NEGOTIABLE INSTRUMENTS LAW

By Atty. Mary Ann L. Reyes

COURSE OUTLINE
I. Introduction
1. History, Governing Laws (Act. 2031, Code of Commerce, New Civil Code)
2. Applicability of the Negotiable Instruments Law
Read: Kauffman vs. PNB, 42 Phil 182, September 29, 1921
GSIS vs. CA, 170 SCRA 533, February 23, 1989
3. Concept of Negotiable Instruments
a. Negotiable Instruments defined
b. Functions of Negotiable Instruments
c. What is Legal Tender, [Sec. 52, 60, New Central Bank Act; BSP Circular no. 537, (2006)]
Read: Tibajia vs. CA, 223 SCRA 163
PAL vs. CA, GR. 49188, Jan. 30, 1990
4. Characteristics of Negotiable Instruments
5. Incidents in the Life of Negotiable Instruments
6. Kinds of Negotiable Instruments
a. Negotiable Promissory Notes (Sec. 184, NIL)
i. parties to a negotiable promissory note
ii. kinds of negotiable promissory note
b. Bills of Exchange (Sec. 126, 185, NIL)
i. parties to a bill of exchange
ii. kinds of bill exchange
7. When Bill Treated as Notes (Sec. 17e, 130, NIL)
8. Bills and Notes Distinguished
9. Negotiable Instruments Compared with other Papers
Read: Sesbreno vs. CA, GR 89252, May 24, 1993
10. Some Non-Negotiable Instruments
a. Documents of Title
b. Letters of Credit
c. Certificates of Stock
d. Postal Money Order
Read: Philippine Education Co. vs. Soriano, GR L-22405, June 30, 1971
e. Treasury Warrants
Read: Metropolitan Bank vs. CA, 194 SCRA 169 (1991)

II. Form and Interpretation of Negotiable Instruments

1. How Negotiability is Determined
Read: Caltex (Philippines) 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 Negotiability (Sec. 1, NIL)
a. must be in writing and signed by the maker or drawer (Sec. 191, NIL)
b. must contain an unconditional promise or order to pay a sum certain in money
i. promise or order to pay (Sec. 1, NIL)
ii. promise or order must be unconditional
1. resolutory and suspensive condition (Art. 1173, 1181, NCC)
2. period
3. when is promise unconditional (Sec. 3, 29, NIL)
4. sum certain in money (sec. 2, 5d, 6e, NIL; CB Circular 799, July 1, 2013; Art.
2209, Civil Code; acceleration, insecurity, extension clauses)
Read: Metropolitan Bank vs. CA, 194 SCRA 169, Feb. 18, 1991
c. must be payable on demand or at a fixed or determinable future time
Read: Pay vs. Palanca, 57 SCRA 618
d. must be payable to order or bearer (Sec. 8, 9, 184, NIL)
Read: Ang Tek Lian vs. CA, 87 Phil 383, Sept. 25, 1950
e. drawee must be named or indicated with reasonable certainty
Sec. 1e, 130, NIL; Sec. 128, NIL
4. Omissions and Provisions that Do Not Affect Negotiability
5. Interpretation of Instruments
III. Transfer and Negotiation
1. Issuance/Delivery of Negotiable Instruments (Sec. 15, 16, 191, NIL)
Read: Dela Victoria vs. Burgos, 245 SCRA 374, June 27, 1995
2. Negotiation Defined (Sec. 30, NIL)
3. Assignment and Negotiation Distinguished; Liability of Assignor (Art. 348, Code of Commerce)
Read: Casabuena vs. CA, 286 SCRA 594
4. How are Negotiable Instruments and Non-Negotiable Instruments Transferred
Read: Sesbreno vs. CA, 222 SCRA 466, May 24, 1993
Consolidated Plywood vs. IFC Leasing, 149 SCRA 448, April 30, 1987
Traders Royal Bank vs. CA, 269 SCRA 16, March 3, 1997
5. How Negotiation Takes Place (Sec. 16, 30, 40, NIL)

