NEGOTIABLE INSTRUMENTS LATV

First Semester, AY 2018- 2Ol9

Attg. Rosalie J. de la Cruz, CPA, MPA, PGD, LLM

Course Description: The course is a study of the statutory provisions

governing negotiable instruments which is mainly the Negotiable
Instruments Law, as well as the applicable provisions of the Code of
Commerce.

Credit: 3 units

Method of Instruction: The Socratic method of instruction will be used,

Every meeting, the students will be called to recite within the assigned
topic (and hypothetical cases), and the professor shall amplify/
supplement what has been recited by the students.

1. Cases/ jurisprudences assigned- all cases/ jurisprudences assigned

must be read in the original and the students called to recite are
expected to explain/ recite the same.

2. As agreed during the first meeting, discussion will focus on the

provisions and hypothetical cases, and the actual cases will be taken
up and discussed in the later part of the semester.

3. Provisions to be memorized- there are some provisions in the NIL that

must be memorized and recited by all students, unless otherwise
indicated below, to wit:

a. First Batch: Sec. 1 {Form of Negotiable Instrument); Sec. 184

(Promissory Note); Sec. 126 (Bill of Exchange); and Sec. 185 (Check)
b. Second Batch: Sec. 60 (Liability of the maker); Sec. 61 (Liability of
the Drawer); Sec. 62 (Liability of the Acceptor); Sec. 65 (Warranties
of a Person Negotiating by Delivery or Qualified Indorsement); and
Sec. 66 (Warranties of a General Indorser)
c' other provisions to be recited by the students called at random
when covered by the assignment: Sec. 9; Sec. 14; Sec. 15; Sec. 16;
Sec. 23; and Sec. 52.

Prescribed Book: THE PHILIPPINE NEGOTIABLE INSTRUMENTS LAw

(AND ALLIED LAWS) ANNOTATED by Atty. Hector S. De tcon and Atty.
Hector N. De Leon, Jr.

Grade Computation:

Midterm Period Class Standing : 500h

Midterm Examination - 50%
Midterm Period Grade - roo%
Final Period Class Standing - 5Oo/o
Final Examination - 50%
Final Period Grade - lOoo/n
Midterm Period Grade + Final Period Grade Final Grade
2
 COURSE OUTLINE

PRELIMINARY CONSIDERATIONS

A. Governing laws
1. Origin of the NIL and its applicability
B. Concept of negotiable instrument
C. Classes of negotiable instrument
1. Promissory note
2. Billof exchange
D, Functions of negotiable instrument
E. Characteristics of negotiable instrument
1. Negotiability
2. Accumulation of secondary contracts
F. Negotiable instruments compared with other papers (document of
tifle, letter of credit, certificate of stock, pawn ticket, postal money
order, treasury warrant)
G. Legal tender character

Cases-
Traders Rogal Bqnk us. CA, 269 SCRA
Neu Pacific Timber us. Senerb, 101 SCRA
Roman Catholic Church of Malolos us. IAC, 191 SCRA
Osmefi.a us. Citibank, N.A., 426 SCRA 159
BPI Express Card Corporation us. CA, 296 SCRA 260
Philippine Bank of Commerce us. Aruego, 102 SCRA
Philippine Airlines us. CA, 181 SCRA 557

