2014 | Supreme Court: "Electronic messages CANNOT be negotiable instruments"


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." A bill of exchange is one of two general forms of negotiable instruments under the Negotiable Instruments Law.

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.

More fundamentally, 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, which provides:
Sec. 1. Form of negotiable instruments.– An instrument to be negotiable must conform to the following requirements:

(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.


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. (G.R. No. 166018; June 4, 2014)

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