NEGOTIABLE INSTRUMENTS LAW. By Ay. Mary Ann L. Reyes COURSE OUTLINE INTRKODUCT 1) History, Governing Laws (Act 2031, Code of Commerce, New Civil Code) 2) Applicability of the Negotiable Instruments Law Read: Kauitman vs. PNB, 42 Phil 182, Sept. 29 1921 GSIS vs. CA, 170 SCRA 533, February 23, 1989. 3) Concept of Negotiable Instruments a) Negotiable Instruments Defined b) Functions of Negotiable Instruments ¢) Whatis Legal Tender [See, 52, 60, New Central Bank Act; BSP Circular no, 537, (2006)] Read: Tibajia vs. CA, 223 SCRA 163 PAL vs. CA, GR 49188, Jan. 30, 1990 4) Characteristics of Negotiable Instruments 5) Incidents in the Life of Negotiable Instruments 6) Kinds of Neyotiable Instruments a) Negotiable Promiss Notes (See, 184, NIL) i, parties toa negotiable promissory note ii, kinds of negotiable promissory note b) Bills of Exchange (See. 120, 185, NIL) i. parties toa bill of exchange ils of bills of exchange 7) When Bill Treated as Notes (See, 17e, 130, NIL) 8) Bills and Notes DistinguishedY) Negotiable Instruments Compared with other Papers Read: Sesbreno vs. CA, GR 89252, May 24, 1993, 10) Some Non-Neyotiable Instruments a) Documents of Title b) Letters of Credit ©) Certificates of Stock dl) Postal Money Order Read: Philippine Education Co. vs, Soriano, GR L-2 30, 1971 5, June ©) ‘Treasury Warrants AND 1 INSTRUM. 1) How Negotiability is Determined Read: Caltex (Philippines) vs. CA, 212 SCRA 448, Aug, 10, 1992 2) Lifect of Estoppel Kead: Banco de Oro vs. Equitable Banking Corp., 157 SCRA 188 (1988) Phil, Bank of Commerce vs. Aruego, 102 SCRA 530, Jan. 31, 1981 3) Requisites of Negotiability 1, NIL) 4) must be in writing and signed by the maker or drawer (Sec. 191, NIL) b)_ must contain an unconditional promise or orde sum certain in money to pay a i, Promise or Order to Pay (See. 10, NIL) ii, Promise or Order Must Be UnconditionalHL, 1) resolutory and suspensive condition (Art. 1173, 181, NCC) 2) period 3) when is promise unconditional Gee. 3, 39, NIL) 4) sum certain in money Sec. 2, 5u, 6e, NIL; CB Circular 799, July 1, 2013; Art. 2209, Civil Code; acceleration, insecurity, extension clauses) Read: Metropolitan Bank vs, CA, 194 SCRA 169, Feb. 18, 1991 ©) must be payable on demand or at a fixed or determinable future time Read: Pay vs. Palanca, 57 SCRA 618 dl) must be payable to order or bearer (See. 8, 9, 184, NIL) Read: Ang Tek Lian vs. CA, 87 Phil 383, Sept. 25, 195) e) drawee must be named or indicated with reasonable certainty (See. Le, 130, NIL) 4) Omissions and Provisions That Do Not Affect Negotiability 5) Interpretation of Instruments FORM AND INTERPRETATION OF NEGOTIABLE INSTRUMENTS 1) Issuance/Delivery of Negotiable Instruments (Sec. 15, 16, 191, NIL) Read: Dela Victoria vs. Burgos, 245 SCRA 374, June 27, 1995. 2) Negotiation Defined (Sec. 30, NIL) 3) Assigiument and Negotiation Distinguished; Liability of Assignor (Art. 348, Code of Commerce) Read: Casabuena vs. CA, 286 SCRA 594 4) How are Negotiable Instruments and Non-Negotiable Instruments fransferredReau: Sesbreno vs, CA, 222 SCRA 466, May 24, 1993 Consolidated Plywood vs IFC Leasing, 19 SCRA 448, April 30, 1987 Traders Royal Bank vs CA, 269 SCRA 16, Mareh 3, 1997 5) How Neyotiation Takes Place (See. 16, 30, 4U, NIL) ead: Manuel Lim vs CA, 251 SCRA 409, Dee. 19, 1995 Dela Victoria vs Burgos, 245 SCRA 374, June 27, 1995 Development Bank of Rizal vs