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: Kaufman vs. PNB, 42 Phil 182, Sept. 29 1921
GSIS vs. CA, 170 SCRA 533, February 23, 1989
3)Concept of Negotiable Instruments
a)Negotiable Instruments Defned
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 bills of 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)Certifcates of Stock
d)Postal Money Order
Read: Philippine Education Co. vs. Soriano, GR L-22405, June
30, 1971
e)Treasury Warrants
II. FORM AND INTERPRETATION OF NEGOTIABLE
INSTRUMENTS
1)How Negotiability is Determined
Read: Caltex (Philippines) vs. CA, 212 SCRA 448, Aug. 10, 1992
2)Efect 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. 10, 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, 39, 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 fxed 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)
4)Omissions and Provisions That Do Not Afect Negotiability
5)Interpretation of Instruments
III. FORM AND INTERPRETATION OF NEGOTIABLE
INSTRUMENTS
1)Issuance/Delivery of Negotiable Instruments (Sec. 15, 16, 191, NIL)
Read: Dela Victoria vs. Burgos, 245 SCRA 374, June 27, 1995
2)Negotiation Defned (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)Qualifed 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)
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)Efect 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)Efect if Value Previously Given (Sec. 26, NIL)
24)Holder for Value (Sec. 26, 27, NIL)
25)Efect of Want of Consideration (Sec. 28, 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 infrmity or defect (Sec. 54, 55, 56, NIL)
e)good faith
Read: 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
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)Accomodation Parties (Sec. 29, NIL)
7)Shelter Rule (Sec. 58, NIL)
Read: Charles Fossum vs Fernandez Hermanos, 44 Phil 713