Spectra Notes - Negotiable Instruments Law Compilation

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(1)Negotiable Instruments Law Compilation. Based on the outlined discussion of Atty. Eduardo V. Soleng, Jr. Updated as of: AY: 2014 - 2015. Societas Spectra Legis.

(2) Societas Spectra Legis Negotiable Instruments Law Compilation. TABLE OF CONTENTS THE NEGOTIABLE INSTRUMENTS LAW: (Act No. 2031) .................................................................................................. 8 INTRODUCTION ............................................................................................................................................................. 8 PHILIPPINE EDUCATION CO vs MAURICIO SORIANO ..........................................................................................................................................................................................11. I. FORM AND INTERPRETATION ....................................................................................................................................13 SECTION 1.Form of Negotiable Instruments .......................................................................................................................................................................... 13 CALTEX vs CA..........................................................................................................................................................................................................................................................14 SESBREÑO vs CA ....................................................................................................................................................................................................................................................16 METROBANK vs CA ................................................................................................................................................................................................................................................17 FIRESTONE TIRE & RUBBER COMPANY vs LUZON DEVELOPMENT BANK .........................................................................................................................................................22. SECTION 2. Certainty as to Sum; What Constitutes. .............................................................................................................................................................. 23 SECTION 3.When Promise is Unconditional ........................................................................................................................................................................... 24 SECTION 4.Determinable Future Time; What Constitutes .................................................................................................................................................... 26 SECTION 5.Additional Provision Not Affecting Negotiability ................................................................................................................................................ 29 SECTION 6.Omission; Seal; Particular Money......................................................................................................................................................................... 31 SECTION 7.When Payable on Demand ................................................................................................................................................................................... 32 SECTION 8.When Payable to Order ......................................................................................................................................................................................... 32 SECTION 9.When Payable to Bearer ....................................................................................................................................................................................... 34 ANG TEK LIAN vs CA ..............................................................................................................................................................................................................................................36. SECTION 10.Terms, When Sufficient ....................................................................................................................................................................................... 37 SECTION 11.Date, Presumption As To .................................................................................................................................................................................... 37 SECTION 12.Antedated and Postdated ................................................................................................................................................................................... 38 SECTION 13.When Date May Be Inserted .............................................................................................................................................................................. 38 SECTION 14.Blanks; When May Be Filled ............................................................................................................................................................................... 39 SECTION 15.Incomplete Instrument Not Delivered ............................................................................................................................................................... 43 SECTION 16.Delivery; When Effectual; When Presumed ...................................................................................................................................................... 44 DBR vs SIMA WEI ...................................................................................................................................................................................................................................................44. SEC 17. Construction where instrument is ambiguous.......................................................................................................................................................... 48 SEC 18. Liability of person signing in trade or assumed name .............................................................................................................................................. 49 SEC 19. Signature by agent; authority; how shown. .............................................................................................................................................................. 49 SEC 20. Liability of person signing as agent ............................................................................................................................................................................ 50 PHILCOM vs ARUEGO ............................................................................................................................................................................................................................................50 FRANCISCO vs. CA..................................................................................................................................................................................................................................................51. SEC 21. Signature of Procuration ............................................................................................................................................................................................ 51 SEC 22. Effect of indorsement by infant or corporation........................................................................................................................................................ 51 SECTION 23.Forged Signature; Effect of ................................................................................................................................................................................. 52 JAI-ALAI VS BPI .......................................................................................................................................................................................................................................................52 REPUBLIC VS EBRADA:...........................................................................................................................................................................................................................................52 MWSS vs CA ...........................................................................................................................................................................................................................................................53 BDO vs EQUITABLE ................................................................................................................................................................................................................................................60 GEMPESAW vs CA ..................................................................................................................................................................................................................................................61 ASSOCIATED BANK vs CA ......................................................................................................................................................................................................................................61 METROPOLITAN BANK vs FIRST NATIONAL CITY BANK 24 hour notice ............................................................................................................................................................62 REPUBLIC BANK vs CA 24 hour notice..................................................................................................................................................................................................................63 PCIB vs CA 50-50 ....................................................................................................................................................................................................................................................63 RAMON ILUSORIO vs CA proximate cause ..........................................................................................................................................................................................................64. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 2.

