METROPOLITAN BANK & TRUST COMPANY, petitioner, vs. COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO, MAGNO CASTILLO and GLORIA CASTILLO, respondents. FACTSEduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38 treasury warrants with a total value of P1,755,228.37. They were all drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager and countersigned by its Auditor. Six of these were directly payable to Gomez while the others appeared to have been indorsed by their respective payees, followed by Gomez as second indorser. 1All these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account No. 2498 in the Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch office to the principal office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing. 2Gloria Castillo went to the Calapan branch several times to ask whether the warrants had been cleared. Gomez was meanwhile not allowed to withdraw from his account. Later, however, "exasperated" over Gloria's repeated inquiries and also as an accommodation for a "valued client," the petitioner says it finally decided to allow Golden Savings to withdraw from the proceeds of thewarrants. In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account, eventually collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared warrants. Eventually, 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had been dishonored by the Bureau of Treasury and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account.The demand was rejected.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.ISSUEWhether or not the treasury warrants involved in this case are not negotiable instruments.HELDThe treasury warrants are non-negotiable instruments. It would appear to the Court that Metrobank was indeed 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 the proceeds thereof from his account with it. Without such assurance, Golden Savings would not have allowed the withdrawals. 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. A no less important consideration is the circumstance that the treasury warrants in question are not negotiable instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501.The following sections of the Negotiable Instruments Law, especially the underscored parts, are pertinent:Sec. 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.xxx xxx xxxSec. 3. When promise is unconditional. — An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with —(a) 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(b) A statement of the transaction which gives rise to the instrument judgment.But an order or promise to pay out of a 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 unconditional" and the warrants themselves non-negotiable.

Caltex (Philippines) Inc. vs. CAGR 97753, 10 August 1992FACTS

On various dates, Security Bank and Trust Co. (SEBTC), through its Sucat branch, issued 280 certificates of time deposit (CTD) in favor of one Angel dela Cruz who deposited with the bank the aggregate amount of P1.12 million. Anger de la 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. De la Cruz was able to obtain a loan of P875,000 from the bank, and in turn, he executed a notarized Deed of Assignment of Time Deposit in favor of the bank. Thereafter, Caltex presented for verification the CTDs (which were declared lost by de la Cruz) with the bank. Caltex formally informed the bank of its possession of the CTDs and its decision to preterminate the same. The bank rejected Caltex’ claim and demand, after Caltex failed to furnish copy of the requested documents evidencing the guarantee agreement, etc. In 1983, de la Cruz’ loan matured and the bank set-off and applied the time deposits as payment for the loan. Caltex filed the complaint, but which was dismissed.

ISSUE [1]:Whether the Certificates of Time Deposit (CTDs) are negotiable instruments.

HELD [1]: The CTDs in question meet the requirements of the law for negotiability. Contrary to the lower court’s findings, the CTDs are negotiable instruments (Section 1). Negotiability or non-negotiability of an instrument is determined from the writing, i.e. from the face of the instrument itself. The documents provided that the amounts deposited shall be repayable to the depositor. The amounts are to be repayable to the bearer of the documents, i.e. whosoever may be the bearer at the time of presentment.

ISSUE [2]:Whether the CTDs’ negotiation require delivery only.

HELD [2]: Although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it (Caltex) and de la Cruz requires both delivery and indorsement; as the CTDs were delivered to it as security for dela Cruz’ purchases of its fuel products, and not for payment. Herein, there was no negotiation in the sense of a transfer of title, or legal title, to the CTDs in which situation mere delivery of the bearer CTDs would have sufficed. The delivery thereof as security for the fuel purchases at most constitutes Caltex as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument since the terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation, must be contractually provided for.

Caltex Philippines vs CA

Facts: On various dates, defendant, a commercial banking institution, through its Sucat Branch issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz.

One time Mr. dela Cruz delivered the CTDs to Caltex Philippines in connection with his purchase of fuel products from the latter. However, Sometime in March 1982, he informed the Sucat Branch Manger that he lost all the certificates of time deposit in dispute. New CTDs were issued after the execution of affidavit of loss.

