IV.

NEGOTIABLE INSTRUMENTS LAW

Negotiable Instrument
Written contracts for the payment of money; by its form,
intended as a substitute for money and intended to pass from hand to
hand, to give the holder in due course the right to hold the same and
collect the sum due.
A. Forms and interpretation
Negotiability
right of transferee to hold the instrument and collect the
sum due.
1. Requisites of Negotiability
(a) Words that appear on the face of negotiable instrument
(b)Requirements enumerated in Section 1 of NIL
(c) Intention of the parties by considering the whole of the instruments
2. Kinds of negotiable instrument
(a) Bill of exchange
(b)Promissory Notes
B. Completion and Delivery
1. Insertion of date Sec. 13. Where an instrument
expressed to be payable at a fixed period after due date is
issued undated, or where the acceptance of an instrument
payable at a fixed period after sight is undated, any holder
may insert herein 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.
2. Completion of banks
The holder has a prima facie authority to complete it.
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. (Sec. 14)

3. Incomplete and undelivered instruments 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
delivery.

signature

was

placed

thereon

before

4. Complete but undelivered instruments Sec. 16. 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
either by or under the authority of the party making,
drawing, accepting, or indorsing, as the case may be; and
in such case the delivery may be shown to have been
conditional, or for a special purpose only, and not for the
purpose of transferring the property in the instrument. But
where the instrument. where the instrument is in the hands
of a holder in due course, a valid delivery thereof by all
parties prior to him so as to make them liable to him is
conclusively presumed. And where the instrument is no
longer in the possession of a party whose signature
appears thereon, a valid and intentional delivery by him is
presumed until the contrary is proved.
C. Rules of interpretation
1.
2.
3.
4.
5.
6.
7.

Words prevail over figures

Interest runs from the date of the instrument, if date from which interest is to run is
unspecified; if undated, from the issue
If undated, deemed dated on the date of issue
Written provisions prevail over printed
If there is doubt whether it is a bill or note, the holder may treat it as either at his election
When not clear in what capacity it was signed, deemed signed as an indorser
If "I promise to pay" but signed by two or more persons, jointly and severally liable.

D. Signature
1. Signing in trade name
Person signs in trade or assumed name (Sec. 18 [2]) Party who signed must have
intended to be bound by his signature.
As a general rule, only persons whose signatures appear on an instrument are liable
thereon. But one who signs in a trade or assumed name is liable as if he signed his
own name (Sec. 18 [2]). It is necessary, however, that the party who signed intended
to be bound by his signature.

2. Signature of agent
Principal is liable if a duly authorized agent signs in his own behalf disclosing the name
of the principal and adding words to show he is merely signing in a representative
capacity. (Sec. 19) Authority may be given orally or in writing (SPA, only an evidence
of authority of an agent to third parties)

3. Indorsement by minor or corporation Sec. 22. The

indorsement or assignment of the instrument by a
corporation or by an infant passes the property therein,
notwithstanding that from want of capacity the corporation
or infant may incur no liability thereon.
4. Forgery Sec. 23. When a signature is forged or made
wihout the authority of the person whose signature it
purports to be, it is wholly inoperative, and no right to
retain the instrument, or to give a discharge therefor, or to
enforce payment thereof against any party thereto, can be
acquired through or under such signature, unless the party
against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.
E. Consideration
Sec. 24. Every negotiable instrument is deemed prima
facie to have been issued for a valuable consideration; and every
person whose signature appears thereon to have become a party
thereto for value.
Sec. 26. Where value has at any time been given for the
instrument, the holder is deemed a holder for value in respect to
all parties who became such prior to that time.
Sec. 28. Absence or failure of consideration is matter of
defense as against any person not a holder in due course; and
partial failure of consideration is a defense pro tanto, whether
the failure is an ascertained and liquidated amount or otherwise.
F. Accommodation party
An accommodation party is one who signs the instrument as
maker, drawer, acceptor, or indorser without receiving value for
it and for the purpose of lending his name to some other person.
G. Negotiation
1. Distinguished from assignment
2. Modes of negotiation
3. Kinds of indorsement
H. Rights of the holder
1. Holder in due course
Sec. 57. A holder in due course holds the instrument free from
any defect of title of prior parties, and free from defenses
available to prior parties among themselves, and may enforce

