HSBC Ltd.-Phil. Branches vs. Comm. of Internal Revenue, G .R. No.

Acceptance made upon presentment of the bill of exchange, or within

Topic: Forms and Interpretation: Req. of Negotiability 24 hours after such presentment.
Step 1. Presentment for acceptance production of the bill to the
drawee. It is necessary only where the law requires it. If not, can go
Petitioner: HSBC
directly to presentment for payment. Purpose: obtaining his acceptance.
Respondent: CIR
Step 2. Presentment for payment presentation of the instrument to the
person primarily liable. Purpose: demanding and obtaining payment.
DOCTRINE:
To be considered negotiable instruments, it need to comply with the
FACTS:
requisites of negotiability under Sec. 1 of the NIL.
1. HSBC performs custodial services on behalf of its investor-clients with
respect to their passive investments in the Philippines.
Bill of exchange is an unconditional order in writing addressed by one
person to another, signed by the person giving it, requiring the person to
2. HSBCs investor-clients maintain Philippine peso and/or foreign
whom it is addressed to pay on demand or at a fixed or determinable
currency accounts that are managed by HSBC through instructions given
future time a sum certain in money to order or to bearer.
through electronic messages (Said instructions are standard forms
known in the banking industry as SWIFT).
The bill of exchange need to be accepted before it can be paid.
Acceptance only applies to bills of exchange.
3. How does it works: For instance in purchasing shares of stock and
other investment in securities, the investor-clients would send electronic
Acceptance or payment that is subjected to DST is done after
messages from abroad instructing HSBC to debit their local or foreign
presentment for acceptance or presentment for payment.
currency accounts in the PH, and to pay a certain named recipient also
residing in the PH.
VOCABULARY:
Documentary Stamp Tax is an excise tax on the exercise of a right or
4. HSBC purchased and paid Documentary Stamp Tax (DST) for the
privilege to transfer obligations, rights or properties incident thereto.
electronic messages.
The acceptance of a bill of exchange is the signification by the drawee
5. The BIR then issued BIR Ruling No. 132-99 to the effect that
of his assent to the order of the drawer (Sec. 132, NIL).
instructions or advises from abroad on the management of funds located
Further, it is the act by which the drawee manifests his consent to comply
in the Philippines which do not involve transfer of funds from abroad
with the request contained in the bill of exchange directed to him and it
are not subject to DST.
expresses a promise to pay.
6. Sec. 181 of the 1997 Tax Code provides for Stamp Tax Upon the
Once the drawee accepts, he becomes an Acceptor.
Acceptance or the Payment of Bills of Exchange and Others. The DST
An acceptor engages to pay the bill of exchange to the tenor of his
shall be levied on the bill of exchange or order for the payment of money,
acceptance. (Without acceptance no payment)
purporting to draw money from a foreign country but payable in the PH.

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1 NEGOTIABLE INSTRUMENTS LAW CASE DIGEST ATTY. CENIZA
7. According to the Commission on Internal Revenue (CIR), the electronic
messages or instructions by the non-resident payor cannot be
considered as a transaction that involves transfer of funds.
Consequently, there is no negotiable instrument to be made, signed or
issued by the payee. Such instruction is only a memorandum. Thus, not
subject to DST.
8. HSBC, thus, filed an admin claim for the refund of the amounts
representing erroneously paid DST to the BIR.
As there was no bill of exchange, there could have been no acceptance
or payment that will trigger the imposition of the DST under Sec. 181.
Second, The law imposes DST on either a) acceptance or b) payment of
a foreign bill of exchange (or order for payment of money that was drawn
abroad but payable in the PH). It levies DST as an excise tax on the
privilege of the drawee to accept or pay a bill of exchange, and on the
privilege of the drawer to have acceptance of or payment for the bill of
exchange.

9. [CTA favored HSBC]: DST does not apply to electronic message
instructions. These instructions cannot be considered negotiable
instruments as they lack the feature of negotiability, which is the ability
to be transferred.
[CA reversed]: HSBC required to pay DST based on its acceptance of
electronic messages.
ISSUE: Whether or not the electronic message instructions are subject to
DST because they are bills of exchange. NO
Acceptance or payment that is subjected to DST is done after
presentment for acceptance or presentment for payment. In this case,
the EMs do not qualify to the latter. The EMs did not constitute the
written and signed manifestation of HSBC to a drawers order to pay,
thus HSBC is not an acceptor.
There being neither presentment for acceptance nor presentment for
payment, then there was no acceptance or payment that is subjected to
DST. HSBC, not an acceptor, could not be liable for DST.

