2-4 NEGOTIABLE INSTRUMENTS LAW OUTLINE
money to order or to bearer.
PRELIMINARY CONSIDERATIONS
A. Governing Laws
1. Origin of the NIL and its applicability
The NIL of the Philippines was patterned
after the draft approved by the
Commissioners on Uniform State Laws in the
US. It was enacted as Act. 2031 on February
3, 1911 and took effect 90 days after its
publication in the OG of the Phil Islands
which was on March 4, 1911, and therefore,
took effect on June 2, 1911. Patterned in the
Bill of Exchange of England in 1882. Never
been amended.
a. Applies only to negotiable instruments
which meet the requirements under
Section 1.
b. Any case not provided for by the Act
shall be governed by the provisions of
existing legislation or in default thereof,
by the rules of the law merchant (Sec.
196). The Civil Code has no effect on its
provisions except to supply any
deficiency in cases not covered by the
Act. (Art. 18 NCC)
B. Concept of negotiable instrument
NI is a written contract for the payment of
money intended as a substitute for money, and
it passes from one person to another just like
money in such a manner as to constitute a
holder in due course to enforce payment free
from equitable or personal defenses against
parties prior to him.
C. Classes of negotiable instruments
a. Promissory note
An unconditional promise in writing made by
one person to another, signed by the maker,
engaging to pay on demand, or at a fixed or
determinable future time a sum certain in
b. Bill of Exchange
An unconditional order to pay addressed by
one person to another signed by the person
giving it, requiring the person whom it was
addressed to pay on demand, or at a fixed or
determinable future time a sum certain in
money to order or to bearer.
D. Functions of Negotiable Instruments
1. They are used as a substitute for money
2. Negotiable, papers particularly checks,
constitute, at present, the media of exchange
for most commercial transactions
3. Serve as a medium of credit transactions
E. Characteristics of Negotiable Instruments
a. Negotiability
That quality or attribute of a bill or note
whereby it may pass from one person to
another similar to money, so as to give the
holder in due course the right to collect on
the instrument the sum payable for himself
free form any defect in the title of the prior
parties or defenses available to them among
themselves.
b. Accumulation of Secondary Contracts
Capable of being transferred from one
person to another. Once an instrument is
issued, additional parties can be involved.
F. Negotiable Instruments compared with other
papers:
There are certain documents of title with limited
negotiability which are also widely used in
commercial transactions but have been held to
be non-negotiable because they do not have the
requisites that are essential under the NIL. They
are beyond the scope of the NIL and are,
therefore, governed by other laws. Among such
are:
a. Document of title
 b. Letter of Credit
A letter from a merchant or bank or banker
in one place, addressed to another, in
another place or country requesting the
addressee to pay money or deliver goods to
a third party therein named, the writer of
the letter undertaking to provide him the
money for the goods or to repay him. It is a
letter requesting one person to make
advances to a third person on the credit of
the writer.
c. Certificate of stock
It is a written instrument signed by a proper
officer of a corporation stating that the
person named therein is the owner of a
designated number of shares of its stock. It is
also without an unconditional promise or
order to pay a sum certain in money.
d. Pawn ticket
e. Postal money order
f. Treasury warrant
It is a government warrant for the payment
of money such as that issued in favor of a
public officer or employee covering payment
or replenishment of cash advances for
official expenditures. It is payable out of a
specific fund or appropriation.
G. Legal Tender
All monetary obligations shall be settled in the
Philippine currency which is the legal tender.
.1, .5, .10, .25 legal tender up to 100 pesos
1, 5, 10 legal tender up to 1000 pesos.
CASES
1. Traders Royal Bank vs CA, 269 SCRA
TRADERS ROYAL BANK V CA G.R. No. 93397
March 3, 1997
FACTS:
Filriters registered owner of Central Bank
Certificate of Indebtedness (CBCI). Filriters
transferred it to Philfinance by one of its
officers without authorization from the
company. Subsequently, Philfinance
transferred same CBCI to Traders Royal Bank
(TRB) under a repurchase agreement. When
Philfinance failed to do so, The TRB tried to
register in its name in the CBCI. The Central
Bank did not want to recognize the transfer.
