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NEGOTIABLE INSTRUMENTS LAW


By Atty. Mary Ann L. Reyes

CO URSE OUTLIN E
:'

I.NTRODUCTIQN

1) Hisi:ory, Governmg Lc:.ws (Act 2031, Code or Comr.:ierce, New Civil CodeJ

2) Applicability or t he Negotiable Ins truments Law


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Read: Kauffman vs. PNB, 42 Phil 182, Se pt. 29 1921
GSIS vs. CA, 170 SCilA 53·3, February 23, 1989 /

3) Concept: of Negot:labie In srrumems


a) / Negotiab le lnsrruments Definea
b) /Funcnons o f Negot:lable lnsrrumems
c) / Whar is l,egaI Tender [Sec. 52, 60, New Central Banlc Acr; BSP
Circu1ar ill O. 537, (2006)]

Read: Tibajia vs . CA, 223 SCRA 163


PAL vs. CA, GR 49188, Jan. 30, 1990

4) Characrensncs of Negotiable Instruments I ~

5) Jnciaents m rhe LiJ'e of Negotiable Instrumems I

6) Kinds of Negoriable Instruments


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aJ Negonable Promissory Nores (Sec. 184, NIL)
t. parries t:0 a negotiable .prom1s!>ory nore
i1. kinds of negoti.able promissory no re

b) Bills of Exchange (Sec. 126, 185, NIL)


1. parries w a bill of excnange
i1. kinds of bills of exc:nange

7) When Bill Treare a as ores (Sec. 17e, 130, NIL)

8) Bills a nd Notes Distingu1snea

9) Negonable m srrum ems Compared wit h otner Papers

Re.id: Sesbreno vs. CA, GR B9252, May 24, 1993

10) Some Non-Negonable Instrumen ts


a) Documems of Title
b) Letters of Credit
c.J Certificates of Stock
d) Postal Money Order

Read: Philippine Eauc1~non Co. vs. Soriano, GR L-22405, June 30, 1971

e) Treasury Warram:s

II. FORM AND_lNTERPRETATlON OF NEGOTIABLE INSTRUMENTS

1) How Negonabili.ty is Decerminea

Read: Caltex (Philippires) vs. CA, 212 SCRA 448, Aug. 10, 1992

2) Effect of Estoppel

Read: 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 Nego tiability (Sec. 1, NIL)

a) must IJe in wrmng and signed by the maKer or arawer (Sec. 191,
NIL)

b) must c:omam an unconditiona1promise or oraer rn pay a sum


certam in money

Promise or Or der co Pay (Sec. 10, NIL)


n. Promise or Order Must Be Unconditional

1) resoiutory and suspensive cond ition LArt. 1173, 1181, NCC)


.2) period
· 3) when is promise unconditional (Sec. 3, 39, NIL)
4) :mm certam in money (Sec. 2, Sd, 6e, NIL; CB Circular 799,
]'uly 1, 2013; Art. 2209, Civil Code; acceleration, insecurity,
extension clauses)

Read: Metr opolitan Bank vs. CA, 194 SCRA 169, Fep. 18, 1991

c.) must IJe payao1e on demana or at a fixea or aetermmable future


nme

Read: Pay vs. Palanca, 57 SC:RA 618

d) must lJe payao1e to oraer or oear er (Sec. 8, 9, 184, NIL)

Reaa: Ang Tek Lian vs. CA, B7·Phil 383, Sept. 25, 1950)
e) arawee must oe named or mmcated with reaso11able certamry
(Sec. le, 130, NIL) ...,

4) Omiss10ns ana Provisions That Do Not Affect Negonabilit:1

5) lm:erprecanon of Instruments

Ill. FORM ANQ INTERPRETATION OF NEGOTIABLE INSTRUM ENIS.

