Caltex (Philippines), Inc. v.

Court of Appeals, 212 SCRA 448 (1992)

FACTS:
The defendant, Security Bank and Trust Company, a commercial banking institution
issued 280 Certificate of time deposit (CTDs) in favor of Angel Dela Cruz who deposited with the
Security Bank the total amount of P1.2 Million. Angel delivered the CTDs to Caltex, in connection
with his purchased of fuel products from the latter.
Subsequently, Angel informed the bank that he lost all the CTDs, and thus executed an
affidavit of loss to facilitate the issuance of the replacement CTDs. Angel negotiated and obtained
a loan from Security Bank in the amount of P875, 000 and executed a notarized Deed of
Assignment of Time Deposit.
When Caltex presented said CTDs for verification with the bank and formally informed
the bank of its decision to pre-terminate the same, the bank rejected Caltex’ claim and demand
as Caltex failed to furnish copies of certain requested documents. In 1983, dela Cruz’ loan
matured and the bank set-off and applied the time deposits as payment for the loan. Caltex filed
a complaint which was dismissed on the ground that the subject certificates of deposit are non-
negotiable.

ISSUES:
1. Whether or not the subject CTDs are negotiable.
2. Whether or not petitioner is a holder in due course of the CTDs.

RULING:
1. Yes.
The CTDs in question are negotiable instruments as they meet the requirements of the law for
negotiability as provided for in Section 1 of the Negotiable Instruments Law. The documents
provide that the amounts deposited shall be repayable to the depositor. And according to the
document, the depositor 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. However, petitioner cannot recover on the CTDs. Although
the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement
between it and dela Cruz, as ultimately ascertained, requires both delivery and indorsement. In
this case, there was no indorsement as the CTDs were delivered not as payment but only as a
security for dela Cruz' fuel purchases.
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.

2. No.
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.

The Hong Kong and Shanghai Bank Corp. v. CIR, G.R. No. 166018, June 4, 2014

FACTS: HSBC performs custodial services on behalf of its investor-clients with respect to their
passive investments in the Philippines, particularly investments in shares of stocks in domestic
corporations. As a custodian bank, HSBC serves as the collection/payment agent.

HSBC’s investor-clients maintain Philippine peso and/or foreign currency accounts, which are
managed by HSBC through instructions given through electronic messages. The said instructions
are standard forms known in the banking industry as SWIFT, or “Society for Worldwide Interbank
Financial Telecommunication.”

Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid
Documentary Stamp Tax (DST) from September to December 1997 and also from January to
December 1998 amounting to P19,572,992.10 and P32,904,437.30, respectively.

BIR, thru its then Commissioner, issued BIR Ruling to the effect that instructions or advises from
abroad on the management of funds located in the Philippines which do not involve transfer of
funds from abroad are not subject to DST. A documentary stamp tax shall be imposed on any bill
of exchange or order for payment purporting to be drawn in a foreign country but payable in the
Philippines.

a. While the payor is residing outside the Philippines, he maintains a local and foreign currency
account in the Philippines from where he will draw the money intended to pay a named recipient.
The instruction or order to pay shall be made through an electronic message.

Consequently, there is no negotiable instrument to be made, signed or issued by the payee.

b. Such electronic instructions by the non-resident payor cannot be considered as a transaction

per se considering that the same do not involve any transfer of funds from abroad or from the
place where the instruction originates.

Under the Documentary Stamp Tax Law, the mere withdrawal of money from a bank deposit,
local or foreign currency account, is not subject to DST, unless the account so maintained is a
current or checking account, in which case, the issuance of the check or bank drafts is subject to
the documentary stamp tax.

c. Likewise, the receipt of funds from another bank in the Philippines for deposit to the payee’s
account and thereafter upon instruction of the non-resident depositor-payor, through an electronic
message, the depository bank to debit his account and pay a named recipient shall not be subject
to documentary stamp tax.

With the above BIR Ruling as its basis, HSBC filed on an administrative claim for the refund of
allegedly representing erroneously paid DST to the BIR
As its claims for refund were not acted upon by the BIR, HSBC subsequently brought the matter
to the CTA, which favored HSBC and ordered payment of refund or issuance of tax credit.