HELD:
No. First, the electronic messages (EMs) is not the transaction
contemplated under Sec. 181 of the Tax Code as they are parallel to an
automatic bank transfer of local funds from a savings acount to a
checking account. The EMs cannot be considered negotiable
instruments, as they do not comply with the requisites of negotiability
under Sec. 1 of the NIL:
1 EMs are not signed by the investor-clients as supposed drawers of a
bill of exchange.
2 EMs do not contain an unconditional order to pay a sum certain in
money as payment is supposed to come from a specific fund or account
of the investor-clients.
3 EMs are not payable to order or bearer but to a specifically
designated third party.

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2 NEGOTIABLE INSTRUMENTS LAW CASE DIGEST ATTY. CENIZA
Case: Rodrigo Rivera vs. Sps. Salvador and Violeta Chua
Topic: Elements of Negotiable Instruments
Petitioner: Rodrigo Rivers
Respondent: Sps. Salvador and Violeta Chua
Doctrine: Sec. 1 of the NIL requires the concurrence of the following
elements to be a negotiable instrument: (a) It must be in writing and
signed by the maker or drawer; (b) Must contain an unconditional
promise or order to pay a sum certain in money; (c) Must be payable on
demand, or at a fixed or determinable future time; (d) Must be payable
to order or to bearer; and (e) Where the instrument is addressed to a
drawee, he must be named or otherwise indicated therein with
reasonable certainty.
FACTS:
A case for collection of a sum of money due a promissory note.
Rivera obtained a loan, supported by a promissory note for
P120,000 from the Spouses Chua, with a monthly interest rate
of 5% in case of default.
Rivera defaulted in their payments, leaving an unsettled balance
of P366,000.
Spouses Chua alleged that they have repeatedly demanded
payment from Rivera to no avail. Because of Riveras unjustified
refusal to pay, the Spouses Chua were constrained to file a suit.
The MeTC ruled in favor of the Spouses Chua, requiring Rivera
to pay the unsettled amount.
On appeal, the RTC affirmed the MeTC Decision.
Both trial courts found the Promissory Note as authentic and
validly bore the signature of Rivera.
The CA affirmed Riveras liability under the promissory note and
reduced the stipulated 5% monthly interest rate, or 60% per
annum, to 12% per annum.
This petition for review on certiorari was filed by Rivera,
contending, inter alia, that the Sps. Chua never demanded
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payment for the loan nor interest thereof from Rivera for almost
4 years from the time of the alleged default in payment.
ISSUE:
WON, applying Sec 70 of the negotiable instruments law, demand is no
longer necessary.
HELD:
The Court held that the subject promissory note is not a
negotiable instrument and the provisions of the NIL do not apply
to this case.
(see doctrine)
On the other hand, Section 184 of the NIL defines a negotiable
promissory note as an unconditional promise in writing made
by one person to another, signed by the maker, engaging to pay
on demand, or at a fixed or determinable future time, a sum
certain in money to order or to bearer.
The Promissory Note in this case is made out to specific persons,
the Spouses Chua, and not to order or to bearer, or to the order
of the Spouses Chua as payees.
However, even if Riveras Promissory Note is not a negotiable
instrument and therefore outside the coverage of Section 70 of
the NIL which provides that presentment for payment is not
necessary to charge the person liable on the instrument, Rivera
is still liable under the terms of the Promissory Note that he
issued.
Petition is DENIED, and the CA Decision is modified.
Sps. Pedro and Florencia Violago vs. BA Finance Corp. and Avelino
Violago
Topic: Elements of Negotiable Instrument
Petitioners: Pedro and Florencia Violago (Spouses)
Respondents: BA Finance Corp. (BA Finance) and Avelino Violago
(Avelino)
DOCTRINE: For an instrument to be considered as a negotiable
instrument, all the following requisites must be complied with: (a) It
must be in writing and igned by the maker or drawer; (b) Must contain
an unconditional promise or order to pay a sum certain in money; (c)
Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and (e) Where the instrument
is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.
FACTS
Avelino, president of Violago Motor Sales Corp. (VMSC) offered
to sell a Toyota Cressida Model 1983 car to his cousin, Pedro
Violago and wife Florencia.
o Downpayment is only 60,500 with balance to be
finances by BA Finance.
Upon agreeing to purchase the car, the spouses and Avelino
signed a promissory note (PN) binding themselves to pay jointly
and severally to the order of VMSC the remaining balance in 36
monthly installments.
o VMSC issued sales invoice in favor of spouses and the
spouses executed chattel mortgage (CM) over the car in
favor of VMSC.
o 60,500 remitted to VMSC.
VMSC endorsed the PN to BA Finance without recourse.
o After receiving the full payment from VMSC, it executed
a Deed of Assignment over the PN and CM in favor of
BA Finance.