(3) Societas Spectra Legis Negotiable Instruments Law Compilation SAMSUNG CONSTRUCTION vs CA ........................................................................................................................................................................................................................64. II. CONSIDERATION.......................................................................................................................................................65 SECTION 24.Presumption of Consideration............................................................................................................................................................................ 65 SECTION 25.Value, What Constitutes ..................................................................................................................................................................................... 65 SECTION 26.What Constitutes Holder for Value .................................................................................................................................................................... 66 SECTION 27.When Lien on Instrument Constitutes Holder for Value .................................................................................................................................. 66 SECTION 28. Effect of Want of Consideration ........................................................................................................................................................................ 67 SECTION 29.Liability of Accommodation Party ...................................................................................................................................................................... 68 SADAYA vs SEVILLA ................................................................................................................................................................................................................................................69 CRISOLOGO-JOSE vs CA .........................................................................................................................................................................................................................................69 STELCO MARKETING vs CA....................................................................................................................................................................................................................................70 TRAVEL-ON vs CA...................................................................................................................................................................................................................................................70 BPI vs CA .................................................................................................................................................................................................................................................................71 AGRO-CONGLOMERATE vs CA..............................................................................................................................................................................................................................71. III. NEGOTIATION..........................................................................................................................................................72 SECTION 30.What Constitutes Negotiation ............................................................................................................................................................................ 72 SECTION 31.Endorsement; How Made ................................................................................................................................................................................... 73 SECTION 32.Endorsement Must Be of Entire Instrument ..................................................................................................................................................... 73 SECTION 33.Kinds of Endorsement ......................................................................................................................................................................................... 74 SECTION 34.Special Endorsement; Endorsement in Blank.................................................................................................................................................... 74 SECTION 35.Blank Endorsement; How Changed to Special Endorsement ........................................................................................................................... 75 SECTION 36.When Endorsement Restrictive .......................................................................................................................................................................... 75 SECTION 37.Effect of Restrictive Indorsement; Rights of Indorsee ...................................................................................................................................... 76 SECTION 38.Qualified Indorsement ........................................................................................................................................................................................ 76 SECTION 40.Indorsement of Instrument Payable to Bearer ................................................................................................................................................. 77 SECTION 41.Indorsement Where Payable to Two or More Persons .................................................................................................................................... 78 SECTION 42.Effect of Instrument Drawn or Indorsed to a Person as Cashier ..................................................................................................................... 78 SECTION 43.Indorsement Where Name is Misspelled, and So Forth ................................................................................................................................... 78 SECTION 44.Indorsement in Representative Capacity........................................................................................................................................................... 78 SECTION 45.Time of Indorsement; Presumption ................................................................................................................................................................... 79 SECTION 46.Place of Indorsement; Presumption .................................................................................................................................................................. 79 SECTION 47.Continuation of Negotiable Character ............................................................................................................................................................... 79 SECTION 48. Striking Out Indorsement................................................................................................................................................................................... 79 SECTION 49.Transfer Without Indorsement; Effect of .......................................................................................................................................................... 80 SECTION 50.When Prior Party May Negotiate Instrument ................................................................................................................................................... 80. IV. RIGHTS OF A HOLDER ..............................................................................................................................................80 SECTION 51.Right of Holder to Sue; Payment ........................................................................................................................................................................ 80 SECTION 52.What Constitutes a Holder in Due Course ......................................................................................................................................................... 80 DE OCAMPO vs GATCHALIAN Exception..............................................................................................................................................................................................................82 MESINA vs IAC .......................................................................................................................................................................................................................................................83. SECTION 53.When Person Not Deemed Holder in Due Course ............................................................................................................................................ 83 SECTION 54.Notice Before Full Amount Paid ......................................................................................................................................................................... 83 SECTION 55.When Title Defective ........................................................................................................................................................................................... 84 SECTION 56.What Constitutes Notice of Defect .................................................................................................................................................................... 84 SECTION 57.Rights of Holder in Due Course........................................................................................................................................................................... 84 SECTION 58.When Subject to Original Defenses.................................................................................................................................................................... 84. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 3.