However, the CA reversed decisions of the CTA and ruled that the electronic messages of HSBC’s
investor-clients are subject to DST.

a. DST is levied on the exercise by persons of certain privileges conferred by law for the creation,
revision, or termination of specific legal relationships through the execution of specific
instruments, independently of the legal status of the transactions giving rise thereto.

ISSUE: Whether or not the electronic messages are considered transactions pertaining to
negotiable instruments that warrant the payment of DST.

RULING: NO.

The Court agrees with the CTA that the DST under Section 181 of the Tax Code is levied on the
acceptance or payment of “a bill of exchange purporting to be drawn in a foreign country but
payable in the Philippines” and that “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.”

The Court further agrees with the CTA that the electronic messages of HSBC’s investor-clients
containing instructions to debit their respective local or foreign currency accounts in the
Philippines and pay a certain named recipient also residing in the Philippines is not the transaction
contemplated under Section 181 of the Tax Code as such instructions are “parallel to an automatic
bank transfer of local funds from a savings account to a checking account maintained by a
depositor in one bank.” The Court favorably adopts the finding of the CTA that the electronic
messages “cannot be considered negotiable instruments as they lack the feature of negotiability,
which, is the ability to be transferred” and that the said electronic messages are “mere
memoranda” of the transaction consisting of the “actual debiting of the [investor-client-payor’s]
local or foreign currency account in the Philippines” and “entered as such in the books of account
of the local bank,” HSBC.

The instructions given through electronic messages that are subjected to DST in these cases are
not negotiable instruments as they do not comply with the requisites of negotiability under Section
1 of the Negotiable Instruments Law.

The electronic messages are not signed by the investor-clients as supposed drawers of a bill of
exchange; they do not contain an unconditional order to pay a sum certain in money as the
payment is supposed to come from a specific fund or account of the investor-clients; and, they
are not payable to order or bearer but to a specifically designated third party. Thus, the electronic
messages are not bills of exchange. As there was no bill of exchange or order for the payment
drawn abroad and made payable here in the Philippines, there could have been no acceptance
or payment that will trigger the imposition of the DST under Section 181 of the Tax Code.
 Rivera v. Spouses Chua, G.R. Nos. 184458 and 184472, January 14, 2015

FACTS:

Petitioner Rodrigo Rivera obtained a load from his friends Spouses Salvador and Violeta Chua:

PROMISSORY NOTE

120,000.00

FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR C. CHUA
and VIOLETA SY CHUA, the sum of One Hundred Twenty Thousand Philippine Currency
(-120,000.00) on December 31, 1995.

It is agreed and understood that failure on my part to pay the amount of (-120,000.00) One
Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum equivalent
to FIVE PERCENT (5%) interest monthly from the date of default until the entire obligation is fully
paid for.

xxxx

In October 1998, Rivera issued and delivered to the Spouses Chua, as payee, a check numbered
012467, dated 30 December 1998, in the amount of -25,000.00 and on 21 December 1998,
another check numbered 013224, duly signed and dated, but blank as to payee. The second
check was issued, as per understanding by the parties, n the amount of ­133,454.00 with “cash”
as payee. Both checks were dishonored for the reason “account closed.”

Due to Rivera’s unjustified refusal to pay, respondents were constrained to file a suit on 11 June
1999.

In his Answer with Compulsory Counterclaim, Rivera countered, among others, that the subject
Promissory Note was forged and that here was no demand for payment of the amount of
-120,000.00 prior to the encashment of PCIB Check No. 0132224. Respondents presented
documentary and oral evidence of NBI Senior Document Examiner Antonio Magbojos who
concluded that the questioned signature appearing in the Promissory Note and the Rivera’s
specimen signatures on other documents written by one and the same person.

The MeTC ruled in Spouses Chua’s favor. On appeal, the RTC affirmed the MeTC decision but
deleted the award of attorney’s fees. The CA also affirmed Rivera’s liability under the Promissory
Note but reduced the imposition of interest on the loan from 60% to 12% per annum.

Both parties appealed before the SC. Respondent’s petition for review on certiorari was denied
for failure to show any reversible on the CA ruling concerning the correct rate of interest on
Rivera’s indebtnesses under the Promissory Note. Rivera continued to deny that he executed the
Promissory Note and alleged that the Spouses Chua “never demanded payment for the loan nor
interest thereof (sic) from [Rivera] for almost four (4) years from the time of the alleged default in
payment.