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Unaware of the prior sale of the same car to Esmeraldo VIolago,
another cousin of Avelino (car registered in LTO San Rafael), the
spouses filed the sales invoice with the LTO which later on issued
the Cert. of Registration in the name of Pedro.
o While the case was on-going, Esmeraldo conveyed the
car to Jose Olvido who executed a CM over the vehicle
in favor of one Generoso Lopez as security for loan.
o The PN was later on endorsed to BA Finance.
Despite demands, there was no delivery of the vehicle.
Accordingly, the spouses did not pay the monthly amortization
to BA Finance.
BA Finance filed a complaint for Replevin with damages against
the spouses praying for the delivery of the vehicle to BA Finance,
or payment of the financed amount.
o RTC issued an order of replevin. It eventually ruled in
favor of BA Finance.
o After RTC denied the MR and Motion to Quash Writ of
Execution due to lack of service of summons, the
spouses filed a petition for certiorari
Spouses filed their answer:
o Never received the vehicle
o Vehicle previously sold to Esmeraldo
o BA Finance was not a holder in due course
o Recourse of BA Finance should be against VMSC
Spouses also filed a 3rd party complaint against Avelino praying
that he be held liable in case they be held liable to BA Finance.
o Avelinos MTD was denied.
RTC: Spouses should deliver the car to AB Finance or in the
alternative, to pay BA Finance jointly and severally, but the
spouses are entitled to be indemnified by Avelino.
Upon appeal to CA, spouses argued that:
o PN is negotiable instrument thus NIL should be applied
(not Civil Code)
o Since VMSC was not the owner of the car at the time of
the sale, such sale was null and void for failure in the
cause or consideration of the PN.
 o BA Finance is not a holder in due course since it knew
that the car was never delivered to the spouses.
CAs decision:
o PN was a negotiable instrument and that BA Finance
was a holder in due course (NIL, Sec.8, 24, 52).
o Spouses should have impleaded VMSC (seller of the car
and creditor in PN).
o Since VMSC is an indispensable party, any judgment will
not bind it or be enforced against it.
o Avelino is liable for damages to the spouses without
prejudice to the action of the spouses against VMSC and
Avelino in a separate action.
o Third party complaint against the spouses is dismissed.
ISSUE
WON the PN is a negotiable instrument
HELD: YES. PN is clearly negotiable, all the requisites of a negotiable
instrument are present. CAs decision is set aside insofar as it dismissed
without prejudice the 3rd party complaint of spouses against Violago.
Requisites of a Negotiable Instrument:
Section 1. Form of Negotiable Instruments. An instrument to be
negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand, or at a fixed or determinable
future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
The PN clearly satisfies the requirements of a NI under the NIL.
o It is in writing and signed by the Violago spouses
o Has an unconditional promise to pay a certain amount
o On specific dates in the future which could be
determined from the terms of the note
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o Made payable to the order of VMSC
o Names the drawees with certainty. The indorsement by
VMSC to BA Finance appears likewise to be valid and
regular.
CONSOLIDATED PLYWOOD INDUSTRIES, INC. VS. IFC LEASING
(GR No. 72593; April 30, 1987) - Consolidated Plywood Industries, Inc.
(CPII) needed two tractors for its logging business. Atlantic Gulf &
Pacific Company through its sister company Industrial Products
Marketing (IPM) offered to sell two used" tractors. IPM inspected the
job site and assured that the tractors were fit for the job and gave a 90-
day warranty for machine performance and availability of parts. CPII
officers Wee and Vergara purchased the tractors on installment and
paid the down payment. The deed of sale with chattel mortgage with
promissory note and the deed of assignment, where IPM assigned its
rights and interest in the chattel mortgage in favor of IFC Leasing and
Acceptance Corp., were all executed on the same day by and among
the parties. Barely 14 days after delivery, the tractors broke down.
Mechanics were sent to do repairs but the tractors were no longer
serviceable. CPII logging operations were delayed so Vergara advised
IPM that the installment payments would likewise be delayed until it
fulfills its obligation under its warranty. IFC then filed a collection suit
against petitioners for the recovery of the principal sum plus interest,
attorney's fees and costs of suit contending that it was a holder in due
course of a negotiable promissory note.
ISSUE: WON IFC is a holder in due course of a negotiable promissory
note so as to bar all defenses of CPII against IPM?
HELD: No. The note in question fails to meet the requirement under
Sec. 1(d) of Act No. 2013. IFC is not and will never be a holder in due
course of the promissory note but is merely an assignee. The note in
question is not a negotiable instrument for lack of the so-called words
of negotiability. The seller- assignor IPM is liable for breach of warranty
and such liability as a general rule extends to the corporation (IFC) to
whom it assigned its rights and interests. Even assuming that the note
is negotiable, IFC which actively participated in the sale on installment
transaction from its inception cannot be regarded as a holder in due
course. Thus, petitioners may raise against the respondent all defenses
available to it as against the seller-assignor, IPM.
