Negotiable Instruments Law

Course Syllabus
2nd Semester, Academic Year 2020 – 2021
Judge Christine Muga-Abad

The course covers the study of Negotiable Instruments Law (Act 2031).
At the end of the semester, the students are expected to gain an in-depth knowledge and understanding of the
provisions of the Negotiable Instruments Law, its nature, kinds, and negotiability and negotiations of negotiable
instruments.

NEGOTIABLE INSTRUMENTS LAW

I Introduction & Preliminary Considerations

1. Basic Principles & Governing Laws
2. Characteristics – negotiability and accumulation of
secondary contract
3. Negotiable vs non-negotiable instruments Sesbreno v. Court of Appeals, G.R. No. 89252, May 24,
1993.

4. Some Non-Negotiable Instruments

5. Functions - Substitutes for money, increase Ting ting Pua vs Sps Benito Lo Bun Tiong, G.R. No.
purchasing power in circulation, increases credit 198660, October23, 2013
circulation, medium of exchange and evidence of
transaction
6. Negotiable instrument not legal tender (Sec. 52 of Cases:
the Republic Act No. 7653; BSP Circular No. 537, BPI vs Sps. Royeca, G.R. No. 176664, July 21, 2008,
Series of 2006; Sec. 60 of the Republic Act No. Roman Catholic Bishop of Malolos vs. IAC, GR No.
7653) 72110, Nov 16, 1990.
7. Incidents in the life of Negotiable Instruments Law
8. Classes of negotiable instruments
a. Promissory Note – parties and kinds
b. Bill of Exchange – parties and kinds
9. Distinction between Bill of Exchange and
Promissory Notes
10 Characteristics and Legal Tender Character
11. When Bill is treated as Notes
12. Negotiable instruments compared with other
papers (document of title, letter of credit,
certificate of stock, pawn ticket, postal money
order, treasury warrant)

II Forms and Interpretation of Negotiable Instruments

1. Negotiability how determined. Case:
Caltex Philippines) vs. CA G. R. No. 97753, August 10,
1992.
2. Requisites for negotiability (Section 1, NIL) Cases:
Salas vs CA, G.R. No. 76788, January 22, 1990 Firestone
Tire vs CA,GR No. 113236, March 5, 2001
a. It must be in writing and signed by the
maker or drawer

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II Forms and Interpretation of Negotiable Instruments

b. Must contain an unconditional promise or
order to pay a sum certain in money.
1) promise or order to pay must be
unconditional; when promise is
unconditional (Sec. 3):
a) reference to transaction;
b) source or payment or
account to be debited
2) payable in sum certain in money; what Metropolitan Bank vs CA, G.R. No. 8886618; February
constitutes certainty as to sum. (Sec 1991;
2): Caltex vs CA, G.R. No. 97753 Supra.
a) provisions which do not
affect certainty of sum
payable;
b) payment of interest;
c) payment by instalments;
d) acceleration clause;
e) payment with exchange
f) payment of attorney’s fees
c. Must be payable on demand, or at a fixed
or determinable future time.
1) When payable on demand (Sec. 7)
2) What constitutes determinable
future time. (Sec. 4)
d. Must be payable to order or to bearer; Cases:
when payable to order (Sec. 8); when Consolidated Plywood Industries, Inc. v. IFC Leasing
payable to bearer (Sec. 9); fictitious payee and Acceptance Corporation, G.R. No. L-72593, April
rule, exceptions, burden of proof. 30, 1987;
Ang Tek Lian vs. CA, 87 Phil. 383;
PNB vs Rodriguez and Rodriguez, G.R. No. 170325
September 26, 2008.
e. Where the instrument is addressed to a
drawee, he must be named or otherwise
indicated therein with reasonable certainty
(identification of the drawee); two or more
drawee; option to treat as PN; drawer is at
the same time the drawee.
3. Omissions that do not affect negotiability (Sec. 6),
insertion of date (Sec. 13); Additional Provisions
that Do Not Affect Negotiability (Sec. 6)
4. Terms, when sufficient (Sec. 10)
5. Presumption as to date. (Sec. 11)
6. Ante-dated and post-dated (Sec. 12) San Miguel Corp. vs Puzon, Jr., G.R. No. 167567,
September 22, 2010.
7. Interpretation of Instruments. (Sec. 17) Republic Planters Bank vs. CA, 216 SCRA 738;
Sps. Evangelista vs. Mercato rFinance Corp., et. al,
August 21, 2003;
Ilano vs. Hon. Espanol, G.R. No. 161756,16 December
2005

