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Negotiable Instruments Law (Act No.

2031) - Lecture
Negotiable Instrument
Written contracts for the payment of money; by its form, intended as a substitute for money and intended to
pass from hand to hand, to give the holder in due course the right to hold the same and collect the sum due.

Section 1.Form of negotiable instruments. -An instrument to be negotiable must conform to the following

It must be in writing and signed by the maker or drawer;

Must contain an unconditional promise or order to pay a sum certain in money;
Must be payable on demand, or at a fixed or determinable future time;
Must be payable to order or to bearer; and
Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.

Ang Tiong vs. Ting (22 SCRA 713)

In commercial transactions involving negotiable instruments, NIL applies and not the Civil Code.

Osmena vs. CA (GR 141278, 2004)

NIL was enacted for the purpose of facilitating, not hindering or hampering transactions in commercial
documents/papers. It should not be applied haphazardly or lightly nor should it be brushed aside in order to
meet the necessities in a single case.

Phil. Education vs. Soriano (GR No. L-2240, 1971)

Postal money orders are not Nis. They are not unconditional

Garcia vs. Lacuesta (90 Phil 489)

An X mark is not a valid signature

Hongkong and HSBC vs. BIR Commissioner (GR No. 166018, 2014)
There are not such thing as electronic NI

Promissory Note
An unconditional promise to pay in writing made by one person to another, signed by the maker, engaging to
pay on demand or a fixed determinable future time a sum certain in money to order or bearer. When the note
is drawn to makers own order, it is not complete until indorsed by him. (Sec. 184)

Bill of Exchange
An unconditional order in writing addressed by one person to another, signed by the person giving it, requiring
the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in
money to order or to bearer. (Sec. 126)

A bill of exchange drawn on a bank and payable on demand. (Sec. 185)

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Unconditional promise to pay Unconditional order to pay

Involves 2 parties: maker, payee Involves 3 parties: drawer, drawee, payee

Maker primarily liable Drawer secondarily liable

Only one presentment: for payment Generally 2 presentments: for acceptance and payment


Always drawn upon a bank or banker May or may not be drawn against a bank

Always payable on demand May be payable on demand or at a fixed or determinable

future time

Not necessary that it be presented for acceptance Necessary that it be presented for acceptance

Drawn on a deposit Not drawn on a deposit

The death of a drawer of a check, with knowledge by the The death of the drawer of the ordinary bill or exchange
banks, revokes the authority of the banker to pay does not revoke the authority of the banker to pay

Must be presented for payment within a reasonable time May be presented for payment within a reasonable time
after its issue after its last negotiation


There are two parties: the maker and the payee there are three parties: the drawer, the drawee bank, and
the payee

May be drawn against any person, not necessarily a bank Always drawn against a bank

May be payable on demand or at a fixed or determinable Always payable on demand

future time

Only one presentment: for payment An order to pay

20 November 2014

For value received, I promise to pay to the order of Juan dela Cruz the sum of One
Thousand Pesos (Php1000) on or before 20 December 2014 at his house in Manila.

Simon Peter

20 November 2014

Thirty days (30) after date, pay to Triple XXX Company or order the sum of One
Thousand Pesos (Php1000). Value received and charge the same to the account of

Simon Peter

To: Juan dela Cruz


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Sec 2.The sum payable is a sum certain within the meaning of this Act, although it is to be paid:
a. With interest; or
b. By stated installments; or
c. By stated installments, with a provision that, upon default in payment of any installment or of interest,
the whole shall become due;
d. With exchange, whether at fixed rate or at the current rate; or
e. With costs of collection or an attorneys fee, in case payment shall not be made at maturity.

NIs are not legal tender of money. Hence, checks are not legal tender of money. However, its
issuance is equivalent to payment only upon encahsment thereof or credit its amount to a certain
account, thus, the principle that chekcs are good as cash.

BPI Family vs. Manikan (395 SCRA 373): managers checks are good as cash

Pabugais vs. Sahijwani (423 SCRA 596): but checks are not legal tender of payment

PAL vs. CA (GR No. L-49188, 1990) and Tibajia vs. CA (GR No. 100290, 1993): cashiers check not
legal tender until and unless enchased or impaired due to the drawer.


