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
 NEGOTIABLE INSTRUMENTS LAW
Course Outline
Atty. Maria Zarah Villanuew – Castro
2C / 2E / 2J

e. Omissions that do not affect negotiability (Sec. 6, NIL)

f. Additional provisions not affecting negotiability (Sec. 5, 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. Philippine National Bank v. Manila Oil Refining & By- 43 PHIL 445
Products Company

2. Rules to be followed in interpreting Negotiable Instruments (Sec. 17, NIL)

CASES:
9. Republic Planters Bank v. CA 216 SCRA 738
10. Sps. Evangelista v. Mercator Finance Corp., et. Al. August 21, 2003
11. Ilano v. Hon. Espanol G.R. No. 161756;
December 16, 2005

NEGOTIATION

1. Modes of transfer

2. Concept of Negotiation (Sec. 30, NIL); distinguished from assignment

CASES: Read again
12. Sesbreño v. CA 222 SCRA 466
13. Consolidated Plywood Inc. v. IFC Leasing 149 SCRA 448

3. Ways of negotiation (in case of order or bearer instruments)

4. Concept of delivery
CASES:
14. De la Victoria v. Hon. Burgos 245 SCRA 374
15. Development Bank of Rizal v. Sima Wei 219 SCRA 736

5. Indorsement
a. Concept
b. How Made (Sec. 31 & 32, NIL)
c. Kinds
(1) Special and Blank (Sec. 34 & 35, NIL)
(2) Conditional (Sec. 39, NIL)
(3) Qualified (Sec. 38, NIL)
(4) Restrictive (Sec. 36 & 37, NIL)
d. Other rules on indorsement
(1) Indorsement of an instrument payable to bearer (Sec. 40, NIL)
(2) Where instrument is payable to two or more persons (Sec. 21, NIL)
(3) Instrument is drawn or indorsed to a person as cashier (Sec. 42, NIL)
(4) Where name of payee or indorsee is misspelled (Sec. 43, NIL)
(5) Indorsement in a representative capacity (Sec. 44, NIL)
(6) Presumption as to time of indorsement (Sec. 45, NIL)
(7) Place of indorsement (Sec. 46, NIL)
(8) Striking out of indorsement (Sec. 48, NIL)
(9) Transfer of an order instrument without indorsement (Sec. 49, NIL)
CASES:
16. Metropol (Bacolod) Financing v. Sambok Motors Co., et. 120 SCRA 864
Al.
17. Gempesaw v. CA 218 SCRA 622
 NEGOTIABLE INSTRUMENTS LAW
Course Outline
Atty. Maria Zarah Villanuew – Castro
2C / 2E / 2J
6. Negotiation by a prior party (Sec. 50, NIL)

HOLDERS

1. General Concept of a Holder

2. Holder in due course (Requisites) (Sec. 52, NIL)

a. Instrument complete and regular
b. Taken before overdue
(1) Rule in case of installment instruments
(2) Rule in case of demand instruments (Sec. 53, NIL)
c. Notice of infirmity or defect (Sec. 56 & 57, NIL; see also Sec. 54, NIL)
d. Good faith
e. Holder for value

3. Presumption of due course holding (Sec. 59, NIL)

4. Rights of holders in due course (Sec. 57, NIL)

5. Shelter Rule (Sec. 58, NIL)

CASES:
18. De Ocampo v. Gatchalian 03 SCRA 596
19. Yang v. CA G.R. No. 138074;
August 15, 2003
20. Mesina v. IAC 145 SCRA 497