Docketed as Civil Case No. 83-17966 in the
Regional Trial Court of Manila, Branch 32,
the action was originally filed as a Petition
for Mandamus 5 under Rule 65 of the Rules
of Court, to compel the Central Bank of the
Philippines to register the transfer of the
subject CBCI to petitioner Traders Royal
Bank (TRB).
DECISION OF LOWER COURTS: * RTC:
transfer is null and void. * CA: The appellate
court ruled that the subject CBCI is not a
negotiable instrument. Philfinance acquired
no title or rights under CBCI No. D891 which
it could assign or transfer to Traders Royal
Bank and which the latter can register with
the Central Bank. Thus, the transfer of the
instrument from Philfinance to TRB was
merely an assignment, and is not governed
by the negotiable instruments law.
APPLICABLE LAWS:
Under section 1 of Act no. 2031 an
instrument to be negotiable must conform
to the following requirements: (a) It 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; (c) Must be payable on demand, or
at a fixed or determinable future time; (d)
Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a
drawee, he must be named or otherwise
indicated therein with reasonable certainty.
 Under section 3, Article V of Rules and
Regulations Governing Central Bank
Certificates of Indebtedness states that the
assignment of registered certificates shall
not be valid unless made at the office where
the same have been issued and registered or
at the Securities Servicing Department,
Central Bank of the Philippines, and by the
registered owner thereof, in person or by his
representative, duly authorized in writing.
For this purpose, the transferee may be
designated as the representative of the
registered owner.
ISSUES & RULING: 1. Whether the CBCI is
negotiable instrument or not.
The pertinent portions of the subject CBCI
read:
xxx xxx xxx
The Central Bank of the Philippines (the
Bank) for value received, hereby promises to
pay bearer, of if this Certificate of
indebtedness be registered, to FILRITERS
GUARANTY ASSURANCE CORPORATION, the
registered owner hereof, the principal sum
of FIVE HUNDRED THOUSAND PESOS.
NO. The CBCI is not a negotiable instrument,
since the instrument clearly stated that it
was payable to Filriters, and the certificate
lacked the words of negotiability which serve
as an expression of consent that the
instrument may be transferred by
negotiation.
Before the instruments become negotiable
instruments, the instrument must conform
to the requirements under the Negotiable
Instrument Law. Otherwise instrument shall
not bind the parties.
2. New Pacific Timber vs Seneris
Facts
In a complaint for a collection of sum of
money, petitioner failed to comply with his
judgment obligation in an amicable
settlement with the respondent. Hence, a
writ of execution was issued for the amount
of P63, 140.00 pursuant to which,
petitioner’s properties were levied and was
set for an auction sale. Prior to the set date
for the auction sale, petitioner deposited
with the Clerk of Court, CFI, in his capacity as
Ex-Officio Sheriff, the sum of P63, 130.00 for
payment of the judgment obligation,
consisting of P50, 000.00 Cashier’s Check
and P13,130.00 in cash.
Private respondent refused to accept the
check as well as the cash deposit and
requested the scheduled auction sale.
Respondent judge uphold private
respondent’s claim that he has the right to
refuse payment by means of a check and
cited Section 63 of the Central Bank Act:
“Sec 63. Legal Character – Checks
representing deposit money do not have
legal tender power and their acceptance in
payment of debts, both public and private, is
at the option of the creditor. Provided,
however, that a check which has been
cleared and credited to the account of the
creditor shall be equivalent to a delivery to
the creditor in cash in an amount equal to
the amount credited to his account.”
And Article 1249 of the New Civil Code which
provides for payment of debts in money
shall be made in the currency stipulated or
the currency that is legal tender in the
Philippines.
Likewise, respondent judge sustained the
contention of the private respondent that he
has a right to refuse payment of the amount
of P13, 130 in cash because the said amount
is less than the judgment obligation, which is
a partial payment as provided in Article 1248
of the New Civil Code.
Petitioner filed an ex-parte motion for
issuance of certificate of satisfaction of
judgment after his levied properties were all
sold during the auction sale. Petitioner
question the order of the judge for denial of
the said motion alleging that said judge
capriciously and whimsically abused his
discretion on the ground that there was
already a full satisfaction of the judgment
before the auction sale was conducted.
