G.R. No.

97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner, vs. COURT OF APPEALS and SECURITY BANK AND
TRUST COMPANY, respondents.

FACTS :

Angel dela Cruz told Sucat Branch Manager Timoteo Tiangco in March 1982 that he lost all time
deposit certificates in dispute. Mr. Tiangco advised the depositor to submit a notarized Affidavit
of Loss, as required by defendant bank's policy, to replace missing CTDs.

On March 18, 1982, Angel dela Cruz signed and gave defendant bank the Affidavit of Loss. The
depositor received 280 replacement due to loss. On March 25, 1982, defendant bank loaned
Angel dela Cruz P875,000.00. On the same date, said depositor executed a notarized Deed of
Assignment of Time Deposit stating that he (de la Cruz) surrenders "full control of the indicated
time deposits from and after date" of the assignment and authorizes defendant 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 maturity.

In November 1982, plaintiff Caltex (Phils.) Inc.'s Credit Manager, Mr. Aranas, went to the
defendant bank's Sucat branch to verify Angel dela Cruz's CTDs, alleging that they were
delivered "as security for purchases made with Caltex Philippines, Inc." by said depositor told
defendant that it had CTDs and would pre-terminate them on November 26, 1982.

On December 8, 1982, defendant requested "a copy of the document evidencing the guarantee
agreement with Mr. Angel dela Cruz" and "the details of Mr. Angel's obligation against which
plaintiff proposed to apply the time deposits" Defendant failed to provide paperwork. Defendant
bank denied CTD value in a February 7, 1983 letter On August 5, 1983, the defendant bank set-
off Angel dela Cruz's time deposits against the matured debt.

In light of the aforementioned, plaintiff filed the instant case, demanding that respondent bank
pay it P1,120,000.00 for the certificates of time deposit, plus accumulated interest and
compounded interest at 16% per year, moral and exemplary damages, and attorney's costs.
Trial dismissed the instant complaint. Respondent court confirmed lower court's dismissal on
appeal.

ISSUE:
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.

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. 

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.

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,   and a holder may be the payee or
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indorsee of a bill or note, who is in possession of it, or the bearer thereof.   In the present case,
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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.   As such holder of collateral
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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,