Negotiable Instruments Law

NEGOTIABLE INSTRUMENTS LAW

I. INTRODUCTION

provide that an accommodation party is one who hassigned aninstrument as maker, drawer, acceptor of indorser withoutreceiving value therefor, but is held liable on the instrument to aholder for value although the latter knew him to be only anaccommodation party. This approach of both parties appears tobe misdirected and their reliance misplaced. The promissory notehereinbefore quoted, as well as the mortgage deeds subjectof this case, are clearly not negotiable instruments. Thesedocuments do not comply with the fourth requisite to beconsidered as such under Section 1 of Act No. 2031 because theyare neither payable to order nor to bearer. The note is payable toa specified party, the GSIS. Absent the aforesaid requisite, theprovisions of Act No. 2031 would not apply, governance shall be

A. GOVERNING LAWS ACT No. 2031 effective June 2, 1911 (whichamended some of the provisions of the Rules of the Law Merchant), the Code of Commerce and the Civil Code.

B. APPLICABILITY OF THE NEGOTIABLE INSTRUMENTS LAW theAct applies only to negotiable instruments or those that meet the requirements under Sec. 1 of Act No. 2031.KRAUFFMAN VS. PNB (GR No. 16454, Sept. 29, 1921) - Hereinplaintiffwas entitled to P98,000 of the Philippine Fiber and ProduceCompanysdividend for the year 1917. George B. Wicks, treasurer of theCompany, requested that a telegraphic transfer of $45,000 tothe plaintiff in New York City. Wicks drew and delivered acheck for the amount of P90,355.50, total cost of saidtransfer, including exchange and cost of message which wasaccepted by the officer selling the exchange in payment ofthe transfer in question. As evidence of this transaction adocument was made out and delivered to Wicks, which is referredto by the bank's assistant cashier as its official receipt. Onthe same day the Philippine National Bank dispatched to itsNew York agency a cablegram for $45,000. However, thebank's representative in New York replied suggesting theadvisability of withholding this money from Kauffman. The PNBdispatched to its New York agency another message to withholdthe Kauffman payment as suggested. Meanwhile, upon advice ofWicks that the money has been placed to his credit, Kauffmanpresented himself at the office of the Philippine National Bank inNew York and demanded the money. By this time, however, themessage from the Philippine National Bank directing thewithholding of payment had been received in New York, andpayment was therefore refused. Thus the present complaint torecover said sum, with interest and costs. ISSUE: WON Act No.2031 is applicable in the above case? HELD: NO. Theprovisions of the Negotiable Instruments Law to come intooperation, there must be a document in existence of thecharacter described in section 1 of the Law; and no rightsproperly speaking arise in respect to said instrument until it isdelivered. In the case before us there was an order transmittedby the defendant bank to its New York branch, for thepayment of a specified sum of money to George A.Kauffman. But this order was not made payable "to order or"to bearer," as required in Section 1(d) of that Act; and inasmuchas it never left the possession of the bank, or itsrepresentative in New York City, there was no delivery in

C. CONCEPT OF NEGOTIABLE INSTRUMENTS1. DEFINITION: Negotiable Instruments are written

statementssigned by the maker or drawer containing an unconditional promise or order to pay a sum certain money, payable on demand or at a

2. FUNCTIONS OF NEGOTIABLE INSTRUMENTSa. Substitute for money - although they are not

consideredlegal tender. One of its distinct characteristics is itsnegotiability which allows it to go from hand tohand in the commercial markets and to take thepart of money in commercial transactions freefrom all personal defenses available against theoriginal owner.Media of exchange they thus increase thepurchasing medium in circulation. They are a safe andconvenient means ofdoing business that eliminate the risk of dealingin cash.Medium of credit transactions they allowmen of undoubted credit (such as those with illiquid

b.

c.

Checks are primarily used for immediate payment(substitutefor money); while ordinary bill of exchange and thepromissory note are intended for the circulationof credits (credit instruments)

3. LEGAL TENDER that amount which the creditor can be compelledto accept as payment.

GSIS VS. CA (GR No. L-40824, Feb. 23, 1989) - Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the Lagasca spouses, executed adeed of mortgage in favor of petitioner GSIS. Subsequently, another deedparcel of land, co-owned by saidsecurity under the aforesaid two

mortgagor spouses, was givenasdeeds and they also executeda spouses executed an denominated "Assumption of Mortgage" under which they

obligatedthemselves to assume obligation to the GSIS. This undertakingwas not fulfilled. Upon failure of the mortgagors to comply withthe conditions of the mortgage, particularly the payment ofthe amortizations due, GSIS extra-judicially foreclosed themortgage and caused the mortgaged property to be sold atpublic auction. Private respondents filed a complaint against thepetitioner and the Lagasca spouses praying that theextrajudicial foreclosure be declared null and void. In theiraforesaid complaint, they alleged that they signed themortgage contracts not as sureties or guarantors for theLagasca spouses but they merely gave their common property tothe said co-owners who were solely benefited by the loans fromthe GSIS. Trial court dismissed the case. CA reversed decisionstating that the respondents are that only of anaccommodation party. ISSUE: WON the NIL is applicable to the

TIBAJIA VS. CA (GR No. 100290, June 4, 1993) - A writ ofattachment was issued by the trial court in connection to thecollection of a sum ofmoney filed by Eden Tan against the Tibajia spouses. The fundwas then on deposit with the cashier of the Regional TrialCourt of Pasig. The Tibajia spouses thereafter delivered to theDeputy Sheriff the total moneyjudgment in the form of Cashier's Check worth P262,750.00.However, Eden Tan, refused to accept the payment made and

Arellano University School of Law 2011-0303

1 Cesar Nickolai F. Soriano Jr.NEGOTIABLE INSTRUMENTS LAW (Act No. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang

Sec. 52, New CentralBankAct

Legal Tender Power. All notes and coins issued bytheBangko Sentral shall be fully guaranteed by theGovernment of the Republic of the Philippines andshall be legal tender inthe Philippines for all debts, both public andprivate: Provided, however, That, unlessotherwise fixed by the Monetary Board, coins shallbe legal tender in amounts notexceeding Fifty pesos (P50.00) for denominations ofSec. 60 Legal Character. Checks representing demanddeposits do not have legal tender power and theiracceptance in thepayment of debts, both public and private, is at theoption of the creditor: Provided, however, That acheck which has been cleared and credited to theaccount of the creditor shallbe equivalent to a delivery to the creditor of

of Pasig be withdrawn to satisfy the judgment obligation.Petitioners fileda motion to lift the writ of execution on the ground thatthe judgment debt had already been paid but was deniedby the trial court on theground that payment in cashier's check is not payment inlegal tender.When the petitioners' motion for reconsideration was denied, thespouses Tibajia filed herein petition. ISSUE: WON thedelivery of the cashier's check is considered payment in legaltender? HELD: No. A check, whether a manager's check orordinary check, is not legal tender, and an offer of a check inpayment of a debt is not a valid tender of payment and may berefused receipt by the obligee or creditor. (Philippine Airlines,Inc. vs. Court of Appeals and Roman Catholic Bishop ofMalolos, Inc. vs. Intermediate Appellate Court). The ruling in thetwo (2) abovementioned cases decided by the Supreme Court

E. INCIDENTS IN THE LIFE OF NEGOTIABLE INSTRUMENTS

F. KINDS OF NEGOTIABLE INSTRUMENTSPAL VS. CA (GR No. 49188, Jan. 30, 1990) - CFI Manila ruled in

favor ofAmelia Tan [under the name and style of Able PrintingPress] in a complaint for damages against petitionerPhilippine Airlines. On appeal,the CA upheld the decision of the CFI with minor modifications asto thedamages to be awarded. The corresponding writ ofexecution was duly referred to Deputy Sheriff Emilio Z. Reyes forenforcement with checks in the name of the latter. Fourmonths later, Amelia Tan moved for the issuance of an aliaswrit of execution since the judgment remained unsatisfied.The petitioner filed an opposition to the motion for theissuance of an alias writ of execution stating that it had alreadyfully paid its obligation to plaintiff through the deputy sheriffof the respondent court, Emilio Z. Reyes, as evidenced by cashvouchers properly signed and received by said Emilio Z. Reyes.On March 3,1978, the Court of Appeals denied the issuance ofthe alias writ for being premature, ordering the executingsheriff Emilio Z. Reyes to appear with his return and explain thereason for his failure to surrender the amounts paid to him bypetitioner PAL. However, the order could not be served uponDeputy Sheriff Reyes because he already absconded ordisappeared. ISSUE: WON the payment rendered through acheck made by PAL to the absconding sheriff in his name operateto satisfy the judgment debt? HELD: Under ordinarycircumstances, payment by the judgment debtor to the sheriffshould be valid payment to extinguish the judgment debt. Thereare circumstances, however, which compel a different conclusionsuch as when the payment made by the petitioner to theabsconding sheriff was not in cash or legal tender but in checks.The delivery of promissory notes payable to order, or bills ofexchange or other mercantile documents shall produce theeffect of payment only when they have been cashed, or whenthrough the fault of the creditor they have been impaired. In themeantime, the action derived from the original obligation shallbe held in abeyance. Since a negotiable instrument is only asubstitute for money and not money, the delivery of such aninstrument does not, by itself, operate as payment. A check,whether a managers check or ordinary check, is not legal tender,and an offer of a check in payment of a debt is not avalid tender of payment and may be refused receipt by theobligee or creditor. Mere delivery of checks does notdischarge the obligation under a judgment. The obligation isnot extinguished and remains suspended until the payment

1. PROMISSORY NOTES (Sec. 184, NIL) An unconditionalpromisein writing mace by one person to another, signed bythe maker, engaging to pay on demand, or at a fixedor determinable future time, a sum certain in money toa. Parties to a Negotiable Promissory Note are (1)

Maker and(2) Payee;Kinds of Negotiable Promissory Note include certificates of deposits, bank notes, due bills and bonds.

b.