payment of the instrument for the full amount thereof against all
parties liable thereon.
2. Defenses against the holder
Personal Defenses
Real Defenses
1. absence or failure of Alteration
consideration
2. want of delivery of complete Want of delivery of incomplete
instrument
instrument
3. insertion of wrong date Duress amounting to forgery
where payable at a fixed period
after date and issued undated;
or at a fixed period after sight
and acceptance is undated
4. filling up the blanks contrary Fraud in factum or in esse
to authority
contractus
given or not within reasonable
time
5. fraud in inducement
Minority
6. acquisition of the instrument Marriage in case of a wife
by force, duress or fear
7. acquisition of the instrument Insanity
where
the
by unlawful means
insaneperson has a guardian
appointed by the court
8. acquisition of the instrument Ultra
vires
acts
of
a
for an illegal consideration
corporation where its charter
or by statue, it is prohibited
from issuing commercial paper
9. negotiation in breach
Want of authority of agent of
faith
10.
negotiation
under Execution
of
instrument
circumstances amounting to between public enemies
fraud
11. Mistake
Illegality of contract made by
statue
12. Intoxication
Forgery
13.
Ultra
vires
acts
of
corporations
14. Want of authority of the
agent where he has apparent
authority
15. illegality of contract where
form or
consideration is illegal
16. insanity where there

is no notice of insanity
I. Liabilities of parties
1. Maker Sec. 60. The maker of a negotiable instrument by
making it engages that he will pay it according to its tenor,
and admits the existence of the payee and his then
capacity to indorse.
*Notes:
(a) A makers liability is primarily and unconditional
(b) One who has signed as such is presumed to have acted
with care and to have signed with full knowledge of its
contents, unless fraud is proved
(c) The payees interest is only to see to it that the note is
paid according to its terms
(d) When two or more makers sign jointly, each is
individually liable for the full amount even if one did not
receive the value given
(e) The maker is precluded from setting up the defense
that a) the payee is fictional, b) that the payee was insane,
a minor or a corporation acting ultra vires.
2. Drawer
A drawer is secondarily liable. By drawing the
instrument, the drawer:
(a) Admits the existence of the payee,
(b) The capacity of such payee to indorse
(c) Engages that on due presentment, the instrument
will be accepted or paid or both according to its tenor.
3. Acceptor
By accepting the instrument, an acceptor:
(a) Engages that he will pay according to the tenor of
his acceptance
(b) Admits the existence of the drawer, the
genuineness of his signature and his capacity and authority
to draw the instrument
(c) The existence of the payee and his then capacity
indorse.
4. Indorser
a person not otherwise a party to an instrument
places his signature in blank before delivery is liable as an
indorser in the following manner:

(a)
If payable to order of a third person liable to
the payee and to all subsequent parties.
(b)If payable to order of the maker or drawer liable to
all parties subsequent to the maker or drawer
(c) If payable to beare liable to all parties subsequent
to the payee (Sec. 64)
5. Warranties
J. Presentment for payment
1. Necessity of presentment of payment
Sec. 70. presentment for payment is necessary in
order to charge the drawer and indorsers.
2. Parties to whom presentment should be made
Sec. 72. (d) To the person primarily liable on the
instrument, or if he is absent or inaccessible, to any person
found at the place where the presentment is made.
3. Dispensation with presentment payment
4. Dishonor by non-payment
An immediate right of recourse to all parties
secondarily liable accrues to the holder. (Sec. 84)
K. Notice of dishonor
1. Parties to be notified
Sec. 90. The notice may be given by or on behalf of
the holder, or by or on behalf of any party to the
instrument who might be compelled to pay it to the holder,
and who, upon taking it up, would have a right to
reimbursement from the party to whom the notice is given.
2. Parties who may give notice of dishonor
given by the holder to the parties secondarily liable,
drawer and each indorser, that the instrument was
dishonored by nonacceptance or non-payment by the
drawee/maker.
3. Effect of notice
4. Form of notice
Sec. 95. A written notice need not be signed, and
aninsufficient written notice may be supplemented and
validated by verbal communication. A misdescription of the
instrument does not vitiate the notice unless the party to
whom the notice is given is in fact misled thereby.

