Académique Documents
Professionnel Documents
Culture Documents
Aranas,
Credit Manager of plaintiff Caltex (Phils.) Inc.,
went to the defendant bank's Sucat branch and
CALTEX (PHILIPPINES), INC., petitioner,
presented for verification the CTDs declared lost
vs.
by Angel dela Cruz alleging that the same were
COURT OF APPEALS and SECURITY BANK AND TRUST
delivered to herein plaintiff "as security for
COMPANY, respondents.
purchases made with Caltex Philippines, Inc." by
said depositor (TSN, February 9, 1987, pp. 54-68).
Bito, Lozada, Ortega & Castillo for petitioners.
7. On November 26, 1982, defendant received a
Nepomuceno, Hofilea & Guingona for private. 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
REGALADO, J.:
same.
This petition for review on certiorari impugns and seeks the reversal of 8. On December 8, 1982, plaintiff was requested
the decision promulgated by respondent court on March 8, 1991 in CA-
by herein defendant to furnish the former "a copy
G.R. CV No. 23615 1 affirming with modifications, the earlier decision of the document evidencing the guarantee
of the Regional Trial Court of Manila, Branch XLII, 2 which dismissed agreement with Mr. Angel dela Cruz" as well as
the complaint filed therein by herein petitioner against respondent
"the details of Mr. Angel dela Cruz" obligation
bank. against which plaintiff proposed to apply the time
deposits (Defendant's Exhibit 564).
The undisputed background of this case, as found by the court a quo
and adopted by respondent court, appears of record: 9. No copy of the requested documents was
furnished herein defendant.
1. On various dates, defendant, a commercial
banking institution, through its Sucat Branch 10. Accordingly, defendant bank rejected the
issued 280 certificates of time deposit (CTDs) in plaintiff's demand and claim for payment of the
favor of one Angel dela Cruz who deposited with
value of the CTDs in a letter dated February 7,
herein defendant the aggregate amount of 1983 (Defendant's Exhibit 566).
P1,120,000.00, as follows: (Joint Partial
Stipulation of Facts and Statement of Issues,
Original Records, p. 207; Defendant's Exhibits 1 to 11. In April 1983, the loan of Angel dela Cruz with
280); 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
CTD CTD matured loan (TSN, February 9, 1987, pp. 130-
Dates Serial Nos. Quantity Amount
131).
22 Feb. 82 90101 to 90120 20 P80,000 12. In view of the foregoing, plaintiff filed the
26 Feb. 82 74602 to 74691 90 360,000
instant complaint, praying that defendant bank be
2 Mar. 82 74701 to 74740 40 160,000 ordered to pay it the aggregate value of the
4 Mar. 82 90127 to 90146 20 80,000 certificates of time deposit of P1,120,000.00 plus
5 Mar. 82 74797 to 94800 4 16,000
accrued interest and compounded interest therein
5 Mar. 82 89965 to 89986 22 88,000 at 16% per annum, moral and exemplary damages
5 Mar. 82 70147 to 90150 4 16,000 as well as attorney's fees.
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000 After trial, the court a quo rendered its decision
9 Mar. 82 90251 to 90272 22 88,000 dismissing the instant complaint. 3
Total 280 P1,120,000
On appeal, as earlier stated, respondent court affirmed the lower
===== ========
court's dismissal of the complaint, hence this petition wherein petitioner
faults respondent court in ruling (1) that the subject certificates of
2. Angel dela Cruz delivered the said certificates deposit are non-negotiable despite being clearly negotiable
of time (CTDs) to herein plaintiff in connection with instruments; (2) that petitioner did not become a holder in due course
his purchased of fuel products from the latter of the said certificates of deposit; and (3) in disregarding the pertinent
(Original Record, p. 208). provisions of the Code of Commerce relating to lost instruments
payable to bearer. 4
3. Sometime in March 1982, Angel dela Cruz
informed Mr. Timoteo Tiangco, the Sucat Branch The instant petition is bereft of merit.
Manger, that he lost all the certificates of time
deposit in dispute. Mr. Tiangco advised said
A sample text of the certificates of time deposit is reproduced below to
depositor to execute and submit a notarized
provide a better understanding of the issues involved in this recourse.
Affidavit of Loss, as required by defendant bank's
procedure, if he desired replacement of said lost
CTDs (TSN, February 9, 1987, pp. 48-50). SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
4. On March 18, 1982, Angel dela Cruz executed
Metro Manila, Philippines
and delivered to defendant bank the required
SUCAT OFFICEP 4,000.00
Affidavit of Loss (Defendant's Exhibit 281). On the
CERTIFICATE OF DEPOSIT
basis of said affidavit of loss, 280 replacement
Rate 16%
CTDs were issued in favor of said depositor
(Defendant's Exhibits 282-561).
Date of Maturity FEB. 23, 1984 FEB 22,
1982, 19____
5. On March 25, 1982, Angel dela Cruz negotiated
and obtained a loan from defendant bank in the
amount of Eight Hundred Seventy Five Thousand This is to Certify that B E A R
Pesos (P875,000.00). On the same date, said E R has deposited in this
depositor executed a notarized Deed of Bank the sum of PESOS:
Assignment of Time Deposit (Exhibit 562) which FOUR THOUSAND ONLY,
stated, among others, that he (de la Cruz) SECURITY BANK SUCAT
surrenders to defendant bank "full control of the OFFICE P4,000 & 00 CTS
indicated time deposits from and after date" of the Pesos, Philippine Currency,
assignment and further authorizes said bank to repayable to said depositor
pre-terminate, set-off and "apply the said time 731 days. after date, upon
deposits to the payment of whatever amount or presentation and surrender of
amounts may be due" on the loan upon its this certificate, with interest at
maturity (TSN, February 9, 1987, pp. 60-62). the rate of 16% per cent per
annum.
(Sgd. Illegible) (Sgd. Illegible) xxx xxx xxx
Atty. Calida:
Atty. Calida: The next query is whether petitioner can rightfully recover on the
CTDs. This time, the answer is in the negative. The records reveal that
Angel de la Cruz, whom petitioner chose not to implead in this suit for
q In other words Mr. Witness, reasons of its own, delivered the CTDs amounting to P1,120,000.00 to
you are saying that per books petitioner without informing respondent bank thereof at any time.
of the bank, the depositor Unfortunately for petitioner, although the CTDs are bearer instruments,
referred (sic) in these a valid negotiation thereof for the true purpose and agreement
certificates states that it was between it and De la Cruz, as ultimately ascertained, requires both
Angel dela Cruz? delivery and indorsement. For, although petitioner seeks to deflect this
fact, the CTDs were in reality delivered to it as a security for De la
witness: Cruz' purchases of its fuel products. Any doubt as to whether the CTDs
were delivered as payment for the fuel products or as a security has
been dissipated and resolved in favor of the latter by petitioner's own
a Yes, your Honor, and we authorized and responsible representative himself.
have the record to show that
Angel dela Cruz was the one
who cause (sic) the amount. In a letter dated November 26, 1982 addressed to respondent Security
Bank, J.Q. Aranas, Jr., Caltex Credit Manager, wrote: ". . . These
certificates of deposit were negotiated to us by Mr. Angel dela Cruz to
Atty. Calida: guarantee his purchases of fuel products" (Emphasis ours.) 13 This
admission is conclusive upon petitioner, its protestations
q And no other person or notwithstanding. Under the doctrine of estoppel, an admission or
entity or company, Mr. representation is rendered conclusive upon the person making it, and
Witness? cannot be denied or disproved as against the person relying thereon.
