Negotiable Instruments

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LAW ON NEGOTIABLE INSTRUMENTS

ACT NO. 2031

February 03, 1911

STUDY SCHEDULE

(ATTY. G.I. BANZON)

Text: DE LEON, The Law on Negotiable Instruments

(with Documents and

Titles)

No. Date: Coverage and Cases

1 13 November 2010 Lecture: Basic Concepts inn Negotiable Instrument _{Assignment: Bring used check}

2 20 November 10

Part 1: Identifying a negotiable instrument Introduction of text book, secs. 1, 126, 184, 185

 Read secs. 1 – 9; also read secs. 10, 12, 17 – 22  Read Caltex vs. CA (G.R.97753) 212 SCRA 448

3 27 November 2010

Part 2: Understanding “negotiation” and “indorsement”  Read secs. 30 – 38

 Read secs. 39 – 50

 Read Salas vs. CA (G.R. 76788) 181 SCRA 296

4 04 December 2010 Quiz for Part 1 _{Continuation of Part 2}

5 11 December 2010

Part 3: Parties to a negotiable instrument and their liabilities  Read secs. 60 – 65

 Read secs. 66 – 69; sec. 29

 Read Ang Tiong vs. Ting (G.R. L – 26767) 22 SCRA 713

6 18 December 2010 _{08 January 2011} Continuation of Part 3 _{Quiz for Part 2}

7 15 January 2011 Prelims covering parts 1 – 2

8 22 January 2011

Quiz for Part 3

Part 4: Acceptance, Payment and Dishonor: Procedures  Read secs. 132 – 151

9 29 January 2011

 Read secs. 70 – 88; 89 - 117

Part 5: Holder and his rights. Defenses against him  Read secs. 52, 51 – 59

 Read De Ocampo vs. Gatchalian (G.R. L – 15126) 3 SCRA 596

10 05 February 2011 Quiz for Part 4 _{Continuation of Part 5}

11 12 Febuary 2011 _ Read secs. 14 – 16; 124 – 125; 23 _{Read Associated Bank vs. CA (G.R. 107382) 252 SCRA 622} 12 19 February 2011 Others: Read secs. 185 – 189; 119 – 123;178 – 183

 Optional Quiz for Part 5

13 26 February 2011 Integration

14 05 March 2011 Finals covering all parts

Sources:

Chanrobles.com Lawphil.net

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PART 1: IDENTIFYING A NEGOTIABLE INSTRUMENT

INTRODUCTION:

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.

Sec. 126. Bill of exchange, defined. - A 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 whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer.

Sec. 184. Promissory note, defined. - A negotiable promissory note within the meaning of this Act is 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. Where a note is drawn to the maker's own order, it is not complete until indorsed by him.

Sec. 185. Check, defined. - A check is a bill of exchange drawn on a bank payable on demand. Except as herein

otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a check.

READ SECS. 1 – 9; ALSO READ SECS. 10, 12, 17 – 22

I. FORM AND INTERPRETATION

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.

Sec. 2. What constitutes certainty as to sum. - The sum payable is a sum certain within the meaning of this Act,

although it is to be paid: a) with interest; or

b) by stated installments; or

c) by stated installments, with a provision that, upon default in payment of any installment or of interest, the whole shall become due; or

d) with exchange, whether at a fixed rate or at the current rate; or

e) with costs of collection or an attorney's fee, in case payment shall not be made at maturity.

Sec. 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. But an order or promise to pay out of a particular fund is not unconditional.

Sec. 4. Determinable future time; what constitutes. - An instrument is payable at a determinable future time, within the

meaning of this Act, which is expressed to be payable: a) At a fixed period after date or sight; or

b) On or before a fixed or determinable future time specified therein; or

c) On or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of happening be uncertain.

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An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure the defect.

Sec. 5. Additional provisions not affecting negotiability. - An instrument which contains an order or promise to do any

act in addition to the payment of money is not negotiable. But the negotiable character of an instrument otherwise negotiable is not affected by a provision which:

a) authorizes the sale of collateral securities in case the instrument be not paid at maturity; or b) authorizes a confession of judgment if the instrument be not paid at maturity; or

c) waives the benefit of any law intended for the advantage or protection of the obligor; or d) gives the holder an election to require something to be done in lieu of payment of money. But nothing in this section shall validate any provision or stipulation otherwise illegal.

Sec. 6. Omissions; seal; particular money. - The validity and negotiable character of an instrument are not affected by

the fact that:

a) it is not dated; or

b) does not specify the value given, or that any value had been given therefor; or c) does not specify the place where it is drawn or the place where it is payable; or d) bears a seal; or

e) designates a particular kind of current money in which payment is to be made.

But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the consideration to be stated in the instrument.

Sec. 7. When payable on demand. - An instrument is payable on demand:

a) When it is so expressed to be payable on demand, or at sight, or on presentation; or b) In which no time for payment is expressed.

Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so issuing, accepting, or indorsing it, payable on demand.

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

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.

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 was 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) When the only or last indorsement is an indorsement in blank.

Sec. 10. Terms, when sufficient. - The instrument need not follow the language of this Act, but any terms are sufficient

which clearly indicate an intention to conform to the requirements hereof.

Sec. 12. Ante-dated and dated. - The instrument is not invalid for the reason only that it is ante-dated or

post-dated, provided this is not done for an illegal or fraudulent purpose. The person to whom an instrument so dated is delivered acquires the title thereto as of the date of delivery.

Sec. 17. Construction where instrument is ambiguous. - Where the language of the instrument is ambiguous or there

are omissions therein, the following rules of construction apply:

a) Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two, the sum denoted by the words is the sum payable; but if the words are ambiguous or uncertain, reference may be had to the figures to fix the amount;

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b) Where the instrument provides for the payment of interest, without specifying the date from which interest is to run, the interest runs from the date of the instrument, and if the instrument is undated, from the issue thereof;

c) Where the instrument is not dated, it will be considered to be dated as of the time it was issued; d) Where there is a conflict between the written and printed provisions of the instrument, the written

provisions prevail;

e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may treat it as either at his election;

f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign, he is to be deemed an indorser;

g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon.