2. BILLS OF EXCHANGE (Sec. 126, 185, NIL) Anunconditionalorder in writing addressed by one person to another, signedby the person giving it, requiring the person to whom it isaddressed to pay on demand, or at a fixed or determinablefuture time, a sum certain in money to order or bearer.a. Parties to a Bill of Exchange are (1) Drawer, (2)

Payee and(3) Drawee;Kinds of Bills of Exchange include drafts, trade acceptances

b.

G. WHEN BILLS TREATED AS NOTES

H. BILLS AND NOTES DISTINGUISHED

D. CHARACTERISTICS OF NEGOTIABLE INSTRUMENTS1. NEGOTIABILITY is that quality or attribute of a bill or note

whereby it may pass from one person to another similar to money, so as to give the holder in due course the rightto collect on theinstrument the sum payable for himself free from any defect in the title of any of the prior parties or defenses available to them amongthemselves.

2. ACCUMULATION OF SECONDARY CONTRACTS as

I. NEGOTIABLE INSTRUMENTS COMPARE(Negotiability vs. Assignability)

WITH OTHER PAPERS

SESBRENO VS. CA (GR No. 89252, May 24, 1993) - Petitioner Sesbreno made a money market placement in the amount ofP300,000 with the



PROMISSORY NOTES BILLS OF EXCHANGE2 parties Maker and Payee 3 parties Drawer, Payee

andDraweeMaker cannot be the payee Drawer and payee may be the same person

There is unconditional PROMISE by the maker

There is unconditional ORDER bythe drawer to the drawee

Presentment for payment without prior acceptance

Some Bills need prioracceptance by the draweebefore presentment forpaymentLiability of the maker is primary

and absoluteLiability of the drawer is secondary and conditional

Sec. 130 When bill may be treated as promissory note. - Where in a bill the drawer and drawee are the same person or wherethe drawee is a fictitious person or a person not havingcapacity to contract, the holder may treat the Sec. 17(e) Construction where instrument is ambiguous. -Where the language of the instrument isambiguous or there areomissions therein, the following rules ofconstruction apply:

(e) Where the instrument is so ambiguous that there isdoubt whether it is a bill or note, the holder may treat

PROMISSORY NOTE BILL OF EXCHANGEPreparation &

SigningIssuanceNegotiation Presentment for Acceptance

AcceptanceDishonor by Non-acceptance

Presentment for paymentDishonor by Non-payment

Notice ofDishonorPaymen

tDischarge

Philippine Underwriters Finance Corporation (PhilFinance), with aterm of32 days. PhilFinance issued to Sesbreno (1) the Certificate ofConfirmation of Sale of a Delta Motor Corporation PromissoryNote, (2) the Certificate ofSecurities Delivery Receipt indicating the sale of the notewith notationthat said security was in the custody of Pilipinas Bank, and (3)post-dated checks drawn against the Insular Bank of Asiaand America for P304,533.33 payable on March 13, 1981. Thechecks were dishonored for having been drawn againstinsufficient funds. Pilipinas Bank never released the note,nor any instrument related thereto, to Sesbreno; but Sesbrenolearned that the Delta Promissory Note maturing on 6 April1981, has a face value of P2,300,833.33 with PhilFinance aspayee and Delta Motors as maker; and was stamped non-negotiable on its face. PhilFrance was later on placed underthe custody of the Securities and Exchange Commission. AsSesbreno was unable to collect his investment and interestthereon, he filed an action for damages against Delta Motors andPilipinas Bank. Delta Motors contends that said promissory notewas not intended to be negotiated or otherwise transferred byPhilfinance as manifested by the word "non-negotiable" stampedacross the face of the Note. The trial court and the CAdismissed petitioners complaint and appeal, respectively, forlack of cause of action. If anything, petitioner has a cause ofaction against Philfrance, which, however, was not impleaded.ISSUE: WON the non-negotiability of a promissory noteprevents its assignment? HELD: No. A negotiableinstrument, instead of being negotiated, may also beassigned or transferred. The legal consequences of negotiationand assignment of the instrument are different. A non-negotiable instrument may not be negotiated butmay be assigned or transferred, absent an express

II. FORM AND INTERPRETATION OF NEGOTIABLE INSTRUMENTS

A. HOW NEGOTIABILITY IS DETERMINED?CALTEX VS. COURT OF APPEALS (GR No. 97753, Aug. 10, 1992) - Respondent bank issued 280 certificates of time deposit (CTDs) in favor ofAngel dela Cruz who delivered the same to herein petitioner in connection with his purchased fuel products. Eventually, dela Cruz executed anddelivered an Affidavit of Loss for the reissuance of the CTDs. DelaCruz later on obtained a loan from respondent bank and negotiated the saidCTDs, executing a Deed of Assignment of Time Deposit which stated, among others, that the bank has full control of the indicated time depositsPetitioner then went to the Sucat branch for verification ofthe CTDsdeclared lost, alleging that the same were delivered to hereinpetitioner as security for purchases made with CaltexPhilippines, Inc. and requested that the CTDs be pre-terminated,which was refused by the respondent bank due to the failure ofpetitioner to present requested documents to prove suchallegation. Petitioner then filed a complaint in the RTC, which wasdismissed. On appeal, the CA affirmed the decision of the RTC.Thus, the present petition. ISSUE: WON the CTDs are considerednegotiable? HELD: Yes. A sample text of the certificates of time

SECURITY BANKAND TRUST COMPANY6778 Ayala Ave., Makati No. 90101Metro Manila, PhilippinesSUCAT OFFICE P4,000.00CERTIFICATE OF DEPOSIT Rate 16%

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19 J. SOME NON-NEGOTIABLE INSTRUMENTS This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE

P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said depositor 731 days. after date, upon presentation and surrender of this certificate, with interest at the rate of 16% per cent per annum.

(Sgd. Illegible) (Sgd. Illegible) AUTHORIZED SIGNATURES

1. Document of Title like a certificate of stock, bill of lading andwarehouse receipt (non-negotiable because there is no unconditional promise or order to pay a certain sum in money);Letter of Credit a letter from a merchant or bank or banker inone place, addressed to another, in another place orcountry, requesting the addressee to pay money or delivergoods to a third party therein named, the writer of the letterundertaking to provide him the money for the goods or torepay him. It is a letter requesting one person to makeadvances to a third person on the credit of the writer. (It is infavor of a certain person and not to order)Treasury Warrant - it is a government warrant for the payment of money such as that issued in favor of a public

2.

Section

1, of Act No. 2031, otherwise known as the NegotiableInstruments Law, enumerates the requisites for an instrument to

becomenegotiable. The CTDs in question undoubtedly meet therequirements of the law for negotiability. The accepted rule is thatthe negotiability or non-negotiability of an instrument is determined from the writing, thatis, fromthe fact of the instrument itself. Contrary to what respondentcourt held (that the CTDs are payable to the depositor which isAngel dela Cruz), the documents provide that the amountsdeposited shall be repayable to the depositor. And who, accordingto the document is the depositor? It is the bearer. Thedocuments do not say that the depositor is Angel dela Cruz andthat the amounts deposited are repayable specifically to

3.

4.