Read: Manuel Lim vs. CA, 251 SCRA 409, Dec. 19, 1995
Dela Victoria vs. Burgos, 245 SCRA 374, June 27, 1995
Development Bank of Rizal vs. Sima Wei, 217 SCRA 743, March 9, 1993
6. Incomplete Negotiation of Order Instrument (Sec. 49, NIL)
7. Where Indorsement Should be Placed (Sec. 31, NIL)
8. When Person Deemed Indorser (Sec. 63, NIL)
9. Other Rules on Indorsement (Sec. 31, 32, 40-48, 49, NIL)
Read: Enrique Montinola vs. PNB, 68 Phil 178, Feb. 26, 1951
Ang Tek Lian vs. CA, GR L-2516, Sept. 25, 1950
10. Kinds of Indorsement (Sec. 33, NIL)
a. Blank and Special Indorsements (Sec. 34, 35, NIL)
i. conversion of blank to special indorsement (Sec. 35, NIL)
b. Qualified and General Indorsement (Sec. 38, 65, NIL)
Read: Metropol (Bacolod) Financing vs. Sambok Motors, 120 SCRA 864, Feb. 28, 1983
c. Conditional Indorsement (Sec. 39, NIL)
d. Restrictive Indorsement (Sec. 36, 37, 47, NIL)
Read: Gempesaw vs. CA, 218 SCRA 628, Feb. 9, 1993
e. Absolute Indorsement
f. Joint Indorsement (Sec. 41, NIL)
g. Irregular Indorsement (Sec. 64, NIL)
11. When Indorsement Necessary (Sec. 30, 184, NIL)
12. Indorsement of Entire Instrument (Sec. 32, NIL)
13. Indorsement of Bearer Instrument (Sec. 40, NIL)
14. Indorsement When Payable to Two or More Persons (Sec. 41, NIL) Sec. 8d, e
15. Indorsement in Representative Capacity (Sec. 44, NIL)
16. Presumption on Time, Place of Indorsement (Sec. 45, 46, NIL)
17. Continuation of Negotiable Character (Sec. 47, NIL)
18. Negotiation by Prior Party (Sec. 50, NIL)
19. Striking Out of Indorsement (Sec. 48, NIL)
20. Effect of Transfer Without Indorsement (Sec. 49, NIL)
21. Consideration for Issuance and Subsequent Transfer (Sec. 24, NIL)
22. What Constitutes Value (Sec. 25, NIL)
Read: Bibiano Banas vs. CA, 325 SCRA 259, Feb. 10, 2000
23. Effect if Value Previously Given (Sec. 26, NIL)
24. Holder for Value (Sec. 26, 27, NIL)
25. Effect of Want of Consideration (Sec. 28, NIL)
26. Indorsement to Cashier, Sec. 42, NIL