Sec. 18. Liability of person signing in trade or assumed name. - No person is liable on the instrument whose signature

does not appear thereon, except as herein otherwise expressly provided. But one who signs in a trade or assumed name will be liable to the same extent as if he had signed in his own name.

Sec. 19. Signature by agent; authority; how shown. - The signature of any party may be made by a duly authorized

agent. No particular form of appointment is necessary for this purpose; and the authority of the agent may be established as in other cases of agency.

Sec. 20. Liability of person signing as agent, and so forth. - Where the instrument contains or a person adds to his

signature words indicating that he signs for or on behalf of a principal or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability.

Sec. 21. Signature by procuration; effect of. - A signature by "procuration" operates as notice that the agent has but a

limited authority to sign, and the principal is bound only in case the agent in so signing acted within the actual limits of his authority.

Sec. 22. Effect of indorsement by infant or corporation.- The indorsement or assignment of the instrument by a

corporation or by an infant passes the property therein, notwithstanding that from want of capacity, the corporation or infant may incur no liability thereon.

READ CALTEX VS. CA (G.R.97753) 212 SCRA 448

Republic of the Philippines

SUPREME COURT

Manila SECOND DIVISION G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner, vs.

COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

Bito, Lozada, Ortega & Castillo for petitioners. Nepomuceno, Hofileña & Guingona for private.

REGALADO, J.:

This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by respondent court on March 8, 1991 in CA-G.R. CV No. 23615 1affirming with modifications, the earlier decision of the Regional Trial

Court of Manila, Branch XLII, 2which dismissed the complaint filed therein by herein petitioner against respondent

bank.

The undisputed background of this case, as found by the court a quo and adopted by respondent court, appears of record:

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1. 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 who deposited with herein

defendant the aggregate amount of P1,120,000.00, as follows: (Joint Partial Stipulation of Facts and Statement of Issues, Original Records, p. 207; Defendant's Exhibits 1 to 280);

CTD CTD

Dates Serial Nos. Quantity Amount

22 Feb. 82 90101 to 90120 20 P80,000 26 Feb. 82 74602 to 74691 90 360,000 2 Mar. 82 74701 to 74740 40 160,000 4 Mar. 82 90127 to 90146 20 80,000 5 Mar. 82 74797 to 94800 4 16,000 5 Mar. 82 89965 to 89986 22 88,000 5 Mar. 82 70147 to 90150 4 16,000 8 Mar. 82 90001 to 90020 20 80,000 9 Mar. 82 90023 to 90050 28 112,000 9 Mar. 82 89991 to 90000 10 40,000 9 Mar. 82 90251 to 90272 22 88,000 ——— ———— Total 280 P1,120,000 ===== ========

2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in connection with his purchased of fuel products from the latter (Original Record, p. 208).

3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch Manger, that he lost all the certificates of time deposit in dispute. Mr. Tiangco advised said depositor to execute and submit a notarized Affidavit of Loss, as required by defendant bank's procedure, if he desired replacement of said lost CTDs (TSN, February 9, 1987, pp. 48-50).

4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank the required Affidavit of Loss (Defendant's Exhibit 281). On the basis of said affidavit of loss, 280 replacement CTDs were issued in favor of said depositor (Defendant's Exhibits 282-561).

5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from defendant bank in the amount of Eight Hundred Seventy Five Thousand Pesos (P875,000.00). On the same date, said depositor executed a notarized Deed of Assignment of Time Deposit (Exhibit 562) which stated, among others, that he (de la Cruz) 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 (TSN, February 9, 1987, pp. 60-62).

6. Sometime in November, 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 (TSN, February 9, 1987, pp. 54-68).

7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from herein plaintiff formally informing it of its possession of the CTDs in question and of its decision to pre-terminate the same.

8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the former "a copy of the document evidencing the guarantee agreement with Mr. Angel dela Cruz" as well as "the details of Mr. Angel dela Cruz" obligation against which plaintiff proposed to apply the time deposits

(Defendant's Exhibit 564).

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10. 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 (Defendant's Exhibit 566).

11. In April 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 (TSN, February 9, 1987, pp. 130-131).

12. In view of the foregoing, 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.

After trial, the court a quo rendered its decision dismissing the instant complaint. 3

On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint, hence this petition wherein petitioner faults respondent court in ruling (1) that the subject certificates of deposit are non-negotiable despite being clearly non-negotiable instruments; (2) that petitioner did not become a holder in due course of the said certificates of deposit; and (3) in disregarding the pertinent provisions of the Code of Commerce relating to lost instruments payable to bearer. 4

The instant petition is bereft of merit.

A sample text of the certificates of time deposit is reproduced below to provide a better understanding of the issues involved in this recourse.

SECURITY BANK AND TRUST COMPANY

6778 Ayala Ave., Makati No. 90101 Metro Manila, Philippines

SUCAT OFFICEP 4,000.00 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 5

Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing as follows:

. . . While it may be true that the word "bearer" appears rather boldly in the CTDs issued, it is important to note that after the word "BEARER" stamped on the space provided supposedly for the name of the depositor, the words "has deposited" a certain amount follows. The document further provides that the amount deposited shall be "repayable to said depositor" on the period indicated. Therefore, the text of the instrument(s) themselves manifest with clarity that they are payable, not to whoever purports to be the "bearer" but only to the specified person indicated therein, the depositor. In effect, the appellee bank acknowledges its depositor Angel dela Cruz as the person who made the deposit and further engages itself to pay said depositor the amount indicated thereon at the stipulated date. 6

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We disagree with these findings and conclusions, and hereby hold that the CTDs in question are negotiable

instruments. Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites for an instrument to become negotiable, viz:

(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 CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties' bone of contention is with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way back in 1982, testified in open court that the depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz.

xxx xxx xxx Atty. Calida:

q In other words Mr. Witness, you are saying that per books of the bank, the depositor referred (sic) in these certificates states that it was Angel dela Cruz? witness:

a Yes, your Honor, and we have the record to show that Angel dela Cruz was the one who cause (sic) the amount.