III Issue, Transfer, and Negotiation of Negotiable Instruments

1. Issuance/Delivery of Negotiable Instruments; Cases:
Meaning

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III Issue, Transfer, and Negotiation of Negotiable Instruments

a. Issue (Sec. 191) Patrimonio vs. Gutuirrez, G.R. No. 187769, June 4,
b. Incomplete instrument not delivered. (Sec. 2014;
15) De La Victoria vs. Judge Burgos, G.R. No. 111190. June
c. Blanks, when may be filled. (Sec. 14) 27, 1995;
d. Delivery; when effectual; when presumed. Development Bank of Rizal vs. Sima Wei, G.R. No.
(Sec. 16) 85419 March 9, 1993;
Lim v. Court of Appeals, [G.R. No.107898. December
19, 1995];
RCBC vs. Hi-Tri Dev. Corp., et. al, G.R. No. 192413,
June13, 2012.
2. Modes of Transfer Cases:
a. Non-negotiable instrument-assignment. Casabuena v. Court of Appeals, G.R. No. 115410.
b. Negotiable instrument – negotiation; February 27, 1988;
c. Other modes of transfer Sesbreno vs. Court of Appeals, G.R. No. 89252. May 24,
d. Distinction between negotiation and 1993.
assignment.
3. Concept of Negotiation; meaning; what constitutes
negotiation; Distinguished from Assignment; Ways
of negotiation (in case of order or bearer
instruments). (Sec 30 and Sec. 16)
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 Cases:
a. Concept People of the Phils. v. Gilbert Reyes Wagas, G.R.
b. How made (Sec. 31 & 32) No.157943, September 4, 2013;
c. Kinds of Indorsement (Sec. 33): Metropol (Bacolod) Financing vs. Sambok Motors Co.,
1) special and blank (Sec. 34 & 35), et al., G.R.No. L-39641, February 28, 1983;
2) conditional (Sec. 39), Gempesaw vs. CA, G.R. No. 92244 February 9, 1993;
3) qualified (Sec. 38), Montinola v. PNB, G.R. No. L-2861. February 26, 1951;
4) restrictive (Sec. 36 & 37)
d. Other rules on indorsement:
1) indorsement of an instrument
payable to bearer (Sec. 40);
2) where instrument is payable to two or
more persons (Sec. 41);
3) instrument is drawn or indorsed to a
person as cashier (Sec. 42);
4) where name of payee or indorsee is
misspelled (Sec. 43);
5) indorsement in a representative
capacity (Sec.44);
6) presumption as to time of
indorsement (Sec. 45);
7) placeof indorsement (Sec. 46);
continuation of negotiable character
(Sec. 470);
8) striking out of indorsement (Sec. 48);
9) transfer of an order instrument
without indorsement (Sec.49).
e. Negotiation by a prior party (Sec. 50, NIL)
f. When a person deemed indorser (Sec. 63)

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IV Consideration for Issuance and Subsequent Transfer

1. Presumption of consideration. (Sec. 24) Cases:
2. What Constitutes Value (Sec. 25) Ting Ting Pua vs. Sps. Benito Lo Bun Tiong and
3. What constitutes holder for value (Sec. 26) Caroline Siok Ching Teng, G.R. No. 198660, October
4. When lien on instrument constitutes holder for 23, 2013;
value. (Sec. 27) Banas Jr. v. Court of Appeals, [G.R. No.102967.
5. Effect of want of consideration (Sec. 28) February 10, 2000;