PHILIPPINE EDUCATION CO. VS. SORIANO (GR No. L-22405,June30, 1971) - Enrique Montinola sought to purchase from the ManilaPostOffice 10 money orders (P200 each), offering to pay forthem with a private check. Montinola was able to leave thebuilding with his check andthe 10 money orders without the knowledge of the teller. Upondiscovery,message was sent to all postmasters and banks involvingthe unpaid money orders. One of the money orders wasreceived by the Philippine Education Co. as part of its salesreceipt. It was deposited by the company with the Bank ofAmerica, which cleared it with the Bureau of Post. ThePostmaster, through the Chief of the Money Order Division of theManila Post Office informed the bank of the irregularissuance of the money order. The bank debited the accountof the company. The company moved for reconsideration.ISSUE: WON postal money orders are negotiableinstruments? HELD: No. Philippine postal statutes arepatterned from those of the United States, and the weight ofauthority in said country is that Postal money orders are notnegotiable instruments inasmuch as the establishment of a postal

B. EFFECT OF ESTOPPELBANCO DE ORO SAVINGS VS. EQUITABLE BANKING CORP.(GR No.74917, Jan. 20, 1988) - Manager's checks (Checks) having anaggregate amount of P45,982.23 and payable to certain memberestablishments ofVisa Card. Subsequently, the Checks were deposited with thedefendant(respondent Equitable) to the credit of its depositor (AidaTrenciosaccount). Following normal procedures, and after stamping at theback of the Checks the usual endorsements (All prior and/or lackof endorsement guaranteed), Equitable sent the checks forclearing through the Philippine Clearing House Corporation(PCHC). Accordingly, BDO paid the Checks; its clearing accountwas debited for the value of the Checks and defendant's clearingaccount was credited for the same amount. Thereafter, BDO



Equitable for the purpose of claiming reimbursement fromthe latter.However, Equitable refused to do so. After an exhaustiveinvestigation and hearing, the Arbiter rendered a decision infavor of BDO and againstEquitable ordering the PCHC to debit the clearing accountof thedefendant (E), and to credit the clearing account of the plaintiff(B) of the foregoing amount with interest at the rate of 12% perannum from date of the complaint. The Board of Directors of thePCHC affirmed the decision of the Arbiter. Hence this petition.ISSUE 1: Were the subject checks non- negotiable and if not,does it fall under the ambit of the power of the PCHC? ORDoes the PCHC has jurisdiction over the controversy involved inview of petitioners claim that the subject matter of the case (theChecks) was not negotiable. HELD: Yes. As provided inthe articles of incorporation of PCHC, its operation extend to"clearing checks and other clearing items." No doubttransactions on non-negotiable checks are within the ambitof its jurisdiction. The term check as used in the saidArticles of Incorporation of PCHC can only connote checks ingeneral use in commercial and business activities. It cannot beconceived to be limited to negotiable checks only. Checks areused between banks and bankers and their customers, and aredesigned to facilitate banking operations. It is of the essence tobe payable on demand, because the contract between thebanker and the customer is that the money is needed ondemand. Further, the participation of the two banks,petitioner and private respondent, in the clearing operations ofPCHC is a manifestation of their submission to its jurisdiction.ISSUE 2: How does principle of estoppel apply? HELD:Petitioner is estopped from raising the defense of non-negotiability of the checks in question. It stamped itsguarantee on the back of the checks and subsequentlypresented these checks for clearing and it was on the basis ofthese endorsements by the petitioner that the proceeds werecredited in its clearing account. The principle of estoppeleffectively prevents the defendant from denying liability for anydamages sustained by the plaintiff which, relying upon an actionor declaration of the defendant, paid on the Checks. Thesame principle of estoppel effectively prevents the defendantfrom denying the existence of the Checks. The petitioner byits own acts and representation cannot now deny liabilitybecause it assumed the liabilities of an endorser by stamping itsguarantee at the back of the checks. The petitioner havingstamped its guarantee of "all prior endorsements and/or lack ofendorsements" (Exh. A-2 to F-2) is now estopped fromclaiming that the checks under consideration are notnegotiable instruments. The checks were accepted for deposit bythe petitioner stamping thereon its guarantee, in order that it canclear the said checks with the respondent bank. By suchdeliberate and positive attitude of the petitioner it has for

pieces of evidence of indebtedness because payments weremade beforeacceptance. ISSUE1: WON the drafts Aruego signed werebills of exchange? HELD: YES. Under the Negotiable InstrumentsLaw, a bill ofexchange is an unconditional order in writing addressed by oneperson toanother, signed by the person giving it, requiring the person towhom it is addressed to pay on demand or at a fixed ordeterminable future time a sum certain in money to order or tobearer. As long as a commercial paper conforms with thedefinition of a bill of exchange, that paper is considered a bill ofexchange. The nature of acceptance is important only in thedetermination of the kind of liabilities of the parties involved, butnot in the determination of whether a commercial paper is a billof exchange or not. ISSUE2: WON Aruego is personallyliable? HELD: YES. Firstly, Section 20 of the NegotiableInstruments Law provides that "Where the instrument containsor a person adds to his signature words indicating that hesigns for or on behalf of a principal or in a representativecapacity, he is not liable on the instrument if he was dulyauthorized; but the mere addition of words describing him as anagent or as filing a representative character, without disclosinghis principal, does not exempt him from personal liability." Aninspection of the drafts accepted by the defendant shows thatnowhere has he disclosed that he was signing as arepresentative of the Philippine Education FoundationCompany. He merely signed as follows: "JOSE ARUEGO(Acceptor) (SGD) JOSE ARGUEGO For failure to disclose hisprincipal, Aruego is personally liable for the drafts he accepted.Secondly, an accommodation party is one who has signedthe instrument as maker, drawer, indorser, without receivingvalue therefor and for the purpose of lending his name to someother person. Such person is liable on the instrument to a holderfor value, notwithstanding such holder, at the time of the takingof the instrument knew him to be only an accommodation party.In lending his name to the accommodated party, theaccommodation party is in effect a surety for the latter. Helends his name to enable the accommodated party to obtaincredit or to raise money. He receives no part of the consideration

C. REQUISITES OF NEGOTIABILITY

PBCOM VS. JOSE ARUEGO (GR No. L-25836-37, Jan. 31, 1981) -Herein plaintiff instituted against an action against defendant forthe recovery ofthe total sum of money plus interests and attorneys fees. Thecomplaintfiled by the Philippine Bank of Commerce contains twenty-two(22) causes of action referring to twenty-two (22) transactionsentered into by the saidBank and Aruego on different dates. The sum sought to berecoveredrepresents the cost of the printing of "World Current Events," aperiodical published by the defendant. To facilitate the paymentof the printing the defendant obtained a credit accommodationfrom the plaintiff. Thus, for every printing of the "World CurrentEvents," the printer collected the cost of printing by drawing adraft against the plaintiff, said draft being sent later to thedefendant for acceptance. As an added security for thepayment of the amounts advanced to printer, the plaintiffbank also required defendant Aruego to execute a trust receipt infavor of said bank wherein said defendant undertook to holdin trust for plaintiff the periodicals and to sell the same withthe promise to turn over to the plaintiff the proceeds of the

(a) It must be in writing and signed by the maker or drawer;

Signature of the maker or drawer is usually written, preferably with the full name or at least the surname. However, initials or any mark will be sufficient,provided that such signature be used as a substitute and the maker ordrawer intends to be bound by it.Signature is presumed valid, the person denying and to whom the signature operates must provide evidence of its invalidity.

(b) Must contain an unconditional promise or order to pay a sum

certain in money;Money is the medium of exchange authorized or adopted by a domestic or foreign government as part of its currency. In a literal sense, the term meanscash. It includes all legal tender which has been defined in p.1.



Section 191. Definition and meaning of terms.

Written includes printed, and writing includes print.

Section 1. Form of negotiable instruments. - An instrumentto be negotiable must conform to the following requirements

(a) It must be in writing and signed by the maker or drawer;(b) Must contain an unconditional promise or order to pay a sum

certain in money;(c) Must be payable on demand, or at a fixed or determinable future time;(d) Must be payable to order or to bearer; and(e) Where the instrument is addressed to a drawee, he must be

named or otherwise indicated therein with reasonable certainty.

the payment depends upon the adequacy or existence of the fund designated.It is immaterial, whether the fund has sufficient funds at maturity.

1. Promise or Order to Pay

METROPOLITAN BANK & TRUST CO. VS. CA (GR No. 88866;Feb. 18,1991) - Eduardo Gomez opened an account with GoldenSavings and deposited over a period of two months 38 treasurywarrants. They wereall drawn by the Philippine Fish Marketing Authority andpurportedly signed by its General Manager and counter-signed byits Auditor. Six ofthese were directly payable to Gomez while the others appearedto have been indorsed by their respective payees, followed byGomez as secondindorser. On various dates all these warrants were subsequentlyindorsed by Gloria Castillo as Cashier of Golden Savings anddeposited to itsSavings Account in the Metrobank. They were then sent forclearing by the branch office to the principal office ofMetrobank, which forwardedthem to the Bureau of Treasury for special clearing. After beingtold to wait several times, Gloria Castillo and Gomezmade subsequent withdrawals at Metrobank with the impressionthat the treasury warrantshad been cleared. Metrobank informed Golden Savings that32 of the warrants had been dishonored by the Bureau ofTreasury and demandedthe refund by Golden Savings of the amount it had previouslywithdrawn, to make up the deficit in its account. The demand wasrejected. ISSUE:WON treasury warrants are negotiable instruments? HELD:No. The treasury warrants in question are not negotiableinstruments. Clearlystamped on their face is the word "non-negotiable."Moreover, it is indicated that they are payable from a particularfund, to wit, Fund 501.Sections 1 and 3 of the Negotiable Instruments Lawespecially underscored this requirement. The indication of

Clear intention of the parties the substance of the transaction rather than the form is the criterion of negotiability. Instead of promise the words bindmyself may be used; instead of on demand, the words on call may be used and instead of bearer, the word holder may be used.Mere defect in language or grammatical error The wordshimself order may be construed as himself or order and thusnot render theinstrument non-negotiable.