(4) Societas Spectra Legis Negotiable Instruments Law Compilation SECTION 59.Who is Deemed Holder in Due Course .............................................................................................................................................................. 85. V. LIABILITIES OF PARTIES .............................................................................................................................................85 LIABILITY OF MAKER ................................................................................................................................................................................................................. 85 LIABILITY OF DRAWER .............................................................................................................................................................................................................. 86 LIABILITY OF ACCEPTOR ........................................................................................................................................................................................................... 88 WHEN PERSON DEEMED INDORSER ....................................................................................................................................................................................... 90 LIABILITY OF IRREGULAR INDORSER ....................................................................................................................................................................................... 90 WARRANTY WHERE NEGOTIATION BY DELIVERY AND SO FORTH ........................................................................................................................................ 91 LIABILITY OF GENERAL INDORSER ........................................................................................................................................................................................... 93 METROPOL vs. SAMBOK MOTORS CO. ................................................................................................................................................................................................................93 MARALIT vs. IMPERIAL ..........................................................................................................................................................................................................................................94 SAPIERA vs. CA .......................................................................................................................................................................................................................................................95 BPI vs. CA and NAPIZA ...........................................................................................................................................................................................................................................95. LIABILITY OF INDORSER WHERE PAPER NEGOTIABLE BY DELIVERY ..................................................................................................................................... 98 ORDER IN WHICH INDORSERS ARE LIABLE ............................................................................................................................................................................. 98 LIABILITY OF AN AGENT OR BROKER ....................................................................................................................................................................................... 99. VI. PRESENTATION FOR PAYMENT ................................................................................................................................99 EFFECT OF WANT OF DEMAND ON PRINCIPAL DEBTOR ....................................................................................................................................................... 99 PRESENTMENT WHERE INSTRUMENT IS NOT PAYABLE ON DEMAND AND WHERE PAYABLE ON DEMAND ................................................................. 101 PRUDENTIAL BANK vs. CA ...................................................................................................................................................................................................................................102 WONG vs CA ........................................................................................................................................................................................................................................................102 ICB vs Sps GUECO ................................................................................................................................................................................................................................................104. WHAT CONSTITUTES A SUFFICIENT PRESENTMENT ............................................................................................................................................................ 106 PLACE OF PRESENTMENT ....................................................................................................................................................................................................... 106 INSTRUMENT MUST BE EXHIBITED ....................................................................................................................................................................................... 107 PRESENTMENT WHERE INSTRUMENT PAYABLE AT BANK .................................................................................................................................................. 107 PRESENTMENT WHERE PRINCIPAL DEBTOR IS DEAD .......................................................................................................................................................... 108 PRESENTMENT TO PERSONS LIABLE AS PARTNERS ............................................................................................................................................................. 108 PRESENTMENT TO JOINT DEBTORS ...................................................................................................................................................................................... 108 WHEN PRESENTMENT NOT REQUIRED TO CHARGE THE DRAWER .................................................................................................................................... 108 WHEN PRESENTMENT NOT REQUIRED TO CHARGE THE INDORSER .................................................................................................................................. 109 WHEN DELAY IN MAKING PRESENTMENT IS EXCUSED ....................................................................................................................................................... 109 WHEN PRESENTMENT MAY BE DISPENSED WITH ............................................................................................................................................................... 109 WHEN INSTRUMENT DISHONORED BY NON-PAYMENT ...................................................................................................................................................... 110 LIABILITY OF PERSON SECONDARILY LIABLE, WHEN INSTRUMENT DISHONORED............................................................................................................ 111 TIME OF MATURITY ................................................................................................................................................................................................................ 111 TIME; HOW COMPUTED ........................................................................................................................................................................................................ 111 RULE WHERE INSTRUMENT PAYABLE AT BANK ................................................................................................................................................................... 112 WHAT CONSTITUTES PAYMENT IN DUE COURSE................................................................................................................................................................. 112. VII. NOTICE OF DISHONOR ..........................................................................................................................................113 TO WHOM NOTICE OF DISHONOR MUST BE GIVEN ............................................................................................................................................................ 113 BY WHOM GIVEN.................................................................................................................................................................................................................... 114 NOTICE GIVEN BY AGENT ....................................................................................................................................................................................................... 115 EFFECT OF NOTICE GIVEN ON BEHALF OF HOLDER ............................................................................................................................................................. 115 EFFECT WHERE NOTICE IS GIVEN BY PARTY ENTITLED THERETO ....................................................................................................................................... 115. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 4.

(5) Societas Spectra Legis Negotiable Instruments Law Compilation WHEN AGENT MAY GIVE NOTICE .......................................................................................................................................................................................... 116 WHEN NOTICE SUFFICIENT .................................................................................................................................................................................................... 116 FORM OF NOTICE ................................................................................................................................................................................................................... 116 TO WHOM NOTICE MAY BE GIVEN ....................................................................................................................................................................................... 117 SECTION 98.Notice Where Party is Dead .............................................................................................................................................................................. 117 NOTICE TO PARTNERS ............................................................................................................................................................................................................ 118 NOTICE TO PERSONS JOINTLY LIABLE ................................................................................................................................................................................... 118 NOTICE TO BANKRUPT ........................................................................................................................................................................................................... 118 TIME WITHIN WHICH NOTICE MUST BE GIVEN.................................................................................................................................................................... 118 WHERE PARTIES RESIDE IN SAME PLACE .............................................................................................................................................................................. 119 WHERE PARTIES RESIDE IN DIFFERENT PLACES ................................................................................................................................................................... 119 WHEN SENDER DEEMED TO HAVE GIVEN DUE NOTICE ...................................................................................................................................................... 120 DEPOSIT IN POST-OFFICE; WHAT CONSTITUTES .................................................................................................................................................................. 121 NOTICE OF SUBSEQUENT PARTY; TIME OF ........................................................................................................................................................................... 121 WHERE NOTICE MUST BE SENT ............................................................................................................................................................................................. 121 WAIVER OF NOTICE ................................................................................................................................................................................................................ 121 WHOM AFFECTED BY WAIVER .............................................................................................................................................................................................. 122 WAIVER OF PROTEST.............................................................................................................................................................................................................. 122 WHEN NOTICE IS DISPENSED WITH ...................................................................................................................................................................................... 122 DELAY IN GIVING NOTICE; HOW EXCUSED ........................................................................................................................................................................... 123 WHEN NOTICE NEED NOT BE GIVEN TO DRAWER ............................................................................................................................................................... 123 WHEN NOTICE NEED NOT BE GIVEN TO INDORSER............................................................................................................................................................. 124 NOTICE OF NON-PAYMENT WHERE ACCEPTANCE REFUSED .............................................................................................................................................. 124 EFFECT OF OMISSION TO GIVE NOTICE OF NON-ACCEPTANCE .......................................................................................................................................... 125 WHEN PROTEST NEED NOT BE MADE; WHEN MUST BE MADE .......................................................................................................................................... 125. VIII. DISCHARGE OF NEGOTIABLE INSTRUMENTS........................................................................................................126 INSTRUMENT; HOW DISCHARGED ........................................................................................................................................................................................ 126 WHEN PERSONS SECONDARILY LIABLE ON, DISCHARGED .................................................................................................................................................. 129 RIGHT OF PARTY WHO DISCHARGES INSTRUMENT ............................................................................................................................................................. 130 RENUNCIATION BY HOLDER .................................................................................................................................................................................................. 131 CANCELLATION; UNINTENTIONAL; BURDEN OF PROOF...................................................................................................................................................... 132 ALTERATION OF INSTRUMENT; EFFECT OF .......................................................................................................................................................................... 132 PNB vs CA .............................................................................................................................................................................................................................................................132 MONTINOLA V. PNB ............................................................................................................................................................................................................................................135. WHAT CONSTITUTES A MATERIAL ALTERATION .................................................................................................................................................................. 136. IX. BILLS OF EXCHANGE: FORM AND INTERPRETATION...............................................................................................137 BILL OF EXCHANGE, DEFINED ................................................................................................................................................................................................ 137 BILL NOT AN ASSIGNMENT OF FUNDS IN HANDS OF DRAWEE .......................................................................................................................................... 137 BILL ADDRESSED TO MORE THAN ONE DRAWEE ................................................................................................................................................................. 137 INLAND AND FOREIGN BILLS OF EXCHANGE ........................................................................................................................................................................ 138 WHEN BILL MAY BE TREATED AS PROMISSORY NOTE......................................................................................................................................................... 138 REFEREE IN CASE OF NEED..................................................................................................................................................................................................... 139. X. ACCEPTANCE ..........................................................................................................................................................139 ACCEPTANCE; HOW MADE, AND SO FORTH ........................................................................................................................................................................ 139 HOLDER ENTITLED TO ACCEPTANCE ON FACE OF BILL ........................................................................................................................................................ 140. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 5.