Sima Wei, 217 SCRA 743, March 9, 1993 6) Incomplete Negotiation of Order Instrument (See. 49, NIL) 7) Where Indorsement Should be Placed (Sec. 31, NIL) 8) When Person Deemed Indorser (See, 63, NIL) 9) Other Rules on Indorsement (See. 31, 32, 40-18, 49, NIL) Read: Enrique Montinola vs PNB, 68 Phil 178, Feb. 26, 1951 Ang Tek Lian vs CA, GR L-2516, Sept. 25, 1950, ‘10) Kinds of Indorsement (See. 33, NIL) a) Blank and Special Indorgements (See. 34, 35, NIL) i conversion of blank to special indorsement (See. 35, NIL) b) Qualified and General Inclorsement (See. 38, 65, NIL) Read: Metropol (Bacolod) Financing vs. Sambok Motors, 120 SCRA 804, Feb, 28, 1983 ©) Conditional Indorsement (See. 99, NIL} d) Restrictive Indorsement (ee, 36, 37, 47, NIL) Read: Gempesaw vs. CA, 218 SCRA 628, Feb, 9, 1993 | v) Absolute IncorsementIV f) Joint Indorsement Gee. 41, NIL) ¥) Irregular Indorsement (Sec, of, NIL) 11) When Indorsement Necessary (See. 30, 184, NIL) 12) Indorsement of Entire Instrument (See. 32, NIL) 13) ludorsement of Bearer Instrument (See, 10, NIL) 14) lndorsement When Payable to Two or More Persons (See, 411, NIL) 15) ladorsement in Representative Capacity (See. +14, NIL) 1b) Presumption on Time, Place of Indorsement (See. 45, 46, NIL) 17) Continuation of Negotiable Character (See. 47, NIL) 18) Negotiation by Prior Party (See, 50, NIL) 19) Striking Out of Indorsement (Sec. 48, NIL) 20) Elect of Transier Without Indorsement (See. 19, NIL) 21) Consideration for Issuance and Subsequent Transfer What Constitutes Value (Gee. 25, NIL) Read: Bibiano Banas vs. CA, 325 SCRA 259, Feb. 10, 2000 23) Bifect if Value Previously Given (See. 26, NIL) 24) Holler for Value (See. 26, NIL) 2 fitect of Want of Consideration (Sec. 28, NIL) HOLDERS | 1) Whatis a holder (Sec. 191, NIL) | a) Classes of Holder (See. 26, 27, 52, NIL}b) Rights of Holders (Gee, 51, 88, 119, NIL) + Read Chan Wan vs Tan Kim, 109 Phil 706, Sept. 30, 1960 Atrium Management ys CA, MA SCAD 390, Feb, 28, 2001 Marcelo Mesina vs CA, 145 SCRA 497, Nov. 13, 1986 2) Hokters in Due Course (See, 52, 53, 54, 55, 56, 88, NIL) ) instrument complete and regular b) taken before overdue Gee. 4, 7, 53, 83, 85, NIL) ©) previously dishonored (See. 83, 149, NIL) l) notice of infirmity or defect (Sec, 54, 55, 56, NIL) ©) good faith Read: De Ocampo vs Gatehalian, 3 SCRA 596, Nov. 30, 1961 Yang vs CA, No, 138074, Aug. 15, 2003 Bataan Cigar vs CA, 230 SCRA 643 (1994) Stelco Marketing vs CA, 210 SCRA 51, June 17, 1992 f) holder for value (See. 24-27, NIL) 3) Presumption of Due Course Holding (Sec. 59, NIL) ©. 14, 16, 57, NIL); When 8, NIL) 4). Riglis of Holders in Due Course Subject to Original Defenses (6 Read: Salas vs CA, 181 SCRA 296, State Investment How A, 175 SCRA 311, July 13, 1989 Prudencio vs CA, 143 SCRA 7, July 14, 1986 Stelco Marketing vs CA, GR No. 96160, June 17, 1992 5). Rights of Holders Not in Due Course (See. UH, 16, 51, 53, NIL) 6) Accomodation Parties (See. 29, NIL) 7) Shelter Rule (See. 58, NIL) Read: Charles Fossum ys Fernandez Hermanos, 4 Phil 713PARTIES WHO AKE LIABLE 1) Primary and Secondary Liability Distinguished (Sec. 61, 66, 192, NIL) 2) Payment By Party Secondarily Liable (See. 68, 70, 84, 89, 118, 120, 151, 134, NIL) 3) Liability vs. Warranties 4) Liability and/or Warranties of Parties a) Maker (Sec. 60, NIL) b) Drawer Gee. 61, NIL) i, Relationship with Drawee