Sec. 96. The notice may be in writing or merely oral

and may be given in any terms which sufficiently identify
the instrument and indicate that it has been dishonored by
non-acceptance or non-payment. It may in all cases be
given by delivering it personally or through the mails
5. Waiver
Sec. 109. Notice of dishonor may be waived, either
before the time of giving notice has arrived or after the
omission to give due notice, and the waiver may be
express or implied.
6. Dispensation with notice
7. Effect of failure to give notice
L. Discharge of negotiable instrument
1. Discharge of negotiable instrument
2. Discharge of parties secondarily liable
3. Right of party who discharge instrument
4. Renunciation by holder
M. Material alteration
1. Concept
Sec. 125 Any alteration, which changes
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to
be made;
Or which adds a place of payment where no place of
payment is specified, or any other change or addition
which alters the effect of the instrument in any respect, is
a material alteration.
2. Effect of material alteration
(a) Alteration immaterial whether fraudulent or not,
whether authorized or not, the warehouseman is liable
on the altered receipt according to its original tenor
(b)Authorized material alteration the warehouseman is liable
according to the terms of the receipt as altered
(c) Material alteration innocently made the warehouseman is liable on
the altered receipt according to its original receipt

(d)Material alteration fraudulently made warehouseman is liable

according to the original tenor of the receipt to a purchaser of the
receipt for value without notice, and even to the alterer and
subsequent purchasers with notice except that as regards to the
last two, the warehousemans liability is limited only to delivery as
he is excused from any liability
N. Acceptance
1. Definition the signification by the drawee of his assent to
the drawer of the order. It is an act by which a person on
whom the BOE is drawn assents to the request of the
drawer to pay it.
2. Manner
(a) Actual
(b)Constructive
(c) General
(d)Qualified
3. Time for acceptance
4. Rules governing acceptance
O. Presentment for acceptance
1. Time/place/manner of presentment
2. Effect of failure to make presentment
3. Dishonor by non-acceptance
P. Promissory notes
An unconditional promise to pay in writing made by one
person to another, signed by the maker, engaging on demand or a
fixed determinable future time a sum certain in money to order or
bearer. When the note is drawn to makers own order, it is not
complete until indorsed by him. (Sec. 184)
Q. Checks
1. Definition A bill of exchange (BOE) drawn on a bank and
payable on demand. (Sec. 185)
2. Kinds
(a) Managers check One drawn by the banks
manager upon the bank itself; and it is similar to a
cashiers check both as to effect and use. [International
Corporate Bank v Gueco 351 SCRA 516 (2001)
(b)Crossed check
3. Presentment for payment
Sec. 70. Presentment for payment is not necessary in
order to charge the person primarily liable on the

instrument; but if the instrument is, by its terms, payable

at a special place, and he is able and willing to pay it there
at maturity, such ability and willingness are equivalent to a
tender of payment upon his part. But, except as herein
otherwise provided, presentment for payment is necessary
in order to charge the drawer and indorsers.
VI. Transportation Law
A. Common carriers
1. Diligence required common of carriers
2. Liabilities of common carriers
B. Vigilance over goods
1. Exempting causes
(a) Requirement of absence of negligence
(b)Absence of delay
(c) Due diligence to prevent or lessen the loss
2. Contributory negligence
3. Duration of Liability
(a) Delivery of goods to common carrier
(b)Actual or constructive delivery
(c) Temporary or unloading storage
4. Stipulation for limitation of liability
(a) Void stipulations
(b)Limitation of liability to fixed amount
(c) Limitation of liability in absence of declaration of greater
value
5. Liability for baggage of passengers
(a) Checked-in baggage
(b) Baggage in possession of passengers
C. Safety of passengers
1. Void stipulations
2. Duration of liability
(a) Waiting for carrier or boarding of carrier
(b)Arrival at destination
3. Liability for acts of others
(a) Employees
(b)Other passengers and strangers
4. Extent of liability for damages
D. Bill of lading

