Nego Study Guide by Atty Catindig

STUDY GUIDE INSTRUMENTS Act 2031 (1911)

ON

THE

NEGOTIABLE LAW*

DEFINITIONS 1.1 Acceptance (Sec. 132) Acceptance; how made, by

and so forth. - The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer. The acceptance must be in writing and signed by the drawee. It must not express that the drawee will perform his promise by any other means than the payment of money. 1.2 Allonge (Sec. 31) Indorsement; how made. - The indorsement must be written on the instrument itself or upon a paper attached thereto. The signature of the indorser, without additional words, is a sufficient indorsement. 1.3 Bearer (Sec. 191) means the person in possession

of a bill or note which is payable to bearer; 1.4 Bill of exchange (Sec. 126) defined. - A bill of

exchange 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. 1.5 Check (Sec. 185) defined. - A check is a bill of exchange drawn on a bank payable on demand.

 Prepared by Prof. Tristan A. Catindig as of July 29, 2008. All rights reserved.

*

Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a check. 1.6 Delivery (Sec. 191) means transfer of possession, actual or constructive, from one person to another; 1.7 Forgery (Alvendia, p. 47) 1.8 Holder (Sec. 191) means the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof; 1.9 Indorser 1.10 Inland bill of exchange (Sec. 129)   An inland bill of exchange is a bill which is, or on its face purports to be, both drawn and payable within the Philippines. Any other bill is a foreign bill. Unless the contrary appears on the face of the bill, the holder may treat it as an inland bill. 1.11 Issue (Sec. 191) means the first delivery of the instrument, complete in form, to a person who takes it as a holder; 1.12 Person primarily liable on instrument (Sec. 192) includes a body of persons, whether incorporated or not; 1.13 Presentment 1.14 Procuration (Alvendia, p. 44) 1.15 Promissory note (Sec. 184) 1 of 13

A negotiable promissory note within the meaning of this Act 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. Where a note is drawn to the maker's own order, it is not complete until indorsed by him. 1.16 Referee in case of need (Sec. 131)  The drawer of a bill and any indorser may insert thereon the name of a person to whom the holder may resort in case of need; that is to say, in case the bill is dishonored by non-acceptance or non-payment. Such person is called a referee in case of need. It is in the option of the holder to resort to the referee in case of need or not as he may see fit. 1.17 Value (Sec. 25) Value is any consideration sufficient to support a simple contract. An antecedent or preexisting debt constitutes value; and is deemed such whether the instrument is payable on demand or at a future time.

1.20 A party for value (Sec. 24) and every person whose signature appears thereon to have become a party thereto for value. 1.21 Time of indorsement (Sec. 45) Except where an indorsement bears date after the maturity of the instrument, every negotiation is deemed prima facie to have been effected before the instrument was overdue. 1.22 Place of indorsement (Sec. 46)   Except where the contrary appears, every indorsement is presumed prima facie to have been made at the place where the instrument is dated. Holder in due course (Sec. 59) Every holder is deemed prima facie to be a holder in due course; but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as holder in due course. But the last-mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title.

SOME PRESUMPTIONS UNDER THE NIL 1.18 Date of instrument (Sec. 17) (c) Where the instrument is not dated, it will be considered to be dated as of the time it was issued; 1.19 Consideration for issuance of instrument (Sec. 24) Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration;

FORMS 1.23 Distinguish: a negotiable instrument from a nonnegotiable instrument (Alvendia, pp. C-D) 1.24 Examples of negotiable as well as non-negotiable documents and instruments 1.25 Distinguish: a promissory note from a bill of exchange 2 of 13

(ii) 1.26 When may a bill be treated as a promissory note (Sec. 130) Where in a bill the drawer and drawee are the same person or where the drawee is a fictitious person or a person not having capacity to contract, the holder may treat the instrument at his option either as a bill of exchange or as a promissory note

(b)

1.27 Requisites of negotiability (a)

certainty of sum (Sec. 2) The sum payable is a sum certain within the meaning of this Act, although it is to be paid: (i)

with interest; or

Promissory Note (Sec. 1)

(ii)

by stated installments; or

(i)

It must be in writing and signed by the maker

(iii)

(ii)

Must contain an unconditional promise or order to pay a sum certain in money;

by stated installments, with a provision that, upon default in payment of any installment or of interest, the whole shall become due; or

(iii)

Must be payable on demand, or at a fixed or determinable future time;

(iv)

with exchange, whether at a fixed rate or at the current rate; or

(v)

with costs of collection or an attorney's fee, in case payment shall not be made at maturity.