ii, Relationship with Collecting Bank Read: Jai-Alai vs BPI, 66 SCRA 29, Aug. 6, 1975 ©) Acceptor (See. 62, 127, 139-141, 143, 165, 189, NIL) Read: PNB vs. Picornell, 46 Phil 716, Sept. 26, 1922 PNB vs CA, 25 SCRA 693, Oct, 29, 1968 a) Indorsers Gee. 63, 68, NIL) i, General Indorser (See, 66, NIL) Read: Ang Tiong vs Ting, 22 SCRA 713, Keb. 22, 1968 People vs Maniego, 148 SCRA 30, Feb. 27, 1987 (a) conditions precedent to make unqualified indorser liable ii, Qualified Indorser (See. 65, NIL)iii, Indorsers of Bearer Instruments (See. 40, 65, 67, NIL) iv. hrregular Indorser (See, 64, NIL) Vy. Liability of Accommodation Party: NIL) (ve, 29, 52, Read: Clark vs Sellner, GR 10077, Nov. 22, 1921 Crisologo vs CA, 177 SCRA 594, Sept, 15, 1989 PNB vs Maza, GR 242244, Nov. 3, 1925 Maulini vs Serrano, 28 Phil O10, Dee. 16, 1914 vii Order of Liability (Gee, 68, NIL.) Read: People vs Maniego ©) Persons Negotiating By Delivery (See. 65, NIL) 1) Liability of Agent or Broker (Sec. 19-21, 69, NIL) Read: Philippine Bank of Commerce ys Aruego 2) Person Who Should Sign (Sec. 18, NIL) i Exceptions: Tho hames or whose siynatures do not appear in instrument itself but are still liable who do not sign in their own (a) Wade or assumed name (Sec. 18, NIL) (b) agent/ authorized representative (Sec, 19, NIL) (©) incapacitated persons signing, through legal guardians (u) forgers of signatures (See. 23, NIL) {e) those preciucect trom setting, up defense of forgery (See, 23, NIL) ()) constructive acceptance (See. 137, NIL) (1) allonge (h) negotiating by mere delivery (See. 65, NIL)Personal Detenses Distinguished 2) Real Detenses a) Minority and Ultra Vires Acts (Sec. 22, NIL) Art. IML, New Cwil i, Defense of Minority not Total (Se Code Read: Atrium Management Corp. vs CA, GR LO949T, Feb, 28, 2001 Crisologo-Jose vs CA, GR 80599, Sept. 15, 1989 b) Non-Delivery of an Incomplete Instrument (See. 15, 16, NIL) ©) Fraud in Factum (vs Fraud in Inducement) Read: Salas vs CA, GR 76788, January 22, 1990 Prudencio vs CA, 143 SCRA 7, July LL, 1986, dd) orgery and Want of Authority Gee. 23, NIL); Cutoif Rule i, Forgery of Maker's Signature ii, rser’s Signature iii Signature iv. y of Bearer Instrument Read: Associated Bank vs. CA, GR 107382, Jan. 31, 1996 (doctrine of comparative negligence) Gempesaw vs. CA, 218 SCRA 682, Keb. 9, 1993 Republie vs. Estrada, GR L-40769, July 31,1975 MWSS vs CA, GR 162943, July LH, 1980. Philippine Bank of Commerce vs. Philippine Racing Club, GR 150228, July 30, 2009 Vv. Persons Precluded! from Setting Up Fo: Read: Metropolitan Bank vs CA, 194 SCRA 169 (1991)Samsung Construction vs Far East Bank, GR 129015, Aug. 15, 2003 PNB vs Quimpo, 158 SCRA 582, March 1, 1988 Banco de Oro vs Equitable Banking, GR 74917, Jan 20, 1988 Westmont Bank vs Eugene Ong, GR 132250, Jari 30, 2002 Hlusorio vs CA, GR 139130, Noy. 27, 2002 Traders Royal Bank vs RPN, GR 138510, Oet. 10, 2002 BPl vs CA, GR 102385, Nov. 26, 1992 ©) Material Alteration [partial defense] (See. 124, 125, NIL) Read: PNB vs, CA, 250 SCRA 491, April 25, 1990 Montinola vs. PNB, 88 Phil 178, Feb. 26, 1951 i Alteration of negotiable instrament a crime (Art. 172, Revised! Penal Cude) ii. Alteration of Amount in NI iii, Immaterial Alterations 1) Extinetive Prescription Read: PCIB vs CA, 350 SCRA Ho Papa vs AU Valencia, 284 SCRA 643, Jan. 23, 1998 4) Ulegality 3) Personal Detenses a) Ante-dating