2. Promise or Order to Pay Must be Unconditional

Condition Resolutory or Suspensive - In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those alreadyacquired, shall depend upon the happening of the event which constitutes the condition (Art. 1181, NCC)Period As opposed to a condition, is when the event is certain to happen or come.

3. When is a promise unconditional

Promissory Notes:It is not essential that the word promise be used. Any words equivalent to a promise or assumption of responsibility for the payment of the note (likepayable, to be paid, I agree to pay, I guarantee to pay, M obliges himself to pay, good for, due on demand, etc.) are sufficient to constituteHowever, bare acknowledgements like IOU, Due P1,000 or for valuereceived do not constitute promise to pay and are non-negotiable, unlesswords constituting a promise to pay is added, like IOU (or Due)

4. Provisions which do not affect certainty of sumThe Basic Test: is whether the holder can determine by calculation or computation the amount payable when the instrument is due.

Bills of Exchange:It is not necessary to use the word order. Any other words like Let the bearer or Drawer obliges the drawee to pay P or order are sufficient.An order is a command or imperative direction and, therefore, a mererequest,supplication, or authority (like I request you to pay, or I hope you will payor I authorize you to pay) is not sufficient. However, the use of polite

Sec. 2(b): STATED instalments must clearly indicate the amount due on eachinstalment and the interest, if any. A bill or note indicating payable in twoSec. 2(c): Stated instalments with acceleration clause:Acceleration clause requires the debtor to pay off the balance sooner than the due date if some specified event occurs, such as failure to pay aninstalment.Insecurity clause allows the creditor to demand immediate and full payment of the loan balance if the creditor has reason to believe that thedebtor is about to default, as when the debtor suddenly loses asignificant

Sec. 3 (a): does not render the instrument non-negotiable because the reimbursement is a subsequent act to the payment, which still makes itabsolute. Same is true if there is indication of a particular fund to be debited, like Pay P or order the sum of P10,000 and charge it to myaccount, becausehere the instrument is payable absolutely, the debit of the account

Acceleration at the option of the HOLDER will render the instrument non- negotiable.Sec. 2(d): refers to instruments payable in foreign currency. Exchange is thecharge for the expense of providing funds at the place where the

Sec. 3, last paragraph: The instrument is deemed non-negotiable because



Sec. 3 When promise is unconditional. - An unqualifiedorder or promise to pay is unconditional within themeaning of this Actthough coupledwith:

(a) An indication of a particular fund out ofwhich reimbursement is to be made or a particularaccount to be debited with the amount; or(b) A statement of the transaction which gives riseto the instrument.

But an order or promise to pay out of a particularSec. 39 Conditional indorsement., - see Part III, Conditional

Sec. 2. What constitutes certainty as to sum. - The sum payable is a sum certain within the meaning of this Act, although it is to be paid:

(a) with interest; or(b) by stated installments; or(c) by stated installments, with a provision that, upon default in payment of any installment or of interest, the whole shall become due; or(d) with exchange, whether at a fixed rate or at the current rate; or(e) with costs of collection or an attorney's fee, in case payment shall

Sec. 10 Terms, when sufficient. - The instrument need not follow the language of this Act, but any terms are sufficient which clearlyindicate an intention to conform to the requirements hereof.

payable to meet the instrument which is issued at another place. It may be at afixed rate or at the current rate. Ex. M promises to pay P or order $1,000 with exchange at % or at the current rate.

accommodation party when his obligation willarise.

Sec. 2(e): does not affect negotiability maturity.

because such takes place after

Time InstrumentsSec. 4(a): To pay on Aug. 12, 2013;Sec. 4(b): To pay sixty days after date;Sec. 4, last paragraph: refers to a condition which may or may not happen. Anegotiable instrument must be payable in all events.

General Rule is that, an additional act, aside from payment ofmoney, isprohibited. This is based on the fact that while the payment ofmoney may be indorsed, the additional act would have to beassigned. The following clauses have been held to render non-negotiable the instrument:* pay for taxes assessed upon the note or its mortgage security(Hubard vs.Robert WallaceCo.);* keep free from encumbrance property on which the value ofcollateral pledged for security of the instrument depends (Streckhold

Demand Instruments are those which are payable on demand,due and payable immediately after delivery. It is a present debt due at once.

(d) Payable to order or bearer

Exceptions are:Sec. 5(a): I promise to pay P or order the sum of P1,000 secured by a ring Idelivered to him by way of pledge and which he could sell should I fail to payhim at maturity the additional act is to be performed after non-Sec. 5(b): I promise to pay P or order P10,000 and I herebyauthorize my attorney-at-law to appear in any court of record after theobligation becomes due and waive the issuing and service ofprocesses and confess a judgmentagainst me in favor of the holder and thereupon waive all errors in anysuch proceedings and waive all right of appeal confession ofjudgment is a written acknowledgment by the defendant of hisindebtedness and liability to theplaintiff. It enables the holder to obtain a judgment without the delayusually incident to a lawsuit. While not authorized in thisjurisdiction, because it deprives the maker or drawer a day in court,it nevertheless does not affect negotiability. A confession of judgmentSec. 5(c): Notice of dishonor waived even waiver of protest, presentment for payment, or demand, would not destroy negotiability.

Payable to Order: when it is payable to the (1) order of a specified person; or(2) to him or his order. Consequently, an instrument payable to a specified person (Pay to P), is not a negotiable order instrument.Sec. 5(d): or an airconditioner at the option of the holder since

the holder has the choice, the instrument is still negotiable becausehe can still demand payment of money. If the option is on thepromisor, it would be difficult tocompel him to make payment in

Sec. 8(b): An instrument payable to the maker is not complete until indorsed by him. (Sec. 184)Sec. 8(c): Being payable to the drawee, he may pay himself at maturity from the funds of the drawer.Sec. 8(d): Pay to A and B; for Sec. 8(e), Pay to A or B.Sec. 8(f): Pay to the order of the Commissioner of Internal Revenue.

(c) Payable on demand or at a fixed or determinable future time

Time must be certain so that the holder will know when he may enforce the instrument, and the person liable maker, drawee, or acceptor when he maybe required to pay, or the secondary parties drawer,

Sec. 8, last paragraph: If there is no payee, there is nobody who could give the order or authority to collect or otherwise indorse and, therefore, there is no



Sec. 8 When payable to order. - The instrument is payable to order where it is drawn payable to the order of a specifiedperson or tohim or his order. It may be drawn payable to the order of:

(a) A payee who is not maker, drawer, or drawee; or(b) The drawer or maker; or(c) The drawee; or(d) Two or more payees jointly; or(e) One or some of several payees; or(f) The holder of an office for the time being.

Where the instrument is payable to order, the payee must benamed or otherwise indicated therein with reasonable Sec. 9 When payable to bearer. - The instrument is payable to bearer:(a) When it is expressed to be so payable; or(b) When it is payable to a person named therein or bearer; or(c) When it is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it sopayable; or(d) When the name of the payee does not purport to be the name of any person; or(e) When the only or last indorsement is an indorsement in

Sec. 7. When payable on demand. - An instrument is payable on demand:(a) When it is so expressed to be payable on demand, or at sight, or onpresentation; or(b) In which no time for payment is expressed.

Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so issuing, accepting, or indorsing it,

Sec. 5 Additional provisions not affecting negotiability. - An instrument which contains an order or promise to do any act inaddition to the payment of money is not negotiable. But thenegotiable character of an instrument otherwise negotiable is not affected by a provision which:

(a) authorizes the sale of collateral securities in case the instrument be not paid at maturity; or(b) authorizes a confession of judgment if the instrument be not paid at maturity; or(c) waives the benefit of any law intended for the advantage orprotection of the obligor; or(d) gives the holder an election to require something to be done in lieu of payment of money.Sec. 6 Omissions; seal; particular money. - The validity and negotiable character of an instrument are not affected by thefact that:

(e) designates a particular kind of current money in which payment is to be made.