(6) Societas Spectra Legis Negotiable Instruments Law Compilation ACCEPTANCE BY SEPARATE INSTRUMENT ........................................................................................................................................................................... 141 PROMISE TO ACCEPT; WHEN EQUIVALENT TO ACCEPTANCE ............................................................................................................................................. 141 TIME ALLOWED DRAWEE TO ACCEPT ................................................................................................................................................................................... 141 LIABILITY OF DRAWEE RETAINING OR DESTROYING BILL .................................................................................................................................................... 142 ACCEPTANCE OF INCOMPLETE BILL ...................................................................................................................................................................................... 143 KINDS OF ACCEPTANCE .......................................................................................................................................................................................................... 143 WHAT CONSTITUTES A GENERAL ACCEPTANCE ................................................................................................................................................................... 143 QUALIFIED ACCEPTANCE........................................................................................................................................................................................................ 143 RIGHTS OF PARTIES AS TO QUALIFIED ACCEPTANCE ........................................................................................................................................................... 144. XI. PRESENTMENT FOR ACCEPTANCE..........................................................................................................................144 WHEN PRESENTMENT FOR ACCEPTANCE MUST BE MADE ................................................................................................................................................. 144 WHEN FAILURE TO PRESENT RELEASES DRAWER AND INDORSER ..................................................................................................................................... 145 PRESENTMENT; HOW MADE ................................................................................................................................................................................................. 145 ON WHAT DAYS PRESENTMENT MAY BE MADE .................................................................................................................................................................. 147 PRESENTMENT WHERE TIME IS INSUFFICIENT .................................................................................................................................................................... 147 WHERE PRESENTMENT IS EXCUSED ...................................................................................................................................................................................... 147 WHEN DISHONORED BY NON-ACCEPTANCE ........................................................................................................................................................................ 147 DUTY OF HOLDER WHERE BILL NOT ACCEPTED ................................................................................................................................................................... 147 RIGHT OF HOLDER WHERE BILL NOT ACCEPTED .................................................................................................................................................................. 148. XII. PROTEST ...............................................................................................................................................................148 IN WHAT CASES PROTEST NECESSARY .................................................................................................................................................................................. 148 PROTEST; HOW MADE ........................................................................................................................................................................................................... 149 PROTEST; BY WHOM MADE................................................................................................................................................................................................... 149 PROTEST; WHEN TO BE MADE .............................................................................................................................................................................................. 150 PROTEST; WHERE MADE ........................................................................................................................................................................................................ 150 PROTEST BOTH FOR NON-ACCEPTANCE AND NON-PAYMENT ........................................................................................................................................... 150 PROTEST BEFORE MATURITY WHERE ACCEPTOR INSOLVENT ............................................................................................................................................ 150 WHEN PROTEST DISPENSED WITH ........................................................................................................................................................................................ 151 PROTEST WHERE BILL IS LOST, AND SO FORTH.................................................................................................................................................................... 151. XIII. ACCEPTANCE FOR HONOR ...................................................................................................................................151 WHEN BILL MAY BE ACCEPTED FOR HONOR ........................................................................................................................................................................ 151 ACCEPTANCE FOR HONOR; HOW MADE .............................................................................................................................................................................. 152 WHEN DEEMED TO BE AN ACCEPTANCE FOR HONOR OF THE DRAWER ........................................................................................................................... 152 LIABILITY OF THE ACCEPTOR FOR HONOR ............................................................................................................................................................................ 152 AGREEMENT OF ACCEPTOR FOR HONOR ............................................................................................................................................................................. 153 MATURITY OF BILL PAYABLE AFTER SIGHT; ACCEPTED FOR HONOR ................................................................................................................................. 153 PROTEST OF BILL ACCEPTED FOR HONOR, AND SO FORTH ................................................................................................................................................ 153 PRESENTMENT FOR PAYMENT TO ACCEPTOR FOR HONOR, HOW MADE ......................................................................................................................... 153 WHEN DELAY IN MAKING PRESENTMENT IS EXCUSED ....................................................................................................................................................... 153 DISHONOR OF BILL BY ACCEPTOR FOR HONOR ................................................................................................................................................................... 154. XIV. PAYMENT FOR HONOR ........................................................................................................................................154 WHO MAY MAKE PAYMENT FOR HONOR ............................................................................................................................................................................ 154 PAYMENT FOR HONOR; HOW MADE .................................................................................................................................................................................... 154 DECLARATION BEFORE PAYMENT FOR HONOR ................................................................................................................................................................... 154 PREFERENCE OF PARTIES OFFERING TO PAY FOR HONOR .................................................................................................................................................. 155. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 6.

