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NEGOTIABLE INSTRUMENTS LAW

Course Outline
Atty. Maria Zarah Villanuew – Castro
2C / 2E / 2J
PRELIMINARY CONSIDERATIONS

1. Governing laws

2. Concept of Negotiable Instrument

3. Classes of Negotiable Instrument
a. Promissory Note
b. Bill of Exchange

4. Functions of a Negotiable Instrument

5. Characteristics of a Negotiable Instrument
a. Negotiability
b. Accumulation of Secondary Contracts

6. Negotiable instruments compared with other papers (document of title, letter of credit,
certificate of stock, pawn ticket, postal money order, treasury warrant)

7. Legal tender character
CASES:
1. Phil. Educ. Co., Inc. v. Soriano 39 SCRA 587
2. Tibajia, Jr. v. CA 223 SCRA 163
3. Philippine Airlines v. CA 181 SCRA 557

FORM AND INTERPRETATION OF NEGOTIABLE INSTRUMENTS

1. Requisites of Negotiability (Sec. 1, NIL)
a. 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
(1) Promise or order to pay must be unconditional
(a) Reference to transaction (Sec. 3, NIL)
(b) Source or payment or account to be debited
(2) Payable in sum certain in money
(a) Provisions which do not affect certainty of sum payable
(i) Payment of interest (Sec. 2, NIL)
(ii) Payment by installments (Sec. 2, NIL)
(iii) Acceleration clause (Sec. 2, NIL)
(iv) Payment with exchange (Sec. 2, NIL)
(v) Payment of Attorney’s fees (Sec. 2, NIL)
CASES:
4. Metropolitan Bank & Trust Company v. CA Feb. 18, 1991;
194 SCRA 169
5. Caltex Phils. V. CA 212 SCRA 448

c. Payable on demand or at a fixed or determinable future time
(1) When payable on demand (Sec. 7, NIL)
(2) When payable at determinable future time (Sec. 4, NIL)
d. Payable to order or bearer
(1) When payable to bearer (Sec. 9, NIL)
(a) Rule when instrument is payable to a fictitious person
(2) When payable to order
(a) To whose order the instrument may be made payable (Sec. 8, NIL)
CASES:
6. Ang Tek Lian v. CA 87 PHIL 383
7. PNB v. Rodriguez G.R. No. 170325;
September 26, 2008

NIL) (9) Transfer of an order instrument without indorsement (Sec. De la Victoria v. NIL) c. 49. 43. August 21. How Made (Sec. 48. distinguished from assignment CASES: Read again 12. 6. NIL) (4) Where name of payee or indorsee is misspelled (Sec.. NEGOTIABLE INSTRUMENTS LAW Course Outline Atty. NIL) (8) Striking out of indorsement (Sec. Rules to be followed in interpreting Negotiable Instruments (Sec. NIL) (2) Where instrument is payable to two or more persons (Sec. Al. 120 SCRA 864 Al. Ilano v. Hon. Maria Zarah Villanuew – Castro 2C / 2E / 2J e. IFC Leasing 149 SCRA 448 3. Concept b. et. Espanol G. v. Hon. 17. NIL) (7) Place of indorsement (Sec. NIL) CASES: 9. Gempesaw v. Sima Wei 219 SCRA 736 5. Concept of delivery CASES: 14. NIL) d. CA 218 SCRA 622 . 2003 11. 46. Evangelista v. CA 216 SCRA 738 10. Metropol (Bacolod) Financing v. NIL) (3) Qualified (Sec. Modes of transfer 2. Mercator Finance Corp. 42. 2005 NEGOTIATION 1. 39. Sesbreño v. Omissions that do not affect negotiability (Sec. Ways of negotiation (in case of order or bearer instruments) 4. 17. 38. 34 & 35. NIL) CASES: 16. Philippine National Bank v..R. CA 222 SCRA 466 13. Sps. Manila Oil Refining & By. 31 & 32. Consolidated Plywood Inc. 43 PHIL 445 Products Company 2. 21. et. NIL) (4) Restrictive (Sec. NIL) f. 30. NIL). 5. NIL) (6) Presumption as to time of indorsement (Sec. Burgos 245 SCRA 374 15. Development Bank of Rizal v. 45. Concept of Negotiation (Sec. 36 & 37. No. Republic Planters Bank v. 44. 161756. Kinds (1) Special and Blank (Sec. NIL) (3) Instrument is drawn or indorsed to a person as cashier (Sec. 40. December 16. Indorsement a. Additional provisions not affecting negotiability (Sec. Sambok Motors Co. NIL) (2) Conditional (Sec. Other rules on indorsement (1) Indorsement of an instrument payable to bearer (Sec. NIL) (5) Indorsement in a representative capacity (Sec. NIL) (1) Sale of Collateral Securities (2) Confession of judgment (3) Waiver of benefit (4) Option to require something in lieu of payment CASE: 8.