Atty. Calida:

q And no other person or entity or company, Mr. Witness? witness:

a None, your Honor. 7

xxx xxx xxx Atty. Calida:

q Mr. Witness, who is the depositor identified in all of these certificates of time deposit insofar as the bank is concerned?

witness:

a Angel dela Cruz is the depositor. 8

xxx xxx xxx

On this score, 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. 9In the construction of a bill or note, the intention of the parties

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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. The duty of the court in such case is 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. 11

Contrary to what respondent court held, the CTDs are negotiable instruments. 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 de la Cruz and that the amounts deposited are

repayable specifically to him. Rather, the amounts are to be repayable to the bearer of the documents or, for that matter, whosoever may be the bearer at the time of presentment.

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. On the wordings of the documents, therefore, the amounts deposited are repayable to whoever may be the bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel de la Cruz is the depositor "insofar as the bank is concerned," but obviously other parties not privy to the transaction between them would not be in a position to know that the depositor is not the bearer stated in the CTDs. Hence, the situation would require any party dealing with the CTDs to go behind the plain import of what is written thereon to unravel the agreement of the parties thereto through facts aliunde. This need for resort to extrinsic evidence is what is sought to be avoided by the Negotiable Instruments Law and calls for the application of the elementary rule that the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 12

The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in the negative. The records reveal that Angel de la Cruz, whom petitioner chose not to implead in this suit for reasons of its own,

delivered the CTDs amounting to P1,120,000.00 to petitioner without informing respondent bank thereof at any time. Unfortunately for petitioner, although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it and De la Cruz, as ultimately ascertained, requires both delivery and indorsement. For, although petitioner seeks to deflect this fact, the CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products. Any doubt as to whether the CTDs were delivered as payment for the fuel products or as a security has been dissipated and resolved in favor of the latter by petitioner's own authorized and responsible representative himself.

In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr., Caltex Credit Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his purchases of fuel

products" (Emphasis ours.) 13This admission is conclusive upon petitioner, its protestations notwithstanding. Under

the doctrine of estoppel, an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. 14 A party may not go back on his own acts and

representations to the prejudice of the other party who relied upon them. 15In the law of evidence, whenever a party

has, by his own declaration, act, or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it. 16

If it were true that the CTDs were delivered as payment and not as security, petitioner's credit manager could have easily said so, instead of using the words "to guarantee" in the letter aforequoted. Besides, when respondent bank, as defendant in the court below, moved for a bill of particularity therein 17praying, among others, that petitioner, as

plaintiff, be required to aver with sufficient definiteness or particularity (a) the due date or dates ofpayment of the alleged indebtedness of Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that the CTDs were delivered to it by De la Cruz as payment of the latter's alleged indebtedness to it, plaintiff corporation opposed the motion. 18Had it produced the receipt prayed for, it could have proved, if such truly was the fact, that the CTDs

were delivered as payment and not as security. Having opposed the motion, petitioner now labors under the presumption that evidence willfully suppressed would be adverse if produced. 19

Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs. Philippine National

Bank, et al. 20is apropos:

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The character of the transaction between the parties is to be determined by their intention, regardless of what language was used or what the form of the transfer was. If it was intended to secure the payment of money, it must be construed as a pledge; but if there was some other intention, it is not a pledge. However, even though a transfer, if regarded by itself, appears to have been absolute, its object and character might still be qualified and explained by contemporaneous writing declaring it to have been a deposit of the property as collateral security. It has been said that a transfer of property by the debtor to a creditor, even if sufficient on its face to make an absolute conveyance, should be treated as a pledge if the debt continues in inexistence and is not discharged by the transfer, and that accordingly the use of the terms ordinarily importing conveyance of absolute ownership will not be given that effect in such a transaction if they are also commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership, in the absence of clear and unambiguous language or other

circumstances excluding an intent to 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, 21 and a holder may be the payee or indorsee of a bill or note, who is in possession of it,

or the bearer thereof. 22In 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.

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. 23As 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, 24which 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. 25Consequently, 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. 26

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. 27With regard to this other mode of transfer, the Civil Code specifically declares:

Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property.

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.

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Finally, petitioner faults respondent court for refusing to delve into the question of whether or not private respondent observed the requirements of the law in the case of lost negotiable instruments and the issuance of replacement certificates therefor, on the ground that petitioner failed to raised that issue in the lower court. 28

On this matter, we uphold respondent court's finding that the aspect of alleged negligence of private respondent was not included in the stipulation of the parties and in the statement of issues submitted by them to the trial court.29The

issues agreed upon by them for resolution in this case are:

(1) Whether or not the CTDs as worded are negotiable instruments.

(2) Whether or not defendant could legally apply the amount covered by the CTDs against the depositor's loan by virtue of the assignment (Annex "C").

(3) Whether or not there was legal compensation or set off involving the amount covered by the CTDs and the depositor's outstanding account with defendant, if any.

(4) Whether or not plaintiff could compel defendant to preterminate the CTDs before the maturity date provided therein.

(5) Whether or not plaintiff is entitled to the proceeds of the CTDs.

(6) Whether or not the parties can recover damages, attorney's fees and litigation expenses from each other.