Subsequently, Angel dela Cruz negotiated and obtained a loan from defendant bank and executed a notarized Deed of Assignment of Time Deposit, which stated, among others, that he surrenders to defendant bank "full control of the indicated time deposits from and after date" of the assignment and further authorizes said bank to pre-terminate, set-off and "apply the said time deposits to the payment of whatever amount or amounts may be due" on the loan upon its maturity.

In 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to the defendant bank's Sucat 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.

The bank received a letter from the plaintiff formally informing of its possession of the CTDs in question and of its decision to pre-terminate the same.

Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of the value of the CTDs in a letter dated February 7, 1983.

The loan of Angel dela Cruz with 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 matured loan. However, the plaintiff filed the instant complaint, praying that defendant bank be ordered to pay it the aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued interest and compounded interest therein at 16% per annum, moral and exemplary damages as well as attorney's fees.

Issues: Whether or not the transaction between Caltex and de la cruz is valid pledge. Whether or not Caltex can recover the CTDs

Held: 1. The transaction entered into is a pledge. Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable Instruments Law, an instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder thereof, and a holder may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. In the present case, however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only as security for the purchases of Angel de la Cruz (and we even disregard the fact that the amount involved was not disclosed) could at the most constitute petitioner only as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument since, necessarily, the terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation, must be contractually provided for. In the case at bar, evidence suggests that the instrument was delivered to Caltex by Dela Cruz as security to the fuel purchases of the latter and not as payment for such purchases.

2. No. The pertinent law on this point is that where the holder has a lien on the instrument arising from contract, he is deemed a holder for value to the extent of his lien. As such holder of collateral security, he would be a pledgee but the requirements therefor and the effects thereof, not being provided for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions on pledge of incorporeal rights, which inceptively provide: Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The instrument proving the right pledged shall be delivered to the creditor, and if negotiable, must be indorsed. Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged and the date of the pledge do not appear in a public instrument. Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of respondent court quoted at the start of this opinion show that petitioner failed to produce any document evidencing any contract of pledge or guarantee agreement between it and Angel de la Cruz. Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right effective against and binding upon respondent bank. The requirement under Article 2096 aforementioned 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 law prescribing a condition without which the execution of a pledge contract cannot affect third persons adversely.

On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was embodied in a public instrument.

Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as purchaser, assignee or lien holder of the CTDs, neither proved the amount of its credit or the extent of its lien nor the execution of any public instrument which could affect or bind private respondent. Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the better right over the CTDs in question.

Firestone Tire & Rubber Co. of the Phils. vs. Court of Appeals[G.R. No. 113236. March 5, 2001]

FACTS:Fojas-Arca Enterprises Company maintained a special account with respondent Luzon Development Bank which authorized and allowed the former to withdraw funds from its account through the medium of special withdrawal slips. Fojas-Arca purchased on credit products from Firestone with a total amount of P4,896,000.00. In payment of these purchases, Fojas-Arca delivered to plaintiff six special withdrawal slips drawn upon the respondent bank. In turn, these were deposited by the plaintiff with its current account with the Citibank. All of them were honored and paid by the defendant. However, in a subsequent transaction involving the payment of withdrawal slips by Fojas-Arca for purchases on credit from petitioner, two withdrawal slips for the total sum of P2,078,092.80 were dishonored and not paid by respondent bank for the reason "NO ARRANGEMENT".

ISSUE:Whether respondent bank should be held liable for damages suffered by petitioner, due to its allegedly belated notice of non-payment of the subject withdrawal slips.

RULING:The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. The withdrawal slips in question lacked this character. As the withdrawal slips in question were non-negotiable, the rules governing the giving of immediate notice of dishonor of negotiable instruments do not apply. The respondent bank was under no obligation to give immediate notice that it would not make payment on the subject withdrawal slips. Citibank should have known that withdrawal slips were not negotiable instruments. It could not expect these slips to be treated as checks by other entities. Payment or notice of dishonor from respondent bank could not be expected immediately, in contrast to the situation involving checks. Citibank was not bound to accept the withdrawal slips as a valid mode of deposit. But having erroneously accepted them as such, Citibank – and petitioner as account-holder – must bear the risks attendant to the acceptance of these instruments.