CALTEX VS. COURT OF APPEALS
(GR No. 97753, Aug. 10, 1992) - Respondent bank issued 280
certificates of time deposit (CTDs) in favor of Angel dela Cruz who
delivered the same to herein petitioner in connection with his
purchased fuel products. Eventually, dela Cruz executed and delivered
an Affidavit of Loss for the reissuance of the CTDs. Dela Cruz later on
obtained a loan from respondent bank and negotiated the said CTDs,
executing a Deed of Assignment of Time Deposit which stated, among
others, that the bank has full control of the indicated time deposits
from and after date of the assignment and may set-off such and apply
the same to the payment of amount or amounts that may be due on
the loan upon maturity.
Petitioner then went to the Sucat branch for verification of the CTDs
declared lost, alleging that the same were delivered to herein
petitioner as security for purchases made with Caltex Philippines, Inc.
and requested that the CTDs be pre-terminated, which was refused by
the respondent bank due to the failure of petitioner to present
requested documents to prove such allegation. Petitioner then filed a
complaint in the RTC, which was dismissed. On appeal, the CA affirmed
the decision of the RTC. Thus, the present petition.
ISSUE: WON the CTDs are considered negotiable?
HELD: Yes. A sample text of the certificates of time deposit is
reproduced below:
SECURITY BANK AND TRUST COMPANY 6778 Ayala Ave.,
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6 NEGOTIABLE INSTRUMENTS LAW CASE DIGEST ATTY. CENIZA
Makati No. 90101 Metro Manila, Philippines SUCAT OFFICE P4,000.00
CERTIFICATE OF DEPOSIT Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____ This is to Certify
that B E A R E R has deposited in this Bank the sum of PESOS: FOUR
THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000 & 00 CTS
Pesos, Philippine Currency, repayable to said depositor 731 days. after
date, upon presentation and surrender of this certificate, with interest
at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible) AUTHORIZED SIGNATURES
Section 1, of Act No. 2031, otherwise known as the Negotiable
Instruments Law, enumerates the requisites for an instrument to
become negotiable. The CTDs in question undoubtedly meet the
requirements of the law for negotiability. The accepted rule is that the
negotiability or non- negotiability of an instrument is determined from
the writing, that is, from the fact of the instrument itself. Contrary to
what respondent court held (that the CTDs are payable to the
depositor which is Angel dela Cruz), the documents provide that the
amounts deposited shall be repayable to the depositor. And who,
according to the document is the depositor? It is the bearer. The
documents do not say that the depositor is Angel dela 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.
 CA reversed the decision of the RTC
GARCIA v. LLAMAS
Topic: Applicability of NIL ISSUE: WON the said promissory note is in accordance with Sec 1 of the
NIL. And WON Garcia can use the accommodated party defense under
DOCTRINE: the NIL

One cannot avail himself of the NILs provisions on the liabilities and HELD:
defenses of an accommodation party if the said instrument is not a NO and NO
negotiable instrument. First and foremost, the Court herein ruled that the said
promissory note is not a negotiable instrument because the
VOCABULARY
note was made payable to a specific person rather than to a
1. Accommodation Party - An accommodation party is one who
bearer or to order.
has signed the instrument as maker, drawer, acceptor, or
Second, with the aforementioned ruling, Garcia cannot invoke
indorser, without receiving value therefor, and for the purpose
the liabilities and defense of accommodated party under the
of lending his name to some other person. Such a person is
NIL simply because the said promissory note is not a negotiable
liable on the instrument to a holder for value, notwithstanding
instrument.
such holder, at the time of taking the instrument, knew him to
be only an accommodation party. (Section 29, NIL)

xxx

FACTS:
Petitioner Garcia and de Jesus borrowed Php 400,000 from
respondent Llamas
On the same day, Garcia and de Jesus executed a promissory
note wherein they bound themselves jointly and severally to
pay the loan on or before 23 January 1997 with a 5% interest
per month
The loan became overdue, despite repeated demands
A case was filed against petitioner Garcia and de Jesus
Garcia argued that he assumed no liability under the
promissory note because he signed it merely as an Firestone Tire and Rubber v CA ***
accommodation party
RTC ruled in favor of Llamas

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7 NEGOTIABLE INSTRUMENTS LAW CASE DIGEST ATTY. CENIZA

PEOPLE v. WAGAS
G.R. No. 157943 September 4, 2013
Topic: Estafa
PLAINTIFF-APPELLEE: PEOPLE OF THE PHILIPPINES
ACCUSED-APPELLANT: GILBERT REYES WAGAS
Doctrine: Under the Negotiable Instruments Law, a check payable to
cash is payable to the bearer and could be negotiated by mere delivery
without the need of an indorsement.