Issue:
WON there was a valid refusal to accept the
payment of the judgment obligation made
by the petitioner consisting of P50, 000.00 in
Cashier’s Check and P13, 130.00 in cash.
Held:
No. A cashier’s check of the Equitable Bank
Corporation is not an ordinary check. It is a
well-known and accepted practice in the
business sector that a Cashier’s Check is
deemed as cash.
Where a check is certified by the bank on
which it is drawn, the certification is
equivalent to acceptance. By the
certification of drawee bank, the funds
represented by the check are transferred
from the credit of the maker to that of the
payee or holder, and for all intents and
purposes, the latter becomes the depositor
of the drawee bank. Said certification implies
that the check is drawn upon sufficient funds
in the hands of the drawee that they have
been set apart for its satisfaction, that they
shall be so applied whenever the check is
presented for payment. The object of
certifying a check, as regards to both parties,
is to enable the holder to use it as money.
When the holder procures the check to be
certified, the check operates as an
assignment of a part of the funds to the
creditors. Certification of a check is an
exception to the rule enunciated under Sec
63 of the CB Act.
Considering that the whole amount
deposited by the petitioner consisting of
Cashier’s Check of P50, 000.00 and P13,
130.00 in cash covers the judgment
obligation of P63,000.00 as mentioned in the
writ of execution, then, we see no valid
reason for the private respondent to have
refused acceptance of the payment of the
obligation in his favor.
3. Roman Catholic Church of Malolos vs IAC
FACTS:
 July 7, 1971: A contract over the land
was executed between the Roman
Catholic Bishop of Malolos (bishop) as
vendor and the through its then
president, Mr. Carlos F. Robes, as
vendee, stipulating for a downpayment
of P23,930 and the balance of P100,000
plus 12% interest per annum to be paid
within 4 years from execution of the
contract.
 The contract likewise provides for
cancellation, forfeiture of previous
payments, and reconveyance of the land
in case of failure to pay within the period
 March 12, 1973: private respondent,
through its new president, Atty. Adalia
Francisco, addressed a letter 6 to Father
Vasquez, parish priest of San Jose Del
Monte, Bulacan, requesting to be
furnished with a copy of the subject
contract and the supporting documents
 July 17, 1975: after the expiration of the
stipulated period for payment, Atty.
Francisco wrote the formal request that
her company be allowed to pay the
principal amount of P100,000 in 3 equal
installments of 6 months each with the
1st installment and the accrued interest
of P24,000 to be paid immediately upon
approval
 July 29, 1975: Bishop through its counsel,
Atty. Carmelo Fernandez, formally
denied the request but granted a grace
period of 5 days from the receipt of the
denial to pay the total balance of
P124,000
 August 4, 1975: private respondent,
through its president, Atty. Francisco,
 wrote the counsel of the petitioner
requesting an extension of 30 days from
to fully settle its account. – denied
 RTC: favored Bishop declaring the down
payment as forfeited

ISSUE:
W/N there is tender of payment by issuance
of a certified check
HELD: NO. RTC reinstated.
 Tender of payment involves a positive
and unconditional act by the obligor of
offering legal tender currency as
payment to the obligee for the former’s
obligation and demanding that the latter
accept the same.
 tender of payment cannot be presumed
by a mere inference from surrounding
circumstances
 sheer proof of sufficient available funds
to meet more than the total obligation
within the grace period - NOT sufficient
 On the contrary, the respondent court
finds itself remiss in overlooking or
taking lightly the more important
findings of fact made by the trial court
which are entitled to great weight on
appeal and should be accorded full
consideration and respect and should
not be disturbed unless for strong and
cogent reasons
 certified personal check which is not
legal tender nor the currency stipulated,
and therefore, can not constitute valid
tender of payment
 Since a negotiable instrument is only a
substitute for money and not money, the
delivery of such an instrument does not,
by itself, operate as payment

4. Osmena vs Citibank
5. BPI Express Card Corporation vs CA
6. Philippine Bank of Commerce vs Aruego
7. Philippine Airline vs CA