21.

Consolidated Plywood vs IFC Leasing

FACTS: Consolidated Plywood Industries, Inc. (CPII) needed two tractors for its logging
business. Atlantic Gulf & Pacific Company through its sister company Industrial Products
Marketing (IPM) offered to sell two “used" tractors. IPM inspected the job site and assured that
the tractors were fit for the job and gave a 90-day warranty for machine performance and
availability of parts. CPII officers Wee and Vergara purchased the tractors on installment and
paid the down payment. The deed of sale with chattel mortgage with promissory note and the
deed of assignment, where IPM assigned its rights and interest in the chattel mortgage in favor
of IFC Leasing and Acceptance Corp., were all executed on the same day by and among the
parties. Barely 14 days after delivery, the tractors broke down. Mechanics were sent to do
repairs but the tractors were no longer serviceable. CPII logging operations were delayed so
Vergara advised IPM that the installment payments would likewise be delayed until it fulfills its
obligation under its warranty. IFC then filed a collection suit against petitioners for the recovery
of the principal sum plus interest, attorney's fees and costs of suit.

ISSUE: Whether or not a non-negotiable promissory note may be assigned.

RULING: YES. The subject promissory note may be assigned. It follows then that the
respondent can never be a holder in due course but remains a mere assignee of the note in
question. Thus, the petitioner may raise against the respondent all defenses available to it as
against the seller-assignor
22. TRADERS ROYAL BANK VS. COURT OF APPEALS
269 SCRA 15, GR No. 93397, Mar. 3, 1997
FACTS: Filriters Guaranty Assurance Corporation (Filriters) executed a ‘Detached Assignment’
whereby Filriters, as registered owner, sold, transferred, assigned and delivered unto Philippine
Underwriters Finance Corporation (Philfinance) all its rights and title to Central Bank Certificates
of Indebtedness (CBCI) Nos. D890 to D896, inclusive, each in the denomination of PESOS:
FIVE HUNDRED THOUSAND (P500,000.00) and having an aggregate value of PESOS:
THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00). Subsequently, Philfinance
transferred same CBCI to Traders Royal Bank (TRB) under a repurchase agreement. When
Philfinance failed to do so, The TRB tried to register in its name in the CBCI. The Central Bank
did not want to recognize the transfer.

ISSUE: Whether the Certificates of Indebtedness may be negotiated.

RULING: No. The instrument provides for a promise to pay the registered owner Filriters. Very
clearly, the instrument was only payable to Filriters. It lacked the words of negotiability which
should have served as an expression of the consent that the instrument may be transferred by
negotiation. The language of negotiability which characterizes a negotiable paper as a credit
instrument is its freedom to circulate as a substitute for money. Hence, freedom of negotiability
is the touchstone relating to the protection of holders in due course, and the freedom of
negotiability is the foundation for the protection, which the law throws around a holder in due
course. This freedom in negotiability is totally absent in a certificate of indebtedness as it merely
acknowledges to pay a sum of money to a specified person or entity for a period of time.
23. Lim v. Court of Appeals
251 SCRA 409 G.R. No. 107898. December 19, 1995
FACTS: Manuel Lim and Rosita Lim are the officers of the Rigi Bilt Industries, Inc. (RIGI) which
had been transacting business with Linton Commercial Company, Inc. The Lims ordered several
steel plates and purlins from Linton and were delivered to the Lim’s place of business which was
in Caloocan. To pay Linton, the petitioners issued seven checks. When the checks were
presented to the drawee bank (Solidbank), they were dishonored because payment for the
checks had been stopped and/or insufficiency of funds. As a result, petitioners were found guilty
with Estafa and 7 counts of violation of BP 22 by the Malabon RTC. On appeal, the CA reversed
the trial court’s decision on Estafa but upheld the decision on violation of BP 22, hence, this
petition.

ISSUE: WON the issue was within the jurisdiction of the Malabon RTC?

HELD: It is settled that venue in criminal cases is a vital ingredient of jurisdiction. It shall be
where the crime or offense was committed or any one of the essential ingredients thereof took
place. In determining the proper venue for these cases, the following are material facts—the
checks were issued at the place of business of Linton; they were delivered to Linton at the same
place; they were dishonored in Caloocan City; petitioners had knowledge of the insufficiency of
funds in their account.