(iv) (v)

(b)

Must be payable to order or to bearer; Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

Bill of Exchange (Sec. 1) (same as above)

(c)

in money (i)

The instrument must be capable of being transformed into money, since negotiable instruments are intended to be substitutes for money

(ii)

“Money” as used in the law is not necessarily limited to “legal tender” as defined by law but includes any particular kind of current money. [see, Sec. 6(e), NIL and PNB v. Zulueta]

1.28 Meaning of particular requisites (a)

A statement of the transaction which gives rise to the instrument. But an order or promise to pay out of a particular fund is not unconditional

unconditional promise or order (Sec. 3) An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with: (i)

An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or

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(iii) (d)

(e)

An agreement to pay in foreign currency is valid. [RA 8183]

(ii)

When it is payable to a person named therein or bearer; or

payable on demand (Sec. 7) An instrument is payable on demand:

(iii)

When it is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable; or

(iv)

When the name of the payee does not purport to be the name of any person; or

(v)

When the only or last indorsement is an indorsement in blank

(i)

When it is so expressed to be payable on demand, or at sight, or on presentation; or

(ii)

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, payable on demand.

determinable future time (Sec. 4) (i)

At a fixed period after date or sight; or

(ii)

On or before a fixed or determinable future time specified therein; or

(iii)

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.

An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure the defect. (f)

payable to order (Sec. 8) The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order.

(g)

payable to bearer (Sec. 9) (i)

When it is expressed to be so payable; or

(h)

rule as to dates (Sec. 11; Sec. 13; Sec. 17(b); Sec 12) Sec. 11. Date, presumption as to. - Where the instrument or an acceptance or any indorsement thereon is dated, such date is deemed prima facie to be the true date of the making, drawing, acceptance, or indorsement, as the case may be. Sec. 13. When date may be inserted. - Where an instrument expressed to be payable at a fixed period after date is issued undated, or where the acceptance of an instrument payable at a fixed period after sight is undated, any holder may insert therein the true date of issue or acceptance, and the instrument shall be payable accordingly. The insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in due course; but as to him, the date so inserted is to be regarded as the true date.

4 of 13

Sec. 17 (b) Where the instrument provides for the payment of interest, without specifying the date from which interest is to run, the interest runs from the date of the instrument, and if the instrument is undated, from the issue thereof; Sec. 12. Ante-dated and post-dated. - The instrument is not invalid for  the reason only that it is ante-dated or post-dated, provided this is not done for an illegal or fraudulent purpose. The person to whom an instrument so dated is delivered acquires the title thereto as of the date of delivery. 1.29 Omissions not affecting negotiability (Sec. 6) Omissions; seal; particular money. - The validity and negotiable character of an instrument are not affected by the fact that: (a)

it is not dated; or

(b)

does not specify the value given, or that any value had been given therefor; or

(c)

does not specify the place where it is drawn or the place where it is payable; or

(d)

bears a seal; or

(e)

designates a particular kind of current money in which payment is to be made. But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the consideration to be stated in the instrument

1.30 Rules of construction (Sec. 17)

(a)

Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two, the sum denoted by the words is the sum payable; but if the words are ambiguous or uncertain, reference may be had to the figures to fix the amount;

(b)

Where the instrument provides for the payment of interest, without specifying the date from which interest is to run, the interest runs from the date of the instrument, and if the instrument is undated, from the issue thereof;

(c)

Where the instrument is not dated, it will be considered to be dated as of the time it was issued;

(d)

Where there is a conflict between the written and printed provisions of the instrument, the written provisions prevail;

(e)

Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may treat it as either at his election;

(f)

Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign, he is to be deemed an indorser;

(g)

Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon.

1.31 Cases: (a)

Caltex (Philippines), Inc. vs. CA, et al., G.R. 97753, August 10, 1992; 5 of 13

(b)

Metropolitan Bank & Trust Co. vs. CA, et al., G.R. 88866, February 18, 1991;

(c)

Development Bank of Rizal vs. Sima Wei, et al., G.R. 85419, March 9, 1993.