1) Issuance/Delivery of Negotiable Instruments (Sec. 15, 16, 191, NJL)

Read: Dela Victoria vs Burgos, 245 SCRA 374, June 27, 1995

2) Negonation Defin1~d (Sec. 30, NIL)

3) Assignment and Negonanon Distingmsnea; Li:tbiliry of Assignor (Art. 348,


Code of Commerce)

Read: Casaouena vs. CA, 286 SCRA 594·

4) How are Negociab\e Instruments and Non-Negotiable Instruments


Transferred

Read: Sesbreno vs. CA , 222 SCRA 466, May 24, 1993


Consolidated Plywooa vs IFC ~easmg, 149~CRA 448, April 30, 1987
Traders Royeitl Bank vs CA, 269 SCRA 16, March 3, 1997

5) How Negonac10n Takes Place (Sec. 16, 30, 40, NIL)

Read: M.a nuel Lim vs CA, 251SCRA409, Dec. 19, 1995


Dela Vicrona vs Burgos, 245 SCRA 374, June 27, 1995
Development: Bank of Rizal vs Sima Wei, 217 SCRA 743, March 9, 1993

6) Incomple~e Negottar10n or' Order Instrument ('Sec. 49, NIL)

7) Where lnaorsemenr Should be P·l aced (Sec. 31, NIL)

8) When Person Deemed Inaorser [Sec. 63, NIL)

9) Other Ruies on lndorsement (Sec. 31, 32, 40-48, 49, NIL)

Read: Ennque Montinola vs PNB, 68 Phil 178, Feb . 26, 1951


Ang Tek Lian vs CA, GR L-2516, Sept. 25, 19SO

10) Kinds oflnaorserr.ent (Sec. 33, NIL)

a) Blan!<: and Special lndorsements (Sec. 34, 35, NIL)

conversion of blank to special inaorsement (Sec. 35, NIL)

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b) Qualilled and General Indorsemem (Sec. 38, 69, NIL)

Read : Met:ropol (Bacolod) Financmg vs. Samba!< Motors, 120 SCRA


864, Feb. 28, 1983
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c) Conditional lnaorsemem (Sec. 39, NIL)

d) Restnctive lnaorsement (Sec. 36, 37, 47, NIL)

Read : Gempe·saw vs. CA, 218 SCRA 628, Feb. 9, 1993

e) Absolute lndorsemem

f) Jomt lndnrsemem: (Sec. 41, NIL)

g) irregular lndorsement (Sec. 64, NIL)

11) When lnaorsement Necessary (Sec. 30, 184, NIL)

12) Inaorsement or Entire Instrument (.Sec. 32, NIL)

13) lndorsemem or" Bearer Instrument (Sec. 40, NIL)

14) Inaorsement When Payable to Two or More Persons (Sec. 41, NIL)
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15) Inaorsemem m Re presentative Capacity (Sec. 44, NIL)

16) Presumpnon on Time, Place of Indorsemem (S ec. 45, 46, NIL)

17) Connnuanon or Negotiaole Character (Sec. 4 7, NIL)

18) Negonat1on oy Prior Party (Sec. 50, NIL)

19) Strikmg Ol;ft of lndorsemem (Sec. 48, NIL)

20) Effect of Transfer Without Indorsement (Sec. 49, NIL)

21) Cons1deranon tor Issuance and Subsequent Transfer (Sec. 24, NIL)

22) What Consmuws Value (Sec. 25, NIL)

Read: Bibiano Banas vs. CA, 325 SCRA 259, Feb. 10, 2000

23) Effect if Value Prevt0us1y Given (Sec. 26, NIL)

24) Holder for Value (Sec. 26, 27, NIL)

25) Effect of Want of Consiaeration (Se~. 28, NIL)

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IV. liOLDERS

l) What is a holder (!iec. 191, NIL)

a) Classes of Holder (Set. 26, 2'7, 52, NIL)

b) Rights or Hclders (Sec. 51, 88, 119, NIL)

