Negotiable Instruments – ATTY RAFAL-ROBLE

OUTLINE/SYLLABUS

PRELIMINARY CONSIDERATIONS

1. Governing Laws
2. Concept of Negotiable Instruments
3. Classes of Negotiable Instruments
a. Promissory note
b. Bill of exchange
4. Functions of Negotiable Instruments
5. Characteristics of Negotiable Instruments
a. Negotiability
b. Accumulation of secondary contracts
6. Negotiable Instruments compared with other papers (document of title, letter of credit,
certificate of stock, pawn ticket, postal money order, treasury warrant)
7. Legal tender character

CASES: Phil Educ Co. Inc. vs Soriano 39 SCRA 587, Philippine Airlines vs CA 181 SCRA 557

FORM AND INTERPRETATION OF NEGOTIABLE INSTRUMENTS

1. Requisites of negotiability (SEC 1)

a. 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
i. Promise or order to pay must be unconditional
1. Reference to transaction (Sec. 3,NIL)
2. Source or payment or account to be debited
ii. 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
c. Acceleration clause
d. Payment with exchange
e. Payment of attorney’s fees

CASES: Traders Royal Bank vs. Court of Appeals, G.R. No. 93397, March 3, 1997; Metropolitan Bank and
Trust Company vs CA 194 SCRA 169, Caltex Phils vs CA 212 SCRA 448

c. Payable on demand or at a fixed or determinable future time

i. When payable on demand (Sec 7, NIL)
ii. When payable at determinable future time (Sec 4, NIL)
d. Payable to order or bearer
i. When payable to bearer (Sec 9, NIL)
1. Rule when instrument is payable to a fictitious person
ii. When payable to order
1. To whose order the instrument may be made payable (Sec 8, NIL)

CASES: Ang Tek Lian vs CA, 87 Phil 383

 e. Omissions that do not affect negotiability (Sec 6, NIL)
f. Additional provisions not affecting negotiability (Sec 5, NIL)
i. Sale of collateral securities
ii. Confession of judgment
iii. Waiver of benefit
iv. Option to require something in lieu of payment

CASES: Philippine National Bank vs Manila Oil Refining & By-Products Company, 43 Phil 445

2. Rules to be followed in interpreting negotiable instruments (Sec 17, NIL)

CASES: Republic Planters Bank vs CA, 216 SCRA 738, Sps Evangelista vs Mercator Finance Corp et al,
August 21, 2003, Ilano vs Espanol, GR No. 161756, December 16, 2005

NEGOTIATION

1. Modes of transfer
2. Issue (Sec 191, NIL)
3. Concept of negotiation (Section 30, NIL) distinguished from assignment

CASES: John Dy vs. People of the Phil., et al., G.R. No. 158312, November 14, 2008; Sesbreno vs CA 222
SCRA 466, Consolidated Plywood Inc vs IFC Leasing 149 SCRA 448

4. Ways of negotiation (in case of order or bearer instruments

5. Concept of delivery

CASES: De la Vistoria vs Hon Burgos 245 SCRA 374, Developemtn Bank of Rizal vs Sima Wei 219 SCRA
736

6. Indorsement
a. Concept
b. How made (Sec 31 & 32, NIL)
c. Kinds
i. Special vs blank (Sec 34 & 35, NIL)
ii. Conditional (Sec 39, NIL)
iii. Qualified (Sec 38, NIL)
iv. Restrictive (Sec 36 & 37, NIL)
d. Other rules on endorsement
i. Indorsement of an instrument payable to bearer (Sec 40, NIL)
ii. Where instrument is payable to two or more persons (Sec 41, NIL)
iii. Instrument is drawn or indorsed to a person as cashier (Sec. 42, NIL)
iv. Where name of payee or indorsee is misspelled (Sec. 43, NIL)
v. Indorsement in a representative capacity
vi. Presumption as to time of indorsement
vii. Place of indorsement (Sec 46, NIL)
viii. Striking out of indorsement (Sec 48, NIL)
ix. Transfer of an order instrument without endorsement, Sec 49, NIL)
 CASES: Metropol (Bacolod) Financing vs Sambok Motors Co., et al 120 SCRA 864; Gempesaw vs CA 218
SCRA 622

7. Negotiation by prior party (Sec 50, NIL)

HOLDERS

1. General concept of a holder

2. Requisites of a Holder in due course (Sec 52, NIL)
a. Instrument complete and regular
b. Taken before overdue relate to Sec 117
i. Rule in case of installment instruments
ii. Rule in case of demand instruments (Sec 53, NIL)
c. Notice of infirmity or defect (Sec 56 & 57, NIL,see also Sec 54, NIL)
d. Good faith
e. Holder for value
3. Presumption of due course holding (Sec 59, NIL)
4. Rights of holders in due course (Sec 57, NIL)
5. Shelter Rule (Sec 58 & 121, NIL)

CASES: De Ocampo vs Gatchalian 03 SCRA 596, Yang vs CA GR No. 138074 August 15, 2003, Mesina vs
IAC, 145 SCRA 497

