*Negotiable Instrument

A negotiable instrument is a signed document that promises a sum of payment to a

specified person or the assignee. In other words, it is a formalized type of IOU: A transferable,
signed document that promises to pay the bearer a sum of money at a future date or on-demand.

Negotiable instruments are transferable in nature, allowing the holder to take the funds as
cash or use them in a manner appropriate for the transaction or according to their preference. The
fund amount listed on the document includes a notation as to the specific amount promised and
must be paid in full either on-demand or at a specified time. A negotiable instrument can be
transferred from one person to another. Once the instrument is transferred, the holder obtains a
full legal title to the instrument

*PHILIPPINE EDUCATION CO., INC., vs. MAURICIO A. SORIANO, ET

AL.

G.R. No. L-22405 June 30, 1971

Marcial Esposo for plaintiff-appellant.

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio G. Ibarra
and Attorney Concepcion Torrijos-Agapinan for defendants-appellees.

DIZON, J.:

An appeal from a decision of the Court of First Instance of Manila dismissing the complaint filed
by the Philippine Education Co., Inc. against Mauricio A. Soriano, Enrico Palomar and Rafael
Contreras.

On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post Office ten (10)
money orders of P200.00 each payable to E.P. Montinola withaddress at Lucena, Quezon. After
the postal teller had made out money ordersnumbered 124685, 124687-124695, Montinola
offered to pay for them with a 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 building with his own check and the ten(10) money orders
without the knowledge of the teller.

On the same date, April 18, 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 Bank of America received a copy of said notice three days later.

On April 23, 1958 one of the above-mentioned money orders numbered 124688 was received by
appellant 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 September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order Division of
the Manila Post Office, acting for and in behalf of his co-appellee, Postmaster Enrico Palomar,
notified the Bank of America that money order No. 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 appellant's account with the same amount and gave it advice thereof by
means of a debit memo.

On October 12, 1961 appellant 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 appellant's subsequent request that the matter be referred to
the Secretary of Justice for advice. Thereafter, appellant 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 No. 43866) but after trial he was acquitted on the ground
of reasonable doubt.

On January 8, 1962 appellant filed an action against appellees in the Municipal Court of Manila
praying for judgment as follows:

WHEREFORE, plaintiff prays that after hearing defendants be ordered:

(a) To countermand the notice given to the Bank of America on September 27, 1961, deducting
from the said Bank's clearing account the sum of P200.00 represented by postal money order No.
124688, or in the alternative indemnify the plaintiff in the same amount with interest at 8-½%
per annum from September 27, 1961, which is the rate of interest being paid by plaintiff on its
overdraft account;

(b) To pay to the plaintiff out of their own personal funds, jointly and severally, actual and moral
damages in the amount of P1,000.00 or in such amount as will be proved and/or determined by
this Honorable Court: exemplary damages in the amount of P1,000.00, attorney's fees of
P1,000.00, and the costs of action.

Plaintiff also prays for such other and further relief as may be deemed just and equitable.

On November 17, 1962, after the parties had submitted the stipulation of facts reproduced at
pages 12 to 15 of the Record on Appeal, the above-named court rendered judgment as follows:
WHEREFORE, judgment is hereby rendered, ordering the defendants to countermand the notice
given to the Bank of America on September 27, 1961, deducting from said Bank's clearing
account the sum of P200.00 representing the amount of postal money order No. 124688, or in the
alternative, to indemnify the plaintiff in the said sum of P200.00 with interest thereon at the rate
of 8-½% per annum from September 27, 1961 until fully paid; without any pronouncement as to
cost 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 complaint, with
costs, was rendered.

The first, second and fifth assignments of error discussed in appellant's brief are related to the
other and will therefore be discussed jointly. They raise this main issue: that the postal money
order in question is a negotiable instrument; that its nature as such is not in anyway affected by
the letter dated October 26, 1948 signed by the Director of Posts and addressed to all banks with
a clearing account with the Post Office, and that money orders, once issued, create a contractual
relationship of debtor and creditor, respectively, between the government, on the one hand, and
the remitters payees or endorses, on the other.