Written acknowledgment of receipt of goods and agreement

to transport them to a specific place to a person named or his
order.
1. Three-fold delivery
(a) It is a receipt for the goods shipped
(b) It is a contract by which the three parties namely the shipper,
carrier and consignee undertake specific responsibilities and
assume stipulated obligations; and
(c) It is a legal evidence of the contract between the shipper and
the carrier. As evidence,its contents shall decide all disputes
which may arise with regard to their execution and fulfillment.
2. Delivery of goods
(a) Period of delivery
(b)Delivery without surrender of bill of lading
(c) Refusal of consignee to take delivery
3. Period for filing claims
4. Period for filing actions
E. Maritime of commerce
1. Charter parties
(a) Bareboat/demise charter
it involves the transfer of full possession and control
of the vessel for the period covered by the contract, the
character obtaining the right to use the vessel and carry
whatever cargo it chooses, while maintaining and
maintaining the vessel as well. Liable for
damages:charterer (acts as a private carrier)
(b)Time charter
it is a contract to use the vessel for a particular
period of time, the character obtaining the right to
direct the movements of the vessel during the
chartering period, although the owner retains
possession. It is considered a contract of affreightment.
(acts as a common carrier)
(c) Voyage/trip charter
it is a contract for the hire of a vessel for one or a
series of voyages usually for the purpose of transporting
goods for the charterer. The voyage charter is a contract
of affreightment and is considered a private carriage. In

a contract of affreightment the ship owner is the one

liable for damages. (acts as a common carrier)
2. Liability of ship owners and shipping agents
(a) Liability for acts of captain
1. Civil liability for the acts of the captain
2. Civil liability for contracts entered into by the captain
to repair equip and provision the vessel, provided that
the amount claimed was invested for the benefit of the
vessel
3. Civil liability for indemnities in favor of 3 rd persons
which may arise from the conduct of the captain in the
care of the goods which the
vessel carried, as well as for the safety of the
passengers transported
4. Damages in case of collision by reason of the fault,
negligence or lack of skill of captain or any of the
complement.
(b)Exceptions to limited liability
1. Vessel is not abandoned (when the ship owner does
acts inconsistent with abandonment e.g. salvage)
2. Ship owner agent/ agent allows his vessel to embark
in an unseaworthy condition.
3. Claims under workmens compensation
4. Injury/damage due to ship owners fault
5. Vessel is insured
6. In case the voyage is not maritime but only in river or
gulf
7. In case of the expenses for equipping, repairing or
provisioning the vessel
3. Accidents and damages in maritime commerce
(a) General average
expenses/damages deliberately caused in order to
save the vessel, its cargo or both from a real and known
risk
(b)Collisions
the impact of two vessels both of which are moving
4. Carriage of Goods by Sea Act
(a) Application
(b)Notice for loss or damage
(c) Period of prescription

(d)Limitation of liability
F. Public service act
1. Definition of public utility
business or service engaged in regularly supplying
the public with some commodity or service of public
consequence such as electricity,gas, water, transportation,
telephone or telegraph service.
2. Necessity for certificate of public convenience
(a) Requisites
(i) Citizenship
(ii) Promotion
(iii)
Financial capability
(b)Prior operator rule
(i) Meaning
before permitting a new operator to invade the
territory of another already established, the prior
operator must be given an opportunity to extend its
service to meet the public needs in the matter of
transportation
(ii) Exceptions
(iii)
Ruinous competition
3. Fixing of rate
(a) Rate of return
(b) Exclusion of income tax as expense
4. Unlawful arrangements
(a) Boundary system
(b) Kabit System
The kabit system has been defined as an
arrangement whereby a person who has been granted a
certificate of public convenience allows another person
who owns motor vehicles to operate under such franchise
for a fee. (Lisa Enterprise Inc. v. IAC)
5. Approval of sale, encumberance or lease of property
G. The Warsaw Convention
1. Applicability
(a) International transport by air
(b) Transport of persons, baggage, or goods
2. Limitation of liability

(a) Liability to passengers

Damage sustained in the event of the death or
wounding of a passenger taking place on board the
aircraft or in the course of any of the operations of
embarking or disembarking
(b) Liability for checked baggage
Loss or damage to any check baggage or goods
sustained during the transport by air
(c) Liability for hand-carried baggage
3. Willful misconduct