LIABILITY OF PARTIES

1. Primary and secondary liability distinguished

2. Liability distinguished from warranties

3. Liability and/or warranties of parties

a. Maker (Sec. 60, NIL)
b. Drawer (Sec. 61, NIL)
(1) Relationship with drawee
(2) Relationship with collecting bank
c. Acceptor (Sec. 127 & 62, NIL)
d. Indorsers
(1) General indorsers (Sec. 66, NIL)
(2) Qualified indorser (Sec. 65, NIL)
(3) Order of liability
e. Parties negotiating by mere delivery (Sec. 65, NIL)
f. Other cases
(1) Irregular indorser (Sec. 64, NIL)
(2) Indorser of bearer instrument (Sec. 67, NIL)
(3) Accommodation Party (Sec. 29, NIL)
(4) Agents signing in behalf of the principal
CASES:
21. Philippine National Bank v. Picornell, et. Al. 46 PHIL. 716
22. Astro Electronics v. Roxas, et. Al. September 23, 2003
23. Garcia v. Dionisio December 8, 2003
24. Crisologo-Jose v. CA September 15, 1989
25. Sadaya v. Sevilla 19 SCRA 924
26. Travel-On v. CA 210 SCRA 352
27. Agro-Conglomerates Inc. v. CA 348 SCRA 350
 NEGOTIABLE INSTRUMENTS LAW
Course Outline
Atty. Maria Zarah Villanuew – Castro
2C / 2E / 2J
28. Gonzales v. RCBC 29 November 2006
29. Ang v. Associated Bank September 5, 2007
30. Far East v. Gold Palace Jewelry G.R. No. 168274;
August 20, 2008
31. Patrimonio v. Napoleon G.R. No. 187769;
June 4, 2014

DEFENSES

1. Real and personal defenses, distinguished.

2. Real defenses:
a. Minority and ultra vires acts (Sec. 22, NIL)
b. Non-delivery of an incomplete instrument (Sec. 15, NIL)
c. Fraud in factum
d. Forgery and want of authority (Sec. 23, NIL)
(1) Forgery of maker’s signature
(2) Of indorsers signature
(3) Of drawer’s signature
(4) Forgery of bearer instruments
e. Material alteration (partial real defense) (Sec. 124 & 125, NIL)
f. Extinctive prescription

3. Personal defenses:
a. Ante-dating or post-dating (Sec. 12, NIL)
b. Insertion of wrong date (Sec. 13, NIL)
c. Filling-up blanks beyond authority (Sec. 14, NIL)
d. Want of delivery of a complete instrument (Sec. 16, NIL)
e. Absence or failure of consideration (Sec. 28, NIL)
f. Simple fraud, duress, intimidation, force or fear, illegality of consideration, breach
of faith (Sec. 55, 56 & 57, NIL)
CASES:
32. Salas v. CA January 22, 1990
33. Philippine National Bank v. CA 256 SCRA 491
34. International Corporate Bank v. CA September 2006
35. Associate Bank v. CA January 31, 1996
36. Jai-Alai v. BPI 66 SCRA 29
37. Republic v. Ebrada July 31, 1975
38. Philippine National Bank v. Quimpo March 14, 1998
39. Gempesaw v. CA February 9, 1993
40. Philippine Commerical International Bank v. CA 350 SCRA 446
41. MWSS v. CA 143 SCRA 20
42. Ilusorio v. CA 393 SCRA 89
43. Samsung Construction v. Far East Bank August 15, 2004
44. Metrobank v. Cabilzo December 6, 2006
45. Bank of America v. Philippine Racing Club G.R. No. 150228;
July 20, 2009

ENFORCEMENT OF LIABILITY

1. Parties primarily liable and parties secondarily liable

2. General steps in enforcing liability

a. Promissory notes
(1) Presentment for payment (Sec. 70, NIL)
(2) Notice of dishonor (Sec. 89, NIL)
 NEGOTIABLE INSTRUMENTS LAW
Course Outline
Atty. Maria Zarah Villanuew – Castro
2C / 2E / 2J
b. Bills of Exchange
(1) Presentment for acceptance (Sec. 143, NIL)
(a) How made (Sec. 132-135 &137, NIL)
(b) Time to accept (Sec. 136, NIL)
(c) Rule when incomplete bill is accepted (Sec. 138, NIL)
(d) Kinds of acceptance (Sec. 139-142, NIL)
(2) If dishonored by non-acceptance
(a) Notice of dishonor (Sec. 89, 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. Presentment for payment

a. Concept of presentment
b. Requisites for sufficiency (Sec. 72, NIL)
(1) Date of presentment (Sec. 71, NIL)
(a) Rule in determining maturity date (Sec. 85, NIL)
(b) Rule in computing time (Sec. 86, NIL)
(c) Rule in payable at a bank (Sec. 75, NIL)
(2) Place of presentment (Sec. 73, NIL)
(a) Rule if payable at a special place (Sec. 70, NIL)
(3) Presentment to the party primarily liable
(a) How presentment made (Sec. 74, NIL)
(b) Rule in case party primarily liable is already dead (Sec. 76, NIL)
(c) Presentment to partners (Sec. 77, NIL)
(d) Presentment to joint debtors (Sec. 78, NIL)
c. Instances where presentment is excused (Sec. 79 & 82, NIL)
d. When delay in presentment excused (Sec. 81, NIL)