FqRM AND INTERPRETATIOi{ OP NEG9TIABLE INSTRUMENTS

A. Requisites of negotiability (Sec. 1, NIL)

1. Must be in writing and signed by the maker or drawer
2. Must contain an unconditional promise or order to pay a sum
. certain in money
a. Promise or order to pay must be unconditional
1. Reference to transaction (Sec. 3, NIL)
2. Source or payment or account to be debited
b. Payable in sum certain in money
1. Provisions which do not affect certainty of sum payable
a. Payment of interest (Sec. 2, NIL)
b. Payment by installments (Sec. 2, NIL)
c. Acceleration clause (Sec. 2, NIL)
d. Payment with exchange (Sec. 2, NIL)
e. Payment of attorney's fees (Sec. 2, NIL)
3. Payable on demand or at a fixed or determinable future time
a. When payable on demand (Sec. 7, NIL)
b. When payable at determinable future time (Sec. 4, NIL)
4. Payable to order or bearer
a. When payable to bearer (Sec. 9, NIL)
1. Rule when instrument is payable to a fictitious person
b. When payable to order
1. To whose order the instrument may be made payable (Sec. 8,
NrL)
5. Omissions that do not affect negotiability (Sec.6, NIL)
6. Additional provisions not affecting negotiability (Sec. 5, NIL)
 a. Sale of collateral securities
b. Confession ofjudgment
c. Waiver of benefit
d. Option to require something in lieu of payment
B. Rules to be followed in interpreting negotiable instruments (Sec. L7,
NrL)

Cases-
Metropolitan Bank & Trust Compang us. CA, 194 SCRA 169
Garcia us. Llamas, 417 SCRA 292

DEFENSES

A. Real and personal defenses, distinguished.

B. Real defenses:
1. Minority and ultra vires acts (Sec. 22, NIL)
2. Non-delivery of an incomplete instrument (Sec' 15, NIL)
3. Fraud in factum
4. Forgery and want of authority (Sec. 23, NIL)
a. Forgery of maker's signature
b. Of indorser's signature
c. Of drawer's signature
d. Forgery of bearer instruments
5. Material alteration (partial real defense) (Sec. 124 & 125,NIL)
6. Extinctive prescription
C. Personal defenses
L. Ante-dating or post-dating (Sec. 12, NIL)
2. Insertion of wrong date (Sec. 13, NIL)
3. Filling-up blanks beyond authority (Sec. 14, NIL)
4. Want of delivery of a complete instrument (Sec. 16, NIL)
5. Absence or failure of consideration (Sec. 28, NIL)
6. Simple fraud, duress, intimidation, force or fear, illegality of
consideration, breach of faith (Sec. 55, 56 & 57, NIL)

Cases-
Kauffman us. PNB, 42 Phil. 182
Ong us. People, 346 SCRA 117
People us. Yabu| 76 SCRA 624
Jai-Alai Corporation us. BPI, 66 SCRA 29
BPI us. Casa Montessori Internationale, 430 SCRA 261
Republic us. BPI, /O SCRA 8
Traders Rogal Bank us. Radio Phil., 390 SCRA 608
PCIB us. CA, 350 SCRA 446
Metrobank us. CA, 170 SCRA 169
Philippine National Bank us. CA, 256 SCRA 491
PCIB us. Court of Appeab, 350 SCRA 446
Ilusoio us. CA, 393 SCRA 89
MWSS us. CA, 143 SCRA 20
Gempesana us. CA,21B SCRA 622
Republic Planters Bank us. CA, 216 SCRA 738
PNB us. CA, 25 SCRA 693
San Carlos Milling Co. us. BPI, 50 Phil. 59

NEGOTIATION
A. Modes of transfer
B. Concept of negotiation (Sec. 30, NIL); distinguished from assignment
C. Ways of negotiation (in case of order or bearer instruments)
D. Concept of delivery
E. Indorsement
1. Concept
2. How made (Sec. 31 & 32, NIL)
3. Kinds:
a. Special and blank (Sec. 34 & 35, NIL)
b. Conditional (Sec. 39, NIL)
c. Qualified (Sec. 38, NIL)
d. Restrictive (Sec. 36 & 37, NIL)
4. Other rules on indorsement
. a. Indorsement of an instrument payable to bearer (Sec' 40,NIL)
b. Where instrument is payable to two or more persons (Sec.21,
NrL)
c. Instrument is drawn or indorsed to a person as cashier(Sec. 42,

o. ilr'llt. name of payee or,indorsee is misspelled (sec. 43,NIL)

e. Indorsement in a representative capacity (Sec' 44, NIL)
f .
Presumption as to time of indorsement (Sec' 45, NIL)
g. Place of indorsement (Sec. 46, NIL)
h. Striking out of indorsement (Sec. 48, NIL)
i. Transfer of an order instrument without indorsement (Sec.49,
NrL)
F. Negotiation by a prior party (Sec. 50, NIL)

