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NEGOTIABLE INSTRUMENTS CASE DIGEST A. FORM AND INTERPRETATION 1. REQUISITS OF NEGOTIABILITY 1.1 Equitable Banking Corp vs IAC 161 SCRA 518 – Mercantile Law – Negotiable Instruments Law – Negotiable Instruments in General – Certainty of Payee FACTS: In 1975, Liberato Casals, majority stockholder of Casville Enterprises, went to buy two garrett skidders (bulldozers) from Edward J. Nell Company amounting to P970,000.00. To pay the bulldozers, Casals agreed to open a letter of credit with the Equitable Banking Corporation. Pursuant to this, Nell Company shipped one of the bulldozers to Casville. Meanwile, Casville advised Nell Company that in order for the letter of credit to be opened, Casville needs to deposit P427,300.00 with Equitable Bank, and that since Casville is a little short, it requested Nell Company to pay the deposit in the meantime. Nell Company agreed and so it eventually sent a check in the amount of P427,300.00. The check read: Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES, INC. Nell Company sent the check to Casville so that it would be the latter who could send it to Equitable Bank to cover the deposit in lieu of the letter of credit. Casals received the check, he went to Equitable Bank, and the teller received the check. The teller, instead of applying the amount as deposit in lieu of the letter of credit, credited the check to Casville’s account with Equitable Bank. Casals later withdrew all the P427,300.00 and appropriated it to himself. ISSUE: Whether or not Equitable Bank is liable to cover for the loss. HELD: No. The subject check was equivocal and patently ambiguous. Reading on the wordings of the check, the payee thereon ceased to be indicated with reasonable certainty in contravention of Section 8 of the Negotiable Instruments Law. As worded, it could be accepted as deposit to the account of the party named after the symbols “A/C,” or payable to the Bank as trustee, or as an agent, for Casville Enterprises, Inc., with the latter being the ultimate beneficiary. That ambiguity is to be taken contra proferentem that is, construed against Nell

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Page 1: Negotiable Instruments Case Digest

NEGOTIABLE INSTRUMENTS CASE DIGEST

A. FORM AND INTERPRETATION

1. REQUISITS OF NEGOTIABILITY

1.1

Equitable Banking Corp vs IAC

161 SCRA 518 – Mercantile Law – Negotiable Instruments Law – Negotiable Instruments in General – Certainty of Payee

FACTS:

In 1975, Liberato Casals, majority stockholder of Casville Enterprises, went to buy two garrett skidders (bulldozers) from Edward J. Nell Company amounting to P970,000.00. To pay the bulldozers, Casals agreed to open a letter of credit with the Equitable Banking Corporation. Pursuant to this, Nell Company shipped one of the bulldozers to Casville. Meanwile, Casville advised Nell Company that in order for the letter of credit to be opened, Casville needs to deposit P427,300.00 with Equitable Bank, and that since Casville is a little short, it requested Nell Company to pay the deposit in the meantime.

Nell Company agreed and so it eventually sent a check in the amount of P427,300.00. The check read:

Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES, INC.

Nell Company sent the check to Casville so that it would be the latter who could send it to Equitable Bank to cover the deposit in lieu of the letter of credit. Casals received the check, he went to Equitable Bank, and the teller received the check. The teller, instead of applying the amount as deposit in lieu of the letter of credit, credited the check to Casville’s account with Equitable Bank. Casals later withdrew all the P427,300.00 and appropriated it to himself.

ISSUE:

Whether or not Equitable Bank is liable to cover for the loss.

HELD:

No. The subject check was equivocal and patently ambiguous. Reading on the wordings of the check, the payee thereon ceased to be indicated with reasonable certainty in contravention of Section 8 of the Negotiable Instruments Law. As worded, it could be accepted as deposit to the account of the party named after the symbols “A/C,” or payable to the Bank as trustee, or as an agent, for Casville Enterprises, Inc., with the latter being the ultimate beneficiary. That ambiguity is to be taken contra proferentem that is, construed against Nell Company who caused the ambiguity and could have also avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code, provides:

Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.

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1.2

SALAS V. CA 181 SCRA 296

FACTS:

Petitioner bought a car from Viologo Motor Sales Company, which was secured by a promissory note, which was later on indorsed to Filinvest Finance, which financed the transaction. Petitioner later on defaulted in her installment payments, allegedly due to the fraud imputed by VMS in

selling her a different vehicle from what was agreed upon. This default in payment prompted Filinvest Finance to initiate a case against petitioner. The trial court decided in favor of Filinvest, to which the appellate court upheld by increasing the amount to be paid.

It is the contention of petitioner that since the agreement between her and the motor company was inexistent, none had been assigned in favor of private respondent.

HELD:

Petitioner’s liability on the promissory note, the due execution and genuineness of which she never denied under oath, is under the foregoing factual milieu, as inevitable as it is clearly established.