14 A party may not go back on his own acts and representations to the
prejudice of the other party who relied upon them. 15 In the law of
witness: evidence, whenever a party has, by his own declaration, act, or
omission, intentionally and deliberately led another to believe a
a None, your Honor. 7 particular thing true, and to act upon such belief, he cannot, in any
litigation arising out of such declaration, act, or omission, be permitted
to falsify it. 16
If it were true that the CTDs were delivered as payment and not as being provided for by the Negotiable Instruments Law, shall be
security, petitioner's credit manager could have easily said so, instead governed by the Civil Code provisions on pledge of incorporeal rights,
of using the words "to guarantee" in the letter aforequoted. Besides, 24 which inceptively provide:
when respondent bank, as defendant in the court below, moved for a
bill of particularity therein 17 praying, among others, that petitioner, as
Art. 2095. Incorporeal rights, evidenced by
plaintiff, be required to aver with sufficient definiteness or particularity
negotiable instruments, . . . may also be pledged.
(a) the due date or dates of payment of the alleged indebtedness of
The instrument proving the right pledged shall be
Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt
delivered to the creditor, and if negotiable, must be
showing that the CTDs were delivered to it by De la Cruz as payment
indorsed.
of the latter's alleged indebtedness to it, plaintiff corporation opposed
the motion. 18 Had it produced the receipt prayed for, it could have
proved, if such truly was the fact, that the CTDs were delivered as Art. 2096. A pledge shall not take effect against
payment and not as security. Having opposed the motion, petitioner third persons if a description of the thing pledged
now labors under the presumption that evidence willfully suppressed and the date of the pledge do not appear in a
would be adverse if produced. 19 public instrument.
Under the foregoing circumstances, this disquisition in Intergrated Aside from the fact that the CTDs were only delivered but not indorsed,
Realty Corporation, et al. vs. Philippine National Bank, et al. 20 is the factual findings of respondent court quoted at the start of this
apropos: opinion show that petitioner failed to produce any document evidencing
any contract of pledge or guarantee agreement between it and Angel
de la Cruz. 25 Consequently, the mere delivery of the CTDs did not
. . . Adverting again to the Court's
legally vest in petitioner any right effective against and binding upon
pronouncements in Lopez, supra, we quote
respondent bank. The requirement under Article 2096 aforementioned
therefrom:
is not a mere rule of adjective law prescribing the mode whereby proof
may be made of the date of a pledge contract, but a rule of substantive
The character of the law prescribing a condition without which the execution of a pledge
transaction between the contract cannot affect third persons adversely. 26
parties is to be determined by
their intention, regardless of
On the other hand, the assignment of the CTDs made by Angel de la
what language was used or
Cruz in favor of respondent bank was embodied in a public instrument.
what the form of the transfer
27 With regard to this other mode of transfer, the Civil Code
was. If it was intended to
specifically declares:
secure the payment of money,
it must be construed as a
pledge; but if there was some Art. 1625. An assignment of credit, right or action
other intention, it is not a shall produce no effect as against third persons,
pledge. However, even unless it appears in a public instrument, or the
though a transfer, if regarded instrument is recorded in the Registry of Property
by itself, appears to have in case the assignment involves real property.
been absolute, its object and
character might still be
qualified and explained by Respondent bank duly complied with this statutory requirement.
contemporaneous writing Contrarily, petitioner, whether as purchaser, assignee or lien holder of
the CTDs, neither proved the amount of its credit or the extent of its
declaring it to have been a
deposit of the property as lien nor the execution of any public instrument which could affect or
collateral security. It has been bind private respondent. Necessarily, therefore, as between petitioner
and respondent bank, the latter has definitely the better right over the
said that a transfer of property
by the debtor to a creditor, CTDs in question.
even if sufficient on its face to
make an absolute Finally, petitioner faults respondent court for refusing to delve into the
conveyance, should be question of whether or not private respondent observed the
treated as a pledge if the debt requirements of the law in the case of lost negotiable instruments and
continues in inexistence and the issuance of replacement certificates therefor, on the ground that
is not discharged by the petitioner failed to raised that issue in the lower court. 28
transfer, and that accordingly
the use of the terms ordinarily
importing conveyance of On this matter, we uphold respondent court's finding that the aspect of
absolute ownership will not be alleged negligence of private respondent was not included in the
given that effect in such a stipulation of the parties and in the statement of issues submitted by
transaction if they are also them to the trial court. 29 The issues agreed upon by them for
commonly used in pledges resolution in this case are:
and mortgages and therefore
do not unqualifiedly indicate a 1. Whether or not the CTDs as worded are
transfer of absolute negotiable instruments.
ownership, in the absence of
clear and unambiguous
language or other 2. Whether or not defendant could legally apply
circumstances excluding an the amount covered by the CTDs against the
intent to pledge. depositor's loan by virtue of the assignment
(Annex "C").
The pertinent law on this point is that where the holder has a lien on As respondent court correctly observed, with appropriate citation of
the instrument arising from contract, he is deemed a holder for value to some doctrinal authorities, the foregoing enumeration does not include
the extent of his lien. 23 As such holder of collateral security, he would the issue of negligence on the part of respondent bank. An issue
be a pledgee but the requirements therefor and the effects thereof, not raised for the first time on appeal and not raised timely in the
proceedings in the lower court is barred by estoppel. 30 Questions Appellate Court in AC-G.R. CV No. 68609 dated July 17, 1985, as well
raised on appeal must be within the issues framed by the parties and, as its resolution dated October 17, 1985, denying the motion for
consequently, issues not raised in the trial court cannot be raised for reconsideration.
the first time on appeal. 31
The antecedent facts culled from the petition are as follows:
Pre-trial is primarily intended to make certain that all issues necessary
to the disposition of a case are properly raised. Thus, to obviate the
The petitioner is a corporation engaged in the logging business. It had
element of surprise, parties are expected to disclose at a pre-trial
for its program of logging activities for the year 1978 the opening of
conference all issues of law and fact which they intend to raise at the
additional roads, and simultaneous logging operations along the route
trial, except such as may involve privileged or impeaching matters. The
of said roads, in its logging concession area at Baganga, Manay, and
determination of issues at a pre-trial conference bars the consideration
Caraga, Davao Oriental. For this purpose, it needed two (2) additional
of other questions on appeal. 32
units of tractors.