ISSUES:
1. Whether the CA erred in ruling that there was a valid promissory note.
2. Whether the promissory note is negotiable instrument, thus the Negotiable Instruments Law
(NIL) applies to this case.
3. Whether Rivera is still liable under the terms of the Promissory Note assuming that it is not a
negotiable instrument.
4. Whether the CA erred in reducing the interest rate from 60% to 12% per annum.

RULING:
1. Yes.
First, [the court] cannot give credence to such a naked claim of forgery over the testimony of the
National Bureau of Investigation (NBI) handwriting expert on the integrity of the promissory note.

Indeed, Rivera had the burden of proving the material allegations which he sets up in his Answer
to the plaintiff’s claim or cause of action, upon which issue is joined, whether they relate to the
whole case or only to certain issues in the case.

In this case, Rivera’s bare assertion is unsubstantiated and directly disputed by the testimony of
a handwriting expert from the NBI. While it is true that resort to experts is not mandatory or
indispensable to the examination or the comparison of handwriting, the trial courts in this case,
on its own, using the handwriting expert testimony only as an aid, found the disputed document
valid.

In all, Rivera’s evidence or lack thereof consisted only of a barefaced claim of forgery and a
discordant defense to assail the authenticity and validity of the Promissory Note. Although the
burden of proof rested on the Spouses Chua having instituted the civil case and after they
established a prima facie case against Rivera, the burden of evidence shifted to the latter to
establish his defense. Consequently, Rivera failed to discharge the burden of evidence, refute the
existence of the Promissory Note duly signed by him and subsequently, that he did not fail to pay
his obligation thereunder. On the whole, there was no question left on where the respective
evidence of the parties preponderated—in favor of plaintiffs, the Spouses Chua.

2. No. The subject promissory note is not a negotiable instrument and the provisions of the NIL
do not apply to this case. Section 1 of the NIL requires the concurrence of the following elements
to be a negotiable instrument:

(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

On the other hand, Section 184 of the NIL defines what negotiable promissory note is:

SECTION 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.

The Promissory Note in this case is made out to specific persons, herein respondents, the
Spouses Chua, and not to order or to bearer, or to the order of the Spouses Chua as payees.
3. Yes, even if Rivera’s Promissory Note is not a negotiable instrument and therefore outside the
coverage of Section 70 of the NIL which provides that presentment for payment is not necessary
to charge the person liable on the instrument, Rivera is still liable under the terms of the
Promissory Note that he issued.

The Promissory Note is unequivocal about the date when the obligation falls due and becomes
demandable—31 December 1995. As of 1 January 1996, Rivera had already incurred in delay
when he failed to pay the amount of -120,000.00 due to the Spouses Chua on 31 December 1995
under the Promissory Note

Article 1169 of the Civil Code explicitly provides:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the designation
of the time when the thing is to be delivered or the service is to be rendered was a controlling
motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to
perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins.

There are four instances when demand is not necessary to constitute the debtor in default: (1)
when there is an express stipulation to that effect; (2) where the law so provides; (3) when the
period is the controlling motive or the principal inducement for the creation of the obligation; and
(4) where demand would be useless. In the first two paragraphs, it is not sufficient that the law or
obligation fixes a date for performance; it must further state expressly that after the period lapses,
default will commence.

The date of default under the Promissory Note is 1 January 1996, the day following 31 December
1995, the due date of the obligation. On that date, Rivera became liable for the stipulated interest
which the Promissory Note says is equivalent to 5% a month. In sum, until 31 December 1995,
demand was not necessary before Rivera could be held liable for the principal amount of
-120,000.00. Thereafter, on 1 January 1996, upon default, Rivera became liable to pay the
Spouses Chua damages, in the form of stipulated interest.

The liability for damages of those who default, including those who are guilty of delay, in the
performance of their obligations is laid down on Article 1170 of the Civil Code.

Corollary thereto, Article 2209 solidifies the consequence of payment of interest as an indemnity
for damages when the obligor incurs in delay:

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment
of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six
percent per annum.

4. No.

At the time interest accrued from 1 January 1996, the date of default under the Promissory Note,
the then prevailing rate of legal interest was 12% per annum under Central Bank (CB) Circular
No. 416 in cases involving the loan or forbearance of money. Thus, the legal interest accruing
from the Promissory Note is 12% per annum from the date of default on 1 January 1996.

