BANKING CASES 2.) Caltex (Phils.) Inc. V. CA And Security Bank And Trust Co. (1992)Lessons Applicable:Requisites of negotiability to antedated and postdated instruments (Negotiable Instrument Law) ART 1 NIL

FACTS: Security Bank and Trust Company (Security Bank), a commercialbanking institution, through its Sucat Branch issued 280 certificates of time deposit (CTDs) in favor of Angel dela Cruz who deposited with SecurityBank thetotal amount of P1,120,000

Angel delivered the CTDs to Caltex for his purchase of fuel products

March 18, 1982: Angel informed Mr. Tiangco, the SucatBranch Managerthat he lost all CTDs, submitted the requiredAffidavit of Lossand received the replacement

March 25, 1982: Angel dela Cruz negotiated and obtained a loan from Security Bank in the amount of P875,000 and executed a notarized Deed of Assignment of Time Deposit

November, 1982: Mr. Aranas, Credit Manager of Caltex went to the Sucat branch to verify the CTDs declared lost by Angel

November 26, 1982: Security Bank received a letter from Caltex formally informing it of its possession of the CTDs in question and of its decision to pre-terminate the same.

December 8, 1982: Caltex was requested by Security Bank to furnish:

a copy of the document evidencing the guarantee agreement with Mr. Angel dela Cruz

the details of Mr. Angel's obligation against which Caltex proposed to apply the time deposits

Security Bank rejected Caltex demand for payment bec. it failed to furnish a copy of its agreement w/ Angel

April 1983, the loan of Angel dela Cruz with Security Bank matured

August 5, 1983: CTD were set-off w/ the matured loan

Caltex filed a complaint praying the bank to pay 1,120,000 plus 16% interest

CA affirmed RTC to dismiss complaint

ISSUE:

1. W/N the CTDs are negotiable

2. W/N Caltex as holder in due course can rightfully recover on the CTDs

HELD: Petition is Denied and appealed decision is affirmed.

1. YES. 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 -check(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. The documents provide that the amounts deposited shall be repayable to the depositor

depositor = bearer

. 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

negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself

2. NO. 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

CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products

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 obviousreasons, mere delivery of the bearer CTDs would have sufficed.

Where the holder has a lien on the instrument arising from contract, he is deemed a holder for value to the extent of his lien.

As such holder of collateral security, he would be a pledgee but the requirements therefor and the effects thereof, not being provided for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions on pledge of incorporeal rights:

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.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.

3.) Metrobank vs. CA APPLICATION OF ART 3 NIL WON TREASURY WARRANTS NEGOTIABLE INSTRUMENTS

Facts:- Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury warrants. All warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings account in Metrobank branch in Calapan, Mindoro. They were sent for clearance. - Meanwhile, Gomez is not allowed to withdraw from his account, later, however, exasperated over Floria repeated inquiries and also as an accommodation for a valued client, Metrobank decided to allow Golden Savings to withdraw from proceeds of the warrants. In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account. - Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account. The demand was rejected. Metrobank then sued Golden Savings.

Issue:1. Whether or not Metrobank can demand refund against Golden Savings with regard to the amount withdraws to make up with the deficit as a result of the dishonored treasury warrants.2. Whether or not treasury warrants are negotiable instruments

Held:No. Metrobank is 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. Without such assurance, Golden Savings would not have allowed the withdrawals. Indeed, Golden Savings might even have incurred liability for its refusal to return the money that all appearances belonged to the depositor, who could therefore withdraw it anytime and for any reason he saw fit.It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to determine the validity of the warrants through its own services. The proceeds of the warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own deposit.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 Sec. 66 of NIL. The simple reason that NIL is not applicable to non negotiable instruments, treasury warrants.No. The treasury warrants are not negotiable instruments. Clearly stamped on their face is the word: non negotiable. Moreover, and this is equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501. An instrument to be negotiable instrument must contain an unconditional promise or orders to pay a sum certain in money. As provided by Sec 3 of NIL an unqualified order or promise to pay is unconditional though coupled with: 1st, 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 2nd, a statement of the transaction which give rise to the instrument. But an order to promise to pay out of particular fund is not unconditional. The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay not conditional and the warrants themselves non-negotiable. There should be no question that the exception on Section 3 of NIL is applicable in the case at bar.

4.) Sesbreno vs. Court of Appeals

RATIONALE - A negotiable instrument may, however, instead of being negotiated, also be assigned or transferred.

Facts: - On 9 February 1981, Raul Sesbreo made a money market placement in the amount of P300,000.00 with the Philippine Underwriters Finance Corporation (Philfinance), Cebu Branch; the placement, with a term of 32 days, would mature on 13 March 1981. Philfinance,

also issued the following documents to Sesbreno: (a) the Certificate of Confirmation of Sale, "without recourse," 20496 of 1 Delta Motors Corporation Promissory Note (DMC PN) 2731 for a term of 32 days at 17.0 % per annum; (b) the Certificate of Securities Delivery Receipt 16587 indicating the sale of DMC PN 2731 to Sesbreno, with the notation that the said security was in custodianship of Pilipinas Bank, as per Denominated Custodian Receipt (DCR) (c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of Sesbreno's investment), with Sesbreno as payee, Philfinance as drawer, and Insular Bank of Asia and America as drawee, in the total amount of P304,533.33.