Sec. 4. Determinable future time; what constitutes. - An instrument is payable at a determinable future time, within the meaning of this Act, which isexpressed to be payable:(a) At a fixed period after date or sight; or(b) On or before a fixed or determinable future time specified therein; or(c) On or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of happening be uncertain.

point in considering it negotiable.

easy, and cheap way to settle and secure debts. They are quickremedyserve to save the court's time. They also save time andmoney of the litigants and the government the expenses that along litigation entails. Inone sense, instruments of this character may be consideredas specialagreements, with power to enter up judgments on them,binding the parties to the result as they themselves viewed it. Onthe other hand, are disadvantages to the commercial world whichoutweigh the considerations just mentioned. Such warrants ofattorney are void as against public policy, because theyenlarge the field for fraud, because under these instrumentsthe promissor bargains away his right to a day in court, andbecause the effect of the instrument is to strike down the right ofappeal accorded by statute. The recognition of such form ofobligation would bring about a complete reorganization ofcommercial customs and practices, with reference to short-term obligations. It can readily be seen that judgment notes,instead of resulting to the advantage of commercial life in thePhilippines, might be the source of abuse and oppression, andmake the courts involuntary parties thereto. If the bank has ameritorious case, the judgment is ultimately certain in the courts.

Bearer Instruments produce the following effect: (a) it is payable to bearer; (b) payment to any person in possession thereof in goodfaith and withoutnotice that his title is defective, at or after maturity (Sec. 88) discharges the instrument (Sec. 119); (c) Delivery alone is enough to effect negotiation (Sec.Sec. 9(a) and (b) are originally bearer instruments. Those under subsection(c), (d) and (e) are order instruments on the face converted to bearer instruments.Sec. 9(c): A fictitious person is meant to be one who, though named, as payee, has no right to it because the maker or drawer so intended and itmatters not, whether the name of the payee used by him be that one living or dead, or one who never existed. (Snyder vs. Com. Exch. Nat. Sec. 9(c) and (d): They are treated as bearer instruments because it isimpossible to indorse when it is payable to cash, sundries or a fictitious

ANG TEK LIAN VS. CA (GR No. L-2516; Sept. 25, 1950) -Petitioner AngTek Lian approached Lee Hua and asked him if he couldgive himP4,000.00. He said that he is supposed to withdraw from the bankbut his bank was already closed. In exchange, he gaverespondent Lee Hua a check which is payable to the order ofcash. When Lee Hua presented the check for payment thenext day, he discovered that it has an insufficient funds,hence, was dishonored by the bank. In his defense, Ang Tek Lianargued that he did not indorse the check to Lee Hua when thelatter accepted the check without his indorsement. ISSUE: WONAng Tek Lians indorsement of the said check is necessary to holdhim liable for the dishonored check? HELD: No. UnderSection 9 of the Negotiable Instruments Law, a checkdrawn payable to the order of cash is a check payableto bearer and the bank may pay it to the personpresenting it for payment without drawersindorsement. Consequently, the form of the check wastotally unconnected with its dishonor. The check wasreturned unsatisfied because the drawer had insufficient fundsand not because the drawers indorsement was lacking. Hence,Ang Tek Lian may be held liable for estafa because under article315, paragraph d, subsection 2 of the Revised Penal Code, one

should only be considered as valid when given express legislative sanction.1. OMISSION

S

(e) Identity of the drawee

D. OMISSIONS AND PROVISIONS THAT DO NOT AFFECTNEGOTIABILITYPNB VS. MANILA OIL REFINING (GR No. L-18103; June 8,1922) - The manager and treasurer of respondentcompany executed anddelivered to the Philippine National Bank (PNB), a promissory notewhich provides a promise to pay petitioner bank the amount ofP61,000 and that in case payment was not made at time ofmaturity, any lawyer in thePhilippines is authorize to represent the company and confessjudgment for the said sum with interest, cost of suit andattorney's fees of ten% forcollection, a release of all errors and waiver of all rights toinquisition and appeal, and to the benefit of all laws exemptingproperty, real or personal,from levy or sale. Indeed, Manila Oil has failed to pay on demand.This prompted the bank to file a case in court, wherein anattorney associatedwith them entered his appearance for the defendant. To



Sec. 130. When bill may be treated as promissory note. - Where in a bill the drawer and drawee are the same person or wherethe drawee is afictitious person or a person not having capacity to contract, the holder maytreat the instrument at his option either as a bill of exchange

Sec. 6 Omissions; seal; particular money. - The validityand negotiable character of an instrument are notaffected by thefactthat:

(a) it is not dated;or(b) does not specify the value given, or that anyvalue had been given therefor; or(c) does not specify the place where it is drawn or theplace where it is payable; or(d) bears a seal;or(e) designates a particular kind of current money inwhich payment is to be made.

Sec. 11 Date, presumption as to. - Where the instrumentor an acceptance or any indorsement thereon is dated, such date isdeemed prima facie to be the true date of the making, drawing, acceptance, or indorsement, as the case may Sec. 12 Ante-dated and post-dated. - The instrument is not invalid for the reason only that it is ante-dated or post-dated, providedthis is not done for an illegal or fraudulent purpose. The personto whom an instrument so dated is delivered acquires Sec. 13 When date may be inserted. - Where aninstrument (1) expressed to be payable at a fixedperiod after date is issued undated, or (2) where theacceptance of an instrument payable at a fixed periodafter sight is undated, any holder may insert therein thetrue date of issue or acceptance, and the instrumentshall be payable accordingly. The insertion of awrong date does not avoid the instrument in thehands of a subsequent holder in due course; but as tohim, the date so inserted is toSec. 14 Blanks; when may be filled. - Where theinstrument iswanting in any material particular, theperson in possession thereof has a prima facieauthority to complete it byfilling up the blankstherein.

And a signature on a blank paper delivered by theperson making the signature in order that the papermay be converted into a negotiable instrument operatesas a prima facie authority to fill it up as such for anyamount.

E. INTERPRETATION OF INSTRUMENTS

(g) Where an instrument containing the word "I promise to pay" issignedSec. 11: He who claims that some other date is the true date has the

burden of establishing such claim.

Sec. 17(d): Reason for this rule is that, the written words are deemed to express the true intention of the maker or drawer because they are placedthere by himself. Also, because the amount in words are harder toalter

Sec. 13: If an undated note payable to P matures on Aug. 29, 2013, 30 days after issuance, but P inserted July 15 to hasten maturity date,P cannot enforcepayment because it is avoided as to him who ante-dated for fraudulentpurposes (Sec. 12). But if it was indorsed to A, a holder in due course, Sec. 17(g): Joint and Solidary

ObligationSec. 14: Material Particular is any particular proper to be inserted in a negotiable instrument to make it complete. REPUBLIC PLANTERS BANK VS. CA (GR No. 93073; Dec. 21,

1992) - In 1979, World Garment Manufacturing, through itsboard authorizedShozo Yamaguchi (president) and Fermin Canlas (treasurer)to obtaincredit facilities from Republic Planters Bank (RPB). For this, 9promissory notes were executed. Each promissory note was

Authority to Complete does not carry with it the authority to alter (Sec.124).Authority to put any amount there must be showing of intention to convert it to a negotiable instrument. Otherwise, it cannot be enforcedagainst the maker, even by a holder in due course (Sec. 15).

, after date, for value received, I/we, jointly and severallypromise to pay to the ORDER of the REPUBLIC PLANTERS BANK, at its office inCurrencyHolder NOT in due course of an instrument filled up in

excess of the authority given is treated as a holder of a materially altered instrument (Sec.124) and therefore cannot collect to parties prior to completion who did not assent to the alteration. If M issues a note and authorized P, payee, to insertP1,000, but P inserts P2,000, N, a subsequent holder NOT in due course cannot enforce it against M. But if N was a holder in due course, he can enforce theinstrument against M upto the stated amount of P2,000 since it is

Please credit proceeds of this note to: Savings Account XX Current Account No. 1372-00257-6 ofWORLDWIDE GARMENT MFG. CORP.Sgd. Shozo YamaguchiSgd. Fermin Canlas

The note became due and no payment was made. RPB eventuallysuedYamaguchi and Canlas. Canlas, in his defense, averred that heshould not be held personally liable for such authorizedcorporate acts that he performed inasmuch as he signed thepromissory notes in his capacity as officer of the defunctWorldwide Garment Manufacturing. ISSUE: WON Canlas shouldbe held liable for the promissory notes? HELD: Yes. Thesolidary liability of private respondent Fermin Canlas is madeclearer and certain, without reason for ambiguity, by thepresence of the phrase joint and several as describing theunconditional promise to pay to the order of Republic PlantersBank. Where an instrument containing the words Ipromise to pay is signed by two or more persons, theyare deemed to be jointly and severally liable thereon.Canlas is solidarily liable on each of the promissory notes bearinghis signature for the following reasons: The promissory notesare negotiable instruments and must be governed by theNegotiable Instruments Law. Under the Negotiable lnstrumentsLaw, persons who write their names on the face of promissory