It is not disputed that our postal statutes were patterned after statutes in force in the United
States. For this reason, ours 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 States is that postal
money orders are not negotiable instruments (Bolognesi vs. U.S. 189 Fed. 395; U.S. vs. Stock
Drawers National Bank, 30 Fed. 912), 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.

It is to be noted in this connection that 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 (49 C.J. 1153).

Of particular application to the postal money order in question are the conditions laid down in
the letter of the Director of Posts of October 26, 1948 (Exhibit 3) to the Bank of America for the
redemption of postal money orders received by it from its depositors. Among others, the
condition is imposed that "in cases of adverse claim, the money order or money orders involved
will be returned to you (the bank) and the, corresponding amount will have to be refunded to the
Postmaster, Manila, who reserves the right to deduct the value thereof from any amount due you
if such step is deemed necessary." The conditions thus imposed in order to enable the bank to
continue enjoying the facilities theretofore enjoyed by its depositors, were accepted by the Bank
of America. The latter is therefore bound by them. That it is so is clearly referred from the fact
that, upon receiving advice that the amount represented by the money order in question had been
deducted from its clearing account with the Manila Post Office, it did not file any protest against
such action.

Moreover, not being a party to the understanding existing between the postal officers, on the one
hand, and the Bank of America, on the other, appellant has no right to assail the terms and
conditions thereof on the ground that the letter setting forth the terms and conditions aforesaid is
void because it was not issued by a Department Head in accordance with Sec. 79 (B) of the
Revised Administrative Code. In reality, however, said legal provision does not apply to the
letter in question because it does not provide for a department regulation but merely sets down
certain conditions upon the privilege granted to the Bank of Amrica to accept and pay postal
money orders presented for payment at the Manila Post Office. Such being the case, it is clear
that the Director of Posts had ample authority to issue it pursuant to Sec. 1190 of the Revised
Administrative Code.

In view of the foregoing, We do not find it necessary to resolve the issues raised in the third and
fourth assignments of error.

WHEREFORE, the appealed decision being in accordance with law, the same is hereby affirmed
with costs.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zal

Philippine Education Co. vs. Soriano (Case digest)

Facts:

Enrique Montinola sought to purchase from Manila Post Office ten money orders of
200php each payable to E. P. Montinola. Montinola offered to pay with the money orders with a
private check. Private check 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 without the knowledge of the teller. Upon the disappearance of the
unpaid money order, a message was sent to instruct all banks that it must not pay for the money
order stolen upon presentment. The Bank of America received a copy of said notice. However,
The Bank of America received the money order and deposited it to the appellant’s account upon
clearance. Mauricio Soriano, Chief of the Money Order Division notified the Bank of America
that the money order deposited had been found to have been irregularly issued and that, the
amount it represented had been deducted from the bank’s clearing account. The Bank of America
debited appellant’s account with the same account and give notice by mean of debit memo.

Issue:

Whether or not the postal money order in question is a negotiable instrument

Held:

No. It is not disputed that the Philippine postal statutes were patterned after similar statutes in
force in United States. The Weight of authority in the United States is that postal money orders
are not negotiable instruments, the reason being that in establishing and operating a postal money
order system, the government is not engaged in commercial transactions but merely exercises a
governmental power for the public benefit. Moreover, 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.

*G.R. No. 97753 August 10, 1992

Caltex (philippines ),inc. vs. Court of Appeals and Security Bank and
Trust Company
FACTS