Narvasa, C.J., Padilla and Nocon, JJ., concur. 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
(ii) G.R. No. 72593 April 30, 1987
the installments as listed in the promissory note would likewise be
delayed until the seller-assignor completely fulfills its obligation under
CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and its warranty (t.s.n, May 28, 1980, p. 79).
RODOLFO T. VERGARA, petitioners,
vs.
Since the tractors were no longer serviceable, on April 7, 1979,
IFC LEASING AND ACCEPTANCE CORPORATION, respondent.
petitioner Wee asked the seller-assignor to pull out the units and have
them reconditioned, and thereafter to offer them for sale. The proceeds
Carpio, Villaraza & Cruz Law Offices for petitioners. 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 (E exh. " 7 ").
Europa, Dacanay & Tolentino for respondent.
In a decision dated April 20, 1981, the trial court rendered the following A study of the questioned promissory note reveals
judgment: that it is a negotiable instrument which was
discounted or sold to the IFC Leasing and
Acceptance Corporation for P800,000.00 (Exh.
WHEREFORE, judgment is hereby rendered:
"A") considering the following. it is in writing and
signed by the maker; it contains an unconditional
1. ordering defendants to pay jointly and severally promise to pay a certain sum of money payable at
in their official and personal capacities the a fixed or determinable future time; it is payable to
principal sum of ONE MILLION NINETY THREE order (Sec. 1, NIL); the promissory note was
THOUSAND SEVEN HUNDRED NINETY EIGHT negotiated when it was transferred and delivered
PESOS & 71/100 (P1,093,798.71) with accrued by IPM to the appellee and duly endorsed to the
interest of ONE HUNDRED FIFTY ONE latter (Sec. 30, NIL); it was taken in the conditions
THOUSAND SIX HUNDRED EIGHTEEN PESOS that the note was complete and regular upon its
& 86/100 (P151,618.,86) as of August 15, 1979 face before the same was overdue and without
and accruing interest thereafter at the rate of 12% notice, that it had been previously dishonored and
per annum; that the note is in good faith and for value without
notice of any infirmity or defect in the title of IPM
(Sec. 52, NIL); that IFC Leasing and Acceptance
2. ordering defendants to pay jointly and severally Corporation held the instrument free from any
attorney's fees equivalent to ten percent (10%) of
defect of title of prior parties and free from
the principal and to pay the costs of the suit. defenses available to prior parties among
themselves and may enforce payment of the
Defendants' counterclaim is disallowed. (pp. 45- instrument for the full amount thereof against all
46, Rollo) parties liable thereon (Sec. 57, NIL); the
appellants engaged that they would pay the note
according to its tenor, and admit the existence of
On June 8, 1981, the trial court issued an order denying the motion for the payee IPM and its capacity to endorse (Sec.
reconsideration filed by the petitioners. 60, NIL).
Thus, the petitioners appealed to the Intermediate Appellate Court and In view of the essential elements found in the
assigned therein the following errors: questioned promissory note, We opine that the
same is legally and conclusively enforceable
I against the defendants-appellants.
THAT THE LOWER COURT ERRED IN FINDING THAT THE SELLER WHEREFORE, finding the decision appealed from
ATLANTIC GULF AND PACIFIC COMPANY OF MANILA DID NOT according to law and evidence, We find the appeal
APPROVE DEFENDANTS-APPELLANTS CLAIM OF WARRANTY. without merit and thus affirm the decision in toto.
With costs against the appellants. (pp. 50-55,
Rollo)
II
xxx xxx xxx ON ITS FACE, THE PROMISSORY NOTE IS CLEARLY NOT A
NEGOTIABLE INSTRUMENT AS DEFINED UNDER THE LAW SINCE
IT IS NEITHER PAYABLE TO ORDER NOR TO BEARER.
From the evidence presented by the parties on the
issue of warranty, We are of the considered
opinion that aside from the fact that no provision of II
warranty appears or is provided in the Deed of
Sale of the tractors and even admitting that in a THE RESPONDENT IS NOT A HOLDER IN DUE COURSE: AT BEST,
contract of sale unless a contrary intention IT IS A MERE ASSIGNEE OF THE SUBJECT PROMISSORY NOTE.
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 III.
against the plaintiff-appellee who is the assignee
of the promissory note and a holder of the same in SINCE THE INSTANT CASE INVOLVES A NON-NEGOTIABLE
due course. Warranty lies in this case only
INSTRUMENT AND THE TRANSFER OF RIGHTS WAS THROUGH A
between Industrial Products Marketing and MERE ASSIGNMENT, THE PETITIONERS MAY RAISE AGAINST
Consolidated Plywood Industries, Inc. The plaintiff- THE RESPONDENT ALL DEFENSES THAT ARE AVAILABLE TO IT
appellant herein upon application by appellant
AS AGAINST THE SELLER- ASSIGNOR, INDUSTRIAL PRODUCTS
corporation granted financing for the purchase of MARKETING.
the questioned units of Fiat-Allis Crawler,Tractors.
IV.
xxx xxx xxx
THE PETITIONERS ARE NOT LIABLE FOR THE PAYMENT OF THE ART. 1564. An implied warranty or condition as to
PROMISSORY NOTE BECAUSE: the quality or fitness for a particular purpose may
be annexed by the usage of trade.
A) THE SELLER-ASSIGNOR IS GUILTY OF BREACH OF
WARRANTY UNDER THE LAW; xxx xxx xxx
B) IF AT ALL, THE RESPONDENT MAY RECOVER ONLY FROM ART. 1566. The vendor is responsible to the
THE SELLER-ASSIGNOR OF THE PROMISSORY NOTE. vendee for any hidden faults or defects in the thing
sold even though he was not aware thereof.
V.
This provision shall not apply if the contrary has
been stipulated, and the vendor was not aware of
THE ASSIGNMENT OF THE CHATTEL MORTGAGE BY THE
the hidden faults or defects in the thing sold.
SELLER- ASSIGNOR IN FAVOR OF THE RESPONDENT DOES NOT
(Emphasis supplied).
CHANGE THE NATURE OF THE TRANSACTION FROM BEING A
SALE ON INSTALLMENTS TO A PURE LOAN.
It is patent then, that the seller-assignor is liable for its breach of
warranty against the petitioner. This liability as a general rule, extends
VI.
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
THE PROMISSORY NOTE CANNOT BE ADMITTED OR USED IN question, assuming the note is negotiable, in which case the latter's
EVIDENCE IN ANY COURT BECAUSE THE REQUISITE rights are based on the negotiable instrument and assuming further
DOCUMENTARY STAMPS HAVE NOT BEEN AFFIXED THEREON that the petitioner's defenses may not prevail against it.