The records reveal that involved herein is not a simple case of assignment of credit as petitioner would have it appear, where the assignee merely steps into the shoes of, is open to all defenses available against and can enforce payment only to the same extent as, the assignor-vendor.

The instrument to be negotiable must contain the so-called words of negotiability. There are only 2 ways for an instrument to be payable to order. There must always be a specified person named in the instrument and the bill or note is to be paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the same. Without the words “or order” or “to the order of”, the instrument is payable only to the person designated therein and is thus non-negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a

holder in due course but will merely step into the shoes of the person designated in the instrument and will thus be open to the defenses available against the latter.

In the case at bar, the promissory notes is earmarked with negotiability and Filinvest is a holder in due course.

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1.3

Caltex Inc. v. Court of Appeals [G.R. No. 97753. August 10, 1992]

FACTS:

On various dates, Security Bank and Trust Company (SBTC), through its Sucat Branch issued 280 certificates of time deposit (CTD) in favor of one Angel dela Cruz who later lost them.

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)

Caltex (Phils.) Inc. went to the SBTCSucat branch and presented for verification the CTDs declared lost by Angel dela Cruz alleging that the same were delivered to herein plaintiff “as security for purchases made with Caltex Philippines, Inc.” by said depositor. SBTC rejected Caltex’s demand and claim. Caltex sued SBTC but case was dismissed rationalizing that CTD’s are non-negotiable instruments.

ISSUE:

Whether or not Certificate of Time Deposit (CTD) is a negotiable instrument.

HELD:

YES. The CTDs in question undoubtedly meet the requirements of the law for negotiability under Section 1 of the Negotiable Instruments Law. 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. In the construction of a bill or note, the intention of the parties is to control, if it can be legally ascertained. Here, 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.

While the writing may be read in the light of surrounding circumstances in order to more perfectly understand the intent and meaning of the parties, yet as they have constituted the writing to be the only outward and visible expression of their meaning, no other words are to be added to it or substituted in its stead.

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TRADERS ROYAL BANK V CA G.R. No. 93397 March 3, 1997

FACTS:

Filriters registered owner of Central Bank Certificate of Indebtedness (CBCI). Filriters transferred it to Philfinance by one of its officers without authorization from the company. Subsequently, Philfinance transferred same CBCI to Traders Royal Bank (TRB) under a repurchase agreement. When Philfinance failed to do so, The TRB tried to register in its name in the CBCI. The Central Bank did not want to recognize the transfer.

Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action was originally filed as a Petition for Mandamus 5 under Rule 65 of the Rules of Court, to compel the Central Bank of the Philippines to register the transfer of the subject CBCI to petitioner Traders Royal Bank (TRB).

DECISION OF LOWER COURTS: * RTC: transfer is null and void. * CA: The appellate court ruled that the subject CBCI is not a negotiable instrument. Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to Traders Royal Bank and which the latter can register with the Central Bank. Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed by the negotiable instruments law.

APPLICABLE LAWS:

Under section 1 of Act no. 2031 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.

Under section 3, Article V of Rules and Regulations Governing Central Bank Certificates of Indebtedness states that the assignment of registered certificates shall not be valid unless made at the office where the same have been issued and registered or at the Securities Servicing Department, Central Bank of the Philippines, and by the registered owner thereof, in person or by his representative, duly authorized in writing. For this purpose, the transferee may be designated as the representative of the registered owner.

ISSUES & RULING:

1. Whether the CBCI is negotiable instrument or not.

The pertinent portions of the subject CBCI read:

The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay bearer, of if this Certificate of indebtedness be registered, to FILRITERS GUARANTY ASSURANCE CORPORATION, the registered owner hereof, the principal sum of FIVE HUNDRED THOUSAND PESOS.

NO. The CBCI is not a negotiable instrument, since the instrument clearly stated that it was payable to Filriters, and the certificate lacked the words of negotiability which serve as an expression of consent that the instrument may be transferred by negotiation.

Before the instruments become negotiable instruments, the instrument must conform to the requirements under the Negotiable Instrument Law. Otherwise instrument shall not bind the parties.

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2. Whether the Assignment of registered certificate is valid or null and void.

IT'S NULL AND VOID. Obviously the Assignment of certificate from Filriters to Philfinance was null and void. One of officers who signed the deed of assignment in behalf of Filriters did not have the necessary written authorization from the Board of Directors of Filriters. For lack of such authority the assignment is considered null and void.

Clearly shown in the record is the fact that Philfinance's title over CBCI is defective since it acquired the instrument from Filriters fictitiously. Under 1409 of the Civil Code those contracts which are absolutely simulated or fictitious are considered void and inexistent from the beginning.

Petitioner knew that Philfinance is not registered owner of the CBCI No. D891. The fact that a non-owner was disposing of the registered CBCI owned by another entity was a good reason for petitioner to verify of inquire as to the title Philfinance to dispose to the CBCI.

OTHER NOTES:

1. the mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate personalities.

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