FACTS
Gilbert R. Wagas appeals his conviction for estafa under the
decision rendered on July 11, 2002 by the RTC
April 30, 1997
o Wagas, with deliberate intent, with intent to gain and
by means of false pretenses or fraudulent acts
executed prior to or simultaneously with the
commission of the fraud
o Knowing that he did not have sufficient funds
deposited with BPI, and without informing Alberto
Ligaray of that circumstance, did then and there issue
Check No. 0011003, dated May 08, 1997 in the
amount of 200,000.00
o Check was dishonored for the reason "drawn against
insufficient funds"
o Despite of notice and several demands made upon
said accused to make good said check or replace the
same with cash, he had failed and refused and up to
the present time still fails and refuses to do so, to the
damage and prejudice of Alberto Ligaray
Ligaray testified that on April 30, 1997:
o Wagas placed an order for 200 bags of rice over the
telephone
o that he and his wife would not agree at first to the
proposed payment of the order by postdated check,
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but because of Wagas assurance that he would not
disappoint them and that he had the means to pay
them because he had a lending business and money in
the bank, they relented and accepted the order
o that he released the goods to Wagas on April 30, 1997
and at the same time received BPI Check payable to
cash and postdated May 8, 1997
o that he later deposited the check with Solid Bank, his
depository bank, but the check was dishonored due to
insufficiency of funds
o that he called Wagas about the matter, and the latter
told him that he would pay upon his return to Cebu
o and that despite repeated demands, Wagas did not
pay him.
Wagas testified:
o He admitted having issued BPI Check No. 0011003 to
Caada, his brother-in-law, not to Ligaray.
o He denied having any telephone conversation or any
dealings with Ligaray.
o He explained that the check was intended as payment
for a portion of Caadas property that he wanted to
buy, but when the sale did not push through, he did
not anymore fund the check.
On cross-examination, the Prosecution confronted Wagas with
a letter dated July 3, 1997 apparently signed by him and
addressed to Ligarays counsel, wherein he admitted owing
Ligaray 200,000.00 for goods received
RTC: convicted Wagas of estafa on July 11, 2002
o that Wagas issued the postdated check as payment for
an obligation contracted at the time the check was
issued
o that he failed to deposit an amount sufficient to cover
the check despite having been informed that the check
had been dishonored;
 o that Ligaray released the goods upon receipt of the
postdated check and upon Wagas assurance that the
check would be funded on its date
Issue: W/N Wagas could be held guilty of estafa simply because he had
issued the check used to defraud Ligaray
RULING: NO. WHEREFORE, the Court REVERSES and SETS ASIDE the
decision rendered on July 11, 2002 by the Regional Trial Court, Branch
58, in Cebu City; and ACQUITS Gilbert R. Wagas of the crime of estafa
on the ground of reasonable doubt, but ORDERS him to pay Alberto
Ligaray the amount of 200,000.00 as actual damages, plus interest of
6% per annum from the finality of this decision.
RATIO:
In order to constitute estafa, the act of postdating or issuing a
check in payment of an obligation must be the efficient cause
of the defraudation.
This means that the offender must be able to obtain money or
property from the offended party by reason of the issuance of
the check, whether dated or postdated.
The Prosecution established that Ligaray had released the
goods to Caada because of the postdated check the latter had
given to him; and that the check was dishonored when
presented for payment because of the insufficiency of funds.
The Prosecution did not establish beyond reasonable doubt
that it was Wagas who had defrauded Ligaray by issuing the
check.
Firstly, Ligaray expressly admitted that he did not personally
meet the person with whom he was transacting over the
telephone.
Secondly, the check delivered to Ligaray was made payable to
cash.
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Under the Negotiable Instruments Law, this type of check was
payable to the bearer and could be negotiated by mere
delivery without the need of an indorsement.
This rendered it highly probable that Wagas had issued the
check not to Ligaray, but to somebody else like Caada, his
brother-in-law, who then negotiated it to Ligaray.
Relevantly, Ligaray confirmed that he did not himself see or
meet Wagas at the time of the transaction and thereafter, and
expressly stated that the person who signed for and received
the stocks of rice was Caada.
It bears stressing that the accused, to be guilty of estafa as
charged, must have used the check in order to defraud the
complainant.
What the law punishes is the fraud or deceit, not the mere
issuance of the worthless check.