(7) Societas Spectra Legis Negotiable Instruments Law Compilation EFFECT ON SUBSEQUENT PARTIES WHERE BILL IS PAID FOR HONOR ................................................................................................................................ 155 WHERE HOLDER REFUSES TO RECEIVE PAYMENT SUPRA PROTEST ................................................................................................................................... 156 RIGHTS OF PAYER FOR HONOR ............................................................................................................................................................................................. 156. XV. BILLS IN A SET .......................................................................................................................................................156 BILLS IN SETS CONSTITUTE ONE BILL .................................................................................................................................................................................... 156 RIGHTS OF HOLDERS WHERE DIFFERENT PARTS ARE NEGOTIATED ................................................................................................................................... 156 LIABILITY OF HOLDER WHO INDORSES TWO OR MORE PARTS OF A SET TO DIFFERENT PERSONS ................................................................................. 156 ACCEPTANCE OF BILLS DRAWN IN SETS ............................................................................................................................................................................... 157 PAYMENT BY ACCEPTOR OF BILLS DRAWN IN SETS ............................................................................................................................................................. 157 EFFECT OF DISCHARGING ONE OF A SET .............................................................................................................................................................................. 157. XVI. PROMISSORY NOTES AND CHECKS ......................................................................................................................157 PROMISSORY NOTE, DEFINED ............................................................................................................................................................................................... 157 CHECK, DEFINED ..................................................................................................................................................................................................................... 159 STATE INVESTMENT HOUSE VS COURT OF APPEALS ........................................................................................................................................................................................161 BATAAN CIGAR VS COURT OF APPEALS .............................................................................................................................................................................................................162 CITYTRUST BANKING CORP VS INTERMEDIATE APPELLATE COURT ................................................................................................................................................................162 TAN VS. COURT OF APPEALS ..............................................................................................................................................................................................................................163. WITHIN WHAT TIME A CHECK MUST BE PRESENTED .......................................................................................................................................................... 165 PAPA vs. AU VALENCIA AND CO. ........................................................................................................................................................................................................................165. CERTIFICATION OF CHECK; EFFECT OF .................................................................................................................................................................................. 167 EFFECT WHERE THE HOLDER OF CHECK PROCURES IT TO BE CERTIFIED ........................................................................................................................... 167 WHEN CHECK OPERATES AS AN ASSIGNMENT .................................................................................................................................................................... 168. XVII. GENERAL PROVISIONS ........................................................................................................................................168 REASONABLE TIME, WHAT CONSTITUTES ............................................................................................................................................................................ 168. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 7.

(8) Societas Spectra Legis Negotiable Instruments Law Compilation. THE NEGOTIABLE INSTRUMENTS LAW: (Act No. 2031) INTRODUCTION Discuss briefly the history of Negotiable Instruments Law: The Negotiable Instruments Law of the Philippines was patterned after the draft approved by the Commissioners on Uniform State laws in the United States which was patterned after the Bills of Exchange Act of England which was codified in that country in 1882. Prior to the Bills of Exchange Act in 1882, from what law did the English people patterned the said act? From the law of merchants. The English copied this law and codified it under the Bills of Exchange Act. Then it was copied by the United States of America until such time that they decided a unified Negotiable Instruments Law. Since the Philippines was under the dominion of the USA at that time, we patterned our NIL from their unified NIL. What are the governing laws of Negotiable Instruments in the Philippines? (1) Act No. 2031 (which was enacted on February 3, 1911 and took effect 90 days after its publication was completed. This was on March 4, 1911 and therefore, the Act took effect on June 2, 1911.) (2) The Code of Commerce (those provisions which were not repealed by the passage of the New Civil Code) (2) New Civil Code (applied suppletorily to the NIL) Why is it important for us to determine the origin of the NIL? It is important because in interpreting our NIL, the courts, particularly our Supreme Court, may consult English or American jurisprudence, in instances where there are vague provisions in our NIL. The English and American NIL laws are our main sources of the NIL. What are the common forms or kinds of negotiable instruments? These are: (1) promissory notes, (2) bills of exchange, and (3) checks, which are a special kind of a bills of exchange. *What is a negotiable promissory note? It is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand or at a fixed or determinable future time, a sum certain in money to order or to bearer. Give an example of a promissory note: P10,000 Cebu City, Philippines December 1, 2013 For value received, I promise to pay to the order of Jo Black the sum of Ten Thousand Pesos (P10,000) on or before December 31, 2014 at the River Bank, Cebu City. (Sgd.) Chris Brown What are the general characteristics of a promissory note: (1) The promise, “I promise to pay” consists of an absolute promise to pay. It is not subject to the fulfillment of a condition. (2) The words “to the order of” means that the promise is to pay as ordered or commanded by the payee. But an instrument may be payable to bearer. (3) The name “Jo Black” is the person whose order of command the money is promised to be paid. He is known as the payee. (4) The signature “Chris Brown” is made by the maker of the note. He is the one who promised to pay it at the first instance.. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 8.