Sesbreno sought to encash the post-dated checks issued by Philfinance. However, the checks were dishonored for having been drawn against insufficient funds. On 26 March 1981, Philfinance delivered to Sesbreno the DCR 10805 issued by Pilipinas Bank (Pilipinas). On 2 April 1981, Sesbreno approached Ms. Elizabeth de Villa of Pilipinas, Makati Branch, and handed to her a demand letter informing the bank that his placement with Philfinance in the amount reflected in the DCR 10805 had remained unpaid and outstanding, and that he in effect was asking for the Commercial Law Negotiable Instruments Law, 2006 ( 4 ) Narratives (Berne Guerrero) physical delivery of the underlying promissory note. Sesbreno then examined the original of the DMC PN 2731 and found: that the security had been issued on 10 April 1980; that it would mature on 6 April 1981; that it had a face value of P2,300,833.33, with Philfinance as "payee" and Delta Motors Corporation (Delta) as "maker;" and that on face of the promissory note was stamped "NON-NEGOTIABLE."

Pilipinas did not deliver the Note, nor any certificate of participation in respect thereof, to Sesbreno. Sesbreno later made similar demand letters, dated 3 July 1981 and 3 August 1981, again asking Pilipinas for physical delivery of the original of DMC PN 2731. Pilipinas allegedly referred all of Sesbreno's demand letters to Philfinance for written instructions, as had been supposedly agreed upon in a "Securities Custodianship Agreement" between Pilipinas and Philfinance.

Philfinance never did provide the appropriate instructions; Pilipinas never released DMC PN 2731, nor any other instrument in respect thereof, to petitioner. Sesbreno also made a written demand on 14 July 1981 upon Delta for the partial satisfaction of DMC PN 2731, explaining that Philfinance, as payee thereof, had assigned to him said Note to the extent of P307,933.33. Delta, however, denied any liability to Sesbreno on the promissory note, and explained in turn that it had previously agreed with Philfinance to offset its DMC PN 2731 (along with DMC PN 2730) against Philfinance PN 143-A issued in favor of Delta. In the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the Securities and Exchange Commission (SEC) and the Central Bank. Pilipinas delivered to the SEC DMC PN 2731, which to date apparently remains in the custody of the SEC. As Sesbreno had failed to collect his investment and interest thereon, he filed on 28 September 1982 an action for damages with the Regional Trial Court (RTC) of Cebu City, Branch 21, against Delta and Pilipinas. The trial court, in a decision dated 5 August 1987, dismissed the complaint and counterclaims for lack of merit and for lack of cause of action, with costs against Sesbreno. Sesbreno appealed to the Court of Appeals (CA GR CV 15195).

Issue: Whether the marking non-negotiable in DMC PN 2731 prohibited Philfinance from assigning or transferring the same to Sesbreno.

Held: The negotiation of a negotiable instrument must be distinguished from the assignment or transfer of an instrument whether that be negotiable or non-negotiable. Only an instrument qualifying as a negotiable instrument under the relevant statute may be negotiated either by indorsement thereof coupled with delivery, or by delivery alone where the negotiable instrument is in bearer form.

A negotiable instrument may, however, instead of being negotiated, also be assigned or transferred. The legal consequences of negotiation as distinguished from assignment of a negotiable instrument are, of course, different. A non-negotiable instrument may, obviously, not be negotiated; but it may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument: "The words 'not negotiable,' stamped on the face of the bill of lading, did not destroy its assignability, but the sole effect was to exempt the bill from the statutory provisions relative thereto, and a bill, though not negotiable, may be transferred by assignment; the assignee taking subject to the equities between the original parties." Herein, DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-transferrable" or "nonassignable." It contained no stipulation which prohibited Philfinance from assigning or transferring, in whole or in part, that Note. Further, there is nothing in the letter of agreement dated 10 April 1980 between Delta and Philfinance which can be reasonably construed as a prohibition upon Philfinance assigning or transferring all or part of DMC PN 2731, before the maturity thereof. It is scarcely necessary to add that, even had this "Letter of Agreement" set forth an explicit prohibition of transfer upon Philfinance, such a prohibition cannot be invoked against an assignee or transferee of the Note who parted with valuable consideration in good faith and without notice of such prohibition. It is not disputed that Sesbreno was such an assignee or transferee. [The issue whether Delta is liable for the value of the promissory to Sesbreno was resolved through Articles 1279 and 1636 of the New Civil Code as to compensation, and Article 1285 of the same as to the assignment of creditor's rights. The Court held that since Sesbreno failed to notify Delta of the assignment of the creditor's (Philfinance) rights at any time before the maturity date of DMC PN 2731, and because the record Commercial Law Negotiable Instruments Law, 2006 ( 5 ) Narratives (Berne Guerrero) is bare of any indication that Philfinance had itself notified Delta of the assignment to Sesbreno, the Court was compelled to uphold the defense of compensation raised by Delta. The Court, however, held that Philfinance remained liable to Sesbreno under the terms of the assignment made by Philfinance to Sesbreno. As to the issue of Pilipinas liability to Sesbreno, on the other hand, the Court held that Pilipinas must respond to Sesbreno for damages sustained by him arising out of its breach of duty. By failing to deliver the Note to Sesbreno as depositor-beneficiary of the thing deposited -- when Pilipinas purported to require and await the instructions of Philfinance, in obvious contravention of its undertaking under the DCR to effect physical delivery of the Note upon receipt of "written instructions" from Sesbreo -- Pilipinas effectively and unlawfully deprived Sesbreno of the Note deposited with it. Civil Law II