RULES FOR ABNORMAL NEGOTIABLE INSTRUMENTS

OR

DEFICIENT

1.32 Incomplete but delivered negotiable instrument (Sec. 14) Blanks; when may be filled. - Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time. 1.33 Complete but undelivered negotiable instrument (Sec 16) Delivery; when effectual; when presumed. - Every contract on a negotiable instrument is incomplete and

revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made 1.34 Incomplete and undelivered negotiable instrument (Sec. 15) Where an incomplete instrument has not been delivered, it will not, if completed and negotiated without authority, be a valid contract in the hands of any holder, as against any person whose signature was placed thereon before delivery. 1.35 Absence or failure consideration

of

consideration

or

illegal

(a)

Absence of consideration defined

(b)

Failure of consideration defined

(c)

Effect of illegal consideration (Pineda vs. dela Rama, 121 SCRA 671)

(d)

Effect of absence or failure of consideration (Sec. 28)

(e)

Exception to effects of absence of consideration: Accommodation (i)

Accommodation party defined (Sec. 29)

(ii)

Liability of an accommodation party (Sec. 29)

1.36 Cases: (a)

Travel-on, Inc. vs. CA, et al., G.R. 56169, June 26, 1992;

6 of 13

(b)

Prudencio, et al. vs. CA, et al., G.R. L-34539, July 14, 1986;

(c)

Crisologo-Jose vs. CA, September 15, 1989.

et

al.,

G.R.

80599,

1.37 Forgery of signature (Sec. 23)

(a)

Defined (Sec. 125)

(b)

Effect (Sec. 124)

(c)

Effect of negligence of drawer of check (Campos, p. 416)

(d)

Effect of drawee’s payment or acceptance of altered check (Campos, p. 435)

(a)

Defined

(b)

Effects

(c)

Parties precluded to use the defense of forgery

N E GO T I AT I ON

(d)

Forgery in checks (Campos, p. 268-404)

1.40 Negotiation defined (Sec. 30)

(i)

When the drawee accepts or pays a forged instrument

1.41 Negotiation vs. Assignment or Transfer

(ii)

Payment of drawee bank despite stop payment order of drawer

(iii)

Effect of negligence of depositor

(iv)

Effect of indorsements

payment

under

forged

(v)

Effect of negligence of drawee in informing recipient of forgery

(vi)

Effect of negligence of drawer in case of forged indorsements

1.38 Cases: (a)

Republic Bank vs. Ebrada, G.R. L-40796, July 31, 1975;

(b)

Jai-Alai vs. BPI, G.R. L-29432, August 6, 1975;

(c)

Westmont Bank vs. Ong, G.R. No. 132560, January 30, 2002.

1.42 Case: Sesbreño vs. CA, et al., G.R. 89252, May 24, 1993. 1.43 Rights transferred by negotiation (Campos, p. 69) 1.44 Methods of negotiation: (a)

By delivery of the Instrument instruments payable to bearer)

(b)

By indorsement followed by instruments payable to order) (i)

alone

(for

delivery

(for

How indorsement made (Sec. 31)

(ii)

Indorsement where name is misspelled (Sec. 43)

(iii)

Indorsement must be of entire instrument (Sec. 32)

(iv) (v)

Indorsement by agent (Sec. 44) Indorsement to a “Cashier” (Sec. 42)

1.39 Material alteration of the Instrument 7 of 13

(vi)

Kinds of indorsements (Secs. 33, 34, 36, 38,39,41,64)

(vii)

Effect of indorsement on instrument negotiable by delivery (Sec. 40)

(viii)

Effect of lack of indorsement on an instrument negotiable by indorsement (Sec. 49)

(ix) (x)

Striking out of indorsements (Sec. 48) Continuation of negotiable character (Sec. 47)

(e)

Payee as holder in due course

1.46 Cases: (a)

Stelco Marketing vs. CA, et al., G.R. 96160, June 17, 1992;

(b)

Atrium Management vs. CA, et al., G,R, 109491, February 28, 2001.

1.47 Defenses against the holder (a)

Real or absolute (i) (ii)

RIGHTS OF A HOLDER 1.45 Holder in due course (a)

(b)

(i) (ii)

Complete and regular (Sec. 124)

Holder for value and in good faith (Secs. 25, 26 and 27)

(iv)

No notice of infirmity in the instrument or defect in the title of person negotiating (Secs. 54, 55 and 56)

Complete, undelivered instrument (Sec. 16)

(ii)

Incomplete, delivered instrument (Sec. 14)

Holder before or at maturity and without notice of dishonor (Secs. 12 and 53)

(iii)

Incomplete, undelivered instrument (Sec. 15)

Personal or equitable defenses (i)

Requisites (Sec. 52)

Incapacity (Sec. 22)

(iii)

Lack of consideration (Sec. 28)

(iv)

Illegality

(v) (c)

Duress

Sometimes real, sometimes personal; (i)

Forgery (Sec. 23) Material Alteration (Sec. 124)

(b)

Who is deemed a holder in due course (Sec. 59)