As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the foregoing enumeration does not include the issue of negligence on the part of respondent bank. An issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is barred by estoppel. 30Questions raised on

appeal must be within the issues framed by the parties and, consequently, issues not raised in the trial court cannot be raised for the first time on appeal. 31

Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case are properly raised. Thus, to obviate the element of surprise, parties are expected to disclose at a pre-trial conference all issues of law and fact which they intend to raise at the trial, except such as may involve privileged or impeaching matters. The

determination of issues at a pre-trial conference bars the consideration of other questions on appeal.32

To accept petitioner's suggestion that respondent bank's supposed negligence may be considered encompassed by the issues on its right to preterminate and receive the proceeds of the CTDs would be tantamount to saying that petitioner could raise on appeal any issue. We agree with private respondent that the broad ultimate issue of petitioner's

entitlement to the proceeds of the questioned certificates can be premised on a multitude of other legal reasons and causes of action, of which respondent bank's supposed negligence is only one. Hence, petitioner's submission, if accepted, would render a pre-trial delimitation of issues a useless exercise. 33

Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner still cannot have the odds in its favor. A close scrutiny of the provisions of the Code of Commerce laying down the rules to be followed in case of lost instruments payable to bearer, which it invokes, will reveal that said provisions, even assuming their applicability to the CTDs in the case at bar, are merely permissive and not mandatory. The very first article cited by petitioner speaks for itself.

Art 548. The dispossessed owner, no matter for what cause it may be, may apply to the judge or court of competent jurisdiction, asking that the principal, interest or dividends due or about to become due, be not paid a third person, as well as in order to prevent the ownership of the instrument that a duplicate be issued him. (Emphasis ours.)

xxx xxx xxx

The use of the word "may" in said provision shows that it is not mandatory but discretionary on the part of the "dispossessed owner" to apply to the judge or court of competent jurisdiction for the issuance of a duplicate of the lost instrument. Where the provision reads "may," this word shows that it is not mandatory but discretional. 34 The word

"may" is usually permissive, not mandatory. 35It is an auxiliary verb indicating liberty, opportunity, permission and

possibility. 36

Moreover, as correctly analyzed by private respondent, 37Articles 548 to 558 of the Code of Commerce, on which

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recourse in favor of a dispossessed owner or holder of a bearer instrument so that he may obtain a duplicate of the same, and, on the other, an option in favor of the party liable thereon who, for some valid ground, may elect to refuse to issue a replacement of the instrument. Significantly, none of the provisions cited by petitioner categorically

restricts or prohibits the issuance a duplicate or replacement instrument sans compliance with the procedure outlined therein, and none establishes a mandatory precedent requirement therefor.

WHEREFORE, on the modified premises above set forth, the petition is DENIED and the appealed decision is hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J., Padilla and Nocon, JJ., concur.

Footnotes

1. Per Justice Segundino G. Chua, with the concurrence of Justices Santiago M. Kapunan and Luis L. Victor. 2. Judge Ramon Mabutas, Jr., presiding; Rollo, 64-88.

3. Rollo, 24-26. 4. Ibid., 12.

5. Exhibit A, Documentary Evidence for the Plaintiff, 8. 6. Rollo, 28.

7. TSN, February 9, 1987, 46-47. 8. Ibid., id., 152-153.

9. 11 Am. Jur. 2d, Bills and Notes, 79. 10. Ibid., 86.

11. Ibid., 87-88.

12. Art. 1377, Civil Code.

13. Exhibit 563, Documentary Evidence for the Defendant, 442; Original Record, 211. 14. Panay Electric Co., Inc. vs. Court of Appeals, et al., 174 SCRA 500 (1989).

15. Philippine National Bank vs. Intermediate Appellate Court, et al., 189 SCRA 680 (1990). 16. Section 2(a), Rule 131, Rules of Court.

17. Original Record, 152. 18. Ibid., 154.

19. Section 3(e), Rule 131, Rules of Court.

20. 174 SCRA 295 (1989), jointly decided with Overseas Bank of Manila vs. Court of Appeals, et al., G.R. No. 0907. 21. Sec. 30, Act No. 2031.

22. Sec. 191, id.

23. Sec. 27, id.; see also Art. 2118, Civil Code.

24. Commentaries and Jurisprudence on the Philippine Commercial Laws, T.C. Martin, 1985 Rev. Ed., Vol. I, 134; Art. 18, Civil Code; Sec. 196, Act No. 2031.

25. Rollo, 25.

26. Tec Bi & Co. vs. Chartered Bank of India, Australia and China, 41 Phil. 596 (1916); Ocejo, Perez & Co. vs. The International Banking Corporation, 37 Phil. 631 (1918); Te Pate vs. Ingersoll, 43 Phil. 394 (1922).

27. Rollo, 25. 28. Ibid., 15.

29. Joint Partial Stipulation of Facts and Statement of Issues, dated November 27, 1984; Original Record, 209. 30. Mejorada vs. Municipal Council of Dipolog, 52 SCRA 451 (1973).

31. Sec. 18, Rule 46, Rules of Court; Garcia, et al. vs. Court of Appeals, et al., 102 SCRA 597 (1981); Matienzo vs. Servidad, 107 SCRA 276 (1981); Aguinaldo Industries Corporation, etc. vs. Commissioner of Internal Revenue, et al., 112 SCRA 136 (1982); Dulos Realty & Development Corporation vs. Court of Appeals, et al., 157 SCRA 425 (1988).

32. Bergado vs. Court of Appeals, et al., 173 SCRA 497 (1989). 33. Rollo, 58.

34. U.S. vs. Sanchez, 13 Phil. 336 (1909); Capati vs. Ocampo, 113 SCRA 794 (1982). 35. Luna vs. Abaya, 86 Phil. 472 (1950).

36. Philippine Law Dictionary, F.B. Moreno, Third Edition, 590. 37. Rollo, 59.

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PART 2: UNDERSTANDING “NEGOTIATION” AND “INDORSEMENT” READ SECS. 30 – 38

III. NEGOTIATION

Sec. 30. What constitutes negotiation. - An instrument is negotiated when it is transferred from one person to another

in such manner as to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder and completed by delivery.

Sec. 31. Indorsement; how made. - The indorsement must be written on the instrument itself or upon a paper attached

thereto. The signature of the indorser, without additional words, is a sufficient indorsement.

Sec. 32. Indorsement must be of entire instrument. - The indorsement must be an indorsement of the entire

instrument. An indorsement which purports to transfer to the indorsee a part only of the amount payable, or which purports to transfer the instrument to two or more indorsees severally, does not operate as a negotiation of the instrument. But where the instrument has been paid in part, it may be indorsed as to the residue.

