Caltex (Philippines), Inc.

vs Court of Appeals

212 SCRA 448 – Mercantile Law – Negotiable Instruments Law – Negotiable Instruments in General –
Bearer Instrument – Certificate of Time Deposit

In 1982, Angel de la Cruz obtained certificates of time deposit (CTDs) from Security Bank and Trust
Company for the former’s deposit with the said bank amounting to P1,120,000.00. The said CTDs are
couched in the following manner:

This is to Certify that B E A R E R has deposited in this Bank the sum of _______ Pesos, Philippine
Currency, repayable to said depositor _____ days. after date, upon presentation and surrender of this
certificate, with interest at the rate of ___ % per cent per annum.

Angel de la Cruz subsequently delivered the CTDs to Caltex in connection with the purchase of fuel
products from Caltex.

In March 1982, Angel de la Cruz advised Security Bank that he lost the CTDs. He executed an affidavit of
loss and submitted it to the bank. The bank then issued another set of CTDs. In the same month, Angel
de la Cruz acquired a loan of P875,000.00 and he used his time deposits as collateral.

In November 1982, a representative from Caltex went to Security Bank to present the CTDs (delivered
by de la Cruz) for verification. Caltex advised Security Bank that de la Cruz delivered Caltex the CTDs as
security for purchases he made with the latter. Security Bank refused to accept the CTDs and instead
required Caltex to present documents proving the agreement made by de la Cruz with Caltex. Caltex
however failed to produce said documents.

In April 1983, de la Cruz’ loan with Security bank matured and no payment was made by de la Cruz.
Security Bank eventually set-off the time deposit to pay off the loan.

Caltex sued Security Bank to compel the bank to pay off the CTDs. Security Bank argued that the CTDs
are not negotiable instruments even though the word “bearer” is written on their face because the
word “bearer” contained therein refer to depositor and only the depositor can encash the CTDs and no
one else.

ISSUE: Whether or not the certificates of time deposit are negotiable.

HELD: Yes. The CTDs indicate that they are payable to the bearer; that there is an implication that the
depositor is the bearer but as to who the depositor is, no one knows. It does not say on its face that the
depositor is Angel de la Cruz. If it was really the intention of respondent bank to pay the amount to
Angel de la Cruz only, it could have with facility so expressed that fact in clear and categorical terms in
the documents, instead of having the word “BEARER” stamped on the space provided for the name of
the depositor in each CTD. On the wordings of the documents, therefore, the amounts deposited are
repayable to whoever may be the bearer thereof.

Thus, de la Cruz is the depositor “insofar as the bank is concerned,” but obviously other parties not privy
to the transaction between them would not be in a position to know that the depositor is not the bearer
stated in the CTDs.

However, Caltex may not encash the CTDs because although the CTDs are bearer instruments, a valid
negotiation thereof for the true purpose and agreement between Caltex and De la Cruz, requires both
delivery and indorsement. As discerned from the testimony of Caltex’ representative, the CTDs were
delivered to them by de la Cruz merely for guarantee or security and not as payment.

Philippine Education Co., Inc. vs Mauricio Soriano, et al

39 SCRA 587 – Commercial Law – Negotiable Instruments Law – Postal Money Orders Not Negotiable
Instruments

In April 1958, a certain Enrique Montinola was purchasing ten money orders from the Manila Post
Office. Each money order was worth P200.00. Montinola offered to pay the money orders via a private
check but the cashier told him he cannot pay via a private check. But still somehow, Montinola was able
to leave the post office with the money orders without him paying for them.

Days later, the missing money orders were discovered. Meanwhile, the Philippine Education Co., Inc.
(PECI) presented one of the missing postal money orders before the Bank of America. The money order
was initially credited and so P200.00 was deposited in PECI’s account with the bank. But then later the
post office, through Mauricio Soriano (Chief of the Money Order Division of the Post Office), advised the
bank that the money order was irregularly issued hence the P200.00 was debited back from PECI’s
account.

PECI is now invoking that the money order was duly negotiated to them and thus they are entitled to
the amount it represents.

ISSUE: Whether or not postal money orders are negotiable instruments.

HELD: No. Postal money orders are not negotiable instruments. The rationale behind this rule is the fact
that in establishing and operating a postal money order system, the government is not engaging in
commercial transactions but merely exercises a governmental power for the public benefit. In fact,
postal money orders are subject to a lot of restrictions limiting their negotiability. Particularly in this
case, as far back as 1948, there was already an agreement between Bank of America and the Manila
Post Office, that in case the post office would have an adverse claim against any Bank of America
depositor involving postal money orders issued by the post office, all amounts cleared in relation
thereto shall be refunded back to the post office’s account with the bank – this in itself is already a
limitation in the negotiability and nature of the postal money orders issued by the post office because of
the special conditions attached.

Benjamin Abubakar vs The Auditor General

81 Phil. 359 – Commercial Law – Negotiable Instruments Law – Treasury Warrants

In 1941, a treasury warrant was issued in favor of Placido Urbanes, a government employee in the
province of La Union. The said treasury warrant was meant to augment the Food Production Campaign
in the said province. It was then negotiated by Urbanes to Benjamin Abubakar, a private individual.
When Abubakar sought to have the treasury warrant encashed, the Auditor General denied payment
because first of, it is against the appropriating law (Republic Act 80) to authorize payments to private
individuals when it comes to treasury warrants. Abubakar then contends that he is entitled to encash as
he was a holder in good faith.
ISSUE: Whether or not a treasury warrant is a negotiable instrument.

HELD: No. A treasury warrant is not a negotiable instrument. One of the requirements of a negotiable
instrument is that it must be unconditional. In Section 3 of the Negotiable Instruments Law, an order or
promise to pay out of a particular fund makes the instrument conditional. A treasury warrant, like the
one in this case, comes from a particular fund, a particular appropriation. In this case, it was written on
the face of the treasury warrant that it is “payable from the appropriation for food administration”.
Thus, it is not negotiable for being conditional.

NOTE the difference: However, an instrument is negotiable if it merely mentions/indicates a particular

fund out of which reimbursement is to be made. This does not make the instrument conditional because
it does not say that such particular fund is the source of payment. It is only a notice to the drawee that
he can reimburse himself out of that particular fund after paying the payee. As to the source of payment
to the payee, there is no mention of it.