or post-lating (Sec. 12, NIL) b) Insection of Wrong Date (See. 13, NIL) ©) Filling up Blanks Beyond Authority (See. 14, NIL) d) Absence or Failure of Consideration (See, 28, NIL) | Read: State Investment House vs CAe) Simple Fraud, Duress, Intimidation, Foree or Pear, Mlegality of Consideration, Breach of NIL) f) Want of Deli of Complete Instrument (See. 10, NIL) g) Fraud in Inducement Read: Great Eastern Insurance vs. Hongkong and Shar Banking Corp., GR 18657, Aug. 23, 1922 Quirino Gonzalez Logging vs CA, GR 126568, April 20, 2003 Ai VIL ENFORCEMENT | 4) Parties Primarily and Secondarily Liable i, how to enforce primary liability (See. 60, 62, NIL) b) General Steps in Enforeing Secondary Liability i Promissory Notes (a) Presentment for Payment (See. 70, NIL) (b) Notice of Dishonor (See. 89, NIL) ii, Bills uf Exchange (a) presentment for acceptance, when mandatory (See, 143, NIL) (b) if dishonored by non-acceptance L notice of dishonor (See, 89, 115, 116, NIL) protest (Sec. 159, NIL) (0) if accepted 1. presentment for payment, unless excused /not required(dl) if dishonored upon presentinent for payment 1. notice of dishonor 2. protest (¢) fora of need ptor for honor, referee in case 1. protest for non-payment (Sec. 165, NIL) ©) Presentment for Payment d) When Presentment Excused, Not Requized ( i, Concept (Sec. 70, NIL) ii, Requisites for Sutficieney of Payment (See. 72, NIL) iii, Date of Presentment (See. 71, NIL) iv. Rule in Determining Maturity Date Gee. 85, NIL) a. fixed date b. payable on demane payable ata bank (See, 75, NIL) v. Rule in Computing ‘Time (See. 86, NIL) vi. Rule if Payable ata Bank See. 7: NIL) vi, Place of Presentment (Sec. 70, 73, NIL) viii, Presentment to Party Primarily 7A, 76,77, 78, NUL) Liable (See, 60), 62, NIL) e) Dishonor by Non-Payment (Sec. 83, NIL) f) Liability of Person Secondarily Liable When Instrument Dishonored (Sec. 84, NIL) Read: Crisologo-Jose vs. CA, Sept. 15, 1989 Salas vs CA, Jan. 22, 1990 PNB vs CA, 256 SCRA 491 Associated Bank vs CA, Jan. 31, 1996 Great Eastern vs Hongkong Shanghai Bank, Aug. 23,Republic vs Ebrada, July 31, 1975 PNB vs Quimpo, March 1, 1988 Gempesaw vs CA, Feb. 9, 1993 PCiBank vs CA, 350 SCRA 46, Papa vs AU Valencia, 284 SCRA 643 Far Bast Realty vs € 2 MeGuire vs Provinee of Samar, Git | -8155, Oct. 23, 1956. Asia Banking vs Javier, GR 1905 Gullas vs PNB, GR 43191, Nev. 1 Nyco Sa Great Asian Sales vs CA. GR 105774, April Luis Wong, vs CA, GR 117857, Feb, 2. 2001 ¥) Presentment for acceptance i, How made (ee. 145, NIL) ii, When made (See, 143, 144, NIL) iii, Acceptance; requisites (Gee. 132, NIL) (a) how made (See, 132, 133-135, 137, 145, 72, 75, NIL) iv. When deemed accepted (See, 137, NIL) v. Future bills (See. 135, NIL) vi, Time to accept (See. 136, 140-147, NIL} vii. Rule when incomplete bill accepted (Sec. 138, NIL) viii, Kinds of acceptance (Sec, 139-142, NIL( h) When Presentment for Acceptance Excused (See, Li8, NIL) i) Dishonor by Non-Acceptance (See, 149, 150, 151, NIL) j) Notice of Dishonor (Sec. 89, NIL) i when instrument considered dishonored (See, 9, NIL) ii, by whom given (See. 90, NIL) iii, notice by agent (See, 91, 92, 94, NIL) iv, time to give notice (See, 102-107, NIL) Vv. form of notice (See. 95, 9, NIL) vi. to whom notice given (See. 97-101, NIL) vii, place of notice (See. 108, NIL)Vill. when notice not requited, excused, or dispensed with (See, 109-115, 118, NIL) ix, other rules (See. 110, LIZ, NIL) X. delay in giving, native (ee. 113, NIL) W) Protest i by whom made (See. 154, NIL) ii, when required (Gee, 152, lol, 167, 170, NIL) iii, when protest need not be made (ee. 118, NIL) iv protest for non-acceptance, non-payment (Sec, 157, NIL) v. how made (ee. 153, NIL) vi, when to be made (See. 155, NIL) vii, protest for better security (See. 158, NIL) viii, where mace (See. 150, NIL) ix. when protest dispensed with (Sec. 159, NIL) X.