NEGOTIABLE INSTRUMENTS LAW

Course Outline
MZR Villanueva-Castro

PRELIMINARY CONSIDERATIONS

1. Governing laws

2. Concept of negotiable instrument

3. Classes of negotiable instrument

a. promissory note
b. bill of exchange

4. Functions of negotiable instrument

5. Characteristics of negotiable instrument

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; Tibajia, Jr. vs. CA, 223
SCRA 163; Philippine Airlines vs. CA, 181 SCRA 557

FORM AND INTERPRETATION OF NEGOTIABLE INSTRUMENTS

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

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
(1) promise or order to pay must be unconditional
(a) reference to transaction (Sec. 3, NIL)
(b) source or payment or account to be debited
(2) payable in sum certain in money
(a) provisions which do not affect certainty of sum
payable
(ii) payment of interest (Sec. 2, NIL)
(iii) payment by installments (Sec. 2, NIL)
(iv) acceleration clause (Sec. 2, NIL)
(v) payment with exchange (Sec. 2, NIL)
 (vi) payment of attorneys fees (Sec. 2, NIL)

CASES: Metropolitan Bank & Trust Company vs. CA, Feb. 18, 1991, 194
SCRA 169; Caltex Phils. vs. CA, 212 SCRA 448

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

(1) when payable on demand (Sec. 7, NIL)
(2) when payable at determinable future time (Sec. 4, NIL)

d. payable to order or bearer

(1) when payable to bearer (Sec. 9, NIL)
(a) rule when instrument is payable to a fictitious person)
(2) when payable to order
(a) to whose order the instrument may be made payable (Sec. 8,
NIL)

CASE: Ang Tek Lian vs. CA, 87 Phil. 383; PNB vs. Rodriguez, G.R. No.
170325, September 26, 2008

e. omissions that do not affect negotiability (Sec.6, NIL)

f. additional provisions not affecting negotiability (Sec. 5, NIL)

(1) sale of collateral securities
(2) confession of judgment
(3) waiver of benefit
(4) option to require something in lieu of payment

CASE: 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. Hon. Espanol, G.R. No.
161756, 16 December 2005

NEGOTIATION

1. Modes of transfer

2. Concept of negotiation (Sec. 30, NIL); distinguished from assignment

CASES: Read again: Sesbreo vs. CA, 222 SCRA 466; Consolidated Plywood Inc.
vs. IFC Leasing 149 SCRA 448

3. Ways of negotiation (in case of order or bearer instruments)

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4. Concept of delivery

CASES: De la Victoria vs. Hon. Burgos, 245 SCRA 374; Development Bank of Rizal
vs. Sima Wei, 219 SCRA 736

5. Indorsement
a. concept
b. how made (Sec. 31 & 32, NIL)
c. kinds:
(1) special and blank (Sec. 34 & 35, NIL)
(2) conditional (Sec. 39, NIL)
(3) qualified (Sec. 38, NIL)
(4) restrictive (Sec. 36 & 37, NIL)
d. other rules on indorsement
(1) indorsement of an instrument payable to bearer (Sec. 40, NIL)
(2) where instrument is payable to two or more persons (Sec. 21, NIL)
(3) instrument is drawn or indorsed to a person as cashier (Sec. 42, NIL)
(4) where name of payee or indorsee is misspelled (Sec. 43, NIL)
(5) indorsement in a representative capacity (Sec. 44, NIL)
(6) presumption as to time of indorsement (Sec. 45, NIL)
(7) place of indorsement (Sec. 46, NIL)
(8) striking out of indorsement (Sec. 48, NIL)
(9) transfer of an order instrument without indorsement (Sec. 49, NIL)

CASES: Metropol (Bacolod) Financing vs. Sambok Motors Co., et al., 120 SCRA
864); Gempesaw vs. CA, 218 SCRA 622

6. Negotiation by a prior party (Sec. 50, NIL)

HOLDERS

1. General concept of a holder

2. Holder in due course (requisites) (Sec. 52, NIL)
a. instrument complete and regular
b. taken before overdue
(1) rule in case of installment instruments
(2) 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, NIL)

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

LIABILITY OF PARTIES

1. Primary and secondary liability distinguished

2. Liability distinguished from warranties

3. Liability and/or warranties of parties

a. Maker (Sec. 60, NIL)

b. Drawer (Sec. Sec. 61, NIL)
(1) relationship with drawee
(2) relationship with collecting bank
c. Acceptor (Sec. 127 & 62, NIL)
d. Indorsers
(1) General indorsers (Sec. 66, NIL)
(2) Qualified indorser (Sec. 65, NIL)
(3) Order of liability
e. Parties negotiating by mere delivery (Sec. 65, NIL)
f. Other cases:
(1) irregular indorser (Sec. 64, NIL)
(2) indorser of bearer instrument (Sec. 67, NIL)
(3) accommodation party (Sec. 29, NIL)
(4) agents signing in behalf of the principal