Re2d: Chan Wan vs Tan Kim, 109 Phil 706, Sept. 30, 1960
Atrium Managemen t vs CA, 144 SCAD 390, Feb. 28, 2001
Marce10 Mesina vs CA 145 SCRA 497, Nov. 13, 1906

2) Holders in Due Course (Sec. 52, 53, 54, 55, 56, 88, NIL)

aJ msrrument comp1ere and regu1ar

b) taken before overaue (Sec. 4, 7, 53, 83, 8 5, NIL)

CJ prev1ous1y dishonored (Sec. 83, 149, NIL)

d) nonce at infirmuy or defect (Sec. 54, 55, 56, NIL)

eJ good faith

Read: De Ocampo vs Gatchalian, 3 SCRA 596, N'uv. 30, 1961


Yang vs CA, No. 138074, Aug. 15, 2003
Bataan Ciga.r vs CA, 230 SCRA 643 (1994)
Stelco Marketing vs CA, 210 SCRA 51, June 17, 1992

t) holder for value (Sec. 24-27, NIL)

3) Presumption of Due Co urse Holding (Sec. 59, NIL)

4) Rights of Holders in Due Course (Sec. 14, 16, 57, NIL); When Subject to
Orig~nal Defenses (Sec. 58, NIL)

Read: Salas vs CA, 181 SCRA 296


State Investment House vs CA, 175 SCRA 311, July 13, 1989
Pruaencio vs CA, 14] SCRA 7, July 14, 1986
Stelco Marketing vs CA, GR No. 96160, June 17, 1992

5) Rights of Holder s Not in Due Course (Sec.14, 16, 51, 53,·NIL)

6) Accomoaation Parties (Sec. 29, NIL)

7) Shelter Rule (Sec. 58, NIL)

Read: Charles Fossum vs Fernanaez Hermanos, 44 Phil 713

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....
V. PARTIES WHO ARE l!IABLE

1) Primary and Seccndary Liability Distinguished (Sec. 61, 66, 192, NIL)
t

~) Payment By Party Secondarily Liable (Sec. 68, 70, 84, 89, 118, 120, 151, 184,
NIL) .

:3) Liability vs. Warrant:tes

1 ~) Liability a nd/ or Warranties of Parties

a) Maker (Sec. 60, NIL)

b) Drawer (Sec. 61, NIL)

1. Relationsnip with Drawee

ii. Relat10nsnip with Collecting Bank

Read: )ai-Alai vs BPI, 66 SCRA 29, Aug. b, 1975

c) Acceptor(Se~62 ,1 2~ 1 39-141,143,165,189, N IL)

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Read: PNB V!>. Picornell, 46 Phil '716, Sept. 26, 1922
PNB vs CA, 25 SCRA 693, Oct. 29, 196e

d) Indorser!; (Sec. 63, 68, NIL)

i. General Indorser (Sec. 66, NIL)

Read: Ang Tiong vs Ting, 22 SCRA 713, Feb. 22; 1968


People vs Maniego, 148 SCRA 30, Feb. 27, 1987

(a) conditions preceaent: to make unqualified indorser


liable

ii. Qualified lndorser (Sec. 65, NIL)

iii. lndorsers of Bearer Instruments (Sec. 40, 65, 67, NIL)

w. Irregular tndorser (Sec. 64, NIL)

v. Liability ot Accornrnoaanon Party (Sec. 29, 52, NIL)

Read: Clarkv.5 Sellner, GR 16477, Nov. 22, 1921


Crisologo vs CA, 177 SCRA 594, Sept. 1S, 1989
PNB vs Maza, GR 24224, Nov. 3, 1925
Maulini vs Serrano, 28 Phil 640, Dec.16, 1914

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Pruaencio vs CA, 143 SCRA 7, July 14, 1986
...
d) Forgery and Want of Authority (Sec: 23, NIL); Cut-off Rule

1. Forgery of Maker's Signature


ii. Of Indorser's Signature
iii. Of Drawer's Signature
1v. Forgery of Bearer Instrument

