PAMANTASAN NG LUNGSOD NG MAYNILA

College of Law
Second Semester, SY 2020-2021

Course Title: Negotiable Instruments Law

Course Code: LAW 5100-2
Units: Three (3)
Schedule: Saturdays, 9:00 – 12:00
Faculty: Atty. Ariel Genaro G. Jawid
Email Address: attyariel68@gmail.com / aggjawid@plm.edu.ph
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Course Description: The course is a study of the statutory provisions governing negotiable
instruments, which is mainly the Negotiable Instruments Law (Act No. 2031), as well as the
applicable provisions of the Code of Commerce and the New Civil Code of the Philippines. The
course includes the study of cases decided by the Supreme Court and in some instances, foreign
decisions and legal opinions applicable in this jurisdiction.

Course Outline:

PRELIMINARY CONSIDERATIONS

1. Governing laws
2. Concept of negotiable instrument
3. Classes of negotiable instrument
a. promissory note
b. bill of exchange
c. check
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

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

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 b. must contain an unconditional promise or order to pay a sum certain in money
i. promise or order to pay must be unconditional
1. reference to transaction (Sec. 3, NIL)
2. source or payment or account to be debited
ii. payable in sum certain in money
1. provisions which do not affect certainty of sum payable
2. payment of interest (Sec. 2, NIL)
3. payment by installments (Sec. 2, NIL)
4. acceleration clause (Sec. 2, NIL)
5. payment with exchange (Sec. 2, NIL)
6. payment of attorney’s fees (Sec. 2, NIL)
c. payable on demand or at a fixed or determinable future time
i. when payable on demand (Sec. 7, NIL)
ii. when payable at determinable future time (Sec. 4, NIL)
d. payable to order or bearer
i. when payable to bearer (Sec. 9, NIL)
1. rule when instrument is payable to a fictitious person
ii. when payable to order
1. to whose order the instrument may be made payable (Sec. 8, NIL)
e. omissions that do not affect negotiability (Sec.6, NIL)
f. additional provisions not affecting negotiability (Sec. 5, NIL)
i. sale of collateral securities
ii. confession of judgment
iii. waiver of benefit
iv. option to require something in lieu of payment
2. Rules to be followed in interpreting negotiable instruments (Sec. 17, NIL)

NEGOTIATION

1. Modes of transfer
2. Concept of negotiation (Sec. 30, NIL); distinguished from assignment
3. Ways of negotiation (in case of order or bearer instruments)
4. Concept of delivery
5. Indorsement
a. Concept
b. how made (Sec. 31 & 32, NIL)
c. kinds:
i. special and blank (Sec. 34 & 35, NIL)
ii. conditional (Sec. 39, NIL)
iii. qualified (Sec. 38, NIL)
iv. restrictive (Sec. 36 & 37, NIL)

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 v. 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)
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
i. rule in case of installment instruments
ii. 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)

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)
i. relationship with drawee
ii. relationship with collecting bank
c. Acceptor (Sec. 127 & 62, NIL)
d. Indorsers
i. General indorsers (Sec. 66, NIL)
ii. Qualified indorser (Sec. 65, NIL)
iii. Order of liability
e. Parties negotiating by mere delivery (Sec. 65, NIL)

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 f. Other cases:
i. irregular indorser (Sec. 64, NIL)
ii. indorser of bearer instrument (Sec. 67, NIL)
iii. accommodation party (Sec. 29, NIL)

iv. agents signing in behalf of the principal

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)
i. forgery of maker’s signature
ii. of indorser’s signature
iii. of drawer’s signature
iv. 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 of consideration,
breach of faith (Sec. 55, 56 & 57, NIL)

ENFORCEMENT OF LIABILITY

1. Parties primarily liable and parties secondarily liable

2. General steps in enforcing liability
a. promissory notes
i. presentment for payment (Sec. 70, NIL)
ii. notice of dishonor (Sec. 89, NIL)
b. bills of exchange
i. presentment for acceptance (Sec. 143, NIL)
1. how made (Sec. 132-135 & 137, NIL)
2. time to accept (Sec. 136, NIL)
3. rule when incomplete bill is accepted (Sec. 138, NIL)
4. kinds of acceptance (Sec. 139-142, NIL)

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 ii. if dishonored by non-acceptance:
1. notice of dishonor (Sec. 89, NIL)
2. 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)
i. date of presentment (Sec. 71, NIL)
1. rule in determining maturity date (Sec. 85, NIL)
2. rule in computing time (Sec. 86, NIL)
3. rule if payable at a bank (Sec. 75, NIL)
ii. place of presentment (Sec. 73 NIL)
1. rule if payable at a special place (Sec. 70, NIL)
iii. presentment to the party primarily liable
1. how presentment made (Sec. 74, NIL)
2. rule in case party primarily liable is already dead(Sec. 76, NIL)
3. presentment to partners (Sec. 77, NIL)(d)presentment to joint
debtors (Sec. 78, NIL)
iv. Instances where presentment is excused (Sec. 79 & 82, NIL)
v. When delay in presentment excused (Sec. 81, NIL)
4. Notice of dishonor
a. when dishonor of the instrument occurs:
i. dishonor by non-payment (Sec. 83, NIL)
ii. dishonor by non-acceptance (Sec. 149, NIL)
b. who should give notice
i. holder
ii. agent
iii. party who may be compelled to pay
c. form of notice (Sec. 43 & 44, NIL)
d. to whom notice is given
i. party secondarily liable or agent (Sec. 97, NIL)
ii. notice where party is dead (Sec. 98, NIL)
iii. notice to partners (Sec. 99, NIL)
iv. notice to persons jointly liable (Sec. 100, NIL)
v. 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)

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 DISCHARGE OF INSTRUMENTS

1. Concept of discharge
2. How instrument is discharged (Sec. 119, NIL)
a. payment in due course (Sec. 88, NIL)
i. by the principal debtor (Sec. 119 [a])
ii. by the accommodated party (Sec. 119[b])
b. intentional cancellation
i. 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. 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)
i. effects of crossing a check
d. memorandum and traveler’s 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

References:

De Leon, H., & De Leon, H., Jr. (2016). The law on negotiable instruments: With documents of
title. Quezon City, Philippines: Rex Printing Company.
Tambasacan, Negotiable Instruments in a Nutshell, 2016 ed.
Becina-Macalino, Philippine Negotiable Instruments Law, 2020 ed.

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