Under Section 191 of the NIL, issue means the first delivery of the instrument complete in its
form to a person who takes it as holder. The term holder on the other hand refers to the payee
or indorsee of a bill or note who is in possession of it or the bearer thereof. The important place
to consider in the consummation of a negotiable instrument is the place of delivery. Delivery is
the final act essential to its consummation as an obligation.
24. Dela Victoria v. Burgos
245 SCRA 374. G.R. No. 111190, June 27 1995

FACTS: - Raul Sebreño filed a complaint for damages against Fiscal Bienvenido Mabanto Jr. of
Cebu City. Sebreño won and he was awarded the payment of damages. Judge Burgos ordered
De La Victoria, custodian of the paychecks of Mabanto, to hold the checks and convey them to
Sebreño instead. De La Victoria assailed the decision as he said that the paychecks and the
amount thereon are not yet the property of Mabanto because they are not yet delivered to him;
that since there is no delivery of the checks to Mabanto, the checks are still part of the public
funds; and the checks due to the foregoing cannot be the proper subject of garnishment.

ISSUES
(a) Whether a check in the hands of the drawer is already owned by the payee.

RULING
(a) NO. No. Prior to physical delivery the maker retains ownership. Under Sec. 16 of the
Negotiable Instruments Law, every contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of giving effect thereto. As ordinarily
understood, delivery means the transfer of the possession of the instrument by the maker or
drawer with intent to transfer title to the payee and recognize him as the holder thereof
25. Development Bank of Rizal vs Sima Wei
217 SCRA 743, 9 March 1993
FACTS: In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the
latter executed and delivered to the former a promissory note, engaging to pay the petitioner
Bank or order the amount of P1,820,000.00 on or before June 24, 1983 with interest at 32% per
annum. Sima Wei made partial payments on the note, leaving a balance of P1,032,450.02. On
November 18, 1983, Sima Wei issued two crossed checks payable to petitioner Bank drawn
against China Banking Corporation, bearing respectively the serial numbers 384934, for the
amount of P550,000.00 and 384935, for the amount of P500,000.00. The said checks were
allegedly issued in full settlement of the drawer's account evidenced by the promissory note.
These two checks were not delivered to the petitioner-payee or to any of its authorized
representatives. For reasons not shown, these checks came into the possession of respondent
Lee Kian Huat, who deposited the checks without the petitioner-payee's indorsement (forged or
otherwise) to the account of respondent Plastic Corporation, at the Balintawak branch,
Caloocan City, of the Producers Bank. Cheng Uy, Branch Manager of the Balintawak branch of
Producers Bank, relying on the assurance of respondent Samson Tung, President of Plastic
Corporation, that the transaction was legal and regular, instructed the cashier of Producers
Bank to accept the checks for deposit and to credit them to the account of said Plastic
Corporation, inspite of the fact that the checks were crossed and payable to petitioner Bank and
bore no indorsement of the latter. Hence, petitioner filed the complaint as aforestated.

ISSUE Whether or not there is a cause of action against respondent Sima Wei in as far as the
crossed checks are concerned.

RULING:

NO. A negotiable instrument, of which a check is, is not only written evidence of a contract right
but is also a species of property. Just as a deed to a piece of land must be delivered in order to
convey title to the grantee, so must a negotiable instrument be delivered to the payee in order to
evidence its existence as a binding contract. Section 16 of the Negotiable Instruments Law,
which governs checks, provides in part: “Every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect
thereto”.

Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its
delivery to him. Delivery of an instrument means transfer of possession, actual or constructive,
from one person to another. Without the initial delivery of the instrument from the drawer to the
payee, there can be no liability on the instrument. Moreover, such delivery must be intended to
give effect to the instrument. The allegations of the petitioner in the original complaint show that
the two (2) China Bank checks were not delivered to the payee, the petitioner herein. Without
the delivery of said checks to petitioner-payee, the former did not acquire any right or interest
therein and cannot therefore assert any cause of action, founded on said checks, whether
against the drawer Sima Wei or against the Producers Bank or any of the other respondents

Insofar as the other respondents are concerned, petitioner Bank has no privity with them. Since
petitioner Bank never received the checks on which it based its action against said respondents,
it never owned them (the checks) nor did it acquire any interest therein. Thus, anything which
the respondents may have done with respect to said checks could not have prejudiced
petitioner Bank. It had no right or interest in the checks which could have been violated by said
respondents. Petitioner Bank has therefore no cause of action against said respondents, in the
alternative or otherwise. If at all, it is Sima Wei, the drawer, who would have a cause of action
against her co-respondents, if the allegations in the complaint are found to be true.