(9) Societas Spectra Legis Negotiable Instruments Law Compilation (5) The amount “Ten Thousand Pesos” indicates, as the figures do, the sum to be promised to be paid. As it is written in words, it cannot be easily altered and since it takes longer to write in words than the figures, the words are more likely to be accurate. What are the elements of negotiability? 1) It must be in writing and signed by the maker or drawer; 2) Must contain an unconditional promise or order to pay a sum certain in money; 3) Must be payable on demand, or at a fixed or determinable future time; 4) Must be payable to order or to bearer; and 5) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. What are the special kinds of promissory notes? Bank notes, Bonds, certificate of deposit, due bills. What are bank notes? They are promissory notes of the issuing bank payable to bearer on demand and intended to circulate as money. They are regarded as cash and pass from hand to hand without any evidence of title in the holder than that which arises from possession. However, they are not money. What is a bond? It is promise, under seal, to pay money. It may also be defined as a series of instruments representing unites of indebtedness regarded as parts of one entire debt. The bond certifies that the issuing company is indebted to the bondholder for the amount specified on the face of the bond and contains an agreement of the company to pay a specified interest on the principal amount at regular intervals. Bonds are negotiable if they conform with Section 1 of the NIL. Is it the same bond you issue to NLRC in order to perfect an appeal? No because the purpose of that bond is to pay the claims of the workers in case your appeal is dismissed while the bond in the concept of negotiable instrument is a promise, under seal, to pay money. What is a certificate of deposit? It is a written acknowledgement by a bank of the receipt of money on deposit which the bank promises to pay to the depositor, bearer, or to some other person or order. It is not ipso facto a negotiable instrument. To be such, it must conform to Section 1 of the NIL. What is a due bill? It is an instrument whereby one person acknowledges his indebtedness to another. If it conforms with Section 1 of the NIL, a due bill is considered a negotiable promissory note. Give an example of a due bill: Due B, P200, payable to his order. (Sgd.) A *What is a bill of exchange? It is an unconditional order in writing addressed by one person to another signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer. Give an example of a bill of exchange: P10,000 Cebu City, Philippines December 1, 2013 Thirty days after sight, pay to the order of Pedro Alamban, the sum of Ten Thousand Pesos (P10,000). Value received and charge the same to the account of (Sgd.) Ernesto Reyes To Augusto Tolentino University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 9.

(10) Societas Spectra Legis Negotiable Instruments Law Compilation What are the characteristics of a bill of exchange? (1) The order or command to pay “Pay to”. This is an order or command to pay. (2) The signature, “Ernesto Reyes”. He is the drawer. (3) The name “Augusto Tolentino”. He is the drawee, i.e., the one ordered or commanded to pay a sum certain in money. Distinguished between a bill of exchange and a promissory note: Bill of Exchange As to the number of parties: 3 (drawer, drawee, payee) As to the unconditional thing to It is an unconditional order or a do command As to the person who executes The drawer the written order or promise: As to whose primarily liable: The drawee As to the number of 2 (presentment for acceptance, presentments: presentment for payment). Promissory Note 2 (maker, payee) It is an unconditional promise The maker The maker 1 (presentment for payment). What are the special types of bills of exchange? (1) banker’s acceptance (2) draft (3) money orders (4) trade acceptance (5) treasury warrants (6) clean bill of exchange What is a banker’s acceptance? It is a bill of exchange of which the acceptor is a bank or banker engaged generally in the business of granting banker’s acceptance credit. It is similar to a trade acceptance, the fundamental difference being that the banker’s acceptance is drawn against the bank instead of the buyer. What is a money order? A species of draft drawn by the post-office upon another for an amount of money deposited at the first office by the person purchasing the money order and payable at the second office to payee named in the order. Is a money order negotiable? Postal money orders are not negotiable instruments because in establishing and operating a postal money order system, the government is not engaging in commercial transactions but merely exercises a governmental power for the public benefit. What is a draft? It is a common term for all bills of exchange and they are used synonymously. What is a trade acceptance? It is a bill of exchange drawn by the seller on the buyer of goods sold and accepted by such buyer. It is a negotiable instrument because it complies with the requisites under the Negotiable Instruments Law. What is a treasury warrant? It is actually an order for payment out of a particular fund and is not unconditional and does not fulfill one of the essential requirements of a negotiable instrument, i.e, the unqualified order or promise to pay must be unconditional and an order or promise to pay out of a particular fund is not unconditional. Treasury warrants are paid out of a particular fund, i.e., Fund 501 which makes it not unconditional. This is a non-negotiable instrument.. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 10.