Sesbreno vs. Court of AppealsGR 89252, 24 May 1993

FACTS:Petitioner Sesbreno made a money market placement in the amount of P300,000 with the Philippine Underwriters Finance Corporation (PhilFinance), with a term of 32 days. PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor Corporation Promissory Note, the Certificate of Securities Delivery Receipt indicating the sale of the note with notation that said security was in the custody of Pilipinas Bank, and postdated checks drawn against the Insular Bank of Asia and America for P304,533.33 payable on March 13, 1981. The checks were dishonored for having been drawn against insufficient funds. Pilipinas Bank never released the note, nor any instrument related thereto, to Sesbreno; but Sesbreno learned that the security which was issued on April 10, 1980, maturing on 6 April 1981, has a face value of P2,300,833.33 with PhilFinance as payee and Delta Motors as maker; and was stamped “non-negotiable” on its face. As Sesbreno was unable to collect his investment and interest thereon, he filed an action for damages against Delta Motors and Pilipinas Bank. Delta Motors contents that said promissory note was not intended to be negotiated or otherwise transferred by Philfinance as manifested by the word "non-negotiable" stamped across the face of the Note.

ISSUE:Whether the non-negotiability of a promissory note prevents its assignment.

RULING:A negotiable instrument, instead of being negotiated, may also be assigned or transferred. The legal consequences of negotiation and assignment of the instrument are different. A non-negotiable instrument may not be negotiated but may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument. The subject promissory note, while marked "non-negotiable," was not at the same time stamped "non-transferable" or "non-assignable." It contained no stipulation which prohibited Philfinance from assigning or transferring such note, in whole or in part.

**A non-negotiable instrument may not be negotiated but may be assigned or transferred, absent an express prohibition against assignment or transfer written on the face of the instrument.

Sesbreno vs. CA

GR 89252, 24 May 1993

FACTSOn 9 February 1981, Raul Sesbreno made a money market placement in the amount of P300,000 with the Philippine Underwriters Finance Corporation (PhilFinance), with a term of 32 days. PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor Corporation Promissory Note (2731), the Certificate of Securities Delivery Receipt indicating the sale of the note with notation that said security was in the custody of Pilipinas Bank, and postdated checks drawn against the Insular Bank of Asia and America for P304,533.33 payable on 13 March 1981. The checks were dishonored for having been drawn against insufficient funds.

Pilipinas Bank never released the note, nor any instrument related thereto, to Sesbreno; but Sesbreno learned that the security was issued 10 April 1980, maturing on 6 April 1981, has a face value of P2,300,833.33 with PhilFinance as payee and Delta Motors as maker; and was stamped “non-negotiable” on its face. As Sesbreno was unable to collect his investment and interest thereon, he filed an action for damages against Delta Motors and Pilipinas Bank.

ISSUEWhether non-negotiability of a promissory note prevents its assignment.

HELDOnly an instrument qualifying as a negotiable instrument under the relevant statute may be negotiated either by indorsement thereof coupled with delivery, or by delivery alone if it is in bearer form. A negotiable instrument, instead of being negotiated, may also be assigned or transferred. The legal consequences of negotiation and assignment of the instrument are different. A negotiable instrument may not be negotiated but may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument. herein, there was no prohibition stipulated.

Ang Tek Lian vs. Court of AppealsG.R. No. L-2516 September 25, 1950--payable to bearer

FACTS:Petitioner drew a check payable to "cash"knowing that he had no funds in his account. He delivered said check to Hong for which the latter handed him money. When the check was presented for payment it was dishonored for insufficiency of funds. An information for the crime of estafa was filed against Ang Tek Lian. Petitioner however argues that he is not guilty of the offense charged because he did not endorse the check which was made payable to "cash".

ISSUE:Whether a check payable to "cash" requires an indorsement by the drawer for it to be encashed.

RULING:No. Under Section 9(d) of the NIL, a check drawn payable to the order of "cash" is a check payable to bearer and the bank may pay it to the person presenting it for payment without the drawer's indorsement.

Philippine Education Co. vs. SorianoGR L-22405, 30 June 1971FACTSEnrique Montinola sought to purchase from the Manila Post Office 10 money orders (P200 each), offering to pay for them with a private check. Montinola was able to leave the building with his check and the 10 money orders without the knowledge of the teller. Upon discovery, message was sent to all postmasters and banks involving the unpaid money orders. One of the money orders was received by the Philippine Education Co. as part of its sales receipt. It was deposited by the company with the Bank of America, which cleared it with the Bureau of Post. The Postmaster, through the Chief of the Money Order Division of the Manila Post Office informed the bank of the irregular issuance of the money order. The bank debited the account of the company. The company moved for reconsideration.ISSUEWhether postal money orders are negotiable instruments.

