Sesbreno v CA (Negotiable Instruments Law)

SESBRENO V CA G.R. No. 89252 May 24, 1993  

FACTS:   

Raul Sesbreno made a money market placement ("the money market is a market dealing in standardized short-term credit instruments (involving large amounts) where lenders and borrowers do not deal directly with each other but through a middle manor a dealer in the open market.") in the amount of P300,000 with PhilFinance, with a term of 32 days. PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor Corporation Promissory Note (DMC PN No. 2731), the Certificate of Securities Delivery Receipt indicating the sale of the Note with notation that said security was in the custody of Pilipinas Bank, and postdated checks drawn against the Insular Bank of Asia and America for P304,533.33 payable on 13 March 1981. The checks were dishonored for having been drawn against insufficient funds.  Philfinance delivered to petitioner Denominated Custodian Receipt (DCR).  

Petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas, and handed her a demand letter informing the bank that his placement with Philfinance in the amount reflected in the DCR had remained unpaid and outstanding, and that he in effect was asking for the physical delivery of the underlying promissory note. Petitioner then examined the original of the DMC PN No. 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 the Philfinance as “payee” and private respondent 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 petitioner.  

Petitioner later made similar demand letters again asking private respondent Pilipinas for physical delivery of the original of DMC PN No. 2731.  

Petitioner also made a written demand upon private respondent Delta for the partial satisfaction of DMC PN No. 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 petitioner on the promissory note.  

As petitioner had failed to collect his investment and interest thereon, he filed an action for damages against private respondents Delta and Pilipinas.  

DECISION OF LOWER COURTS: * RTC: dismissed the complaint and counterclaims for lack of merit and for lack of cause of action, with costs against petitioner. * CA: denied the appeal.  

ISSUE:  

WON DMC PN No. 2731 marked as non-negotiable may be assigned?  

HELD:  

YES. 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.  

DMC PN No. 2731, while marked “non-negotiable,” was not at the same time stamped “non-transferable” or “non-assignable.” It contained no stipulation which prohibited Philfinance from assigning or transferring, in whole or in part, that Note.  

We conclude, therefore, that private respondent Pilipinas must respond to petitioner for damages sustained by arising out of its breach of duty. By failing to deliver the Note to the petitioner as depositor-beneficiary of the thing deposited, Pilipinas effectively and unlawfully deprived petitioner of the Note deposited with it. Whether or not Pilipinas itself benefitted from such conversion or unlawful deprivation inflicted upon petitioner, is of no moment for present purposes. Prima facie, the damages suffered by petitioner consisted of P304,533.33, the portion of the DMC PN No. 2731 assigned to petitioner but lost by him by reason of discharge of the Note by compensation, plus legal interest of six percent (6%) per annum containing from 14 March 1981.  

The conclusion we have reached is, of course, without prejudice to such right of reimbursement as Pilipinas may have vis-a-vis Philfinance.