Sec. 33. Kinds of indorsement. - An indorsement may be either special or in blank; and it may also be either restrictive

or qualified or conditional.

Sec. 34. Special indorsement; indorsement in blank. - A special indorsement specifies the person to whom, or to whose

order, the instrument is to be payable, and the indorsement of such indorsee is necessary to the further negotiation of the instrument. An indorsement in blank specifies no indorsee, and an instrument so indorsed is payable to bearer, and may be negotiated by delivery.

Sec. 35. Blank indorsement; how changed to special indorsement. - The holder may convert a blank indorsement into a

special indorsement by writing over the signature of the indorser in blank any contract consistent with the character of the indorsement.

Sec. 36. When indorsement restrictive. - An indorsement is restrictive which either:

a) Prohibits the further negotiation of the instrument; or b) Constitutes the indorsee the agent of the indorser; or

c) Vests the title in the indorsee in trust for or to the use of some other persons.

But the mere absence of words implying power to negotiate does not make an indorsement restrictive.

Sec. 37. Effect of restrictive indorsement; rights of indorsee. - A restrictive indorsement confers upon the indorsee the

right:

a) to receive payment of the instrument;

b) to bring any action thereon that the indorser could bring;

c) transfer his rights as such indorsee, where the form of the indorsement authorizes him to do so. But all subsequent indorsees acquire only the title of the first indorsee under the restrictive indorsement.

Sec. 38. Qualified indorsement. - A qualified indorsement constitutes the indorser a mere assignor of the title to the

instrument. It may be made by adding to the indorser's signature the words "without recourse" or any words of similar import. Such an indorsement does not impair the negotiable character of the instrument.

READ SECS. 39 – 50

Sec. 39. Conditional indorsement. - Where an indorsement is conditional, the party required to pay the instrument

may disregard the condition and make payment to the indorsee or his transferee whether the condition has been fulfilled or not. But any person to whom an instrument so indorsed is negotiated will hold the same, or the proceeds thereof, subject to the rights of the person indorsing conditionally.

Sec. 40. Indorsement of instrument payable to bearer. - Where an instrument, payable to bearer, is indorsed specially,

it may nevertheless be further negotiated by delivery; but the person indorsing specially is liable as indorser to only such holders as make title through his indorsement.

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more payees or indorsees who are not partners, all must indorse unless the one indorsing has authority to indorse for the others.

Sec. 42. Effect of instrument drawn or indorsed to a person as cashier. - Where an instrument is drawn or indorsed to a

person as "cashier" or other fiscal officer of a bank or corporation, it is deemed prima facie to be payable to the bank or corporation of which he is such officer, and may be negotiated by either the indorsement of the bank or corporation or the indorsement of the officer.

Sec. 43. Indorsement where name is misspelled, and so forth. - Where the name of a payee or indorsee is wrongly

designated or misspelled, he may indorse the instrument as therein described adding, if he thinks fit, his proper signature.

Sec. 44. Indorsement in representative capacity. - Where any person is under obligation to indorse in a representative

capacity, he may indorse in such terms as to negative personal liability. robles virtual law library

Sec. 45. Time of indorsement; presumption. - Except where an indorsement bears date after the maturity of the

instrument, every negotiation is deemed prima facie to have been effected before the instrument was overdue.

Sec. 46. Place of indorsement; presumption. - Except where the contrary appears, every indorsement is presumed

prima facie to have been made at the place where the instrument is dated.

Sec. 47. Continuation of negotiable character. - An instrument negotiable in its origin continues to be negotiable until

it has been restrictively indorsed or discharged by payment or otherwise.

Sec. 48. Striking out indorsement. - The holder may at any time strike out any indorsement which is not necessary to

his title. The indorser whose indorsement is struck out, and all indorsers subsequent to him, are thereby relieved from liability on the instrument.

Sec. 49. Transfer without indorsement; effect of. - Where the holder of an instrument payable to his order transfers it

for value without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made.

Sec. 50. When prior party may negotiate instrument. - Where an instrument is negotiated back to a prior party, such

party may, subject to the provisions of this Act, reissue and further negotiable the same. But he is not entitled to enforce payment thereof against any intervening party to whom he was personally liable.

READ SALAS VS. CA (G.R. 76788) 181 SCRA 296

SUPREME COURT

Manila THIRD DIVISION

G.R. No. 76788 January 22, 1990 JUANITA SALAS, petitioner,

vs.

HON. COURT OF APPEALS and FIRST FINANCE & LEASING CORPORATION, respondents.

Arsenio C. Villalon, Jr. for petitioner.

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FERNAN, C.J.:

Assailed in this petition for review on certiorari is the decision of the Court of Appeals in C.A.-G.R. CV No. 00757 entitled "Filinvest Finance & Leasing Corporation v. Salas", which modified the decision of the Regional Trial Court of San Fernando, Pampanga in Civil Case No. 5915, a collection suit between the same parties.

Records disclose that on February 6, 1980, Juanita Salas (hereinafter referred to as petitioner) bought a motor vehicle from the Violago Motor Sales Corporation (VMS for brevity) for P58,138.20 as evidenced by a promissory note. This note was subsequently endorsed to Filinvest Finance & Leasing Corporation (hereinafter referred to as private respondent) which financed the purchase.

Petitioner defaulted in her installments beginning May 21, 1980 allegedly due to a discrepancy in the engine and chassis numbers of the vehicle delivered to her and those indicated in the sales invoice, certificate of registration and deed of chattel mortgage, which fact she discovered when the vehicle figured in an accident on 9 May 1980.

This failure to pay prompted private respondent to initiate Civil Case No. 5915 for a sum of money against petitioner before the Regional Trial Court of San Fernando, Pampanga.