(ii)

(c)

Rights of a Holder in due course(Secs. 51 and 57)

(iii)

(d)

Rights of a purchaser from a Holder in due course (Sec. 58)

Fraud

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PRESENTMENT OF EXCHANGE

FOR

A CC E P TAN C E

IN

BILLS

1.48 When required (Sec. 143) 1.49 Effect of non- presentment when required (Sec. 144) 1.50 How made (Sec. 145) 1.51 When made (Sec. 146)

P R E S E N T M E N T F O R P AY M E N T 1.63 In Promissory Notes (a)

Purpose (Sec. 70)

(b)

Requisites (Secs. 72, 73 and 74)

(c)

When excused (Secs. 80 and 82)

(d)

When instrument considered dishonored (Sec. 83)

1.52 When time is insufficient (Sec. 147) 1.53 When excused (Sec. 148)

1.64 In Bills of Exchange

1.54 Dishonor by non-acceptance (Sec. 149)

(a)

When necessary (Sec. 70)

1.55 Duty of holder where bill not accepted (Sec. 150)

(b)

When not necessary (Secs. 79, 80, 111 and 151)

1.56 Rights of holder where bill not accepted (Sec. 151)

(c)

When excused (Secs. 82)

1.57 Effect of omission to give notice of non-acceptance (Sec. 117)

(d)

Requisites (Secs. 71, 72, 73,74)

1.65 Date and time of presentment (Secs. 85, 86, 194) 1.66 Manner of presentment when::

A C C EP TA N C E IN B I L L S O F E XC H A N G E

(a)

Instrument payable at bank (Sec. 75)

1.58 Defined (Sec. 132)

(b)

Principal debtor is dead (Sec. 76)

1.59 Requisites for validity (Sec. 132)

(c)

Persons liable as partners (Sec. 77)

1.60 How made (Secs 133, 134, 135 and 136)

(d)

There are joint debtors (Sec. 78)

1.61 Kinds of acceptance (a)

General (Secs. 139 and 140) and qualified (Secs. 139 and 141)

(b)

Actual (Sec. 132) and constructive (Sec. 137)

1.62 Rights of the parties as to qualified acceptance (Sec. 142)

1.67 Dishonor by non-payment and its effects (Secs. 83 and 84) NOTICE OF DISHONOR 1.68 When necessary and to whom given (Sec. 89) 1.69 Form and contents of notice (Secs. 95 and 96)

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1.70 Time within which notice must be given (Secs 102, 103, 104, 105, 106, 107 and 113)

(a)

Defined (Sec. 129)

(b)

Importance of determining whether a bill of exchange is an inland bill or a foreign bill

1.71 Place where notice must be given (Sec. 108) 1.72 By whom notice may be given (Secs. 90 and 91) 1.73 To whom notice must be given

1.79 Protest Defined (a)

When necessary (Sec. 152)

(a)

In general (Sec. 97)

(b)

How made (Sec. 153)

(b)

If given by agent (Sec. 94)

(c)

By whom made (Sec. 154)

(c)

If party is dead (Sec. 98)

(d)

When made (Sec. 155)

(d)

To partners (Sec. 99)

(e)

Where made (Sec 156)

(e)

To joint parties (Sec 100)

(f)

Waiver of protest (Sec.111)

(f)

To bankrupt (Sec. 101)

(g)

Protest both for non-acceptance payment (Sec. 157)

(h)

Protest for better security (Sec. 158)

(i)

When delay is excused and protest dispensed with (Sec. 159)

(j)

Protest where bill is lost (Sec. 160)

1.74 In whose favor notice operates (Secs 92 and 93) 1.75 When rule requiring notice not applied (a)

In general (Sec 112)

(b)

When notice of non-acceptance already given (Sec. 116)

(c)

Waiver (Sec. 109 and 110)

1.76 When not necessary to charge: (a)

Drawer (Sec. 114)

(b)

Indorser (Sec. 115)

1.77 Effect of failure to give notice (Secs. 89 and 117) FOREIGN BILLS 1.78 Foreign Bill

and

non-

1.80 Distinguish: protest from notice of dishonor (Secs. 89, 91, 96, 102, 103, 118, 152-156): 1.81 Acceptance for honor (acceptance supra protest) (a)

Defined (Alvendia, p. 214)

(b)

Purpose

(c)

Requisites (Sec. 161)

(d)

Effects (Sec. 164)

1.82 Payment for honor (payment supra protest) (a)

Defined

10 of 13

(b)

Purpose (Alvendia, p. 222)

(b)