LIABILITY OF PARTIES

1. Primary and secondary liability extinguished

2. Liability distinguished from warranties
3. Liability and / or warranties of parties
a. Maker (Sec 60, NIL)
b. Drawer (Sec 61, NIL)
i. Relationship with drawee
ii. Relationship with collecting bank
c. Acceptor (Sec 127 & 62, NIL)
d. Indorsers
i. General indorsers (Sec 66, NIL)
ii. Qualified Indorsers (Sec 65, NIL)
iii. Order of liability
e. Parties negotiating by mere delivery (Sec 65, NIL)
f. Other cases
i. Irregular indorser (Sec 64,NIL)
ii. Indorser of bearer instrument (Sec 67, NIL)
iii. Accomodation party (Sec 29, NIL)
iv. Agents signing in bahelf of the principal

CASES: Far East Bank & Trust Co. vs. Gold Palace Jewellery Co., G.R. No. 168274, August 20, 2008; Areza
v. Express Savings Bank, Inc., G.R. No. 176697, September 10, 2014; Crisologo – Jose vs CA Sept 15, 1989,
Sadaya vs Sevilla 19 SCRA 924, Travel-on vs CA 210 SCRA 352
DEFENSES

1. Real and personal defenses, distinguished

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

CASES: San Miguel Corp. vs. Bartolome Puzon, Jr., G.R. No. 167567 , September 22, 2010; Areza v.
Express Savings Bank, Inc., G.R. No. 176697, September 10, 2014; Philippine National Bank vs CA 256
SCRA 491, Associated Bank vs CA, January 31, 1996 GR 107612; Republic vs Ebrada, July 31, 1975;
Gempesaw vs CA Feb 9, 1993; Ilusorio vs CA 393 SCRA 89; Samsung Construction vs Far East Bank Aug
15, 2004; Metropolitan Bank vs Cablizo Dec 6, 2006; Bank of America vs Phil Racing Club GR No. 150228
July 20, 2009

ENFORCEMENT OF LIABILITY

1. Parties primarily liable and parties secondarily liable

2. General steps in enforcing liability
a. Promissory notes
i. Presentment for payment (Sec 70, NIL)
ii. Notice of dishonor (Sec 89, NIL)
b. Bills of exchange
i. Presentment for acceptance (Sec 143, NIL)
1. How made (Sec 132-135, NIL)
2. Time to accept ( Sec 136, NIL)
3. Rule when incomplete bill is accepted (Sec 138, NIL)
4. Kinds of acceptance (Sec 139 – 142, NIL)
ii. If dishonored by non-acceptance
1. Notice of dishonor (Sec 89, NIL)
 2. Rule in case of foreign bills (see provisions on protest)
iii. If accepted
1. Presentment for payment to acceptor
2. Rule if dishonored upon presentment for payment
3. Rule in case of foreign bill
3. Presentment for payment
a. Concept of presentment
b. Requisites for sufficiency (Sec 72, NIL)
i. Date of presentment (sec 71, NIL)
1. 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)
ii. Place of presentment (Sec 73, NIL)
1. Rule if payable at a special place (Sec 70, NIL)
iii. Presentment to the party primarily liable
1. How presentment is 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)
c. Instances where presentment is excused (Sec 79 & 82, NIL)
d. When delay in presentment excused (Sec 81, NIL)
4. Notice of dishonor
a. When dishonor of the instrument occurs
i. Dishonor by non-payment (Sec 83, NIL)
ii. Dishonor by non-acceptance (Sec 149, NIL)
b. Who should give notice
i. Holder
ii. Agent
iii. Party who may be compelled to pay
c. Form of notice (Sec 43 & 44, NIL)
d. To whom notice is given
i. Party secondarily liable or agent (Sec 97, NIL)
ii. Notice where party is dead (Sec 98, NIL)
iii. Notice to partners (Sec 99, NIL)
iv. Notice to persons jointly liable (Sec 100, NIL)
v. Notice to bankrupt (Sec 101, NIL)
e. Time and place of notice (Sec 103- 108, NIL)
f. When notice is excused or unnecessary (Sec 109 – 112, 114-115, NIL)
g. When delay in giving notice excused (Sec 113, NIL)

CASES: Wong vs CA, Feb 2, 2001; International Corporate Bank vs Sps Gueco Feb 12, 2001; State
Investment House vs CA, 217 SCRA 32; Arceo Jr vs People of the Phils GR 142641 July 17, 2006; Allied
Banking vs CA, GG Sportswear July 11, 2006
DISCHARGE OF INSTRUMENTS

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

CHECKS

1. Definition (Sec 185, NIL)

2. Comparison with Draft
3. Relationship between drawer, drawee and payee
4. Kinds of check
a. Cashiers and managers check (see BSP Circulars)
b. Certified check (Sec 187-189, NIL)
c. Crossed check (Art 541, Code of Commerce)
i. Effects of crossing a check
d. Memorandum and travelers checks
5. When required to be presented for payment (Sec 185, NIL)
6. Effect of death of drawer
7. Philippine Clearing House Corporation Rules

CASES: Anamer Salazar vs. J.Y. Brothers Marketing Corp., G.R. No. 171998, October 20, 2010; Equitable
Banking Corp. vs. Special Steel Products, Inc., et al., G.R. No. 175350, June 13, 2012; Bataan Cigar vs CA,
230 SCRA 648, State Investment House vs CA, 175 SCRA 311; Villanueva vs Nite GR 148211, July 25, 2006;
Equitable PCI vs Ong, Sept 15, 2006