OR CANCELLED.
Secondly, it likewise cannot be denied that as soon as the tractors
The petitioners prayed that judgment be rendered setting aside the broke down, the petitioner-corporation notified the seller-assignor's
decision dated July 17, 1985, as well as the resolution dated October sister company, AG & P, about the breakdown based on the seller-
17, 1985 and dismissing the complaint but granting petitioners' assignor's express 90-day warranty, with which the latter complied by
counterclaims before the court of origin. sending its mechanics. However, 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
On the other hand, the respondent corporation in its comment to the purchased.
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 Thirdly, the petitioner-corporation, thereafter, unilaterally rescinded its
any breach of warranty; and finally, that the promissory note is contract with the seller-assignor.
admissible in evidence.
Articles 1191 and 1567 of the Civil Code provide that:
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
ART. 1191. The power to rescind obligations is
defenses of the petitioner against the respondent-assignee.
implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent
Preliminarily, it must be established at the outset that we consider the upon him.
instant petition to have been filed on time because the petitioners'
motion for reconsideration actually raised new issues. It cannot,
The injured party may choose between the
therefore, be considered pro- formal.
fulfillment and the rescission of the obligation with
the payment of damages in either case. He may
The petition is impressed with merit. also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
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 xxx xxx xxx
respondent appellate court, that "14 days after delivery, the first tractor
broke down and 9 days, thereafter, the second tractor became
ART. 1567. In the cases of articles 1561, 1562,
inoperable" are sustained by the records. The petitioner was clearly a
1564, 1565 and 1566, the vendee may elect
victim of a warranty not honored by the maker.
between withdrawing from the contract and
demanding a proportionate reduction of the price,
The Civil Code provides that: with damages in either case. (Emphasis supplied)
ART. 1561. The vendor shall be responsible for Petitioner, having unilaterally and extrajudicially rescinded its contract
warranty against the hidden defects which the with the seller-assignor, necessarily can no longer sue the seller-
thing sold may have, should they render it unfit for assignor except by way of counterclaim if the seller-assignor sues it
the use for which it is intended, or should they because of the rescission.
diminish its fitness for such use to such an extent
that, had the vendee been aware thereof, he
In the case of the University of the Philippines v. De los Angeles (35
would not have acquired it or would have given a
SCRA 102) we held:
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 In other words, the party who deems the contract
vendee is an expert who, by reason of his trade or violated may consider it resolved or rescinded,
profession, should have known them. and act accordingly, without previous court action,
but it proceeds at its own risk. For it is only the
final judgment of the corresponding court that will
ART. 1562. In a sale of goods, there is an implied
conclusively and finally settle whether the action
warranty or condition as to the quality or fitness of
taken was or was not correct in law. But the law
the goods, as follows:
definitely does not require that the contracting
party who believes itself injured must first file suit
(1) Where the buyer, expressly or by implication and wait for adjudgement before taking
makes known to the seller the particular purpose extrajudicial steps to protect its interest.
for which the goods are acquired, and it appears Otherwise, the party injured by the other's breach
that the buyer relies on the sellers skill or judge will have to passively sit and watch its damages
judgment (whether he be the grower or accumulate during the pendency of the suit until
manufacturer or not), there is an implied warranty the final judgment of rescission is rendered when
that the goods shall be reasonably fit for such the law itself requires that he should exercise due
purpose; diligence to minimize its own damages (Civil
Code, Article 2203). (Emphasis supplied)
xxx xxx xxx
Going back to the core issue, we rule that the promissory note in
question is not a negotiable instrument.
The pertinent portion of the note is as follows: nodding your head? Do you
confirm that?
FOR VALUE RECEIVED, I/we jointly and severally
promise to pay to the INDUSTRIAL PRODUCTS ATTY. ILAGAN:
MARKETING, the sum of ONE MILLION NINETY
THREE THOUSAND SEVEN HUNDRED EIGHTY
The Deed of Sale cannot be
NINE PESOS & 71/100 only (P 1,093,789.71),
assigned. A deed of sale is a
Philippine Currency, the said principal sum, to be
transaction between two
payable in 24 monthly installments starting July
persons; what is assigned are
15, 1978 and every 15th of the month thereafter
rights, the rights of the
until fully paid. ...
mortgagee were assigned to
the IFC Leasing &
Considering that paragraph (d), Section 1 of the Negotiable Acceptance Corporation.
Instruments Law requires that a promissory note "must be payable to
order or bearer, " it cannot be denied that the promissory note in
COURT:
question is not a negotiable instrument.
xxx xxx xxx 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.
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 The evidence presented in the instant case shows that prior to the sale
instrument. It means that the bill or note is to be on installment of the tractors, there was an arrangement between the
paid to the person designated in the instrument or seller-assignor, Industrial Products Marketing, and the respondent
to any person to whom he has indorsed and whereby the latter would pay the seller-assignor the entire purchase
delivered the same. Without the words "or order" price and the seller-assignor, in turn, would assign its rights to the
or"to the order of, "the instrument is payable only respondent which acquired the right to collect the price from the buyer,
to the person designated therein and is therefore herein petitioner Consolidated Plywood Industries, Inc.
non-negotiable. Any subsequent purchaser thereof
will not enjoy the advantages of being a holder of
A mere perusal of the Deed of Sale with Chattel Mortgage with
a negotiable instrument but will merely "step into
Promissory Note, the Deed of Assignment and the Disclosure of
the shoes" of the person designated in the
Loan/Credit Transaction shows that said documents evidencing the
instrument and will thus be open to all defenses
sale on installment of the tractors were all executed on the same day
available against the latter." (Campos and
by and among the buyer, which is herein petitioner Consolidated
Campos, Notes and Selected Cases on
Plywood Industries, Inc.; the seller-assignor which is the Industrial
Negotiable Instruments Law, Third Edition, page
Products Marketing; and the assignee-financing company, which is the
38). (Emphasis supplied)
respondent. Therefore, the respondent had actual knowledge of the
fact that the seller-assignor's right to collect the purchase price was not
Therefore, considering that the subject promissory note is not a unconditional, and that it was subject to the condition that the tractors -
negotiable instrument, it follows that the respondent can never be a sold were not defective. The respondent knew that when the tractors
holder in due course but remains a mere assignee of the note in turned out to be defective, it would be subject to the defense of failure
question. Thus, the petitioner may raise against the respondent all of consideration and cannot recover the purchase price from the
defenses available to it as against the seller-assignor Industrial petitioners. Even assuming for the sake of argument that the
Products Marketing. 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
This being so, there was no need for the petitioner to implied the seller-
such, the respondent is subject to all defenses which the petitioners
assignor when it was sued by the respondent-assignee because the
may raise against the seller-assignor. Any other interpretation would
petitioner's defenses apply to both or either of either of them. Actually,
be most inequitous to the unfortunate buyer who is not only saddled
the records show that even the respondent itself admitted to being a
with two useless tractors but must also face a lawsuit from the
mere assignee of the promissory note in question, to wit:
assignee for the entire purchase price and all its incidents without
being able to raise valid defenses available as against the assignor.