HELD

Philippine postal statutes are patterned from those of the United States, and the weight of authority in said country is that Postal money orders are not negotiable instruments inasmuch as the establishment of a postal money order is an exercise of governmental power for the public’s benefit. Furthermore, some of the restrictions imposed upon money order by postal laws and regulations are inconsistent with the character of negotiable instruments. For instance, postal money orders may be withheld under a variety of circumstances, and which are restricted to not more than one indorsement.Philippine Education Co. Inc. vs. Soriano [GR L-22405, 30 June 1971]

Facts: On 18 April 1958 Enrique Montinola sought to purchase from the Manila Post Office 10 money orders of P200.00 each payable to E. P. Montinola with address at Lucena, Quezon. After the postal teller had made out money orders numbered 124685, 124687-124695, Montinola offered to pay for them with a private check. As private checks were not generally accepted in payment of money orders, the teller advised him to see the Chief of the Money Order Division, but instead of doing so, Montinola managed to leave the building with his own check and the 10 money orders without the knowledge of the teller. On the same date, 18 April 1958, upon discovery of the disappearance of the unpaid money orders, an urgent message was sent to all postmasters, and the following day notice was likewise served upon all banks. instructing them not to pay anyone of the money orders aforesaid if presented for payment. The Blank of America received a copy of said notice 3 days later. On 23 April 1958 one of the above mentioned money orders numbered 124688 was received by Philippine Education Co. as part of its sales receipts. The following day it deposited the same with the Bank of America, and one day thereafter the latter cleared it with the Bureau of Posts and received from the latter its face value of P200.00. On 27 September 1961, Mauricio A. Soriano, Chief of the Money Order Division of the Manila Post Office, acting for and in behalf of Post-master Enrico Palomar, notified the Bank of America that money order 124688 attached to his letter had been found to have been irregularly issued and that, in view thereof, the amount it represented had been deducted from the bank's clearing account. For its part, on August 2 of the same year, the Bank of America debited Philippine Education Co.'s account with the same amount and gave it advice thereof by means of a debit memo. On 12 October 1961 Philippine Education Co. requested the Postmaster General to reconsider the action taken by his office deducting the sum of P200.00 from the clearing account of the Bank of America, but his request was denied. So was Philippine Education Co.'s subsequent request that the matter be referred to the Secretary of Justice for advice. Thereafter, Philippine Education Co. elevated the matter to the Secretary of Public Works and Communications, but the latter sustained the actions taken by the postal officers. In connection with the events set forth above, Montinola was charged with theft in the Court of First Instance of Manila (Criminal Case 43866) but after trial he was acquitted on the ground of reasonable doubt. On 8 January 1962 Philippine Education Co. filed an action against Soriano, et al. in the Municipal Court of Manila. On 17 November 1962, after the parties had submitted the stipulation of facts, the municipal court rendered judgment, ordering Soriano, et al. to countermand the notice given to the Bank of America on 27 September 1961, deducting from said Bank's clearing account the sum of P200.00 representing the amount of postal money order 124688, or in the alternative, to indemnify Philippine Education Co. in the said sum of P200.00 with interest thereon at the rate of 8-1/2% per annum from 27 September 1961 until fully paid; without any pronouncement as to costs and attorney's fees." The case was appealed to the Court of First Instance of Manila where, after the parties had resubmitted the same stipulation of facts, the appealed decision dismissing the complaints with costs, was rendered. Philippine Education Co. appealed.Issue: Whether the postal money order is a negotiable instrument.Held: Philippine postal statutes were patterned after similar statutes in force in the United States. For this reason, Philippine postal statutes are generally construed in accordance with the construction given in the United States to their own postal statutes, in the absence of any special reason justifying a departure from this policy or practice. The weight of authority in the United Status is that postal money orders are not negotiable instruments, the reason behind this rule being 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. Some of the restrictions imposed upon money orders by postal laws and regulations are inconsistent with the character of negotiable instruments. For instance, such laws and regulations usually provide for not more than one endorsement; payment of money orders may be withheld under a variety of circumstances.