Intentional cancellation of signature of holder (Secs. 123 and 48)

(c)

Requisites (Secs 161, 172)

(d)

Effects (Sec. 175)

(c)

Discharge of a prior party

(e)

Preference of parties offering to pay for honor (Sec. 174)

(d)

Valid tender of payment by a prior party

(e)

Release of the principal debtor

1.83 Distinguish an acceptance for honor from a payment for honor (Secs. 161, 171 and 176):

(f)

Extension of time of payment

(g)

Renunciation by holder before, at or after its maturity (Sec. 122)

DISCHARGE OF INSTRUMENT

(h)

Taking a qualified acceptance unless drawer and indorsers have expressly or impliedly authorized the holder to take a qualified acceptance or subsequently assent thereto (sec.142)

(i)

Failure to make due presentment when required (Secs. 70, 144)

(j)

Failure to give notice of dishonor (Sec.89)

(k)

Certification of check at instance of holder (Sec. 188)

1.84 Causes for discharge of the instrument and discharge of all parties (Sec. 119) (a)

Payment in due course by debtor (i)

What constitutes payment in due course (Sec. 88)

(b)

Payment in due course by the accommodated party

(c)

Intentional cancellation by the holder (i)

Unintentional cancellation; burden of proof (Sec. 123)

(d)

Any other act which will discharge a simple contract for the payment of money

(e)

Debtor becomes the holder of the instrument at or after maturity in his own right

(f)

Renunciation by holder at or after maturity (Sec. 122)

1.85 Causes for discharge of secondary parties (Sec. 120) (a)

Any act which discharges the instrument

1.86 Right of a party secondarily liable on an instrument who discharges the same (Sec. 121) 1.87 Case: State Investment House. vs. CA and Nora B. Moulic, G.R. 101163, January 11, 1993. LIABILITIES OF PARTIES 1.88 Parties primarily liable (a)

Maker (Sec. 60)

(b)

Acceptor or the drawee instrument (Sec. 62)

who

accepts

the

11 of 13

1.89 Parties secondarily liable (a)

The Drawer (Sec. 61)

(b)

The General Indorser (Sec. 66)

(c)

The Irregular Indorser (Sec. 64)

1.90 Parties with limited liability (a)

The Qualified Indorser (Sec. 65)

(b)

Person negotiating by delivery

1.91 When secondary liability attaches (a)

Acts needed before secondary liability attaches

(b)

Order in which Indorsers are liable (Sec. 68)

1.92 Parties signing in accommodation (Sec. 29) 1.93 Parties signing as agent (Secs. 19, 20, 21 and 69) 1.94 Parties signing under a trade or assumed name (Sec. 18)

1.99 Differentiated from an ordinary Bill of Exchange (Campos, p. 546) 1.100 Stop payment order by drawer (Campos, p. 328-329) 1.101 Certification Sec. 187) (a)

Certified check defined (Alvendia, p. 251)

(b)

Effect of certification (Secs. 187, 188 and 189)

1.102 Kinds of checks (a)

Stale check. (Alvendia, p. 250)

(b)

Traveler’s check (Alvendia, p. 243-244)

(c)

Cashier’s or manager’s check (Alvendia, p. 243)

(d)

Memorandum check (People v. Nitafan, G.R. L7594, Oct. 22, 1992; 215 SCRA 79)

1.103 Check used as payment of obligation 1.104 Crossed Checks (Bataan Cigar and Cigarette Factory, Inc. vs. CA, et al., G.R. 93048, March 3, 1994; 230 SCRA 643)

BILLS IN A SET

(a)

Defined

1.95 Defined (Sec. 178)

(b)

How made

1.96 Purpose of drawing bills in a set (Alvendia, p. 225)

(c)

Effects

1.97 Effect of payment of one part of a bill drawn in a set (Secs. 180 and 183)

1.105 Cases: (a)

Papa vs. A.U. Valencia, et al., G.R. 105188, January 23, 1998.

CHECKS

(b)

1.98 Defined; characteristics (Secs. 185, 186, 188, Sec. 60, RA 7653)

Firestone Tire vs. CA, et al., G.R. 113236, March 5, 2001.

(c)

BPI vs. CA, et al., G.R. 112392, February 29, 2000. 12 of 13

(d)

International Corporate Bank vs. Spouses Gueco, G.R. 141968, February 12, 2001.

(e)

State Investment House vs. IAC, et al., G.R. 72764, July 13, 1989;

(f)

Bataan Cigar and Cigarette Factory vs. CA, et al., G.R. 93048, March 3, 1994.

-o-

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