Sec 3. An unqualified order or promise to pay is unconditional within the meaning of this Act, though coupled
a. An indication of a particular fund out of which reimbursement is to be made, or a particular account to
be debited with the amount; or
b. A statement of the transaction which gives rise to the instrument.
But an order or promise to pay out of a particular fund is not unconditional.

Metropolitan Bank vs. CA (194 SCRA 169)

Treasury warrants are not Nis as they are payable out of a particular fund, hence the payment is not

Caltex vs. CA (12 SXRA 448)

Certificate of Time Deposits may be NIs


Sec 4. An instrument is payable at a determinable future time, within the meaning of this Act, which is
expressed to be payable
a. At a fixed period after date or sight; or
b. On or before a fixed or determinable future time specified therein; or
c. On or at a fixed period after the occurrence of a specified event, which is certain to happen, though the
time of happening be uncertain.
An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure the

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Sec 6. The validity and negotiable character of an instrument are not affected by the fact that
a. It is not dated; or
b. Does not specify the value given, or that any value has been given therefor; or
c. Does not specify the place where it is drawn or the place where it is payable; or
d. Bears a seal; or
e. Designates particular kind of current money in which payment is to be made.
But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the
consideration to be stated in the instrument.

Ilano vs. Hon. Espanol (GR No. 161756, 2005)

Being undated will not make the NI invalid.


Sec. 9 The instrument is payable to bearer
a. When it is expressed to be so payable; or
b. When it is payable to a person named therein or bearer; or
c. When it is payable to the order of a fictitious or non-existing person, and such fact was known to the
person making it so payable; or
d. When the name of the payee does not purport to be the name of any person; or
e. When the only or last indorsement is an indorsement in blank.

PNB vs. Manila Oil Refining (GR L-18103, 1922)

Warrant of Attorney and Confession of Judgment are against public policy, hence, an instrument which will be
negotiable otherwise without
said provision will turn into an invalid document.

PNB vs. Rodriguez (GR No. 107325, 2008)

Fictitious payee rule, if payable to fictitious person then it is payable to bearer


Sec. 13. Where an instrument expressed to be payable at a fixed period after date is issued undated, or where
the acceptance of an instrument payable at a fixed period after sight is undated, any holder may insert therein
the true date of issue or acceptance, and the instrument shall be payable accordingly.

The insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in due course;
but as to him, the date so inserted is to be regarded as the true date.

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Rules of Construction
a. Where the sum payable is expressed in words and also in figures and there is a discrepancy between
the two, the sum denoted by the words is the sum payable; but if the words are ambiguous or
uncertain, reference may be had to the figures to fix the amount;
b. Where the instrument provides for the payment of interest, without specifying the date from which
interest is to run, the interest runs from the date of the instrument, and if the instrument is undated, from
the issue thereof;
c. Where the instrument is not dated, it will be considered to be dated as of the time it was issued;
d. Where there is a conflict between the written and printed provisions of the instrument, the written
provisions prevail;
e. Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may
treat it as either at his election;
f. Where a signature is so placed upon the instrument that it is not clear in what capacity the person
making the same intended to sign, he is to be deemed an indorser;
g. Where an instrument containing the word"I promise to pay"is signed by two or more persons, they are
deemed to be jointly and severally liable thereon.

Evangelist vs. Mercator (GR 148864) and Republic Planters vs. CA (GR 93073, 1992)
I promise to pay but signed by two persons will make both persons solidarily liable.

Astro-electronics vs. Philguarantee (411 SCRA 462): same

Sapiera vs. CA (GR No. 128927, 1999)

If one signs the instrument but it is not clear in what capacity, he will be deemed as an endorser

Liability of Agents signing a Negotiable Instrument

Sec. 19.Signature by agent; authority; how shown.- The signature of any party may be made by a duly
authorized agent. No particular form of appointment is necessary for this purpose; and the authority of the
agent may be established as in other cases of agency.

Sec. 20.Liability of person signing as agent, and so forth.- Where the instrument contains or a person
adds to his signature words indicating that he signs for or on behalf of a principal or in a representative
capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing
him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him
from personal liability.

Forgery of NIs
Sec. 23.Forged signature; effect of.- When a signature is forged or made without the authority of the person
whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under
such signature, unless the party against whom it is sought to enforce such right is precluded from setting up
the forgery or want of authority.