2. ADDITIONAL PROVISIONS NOT AFFECTING NEGOTIABILITY

Sec. 5 (supra, p.6)a. Confession of Judgment see p.6

a.1 Warrant of attorney to confess judgment,however, are not authorized nor contemplated by ourlaw because under these instruments, the promisorbargains away his right to a day in court. (PNB vs.MANILA OIL REFINING, supra, p.6)a.2 Cognovit Actionem he has confessed theactiona.3 Relicta Verificationem his pleading beingabandoned; a confession of judgment accompanied bya withdrawal of the plea.

b. Waiver of Obligor Sec. 109. Waiver of notice. - Notice of dishonor may be waived either before the time of giving notice has



Sec. 17. Construction where instrument is ambiguous. -Where the language of the instrument is ambiguous or there areomissions therein,the following rules of constructionapply:

(a) Where the sum payable is expressed in words and also infigures and there is a discrepancy between the two, the sumdenoted by the words is the sum payable; but if the words areambiguous or uncertain, reference may be had to the figures tofix the amount;(b) Where the instrument provides for the payment ofinterest, without specifying the date from which interest is to run,the interest runs from the date of the instrument, and if theinstrument is undated, from the issue thereof;(c) Where the instrument is not dated, it will be considered to bedated as of the time it was issued;(d) Where there is a conflict between the written and printedprovisions of the instrument, the written provisions prevail;(e) Where the instrument is so ambiguous that there is doubtwhether it is a bill or note, the holder may treat it as either at hiselection;(f) Where a signature is so placed upon the instrument that it isnot clear in what capacity the person making the same intendedto sign, he is to be deemed an indorser;

thereto prior to its completion, it must be (1) filled upstrictly in accordance with the authority given and (2)within a reasonabletime.

But if any such instrument, after completion, isnegotiated to a holder in due course, it is valid andeffectual for all purposes in his hands, and he mayenforce it as if it had been filled up strictly inaccordance with the authority given and within areasonable time.Sec. 17 Construction where instrument is ambiguous. see E. Interpretation of Instruments.

Sec. 53 When person not deemed holder in due course. see

Sec. 71 Presentment where instrument is not payable on demand and where payable on demand. (1) Where theinstrument is not payable on demand, presentment must be made on the day it falls due. Where it is payable on demand,presentment must be made within a reasonable time after its issue, except that in the case of a bill of exchange, presentment

SPS. EVANGELISTA VS. MERCATER FINANCE CORP.(GR No.148864; Aug. 21, 2003) - Petitioner spouses filed acomplaint against respondents for the foreclosure of themortgage on their property andeventual its eventual sale, claiming, among others, that theyexecuted thesaid mortgage on their capacity as officers of Embassy Farms,and not on their personal capacity, thus, there is no considerationreceived by them, making the mortgage voidable. Respondent,on the other hand, claims that the promissory note for theloan, for which the mortgage was executed, shows that thespouses signed as co-makers, also with the succeedingpromissory notes. The RTC, upon motion of the respondent,granted summary judgment and dismissed the complaint. On

Section 15: Example: M makes a note for P10,000 with the name of the payee in blank and keeps it in his drawer. P steals the note, names himself asthe payee and indorses the note to A, A to B, B to C, a holder in due NOTE: C, even though a holder in due course, cannot enforce said note againstM by virtue of Sec. 15, but C can go after P, A and B.Section 16: As regards immediate parties and a remote party other than a holder in due course, delivery is a rebuttable presumption, as such can eitherbe conditional or for a special purpose (without intention of For value received, I/We jointly and severally promise to pay to the order of MERCATOR FINANCE CORPORATION at its office, the principal sum of EIGHT HUNDRED FORTY-FOUR

THOUSAND SIXHUNDRED TWENTY-FIVE PESOS & 78/100 (P 844,625.78), Philippine currency, x xx, in installments as follows:

As regards a holder in due course, valid delivery, of a complete instrument (asopposed to an incomplete instrument under Sec. 15), by all parties prior to him is conclusively presumed (admission of evidence to the

September 16, 1982

- P154,267.87

B. NEGOTIATION DEFINED

October 16, 1982

- P154,267.87

November 16, 1982

- P154,267.87

December 16, 1982

- P154,267.87

January 16, 1983

- P154,267.87

February 16, 1983

- P154,267.87

1. Instruments payable to order: two steps are required for negotiation:(a) indorsement and (b) delivery.Instruments payable to bearer: delivery alone without

The note was signed by petitioners and Embassy Farms, Inc.with thesignature of Eduardo Evangelista below it. Sec. 17 of theNegotiableInstruments Law provide: Construction where instrument isambiguous Where the language of the instrument is ambiguous orthere are omissions therein, the following rules ofconstruction shall apply: (g) Where an instrument containingthe word I promise to pay is signed by two or more persons,they are deemed to be jointly and severally liable thereon. Assuch, the promissory note itself proves that petitioners aresolidarily liable with Embassy Farms. Moreover,even if petitioners signed merely as officers, it doesnot erase the fact that they subsequently

2.

C. ASSIGNMENT AND NEGOTIATION DISTINGUISHED

Assignment is the transfer of the title to an instrument, withthe assignee generally taking only such title or rights as hisassignor has, subject to alldefenses available against his assignor. It is the less usual methodwhich may or may not involve an indorsement in the sense of writingon the back of the instrument.

III. ISSUE, TRANSFER AND NEGOTIATION

A. ISSUANCE/DELIVERY OF NEGOTIABLE INSTRUMENTS

CASABUENA VS. COURT OF APPEALS (GR No. 115410; Feb.27, 1998)- Ciriaco Urdaneta was a grantee of a parcel of land purchased bythe City of Manila and conveyed to its less privileged inhabitants,through its landreform program. Subsequently, he assigned his rights andinterests in 1/2 of the lot to Arsenia Benin covering full paymentof his indebtedness in theamount of P500. A deed of sale with mortgage wasexecuted, withUrdaneta undertaking to pay the City the amount figured for aperiod of forty years in 480 equal installments.Another deed of



Sec. 15 Incomplete instrument not delivered. - Where anincomplete instrument has not been delivered, it willnot, if completed andnegotiated without authority, be a valid contract in thehands of any holder, as against any person whosesignature was placed thereon before delivery.Sec. 16 Delivery; when effectual; when presumed. - Everycontract on a negotiable instrument is incomplete andrevocable untildelivery of the instrument for the purpose of giving effectthereto.As between immediate parties and as regards a remoteparty other than a holder in due course, the delivery, inorder to be effectual, must be made either by or under theauthority of the party making, drawing, accepting, orindorsing, as the case may be; and, in such case, thedelivery may be shown to have been conditional, or for aspecial purpose only, and not for the purpose oftransferring the property in the instrument. But wherethe instrument is in the hands of a holder in duecourse, a valid delivery thereof by all parties prior tohim so as to make them liable to him is conclusivelySec. 191 Definition and meaning of terms. - In this Act, unless the contract otherwise requires:

"Delivery" means transfer of possession, actual or constructive,

NEGOTIATION ASSIGNMENTApplicableLaw

Negotiable Instruments Law Civil Code of the Philippines

Type of transaction or instrumen

Negotiable instruments only Contracts in general or assignable rights

Nature of the transferee:

Transferee is a holder who may be a holder in due course

Transferee is amere assignee and cannever be a holder in duecourseRights

acquired:

The transferee-holdermay acquire more rightsthan the transferor if heis a holder in due course

Transferee cannotacquire more rightsthan the transferorbecause he merely stepsinto the shoes of thetransferorAvailabilit

y of personal defenses

Transferee-holder may befree from personal defensesif he is a holder in duecourse

Transferee is always subject to personal defenses

Sec. 30. What constitutes negotiation. - An instrument isnegotiated when it is transferred from one person to another in suchmanner as to constitute the transferee the holder thereof. If payableto bearer, it is negotiated by delivery; if payable to order, it isnegotiated by the indorsement of the holder andcompleted by delivery. (emphasis

from one person to another;