ATTY. PALACA:
Lastly, the respondent failed to present any evidence to prove that it
Did we get it right from the had no knowledge of any fact, which would justify its act of taking the
counsel that what is being promissory note as not amounting to bad faith.
assigned is the Deed of Sale
with Chattel Mortgage with the
Sections 52 and 56 of the Negotiable Instruments Law provide that:
promissory note which is as
negotiating it.
testified to by the witness was
indorsed? (Counsel for
Plaintiff nodding his head.) xxx xxx xxx
Then we have no further
questions on cross,
SEC. 52. WHAT CONSTITUTES A HOLDER IN
DUE COURSE. A holder in due course is a
COURT: holder who has taken the instrument under the
following conditions:
You confirm his
manifestation? You are xxx xxx xxx
xxx xxx xxx in this case are subject to all defenses that the petitioners have against
the seller-assignor, Industrial Products Marketing. For Section 58 of
the Negotiable Instruments Law provides that "in the hands of any
(c) That he took it in good faith and for value
holder other than a holder in due course, a negotiable instrument is
subject to the same defenses as if it were non-negotiable. ... "
(d) That the time it was negotiated by him he had
no notice of any infirmity in the instrument of
Prescinding from the foregoing and setting aside other peripheral
deffect in the title of the person negotiating it
issues, we find that both the trial and respondent appellate court erred
in holding the promissory note in question to be negotiable. Such a
xxx xxx xxx 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-
SEC. 56. WHAT CONSTITUTES NOTICE OF corporation which rightfully rescinded an inequitable contract. We note,
DEFFECT. To constitute notice of an infirmity in
however, that since the seller-assignor has not been impleaded herein,
the instrument or defect in the title of the person there is no obstacle for the respondent to file a civil Suit and litigate its
negotiating the same, the person to whom it is claims against the seller- assignor in the rather unlikely possibility that
negotiated must have had actual knowledge of the
it so desires,
infirmity or defect, or knowledge of such facts that
his action in taking the instrument amounts to bad
faith. (Emphasis supplied) WHEREFORE, 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 ANNULLED and SET ASIDE. The
We subscribe to the view of Campos and Campos that a financing complaint against the petitioner before the trial court is DISMISSED.
company is not a holder in good faith as to the buyer, to wit:
SO ORDERED.
In installment sales, the buyer usually issues a
note payable to the seller to cover the purchase
price. Many times, in pursuance of a previous Fernan, Paras, Padilla, Bidin and Cortes, JJ., concur.
arrangement with the seller, a finance company
pays the full price and the note is indorsed to it,
(iii) [G.R. No. 154127. December 8, 2003]
subrogating it to the right to collect the price from
the buyer, with interest. With the increasing
frequency of installment buying in this country, it is ROMEO C. GARCIA, petitioner, vs. DIONISIO V. LLAMAS,
most probable that the tendency of the courts in respondent.
the United States to protect the buyer against the
finance company will , the finance company will be
DECISION
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 PANGANIBAN, J.:
would seriously affect "a certain mode of
transacting business adopted throughout the
State," a court in one case stated: Novation cannot be presumed. It must be clearly shown either by the
express assent of the parties or by the complete incompatibility
between the old and the new agreements. Petitioner herein fails to
It may be that our holding show either requirement convincingly; hence, the summary judgment
here will require some holding him liable as a joint and solidary debtor stands.
changes in business methods
and will impose a greater
burden on the finance The Case
companies. We think the
buyer-Mr. & Mrs. General Before us is a Petition for Review1[1] under Rule 45 of the Rules of
Public-should have some Court, seeking to nullify the November 26, 2001 Decision2[2] and the
protection somewhere along June 26, 2002 Resolution3[3] of the Court of Appeals (CA) in CA-GR
the line. We believe the CV No. 60521. The appellate court disposed as follows:
finance company is better
able to bear the risk of the
dealer's insolvency than the UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment
buyer and in a far better appealed from, insofar as it pertains to [Petitioner] Romeo Garcia,
position to protect his must be, as it hereby is, AFFIRMED, subject to the modification that
interests against the award for attorneys fees and cost of suit is DELETED. The portion
unscrupulous and insolvent of the judgment that pertains to x x x Eduardo de Jesus is SET ASIDE
dealers. . . . and VACATED. Accordingly, the case against x x x Eduardo de Jesus
is REMANDED to the court of origin for purposes of receiving ex parte
[Respondent] Dionisio Llamas evidence against x x x Eduardo de
If this opinion imposes great Jesus.4[4]
burdens on finance
companies it is a potent
argument in favor of a rule The challenged Resolution, on the other hand, denied petitioners
which win afford public Motion for Reconsideration.
protection to the general
buying public against The Antecedents
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 Instruments Law,
Third Edition, p. 128).
Instead, [respondent] filed a [M]otion to declare [Petitioner] Garcia in c) x x x de Jesus having paid interests on
default and to allow him to present his evidence ex parte. Meanwhile, the loan in the total amount of
[Petitioner] Garcia filed a [M]anifestation submitting his defense to a P120,000.00;
judgment on the pleadings. Subsequently, [respondent] filed a
[M]anifestation/[M]otion to submit the case for judgement on the
pleadings, withdrawing in the process his previous motion. d) The fact that Respondent Llamas
Thereunder, he asserted that [petitioners and de Jesus] solidary agreed to the proposal of x x x de Jesus
liability under the promissory note cannot be any clearer, and that the that due to financial difficulties, he be
check issued by de Jesus did not discharge the loan since the check given an extension of time to pay his
bounced.5[5] loan obligation and that his retirement
benefits from the Philippine National
Police will answer for said obligation.
On July 7, 1998, the Regional Trial Court (RTC) of Quezon City
(Branch 222) disposed of the case as follows:
II
Simply put, the issues are the following: 1) whether there was novation
4) There must be a valid new contract.15[15]
of the obligation; 2) whether the defense that petitioner was only an
accommodation party had any basis; and 3) whether the judgment
against him -- be it a judgment on the pleadings or a summary Novation may also be express or implied. It is express when the new
judgment -- was proper. obligation declares in unequivocal terms that the old obligation is
extinguished. It is implied when the new obligation is incompatible with
the old one on every point.16[16] The test of incompatibility is whether
The Courts Ruling
the two obligations can stand together, each one with its own
independent existence.17[17]
The Petition has no merit.