Reao.: Associated Bank vs. CA, GR 107382, Jan. 31, 1996 (doctrme
of comparanve negligence)
Gempesaw vs. CA, 218 SCRA 682, Feb. 9, J 993
Republic vs. Estrada, GR L-40769, July 31, 1975
MWSS vs CA, GR L-62943, July 14, 1986
Philippme Bank of Commerce vs. Philippine Racing Club,
GR 1502 28, July 30, 2009

v. Persons Precluded from Setting Up Forgery

Read: Metropolitan Bank vs CA, 194 SCRA 169 (1991)


Samsung Construction vs Far East Ba~k, CiR 129015,
Aug .. 15, 2003
PNB vs Quimpo, 158 SCRA 582, March 14, 1988
Banco de Oro vs Equitable Banking, GR 74917, Jan. 20, 1988
Westmont Bank vs Eugene Ong, GR 1322SO, Jan. 30, 2002
Ilusono vs CA, GR 139130, liov. 27, 2002
Traders Royal Bank vs RPN, GR 138510, Oct. 10, 2002
BPI vs CA, GR 102383, Nov. 26, 1992

e) Matenal Alteranon [partial detense] (Sec. 124, 1 ~5, NIL)

Read: PNE: vs. CA, 256 SCRA 491, April 25, 1996
Montinola vs. PNB, 88 Phil 178, Feb. 26, 1951

i. Altera non of negotiable instrument a


crime (Art. 172, Revis ed Penal Code)
ii. Alteration of Amount \n NI
iii. Immaterial Alterations

t} Exnnctive Prescnpt10n

Read: PCIB v5 CA, 350 SCRA 446


Papa vs AU Valencia, 284 SCRA 643, Jan. 23, 1998

g) Illegalit)'

3) Personal Deten!;es
a) Ame~da ng or post-datmg (Sec. 12, NIL)
b) insertion of Wrong Date (Sec. 13, NIL) ...

c) Filling u p BlanKs Beyond Authomy (Sec. 14, NIL)

d) Absence or Faihire of Consideranon (Sec. 28, NIL)

Read : State Investment Ho use vs CA

e) Sim ple Fraud, Duress, Int1m1danon, Force or Fear, Illegality of


Co n:;id1~ration, Breach of Faith (Sec. 55, 56, 57, NIL)

l) War.t o f Delivery of Complet:e lnst:rument (Sec. 16, NIL)

g) Fraud in lnaucement

Read : Gre at Eastern msurance vs. Hongko ng and Shanghai Banking


Corp., GR 18657, Aug. 23, 1922
Quirino Gonzalez Logging vs CA, GR 126568, April 20, 2003

VII. ENFORCEMENT OF LIABILITY

a) Parties Primarily and Seconaarily Liable

1. how rn enforce pnmarydiability (Sec. 60, 62, NIL)

b) General Steps m Enforcing Secondary Liability

L Promissory Not:es

(a) Presentment for Payment (Sec. 70, NIL)


(b) Notice of Dishonor (Sec 89, NIL)

ii. Bills or' Exchange

(a) presemment for accept:ance, when


rnandarnry (Sec. 143, NIL)
(b) if dishonored by non-acceptance

1. nonce of dishonor (Sec. 89, 115, 116,


NIL)
2. prot:est (Sec. 159, NIL)

(c) ifaccept:ed

1. presentment: r'or payment, unless


excused/not: requ\red

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(d) if dishonored upon presentment for
payment
...