Wagas could not be held guilty of estafa simply because he had
issued the check used to defraud Ligaray.
The proof of guilt must still clearly show that it had been
Wagas as the drawer who had defrauded Ligaray by means of
the check.
Thirdly, Ligaray admitted that it was Caada who received the
rice from him and who delivered the check to him.
Considering that the records are bereft of any showing that
Caada was then acting on behalf of Wagas, the RTC had no
factual and legal bases to conclude and find that Caada had
been acting for Wagas.
This lack of factual and legal bases for the RTC to infer so
obtained despite Wagas being Caadas brother-in-law.
Finally, Ligarays declaration that it was Wagas who had
transacted with him over the telephone was not reliable
because he did not explain how he determined that the person
with whom he had the telephone conversation was really
Wagas whom he had not yet met or known before then.
The Prosecution did not show through Ligaray during the trial
as to how he had determined that his caller was Wagas.
 Thus, considering that the circumstances of the identification
of Wagas as the person who transacted on the rice did not
preclude a reasonable possibility of mistake, the proof of guilt
did not measure up to the standard of proof beyond
reasonable doubt demanded in criminal cases.
Perforce, the accuseds constitutional right of presumption of
innocence until the contrary is proved is not overcome, and he
is entitled to an acquittal,44 even though his innocence may be
doubted.
Nevertheless, an accused, though acquitted of estafa, may still
be held civilly liable where the preponderance of the
established facts so warrants.
Wagas as the admitted drawer of the check was legally liable to
pay the amount of it to Ligaray, a holder in due course.
Philippine National Bank vs. Erlando and Norma Rodriguez
G.R. No. 170325
Topic: Kinds of Indorsements
Petitioner: PNB
Respondent: Erlando and Norma Rodriguez
DOCTRINE:
A check is a bill of exchange drawn on a bank payable on demand.
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. It may be drawn payable to the
order of
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
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10 NEGOTIABLE INSTRUMENTS LAW CASE DIGEST ATTY. CENIZA
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must be
named or otherwise indicated therein with reasonable
certainty.
Payable to bearer:
SEC. 9. When payable to bearer.The instrument is payable
to bearer
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing
person, and such fact is known to the person making it so
payable; or
(d) When the name of the payee does not purport to be the
name of any person; or
(e) Where the only or last indorsement is an indorsement in
blank
As a rule, when the payee is fictitious or not intended to be the true
recipient of the proceeds, the check is considered as a bearer
instrument.
The distinction between bearer and order instruments lies in their
manner of negotiation.
If payable to bearer, it is negotiated by delivery; if payable to
order, it is negotiated by the indorsement of the holder
completed by delivery. (Sec.30, NIL)
US Jurisprudence: If the payee is not the intended recipient of the
proceeds of the check, the payee is considered a fictitious payee and
the check is a bearer instrument.
FICTITIOUS-PAYEE situation: the drawee bank is absolved from liability
and the drawer bears the loss.
Exception: Commercial Bad Faith
 The transferee of the check acts dishonestly
(actual knowledge of facts and circumstances that
amount to bad faith), and is a party to the
fraudulent scheme.
In a checking transaction, the drawee bank has the duty to verify the
genuineness of the signature of the drawer and to pay the check
strictly in accordance with the drawers instructions.
FACTS:
Spouses Rodriguez, who maintained a saving and demand/checking
accounts with PNB were engaged in the informal lending business.
Had a discounting arrangement with the Philnabank
Employees Savings and Loan Association (PEMSLA)-
association of PNB employees.
Rodriguez would rediscount the postdated checks issued by PEMSLA
(as loans) to its members whenever PEMSLA was short of funds.
Despite PEMSLA policy not to approve loan applications to members
with outstanding debts, some PEMSLA officer were able to take out
loans in the names of unknowing members, without the
knowledge/consent of the latter.
PEMSLA checks were given to the spouses for rediscounting,
forging the indorsement of the named payees.
This PEMSLA checks were deposited directly to PEMSLAs
account without any indorsement from the named payees.
From Nov. 98-Feb 99: Spouses issued 69 checks payable to 47 PEMSLA
members.
Upon discovery of the fraudulent acts, PNB closed the current account
of PEMSLA. Thus, spouses were not able to deposit the PEMSLA checks.
Checks issued by the spouses were however deposited to
PEMSLA account.
Spouses filed a civil complaint for damages against PEMSLA, Multi-
Purpose Cooperative of Philnabankers and PNB for the recovery of the
value of the issued checks.
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PNB credited the checks to the PEMSLA account even
without indorsement (violation of contractual obligation).
PNB paid wrong payees, thus must bear the loss.
PNBs move to dismiss the complaint on the ground of lack of cause of
action was denied by the RTC.