Applying the foregoing to the instant case, we hold that no novation
First Issue: took place.
Novation
The parties did not unequivocally declare that the old obligation had
Petitioner seeks to extricate himself from his obligation as joint and been extinguished by the issuance and the acceptance of the check, or
solidary debtor by insisting that novation took place, either through the that the check would take the place of the note. There is no
substitution of De Jesus as sole debtor or the replacement of the incompatibility between the promissory note and the check. As the CA
promissory note by the check. Alternatively, the former argues that the correctly observed, the check had been issued precisely to answer for
original obligation was extinguished when the latter, who was his co- the obligation. On the one hand, the note evidences the loan
obligor, paid the loan with the check. obligation; and on the other, the check answers for it. Verily, the two
can stand together.
The fallacy of the second (alternative) argument is all too apparent.
The check could not have extinguished the obligation, because it Neither could the payment of interests -- which, in petitioners view,
bounced upon presentment. By law,9[9] the delivery of a check also constitutes novation18[18] -- change the terms and conditions of
produces the effect of payment only when it is encashed. the obligation. Such payment was already provided for in the
promissory note and, like the check, was totally in accord with the
terms thereof.
We now come to the main issue of whether novation took place.
More important, De Jesus was not a third person to the obligation. By its terms, the note was made payable to a specific person rather
From the beginning, he was a joint and solidary obligor of the than to bearer or to order31[31] -- a requisite for negotiability under Act
P400,000 loan; thus, he can be released from it only upon its 2031, the Negotiable Instruments Law (NIL). Hence, petitioner cannot
extinguishment. Respondents acceptance of his check did not change avail himself of the NILs provisions on the liabilities and defenses of an
the person of the debtor, because a joint and solidary obligor is accommodation party. Besides, a non-negotiable note is merely a
required to pay the entirety of the obligation. simple contract in writing and is evidence of such intangible rights as
may have been created by the assent of the parties.32[32] The
promissory note is thus covered by the general provisions of the Civil
It must be noted that in a solidary obligation, the creditor is entitled to Code, not by the NIL.
demand the satisfaction of the whole obligation from any or all of the
debtors.26[26] It is up to the former to determine against whom to
enforce collection.27[27] Having made himself jointly and severally 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 an accommodation party. The relation between an
accommodation party and the party accommodated is, in effect, one of
principal and surety -- the accommodation party being the
surety.33[33] It is a settled rule that a surety is bound equally and
absolutely with the principal and is deemed an original promissor and
debtor from the beginning. The liability is immediate and direct.34[34]
Third Issue: From the records, it also appears that petitioner himself moved to
Propriety of Summary Judgment submit the case for judgment on the basis of the pleadings and
or Judgment on the Pleadings documents. In a written Manifestation,42[42] he stated that judgment
on the pleadings may now be rendered without further evidence,
considering the allegations and admissions of the parties.43[43]
The next issue illustrates the usual confusion between a judgment on
the pleadings and a summary judgment. Under Section 3 of Rule 35 of
the Rules of Court, a summary judgment may be rendered after a In view of the foregoing, the CA correctly considered as a summary
summary hearing if the pleadings, supporting affidavits, depositions judgment that which the trial court had issued against petitioner.
and admissions on file show that (1) except as to the amount of
damages, there is no genuine issue regarding any material fact; and
WHEREFORE, this Petition is hereby DENIED and the assailed
(2) the moving party is entitled to a judgment as a matter of law.
Decision AFFIRMED. Costs against petitioner.
ary 1998 4,566,924.90 The above instruction is in the form of an electronic message (i.e.,
SWIFT MT 100 or MT 202) or tested cable, and may not refer to any
h 1998 5,371,797.30 particular transaction.
1998 4,197,235.50
The opening and maintenance by a non-resident of local or foreign
1998 2,519,587.20 currency accounts with a bank in the Philippines is permitted by the
Bangko Sentral ng Pilipinas, subject to certain conditions.
1998 2,301,333.00
998 1,586,404.50 In reply, please be informed that pursuant to Section 181 of the 1997
Tax Code, which provides that
st 1998 1,787,359.50
mber 1998 1,231,828.20 SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and
Others. Upon any acceptance or payment of any bill of exchange or
er 1998 1,303,184.40 order for the payment of money purporting to be drawn in a foreign
country but payable in the Philippines, there shall be collected a
mber 1998 2,026,379.70
documentary stamp tax of Thirty centavos (P0.30) on each Two
mber 1998 2,684,097.50 hundred pesos (200), or fractional part thereof, of the face value of
any such bill of exchange, or order, or Philippine equivalent of such
32,904,437.30 value, if expressed in foreign currency. (Underscoring supplied.)
The foregoing transactions are carried out under instruction from It should be noted that the receipt of funds from another local bank in
abroad and [do] not involve actual fund transfer since the funds are the Philippines by a local depository bank for the account of its client
already in the Philippine accounts. The instructions are in the form of residing abroad is part of its regular banking transaction which is not
electronic messages (i.e., SWIFT MT100 or MT 202 and/or MT 521). In subject to documentary stamp tax. Neither does the receipt of funds
makes the recipient subject to the documentary stamp tax. The funds II. CTA Case No. 5951
are deemed to be part of the deposits of the client once credited to his
account, and which, thereafter can be disposed in the manner he
WHEREFORE, in the light of the foregoing, the instant petition is
wants. The payor-clients further instruction to debit his account and
hereby partially granted. Accordingly, respondent is hereby ORDERED
pay a named recipient in the Philippines does not involve transfer of
to REFUND, or in the alternative, ISSUE A TAX CREDIT
funds from abroad. Likewise, as stated earlier, such debit of local or
CERTIFICATE in favor of the petitioner in the reduced amount of
foreign currency account in the Philippines is not subject to the
16,436,395.83 representing erroneously paid documentary stamp tax
documentary stamp tax under the aforementioned Section 181 of the
for the months of September 1997 to December 1997.11
Tax Code.