Al. Good faith e. No. Agro-Conglomerates Inc. NIL) CASES: 18. Shelter Rule (Sec. NIL) (4) Agents signing in behalf of the principal CASES: 21. NIL) (2) Indorser of bearer instrument (Sec. v. NIL) a. Other cases (1) Irregular indorser (Sec.R. Liability distinguished from warranties 3. 2003 24. CA September 15. Mesina v. 1989 25. Drawer (Sec. Astro Electronics v. 716 22. Instrument complete and regular b. Crisologo-Jose v. 127 & 62. 57. Dionisio December 8. Acceptor (Sec. 50. NIL) (3) Order of liability e. CA 210 SCRA 352 27. Parties negotiating by mere delivery (Sec. Sadaya v. September 23. Gatchalian 03 SCRA 596 19. Sevilla 19 SCRA 924 26. NIL) 4. Presumption of due course holding (Sec. 52. Holder in due course (Requisites) (Sec. 56 & 57. NIL) f. 53. 67. 2003 20. 138074. Travel-On v. De Ocampo v. General Concept of a Holder 2. NIL) (3) Accommodation Party (Sec. NIL) (1) Relationship with drawee (2) Relationship with collecting bank c. NIL) HOLDERS 1. Picornell. NIL) c. Maria Zarah Villanuew – Castro 2C / 2E / 2J 6. Holder for value 3. Taken before overdue (1) Rule in case of installment instruments (2) Rule in case of demand instruments (Sec. 60. IAC 145 SCRA 497 LIABILITY OF PARTIES 1. 61. 66. 2003 23. see also Sec. 54. 29. 58. NIL) b. Liability and/or warranties of parties a. Maker (Sec. Roxas. Notice of infirmity or defect (Sec. Al. NIL) (2) Qualified indorser (Sec. 65. 46 PHIL. NEGOTIABLE INSTRUMENTS LAW Course Outline Atty. NIL) d. Primary and secondary liability distinguished 2. CA 348 SCRA 350 . 59. Indorsers (1) General indorsers (Sec. CA G. NIL) d. Rights of holders in due course (Sec. NIL. 64. Garcia v. et. 65. Yang v. August 15. Philippine National Bank v. NIL) 5. Negotiation by a prior party (Sec. et.

intimidation. Non-delivery of an incomplete instrument (Sec. NIL) . Republic v. Parties primarily liable and parties secondarily liable 2. 1990 33. No. Minority and ultra vires acts (Sec. Cabilzo December 6. Quimpo March 14. 23. 1975 38. 1996 36. CA February 9. Ilusorio v. 14. Real and personal defenses. 2004 44. Jai-Alai v. Metrobank v. 16. Ante-dating or post-dating (Sec. 2009 ENFORCEMENT OF LIABILITY 1. Personal defenses: a. 15. Material alteration (partial real defense) (Sec. Forgery and want of authority (Sec.R. 89. Filling-up blanks beyond authority (Sec. Maria Zarah Villanuew – Castro 2C / 2E / 2J 28. July 20. Bank of America v.R. Absence or failure of consideration (Sec. Ebrada July 31. 56 & 57. Promissory notes (1) Presentment for payment (Sec. International Corporate Bank v. Gonzales v. NIL) e. June 4. General steps in enforcing liability a. Associate Bank v. illegality of consideration. Far East v. NIL) (2) Notice of dishonor (Sec. August 20. CA 350 SCRA 446 41. Philippine National Bank v. 2008 31. 70. 168274. CA January 31. 1998 39. CA 143 SCRA 20 42. NIL) (1) Forgery of maker’s signature (2) Of indorsers signature (3) Of drawer’s signature (4) Forgery of bearer instruments e. 12. MWSS v. 150228. RCBC 29 November 2006 29. CA 256 SCRA 491 34. Philippine Racing Club G. Gold Palace Jewelry G. 2014 DEFENSES 1. NIL) f. NIL) b. Samsung Construction v. 28. CA 393 SCRA 89 43. Fraud in factum d. 124 & 125. 22. CA January 22. 187769. 1993 40.R. 13. breach of faith (Sec. force or fear. Gempesaw v. Associated Bank September 5. CA September 2006 35. Simple fraud. NIL) b. Want of delivery of a complete instrument (Sec. Extinctive prescription 3. 2007 30. Philippine National Bank v. NEGOTIABLE INSTRUMENTS LAW Course Outline Atty. NIL) CASES: 32. NIL) d. NIL) c. distinguished. duress. Ang v. Salas v. BPI 66 SCRA 29 37. Napoleon G. Patrimonio v. No. 55. Philippine Commerical International Bank v. 2006 45. Far East Bank August 15. NIL) c. Real defenses: a. Insertion of wrong date (Sec. No. NIL) f. 2.