(11) Societas Spectra Legis Negotiable Instruments Law Compilation What is a clean bill of exchange? Is one to which are not attached documents of title to be delivered to the person against whom the bill is drawn when he either accepts or pays the bill. PHILIPPINE EDUCATION CO vs MAURICIO SORIANO FACTS: Enrique Montinola sought to purchase from Manila Post Office ten money orders. He managed to steal such checks and a message was sent to instruct all banks that it must not pay for the money order stolen. Philippine Education Co received one of the above mentioned money orders as part of its sales receipts. The following day it deposited the same with the Bank of America, and one day thereafter the latter (BA) cleared it. After learning that the money order had been irregulary issued, the Money Order Division deducted BA’s clearing and the latter, in turn, debited appellant’s account. ISSUE: Whether or not the postal money order in question is a negotiable instrument. HELD: Postal money orders are not negotiable instruments, the reason behind this rule being that, in establishing and operating a postal money order system, the government is not engaging in commercial transactions but merely exercises a governmental power for the public benefit. Moreover, there are provisions in the postal money order law of the Philippines which are not in consonance with our Negotiable Instruments Law. For instance, such laws and regulations usually provide for not more than one endorsement. While under our NIL, endorsements are allowed for a number of times. What is a time bill? It is a bill which is payable at a fixed future time or at a determinable future time. What is an inland bill? It is a bill of exchange which is both drawn and payable within the Philippines. What is a foreign bill? A bill which on its face purports to be drawn and payable outside the Philippines. Any bill which does not fit the specification of an inland bill. What if it is drawn in the Philippines but payable outside the Philippines? It is still a foreign bill. What if it is drawn outside the Philippines but payable in the Philippines? It is still a foreign bill. What is a check? A bill of exchange drawn on a bank payable on demand. What are the general characteristics of a check? 1) There is an order or command to pay; 2) There is a signature of the drawer; 3) The name of the Bank who is ordered or commanded to pay a sum certain in money. What are the special types of checks? The following are special types of checks: 1) cashier’s check 2) manager’s check 3) memorandum check 4) certified check 5) crossed check What is a cashier’s check? It is one drawn by the cashier of a bank in the name of the bank against the bank itself payable to a third person or order. There is an assurance that the check is funded.. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 11.

(12) Societas Spectra Legis Negotiable Instruments Law Compilation What is a manager’s check? It is a check drawn by the manager of a bank in the name of the bank against the bank itself. It is similar to the cashier’s check as to effect and use. It is negotiable because it complies with the requisites on forms under the Negotiable Instruments Law. What is a memorandum check? A check on which is written the word “memorandum”, “memo” and “mem”, signifying that the drawer engages to pay the bona fide holder absolutely and not upon a condition to pay upon presentment and non-payment. It is given by the borrower to the lender as evidence of his indebtedness. What is the purpose of a memorandum check? It is one of the securities given to the lender by the borrower. It is not supposed to be presented for payment. It is simply an evidence of the borrower’s indebtedness. Can the lender still present it for payment? Yes, it can be presented for payment. Can the borrower, as a matter of defense in a BP 22 case, say that is it just a memorandum check, that it is not supposed to be presented for payment? No, it is not a matter of defense. He can still be held liable under BP 22. What is the purpose of BP 22? The purpose is to punish those who issue checks with insufficient fund. What is a certified check? A check on which the drawee bank has written an agreement whereby it undertakes to pay the check at any future time when presented for payment such as, by stamping on the check the word “certified” and underneath it is written the signature of the cashier. What is cross check? It is a check where there is stamped across the face of the check the name of a certain banker through whom it must be presented for payment, and if presented by any one else, it will not be honored. How is the crossing of check done? Crossing of the check is usually done by drawing parallel lines transversally on the face of the check. A check may be crossed 1) specially or 2) generally. What is the purpose of crossing the check For security reasons, it gives assurance to the drawer that it will be paid to the rightful owner especially when it is to be forwarded by mail or when it is entrusted to any agent. Is a cross-check a negotiable instrument? Yes, because such complies with the requirements on negotiable instrument under Section 1 of the NIL. How about a warehouse receipt, is it a negotiable instrument? No, it is not a negotiable instrument because a warehouse instrument represent goods, not money. What about pawn tickets (papel de agencia)? No, it is not a negotiable instrument because pawn tickets represent the pawned item(s), not the money. What about a bill of lading? No, it is not a negotiable instrument because a bill of lading represents goods, not money. What about trust receipt? No, it is not a negotiable instrument because it is an evidence of ownership.. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 12.