However, the Court of Appeals reversed both decisions of the CTA and
In the light of the foregoing, this Office hereby holds that the instruction
ruled that the electronic messages of HSBCs investor-clients are
made through an electronic message by non-resident payor-client to
subject to DST. The Court of Appeals explained:
debit his local or foreign currency account maintained in the Philippines
and to pay a certain named recipient also residing in the Philippines is
not the transaction contemplated under Section 181 of the 1997 Tax At bar, [HSBC] performs custodial services in behalf of its investor-
Code. Such being the case, such electronic instruction purporting to clients as regards their passive investments in the Philippines mainly
draw funds from a local account intended to be paid to a named involving shares of stocks in domestic corporations. These investor-
recipient in the Philippines is not subject to documentary stamp tax clients maintain Philippine peso and/or foreign currency accounts with
imposed under the foregoing Section. [HSBC]. Should they desire to purchase shares of stock and other
investments securities in the Philippines, the investor-clients send their
instructions and advises via electronic messages from abroad to
This ruling is being issued on the basis of the foregoing facts as
[HSBC] in the form of SWIFT MT 100, MT 202, or MT 521 directing the
represented. However, if upon investigation it shall be disclosed that
latter to debit their local or foreign currency account and to pay the
the facts are different, this ruling shall be considered null and void.
purchase price upon receipt of the securities (CTA Decision, pp. 1-2;
Rollo, pp. 41-42). Pursuant to Section 181 of the NIRC, [HSBC] was
Very truly yours, thus required to pay [DST] based on its acceptance of these electronic
messages which, as [HSBC] readily admits in its petition filed before
the [CTA], were essentially orders to pay the purchases of securities
(Sgd.) BEETHOVEN L. RUALO
made by its client-investors (Rollo, p. 60).
Commissioner of Internal Revenue8
Appositely, the BIR correctly and legally assessed and collected the
With the above BIR Ruling as its basis, HSBC filed on October 8, 1999
[DST] from [HSBC] considering that the said tax was levied against the
an administrative claim for the refund of the amount of 19,572,992.10
acceptances and payments by [HSBC] of the subject electronic
allegedly representing erroneously paid DST to the BIR for the period
messages/orders for payment. The issue of whether such electronic
covering September to December 1997.
messages may be equated as a written document and thus be subject
to tax is beside the point. As We have already stressed, Section 181 of
Subsequently, on January 31, 2000, HSBC filed another administrative the law cited earlier imposes the [DST] not on the bill of exchange or
claim for the refund of the amount of 32,904,437.30 allegedly order for payment of money but on the acceptance or payment of the
representing erroneously paid DST to the BIR for the period covering said bill or order. The acceptance of a bill or order is the signification
January to December 1998. by the drawee of its assent to the order of the drawer to pay a given
sum of money while payment implies not only the assent to the said
order of the drawer and a recognition of the drawers obligation to pay
As its claims for refund were not acted upon by the BIR, HSBC such aforesaid sum, but also a compliance with such obligation
subsequently brought the matter to the CTA as CTA Case Nos. 5951
(Philippine National Bank vs. Court of Appeals, 25 SCRA 693 [1968];
and 6009, respectively, in order to suspend the running of the two-year Prudential Bank vs. Intermediate Appellate Court, 216 SCRA 257
prescriptive period. [1992]). What is vital to the valid imposition of the [DST] under Section
181 is the existence of the requirement of acceptance or payment by
The CTA Decisions dated May 2, 2002 in CTA Case No. 6009 and the drawee (in this case, [HSBC]) of the order for payment of money
dated December 18, 2002 in CTA Case No. 5951 favored HSBC. from its investor-clients and that the said order was drawn from a
Respondent Commissioner of Internal Revenue was ordered to refund foreign country and payable in the Philippines. These requisites are
or issue a tax credit certificate in favor of HSBC in the reduced surely present here.
amounts of 30,360,570.75 in CTA Case No. 6009 and
16,436,395.83 in CTA Case No. 5951, representing erroneously paid
It would serve the parties well to understand the nature of the tax being
DST that have been sufficiently substantiated with documentary imposed in the case at bar. In Philippine Home Assurance Corporation
evidence. The CTA ruled that HSBC is entitled to a tax refund or tax vs. Court of Appeals (301 SCRA 443 [1999]), the Supreme Court ruled
credit because Sections 180 and 181 of the 1997 Tax Code do not
that [DST is] levied on the exercise by persons of certain privileges
apply to electronic message instructions transmitted by HSBCs non- conferred by law for the creation, revision, or termination of specific
resident investor-clients: legal relationships through the execution of specific instruments,
independently of the legal status of the transactions giving rise thereto.
The instruction made through an electronic message by a nonresident In the same case, the High Court also declared citing Du Pont vs.
investor-client, which is to debit his local or foreign currency account in United States (300 U.S. 150, 153 [1936])
the Philippines and pay a certain named recipient also residing in the
Philippines is not the transaction contemplated in Section 181 of the The tax is not upon the business transacted but is an excise upon the
Code. In this case, the withdrawal and payment shall be made in cash. privilege, opportunity, or facility offered at exchanges for the
It is parallel to an automatic bank transfer of local funds from a savings
transaction of the business. It is an excise upon the facilities used in
account to a checking account maintained by a depositor in one bank. the transaction of the business separate and apart from the business
The act of debiting the account is not subject to the documentary itself. x x x.
stamp tax under Section 181. Neither is the transaction subject to the
documentary stamp tax under Section 180 of the same Code. These
electronic message instructions cannot be considered negotiable To reiterate, the subject [DST] was levied on the acceptance and
instruments as they lack the feature of negotiability, which, is the ability payment made by [HSBC] pursuant to the order made by its client-
to be transferred (Words and Phrases). investors as embodied in the cited electronic messages, through which
the herein parties privilege and opportunity to transact business
respectively as drawee and drawers was exercised, separate and
These instructions are considered as mere memoranda and entered as
apart from the circumstances and conditions related to such
such in the books of account of the local bank, and the actual debiting acceptance and subsequent payment of the sum of money authorized
of the payors local or foreign currency account in the Philippines is the by the concerned drawers. Stated another way, the [DST] was exacted
actual transaction that should be properly entered as such.9
on [HSBCs] exercise of its privilege under its drawee-drawer
relationship with its client-investor through the execution of a specific
The respective dispositive portions of the Decisions dated May 2, 2002 instrument which, in the case at bar, is the acceptance of the order for
in CTA Case No. 6009 and dated December 18, 2002 in CTA Case payment of money. The acceptance of a bill or order for payment may
No. 5951 read: be done in writing by the drawee in the bill or order itself, or in a
separate instrument (Prudential Bank vs. Intermediate Appellate Court,
supra.)Here, [HSBC]s acceptance of the orders for the payment of
II. CTA Case No. 6009 money was veritably done in writing in a separate instrument each
time it debited the local or foreign currency accounts of its client-
WHEREFORE, in the light of all the foregoing, the instant Petition for investors pursuant to the latters instructions and advises sent by
Review is PARTIALLY GRANTED. Respondent is hereby ORDERED electronic messages to [HSBC]. The [DST] therefore must be paid
to REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor of upon the execution of the specified instruments or facilities covered by
Petitioner the amount of 30,360,570.75 representing erroneous the tax in this case, the acceptance by [HSBC] of the order for
payment of documentary stamp tax for the taxable year 1998.10 payment of money sent by the client-investors through electronic
messages. x x x.12
Hence, these petitions. SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and
Others. Upon any acceptance or payment of any bill of exchange or
order for the payment of money purporting to be drawn in a foreign
HSBC asserts that the Court of Appeals committed grave error when it
country but payable in the Philippines, there shall be collected a
disregarded the factual and legal conclusions of the CTA. According to
documentary stamp tax of Thirty centavos (P0.30) on each Two
HSBC, in the absence of abuse or improvident exercise of authority,
hundred pesos (200), or fractional part thereof, of the face value of
the CTAs ruling should not have been disturbed as the CTA is a highly
any such bill of exchange, or order, or the Philippine equivalent of such
specialized court which performs judicial functions, particularly for the
value, if expressed in foreign currency. (Emphasis supplied.)