4. Notice of dishonor
a. When dishonor of the instrument occurs
(1) Dishonor by non-payment (Sec. 83, NIL)
(2) Dishonor by non-acceptance (Sec. 149, NIL)
b. Who should give notice
(1) Holder
(2) Agent
(3) Party who may be compelled to pay
c. Form of notice (Sec. 43 & 44, NIL)
d. To whom notice is given
(1) Party secondarily liable or agent (Sec. 97, NIL)
(2) Notice where party is dead (Sec. 98, NIL)
(3) Notice to partners (Sec. 99, NIL)
(4) Notice to persons jointly liable (Sec. 100, NIL)
(5) Notice to bankrupt (Sec. 101, NIL)
e. Time and place of notice (Sec. 103-108, NIL)
f. When notice is excused or unnecessary (Sec. 109-112, 114-115, NIL)
g. When delay in giving notice excused (Sec. 113, NIL)
CASES:
46. Far East Realty Investment, Inc. v. CA 166 SCRA 256
47. Wong v. CA February 2, 2001
48. International Corporate Bank v. Sps. Gueco February 12, 2001
49. Far East Realty v. CA October 5, 1988
50. State Investment House v. CA 217 SCRA 32
51. Asia Banking Corporation v. Javier 44 PHIL 777
52. Nyco Sales Corporation v. BA Finance Corporation 200 SCRA 637
 NEGOTIABLE INSTRUMENTS LAW
Course Outline
Atty. Maria Zarah Villanuew – Castro
2C / 2E / 2J
53. Arceo, Jr. v. People of the Philippines G.R. No. 142641;
July 17, 2006
54. Allied Banking v. CA, GG Sportswear July 11, 2006
55. Areza v. Express Savings Bank, Inc. G.R. No. 176697;
September 10, 2014

DISCHARGE OF INSTRUMENTS

1. Concept of discharge

2. How instrument is discharged (Sec. 119, NIL)

a. Payment in due course (Sec. 88, NIL)
(1) By the principal debtor (Sec. 119 [a])
(2) By the accommodated party (Sec. 119 [b])
b. Intentional cancellation
(1) Rule in case of unintentional cancellation (Sec. 123, NIL)
c. Any act the discharge simple contracts
d. Principal debtor becomes a holder

3. Discharge of persons secondarily liable (Sec. 120, NIL)

CHECKS

1. Checks defined (Sec. 185, NIL)

2. Distinguished from draft

3. Relationship between drawer, drawee and payee

4. Kinds of check
a. Cashier’s and manager’s check (See BSP Circulars 259, series of 2000 & 291,
series of 2001)
b. Certified check (Sec. 187-189, NIL)
c. Crossed check (Art. 541, Code of Commerce)
(1) Effects of crossing a check
d. Memorandum and traveller’s check

5. When required to be presented for payment (Sec. 185, NIL)

6. Effect of death of drawer

7. Pertinent Philippine Clearing House Corporation rules

CASES:
56. New Pacific Timber v. Hon. Seneris December 19, 1980
57. PNB v. National City Bank of New York 63 PHIL. 711
58. Bataan Cigar v. CA 230 SCRA 648
59. Stelco Marketing Corporation v. CA June 17, 1992
60. State Investment House v. CA 175 SCRA 311
61. Papa v. A.U. Valencia 284 SCRA 643
62. Villanueva v. Nite G.R. No. 148211;
July 25, 2006
63. Equitable PCI v. Ong September 15, 2006
64. Security Bank & Trust Company v. RCBC G.R. Nos. 170984 &
170987; January 30,
2009