Security Bank and Trust Company issued 280 Certificates of Time Deposit in favor
Angel de la Cruz who deposited with the said bank the amount ₱1,120,000.00. De la Cruz
delivered said CTD’s to Caltex (Phil) Inc. in connection with his purchased of fuel products from
the latter. A portion of CTD’s include: “This is to Certify that BEARER has deposited in this
Bank the sum of PESOS: FOUR THOUSAND ONLY, xxx , repayable to said depositor xxx.”
Later on, de la Cruz informed the bank that he lost all said CTD. In accordance with respondent
bank’s procedure, de la Cruz executed and delivered said bank the Affidavit of Loss. Thereafter,
280 replacements CTD’s were issued to him. Angel de la Cruz negotiated and obtained a loan
from defendant bank in amount of ₱875,000. On the same date, said depositor executed a
notarized Deed of Assignment of Time Deposit in favor of the defendant bank.. However,
Caltex, went to the defendant bank and presented for verification the CTD’s declared lost by
Angel alleging the same were delivered to Caltex as security for purchase made with Caltex Phil,
by said depositor. Caltex sent a letter to the bank informing of its possession of the CTD’s and of
its ask to pre-terminate the same . Not having finish the copy of requested document evidencing
the guarantee agreement, the bank rejected the petitioner’s demand and claim for payment, when
the loan of said Angel de la Cruz mature and fell due, the bank set-off and applied the time
deposits to the payment of the same. The petitioner filed a complaint praying the defendant bank
be ordered to pay the value of the said CTD’s plus interest. The trial court dismissed the instant
complaint. On appeal, the court affirmed the lower court’s decision. Hence, petition for review
on certiorari wherein petitioner faults respondent court in ruling the subject certificate of deposit
are non-negotiable despite being clearly negotiable instruments.
 ISSUE

Whether or not the CTD’s in question is payable to bearer, who is the depositor indicated
therein which will render the same non-negotiable.

HELD

No.

The court hold that the CTD’s in question are negotiable instruments said CTD’s meet
the requirements of law for negotiability. The documents provide that the amounts deposited
shall be repayable to the depositor. According to the document, the depositor is the bearer. The
document did not say that said Angel de la Cruz is the depositor and the amounts are repayable
specifically to him. Rather, the amounts are to be repayable to the bearer of the documents or for
that matter, whoever may be the bearer at the time of presentment.

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 legally ascertained. While the writing may
be read in the light 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
expression of their meaning, no other words are to be added to it or substituted in its stead. The
duty of the court in such case to ascertain, not what the parties may have secretly intended as
contradistinguished from what their words express. But what is the meaning of the words they
have used. What the parties meant must be determined by what they said.

*Metropolitan Bank and Trust Co. v. Court of Appeals [G.R. No. 88866.
February 18, 1991]
FACTS

Various treasury warrants drawn by the Philippine Fish Marketing Authority were
subsequently indorsed by Golden Savings. Petitioner allowed Golden Savings to withdraw thrice
from uncleared treasury warrants as the former was exasperated over persistent inquiries of the
latter after one week. Warrants were later dishonored by the Bureau of Treasury.

ISSUE

(a) Whether or not treasury warrants are negotiable instruments.

(b) Whether or not petitioner’s negligence would bar them for recovery.
 RULING

(a) NO. The indication of fund 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. 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
Section 66 of the Negotiable Instruments Law. The simple reason is that this law is not
applicable to the non-negotiable treasury warrants.

(b) YES. 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; with such assurance, there was no reason not to allow
the withdrawal. However, withdrawals released after the notice of the dishonor may be debited
as it will result to unjust enrichment.

*Sesbreno vs CA

Sesbreno vs. Court of Appeals

GR 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.

*Firestone Tire & Rubber Co. of the Phils. vs., Court of Appeals, et. al., 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 Luzon Development Bank. 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”.

As a consequence, the Citibank debited Firestone’s account for the total sum of P2,078,092.80
representing the aggregate amount of the above-two special withdrawal slips. Under such
situation, plaintiff averred that the pecuniary losses it suffered is caused by and directly
attributable to defendants gross negligence. Hence, Firestone filed a case before the RTC, but
such was dismissed. The case was appealed by the CA.

ISSUE:

Whether or not the acceptance and payment of the special withdrawal slips gives the impression
that it is a negotiable instrument like a check?
HELD: No.
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.

It bears stressing that Citibank could not have missed the non-negotiable nature of the
withdrawal slips. 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.

A bank is under obligation to treat the accounts of its depositors with meticulous care,
whether such account consists only of a few hundred pesos or of millions of pesos. The fact that
the other withdrawal slips were honored and paid by respondent bank was no license for
Citibank to presume that subsequent slips would be honored and paid immediately. By doing so,
it failed in its fiduciary duty to treat the accounts of its clients with the highest degree of care.