However, the 12% per annum rate of legal interest is only applicable until 30 June 2013, before
the advent and effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013
reducing the rate of legal interest to 6% per annum. Pursuant to our ruling in Nacar v. Gallery
Frames, BSP Circular No. 799 is prospectively applied from 1 July 2013. In short, the applicable
rate of legal interest from 1 January 1996, the date when Rivera defaulted, to date when this
Decision becomes final and executor is divided into two periods reflecting two rates of legal
interest: (1) 12% per annum from 1 January 1996 to 30 June 2013; and (2) 6% per annum FROM
1 July 2013 to date when this Decision becomes final and executory.

People v. Wagas, G.R. No. 157943, September 04, 2013

FACTS: Gilbert Wagas ordered from Alberto Ligaray 200 bags of rice over the telephone. As
payment, Wagas issued a check in favor of Ligaray. When the check was deposited it was
dishonored due to insufficiency of funds. Ligaray notified Wagas and demanded payment from
the latter but Wagas refused and failed to pay the amount, Ligaray filed a complaint for estafa
before the RTC. RTC convicted Wagas of estafa because the RTC believed that the prosecution
had proved that it was Wagas who issued the dishonored check, despite the fact that Ligaray had
never met Wagas in person. Hence, this direct appeal.

ISSUE: Whether or not Wagas is guilty beyond reasonable doubt

RULING: No. The Supreme Court acquitted Wagas. The check delivered to Ligaray was made
payable to cash. Under the Negotiable Instruments Law, this type of check was payable to the
bearer and could be negotiated by mere delivery without the need of an indorsement. This
rendered it highly probable that Wagas had issued the check not to Ligaray, but to somebody else
like Cañada, his brother-in-law, who then negotiated it to Ligaray.1wphi1 Relevantly, Ligaray
confirmed that he did not himself see or meet Wagas at the time of the transaction and thereafter,
and expressly stated that the person who signed for and received the stocks of rice was Cañada.

It bears stressing that the accused, to be guilty of estafa as charged, must have used the check
in order to defraud the complainant. What the law punishes is the fraud or deceit, not the mere
issuance of the worthless check. Wagas could not be held guilty of estafa simply because he had
issued the check used to defraud Ligaray. The proof of guilt must still clearly show that it had
been Wagas as the drawer who had defrauded Ligaray by means of the check.
 Metropolitan Bank & Trust Company v. Court of Appeals, G.R. No. 88866, February 18,
1991

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

ISSUES:

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

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

RULING:

(a) NO. The indication of fund as the source of the payment to be made on the treasury warrants
makes the order or promise to pay “not unconditional” and the warrants themselves non-
negotiable. Metrobank cannot contend that by indorsing the warrants in general, Golden Savings
assumed that they were “genuine and in all respects what they purport to be,” in accordance with
Section 66 of the Negotiable Instruments Law. The simple reason is that this law is not applicable
to the non-negotiable treasury warrants.

(b) YES. Metrobank was indeed negligent in giving Golden Savings the impression that the
treasury warrants had been cleared and that, consequently, it was safe to allow Gomez to
withdraw the proceeds thereof from his account with it. Without such assurance, Golden Savings
would not have allowed the withdrawals; with such assurance, there was no reason not to allow
the withdrawal. However, withdrawals released after the notice of the dishonor may be debited
as it will result to unjust enrichment.

Philippine National Bank v. Rodriguez, G.R. No. 170325, September 26, 2008

A bank that regularly processes checks that are neither payable to the customer nor duly indorsed
by the payee is apparently grossly negligent in its operations. This Court has recognized the
unique public interest possessed by the banking industry and the need for the people to have full
trust and confidence in their banks. For this reason, banks are minded to treat their customer’s
accounts with utmost care, confidence, and honesty. In a checking transaction, the drawee bank
has the duty to verify the genuineness of the signature of the drawer and to pay the check strictly
in accordance with the drawer’s instructions, i.e., to the named payee in the check.

