Atty.
Subia Notes
ACT 2031 – Negotiable Instruments Law
Must contain an unconditional promise or order to
Negotiable instrument - written contract for the payment of pay a sum certain in money – (promise, in case of
money, which is intended as a substitute for money and note; order, in case of bill)
passes from one person to another as money, in such a o Sum certain – amount that is to be
manner as to give a holder in due course the right to hold unconditionally paid by the maker / drawer,
the instrument free from defenses available. can be determined on the face of the
instrument
Functions of Negotiable instrument: Must be payable on demand, or at a fixed or
Main Functions: determinable future time
Serve as substitute for money o Three options of maturity:
It is a credit instrument which increases credit On demand – see Sec. 7
circulation At a fixed future time
Other Functions: At a determinable future time – see Sec. 4
It is a medium of exchange Must be payable to order or to bearer – correlate to
Increases purchasing power in circulation Sec. 8 (when payable to order) and Sec. 9 (when
Serves as proof of transactions payable to bearer)
Where the instrument is addressed to a drawee, he
Features of Negotiable Instrument: must be name or otherwise indicated therein with
Negotiability reasonable certainty. – applies only to bill of
Accumulation of secondary contracts exchange
Memorize: *Section 1 of NIL is the most important provision because
Section 1. Form of negotiable instruments the law does not apply if the instrument does not meet the
It must be in writing and signed by the maker or requirement of negotiability.
drawer – (maker, in case of note; drawer, in case of
bill) Kinds of Negotiable instrument:
Section 126. Bill of exchange
Section 184. Promissory notes
authority to complete it by filling up the blanks
Memorize: therein
Section 7. When payable on demand: An instrument is A signature on a blank paper delivered by the
payable on demand: person making the signature in order that the paper
a) When it is so expressed to be payable on demand, or at may be converted into a negotiable instrument
sight, or on presentation (demand, in case of note; sight, in operates a prima facie authority to fill it up as such
case of bill) for any amount.
b) In which no time for payment is expressed. *Sec. 14 applies to incomplete and undelivered instrument.
*correlate to Art, 1868, CC.
Where the instrument is issued, accepted, or indorsed Article 1868. By the contract of agency a person binds
when overdue, it is as regards the person so issuing, himself to render some service or to do something in
accepting, or indorsing it, payable on demand. representation or on behalf of another, with the consent or
Sight – instrument is payable as soon as it is seen by the authority of the latter.
party primarily laible.
Section 15. Incomplete instrument not delivered
Section 11. Date, presumption as to Section 16. Delivery; when effectual; when presumed
Generally, a date is not essential to make an instrument Delivery transfer of possession of the negotiable
negotiable. instrument by one person to another with the intention to
Two dates in a negotiable instrument: transfer title to the instrument.
Date of maturity
Date of the instrument Section 24. Presumption of consideration
Everybody is presumed to have signed the instrument after
Section 13. When date may be inserted – correlate to Sec. receiving the value
30 (What constitutes negotiation)
Section 26. What constitutes holder for value
Section 14. Blanks, when may be filled. In the series of transaction, it had been shown that the
Speaks of two instances: value had been given / paid for
Instrument is wanting any material particular, the
person in possession thereof has prima facie Prior parties
Subsequent parties
“Conclusively presumed” damaged in course of transit, the buyer may decline to treat
“only deemed prima facie” the delivery to the carrier as a delivery to himself, or may
Apply Sec. 26 hold the seller responsible in damages. Unless otherwise
Apply Sec. 24 agreed, where goods are sent by the seller to the buyer
B paid A (as evidenced / proven); reckoning point: B under circumstances in which the seller knows or ought to
Prior parties can no longer testify that they do not receive know that it is usual to insure, the seller must give such
any valuable consideration. notice to the buyer as may enable him to insure them
Under Sec. 26, they had been conclusively presumed to during their transit, and, if the seller fails to do so, the
have received the consideration. goods shall be deemed to be at his risk during such transit.
