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N o t e s o n N E G O T I A B L E I N S T R U M E N T S L A W ( Atty.

Glenn Subia) | 1
Alcazar, JMM.

ACT 2031 Negotiable Instruments Law


Negotiable instrument - written contract for the payment of money which is intended as a substitute
for money and passes from one person to another as money, in such a manner as to give a holder in due
course the right to hold the instrument free from defenses available.
Functions of Negotiable instrument:
Main Functions:
Serve as substitute for money
It is a credit instrument which increases credit circulation
Other Functions
It is a medium of exchange
Increases purchasing power in circulation
Serves as proof of transactions
Features of Negotiable Instrument:
Negotiability
Accumulation of secondary contracts
Memorize:
Section 1. Form of negotiable instruments
It must be in writing and signed by the maker or drawer (maker, in case of note; drawer, in
case of bill)
Must contain an unconditional promise or order to pay a sum certain in money (promise, in
case of note; order, in case of bill)
Sum certain amount that is to be unconditionally paid by the maker / drawer, can be
determined on the face of the instrument
Must be payable on demand, or at a fixed or determinable future time
Three options of maturity:
a. On demand see Sec. 7
b. At a fixed future time
c. At a determinable future time see Sec. 4
Must be payable to order or to bearer correlate to Sec. 8 (when payable to order) and Sec. 9
(when payable to bearer)
Where the instrument is addressed to a drawee, he must be name or otherwise indicated
therein with reasonable certainty. applies only to bill of exchange
*Section 1 of NIL is the most important provision because the law does not apply if the instrument does
not meet the requirement of negotiability.
Kinds of Negotiable instrument:
Section 126. Bill of exchange
Section 184. Promissory notes
Memorize:
Section 7. when payable on demand: An instrument is payable on demand:
a) When it is so expressed to be payable on demand, or at sight, or on presentation (demand, in
case of note; sight, in case of bill)

2nd semester, SY 2013 2014

N o t e s o n N E G O T I A B L E I N S T R U M E N T S L A W ( Atty. Glenn Subia) | 2


Alcazar, JMM.

b) In which no time for payment is expressed.


Where the instrument is issued, accepted, or indorsed when overdue, it is as regards the person so
issuing, accepting, or indorsing it, payable on demand.
Sight instrument is payable as soon as it is seen by the party primarily laible.
Section 11. Date, presumption as to.
Generally, a date is not essential to make an instrument negotiable.
Two dates in a negotiable instrument: Date of maturity and Date of the instrument
Section 13. When date may be inserted. correlate to Sec. 30 (What constitutes negotiation)
Section 14. Blanks, when may be filled.
Speaks of two instances:
Instrument is wanting any material particular, the person in possession thereof has prima facie
authority to complete it by filling up the blanks therein
A signature on a blank paper delivered by the person making the signature in order that the
paper may be converted into a negotiable instrument operates a prima facie authority to fill it
uo as such for any amount.
*Sec. 14 applies to incomplete and undelivered instrument.
*correlate to Art, 1868, CC.
Article 1868. By the contract of agency a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the latter.
Section 15. Incomplete instrument not delivered
Section 16. Delivery; when effectual; when presumed
Delivery transfer of possession of the negotiable instrument by one person to another with the
intention to transfer title to the instrument.
Section 24. presumption of consideration.
Everybody is presumed to have signed the instrument after receiving the value.
Section 26. what constitutes holder for value.
In the series of transaction, it had been shown that the value had been given / paid for.
Prior parties
subsequent parties
Conclusively presumed
only deemed prima facie
Apply Sec. 26
Apply Sec. 24
M P A B C DE
B paid A (as evidenced / proven); reckoning point: B
Prior parties can no longer testify that they do not received any valuable consideration. Under Sec. 26,
they had been conclusively presumed to have received the consideration.
Subsequent parties can still testify or prove that they do not receive consideration, for they are only
deemed prima facie to have received the consideration.

2nd semester, SY 2013 2014

N o t e s o n N E G O T I A B L E I N S T R U M E N T S L A W ( Atty. Glenn Subia) | 3


Alcazar, JMM.

Section 27. When lien on instrument constitutes holder for value.