FACTS: Spouses Rodriguez maintained a savings and demand/checking accounts with

petitioners Philippines National Bank (PNB). They were engaged in the informal lending business
and had a discounting arrangement with the Philnabank Employees Savings and Loan
Association (PEMSLA), an association of PNB employees, which likewise maintained current and
savings accounts with petitioner bank. PEMSLA regularly granted loans to its members. Spouses
Rodriguez would rediscount the postdated checks issued to members whenever the association
was short of funds. As was customary, the spouses would replace the postdated checks with their
own checks issued in the name of the members.
It was PEMSLA’s policy not to approve applications for loans of members with outstanding debts.
To subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans despite
their outstanding loan accounts. They took out loans in the names of unknowing members, without
the knowledge or consent of the latter. The PEMSLA checks issued for these loans were then
given to the spouses for rediscounting. The officers carried this out by forging the indorsement of
the named payees in the checks. In return, the spouses issued their personal checks (Rodriguez
checks) in the name of the members and delivered the checks to an officer of PEMSLA. The
PEMSLA checks, on the other hand, were deposited by the spouses to their account. Meanwhile,
the Rodriguez checks were deposited directly by PEMSLA to its savings account without any
indorsement from the named payees. This usual irregular procedure is made possible through
the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch.

The spouses issued 69 checks, in the total amount of P2,345,804.00, payable to 47 members of
PEMSLA. After finding out such fraudulent act, PNB closed the current account of PEMSLA. As
a result, the PEMSLA checks deposited by the spouses were returned or dishonored for the
reason “Account Closed.” The corresponding Rodriguez checks, however, were deposited as
usual to the PEMSLA savings account. The amounts were duly debited from the Rodriguez
account. Thus, because the PEMSLA checks given as payment were returned, spouses
Rodriguez incurred losses from the rediscounting transactions. Spouses Rodriguez sued
PEMSLA and PNB. They contended that because PNB credited the checks to the PEMSLA
account even without indorsements, PNB violated its contractual obligation to them as depositors.
PNB paid the wrong payees, hence, it should bear the loss. Trial court ruled in favor of spouses
and ordered PNB to pay. CA affirmed the decision. Hence this petition

ISSUE: Whether or not PNB can be made liable to pay the amount of checks which were
deposited to the PEMSLA savings account.

RULING: A bank that regularly processes checks that are neither payable to the customer nor
duly indorsed by the payee is apparently grossly negligent in its operations. This Court has
recognized the unique public interest possessed by the banking industry and the need for the
people to have full trust and confidence in their banks. For this reason, banks are minded to treat
their customer’s accounts with utmost care, confidence, and honesty. In a checking transaction,
the drawee bank has the duty to verify the genuineness of the signature of the drawer and to pay
the check strictly in accordance with the drawer’s instructions, i.e., to the named payee in the
check. It should charge to the drawer’s accounts only the payables authorized by the latter.
Otherwise, the drawee will be violating the instructions of the drawer and it shall be liable for the
amount charged to the drawer’s account. Rodriguez checks are payable to order since the bank
failed to prove that the named payees therein are fictitious. Hence, the fictitious-payee rule which
will make the instrument payable to bearer does not apply. PNB accepted the 69 checks for
deposit to the PEMSLA account even without any indorsement from the named payees. It bears
stressing that order instruments can only be negotiated with a valid indorsement.

Rivera v. Spouses Chua, G.R. Nos. 184458, January 14, 2015

FACTS: The parties were friends and kumpadres for a long time already. Rivera obtained a loan
from the Spouses Chua evidenced by a Promissory Note. The relevant parts of the note are the
following:
(a) FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR C.
CHUA and VIOLETA SY CHUA, the sum of One Hundred Twenty Thousand Philippine Currency
(_120,000.00) on December 31, 1995.

(b) It is agreed and understood that failure on my part to pay the amount of (_120,000.00) One
Hundred Twenty Thousand Pesos on December 31, 1995. I agree to pay the sum equivalent to
FIVEPERCENT (5%) interest monthly from the date of default until the entire obligation is fully
paid for.

Three years from the date of payment stipulated in the promissory note, Rivera, issued and
delivered to Spouses Chua two (2) checks drawn against his account at Philippine Commercial
International Bank (PCIB) but upon presentment for payment, the two checks were dishonored fr
the reason “account closed.” As of 31 May 1999, the amount due the Spouses Chua was pegged
at P366,000.00 covering the principal of P120,000.00 plus five percent (5%) interest per month
from 1 January 1996 to 31 May 1999.