__ protest where bill lost (See. 160, NIL) }) Notice of Dishonor ys. Protest m) Acceptance for Honor (See. 101-170, NIL) hn) Acceptance for Honor vs Odinary Acceptanee ©) Payment for Honor (See, 173-177, NIL) p) Acceptance for Honor vs Payment for Honor 4) Payment by Person Primarily Liable vs Payment for Honor 1) Bills in Sets +, 178-183, NIL) VII. DISCHAL RUMENTS a) Concept of Discharge b) How Instrument Discharged (Sec, 119, 120, NIL) i, payment mn due course (See. 88, NIL) 1. by the principal debtor See. 1194, NIL)2, by the accommodated party (Ser 119, NIL) 3. payment by person secondarily Tiable (See Sec. 121, NIL); right ot parly who discharges instrument 4, to whom must payment be mace ii, renuneiation by holder (See. 22, NIL) iii, intentional cancellation 1. rule incase of unintentional cancellation (See. 123, NIL) iv. any act that discharges simple contracts (Art Civil Code) v. principle debtor becomes holder ©) Discharge of Persons Secondlarily Liable (See. 120, NIL) d) Discharge of Prior Party ©) Tender of Payment {) Release of Principal Debtor g) Extension of Term. h) Payment for Honor (See. ‘171-177, NIL) i) Right of Party Who Discharges Instrument (See. 121, NIL) j) Surrender of Instrument upon Discharge Read: State Investment House vs CA, GR 101103, Jan. 11, 1993, a) Checks detined (Sec, 185, 186, 189, NIL)4: Banco de Ore Savings vs Equitable Banking Corp., 1 RA 188 (1988) Rea b) Distinguished from Drafts React: RP vs Philippine National Bank, GR L-loto, Dec. 30, 1901 ©) Relationship between Drawer, Drawee, and Payee d) Kinuls of Checks i cashier's check and manager's check (See BSP Circular 259 series of 2000 and Cireular 291 of 2001) vies ii, certified check (See. 187-189, NIL) Read: New Pacilic Timber vs Hon. Seneris, Dec. 19, 1980 PNB vs National City Bank of New York, 63 Phil 7 ili, crossed cheek (Art, 541, Code of Commerce) 1 2. Read: Associated Bank vs CA, 208 SCRA 468 (1992) Bataan Cigar vs CA, 230 SCRA 648, Mareh 3, 1994 Gempesaw vs CA, 218 SCRA 682, Keb 3, 1994 State Investment House vs | IAC, 174 SCRA 310 | iv, memorandum and traveller's checks | |, Oct. 22, 1992 ‘ | Read: People vs Nitafan, GR No. 7595¢) Checks and Bills of Exchange Distinguished 1) Relationship between Payee, Drawer, Drawvee Read: Spouses Moran vs CA, GR No. 105830, March 7, 1994 Gempesaw vs CA Hongkong, and Shanghai Bank vs Catalan, Oct. 18, 2001 8) When Required to be Presented for Payment (Sec. 185, NIL) hy) Elfect of Death of Drawer i) Pertinent Philippine Cle New Central Bank Act, ing House Corp. rules; RA 7653, e102 i relationship of parties fi, warranties iii, -hour rule iv. iron clad rule for cashier’s cheeks. Read: Mesina vs 1AC j) Crimes Involving, Checks i, estafa [Revised Penal Code, Art. 315 Qal)] ii, BP 22 Read: Domagsang vs CA, 347 SCRA 75 (2000) iii, Check Kiting [Art. 315 (1b), RPC) Read: Ramos vs CA, 2U3 SCRA 657