Subsequent parties can still testify or prove that they do not
receive consideration, for they are only deemed prima facie Section 28. Effect of want of consideration – correlate to
to have received the consideration. Sec. 58 (when subject to original defense)
Defenses against holder not in due course:
Section 27. When lien on instrument constitutes holder a. Absence of consideration
for value. b. Failure to comply with consideration
Lien charge against or interest in property to secure c. Partial absence / failure
payment of debt and/or performance of an obligation
*correlate to Art. 1523, CC Section 29. Liability of accommodation party
Article 1523. Where, in pursuance of a contract of sale, the Accommodation party one who has signed the
seller is authorized or required to send the goods to the instrument as maker, drawer, acceptor, or indorser,
buyer, delivery of the goods to a carrier, whether named by without receiving value therefor, and for the purpose of
the buyer or not, for the purpose of transmission to the lending his name to some other person.
buyer is deemed to be a delivery of the goods to the buyer,
except in the cases provided for in article 1503, first, Memorize:
second and third paragraphs, or unless a contrary intent Section 30. What constitutes negotiation
appears. Unless otherwise authorized by the buyer, the An instrument is negotiated when it is transferred from one
seller must make such contract with the carrier on behalf of person to another in such manner as to constitute the
the buyer as may be reasonable, having regard to the transferee the holder thereof. If payable to bearer, it is
nature of the goods and the other circumstances of the case. negotiated by delivery; if payable to order, it is negotiated
If the seller omit so to do, and the goods are lost or
by the indorsement of the holder and completed by Section 41. Indorsement where payable to two or more
delivery. persons. – correlate to Art. 1802
Article 1802. In case it should have been stipulated that
Section 34. Special indorsement; indorsement in blank none of the managing partners shall act without the
Pertains to two statements: consent of the others, the concurrence of all shall be
A. A special indorsment specifies the person TO WHOM the necessary for the validity of the acts, and the absence or
instrument is to be payable disability of any one of them cannot be alleged, unless there
B. A special indorsment specifies the person TO WHOSE is imminent danger of grave or irreparable injury to the
ORDER the instrument is to be payable, and the partnership.
indorsement of such indorsee is necessary ti the further
negotiation of the instrument Section 47. Continuation of negotiable character. -
correlate to Sec. 36 (1) (when indorsement restrictive) and
Section 36. When indorsment restrictive – correlate to Sec. 119 (instrument how discharged)
Sec. 47 (continuation of negotiable instrument)
Section 49. Transfer without indorsement, effect. –
Section 38. Qualified indorsement - correlate to Sec. 65 applies to instrument payable to order.
(warranty where negotiation by delivery and so forth) Reckoning time: actual time of indorsement
Section 39. Conditional indorsement – correlate to Art. Section 50. when prior party may negotiate instrument
1179, CC – correlate to Sec. 121 (right of a party who
Article 1179. Every obligation whose performance does discharges instrument)
not depend upon a future or uncertain event, or upon a past
event unknown to the parties, is demandable at once. Memorize
Every obligation which contains a resolutory condition Section 52. What constitutes a holder in due course.
shall also be demandable, without prejudice to the effects of A holder in due course is a holder who has taken the
the happening of the event. instrument under the following conditions:
(a) That it is complete and regular upon its face;
Section 40. Indorsement of instrument payable to (b) That he became the holder of it before it was overdue,
bearer. – applies whether it is originally payable to order and without notice that it has been previously dishonored,
or has been converted back to payable to order. if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no Sec. 66(b) – all prior negotiations are all valid
notice of any infirmity in the instrument or defect in the
title of the person negotiating it. Sec. 70 – effect of want of demand on principal debtor -
correlate with Sec 71-73 (due presentment)
Section 53. When person not deemed holder in due
course – correlate with Sec. 71 (presentment where Memorize:
instrument is not payable on demand and where payable Sec. 72 – What constitutes a sufficient presentment;
on demand) Sec. 73 – Place of presentment;
Reasonable time – correlate with Sec. 193 (reasonable time, Sec. 82 – When presentment for payment is excused
what constitutes) Sec. 84 – Liability of secondarily liable – correlate with
Sec. 89 – to whom notice of dishonor must be given
Section 59. Who is deemed a holder in due course. – Sec. 87 – Rule where instrument payable at bank cor.
does not apply to parties prior to the defective title with Sec. 75 – presentment where instrument payable
at bank.
Sec. 62 – Liability of the acceptor correlate to Sec. 127
– bill not an assignment of funds in hands of drawee Sec. 88 – What constitutes payment in due course
It must be made at or after the maturity
Sec. 63 – When a person deemed indorser - correlate to Payment must be to the holder
Sec. 17 – Construction Must be in good faith
There must be no notice that his title is defective
Memorize: Correlate with Sec. 47 – continuation of negotiable
Sec. 65 – Warranty where negotiation by delivery and character; Sec. 19 – Signature by agent
so forth.