The Spouses Chua alleged that they have repeatedly demanded payment from Rivera to no avail.
Because of Rivera’s unjustified refusal to pay, the Spouses Chua were constrained to file a suit
before the MeTC, Branch 30, Manila.

The MeTC ruled against Rivera requiring him to pay the spouses Chua P120,000.00 plus
stipulated interest at the rate of 5% per month from 1 January 1996, and legal interest at the rate
of 12% percent per annum from 11 June 1999 and was affirmed by the RTC of Manila. The Court
of Appeals further affirmed the decision upon appeal of the two inferior courts but with modification
of lowering the stipulated interest to 12% per annum. Hence, a petition at the Supreme Court.

ISSUES:

1. Whether or not the Promissory Note executed as evidence of loan falls under Negotioable
Instruments Law.

2. Whether or not a demand from spouses Chua is needed to make Rivera liable.

3. Whether or not the stipulated interest is unconscionable and should really be lowered.

RULING: 1. NO, the Promissory Note executed as evidence of loan does not fall under Negotiable
Instruments Law. The instrument is still governed by the Civil Code as to interpretation of their
obligations. The Supreme Court held that the Instrument was not able to meet the requisites laid
down by Section 1 of the Negotiable Instruments Law as the instrument was made out to specific
persons, herein respondents, the Spouses Chua, and not to order or to bearer, or to the order of
the Spouses Chua as payees.

cals not a negotiable instrument and therefore outside the coverage of Section 70 of the NIL which
provides that presentment for payment is not necessary to charge the person liable on the
instrument, Rivera is still liable under the terms of the Promissory Note that he issued. Article
1169 of the Civil Code explicitly provides that the demand by the creditor shall not be necessary
in order that delay may exist when the obligation or the law expressly so declare. The clause in
the Promissory Note containing the stipulation of interest (letter B in the above facts) which
expressly requires the debtor (Rivera) to pay a 5% monthly interest from the “date of default” until
the entire obligation is fully paid for. The parties evidently agreed that the maturity of the obligation
at a date certain, 31 December 1995, will give rise to the obligation to pay interest.
3. YES, the stipulated interest is unconscionable and should really be lowered. The Supreme
Court held that as observed by Rivera, the stipulated interest of 5% per month or 60% per annum
in addition to legal interests and attorney’s fees is, indeed, highly iniquitous and unreasonable
and stipulated interest rates if illegal and are unconscionable the Court is allowed to temper
interest rates when necessary. Since the interest rate agreed upon is void, the parties are
considered to have no stipulation regarding the interest rate, thus, the rate of interest should be
12% per annum computed from the date of judicial or extrajudicial demand. However, the 12%
per annum rate of legal interest is only applicable until 30 June 2013, before the advent and
effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013 reducing the rate
of legal interest to 6% per annum. Pursuant to our ruling in Nacar v. Gallery Frames,30 BSP
Circular No. 799 is prospectively applied from 1 July 2013.

Republic Planters Bank v. Canlas, G.R. No. 93073, December 21, 1992

FACTS: Republic Planters Bank issued 9 promissory notes signed by Shozo Yamaguchi
(President) and Fermin Canlas (Treasurer) of Worldwide Garment Manufacturing Inc. Yamaguchi
and Canlas were authorized by the corporation to apply for credit facilities with the ban k in form
of export advances and letters of credit or trust receipts accommodations. Three years after, the
bank filed an action to recover the sums of money covered by the promissory notes. Worldwide
Garment Manufacturing changed its name to Pinch Manufacturing Corp. Canlas alleged he was
not liable personally for the corporate acts that he performed, and that the notes were still blank
when he signed them.

ISSUE: Whether or not the corporate treasurer is liable for the amounts in the promissory notes.

RULING: Canlas is a co-maker of the promissory notes, under the law, and cannot escape liability
arising therefrom. Inasmuch as the instrument contained the words “I promise to pay” and is
signed by two or more persons, said persons are deemed to be jointly and severally liable thereon.
As the promissory notes are stereotype ones issued by the bank in printed form with blank spaces
filled up as per agreed terms of the loan, following customary procedures, leaving the debtors to
do nothing but read the terms and conditions therein and to sign as makers or co-makers. Section
14 of the Negotiable Instruments Law, therefore, does not apply. Canlas is solidarily liable with
the corporation for the amount of the 9 promissory notes.