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Samsung Construction vs. Far East (GR No. 129015, 2004) and Associated Bank vs. Tan (446 SCRA
Drawee bank is liable for the forgery of drawers signature.

Gempesaw vs. CA (218 SCRA 622) and Republic vs. Ebrada (GR No. L-40796, 1975)
Drawee bank can recover when it may be proven that the drawers negligence contributed to the forging of the

BPI vs. Casa Montessori (430 SCRA 261)

rawer cannot recover from drawee bank if the drawer was negligent

MWSS vs. CA (143 SCRA 20)

Forgery must be proved first by clear, positive and convincing proof.

Assumption of Valuable Consideration

Sec. 24.Presumption of consideration.- Every negotiable instrument is deemedprima facieto have been
issued for a valuable consideration; and every person whose signature appears thereon to have become a
party thereto for value.

Sec. 29.Liability of accommodation party.- An accommodation party is one who has signed the instrument
as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his
name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding
such holder, at the time of taking the instrument, knew him to be only an accommodation party.

Crisologo Jose vs. CA (Sept. 15, 1989)

Liability of an accommodation party

Agro-Conglomerates vs. CA (348 SCRA 350)

Being an accommodation party, he/she can go against the accommodated party after being made liable by
virtue of the NI

Sec. 30.What constitutes negotiation.- An instrument is negotiated when it is transferred from one person
to another in such manner as to constitute the transferee the holder thereof. If payable to bearer, it is
negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder and completed by

Transfer of Instruments
a. Delivery: means transfer of possession of an instrument, whether NI or not, with the intent to transfer
title to the transferee.
b. Negotiation: means transfer of a NI from one person to another as to constitute the transferee the
holder thereof.

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If payable to bearer: Negotiation is by mere delivery.

If payable to order: Negotiation is by endorsement plus delivery.

Incomplete but Delivered: Sec. 13 and 14, it may be filled up by the transferee/holder

Incomplete and Undelivered: Sec. 15, Invalid instrument

Complete but Undelivered: Sec. 16, Ineffectual NI

Sec. 31.Indorsement; how made. -The indorsement must be written on the instrument itself or upon a paper
attached thereto. The signature of the indorser, without additional words, is a sufficient indorsement.

Special Endorsement/Endorsement in Blank

Sec. 34.Special indorsement; indorsement in blank.- A special indorsement specifies the person to whom,
or to whose order, the instrument is to be payable, and the indorsement of such indorsee is necessary to the
further negotiation of the instrument. An indorsement in blank specifies no indorsee, and an instrument so
indorsed is payable to bearer, and may be negotiated by delivery.

Restrictive and Qualified Endorsement

Sec. 36.When indorsement restrictive.- An indorsement is restrictive which either:
a. Prohibits the further negotiation of the instrument; or
b. Constitutes the indorsee the agent of the indorser; or
c. Vests the title in the indorsee in trust for or to the use of some other persons.But the mere absence of
words implying power to negotiate does not make an indorsement restrictive.

Sec. 38.Qualified indorsement.- A qualified indorsement constitutes the indorser a mere assignor of the title
to the instrument. It may be made by adding to the indorser's signature the words "without recourse" or any
words of similar import. Such an indorsement does not impair the negotiable character of the instrument.

Sec. 39.Conditional indorsement. -Where an indorsement is conditional, the party required to pay the
instrument may disregard the condition and make payment to the indorsee or his transferee whether the
condition has been fulfilled or not. But any person to whom an instrument so indorsed is negotiated will hold
the same, or the proceeds thereof, subject to the rights of the person indorsing conditionally.

(NOTE: The endorsement is the one which is conditional and not the promise to pay or order to pay)

PRESUMPTIONS as to Endorsement
Sec. 45: Endorsement is made before the instrument was overdue

Sec. 46: Endorsement is made at the place where instrument is dated

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Sec. 42: When drawn to a cashier, endorsement is payable to the bank or corporation of which he is such an


Sec. 52.What constitutes a holder in due course.- A holder in due course is a holder who has taken the
instrument under the following conditions:chanroblesvirtuallawlibrary
a. That it is complete and regular upon its face;
b. That he became the holder of it before it was overdue, and without notice that it has been previously
dishonored, if such was the fact;
c. That he took it in good faith and for value;
d. That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in
the title of the person negotiating it.