1. nonce of dishonor
2. prm:esr

(e) for acceprnr for honor, reforee m case of


need

1. proresr for non-payment (Sec. 165,


NIL)

c) Presen1:ment for Payment

1. Concept (Sec. 70, NIL)


ii. Requisites for Sufficiency of Payment (Sec. 72, NIL)
iii. Date of Presentment (Sec. 71 , NIL)
iv. Rule in Determining Maturity Date (Sec. 85, NIL)
a. fixed date
b. payable on demand
c. payable at a bank (Sec. 7S, NIL)
v. Rule in Computing Time (Sec. 06, NIL)
v1. Rule if Payable at a Bank (Sec. 75, 87, 127, 187, NIL)
vii. Place of Presentment (Sec. 70, 73, NIL)
viii. Presentment to Party Primarily Liable (Sec, 60, 62, 74,
76, 77, 78, NIL) '(

d) When Presentment Excused, Not Required (Sec. 79-82, NIL)

e) Dishonor by Non-Payment (Sec. 83, NIL)

f) Liability of Person Secondarily Liable When Instrument


Dishonorect (Sec. 84, NIL)

Read: Crisologo-jose vs. CA, Sept. 15, 1989


Salas vs CA, Jan. 22, 1990
PNB v.::; CA, 256 SCRA 491
Associated Bank vs CA, Jan. 31, 1996
Great Eastern vs Hongkong Shanghai Bank, Aug. D, 1922
Republic vs Ebrada, July 31, 1975
PNB V!i Quimpo, March 14, 1988
Gempesaw vs CA, Feb . 9, 1993
PCIBank vs CA, 350 SCRA 446
Papa vs AU Valencia, 284 SCRA 643
Far East Realty vs Cam, 166 SCRA 256 (1988)
McGuire vs Province of Samar, GR L-8155, Oct. 23, 1956
Asia Banking vs Javier, GR 19051, April 1923
Gullas vs PNB, GR 43191, Nov. 13, 1935
Nyco Sales vs BA Finance, 200 SCRA 637, 1991
Great.Asian Sales vs CA. GR 105774, April 25, 2002

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Lui~; Wong vs CA, GR 117857, Feb. :2. 2001

g) Presentment ror acceptance

1. How made (Sec. 145, NIL)


ii. When m'a de (Sec. 143, 144, NIL)
iii. Acceptance; requisites (Sec. 132, NIL}

(a) how made (Sec. 132, 133 -135, 137, 145, 72,
75, NIL)

1v. When deemed accepted (Sec. 137, NIL}


v. Future bills (Sec. 135, NIL)
vi. Time w accept (Sec. 136, 146-147, NIL)
vii. Rule when incomplete bill accepted (S«!C. 138, NIL)
viii. Kinds of acceptance (Sec. 139-142, NIL(

h) When Presentment for Acceptance Excused (Sec. 148, NlL)

i) Dishonor by Non-Acceptance (Sec. 149, 150, 151, NIL)

j) Nonce of Dishonor (Sec. 89, NIL)

L when mstrumem considered dishonored (Sec. 149, NIL)


ii. by whom given (Sec. 90, NIL)
iii. notice by agent (Sec. 91, <.J2 ; 94, NIL)
lV. time to give notice (Sec. 102-107, NJL)
v. form of notice (Sec. 95, 96, NIL)
Vl. to whom notice given (Sec. 97-101, NIL)
vii. place of notice (Sec. 108, NIL)
_.,.,.. viii. when notice not required, excused, or dispensed with
(Sec. 109-115, 118, NIL)
IX. other rules (Sec. 116, 117, NIL)
x. delay m giving notice (Sec. 113, NIL)

k) Prote:5t

i. by whom made (Sec. 154, NIL)


ii. when required (Sec. 152, 161, 167, 170, NIL)
iii. when protest need not be made (Sec. 118, NIL)
iv. protest for non-acceptance, non-payment (Sec. 157, NIL)
v. how made (Sec. 153, NIL)
Vl. when to be made (Sec. 155, NIL)
vii. protest for better security (Sec. 158, NIL)
viii. where made (Sec. 156, NIL)
ix. when protest dispensed with (Sec. 159, NIL)
x. protest where bill lost (Sec. 160, NIL)