CASES: Astro Electronics vs. Roxas, et al., September 23, 2003; Garcia vs. Dionisio,
December 8, 2003; Crisologo-Jose vs. CA, Sept. 15, 1989; Sadaya vs. Sevilla, 19 SCRA
924; Travel-On vs. CA, 210 SCRA 352; Agro-Conglomerates Inc. vs. CA, 348 SCRA 350;
Gonzales vs. RCBC, 29 November 2006; Ang vs. Associated Bank, 05 September 2007;
Far East vs. Gold Palace Jewelry, G.R. No. 168274, August 20, 2008; Gonzales v.
Philippine Commercial & International Bank, et al., G.R. No. 180257, February 23, 2011

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)
(1) forgery of makers signature
(2) of indorsers signature
(3) of drawers signature
(4) forgery of bearer instruments

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 e. material alteration (partial real defense) (Sec. 124 & 125, NIL)
f. extinctive prescription

3 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 of faith (Sec. 55, 56 & 57, NIL)

CASES: Philippine National Bank vs. CA, 256 SCRA 491; Associated Bank vs. CA,
January 31, 1996; Jai-Alai vs. BPI, 66 SCRA 29; Republic vs. Ebrada, July 31, 1975;
Gempesaw vs. CA, February 9, 1993; Philippine Commercial International Bank vs. Court
of Appeals, 350 SCRA 446; MWSS vs. CA, 143 SCRA 20; Ilusorio vs. CA, 393 SCRA 89;
Samsung Construction vs. Far East Bank, 15 August 2004; Metrobank vs. Cabilzo, 06
December 2006; Bank of America vs. Philippine Racing Club, G.R. No. 150228, July 20,
2009; Westmont Bank, formerly Associated Bank now United Overseas Bank Philippines
v. Myrna Dela Rosa-Ramos, G.R. No. 160260, October 24, 2012; Metrobank vs. BA Finance
Corporation, G.R. No. 179952, 4 December 2009

ENFORCEMENT OF LIABILITY

1. Parties primarily liable and parties secondarily liable

2. General steps in enforcing liability

a. promissory notes
(1) presentment for payment (Sec. 70, NIL)
(2) notice of dishonor (Sec. 89, NIL)
b. bills of exchange
(1) presentment for acceptance (Sec. 143, NIL)
(a) how made (Sec. 132-135 & 137, NIL)
(b) time to accept (Sec. 136, NIL)
(c) rule when incomplete bill is accepted (Sec. 138, NIL)
(d) kinds of acceptance (Sec. 139-142, NIL)
(2) if dishonored by non-acceptance:
(a) notice of dishonor (Sec. 89, NIL)
(b) rule in case of foreign bills (See provisions on protest)
(3) If accepted:
(a) presentment for payment to acceptor
(b) rule if dishonored upon presentment for payment
(c) rule in case of foreign bill

3. Presentment for payment

a. Concept of presentment
b. Requisites for sufficiency (Sec. 72, NIL)
(1) date of presentment (Sec. 71, NIL)

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 (a) rule in determining maturity date (Sec. 85, NIL)
(b) rule in computing time (Sec. 86, NIL)
(c) rule if payable at a bank (Sec. 75, NIL)
(2) place of presentment (Sec. 73 NIL)
(a) rule if payable at a special place (Sec. 70, NIL)
(3) presentment to the party primarily liable
(a) how presentment made (Sec. 74, NIL)
(b) rule in case party primarily liable is already dead (Sec. 76,
NIL)
(c) presentment to partners (Sec. 77, NIL)
(d) 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:
(1) dishonor by non-payment (Sec. 83, NIL)
(2) dishonor by non-acceptance (Sec. 149, NIL)
c. who should give notice
(1) holder
(2) agent
(3) party who may be compelled to pay
d. form of notice (Sec. 43 & 44, NIL)
e. to whom notice is given
(1) party secondarily liable or agent (Sec. 97, NIL)
(2) notice where party is dead (Sec. 98, NIL)
(3) notice to partners (Sec. 99, NIL)
(4) notice to persons jointly liable (Sec. 100, NIL)
(5) notice to bankrupt (Sec. 101, NIL)

f. time and place of notice (Sec. 103-108, NIL)

g. when notice is excused or unnecessary (Sec. 109-112, 114-115, NIL)
h. when delay in giving notice excused (Sec. 113, NIL)

CASES: Far East Realty Investment, Inc. vs. CA, 166 SCRA 256; Wong vs. CA, February 2,
2001; International Corporate Bank vs. Sps. Gueco, February 12, 2001; Far East Realty
vs. CA, October 5, 1988; State Investment House vs. CA, 217 SCRA 32; Asia Banking
Corporation vs. Javier, 44 Phil 777; Nyco Sales Corporation vs. BA Finance Corporation,
200 SCRA 637; Arceo, Jr. vs. People of the Philippines, G.R. No. 142641, 17 July 2006;
Allied Banking vs. CA, GG Sportswear, 11 July 2006

DISCHARGE OF INSTRUMENTS

1. Concept of discharge
2. How instrument is discharged (Sec. 119, NIL)
a. payment in due course (Sec. 88, NIL)
(1) by the principal debtor (Sec. 119 [a])
(2) by the accommodated party (Sec. 119[b])

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 b. intentional cancellation
(1) 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. Checks defined (Sec. 185, NIL)