Rights of a Holder: To sue in his own name and to be paid in order to discharge the document

As to B, if payable on demand and negotiated in an unreasonable length of time: NOT A HDC

As to D, only up to the amount paid by him before notice of infirmity

Defective Title: Sec 55: unlawful means, fraud, duress, breach of faith. Actual knowledge that his acceptance
amounts to bad faith


A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses
available to prior parties among themselves, and may enforce payment of the instrument for the full amount
thereof against all parties liable thereon.

Can a payee be a HDC?

Yes: Delivery to him makes him a holder in due course.
No: at the time it was negotiated to him, so it presupposes prior negotiation and delivery to payee is not

Crossed checks: If endorsed and not encashed, holder is not HDC.

Sec. 59.Who is deemed holder in due course.- Every holder is deemed prima facie to be a holder in due
course; but when it is shown that the title of any person who has negotiated the instrument was defective, the
burden is on the holder to prove that he or some person under whom he claims acquired the title as holder in
due course. But the last-mentioned rule does not apply in favor of a party who became bound on the
instrument prior to the acquisition of such defective title.

Salas vs. CA (january 22, 1990)

Presumption in favor of a HDC

Yang vs. CA (409 SCRA 159)

Being a crossed check does not make in not negotiable. Still in good faith and a HDC.

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Consolidated Plywood vs. IFC (149 SCRA 448)
A financing company that is the endorsee of a note issued by a buyer in favor of the seller is not HDC since
applying the test of proximity, the financing company is privy to the original transaction/sell.

State Investment house vs. IAC (217 SCRA 32)

Being a crossed check, the holder should have put into inquiry and made him verify, but he did. Hence, he is
negligent and not in good faith. Not HDC

1. Real defenses attach to the instrument on the principle that there was no contract at all. They are
available against all holders including HDC.
2. Personal defenses rise upon the agreement or conduct of a particular person in regard to the instrument
which render the NIL inequitable for him/her, though holding the legal title, to enforce it against the party
sought to be made liable. They are not available against a HDC.

What are the defenses that can be raised against a HDC?

1. Incapacity: infancy or corporate veil (Sec. 22).
2. Incomplete and undelivered (Sec. 15)
3. Illegality
4. Forgery
5. Fraud

1. Complete but undelivered (Sec. 16)
2. Incomplete but delivered (Sec. 14)
3. Lack of consideration (Sec. 28)
4. Duress
5. Forgery (as to those precluded)
6. Material alteration (Sec. 124)
7. Fraud

PNB vs. CA (256 SCRA 491)

What constitute material alteration

Bayani vs. People (2004)

Failure of consideration is not available as defense against HDC

Maker: pay according to tenor; admits existence of payee and his capacity to endorse

Drawer: admits existence of payee and his capacity to endorse; that the instrument will be accepted or paid or
both according to tenor and that he will pay the holder or subsequent endorser if duly dishonored

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Liability of acceptor.-
The acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his acceptance
and admits:
a. The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw
the instrument; and
b. The existence of the payee and his then capacity to indorse.


Liability of irregular indorser. - Where a person, not otherwise a party to an instrument, places thereon his
signature in blank before delivery, he is liable as indorser, in accordance with the following rules:
a. If the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent
b. If the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is liable to all
parties subsequent to the maker or drawer.
c. If he signs for the accommodation of the payee, he is liable to all parties subsequent to the payee.

All persons who signs the instrument other than maker, drawer or acceptor is deemed an indorser
a. That the instrument is genuine and in all respects what it purports to be;
b. That he has a good title to it;
c. That all prior parties had capacity to contract;
d. That he has no knowledge of any fact which would impair the validity of the instrument or render it

But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the
immediate transferee.


a. The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and
b. That the instrument is, at the time of his indorsement, valid and subsisting;

And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case may
be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to
pay it.

Associated Bank vs. CA (208 SCRA 465)

Collecting bank is ultimately liable being the last endorser who warrants genuineness of the NI

Republic Bank vs. CA (196 SCRA 100)

General Rule: Collecting Bank bears loss, Exn: if checks went through clearing house already, in which case,
drawee bank bears loss

Metrobank vs. Cabilzo Dec. 6 2006)

Drawee bank bears the loss being the last endorser

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