Cases-
Consolidated Plguood Inc. us. IFC Leasing 149 SCRA 448
Metropol (Bacolod) Financing us. Sambok Motors Co., 720 SCRA 864
Deuelopment Bank of Rizal us. Sima Wei, 219 SCRA 736
Dela Victoia us. Hon. Burgos, 245 SCRA 374
Caltex (Phib.)Inc. us. CA, 212 SCRA 448

HOLDERS

A. General concept of a holder

B. Holder in due course (requisites) (Sec. 52, NIL)
. 1. Instrument complete and regular
2. Taken before overdue
a. Rule in case of installment instruments
b. Rule in case of demand instruments (Sec. 53, NIL)
3. Notice of infirmity or defect (Sec. 56 & 57, NIL; see also Sec.
54,NIL)
4. Good faith
5. Holder for value
C. Presumption of due course holding (Sec. 59, NIL)
D. Rights of holders in due course (Sec. 57, NIL)
E. Shelter Rule (Sec. 58, NIL)
Cases-
De Ocampo us. Gatchalian, 03 SCRA 596
 Yang us. CA, 409 SCRA 159
Mesina us. IAC, 145 SCRA 497
Astro Electronics us. Philguarantee, 477 SCRA 462

LIABILITY OF PARTIES

A. Primary and secondary liability distinguished

B. Liability distinguished from warranties
C. Liability ar,d/or warranties of parties
1. Maker (Sec. 60, NIL)
2. Drawer (Sec. Sec. 61, NIL)
a. Relationship with drawee
b. Relationship with collecting bank
3. Acceptor (Sec. 127 & 62, NIL)
4. Indorsers
a. General indorsers (Sec. 66, NIL)
b. Qualilied indorser (Sec. 65, NIL)
c. Order of liability
5. Parties negotiating by mere delivery (Sec. 65, NIL)
6. Other cases:
a. Irregular indorser (Sec. 64, NIL)
b. Indorser of bearer instrument (Sec. 67, NIL)
c. Accommodation party (Sec. 29, NIL)
d. Agents signing in behalf of the principal
Cases-
Ang Tiong us. Ting, 22 SCRA 713
Caneda, Jr. us. CA, 181 SCRA 762
Associated Bank us. Tan, 446 SCRA 282
Rigor us. People, 442 SCRA 450
Limus. Saban,447 SCRA 233
Prudencio us. CA, 143 SCRA 7
Mautini us. Serrano, 28 Phil. 640
Sadaga us. Seuilla, 19 SCRA 924
Trauel-On us. CA, 210 SCRA 351
Agro-Conglomerates Inc. us. CA, 348 SCRA 35O
Francisco us. CA, G.R. 116320, Nouember 29, 1999