27. When name of payee or indorser wrongly designated, Sec. 43, NIL
IV. Holders
1. What is a holder (Sec. 191, NIL)
a. Classes of Holder (Sec. 26, 27, 52, NIL)
b. Rights of Holders (Sec. 51, 88, 119, NIL)
Read: Chan Wan vs. Tan Kim, 109 Phil 706, Sept. 30, 1960
Atrium Management vs. CA, 144 SCAD 390, Feb. 28, 2001
Marcelo Mesina vs. CA, 145 SCRA 497, Nov. 13, 1986
2. Holders in Due Course (Sec. 52, 53, 54, 55, 56, 88, NIL)
a. instrument complete and regular
b. taken before overdue (Sec. 4, 7, 53, 83, 85, NIL)
c. previously dishonored (Sec. 83, 149, NIL)
d. notice of infirmity or defect (Sec. 54, 55, 56,NIL)
e. good faith
Read: Equitable Banking vs. Special Steel, GR 175350, June 13, 2012
De Ocampo vs. Gatchalian, 3 SCRA 596, Nov. 30, 1961
Yang vs. CA, No. 138074, Aug. 15, 2003
Bataan Cigar vs. CA, 230 SCRA 643 (1994)
Stelco Marketing vs. CA, 210 SCRA 51, June 17, 1992
Go vs. Metropolitan Bank, GR No. 168842, Aug. 11, 2010
f. holder for value (Sec. 24-27, NIL)
3. Presumption of Due Course Holding (Sec. 59, NIL)
4. Rights of Holders in Due Course (Sec. 14, 16, 57, NIL); When Subject to Original Defenses (Sec. 58,
NIL)
Read: Salas vs. CA, 181 SCRA 296
State Investment House vs. CA, 175 SCRA 311, July 13, 1989
Prudencio vs. CA, 143 SCRA 7, July 14, 1986
Stelco Marketing vs. CA, GR No. 96160, June 17, 1992
5. Rights of Holders Not in Due Course (Sec. 14, 16, 51, 53, NIL)
6. Accommodation Parties, Sec. 29, NIL)
7. Shelter Rule (Sec. 58, NIL)
Read: Charles Fossum vs. Fernandez Hermanos, 44 Phil 713
V. Parties who are Liable
1. Primary and Secondary Liability Distinguished (Sec. 61, 66, 192, NIL)
2. Payment by Party Secondarily Liable (Sec. 68, 70, 84, 89, 118, 120, 151, 184, NIL)

3. Liability vs. Warranties

4. 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
Read: Jai-Alai vs. BPI, 66 SCRA 29, Aug. 6, 1975
c. Acceptor (Sec. 62, 127, 139-141, 143, 165, 189, NIL)
Read: PNB vs. Picornell, 46 Phil 716, Sept. 26, 1922
PNB vs. CA, 25 SCRA 693, Oct. 29, 1968
d. Indorsers (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 precedent to make unqualified indorser liable
ii. Qualified Indorser (Sec. 65, NIL)
iii. Indorsers of Bearer Instruments (Sec. 40, 65, 67, NIL)
iv. Irregular Indorser (Sec. 64, NIL)
v. Liability of Accommodation Party (Sec. 29, 52, NIL)
Read: Clark vs. Sellner, GR 16477, Nov. 22, 1921
Crisologo vs. CA, 177 SCRA 594, Sept. 15, 1989
PNB vs. Maza, GR 24224, Nov. 3, 1925
Maulini vs. Serrano, 28 Phil 640, Dec. 16, 1914
vi. Order of Liability (Sec. 68, NIL)
Read: People vs. Maniego
e. Persons Negotiating by Delivery (Sec. 65, NIL)
f. Liability of Agent or Broker (Sec. 19-21, 69, NIL)
Read: Philippine Bank of Commerce vs. Aruego
g. Person Who Should Sign (Sec. 18, NIL)
i. Exceptions: Those who do not sign in their own names or whose signatures do not
appear in instrument itself but are still liable
a. trade or assumed name (Sec. 18, NIL)
b. agent/authorized representative (Sec. 19, NIL)
c. incapacitated persons signing through legal guardians
d. forgers of signatures (Sec. 23, NIL)
e. those precluded from setting up defense of forgery (Sec. 23, NIL)
f. constructive acceptance (Sec. 137, NIL)