Lien charge against or interest in property to secure payment of debt and/or performance of an
obligation
*cor. to Art. 1523, CC
Article 1523. Where, in pursuance of a contract of sale, the seller is authorized or required to send the
goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the
purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in the
cases provided for in article 1503, first, second and third paragraphs, or unless a contrary intent
appears. Unless otherwise authorized by the buyer, the seller must make such contract with the carrier
on behalf of the buyer as may be reasonable, having regard to the nature of the goods and the other
circumstances of the case. If the seller omit so to do, and the goods are lost or damaged in course of
transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself, or may hold
the seller responsible in damages. Unless otherwise agreed, where goods are sent by the seller to the
buyer under circumstances in which the seller knows or ought to know that it is usual to insure, the
seller must give such notice to the buyer as may enable him to insure them during their transit, and, if
the seller fails to do so, the goods shall be deemed to be at his risk during such transit.
Section 28. Effect of want of consideration. correlate to Sec. 58 (when subject to original defense)
Defenses against holder not in due course:
a. Absence of consideration
b. Failure to comply with consideration
c. Partial absence / failure
Section 29. Liability of accommodation party
Accommodation party one who has signed the instrument as maker, drawer, acceptor, or idorser,
without receiving value therefor, and for the purpose of lending his name to some other person.
Memorize:
Section 30. What constitutes negotiation.
An instrument is negotiated when it is transferred from one person to another in such manner as to
constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable
to order, it is negotiated by the indorsement of the holder and completed by delivery.
Section 34. Special indorsement; indorsement in blank
Pertains to two statements:
A. A special indorsment specifies the person TO WHOM the instrument is to be payable
B. A special indorsment specifies the person TO WHOSE ORDER the instrument is to be payable,
and the indorsement of such indorsee is necessary ti the further negotiation of the instrument
Section 36. When indorsment restrictive. cor. to Sec. 47 (continuation of negotiable instrument)
Section 38. Qualified indorsement - cor to Sec. 65 (warranty where negotiation by delivery and so
forth)
Section 39. Conditional indorsement cor. to Art. 1179, CC
Article 1179. Every obligation whose performance does not depend upon a future or uncertain event, or
upon a past event unknown to the parties, is demandable at once.

2nd semester, SY 2013 2014

N o t e s o n N E G O T I A B L E I N S T R U M E N T S L A W ( Atty. Glenn Subia) | 4


Alcazar, JMM.

Every obligation which contains a resolutory condition shall also be demandable, without prejudice to
the effects of the happening of the event.
Section 40. indorsement of instrument payable to bearer. applies whether it is originally payable to
order or has been converted back to payable to order.
Section 41. indorsement where payable to two or more persons. cor. to Art. 1802
Article 1802. In case it should have been stipulated that none of the managing partners shall act without
the consent of the others, the concurrence of all shall be necessary for the validity of the acts, and the
absence or disability of any one of them cannot be alleged, unless there is imminent danger of grave or
irreparable injury to the partnership.
Section 47. continuation of negotiable character. - cor. to Sec. 36 (1) (when indorsement restrictive)
and Sec. 119 (instrument how discharged)
Section 49. transfer without indorsement, effect. applies to instrument payable to order.
Reckoning time: actual time of indorsement
Section 50. when prior party may negotiate instrument cor. to Sec. 121 (right of a party who
discharges instrument)
Memorize
Section 52. What constitutes a holder in due course.
A holder in due course is a holder who has taken the instrument under the following
conditions:chanroblesvirtuallawlibrary
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it has been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument
or defect in the title of the person negotiating it.

Section 53. when person not deemed holder in due course: - cor. with Sec. 71 (presentment where
instrument is not payable on demand and where payable on demand)
Reasonable time cor. with Sec. 193 (reasonable time, what constitutes)
Section 59. who is deemed a holder in due course. does not apply to parties prior to the defective
title
Class discussion, after midterms:
Sec. 62 Liability of the acceptor correlate to Sec. 127 bill not an assignment of funds in hands of
drawee
Sec. 63 When a person deemed indorser cor. to Sec. 17 Construction

2nd semester, SY 2013 2014

N o t e s o n N E G O T I A B L E I N S T R U M E N T S L A W ( Atty. Glenn Subia) | 5


Alcazar, JMM.

Memorize: Sec. 65 Warranty where negotiation by delivery and so forth.


*you do not give warranty to the party you had negotiations with, cor. to Sec. 40 indorsement of an
instrument payable to bearer.
Sec. 66 Liability of general indorser cor. with Sec. 61 liability of drawer
Sec. 66(b) all prior negotiations are all valid
Sec. 70 effect of want of demand on principal debtor cor. with Sec 71-73 (due presentment)
Memorize: Sec. 72 What constitutes a sufficient presentment; Sec. 73 Place of presentment; Sec.
82 When presentment for payment is excused
Sec. 84 Liability of secondarily liable cor. with Sec. 89 to whom notice of dishonor must be given
Sec. 87 Rule where instrument payable at bank cor. with Sec. 75 presentment where instrument
payable at bank.
Memorize Sec. 88 What constitutes payment in due course
It must be made at or after the maturity
Payment must be to the holder
Must be in good faith
There must be no notice that his title is defective
Cor. with Sec. 47 continuation of negotiable character; Sec. 19 Signature by agent
Sec. 89 to whom notice of dishonor must be given cor. with Sec. 83 when instrument dishonored
by nonpayment
Sec. 90 by whom given
Person allowed by law to give notice of dishonor:
Holder
Any party to the instrument who might be compelled to pay the holder
Cor. with Sec. 19 signature by agent, Sec. 66 liability of general indorser, Sec. 68 order in which the
indorsers are liable
Cor. with Article 1816. All partners, including industrial ones, shall be liable pro rata with all their
property and after all the partnership assets have been exhausted, for the contracts which may be
entered into in the name and for the account of the partnership, under its signature and by a person
authorized to act for the partnership. However, any partner may enter into a separate obligation to
perform a partnership contract.
Sec. 91 notice given by agent cor. with Article 1868. By the contract of agency a person binds
himself to render some service or to do something in representation or on behalf of another, with the
consent or authority of the latter.
Sec. 92 Effect of notice on behalf of the holder cor. with Sec. 47 continuation of negotiable
character