In its decision dated September 10, 1982, the trial court held, thus:

WHEREFORE, and in view of all the foregoing, judgment is hereby rendered ordering the defendant to pay the plaintiff the sum of P28,414.40 with interest thereon at the rate of 14% from October 2, 1980 until the said sum is fully paid; and the further amount of P1,000.00 as attorney's fees. The counterclaim of defendant is dismissed.

With costs against defendant. 1

Both petitioner and private respondent appealed the aforesaid decision to the Court of Appeals.

Imputing fraud, bad faith and misrepresentation against VMS for having delivered a different vehicle to petitioner, the latter prayed for a reversal of the trial court's decision so that she may be absolved from the obligation under the contract.

On October 27, 1986, the Court of Appeals rendered its assailed decision, the pertinent portion of which is quoted hereunder:

The allegations, statements, or admissions contained in a pleading are conclusive as against the pleader. A party cannot subsequently take a position contradictory of, or inconsistent with his pleadings (Cunanan vs. Amparo, 80 Phil. 227). Admissions made by the parties in the pleadings, or in the course of the trial or other proceedings, do not require proof and cannot be contradicted unless previously shown to have been made through palpable mistake (Sec. 2, Rule 129, Revised Rules of Court; Sta. Ana vs. Maliwat, L-23023, Aug. 31, 1968, 24 SCRA 1018).

When an action or defense is founded upon a written instrument, copied in or attached to the corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denied them, and sets forth what he claims to be the facts (Sec. 8, Rule 8, Revised Rules of Court; Hibbered vs. Rohde and McMillian, 32 Phil. 476).

A perusal of the evidence shows that the amount of P58,138.20 stated in the promissory note is the amount assumed by the plaintiff in financing the purchase of defendant's motor vehicle from the Violago Motor Sales Corp., the monthly amortization of winch is Pl,614.95 for 36 months. Considering that the defendant was able to pay twice (as admitted by the plaintiff, defendant's account became delinquent only beginning May, 1980) or in the total sum of P3,229.90, she is therefore liable to pay the remaining balance of P54,908.30 at l4% per annum from October 2, 1980 until full payment.

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WHEREFORE, considering the foregoing, the appealed decision is hereby modified ordering the defendant to pay the plaintiff the sum of P54,908.30 at 14% per annum from October 2, 1980 until full payment. The decision is AFFIRMED in all other respects. With costs to defendant. 2

Petitioner's motion for reconsideration was denied; hence, the present recourse.

In the petition before us, petitioner assigns twelve (12) errors which focus on the alleged fraud, bad faith and misrepresentation of Violago Motor Sales Corporation in the conduct of its business and which fraud, bad faith and misrepresentation supposedly released petitioner from any liability to private respondent who should instead proceed against VMS. 3

Petitioner argues that in the light of the provision of the law on sales by description 4_{which she alleges is applicable}

here, no contract ever existed between her and VMS and therefore none had been assigned in favor of private respondent.

She contends that it is not necessary, as opined by the appellate court, to implead VMS as a party to the case before it can be made to answer for damages because VMS was earlier sued by her for "breach of contract with damages" before the Regional Trial Court of Olongapo City, Branch LXXII, docketed as Civil Case No. 2916-0. She cites as

authority the decision therein where the court originally ordered petitioner to pay the remaining balance of the motor vehicle installments in the amount of P31,644.30 representing the difference between the agreed consideration of P49,000.00 as shown in the sales invoice and petitioner's initial downpayment of P17,855.70 allegedly evidenced by a receipt. Said decision was however reversed later on, with the same court ordering defendant VMS instead to return to petitioner the sum of P17,855.70. Parenthetically, said decision is still pending consideration by the First Civil Case Division of the Court of Appeals, upon an appeal by VMS, docketed as AC-G.R. No. 02922. 5

Private respondent in its comment, prays for the dismissal of the petition and counters that the issues raised and the allegations adduced therein are a mere rehash of those presented and already passed upon in the court below, and that the judgment in the "breach of contract" suit cannot be invoked as an authority as the same is still pending determination in the appellate court.

We see no cogent reason to disturb the challenged decision.

The pivotal issue in this case is whether the promissory note in question is a negotiable instrument which will bar completely all the available defenses of the petitioner against private respondent.

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.

Recently, in the case of Consolidated Plywood Industries Inc. v. IFC Leasing and Acceptance Corp., 6_{this Court had the}

occasion to clearly distinguish between a negotiable and a non-negotiable instrument.

Among others, the instrument in order to be considered negotiable must contain the so-called "words of negotiability — i.e., must be payable to "order" or "bearer"". Under Section 8 of the Negotiable Instruments Law, there are only two ways by which an instrument may be made 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 therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument, but will merely "step into the shoes" of the person designated in the instrument and will thus be open to all defenses available against the latter. Such being the situation in the above-cited case, it was held that therein private respondent is not a holder in due course but a mere assignee against whom all defenses available to the assignor may be raised. 7

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In the case at bar, however, the situation is different. Indubitably, the basis of private respondent's claim against petitioner is a promissory note which bears all the earmarks of negotiability.

The pertinent portion of the note reads:

PROMISSORY NOTE (MONTHLY) P58,138.20

San Fernando, Pampanga, Philippines Feb. 11, 1980

For value received, I/We jointly and severally, promise to pay Violago Motor Sales Corporation or

order, at its office in San Fernando, Pampanga, the sum of FIFTY EIGHT THOUSAND ONE HUNDRED THIRTY EIGHT & 201/100 ONLY (P58,138.20) Philippine currency, which amount includes interest at

14% per annum based on the diminishing balance, the said principal sum, to be payable, without need of notice or demand, in installments of the amounts following and at the dates hereinafter set forth, to wit: P1,614.95 monthly for "36" months due and payable on the 21st day of each month starting March 21, 1980 thru and inclusive of February 21, 1983. P_________ monthly for ______ months due and payable on the ______ day of each month starting _____198__ thru and inclusive of _____, 198________ provided that interest at 14% per annum shall be added on each unpaid installment from maturity hereof until fully paid.