PNBs answer:
Checks were negotiable by mere delivery because it was a
a check issued to a fictitious name; the spouses having no
intention for the named payees to receive the proceeds
of the checks.
RTC: PNB is liable to return the value of the checks
CA (amended decision): PNB is liable to pay the spouses
The checks were payable to order.
PNB failed to present sufficient proof to defeat the claim
of the spouses that they intended the checks to be
received by specified payees.
PNB failed to exercise highest degree of care required
from them.
ISSUE: WON the subject checks could be validly negotiated by mere
delivery
HELD: NO.
The subject checks are presumed order instrument because PNB failed
to present sufficient evidence to defeat the claim of the spouses that
the named payees were the intended recipients of the checks
proceeds.
The fictitious-payee situation rule does not apply in this case because
of failure to show that the payees were fictitious. Thus, the drawee
bank bears the loss.
PNB was remiss in its duty as the drawee bank when it approved checks
for deposit to the PEMSLA account even without any indorsement
from the named payees.
 PNB had the responsibility to ascertain the regularity of the
indorsements, and the genuineness of the signatures on the checks
before accepting them for deposit.
CA decision is AFFIRMED with modification (lower moral damages).
Dy v. People of the Philippines
Topic: Completion and Delivery; Completion of Blanks
Petitioner: John Dy
Respondents: People of the Philippines and CA
DOCTRINE:
NIL Art. 14
Blanks; when may be filled. - Where the instrument is wanting in any
material particular, the person in possession thereof has a prima facie
authority to complete it by filling up the blanks therein. And a signature
on a blank paper delivered by the person making the signature in order
that the paper may be converted into a negotiable instrument operates
as a prima facie authority to fill it up as such for any amount. In order,
however, that any such instrument when completed may be enforced
against any person who became a party thereto prior to its completion,
it must be filled up strictly in accordance with the authority given and
within a reasonable time. But if any such instrument, after completion,
is negotiated to a holder in due course, it is valid and effectual for all
purposes in his hands, and he may enforce it as if it had been filled up
strictly in accordance with the authority given and within a reasonable
time.
FACTS:
John Dy has been the distributor of W.L. Food Products
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Dy would pay W.L. Foods in either cash or check upon pick up of
stocks of snack foods at the latter's branch or main office in Quezon
City.
At times, he would entrust the payment to one of his drivers
On June 24, 1992, Dy's driver went to the branch office of W.L. Foods
to pick up stocks of snack foods they gave him merchandise worth
P106,579.60. In return, the driver handed her a blank Far East Bank
and Trust Company (FEBTC) Check with Check No. 553602 postdated
July 22, 1992.
The check was signed by Dy though it did not indicate a specific
amount.
On July 1, 1992, the same driver obtained snack foods in the amount
of P226,794.36 in exchange for a blank FEBTC Check with Check No.
553615 postdated July 31, 1992.
In both instances, the driver was issued an unsigned delivery receipt.
The amounts for the purchases were filled in later by Evelyn Ong,
accountant of W.L. Foods, based on the value of the goods delivered.
When presented for payment, FEBTC dishonored the checks for
insufficiency of funds.
Raul D. Gonzales, manager of FEBTC-Naga Branch, notified Atty. Rita
Linda Jimeno, counsel of W.L. Foods, of the dishonor.
Apparently, Dy only had an available balance of P2,000 as of July 22,
1992 and July 31, 1992.
Later, Gonzales sent Atty. Jimeno another letter advising her that
FEBTC Check No. 553602 for P106,579.60 was returned to the drawee
bank for the reasons stop payment order and drawn against
uncollected deposit (DAUD), and not because it was drawn against
insufficient funds as stated in the first letter.
Dy's savings deposit account ledger reflected a balance of
P160,659.39 as of July 22, 1992. This, however, included a regional
clearing check for P55,000 which he deposited on July 20, 1992, and
which took five (5) banking days to clear. Hence, the inward check
was drawn against the yet uncollected deposit.
 When William Lim, owner of W.L. Foods, phoned Dy about the Because of this, the burden of proving want of authority or that the
matter, the latter explained that he could not pay since he had no authority granted was exceeded, is placed on the person questioning
funds yet. such authority. Petitioner failed to fulfill this requirement.
This prompted the former to send petitioner a demand letter, which
the latter ignored PETITION PARTLY GRANTED.
Lim charged Dy with two counts of estafa and also charged Dy with
two counts of violation of B.P. Blg. 22
RTC: convicted Dy on two counts each of estafa and violation of B.P.
Blg. 22.
CA: affirmed RTC
Petitioner contends that the checks were ineffectively issued. He
stresses that not only were the checks blank, but also that W.L.