review of tax cases. HSBC further argues that the Commissioner of
Internal Revenue had already settled the issue on the taxability of
electronic messages involved in these cases in BIR Ruling No. 132-99 Section 230 of the 1977 Tax Code, as amended, which governs
and reiterated in BIR Ruling No. DA-280-2004.13 HSBCs claim for tax refund for DST paid during the period September
to December 1997 and subject of G.R. No. 166018, is worded exactly
the same as its counterpart provision in the 1997 Tax Code quoted
The Commissioner of Internal Revenue, on the other hand, claims that
above.
Section 181 of the 1997 Tax Code imposes DST on the acceptance or
payment of a bill of exchange or order for the payment of money. The
DST under Section 18 of the 1997 Tax Code is levied on HSBCs The origin of the above provision is Section 117 of the Tax Code of
exercise of a privilege which is specifically taxed by law. BIR Ruling 1904,17 which provided: SECTION 117. The acceptor or acceptors of
No. 132-99 is inconsistent with prevailing law and long standing any bill of exchange or order for the payment of any sum of money
administrative practice, respondent is not barred from questioning his drawn or purporting to be drawn in any foreign country but payable in
own revenue ruling. Tax refunds like tax exemptions are strictly the Philippine Islands, shall, before paying or accepting the same,
construed against the taxpayer.14 place thereupon a stamp in payment of the tax upon such document in
the same manner as is required in this Act for the stamping of inland
bills of exchange or promissory notes, and no bill of exchange shall be
The Court finds for HSBC.
paid nor negotiated until such stamp shall have been affixed thereto.18
(Emphasis supplied.)
The Court agrees with the CTA that the DST under Section 181 of the
Tax Code is levied on the acceptance or payment of "a bill of exchange
It then became Section 30(h) of the 1914 Tax Code19:
purporting to be drawn in a foreign country but payable in the
Philippines" and that "a bill of exchange is an unconditional order in
writing addressed by one person to another, signed by the person SEC. 30. Stamp tax upon documents and papers. Upon documents,
giving it, requiring the person to whom it is addressed to pay on instruments, and papers, and upon acceptances, assignments, sales,
demand or at a fixed or determinable future time a sum certain in and transfers of the obligation, right, or property incident thereto
money to order or to bearer." A bill of exchange is one of two general documentary taxes for and in respect of the transaction so had or
forms of negotiable instruments under the Negotiable Instruments accomplished shall be paid as hereinafter prescribed, by the persons
Law.15 making, signing, issuing, accepting, or transferring the same, and at
the time such act is done or transaction had:
The Court further agrees with the CTA that the electronic messages of
HSBCs investor-clients containing instructions to debit their respective xxxx
local or foreign currency accounts in the Philippines and pay a certain
named recipient also residing in the Philippines is not the transaction
(h) Upon any acceptance or payment upon acceptance of any bill of
contemplated under Section 181 of the Tax Code as such instructions
exchange or order for the payment of money purporting to be drawn in
are "parallel to an automatic bank transfer of local funds from a savings
a foreign country but payable in the Philippine Islands, on each two
account to a checking account maintained by a depositor in one bank."
hundred pesos, or fractional part thereof, of the face value of any such
The Court favorably adopts the finding of the CTA that the electronic
bill of exchange or order, or the Philippine equivalent of such value, if
messages "cannot be considered negotiable instruments as they lack
expressed in foreign currency, two centavos[.] (Emphasis supplied.)
the feature of negotiability, which, is the ability to be transferred" and
that the said electronic messages are "mere memoranda" of the
transaction consisting of the "actual debiting of the [investor-client- It was implemented by Section 46 in relation to Section 39 of Revenue
payors] local or foreign currency account in the Philippines" and Regulations No. 26,20 as amended:
"entered as such in the books of account of the local bank," HSBC.16
SEC. 39. A Bill of Exchange is one that "denotes checks, drafts, and all
More fundamentally, the instructions given through electronic other kinds of orders for the payment of money, payable at sight or on
messages that are subjected to DST in these cases are not negotiable demand, or after a specific period after sight or from a stated date."
instruments as they do not comply with the requisites of negotiability
under Section 1 of the Negotiable Instruments Law, which provides:
SEC. 46. Bill of Exchange, etc. When any bill of exchange or order
for the payment of money drawn in a foreign country but payable in this
Sec. 1. Form of negotiable instruments. An instrument to be country whether at sight or on demand or after a specified period after
negotiable must conform to the following requirements: sight or from a stated date, is presented for acceptance or payment,
there must be affixed upon acceptance or payment of documentary
stamp equal to P0.02 for each 200 or fractional part thereof.
(a) It must be in writing and signed by the maker or drawer;
(Emphasis supplied.)
Acceptance applies only to bills of exchange.26 Acceptance of a bill of MARIA LOURDES P. A. SERENO
exchange has a very definite meaning in law.27 In particular, Section Chief Justice
132 of the Negotiable Instruments Law provides: Chairperson
Sec. 132. Acceptance; how made, by and so forth. The acceptance LUCAS P. BERSAMIN MARTIN S. VILLARAMA, JR.
of a bill [of exchange28] is the signification by the drawee of his assent Associate Justice Associate Justice
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. BIENVENIDO L. REYES
Associate Justice
Under the law, therefore, what is accepted is a bill of exchange, and
the acceptance of a bill of exchange is both the manifestation of the CERTIFICATION
drawees consent to the drawers order to pay money and the
expression of the drawees promise to pay. It is "the act by which the
drawee manifests his consent to comply with the request contained in Pursuant to Section 13, Article VIII of the Constitution, I certify that the
the bill of exchange directed to him and it contemplates an conclusions in the above Decision had been reached in consultation
engagement or promise to pay."29 Once the drawee accepts, he before the case was assigned to the writer of the opinion of the Court's
becomes an acceptor.30 As acceptor, he engages to pay the bill of Division.
exchange according to the tenor of his acceptance.31
MARIA LOURDES P. A. SERENO
Acceptance is made upon presentment of the bill of exchange, or Chief Justice
within 24 hours after such presentment.32 Presentment for acceptance
is the production or exhibition of the bill of exchange to the drawee for
the purpose of obtaining his acceptance.33