xxx xxx xxx Maker; Co-Maker:

(SIGNED) JUANITA SALAS _________________ Address:

____________________ ____________________

WITNESSES SIGNED: ILLEGIBLE SIGNED: ILLEGIBLE

TAN # TAN #

PAY TO THE ORDER OF

FILINVEST FINANCE AND LEASING CORPORATION VIOLAGO MOTOR SALES CORPORATION

BY: (SIGNED) GENEVEVA V. BALTAZAR Cash Manager 8

A careful study of the questioned promissory note shows that it is a negotiable instrument, having complied with the requisites under the law as follows: [a] it is in writing and signed by the maker Juanita Salas; [b] it contains an unconditional promise to pay the amount of P58,138.20; [c] it is payable at a fixed or determinable future time which is "P1,614.95 monthly for 36 months due and payable on the 21 st day of each month starting March 21, 1980 thru and inclusive of Feb. 21, 1983;" [d] it is payable to Violago Motor Sales Corporation, or order and as such, [e] the drawee is named or indicated with certainty. 9

It was negotiated by indorsement in writing on the instrument itself payable to the Order of Filinvest Finance and Leasing Corporation 10_{and it is an indorsement of the entire instrument.}11

Under the circumstances, there appears to be no question that Filinvest is a holder in due course, having taken the instrument under the following conditions: [a] it is complete and regular upon its face; [b] it became the holder

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thereof before it was overdue, and without notice that it had previously been dishonored; [c] it took the same in good faith and for value; and [d] when it was negotiated to Filinvest, the latter had no notice of any infirmity in the

instrument or defect in the title of VMS Corporation. 12

Accordingly, respondent corporation holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof. 13_{This being so, petitioner cannot set up against respondent the defense of nullity of the contract of sale}

between her and VMS.

Even assuming for the sake of argument that there is an iota of truth in petitioner's allegation that there was in fact deception made upon her in that the vehicle she purchased was different from that actually delivered to her, this matter cannot be passed upon in the case before us, where the VMS was never impleaded as a party.

Whatever issue is raised or claim presented against VMS must be resolved in the "breach of contract" case. Hence, we reach a similar opinion as did respondent court when it held:

We can only extend our sympathies to the defendant (herein petitioner) in this unfortunate incident. Indeed, there is nothing We can do as far as the Violago Motor Sales Corporation is concerned since it is not a party in this case. To even discuss the issue as to whether or not the Violago Motor Sales Corporation is liable in the transaction in question would amount, to denial of due process, hence, improper and unconstitutional. She should have impleaded Violago Motor Sales. 14

IN VIEW OF THE FOREGOING, the assailed decision is hereby AFFIRMED. With costs against petitioner. SO ORDERED.

Gutierrez, Jr., Feliciano, Bidin and Cortés, JJ., concur.

Footnotes

1. Rollo, p. 21. 2. Rollo, pp. 23-24. 3. Rollo, pp. 57-59.

4. Art. 1481, New Civil Code. 5. Rollo, p. 10.

6. 149 SCRA 459 (1987). 7. Ibid.

8. Ex. "7 "; Folder of Exhibits.

9. Section 1, Negotiable Instruments Law, emphasis supplied. 10. Section 31, NIL.

11. Section 32, NIL. 12. Section 52, NIL.

13. Section 57, Negotiable Instruments Law; Consolidated Plywood Industries, Inc. v. IFC Leasing and Acceptance Corporation, (supra).

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PART 3: PARTIES TO A NEGOTIABLE INSTRUMENT AND THEIR LIABILITIES READ SECS. 60 – 65

V. LIABILITIES OF PARTIES

Sec. 60. Liability of maker. - The maker of a negotiable instrument, by making it, engages that he will pay it according

to its tenor, and admits the existence of the payee and his then capacity to indorse.

Sec. 61. Liability of drawer. - The drawer by drawing the instrument admits the existence of the payee and his then

capacity to indorse; and engages that, on due presentment, the instrument will be accepted or paid, or both, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it. But the drawer may insert in the instrument an express stipulation negativing or limiting his own liability to the holder.

Sec. 62. Liability of acceptor. - The acceptor, by accepting the instrument, engages that he will pay it according to the

tenor of his acceptance and admits:

a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; and

b) The existence of the payee and his then capacity to indorse.

Sec. 63. When a person deemed indorser. - A person placing his signature upon an instrument otherwise than as

maker, drawer, or acceptor, is deemed to be indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity.

Sec. 64. Liability of irregular indorser. - Where a person, not otherwise a party to an instrument, places thereon his

signature in blank before delivery, he is liable as indorser, in accordance with the following rules:

a) If the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent parties.

b) If the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is liable to all parties subsequent to the maker or drawer.

c) If he signs for the accommodation of the payee, he is liable to all parties subsequent to the payee.

Sec. 65. Warranty where negotiation by delivery and so forth. — Every person negotiating an instrument by delivery or

by a qualified indorsement warrants:

a) That the instrument is genuine and in all respects what it purports to be; b) That he has a good title to it;

c) That all prior parties had capacity to contract;

d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee.

The provisions of subdivision (c) of this section do not apply to a person negotiating public or corporation securities other than bills and notes.

READ SECS. 66 – 69; SEC. 29

Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to all subsequent

holders in due course:

a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and b) That the instrument is, at the time of his indorsement, valid and subsisting;

And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it.

Sec. 67. Liability of indorser where paper negotiable by delivery. — Where a person places his indorsement on an

instrument negotiable by delivery, he incurs all the liability of an indorser.

Sec. 68. Order in which indorsers are liable. - As respect one another, indorsers are liable prima facie in the order in

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otherwise. Joint payees or joint indorsees who indorse are deemed to indorse jointly and severally. robles virtual law library

Sec. 69. Liability of an agent or broker. - Where a broker or other agent negotiates an instrument without

indorsement, he incurs all the liabilities prescribed by Section Sixty-five of this Act, unless he discloses the name of his principal and the fact that he is acting only as agent.