"Issue" means the first delivery of the instrument, complete in form, to a person who takes it as a holder

payment of the loan within 3yrs. from the date of assignment;failure topay would transfer physical possession of the lot to Benin for aperiod of15 years, without actual transfer of title and ownershipthereto. Meanwhile, the administration of the property wasassigned to brothers Candido and Juan Casabuena, to whomBenin had transferred her right, title and interest for aconsideration of P7,500. Notwithstanding this assignment,Benin constructed a duplex (apartment) on the lot separatelyoccupied by Jose Abejero and Juan Casabuena, who collectedrentals from the former. After the lot was fully paid for by theUrdanetas, a Release of Mortgage was executed and period ofnon-alienation of the land was extended from 5 to 20 years.Casabuena was Benin's rental collector but their relationshipsoured resulting in a litigation involving issue on ownership,of which the cause was the latters failure to pay rentals. Uponlearning of the litigation between petitioner and Benin,Urdaneta asked them to vacate the property and surrenderto him possession thereof within 15 days from notice.Petitioner's adamant refusal to comply with such demandresulted in a complaint for ejectment and recovery ofpossession of property filed by Urdaneta against Casabuenaand Benin. Amid the sprouting controversies involving the lot,the Urdaneta spouses succeeded in having the Court declarethem as its true and lawful owners with the deed of assignmentto Benin merely serving as evidence of Ciriaco's indebtednessto her in view of the prohibition against the sale of the landimposed by the City government. ISSUE: WON a deed ofassignment can transfer ownership of the property to theassignee? HELD: At the bottom of this controversy is theundisputed fact that Ciriaco Urdaneta was indebted to Benin, tosecure which debt the spouses ceded their rights over the landthrough a deed of assignment. An assignment of credit isan agreement by virtue of which the owner of acredit, known as the assignor, by a legal cause,transfers his credit and its accessory rights to another,known as the assignee, who acquires the power to enforceit to the same extent as the assignor could haveenforced it against the debtor. Stated simply, it is theprocess of transferring the right of the assignor to theassignee, who would then be allowed to proceedagainst the debtor. The assignment involves no transfer ofownership but merely effects the transfer rightswhich the assignor has at the time, to the assignee. Beninhaving been deemed subrogated to the rights and obligations ofthe spouses, she was bound by exactly the same conditions towhich the latter were bound. This being so, she and theCasabuenas were bound to respect the prohibition againstselling the property within the five-year period imposed bythe City government. The act of assignment could not haveoperated to efface liens or restrictions burdening the right

all executed on the same day by and among the parties. Barely14 daysafter delivery, the tractors broke down. Mechanics were sent todo repairs but the tractors were no longer serviceable. CPIIlogging operations weredelayed so Vergara advised IPM that the installmentpayments wouldlikewise be delayed until it fulfills its obligation under itswarranty. IFC then filed a collection suit against petitionersfor the recovery of the principal sum plus interest, attorney'sfees and costs of suit contending that it was a holder indue course of a negotiable promissory note. ISSUE: WONIFC is a holder in due course of a negotiable promissorynote so as to bar all defenses of CPII against IPM? HELD: No. Thenote in question fails to meet the requirement under Sec. 1(d) ofAct No. 2013. IFC is not and will never be a holder in due courseof the promissory note but is merely an assignee. The note inquestion is not a negotiable instrument for lack of the so-called words of negotiability. The seller- assignor IPM is liablefor breach of warranty and such liability as a general rule extendsto the corporation (IFC) to whom it assigned its rights andinterests. Even assuming that the note is negotiable, IFC whichTRADERS ROYAL BANK VS. COURT OF APPEALS (GRNo. 93397; Mar. 3, 1997) - Assailed in this Petition is theDecision of the Court ofAppeals affirming the nullity of the transfer of Central BankCertificate ofIndebtedness (CBC), with a face value of P500,000 fromPhilippine Underwriters Finance Corporation (Philfinance) -without authorization to petitioner Traders Royal Bank.ISSUE: WON Central Bank Certificate of Indebtedness (CBCI)is a negotiable instrument? HELD: No. The instrumentprovides for a promise to pay the registered owner Filriters.Very clearly, the instrument was only payable to Filriters. Itlacked the words of negotiability which should have served as anexpression of the consent that the instrument may betransferred by negotiation. The language of negotiabilitywhich characterizes a negotiable paper as a creditinstrument is its freedom to circulate as a substitute formoney. Hence, freedom of negotiability is the touchstone relatingto the protection of holders in due course, and the freedomof negotiability is the foundation for the protection, whichthe law throws around a holder in due course. This freedom innegotiability is totally absent in a certificate of indebtedness asit merely acknowledges to pay a sum of money to asubsequently

from Philfinance

to TRB, in accord

withexisting law, so as to entitle TRB to have the CBCI registered in itsnamewith the Central Bank? Clearly shown in the record is thefact that Philfinances title over CBCI is defective since itacquired the instrument from Filriters fictitiously. Although thedeed of assignment stated that the transfer was for valuereceived, there was really no consideration involved. Whathappened was Philfinance merely borrowed CBCI fromFilriters, a sister corporation. Thus, for lack of anyconsideration, the assignment made is a complete nullity.Furthermore, the transfer wasn't in conformity with the

E. HOW NEGOTIATION TAKES PLACE

D. HOW ARE NEGOTIABLE INSTRUMENTS AND NON-NEGOTIABLEINSTRUMENTS TRANSFERRED?SESBRENO VS. COURT OF APPEALS (supra, p.3)CONSOLIDATED PLYWOOD INDUSTRIES, INC. VS. IFCLEASING(GR No. 72593; April 30, 1987) - Consolidated PlywoodIndustries, Inc. (CPII) needed two tractors for its loggingbusiness. Atlantic Gulf & PacificCompany through its sister company Industrial ProductsMarketing (IPM)offered to sell two used" tractors. IPM inspected the job site andassured that the tractors were fit for the job and gave a90-day warranty for machine performance and availability ofparts. CPII officers Wee and Vergara purchased the tractorson installment and paid the down payment. The deed of

An instrument payable to bearer is not converted into an instrument payable to order by being indorsed specially. However, the person whoindorsed specially is liable only to those holders who can trace their title to the instrument by a series of unbroken indorsements from Instruments originally payable to order: Sec. 40 does not apply to instruments originally payable to order which was indorsed in black.



Sec. 30 What constitutes negotiation. (supra, p. 9)Sec. 40 Indorsement of instrument payable to bearer. -

Where an instrument, payable to bearer, is indorsed specially, it maynevertheless be further negotiated by delivery; but the person indorsing specially is liable as indorser to only such holders as make

Art. 348, Code of Commerce. The conveyer shall answerfor the legality of the credit and for the capacity in which hemade the transfer; but he shall not answer for the solvency of thedebtor, unless there is an express agreement requiring him to doso

Balintawak branch of Producers Bank, relying on theassurance ofrespondent Samson Tung, President of Plastic Corporation,that the transaction was legal and regular, instructed the cashierof Producers Bankto accept the checks for deposit and to credit them to theaccount of saidPlastic Corporation, inspite of the fact that the checks werecrossed and payable to petitioner Bank and bore no indorsementof the latter. Hence, petitioner filed the complaint as aforestated.ISSUE: WON petitioner Bank has a cause of action againstany or all of the defendants, in the alternative or otherwise?HELD: A cause of action is defined as an act or omission of oneparty in violation of the legal right or rights of another. Theessential elements are: (1) legal right of the plaintiff; (2)correlative obligation of the defendant; and (3) an act or omissionof the defendant in violation of said legal right. The normalparties to a check are the drawer, the payee and the draweebank. Courts have long recognized the business custom of usingprinted checks where blanks are provided for the date ofissuance, the name of the payee, the amount payable and thedrawer's signature. All the drawer has to do when he wishes toissue a check is to properly fill up the blanks and sign it. However,the mere fact that he has done these does not give rise to anyliability on his part, until and unless the check is delivered tothe payee or his representative. A negotiable instrument, ofwhich a check is, is not only a written evidence of acontract right but is also a species of property. Just as a deed to apiece of land must be delivered in order to convey title to thegrantee, so must a negotiable instrument be delivered to thepayee in order to evidence its existence as a binding contract.Section 16 of the Negotiable Instruments Law, which governschecks, provides in part: Every contract on a negotiableinstrument is incomplete and revocable until delivery of theinstrument for the purpose of giving effect thereto. Thus, thepayee of a negotiable instrument acquires no interest withrespect thereto until its delivery to him. Delivery of aninstrument means transfer of possession, actual or constructive,from one person to another. Without the initial delivery of theinstrument from the drawer to the payee, there can be no liabilityon the instrument. Moreover, such delivery must beintended to give effect to the instrument. The allegations ofthe petitioner in the original complaint show that the two(2) China Bank checks, numbered384934 and 384935, were not delivered to the payee, thepetitioner herein. Without the delivery of said checks topetitioner-payee, the formerdid not acquire any right or interest therein and cannot thereforeassert any cause of action, founded on said checks, whetheragainst the drawerSima Wei or against the Producers Bank or any of the otherrespondents. In the original complaint, petitioner Bank, asplaintiff, sued respondentSima Wei on the promissory note, and the alternativedefendants,including Sima Wei, on the two checks. On appeal from theorders of dismissal of the Regional Trial Court, petitioner Bankalleged that its cause of action was not based on collecting thesum of money evidenced by the negotiable instruments statedbut on quasi-delict a claim for damages on the ground offraudulent acts and evident bad faith of the alternativerespondents. This was clearly an attempt by the petitioner Bankto change not only the theory of its case but the basis of hiscause of action. It is well-settled that a party cannot change histheory on appeal, as this would in effect deprive the other partyof his day in court. Notwithstanding the above, it does notnecessarily follow that the drawer Sima Wei is freed fromliability to petitioner Bank under the loan evidenced bythe promissory note agreed to by her. Her allegation thatshe has paid the balance of her loan with the two checkspayable to petitioner Bank has no merit for, as We have earlierexplained, these checks were never delivered to petitioner Bank.And even granting, without admitting, that there was delivery topetitioner Bank, the delivery of checks in payment of anobligation does not constitute payment unless they are