g. allonge
h. negotiating by mere delivery (Sec. 65, NIL)
VI. Defenses
1. Real and Personal Defenses Distinguished
2. Real Defenses
a. Minority and Ultra Vires Acts (Sec. 22, NIL)
i. Defense of Minority not Total (See Art. 1341, New Civil Code)
Read: Atrium Management Corp. vs. CA, GR 109491, Feb. 28, 2001
Crisologo-Jose vs. CA, GR. 80599, Sept. 1989
b. Non-Delivery of an Incomplete Instrument (Sec. 15, 16, NIL)
c. Fraud in Factum (vs. Fraud in Inducement)
Read: Salas vs. CA, GR 76788, January 22, 1990
Prudencio vs. CA, 143 SCRA 7, July 14, 1986
d. Forgery and Want of Authority (Sec. 23, NIL); Cut-off Rule
i. Forgery of Makers Signature
ii. Of Indorsers Signature
iii. Of Drawers Signature
iv. Forgery of Bearer Instrument
Read: Associated Bank vs. CA, GR 107382, Jan. 31, 1996 (doctrine of comparative
negligence)
Gempesaw vs. CA, 218 SCRA 682, Feb. 9, 1993
Republic vs. Estrada, GR L-40769, July 31, 1975
MWSS vs. CA
v. Persons Precluded from Setting Up Forgery
Read: MWSS vs. CA, GR L-62943, July 14, 1986
Metropolitan Bank vs. CA, 194 SCRA 169 (1991)
Samsung Construction vs. Far East Bank, GR 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 132250, Jan. 30, 2002
Ilusorio vs. CA, GR 139130, Nov. 27, 2002
Traders Royal Bank vs. RPN, GR 138510, Oct. 10, 2002
BPI vs. CA
Bank of America vs. Associated Citizens Bank, May 21, 2009
e. Material Alteration [partial defense] (Sec. 124, 125, NIL)
Read: PNB vs. CA, 256 SCRA 491, April 25, 1996

Montinola vs. PNB, 88 Phil 178, Feb. 26, 1951

i. Alteration of negotiable instrument a crime (Art. 172, Revised Penal Code)
ii. Alteration of Amount in NIL
iii. Immaterial Alterations
f. Extinctive Prescription
Read: PCIB vs. CA, 350 SCRA 446
Papa vs AU Valencia, 284 SCRA 643, Jan. 23, 1998
g. Illegality
3. Personal Defenses
a. Ante-dating or post-dating (Sec. 12, NIL)
b. Insertion of Wrong Date (Sec. 13, NIL)
c. Filing up Blanks Beyond Authority (Sec. 14, NIL)
d. Absence or Failure of Consideration (Sec. 28, NIL)
Read: State Investment House vs. CA
e. Simple Fraud, Duress, Intimidation, Force or Fear, Illegality of Consideration, Breach of Faith
(Sec. 55, 56, 57, NIL)
f. Want of Delivery of Complete Instrument (Sec. 16, NIL)
g. Fraud in Inducement
Read: Great Eastern Insurance vs. Hongkong 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 Secondarily Liable
i. how to enforce primary liability (Sec. 60, 62 NIL)
b. General Steps in Enforcing Secondary Liability
i. Promissory Notes
a. Presentment for Payment (Sec. 70, NIL)
b. Notice of Dishonor (Sec. 89, NIL)
ii. Bills of Exchange
a. presentment for acceptance, when mandatory (Sec. 143, NIL)
b. if dishonored by non-acceptance
1. notice of dishonor (Sec. 89, 115, 116, NIL)
2. protest (Sec. 159, NIL)
c. if accepted
1. presentment for payment, unless excused/ not required
d. if dishonored upon presentment for payment

1. notice of dishonor
2. protest
e. for acceptor for honor, referee in case of need
1. protest for non-payment (Sec. 165, NIL)
c. Presentment for Payment
i. 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. 75, NIL)
v. Rule in Computing Time (Sec. 86, NIL)
vi. 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)
e. Dishonor by Non-Payment (Sec. 84, NIL)
f. Liability of Person Secondarily Liable When Instrument Dishonored (Sec. 84, NIL)
Read: Crisologo-Jose vs. CA, Sept. 15, 1989
Salas vs. CA, Jan. 22, 1990
PNB vs. CA, Jan. 22, 1990
Associated Bank vs. CA, Jan. 31, 1996
Great Eastern vs. Hong Kong Shanghai Bank, Aug. 23, 1922
Republic vs. Ebrada, July 31, 1975
PNB vs. Quimpo, March 14, 1988
Gempesaw vs. CA, Feb. 9, 1993
PCI Bank 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
Luis Wong vs CA, GR 117857, Feb. 2, 2001
g. Presentment for Acceptance