READ ANG TIONG VS. TING (G.R. L – 26767) 22 SCRA 713

SUPREME COURT

Manila EN BANC

G.R. No. L-26767 February 22, 1968 ANG TIONG, plaintiff-appellee,

vs.

LORENZO TING, doing business under the name and style of PRUNES PRESERVED MFG., and FELIPE ANG, defendants.

FELIPE ANG, defendant-appellant.

Chipeco & Alcaraz, Jr. for plaintiff-appellee. Ang, Atienza & Tabora for defendant-appellant.

CASTRO, J.:

On August 15, 1960 Lorenzo Ting issued Philippine Bank of Communications check K-81618, for the sum of P4,000, payable to "cash or bearer". With Felipe Ang's signature (indorsement in blank) at the back thereof, the instrument was received by the plaintiff Ang Tiong who thereafter presented it to the drawee bank for payment. The bank dishonored it. The plaintiff then made written demands on both Lorenzo Ting and Felipe Ang that they make good the amount represented by the check. These demands went unheeded; so he filed in the municipal court of Manila an action for collection of the sum of P4,000, plus P500 attorney's fees. On March 6, 1962 the municipal court adjudged for the plaintiff against the two defendants.

Only Felipe Ang appealed to the Court of First Instance of Manila (civil case 50018), which rendered judgment on July 31, 1962, amended by an order dated August 9, 1962, directing him to pay to the plaintiff "the sum of P4,000, with interest at the legal rate from the date of the filing of the complaint, a further sum of P400 as attorney's fees, and costs."

Felipe Ang then elevated the case to the Court of Appeals, which certified it to this Court because the issues raised are purely of law.

The appellant imputes to the court a quo three errors, namely, (1) that it refused to apply article 2071 of the new Civil Code to the case at bar; (2) that it adjudged him a general indorser under the Negotiable Instruments Law (Act 2031); and (3) that it held that he "cannot obtain his release from the contract of suretyship or obtain security to protect himself against any proceedings on the part of the creditor and against the danger of insolvency of the principal debtor," because he is "jointly and severally liable on the instrument."

This, appeal is absolutely without merit.

1. The genuineness and due execution of the instrument are not controverted. That the appellee is a holder thereof for value is admitted.

Having arisen from a bank check which is indisputably a negotiable instrument, the present case is, therefore, in so far as the indorsee is concerned vis-a-vis the indorser, governed solely plaintiff the Negotiable Instruments Law

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(see secs. 1 and 185). Article 2071 of the new Civil Code, invoked by the appellant, the pertinent portion of which states, "The guarantor, even before been paid, may proceed against the principal debtor; (1) when he is sued for the payment; . . . the action of the guarantor is to obtain release from the guaranty, to demand a security that shall protect him from any proceedings by the creditor . . .," is here completely irrelevant and can have no application whatsoever. We are in agreement with the trial judge that nothing in the check in question indicates that the appellant is not a general indorser within the purview of section 63 of the Negotiable Instruments Law which makes "a person placing his signature upon an instrument otherwise than as maker, drawer or acceptor" a general indorser, — "unless he clearly indicates plaintiff appropriate words his intention to be bound in some other capacity," which he did not do. And section 66 ordains that "every indorser who indorses without qualification, warrants to all subsequent holders in due course" (a) that the instrument is genuine and in all respects what it purports to be; (b) that he has a good title to it; (c) that all prior parties have capacity to contract; and (d) that the instrument is at the time of his indorsement valid and subsisting. In addition, "he engages that on due presentment, it shall be accepted or paid, or both, as the case may be, and that if it be dishonored, he will pay the amount thereof to the holder." 1

2. Even on the assumption that the appellant is a mere accommodation party, as he professes to be, he is

nevertheless, by the clear mandate of section 29 of the Negotiable Instruments Law, yet "liable on the instrument to a holder for value, notwithstanding that such holder at the time of taking the instrument knew him to be only an accommodation party." To paraphrase, the accommodation party is liable to a holder for value as if the contract was not for accommodation. It is not a valid defense that the accommodation party did not receive any valuable

consideration when he executed the instrument. Nor is it correct to say that the holder for value is not a holder in due course merely because at the time he acquired the instrument, he knew that the indorser was only an accommodation party. 2

3. That the appellant, again assuming him to be an accommodation indorser, may obtain security from the maker to protect himself against the danger of insolvency of the latter, cannot in any manner affect his liability to the

appellee, as the said remedy is a matter of concern exclusively between accommodation indorser and accommodated party. So that the fact that the appellant stands only as a surety in relation to the maker, granting this to be true for the sake of argument, is immaterial to the claim of the appellee, and does not a whit diminish nor defeat the rights of the latter who is a holder for value. The liability of the appellant remains primary and unconditional. To sanction the appellant's theory is to give unwarranted legal recognition to the patent absurdity of a situation where an indorser, when sued on an instrument by a holder in due course and for value, can escape liability on his indorsement by the convenient expedient of interposing the defense that he is a mere accomodation indorser.

ACCORDINGLY, the judgment a quo is affirmed in toto, at appellant's cost.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Angeles and Fernando, JJ., concur.1äwphï1.ñët

Footnotes

1_{See also Beutel's Brannan Negotiable Instruments Law, 7th ed., pp. 927, 956; Alvendia, The Negotiable}

Instruments Law, pp. 119-120; Stuart del Rosario, Treatise on Negotiable Instruments, 1961 ed., p. 189.

2_{Beutel's, id. pp. 568-569; Stuart del Rosario, id., pp. 165, 242-243; Alvendia, id., pp. 55, 57-58; National Bank}

Negotiable Instruments

LAW ON NEGOTIABLE INSTRUMENTS

ACT NO. 2031

February 03, 1911

TABLE OF CONTENTS

STUDY SCHEDULE

(ATTY. G.I. BANZON)

Text: DE LEON, The Law on Negotiable Instruments

(with Documents and

Titles)