(13) Societas Spectra Legis Negotiable Instruments Law Compilation Distinctions between a check and a bill of exchange. (add as to) CHECK BILL OF EXCHANGE A check is always drawn upon a bank or banker An ordinary bill may or may not be drawn against a bank. A check is always payable on demand An ordinary bill may be payable on demand or at a fixed or determinable future time. A check is not necessarily presented for acceptance. An ordinary bill must be presented for acceptance. Not to be accepted but presented at once for payment. (However, if the holder requests, and the banker desires, he may accept.) A check is drawn on a deposit. The drawer must have An ordinary bill is not drawn on a deposit. In other funds in the hands of the drawee, otherwise it would words, it is not necessary that a drawer of a bill of be fraud. exchange should have funds in the hands of a drawee. The death of the drawer of a check, with knowledge The death of a drawer of a bill of exchange, with by the banks, revokes the authority of the banker to knowledge by the banks, does not revoke the pay. authority of the banker to pay. A check must be presented for payment within a A bill of exchange may be presented for payment reasonable time after its issue. within a reasonable time after its last negotiation. What is a negotiable instrument? It is a written contract for a payment of money which is intended as a substitute for money in such a way as to make the holder, as a holder in due course, free from personal defenses. What is negotiation? It is such transfer of an instrument from one person to another as to constitute the transferee the holder of the instrument. What is negotiability? It is an attribute or property whereby a bill, note or check passes or may pass from hand to hand similar to money, so as to give the holder in due course the right to hold the instrument and collect the sum payable for himself free from defense. What is the purpose of negotiability? The primary purpose of negotiability of a negotiable instrument is to allow bills and notes the effect which money, in the form of government bills or notes, supplies in the commercial world. What is a holder? A holder is the payee or endorsee of a bill or note who is in possession of it or the bearer thereof.. I. FORM AND INTERPRETATION SECTION 1.Form of Negotiable Instruments. — An instrument to be negotiable must conform to the following requirements: 1) It must be in writing and signed by the maker or drawer; 2) Must contain an unconditional promise or order to pay a sum certain in money; 3) Must be payable on demand, or at a fixed or determinable future time; 4) Must be payable to order or to bearer; and 5) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 13.

(14) Societas Spectra Legis Negotiable Instruments Law Compilation How do you determine the negotiability of an instrument The negotiability of an instrument is to be determined: 1) by the provisions of the Negotiable Instruments Law, particularly Section 1 thereof; 2) by considering the whole of the instrument; and 3) by what appears on the face of the instrument and not elsewhere. Is there a need for you to consider external documents in determining the negotiability of an instrument? No need to trace other documents. You only limit you examination on the negotiability on the face of the document itself. We use negotiable instruments in lieu of using money, for example in a promissory note we need look into or inquire into the loan agreement. In fact you cannot demand from the person issuing the negotiable instrument any documents to prove the validity of sufficiency of the negotiable instrument. CALTEX vs CA FACTS: On various dates, Security Bank and Trust Co issued 280 certificates of time deposit (CTD) in favor of one Angel dela Cruz who deposited with the bank the aggregate amount of P1.12 million. Anger de la Cruz delivered the CTDs to Caltex in connection with his purchase of fuel products from the latter. Subsequently, dela Cruz informed the bank that he lost all the CTDs, and thus executed an affidavit of loss to facilitate the issuance of the replacement CTDs. De la Cruz was able to obtain a loan of P875,000 from the bank, and in turn, he executed a notarized Deed of Assignment of Time Deposit in favor of the bank. Thereafter, Caltex presented for verification the CTDs (which were declared lost by de la Cruz) with the bank. Caltex formally informed the bank of its possession of the CTDs and its decision to preterminate the same. The bank rejected Caltex’ claim and demand, after Caltex failed to furnish copy of the requested documents evidencing the guarantee agreement, etc. In 1983, de la Cruz’ loan matured and the bank set-off and applied the time deposits as payment for the loan. Caltex filed the complaint, but which was dismissed. ISSUE 1: Whether or not the Certificate of Time Deposits in question are negotiable ISSUE 2: Whether the CTDs’ negotiation require delivery only. HELD: ISSUE 1: Yes, the CTDs in question are negotiable instruments. Section 1 of NIL enumerates the requisites for an instrument to become negotiable and the CTDs in question undoubtedly meet the requirements of the law for negotiability. The negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself. In the construction of a bill or note, the intention of the parties is to control, if it can be legally ascertained. The duty of the court in such case is to ascertain, not what the parties may have secretly intended as contradistinguished from what their words express, but what is the meaning of the words they have used. ISSUE 2: Although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it (Caltex) and de la Cruz requires both delivery and indorsement; as the CTDs were delivered to it as security for dela Cruz’ purchases of its fuel products, and not for payment. Herein, there was no negotiation in the sense of a transfer of title, or legal title, to the CTDs in which situation mere delivery of the bearer CTDs would have sufficed. The delivery thereof as security for the fuel purchases at most constitutes Caltex as a holder for value by reason of his lien. Is a Certificate of Time Deposit negotiable? It depends. In the case of Caltex vs CA, the court held the CTD as negotiable. What are the governing laws on negotiable instruments? Act No 2031 (Negotiable Instruments Law); Code of Commerce whose provisions are not conflict with the Negotiable Instruments Law; Civil Code (suppletory) Distinguished ordinary check from memorandum check University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 14.

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