Caltex (Philippines) Inc. vs.

CA
GR 97753, 10 August 1992
-negotiability

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.

RULING:
The CTDs in question are negotiable instruments as they meet the requirements of the law for negotiability as provided for
in Section 1 of the Negotiable Instruments Law. The documents provide that the amounts deposited shall be repayable to
the depositor. And according to the document, the depositor is the "bearer." The documents do not say that the depositor
is Angel de la Cruz and that the amounts deposited are repayable specifically to him. Rather, the amounts are to be
repayable to the bearer of the documents or, for that matter, whosoever may be the bearer at the time of
presentment. 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 the requirements of the law
for negotiability as provided for in Section 1 of the Negotiable Instruments Law. The documents provide that the amounts
deposited shall be repayable to the depositor. And according to the document, the depositor is the "bearer." The documents
do not say that the depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to him. Rather,
the amounts are to be repayable to the bearer of the documents or, for that matter, whosoever may be the bearer at the
time of presentment.
Metrobank vs. CA
Metropolitan Bank & Trust Company vs. Court of Appeals
G.R. No. 88866 February, 18, 1991
Cruz, J.:

Facts:
Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury warrants. All warrants were
subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings account in Metrobank
branch in Calapan, Mindoro. They were sent for clearance. Meanwhile, Gomez is not allowed to withdraw from his account,
later, however, “exasperated” over Floria repeated inquiries and also as an accommodation for a “valued” client Metrobank
decided to allow Golden Savings to withdraw from proceeds of the warrants. In turn, Golden Savings subsequently allowed
Gomez to make withdrawals from his own account. Metrobank informed Golden Savings that 32 of the warrants had been
dishonored by the Bureau of Treasury and demanded the refund by Golden Savings of the amount it had previously
withdrawn, to make up the deficit in its account. The demand was rejected. Metrobank then sued Golden Savings.

Issue:
1. Whether or not Metrobank can demand refund agaist Golden Savings with regard to the amount withdraws to make
up with the deficit as a result of the dishonored treasury warrants.
2. Whether or not treasury warrants are negotiable instruments

Held:
No. Metrobank is negligent in giving Golden Savings the impression that the treasury warrants had been cleared
and that, consequently, it was safe to allow Gomez to withdraw. Without such assurance, Golden Savings would not have
allowed the withdrawals. Indeed, Golden Savings might even have incurred liability for its refusal to return the money that
all appearances belonged to the depositor, who could therefore withdraw it anytime and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its account
with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to determine the validity of the
warrants through its own services. The proceeds of the warrants were withheld from Gomez until Metrobank allowed Golden
Savings itself to withdraw them from its own deposit.
Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were genuine and
in all respects what they purport to be,” in accordance with Sec. 66 of NIL. The simple reason that NIL is not applicable to
non negotiable instruments, treasury warrants.

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

GUTIERREZ, JR., J.

ANTECEDENTS OF THE CASE

The petitioner-corporation is engaged in the logging business. It needed two tractors to operate in its concession area in
Davao Oriental.

Atlantic Gulf & Pacific Company of Manila, through its sister company and marketing arm, Industrial Products Marketing
(the "seller-assignor), after inspecting the job site, sold two tractors to the petitioner with the assurance that the tractors
were fit for the job and giving the corresponding warranty of ninety (90) days performance of the machines and availability
of parts.

The petitioner agreed to purchase the units on installment and paid the down payment of P210,000.00. The following
documents were simultaneously executed: (a) Sales Invoice; (b) Deed of Sale with Chattel Mortgage with Promissory
Note between Industrial Products Marketing and Consolidated Plywood; and (c) Deed of Assignment executed by
Industrial Products Marketing assigning its rights and interests in the promissory note with chattel mortgage in favor of
respondent IFC Leasing and Finance Corp.

One of the tractors broke down barely 14 days after the delivery and the other one likewise broke down after another 9
days.

The units turned out to be unserviceable even after repairs undertaken by the seller-assignor. Consequently, the petitioner
refused to pay the installments on the balance of the purchase price until the seller fulfilled its obligations under the 90-
day warranty. Arrangements to recondition and resell the units to recover the costs were initiated by the petitioner but
were unheeded by the seller.

The assignee financing corporation thereafter filed a suit against Consolidated Plywood for the collection of the unpaid
balance on the sale and the accruing interest thereon, amounting to over one million pesos.

The trial and appellate courts both ruled in favor of the financing corporation and ordered Consolidated Plywood to pay
the unpaid balance plus interest, hence the instant petition.

ISSUE/S OF THE CASE

Is the promissory note in question a negotiable instrument and if so, whether the respondent- assignee is a holder in due
course thereof, barring any defenses that the petitioner may have against it?

COURTS’ RULING

No, the promissory note in question is not a negotiable instrument and the respondent is not a holder in due course
thereof.

The instrument in order to be considered negotiable must contain the so-called 'words of negotiability'—i.e., must be
payable to 'order' or 'bearer'. These words serve as an expression of consent that the instrument may be transferred. This
consent is indispensable since a maker assumes greater risk under a negotiable instrument than under a non-negotiable
one. 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. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a
negotiable instrument but will merely 'step into the shoes' of the person designated in the instrument and will thus be open
to all defenses available against the latter.

Therefore, considering that the subject promissory note is not a negotiable instrument, it follows that the respondent can
never be a holder in due course but remains a mere assignee of the note in question. Thus, the petitioner may raise
against the respondent all defenses available to it as against the seller-assignor, Industrial Products Marketing.