2nd semester, SY 2013 2014

N o t e s o n N E G O T I A B L E I N S T R U M E N T S L A W ( Atty. Glenn Subia) | 6


Alcazar, JMM.

Sec. 94 When agent may give notice cor. with Sec. 91 Notice by agent
Two ways of notice by the agent:
1. Act like a principal in giving notice to the drawer
2. Notify the principal himself
Sec. 96 Form of notice cor. with Sec. 102 time within which notice must be given
Sec. 107 notice to subsequent party cor. with Sec. 91 notice by agent and Sec. 102 - time within
which notice must be given
Sec. 108 where notice must be sent cor. with Sec. 16 privity of the subsequent holders
No need to notify the immediate party
Sec. 117 Effect of omission to give notice of non-acceptance cor. with Sec. 143 when
presentment for acceptance must be made
Sec. 119 Instrument how discharged
Par. (a) cor. with Sec 88 what constitute payment in due course
(b) cor. with Sec. 29 liability of accommodation party
(c) cor. with Sec. 123 cancellation
(e) refers to absolute liability cor. with Sec. 192 persons primarily liable

Sec. 120 Discharge of secondarily liable


Par. (a) cor. with Sec. 119 instrument, how discharged
(d) cor. with Sec. 70 effect of want of demand on principal debtor
(f) cor. with Secs. 65 66 warranty where negotiation by delivery and liability of general indorser

Sec. 121 Right of party who discharges instrument


*pertains to notified indorsers only
*instrument remains to be negotiable
Sec. 124 Alteration of instrument real defense
Memorize: Sec. 125 material alteration; Sec. 127 bill not an assignment of funds in hands of
drawee
Sec. 128 bill addressed to more than one drawee: jointly = solidary, both are liable under the NIL.
Sec. 130 When bill may be treated as promissory note:
The drawer and drawee are the same person
Drawee is a fictitious person
The holder is a person not having capacity to contract
Sec. 132 Acceptance cor. with Sec. 142 rights of parties as to qualified acceptance
Memorize: Sec. 143 Presentment for acceptance

2nd semester, SY 2013 2014

N o t e s o n N E G O T I A B L E I N S T R U M E N T S L A W ( Atty. Glenn Subia) | 7


Alcazar, JMM.

Sec. 144 when failure to present releases drawer and indorser cor. with Sec. 193 reasonable
time
Sec. 149 when dishonored by non acceptance cor. with Sec. 83 when instrument dishonored by
nonpayment
Sec. 150 Duty of holder where bill not accepted cor. with Sec. 84 liability of person secondarily
liable

Protest - formal instrument executed by a notary public or other competent person certifying that the
facts necessary to the dishonor of the instrument by non-acceptance or non-payment have taken place.
Sec. 152 protest necessary cor. with Sec. 129 inland and foreign bills
Memorize: Sec. 156 protest, where made cor. with Sec. 152
Sec. 159 protest dispensed with cor. with Sec. 112 notice is dispensed with
Sec. 161 bill accepted for honor
Requisites of acceptance for honor:
Bill has been protested for dishonor by non acceptance or protested for better security
The bill is not overdue
Any person not being a party is already liable
There must be the consent of the holder for the acceptance for honor
Memorize: Sec. 165 Agreement for acceptor for honor ; Sec. 184 promissory note
Sec. 185 check cor. with Sec. 127 bill not an assignment of funds
Sec. 194 Time, how computed cor. with Sec. 86 time, how computed

Presentation of the NIL Act 2031


1)
2)
3)
4)
5)
6)
7)
8)

Form and interpretation


Consideration
Negotiation
Rights of the holder
Liabilities of the parties
Presentment for payment
Notice of dishonor
Discharge of N.I.

Part II Bills of exchange


a) Form and interpretation
b) Acceptance
c) Presentment foe acceptance
d) Protest
e) Acceptance for honor
f) Payment for honor
g) Bills in set
h) Promissory notes and check

2nd semester, SY 2013 2014