the infirmity or defect, or knowledge of such facts that his
the person designated in the instrument and will action in taking the instrument amounts to bad faith.
thus be open to all defenses available against the (Emphasis supplied)
latter We believe the finance company is better able to
bear the risk of the dealer's insolvency than the
Even conceding for purposes of discussion that the buyer and in a far better position to protect his
promissory note in question is a negotiable interests against unscrupulous and insolvent dealers.
instrument, the IFC cannot be a holder in due course ..
due to absence of GF for knowing that the tractors
were defective

SEC. 52. WHAT CONSTITUTES A HOLDER IN DUE COURSE.

- A holder in due course is a holder who has taken the
instrument under the following conditions:
xxx xxx xxx
xxx xxx xxx
(c) That he took it in good faith and for value
(d) That the time it was negotiated by him he had no notice
of any infirmity in the instrument of deffect in the title of
the person negotiating it

SEC. 56. WHAT CONSTITUTES NOTICE OF DEFFECT. - To

constitute notice of an infirmity in the instrument or defect

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 COMMERCIAL LAW REVIEW: COMPILATION OF DIGESTS (SRC NEGO BATCH 4)

ANG TEK LIAN VS. COURT OF APPEALS L-2516, loss of the check by the rightful owner, raising of the
SEPTEMBER, 1950 BENGZON, J.: amount payable, etc. But where the bank is satisfied of the
identity or economic standing of the bearer who tenders the
Facts: check for collection, it will pay the instrument without
Ang Tek Lian knowing that he had no funds further question; and it would incur no liability to the
therefor, drew a check upon China Banking Corporation drawer in thus acting.
payable to the order of cash. He delivered it toLee Hua
Hong in exchange for money. The check was presented by
Lee Hua hong to the drawee bank for payment, but it w3as
dishonored for insufficiency of funds. With this, Ang Tek
Lian was convicted of estafa.

Issue:
Whether or not the check issued by Ang Tek Lian
that is payable to the order to cash and not have been
indorsed by Ang Tek Lian, making him not guilty for the
crime of estafa.

Held:
No.Under Sec. 9 of NIL a check drawn payable to
the order of cash is a check payable to bearer and the
bank may pay it to the person presenting it for payment
without the drawers indorsement. However, if the bank is
not sure of the bearers identity or financial solvency, it has
the right to demand identification or assurance against
possible complication, such as forgery of drawers signature,

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 COMMERCIAL LAW REVIEW: COMPILATION OF DIGESTS (SRC NEGO BATCH 4)

PHILIPPINE NATIONAL BANK, vs. ISSUE:

MANILA OIL REFINING & BY-PRODUCTS COMPANY,
INC., Is the provision in a promissory note which authorizes any
attorney to appear and confess judgment thereon in case
FACTS: the same be not paid at maturity valid.

Manila Oil Refining & By-Products Company, Inc., executed HELD:

and delivered to the Philippine National Bank, a written
instrument promising to pay to the order of the latter Warrants of attorney to confess judgment are not

P61,000.00 and stipulating that in case the note be not paid authorized nor contemplated by our law. The provisions in

at maturity, it authorizes any attorney in the Philippine notes authorizing attorneys to appear and confess

Islands to appear in its name and confess judgment for the judgments against makers should not be recognized in this

above sum with interest, cost of suit and attorney's fees of jurisdiction by implication and should only be considered as

ten (10) per cent for collection, a release of all errors and valid when given express legislative sanction.

waiver of all rights to inquisition and appeal, and to the

Such warrants of attorney are void as against public policy.
benefit of all laws exempting property, real or personal,
They enlarge the field for fraud, the promissor bargains
from levy or sale.
away his right to a day in court, and it strikes down the

The Manila Oil Refining and By-Products Company, Inc. right of appeal accorded by statute. It might be the source

failed to pay. The Philippine National Bank brought action. of abuse and oppression, and make the courts involuntary

An attorney associated with the Philippine National Bank parties thereto.

entered his appearance in representation of Manila Oil

Refining & By-Products Company, Inc, and filed a motion
confessing judgment.

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