109-112. Notice of dishonor a. CA 217 SCRA 32 51. 138. 136. NIL) (c) Rule when incomplete bill is accepted (Sec. NIL) (b) Rule in case party primarily liable is already dead (Sec. 83. 101. Presentment for payment a. 72. NIL) (a) Rule if payable at a special place (Sec. 98. NIL) (2) Place of presentment (Sec. Inc. NIL) f. CA 166 SCRA 256 47. State Investment House v. 78. NIL) (b) Time to accept (Sec. Who should give notice (1) Holder (2) Agent (3) Party who may be compelled to pay c. 71. Time and place of notice (Sec. Asia Banking Corporation v. 114-115. CA October 5. NIL) (3) Presentment to the party primarily liable (a) How presentment made (Sec. NIL) d. Bills of Exchange (1) Presentment for acceptance (Sec. 74. 103-108. International Corporate Bank v. NIL) (b) Rule in case of foreign bills (See provisions on protest) (3) If accepted (a) Presentment for payment to acceptor (b) Rule if dishonored upon presentment for payment (c) Rule in case of foreign bill 3. 81. NIL) g. 149. Far East Realty Investment. Concept of presentment b. NIL) (d) Presentment to joint debtors (Sec. NIL) (c) Rule in payable at a bank (Sec. NIL) (5) Notice to bankrupt (Sec. NIL) d. 132-135 &137. 76. Form of notice (Sec. Instances where presentment is excused (Sec. NIL) (2) Dishonor by non-acceptance (Sec. NIL) e. 100. BA Finance Corporation 200 SCRA 637 . 1988 50. 77. NIL) (b) Rule in computing time (Sec. 89. NIL) b. 86. NIL) (2) Notice where party is dead (Sec. Maria Zarah Villanuew – Castro 2C / 2E / 2J b. Requisites for sufficiency (Sec. NIL) (c) Presentment to partners (Sec. Nyco Sales Corporation v. 99. 73. NIL) (3) Notice to partners (Sec. v. 70. NIL) (a) Rule in determining maturity date (Sec. When delay in presentment excused (Sec. NIL) c. 75. Far East Realty v. Sps. NEGOTIABLE INSTRUMENTS LAW Course Outline Atty. 97. To whom notice is given (1) Party secondarily liable or agent (Sec. 43 & 44. 139-142. NIL) (d) Kinds of acceptance (Sec. 113. Gueco February 12. CA February 2. When notice is excused or unnecessary (Sec. 85. When delay in giving notice excused (Sec. NIL) (1) Date of presentment (Sec. Javier 44 PHIL 777 52. When dishonor of the instrument occurs (1) Dishonor by non-payment (Sec. 2001 48. Wong v. NIL) (4) Notice to persons jointly liable (Sec. NIL) CASES: 46. 79 & 82. 143. NIL) (2) If dishonored by non-acceptance (a) Notice of dishonor (Sec. NIL) (a) How made (Sec. NIL) 4. 2001 49.

When required to be presented for payment (Sec. 2006 55. Certified check (Sec. Memorandum and traveller’s check 5. How instrument is discharged (Sec. NIL) (1) By the principal debtor (Sec. CA 175 SCRA 311 61.R. 185. Valencia 284 SCRA 643 62. July 25. National City Bank of New York 63 PHIL. Nos. Ong September 15. Nite G. 185. State Investment House v. Areza v. NIL) 2. Pertinent Philippine Clearing House Corporation rules CASES: 56. 1980 57. Arceo. NIL) CHECKS 1. Papa v. NEGOTIABLE INSTRUMENTS LAW Course Outline Atty. Concept of discharge 2. No. NIL) a. Express Savings Bank. Seneris December 19. GG Sportswear July 11. No. Payment in due course (Sec. A. Crossed check (Art. New Pacific Timber v. Security Bank & Trust Company v. CA June 17. Villanueva v. No.R. NIL) c. September 10. Equitable PCI v. 711 58. 541. Code of Commerce) (1) Effects of crossing a check d. Kinds of check a. NIL) 6. 119 [a]) (2) By the accommodated party (Sec. 187-189. Jr. series of 2000 & 291. 176697. Principal debtor becomes a holder 3. 123.R. 1992 60. 2006 63. 2014 DISCHARGE OF INSTRUMENTS 1. Intentional cancellation (1) Rule in case of unintentional cancellation (Sec. 2006 64. series of 2001) b. Cashier’s and manager’s check (See BSP Circulars 259. Stelco Marketing Corporation v. 119. NIL) c. Checks defined (Sec. Inc. CA. January 30. 88. Any act the discharge simple contracts d. 148211. Hon. RCBC G. CA 230 SCRA 648 59. Maria Zarah Villanuew – Castro 2C / 2E / 2J 53. v. drawee and payee 4. G. Relationship between drawer. People of the Philippines G. Distinguished from draft 3. 120. Bataan Cigar v. July 17. PNB v. 142641. 119 [b]) b. Discharge of persons secondarily liable (Sec.R. 2006 54. Allied Banking v. Effect of death of drawer 7. 2009 .U. 170984 & 170987.