5.) Ang Tek Lian vs. Court of AppealsSEC 9: PAYABLE TO BEARERFacts:Ang Tek Lian knowing that he had no funds therefor, drew a check upon China Banking Corporation payable to the order of cash. He delivered it to Lee Hua Hong in exchange for money. The check was presented by Lee Hua hong to the drawee bank for payment, but it was dishonored for insufficiency of funds. With this, Ang Tek Lian was convicted of estafa.

Issue:Whether or not the check issued by Ang Tek Lian that is payable to the order to cash and not have been indorsed by Ang Tek Lian, making him not guilty for the crime of estafa.

Held:No. GENERAL RULE : Under Sec. 9 of NIL a check drawn payable to the order of cash is a check payable to bearer and the bank may pay it to the person presenting it for payment without the drawers indorsement.

However, if the bank is not sure of the bearers identity or financial solvency, it has the right to demand identification or assurance against possible complication, such as forgery of drawers signature, loss of the check by the rightful owner, raising of the amount payable, etc. But where the bank is satisfied of the identity or economic standing of the bearer who tenders the check for collection, it will pay the instrument without further question; and it would incur no liability to the drawer in thus acting.

6.) Firestone Tire vs. CA

Facts:- Forjas-Arca Enterprise Company is maintaining a special savings account with Luzon Development Bank, the latter authorized and allowed withdrawals of funds though the medium of special withdrawal slips. These are supplied by Fojas-Arca.

- Fojas-Arca purchased on credit with FirestoneTire & Rubber Company, in payment Fojas-Arca delivered a 6 special withdrawal slips. In turn, these were deposited by the Firsestone to its bank account in Citibank. All of them were honored and paid by the defendant.

- With this, relying on such confidence and belief Firestone extended to Fojas-Arca other purchase on credit of its products but several withdrawal slips were dishonored and not paid. As a consequence, Citibank debited the plaintiffs account representing the aggregate amount of the two dishonored special withdrawal slips. Fojas-Arca averred that the pecuniary losses it suffered are a caused by and directly attributes to defendants gross negligence as a result Fojas-Arca filed a complaint.

Issue:Whether or not the acceptance and payment of the special withdrawal slips without the presentation of the depositors passbook thereby giving the impression that it is a negotiable instrument like a check.

Held:No. Withdrawal slips in question were non negotiable instrument. Hence, the rules governing the giving immediate notice of dishonor of negotiable instrument do not apply. 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.

FACTS CLEARER;

IRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES,petitioner,vs.COURT OF APPEALS and LUZONDEVELOPMENT BANK,respondents.QUISUMBING,J.:FACTS:Firestone filed a complaint for damages. RTC dismissed the case, CA affirmedRTC decision. Firestone filed petition before SC.1.Luzon Development Bank (defendant) is a banking corporation. Fojas- ArcaEnterprises Company is one of its client-depositors, which maintains aspecial savings account with defendant. The defendant authorizedandallowed withdrawals of funds therefrom through special withdrawal slipssupplied by Fojas-Arca.2.Fojas-Arca purchased tires from Firestone with special withdrawal slipsdrawn upon Fojas-Arca's special savings account with respondent bank(LDB) for payment. Petitioner in turn deposited these withdrawal slips withCitibank. The latter credited the same to petitioner's current account, thenpresented the slips for payment to respondent bank. All of them werehonored and paid by the defendant. This one circumstance made plaintiffbelieve that the succeeding withdrawal slips drawn upon defendant wouldbe also sufficiently funded, and plaintiff extended to Fojas-Arca otherpurchases on credit of its products.3.For the succeeding transactions, Firestone was given 4 withdrawal slips forpayment, but only two (2) of theslips was honoured. Firestone was notinformed of such fact right away. Because some of the slips was honoured,Firestone was induced to believethat Fojas-Arcas account was sufficientlyfunded and so it extended some more credit.4.However, Citibank later informed Firestone that the other specialwithdrawal slips were refused payment by respondent bank due toinsufficiency of Fojas-Arca's funds on deposit. That information cameabout six months from the time Fojas-Arca purchased tires from petitionerusing the subject withdrawal slips. Citibank thendebited the amount ofthese withdrawal slips from petitioner's account, causing the allegedpecuniary damage subject of petitioner's cause of action.5.Petitioner demanded payment for damages from LDB, the latter refused tomake payment.6.Petitioner alleged that the bank (LDB) is guilty of tortious acts for givingthe special withdrawal slips the general appearance of checks; and for th