NEGOTIABLE INSTRUMENTS LAW Course Outline Maria Zarah R. 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 a negotiable instrument
5.
Characteristics of negotiable instrument a. negotiability b. accummulation 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 attorney’s 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 & ByProducts 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: Sesbreño 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)
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)
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(2) (3) (4) d. other (1) (2) (3) (4) (5) (6) (7) (8) (9)
conditional (Sec. 39, NIL) qualified (Sec. 38, NIL) restrictive (Sec. 36 & 37, NIL) rules on indorsement indorsement of an instrument payable to bearer (Sec. 40, NIL) where instrument is payable to two or more persons (Sec. 21, NIL) instrument is drawn or indorsed to a person as cashier (Sec. 42, NIL) where name of payee or indorsee is misspelled (Sec. 43, NIL) indorsement in a representative capacity (Sec. 44, NIL) presumption as to time of indorsement (Sec. 45, NIL) place of indorsement (Sec. 46, NIL) striking out of indorsement (Sec. 48, NIL) 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) 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)
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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: Philippine National Bank vs. Picornell, et al, 46 Phil 716; 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; AgroConglomerates 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; Patrimonio v. Napoleon, G.R. No. 187769, June 4, 2014
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. f.
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3.
material alteration (partial real defense) (Sec. 124 & 125, NIL) extinctive prescription
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: 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;
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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
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) (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)
4.
c.
Instances where presentment is excused (Sec. 79 & 82, NIL)
d.
When delay in presentment excused (Sec. 81, NIL)
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
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d. e.
form of notice (Sec. 43 & 44, NIL) 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. g.
time and place of notice (Sec. 103-108, NIL) when notice is excused or unnecessary (Sec. 109-112, 114115, NIL) when delay in giving notice excused (Sec. 113, NIL)
h.
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; Areza v. Express Savings Bank, Inc., G.R. No. 176697, September 10, 2014
DISCHARGE OF INSTRUMENTS 1. 2.
Concept of discharge 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)
CHECKS 1. 2. 3. 4.
Checks defined (Sec. 185, NIL) Distinguished from draft Relationship between drawer, drawee and payee Kinds of check a. cashier’s and manager’s 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 traveller’s check
5. 6. 7.
when required to be presented for payment (Sec. 185, NIL) effect of death of drawer pertinent Philippine Clearing House Corporation rules
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CASES: New Pacific Timber vs. Hon. Seneris, December 19, 1980; PNB vs. National City Bank of New York, 63 Phil 711; 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
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