I) Nonce of Dishonor vs. Protest

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m) Acceptance for Honor (Sec. 161-1 70, NlL)

n) Accepta nce tor Honor vs Ordmary Acceprnnce

o) Payment for Honor (Sec. 173-177, N.IL)


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pJ Acceptance for Honor vs Payment for Honor

q) Payment: by Person Primarily Liable vs Payment for Honor

r) Bills in Sets (Sec. 178-183, NIL)

Vlll. DISCHARGE OF INSTRUMENTS

a) Concept of Discharge

b) How Instrument Discharged (Sec. 119, 120, NIL)

i. payment in d ue course (Sec . 88, NIL)

1. by the principal debtor (Sec. l 19a,


NIL)
2. by the accommodated party (Sec.
119b, NIL)
3. payme~t by person secondarily liable
(See Sec.121, NIL); right of party who
discharges instrument .
4. to whom must payment be made

ii. renunciation by holder (Sec. 22, NIL)

iii. mtenuonal cancellation

1. rule m ca:;e of unint entional


cancellation (Sec. 12 ~:. NIL)

1v. any ace that discharg~s simple contraq:s (Art. 1231, Civil
Code)

v. pnnc1ple debtor becomes holder

c) Discharge of Persons Secondarily Liabl e (Sec. 120, NIL)

d) Discharge of Pnor Party

e) Tender of Payment

f) Release of Principal Debtor

g) Extension of Term

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h) Payment for Honor (Sec. 171-177, NIL)
...

i) Right of Party Who Discharges Instrument: (Sec. 121, NIL)

j) Surrender of Insfrument upon Discharge

Read:-State Investment House vs CA, GR 101163, Jan. 11, 1993

IX. CHECKS

a) Checks defined (Sec. 185, 186, 189, NIL)

Read: Banco de Oro Savings vs Equitable Banking Corp., 15"1SCRA188


(1988)

b) Distinguished from Drafts

Read: RP vs Philippme National Bank, GR L-161,06, Dec. 30, 1961

c) Relat ionship between Drawer, Drawee, and Payee

cl) Kinds o f Checks

i. cashier's check and mana!~er's check (See BSP Circular


259 series of 2 000 and Circular 291, r.eries of 2001)

ii. certified check (Sec. 187-189, NIL)

Read: New Pacific Timber vs Hon. Senens, Dec. 19, 1980

PNB vs National City Bank of New York. 63 Phil 711

iii. crossed check (Art. 541, Code of Commerce)

l. kinds of crossed check


2. effects of crossing a check

Read: Associated Bank vs CA, 208 SCRA


468 (1992)

Bataan Cigar vs CA, 230 SCRA 648,


March 3, 1994

Gempesaw vs CA, 218 SCRA 682,


Feb 3, 1994

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State Investment House vs IAC, 174
SCRA 310 ..

1v. memorandum and traveller's checks

Re.:id: People vs Nitafan, GR No. 75954, Oct. 22, 1992

e) Checks a nd Bills of Exchange Distmguished

f) Relationship between Payee, Drawer, Drawee

Read: Spouses Moran vs CA, GR No. 105836, March 7, 1994

Gempesaw vs CA
Hongkong and Shanghai Bank vs Catalan, Oct. 18, 2004

g) When Required to be Presented for Payment (Sec. 185, NIL)

h) Effect of Death of Drawer

i) Pertinent Philippine Clearmg House Corp. rules; RA 7653, New


Central Bank Act, Sec. 102

I. relanonship of parnes
ii. warranties
iii. 24-hour rule
1v. iron clad rule for cashier's checks

Read: Mesina vs IAC

j) Crimes Involving Checks

1. estafa [Revised Penal Code, Arr. 315 (2d)]


ii. BP 22

Read: Domagsang vs CA, 347 SCRA 75 (2000)

iii. Check Kiting [Art. 315 (lb), RPC)

Read: Ramos vs CA, 20 3 SCRA 657