Foods' accountant had no authority to fill the amounts.

ISSUE:
Whether W.L. Foods accountant had authority to fill in the amounts
HELD:
YES
Even if the checks were given to W.L. Foods in blank, this alone did
not make its issuance invalid. When the checks were delivered to Lim,
through his employee, he became a holder with prima facie authority
to fill the blanks. This was, in fact, accomplished by Lim's accountant
SEC. 14. Blanks; when may be filled. Where the instrument is
wanting in any material particular, the person in possession thereof
has a prima facie authority to complete it by filling up the blanks
therein. And a signature on a blank paper delivered by the person
making the signature in order that the paper may be converted into a
negotiable instrument operates as a prima facie authority to fll it up
as such for any amount. . .
The law merely requires that the instrument be in the possession of a
person other than the drawer or maker. From such possession,
together with the fact that the instrument is wanting in a material
particular, the law presumes agency to fill up the blanks
Alvin Patrimonio v Napoleon Gutierrez
Topic: Incomplete but delivered instruments
Petitioner: Alvin Patrimonio
Respondent: Napoleon Gutierrez and Octavio Marasigan III
DOCTRINE:
In order that one who is not a holder in due course can enforce the
instrument against a party prior to the instruments completion, two
requisites must exist: (1) that the blank must be filled strictly in
accordance with the authority given; and (2) it must be filled up within
a reasonable time. If it was proven that the instrument had not been
filled up strictly in accordance with the authority given and within a
reasonable time, the maker can set this up as a personal defense and
avoid liability.
Sec. 14, NIL, Blanks; when may be filled.- Where the instrument is
wanting in any material particular, the person in possession thereof
has a prima facie authority to complete it by filling up the blanks
therein. And a signature on a blank paper delivered by the person

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 making the signature in order that the paper may be converted into
a negotiable instrument operates as a prima facie authority to fill it
up as such for any amount. In order, however, that any such
instrument when completed may be enforced against any person
who became a party thereto prior to its completion, it must be filled
up strictly in accordance with the authority given and within a
reasonable time. But if any such instrument, after completion, is
negotiated to a holder in due course, it is valid and effectual for all
purposes in his hands, and he may enforce it as if it had been filled
up strictly in accordance with the authority given and within a
reasonable time.
VOCABULARY:
1. Holder in due course: is one who takes the instrument "in good
faith and for value."
FACTS:
Patrimonio and Gutierrez entered into a business venture under the
name Slam Dunk Corp.
Petitioner then pre-signed several checks for the expenses of Slam
Dunk but left the payees name, date and amount blank. The blank
checks were then entrusted to Gutierrez with specific instruction not
to fill them out with out notification and approval by petitioner.
Gutierrez obtained a P200,000 loan from Marasigan with a 5% per
month interest. Gutierrez then delivered one of the blank checks to
Marasigan and filled it out with the amount of P200,000.
When Marasigan deposited the check, it was dishonored for the reason
account closed. Gutierrez failed to pay despite repeated demands
which led Marsigan to file a BP22 case against Patrimonio.
Petitioner Patrimonio filed a case against Gutierrez and Marasigan. He
denied authorizing the loan or the check negotiation and asserted that
he was not privy to the loan agreement between the two.
The RTC ruled that when Patrimonio issued pre-signed blank checks,
he had the intention of issuing a negotiable instrument. RTC also
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declared that Marasigan is a holder in due course and that Patrimonio
should pay Marasigan the face value of the check and to reimburse
from Gutierrez.
The CA ruled that Marasigan is not a holder in due course since he did
not receive the check in good faith. But concluded that Gutierrez filled
out the check in accordance to Patrimonios authority, hence, he is still
liable to pay Marasigan.
ISSUE: WON Gutierrez has completely filled out the subject check
strictly under the authority given by the petitioner
WON Marasigan is a holder in due course
HELD:
No.
The Supreme Court found that Gutierrez was only authorized to use
the check for business expenses; thus, he exceeded the authority when
he used the check to pay the loan he supposedly contracted for the
construction of petitioner's house. It cannot therefore be validly
concluded that the check was completed strictly in accordance with
the authority given by the petitioner.
No
The Court further held that Marasigan is not a holder in due course.
Marasigans knowledge that the petitioner is not a party or a privy to
the contract of loan, and correspondingly had no obligation or liability
to him, renders him dishonest, hence, in bad faith.
The petitioner can validly set up the personal defense that the blanks
were not filled up in accordance with the authority he gave.
Consequently, Marasigan has no right to enforce payment against the
petitioner and the latter cannot be obliged to pay the face value of the
check.
DECISION OF THE CA IS HEREBY ANNULLED AND SET ASIDE