2. Distinguished from draft
3. Relationship between drawer, drawee and payee
4. Kinds of check
a. cashiers and managers check (See BSP Circulars 259, series of 2000 &
291, series of 2001)
b. certified check (Sec. 187-189, NIL)
c. crossed check (Art. 541, Code of Commerce)
(1) effects of crossing a check
d. memorandum and travellers check

5. when required to be presented for payment (Sec. 185, NIL)

6. effect of death of drawer
7. pertinent Philippine Clearing House Corporation rules

CASES: Bataan Cigar vs. CA, 230 SCRA 648; Stelco Marketing Corporation vs. CA, June
17, 1992; State Investment House vs. CA, 175 SCRA 311; Papa vs. A.U. Valencia, 284
SCRA 643; Villanueva vs. Nite, G.R. No. 148211, 25 July 2006; Equitable PCI vs. Ong, 15
September 2006; Security Bank & Trust Company vs. RCBC, G.R. Nos. 170984 & 170987,
January 30, 2009

SECURITIES REGULATION CODE

TOPICS

1. Objectives (Sec 2, SRC Declaration of State Policy)

2. SRC effect on SEC Jurisdiction (Yujuico vs. Quiambao, 29 January 2006
GSIS vs. CA, G.R. No. 183905; Orendain vs. BF Homes 506 SCRA)
3. SEC power to issue CDO (SEC vs. Performance Foreign Exchange Corp. G.R. 154131, 20
July 2006; GSIS case)
4. Concept of Securities
5. Registration Requirement (Sec. 8)
6. Exempt Securities (Sec. 9)
7. Exempt Transactions (Sec. 10)
8. Rejection and Revocation of Securities Registration (Sec. 13)
9. Reports (Sec. 17-18)
10. Tender Offer (Sec. 19; Cemco Holdings vs. National Life GR 171815)

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11. Insider Trading (Sec. 27)
12. Registration of Market Professionals (Sec. 28)
13. Broker-Director Rule (Sec. 30)
14. Proxy Solicitation (Sec. 20)
15. Independent Directors (Sec. 38)
16. Use of Exchange and other securities market (Sec. 32)

LETTERS OF CREDIT

1. Definition
2. Applicable laws
3. Parties to a letter of credit
4. Transactions involved in a letter of credit (See: Independence Principle; Fraud Exception
Principle and Rule of Strict Compliance)
5. Types of letters of credit
a. irrevocable letter of credit
b. confirmed letter of credit
c. standby letter of credit
d. others

CASES: Bank of the Philippine Islands vs. De Reny Fabric Industries, Inc., G.R. No. L-24821,
16 October 1970,; Bank of America, NT vs. Court of Appeals, G.R. No. 105395,10 December
1993; Feati Bank & Trust Company vs. Court of Appeals, G.R. No. 94209, 30 April 1991;
Transfield Philippines, Inc. vs. Luzon Hydro Corp., G.R. No. 146717,22 November 2004; MWSS
vs. Hon. Daway, G.R. No. 160732, 21 June 2004

TRUST RECEIPTS

1. Trust receipt transaction (Sec. 4, TRL)

2. Form of trust receipt (Sec. 5, TRL)
3. Parties to a trust receipt transaction
4. Rights of the entruster (Sec. 7, 8, & 12 TRL)
5. Obligations/Liabilities of the entrustee (Sec. 9 & 10, TRL)
6. Rights of purchaser (Sec. 11, TRL)
7. Penalties (Sec. 13)

CASES: People vs. Nitafan, G.R. Nos. 81559-60, 06 April 1992; Rosario Textile Mills Corp., et
al. vs. Home Bankers Savings & Trust Co., G.R. No. 137232, 29 June 2005; Landl Company vs.
Metrobank, G.R. No. 159622, 30 July 2004; Vintola vs. Insular Bank, G.R. No. 73271, 29 May
1987; Pilipinas vs. Ong, G.R. No. 133176, 8 August 2002; Land Bank of the Philippines v.
Lamberto C. Perez, Nestor C. Kun, Ma. Estelita Angeles-Panlilio, and Napoleon O. Garcia, G.R.
No. 166884, June 13, 2012

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 WAREHOUSE RECEIPTS LAW

1. Concept of warehousing business

2. Duties of a warehouseman

3. Warehouse receipts
a. Functions
b. Form of receipts (Sec. 2, WRL)
c. kinds of warehouse receipts
1. negotiable
2. non-negotiable

4. Negotiation of receipts
a. bearer and order receipts (Sec. 37 & 38, WRL)
b. effects of negotiation (Sec. 41, 49 and 25, WRL)
c. incomplete negotiation (Sec. 43, WRL)
d. negotiation by fraud, mistake or duress (Sec. 47, WRL compare with Art. 1518,
NCC)

5. Transfer of receipts and effects thereof (Sec. 39 and 42, WRL)

6. Liabilities of indorser or transferor (Sec. 44 & 45, WRL)

7. Warehousemans lien and its enforcement (Sec. 27, 29, 33, 34 and 35, WRL)

8. Adverse claims (Sec. 17, 18 and 19, WRL)