V Holders
1. General concept of a holder; classes of Holders: Cases:
a. Simple holder De Ocampo vs. Gatchalian, 03 SCRA 596;
b. Holder for value Yang vs. CA, G.R. No. 138074, August 15, 2003;
2. Holder in due course (requisites) (Sec. 52) Mesina vs. IAC, 145 SCRA 497
a. instrument complete and regular Atrium Management v. Court of Appeals, G.R. No.
b. taken before overdue – 109491, February 28, 2001;
1) rule in case of installment Bataan Cigar and Cigarette Factory, Inc. vs Court of
instruments; Appeals, G.R. No. 93048. March 3, 1994;
2) rule in case of demand instruments Stelco Marketing Corporation v. Court of Appeals, G.R.
(Sec. 53) No. 96160. June 17, 1992;
c. notice of infirmity or defect (Sec. 56 & 57) Alvin Patrimonio v.Napoleon Gutierrez , et. al. G.R.
(See also Sec. 54) No. 187769 June 04, 2014
d. good faith
e. holder for value
3. Rights of holders in due course (Sec. 57); (see also
Secs. 14 and 16)
4. Shelter Rule (Sec. 58)
5. Presumption of due course holding (Sec. 59)

VI Liability of Parties
1. Primary and secondary liability distinguished Cases:
2. Liability distinguished from warranties PNB vs. Picornell, et al, 46 Phil 716;
3. Liability and/or warranties of parties Astro Electronics vs. Roxas, et al.,September 23, 2003;
a. Maker (Sec. 60) Garcia vs. Dionisio, December 8, 2003;
b. Drawer (Sec. 61); Crisologo Jose vs. CA, Sept. 15, 1989;
1) relationship with drawee, Sadaya vs. Sevilla, 19 SCRA 924;
2) relationship with collecting bank Travel On vs. CA, 210 SCRA 352;
c. Acceptor (Secs. 127 and 62) Agro-Conglomerates Inc. vs. CA, 348 SCRA 350;
d. Indorsers: Far East vs. Gold Palace Jewelry, G.R. No. 168274,
1) General indorsers (Sec. 66); August 20, 2008.
2) Qualified indorser (Sec. 65);
3) Order of liability (Sec. 68)
e. Parties negotiating by mere delivery (Sec.
65)
f. Other cases:
1) irregular indorser (Sec. 64)
2) indorser of bearer instrument (Sec.
67)
3) accommodation party (Sec. 29),

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VI Liability of Parties
4) agents signing in behalf of the
principal (Sec. 20).

VII 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 maker’s signature
2) of indorser’s signature
3) of drawer’s signature
4) 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
g. of consideration, breach of faith (Sec. 55,
56 & 57, NIL)
Cases:
Salas vs. CA, January 22, 1990;
Philippine National Bank vs. CA, 256 SCRA 491;
International Corporate Bank vs. CA, 05 September
2006;
Associated Bank vs. CA, January 31, 1996;
Jai-Alai vs. BPI, 66 SCRA 29;
Republic vs. Ebrada, July 31, 1975;
Philippine National Bank vs. Quimpo, March 14, 1988;
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

VIII 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)
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

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VIII Enforcement of Liability

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)
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)
b. who should give notice
1) holder
2) agent
3) party who may be compelled to pay
c. form of notice (Sec. 43 & 44, NIL)
d. to whom notice is given
1) party secondarily liable or agent
(Sec. 97, NIL)

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VIII Enforcement of Liability

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) (5) 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)

IX 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])
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)

X Checks
1. Checks defined (Sec. 185, NIL) Cases:
2. Distinguished from draft New Pacific Timber vs. Hon. Seneris, December 19,
3. Relationship between drawer, drawee and payee 1980;
4. Kinds of check PNB vs. National City Bank of New York, 63 Phil 711;
a. cashier’s and manager’s check (See BSP Bataan Cigar vs. CA, 230 SCRA 648;
Circulars 259, series of 2000 & 291, series Stelco Marketing Corporation vs. CA, June 17, 1992;
of 2001) State Investment House vs. CA, 175 SCRA 311;
b. certified check (Sec. 187-189, NIL) Papa vs. A.U. Valencia, 284 SCRA 643;
c. crossed check (Art. 541, Code of Villanueva vs. Nite, G.R. No. 148211, 25 July 2006;
Commerce) Equitable PCI vs. Ong, 15 September 2006;
1) effects of crossing a check Security Bank & Trust Company vs. RCBC, G.R. Nos.
d. memorandum and traveler’s check 170984 & 170987, January 30, 2009
5. when required to be presented for payment (Sec.
185, NIL)
6. effect of death of drawer
7. pertinent Philippine Clearing House Corporation
rules

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