i. How made (Sec. 145, NIL)

ii. When Made (Sec. 143, 144, NIL)
iii. Acceptance; requisites (Sec. 132, NIL)
a. how made (Sec. 132, 133-135, 137, 145, 72, 75, NIL)
iv. When deemed accepted (Sec. 137, NIL)
v. Future bills (Sec. 135, NIL)
vi. Time to accept (Sec. 136, 146-147, NIL)
vii. Rule when incomplete bill accepted (Sec. 138, NIL)
viii. Kinds of Acceptance (Sec. 139-142, NIL)
h. When Presentment for Acceptance Excused (Sec. 148, NIL)
i. Dishonor by Non-Acceptance (Sec. 149-151, NIL)
j. Notice of Dishonor (Sec. 89, NIL)
i. when instrument considered dishonored (Sec. 149, NIL)
ii. by whom given (Sec. 90, NIL)
iii. notice by agent (Sec. 91, 92, 94, NIL)
iv. time to give notice (Sec. 102-107, NIL)
v. form of notice (Sec. 95, 96, NIL)
vi. 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 in giving notice (Sec. 113, NIL)
k. Protest
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)
vi. 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)
l. Notice of Dishonor vs. Protest
m. Acceptance for Honor (Sec. 161-170, NIL)
n. Acceptance for Honor vs. Ordinary Acceptance
o. Payment for Honor (Sec. 173-177, NIL)

p. 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)
VIII. Discharge of Instruments
a. Concept of Discharge
b. How Instrument Discharged (Sec. 119, 120, NIL)
i. payment in due course (Sec. 88, NIL)
1. by the principal debtor (Sec. 119a, NIL)
2. by the accommodated party (Sec. 119b, NIL)
3. payment 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. intentional cancellation
1. rule in case of unintentional cancellation (Sec. 123, NIL)
iv. any act that discharges simple contracts (Art. 1231, Civil Code)
v. principle debtor becomes holder
c. Discharge of Persons Secondarily Liable (Sec. 120, NIL)
d. Discharge of Prior Party
e. Tender of Payment
f. Release of Principal Debtor
g. Extension of Term
h. Payment for Honor (Sec. 171-177, NIL)
i. Right of Party Who Discharges Instrument (Sec. 121, NIL)
j. Surrender of Instrument 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., 157 SCRA 188 (1988)
b. Distinguished from Drafts
Read: RP vs. Philippine National Bank, GR L-16106, Dec. 30, 1961
c. Relationship between Drawer, Drawee, and Payee
d. Kinds of Checks
i. cashiers check and managers check (See BSP Circular 259 series of 2000, and Circular 291,
series of 2001)

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

Read: New Pacific Timber vs. Hon. Seneris, Dec. 19, 1980
PNB vs. National City Bank of New York, 63 Phil 711
iii. crossed check (Art. 541, Code of Commerce)
1. 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
State Investment House vs. IAC, 174 SCRA 310
iv. memorandum and travellers check
Read: People vs Nitafan, GR 75954, Oct. 22, 1992
e. Checks and Bills of Exchange Distinguished
f. Relationship between, Payee, Drawer, Drawee
Read: Spouses Moran vs. CA, GR 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 Clearing House Corp. rules; RA 7653, New Central Bank Act, Sec. 102
i. relationship of parties
ii. warranties
iii. 24-hour rule
iv. iron clad rule for cashiers checks
Read: Mesina vs. IAC
j. Crimes Involving Checks
i. estafa [Revised Penal Code, Art. 315, (2d)]
ii. BP 22
Read: Domangsang vs. CA, 347 SCRA 75 (2000)
iii. Check Kiting [Art.315 (1b), RPC)
Read: Ramos vs. CA, 203 SCRA 657