ENFORCEMENT OF LIABILITY

A. Parties primarily liable and parties secondarily liable

B. General steps in enforcing liability
1. Promissory notes
a. Presentment for payment (Sec. 70, NIL)
b. Notice of dishonor (Sec. 89, NIL)
2. Bills of exchange
a. Presentment for acceptance (Sec. 143, NIL)
i.
How made (Sec. 132-135 & 137, NIL)
ii.
Time to accept (Sec. 136, NIL)
iii.
Rule when incomplete bill is accepted (Sec. 138,NIL)
iv. Kinds of acceptance (Sec. 139-142, NIL)
b. If dishonored by non-acceptance:
1. Notice of dishonor (Sec. 89, NIL)
 2. Rule in case of foreign bills (See provisions on protest)
c. Ifaccepted:
i. Presentment for payment to acceptor
ii. Rule if dishonored upon presentment for payment
iii. Rule in case of foreign bill
C. Presentment for payment
1. Concept of presentment
2. Requisites for sufficiency (Sec. 72, NIL)
a. Date of presentment (Sec. 71, NIL)
l. Rule in determining maturity date (Sec. 85, NIL)
2. Rule in computing time (Sec. 86, NIL)
3. Rule if payable at a bank (Sec. 75, NIL)
b. Place of presentment (Sec. 73 NIL)
1. Rule if payable at a special place (Sec. 70, NIL)
c. Presentment to the party primarily liable
1. How presentment made (Sec. 74, NIL)
2. Rule in case party primarily liable is already dead(Sec. 76,
NIL)
3. Presentment to partners (Sec. 77, NIL)
4. Presentment to joint debtors (Sec. 78, NIL)
3. Instances where presentment is excused (Sec. 79 & 82, NIL)
4. When delay in presentment excused (Sec. 81, NIL)
D. Notice of dishonor
1. When dishonor of the instrument occurs:
a. Dishonor by non-payment (Sec. 83, NIL)
b. Dishonor by non-acceptance (Sec. 149, NIL)
2. Who should give notice
a. Holder
b. Agent
c. Party who may be compelled to pay
3. Form of notice (Sec. 43 & 44, NIL)
4. To whom notice is given
a. Party secondarily liable or agent (Sec. 97, NIL)
b. Notice where party is dead (Sec. 98, NIL)
c. Notice to partners (Sec. 99, NIL)
d. Notice to persons jointly liable (Sec. 1OO, NIL)
e. Notice to bankrupt (Sec. 101, NIL)
5. Time and place of notice (Sec. 103-108, NIL)
6. When notice is excused or unnecessary (Sec. 109-112, L14-1L5,
NrL)
7. When delay in giving notice excused (Sec. 113, NIL)

Cases-
Tlnzon us. Heirs of Bartolome Ramos, 463 SCRA 408
Great Asian Sales Center Corporation us. CA, 381 SCRA 557
Far East Realtg Inuestment, Inc. us. CA, 166 SCRA 256
International Corporate Bank us. Sps. Gueco, 351 SCRA 516
State Inuestment House us. CA, 217 SCRA 32
Asia Banking Corporation us. Jauier, 44 Phil777
Ngco Sales Corporation us. BA Finance Corporation, 2OO SCRA 637
Gullas us. PNB, 62 Phil. 519

DISCHARGE OF INSTRUMENTS
7

A. Concept of discharge
B. How instrument is discharged (Sec. 119, NIL)
1. Payment in due course (Sec. 88, NIL)
a. By the principal debtor (Sec. 119 [a])
b. By the accommodated party (Sec. 119[b])
2. Intentional cancellation
a. Rule in case of unintentional cancellation (Sec. 123,NIL)
3. Any act that discharge simple contracts
4. Principal debtor becomes a holder
C. Discharge of persons secondarily liable (Sec. 120, NIL)

CHECKS

A. Checks defined (Sec. 185, NIL)

B. Distinguished from draft
C. Relationship between drawer, drawee and payee
D. Kinds of check
1. Cashier's and manager's check (See BSP Circulars 259, Series of
20OO & 291, Series of2O01)
2. Certified check (Sec. 187-189, NIL)
3. Crossed check (Art. 541, Code of Commerce)
a. Effects of crossing a check
4. Memorandum and traveller's check
E. When required to be presented for payment (Sec. L85, NIL)
F. Effect of death of drawer
G. Pertinent Philippine Clearing House Corporation rules

Cases-
Associated Bankus. CA, 208 SCRA 465
Bataan Cigar us. CA, 230 SCRA 648
Stelco Marketing Corporation us. CA, 210 SCRA 51
State Inuestment House us. CA, 175 SCRA 311
Papa us. A.U. Valencia,284 SCRA 643
Trader's Rogal Bank us. Radio Phil., 390 SCRA 608
Pi.o Barretto Realtg us. CA, 360 SCRA 127

Please be readg to digest other cases uhich utill be assignedfrom time to

time.