LIM VS. CA (GR No. 107898; Dec. 19, 1995) - Manuel Lim andRosita Lim are the officers of the Rigi Bilt Industries, Inc.(RIGI) which had beentransacting business with Linton Commercial Company, Inc.The Limsordered several steel plates and purlins from Linton and weredelivered to the Lims place of business which was inCaloocan. To pay Linton, the petitioners issued seven checks.When the checks were presented to the drawee bank (Solidbank),they were dishonored because payment for the checks had beenstopped and/or insufficiency of funds. As a result, petitionerswere found guilty with Estafa and 7 counts of violation of BP22 by the Malabon RTC. On appeal, the CA reversed thetrial courts decision on Estafa but upheld the decision onviolation of BP 22, hence, this petition. ISSUE: WON the issuewas within the jurisdiction of the Malabon RTC? HELD: Thevenue of jurisdiction lies either in the RTC Caloocan orMalabon Trial Court. BP 22 is a continuing crime. A personcharged with a transitory crime may be validly tried in anymunicipality or territory where the offense was partlycommitted. In determining the proper venue, the ff. must beUnder

Section 191 of

the Negotiable

InstrumentsLaw, issue means the first delivery of the instrument

complete in itsform to a person who takes it as holder. The term holder onthe other hand refers to the payee or endorsee of a bill or notewho is in possession of it or the bearer thereof. The placewhere the bills were written, signed or dated does notnecessarily fix or determine the place where they wereis the final act essential to its consummation of anobligation. Anundelivered bill is unoperative. The issuance and delivery ofthe check must be to a person who takes it as a holder. In thecase at bar, although Linton sent a collector who received thechecks from the petitioners place of business, the checks wereactually issued and delivered to Linton in Navotas. Thecollector is not a holder or an agent, he was just anLORETO DELA VICTORIA VS. HON. BURGOS (GR No. 111190;June27, 1995) - Raul Sebreo filed a complaint for damagesagainst FiscalBienvenido Mabanto Jr. of Cebu City. Sebreo won and he wasawarded the payment of damages. Judge Burgos ordered De LaVictoria, custodianof the paychecks of Mabanto, to hold the checks andconvey them to Sebreo instead. De La Victoria assailed thedecision as he said that the paychecks and the amount thereonare not yet the property of Mabanto because they are not yetdelivered to him; that since there is no deliveryof the checks to Mabanto, the checks are still part of the publicfunds; and the checks due to the foregoing cannot be theproper subject of garnishment. ISSUE: WON De La Victoria iscorrect? HELD: Yes. Under Section 16 of the NegotiableInstruments Law, every contract on a negotiable instrumentis incomplete and revocable until delivery of the instrument

DEVELOPMENT BANK OF RIZAL VS. SIMA WEI (GR No.85419; June9, 1983) - In consideration for a loan extended bypetitioner Bank to respondent Sima Wei, the latter executedand delivered to the former apromissory note, engaging to pay the petitioner Bank or order theamount of P1,820,000.00 on or before June 24, 1983 withinterest at 32% per annum. Sima Wei made partial payments onthe note, leaving a balance of P1,032,450.02. On November 18,1983, Sima Wei issued two crossed checks payable topetitioner Bank drawn against China Banking Corporation,bearing respectively the serial numbers 384934, for theamount of P550,000.00 and 384935, for the amount ofP500,000.00. The said checks were allegedly issued in fullsettlement of the drawer's account evidenced by thepromissory note. These two checks were not delivered tothe petitioner-payee or to any of its authorizedrepresentatives. For reasons not shown, these checks cameinto the possession of respondent Lee Kian Huat, who



it is Sima Wei, the drawer, who would have a cause of action against herco-respondents, if the allegations in the complaint are found to

selling only P30,000 of it and for such reason, at the backof the document he wrote in longhand: Pay to the order ofEnrique P. Montinola P30,000 only. The balance to be deposited inthe Philippine National Bank to the credit of M. V. Ramos. Ramosfurther said that in exchange for this assignment of P30,000,Montinola would pay him P90,000 in Japanesemilitary notes but that the latter gave him only two checks ofP20,000 and P25,000, leaving a balance unpaid of P45,000. Thewriting made at the back of the check was, however,mysteriously obliterated and in its place, a supposed indorsementappearing on the back of the check was made for the wholeamount of the check. ISSUE: WON the check was legallynegotiated within the meaning of the NIL in view of thefact that the instrument was indorsed for a lesser amount?HELD: NO. Section 32 of the NIL provides that "theindorsement must be an indorsement of the entireinstrument. An indorsement which purports to transfer tothe indorsee a part only of the amount payable (as in thiscase) does not operate as a negotiation of the instrument." As towhat was really written at the back of the check which Montinolaclaims to be a full indorsement of the check, the Court agreedwith trial court that the original writing of Ramos on the back ofthe check was to the effect that he was assigning only P30,000 ofthe value of the document and that he was instructing the bankto deposit to his credit the balance. Montinola may therefore notbe regarded as an indorsee. At most he may be regarded as amere assignee of the P30,000 sold to him by Ramos, in which

F. INCOMPLETE NEGOTIATION OF ORDER INSTRUMENT

Equitable Assignment the transfer of an order instrument without indorsement where the transferee acquires the instrument subject to defensesand equities available among prior parties.The transferee acquires the legal title the transferor had and inaddition, theright to have the indorsement of the transferor, without which hecannot be considered a holder within the definition under Sec.191 and thus cannot negotiate it. He also cannot be considered abearer since the instrument is not payable to bearer.G. WHERE INDORSEMENT SHOULD BE PLACED?

ANG TEK LIAN VS. CA (GR No. L-2516; Sept. 25, 1950) -Knowing he had no funds therefor, petitioner Ang Tek Liandrew a check upon theChina Banking Corporation for the sum of P4,000, payable to theorder ofcash. He delivered it to Lee Hua Hong in exchange for moneywhich the latter handed in the act. The next business day, thecheck was presented by Lee Hua Hong to the drawee bank forpayment, but it was dishonored for insufficiency of funds, thebalance of the deposit of Ang Tek Lian on both dates being P335only. Petitioner was sued for estafa. In his defense, however, heargues that as the check had been made payable to cash andhad not been endorsed by Ang Tek Lian, the defendant is notguilty of the offense charged. ISSUE: WON a check payableto cash needs indorsement? HELD: NO. Under the NegotiableInstruments Law (sec. 9 [d], a check drawn payable to the orderof cash is a check payable to bearer, and the bank may pay itto the person presenting it for payment without the drawersindorsement. Where a check is made payable to the order ofcash, the word cash does not purport to be the name of any

Indorsement is the writing of the name of the payee on the instrument with the intent either to transfer the title to the same, or to strengthen the securityof the holder by assuming a contingent liability for its future payment,Allonge - is a slip of paper sometimes attached to a negotiable instrument for the purpose of receiving further indorsements when the original paper is filledwith indorsements. Generally, an allonge may not be utilized for indorsement ifH. WHEN PERSON DEEMED INDORSER

An indorser cannot show by parol evidence (i.e., outside the instrument itself)his intention to be bound in some other capacity, as for example, he signed merely as an agent.I. OTHER RULES ON

INDORSEMENTProcuration is the act by which a principal gives power to another to act in his place as he could himself. It is otherwise understood as agency or proxy.

ENRIQUE MONTINOLA VS. PNB (GR No. L-2861 ; Feb. 26,1951) - In1942, Mariano Ramos, as disbursing officer of an army division ofUnitedStates Armed Forces in the Far East (USAFFE) and based inMisamis Oriental, procured cash advances in the amount ofPhp800,000 with the Provincial Treasurer (PT) of Lanao for the useof USAFFE in Cagayan de Misamis. PT-Lanao did not have thatamount in cash so he gave Ramos P300,000 in emergencynotes and a check for P500,000. Thereafter, Ramos presentedthe check to their PT in their province for encashment. PT-Misamisdid not have enough cash to cover the check so he gaveRamos P400,000 in emergency notes and a check for P100,000drawn on the PNB as he had previously deposited P500,000emergency notes in the PNB branch in Cebu and thus heexpected to have the check issued by him cashed in Cebuagainst sa

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Negotiable Instruments Law