*you do not give warranty to the party you had negotiations Sec. 89 – to whom notice of dishonor must be given
with, correlate to Sec. 40 – indorsement of an correlate with Sec. 83 – when instrument dishonored by
instrument payable to bearer. nonpayment
Sec. 90 – by whom given
Sec. 66 – Liability of general indorser – correlate with
Sec. 61 – liability of drawer Person allowed by law to give notice of dishonor:
Holder Sec. 96 – Form of notice cor. with Sec. 102 – time within
Any party to the instrument who might be which notice must be given
compelled to pay the holder
Correlate with Sec. 19 – signature by agent, Sec. 66 – Sec. 107 – notice to subsequent party cor. with Sec. 91 –
liability of general indorser, Sec. 68 – order in which the notice by agent and Sec. 102 - time within which notice
indorsers are liable must be given
Correlate with Article 1816. All partners, including
industrial ones, shall be liable pro rata with all their Sec. 108 – where notice must be sent cor. with Sec. 16 –
property and after all the partnership assets have been privity of the subsequent holders
exhausted, for the contracts which may be entered into in
the name and for the account of the partnership, under its No need to notify the immediate party
signature and by a person authorized to act for the Sec. 117 – Effect of omission to give notice of non-
partnership. However, any partner may enter into a acceptance cor. with Sec. 143 – when presentment for
separate obligation to perform a partnership contract. acceptance must be made
Sec. 91 – notice given by agent correlate with Article Sec. 119 – Instrument how discharged
1868. By the contract of agency a person binds himself to Par. (a) cor. with Sec 88 – what constitute payment in due
render some service or to do something in representation course
or on behalf of another, with the consent or authority of the (b) cor. with Sec. 29 – liability of accommodation party
latter. (c) cor. with Sec. 123 – cancellation
Sec. 92 – Effect of notice on behalf of the holder (e) – refers to absolute liability cor. with Sec. 192 – persons
correlate with Sec. 47 – continuation of negotiable primarily liable
character
Sec. 120 – Discharge of secondarily liable
Sec. 94 – When agent may give notice correlate with Sec. Par. (a) cor. with Sec. 119 – instrument, how discharged
91 – Notice by agent (d) cor. with Sec. 70 – effect of want of demand on principal
Two ways of notice by the agent: debtor
1. Act like a principal in giving notice to the drawer (f) cor. with Secs. 65 – 66 – warranty where negotiation by
2. Notify the principal himself delivery and liability of general indorser
Sec. 121 – Right of party who discharges instrument Sec. 149 – when dishonored by non acceptance cor. with
* pertains to notified indorsers only Sec. 83 – when instrument dishonored by nonpayment
* instrument remains to be negotiable
Sec. 150 – Duty of holder where bill not accepted cor.
Sec. 124 – Alteration of instrument – real defense with Sec. 84 – liability of person secondarily liable
Memorize: Protest - formal instrument executed by a notary public or
Sec. 125 – material alteration; other competent person certifying that thefacts necessary
Sec. 127 – bill not an assignment of funds in hands of to the dishonor of the instrument by non-acceptance or
drawee non-payment have taken place.
Sec. 128 – bill addressed to more than one drawee: Sec. 152 – protest necessary cor. with Sec. 129 – inland
jointly = solidary, both are liable under the NIL. and foreign bills
Sec. 130 – When bill may be treated as promissory Memorize:
note: Sec. 156 – protest, where made cor. with Sec. 152
The drawer and drawee are the same person Sec. 159 – protest dispensed with cor. with Sec. 112 –
Drawee is a fictitious person notice is dispensed with
The holder is a person not having capacity to Sec. 161 – bill accepted for honor
contract Requisites of acceptance for honor:
Bill has been protested for dishonor by non
Sec. 132 – Acceptance cor. with Sec. 142 – rights of parties acceptance or protested for better security
as to qualified acceptance The bill is not overdue
Any person not being a party is already liable
Memorize: There must be the consent of the holder for the
Sec. 143 – Presentment for acceptance acceptance for honor
Sec. 144 – when failure to present releases drawer and Memorize:
indorser cor. with Sec. 193 – reasonable time Sec. 165 – Agreement for acceptor for honor;
Sec. 184 – promissory note
Sec. 185 – check cor. with Sec. 127 – bill not an assignment
of funds
Sec. 194 – Time, how computed cor. with Sec. 86 – time,
how computed
Presentation of the NIL – Act 2031
1. Form and interpretation
2. Consideration
3. Negotiation
4. Rights of the holder
5. Liabilities of the parties
6. Presentment for payment
7. Notice of dishonor
8. Discharge of N.I.
Part II – Bills of exchange
a) Form and interpretation
b) Acceptance
c) Presentment foe acceptance
d) Protest
e) Acceptance for honor
f) Payment for honor
g) Bills in set
h) Promissory notes and check
