COURSE: NEGOTIABLE INSTRUMENTS LAW

PROFESSOR: ATTY. AMPIL

10/5/2010
AN APPROACH TO STUDYING NEGOTIABLE INSTRUMENTS LAW
Do not read the entire text. You go to the text only if you dont understand the codal. Depend on your stock
knowledge. I will tell you this and better believe me. You have a library in your head. You have a microchip
there in your head. At may virus! Patay! Thats the problem. Pag may virus, it will come back to you. Dont
worry. You will even hear the voice of your professors. You will even hear the voice of your professors. You
will hear me in your mind. You will see me in your mind
-

Dean Antonio H. Abad, Jr.

Tips:
1.

2.
3.

I.

Study the Codals and memorize the important provisions. Reading the book without committing into memory the
relevant provisions is pointless. Youll simple accumulate loads of information and ending up not understanding
anything. When you stop at an important provision, memorize it right there and do not advance until you memorize
it. In the words of Ampil, theyre all connected! Only when the codal is not clear to you will you refer to the book.
Practice makes perfect. Practice on the sample exam. Now that you know the rules of the game, you have to play
until it becomes second nature.
If time permits, read the book (De Leon will suffice, refer to Agbayani only on critical provisions). Provided you
memorize the important provisions, this will be a breeze.

IMPORTANT PROVISIONS IN THE NEGOTIABLE INSTRUMENTS LAW

Section 1. Form of negotiable instruments. - An instrument to 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.
Sec. 23. Forged signature; effect of. - When a signature is forged or made without 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.
Sec. 52. What constitutes a holder in due course. - A holder in due course is a holder who has taken the instrument
under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it has been previously
dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the
title of the person negotiating it.

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COURSE: NEGOTIABLE INSTRUMENTS LAW

PROFESSOR: ATTY. AMPIL
10/5/2010
Sec. 60. Liability of maker. - 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.
Sec. 61. Liability of drawer. - The drawer by drawing the instrument admits the existence of the payee and his then
capacity to indorse; and engages that, on due presentment, the instrument will be accepted or paid, or both,
according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he
will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it. But the
drawer may insert in the instrument an express stipulation negativing or limiting his own liability to the holder.
Sec. 62. Liability of acceptor. - The acceptor, by accepting the instrument, engages that he will pay it according to
the tenor of his acceptance and admits:
(a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the
instrument; and
(b) The existence of the payee and his then capacity to indorse.
Sec. 65. Warranty where negotiation by delivery and so forth. Every person negotiating an instrument by
delivery or by a qualified indorsement warrants:
(a) That the instrument is genuine and in all respects what it purports to be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
(d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate
transferee.
The provisions of subdivision (c) of this section do not apply to a person negotiating public or corporation
securities other than bills and notes.
Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to all
subsequent holders in due course:
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and
(b) That the instrument is, at the time of his indorsement, valid and subsisting;
And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case may be,
according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he
will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it.

Sec. 124. Alteration of instrument; effect of. - Where a negotiable instrument is materially altered without the
assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or
assented to the alteration and subsequent indorsers.
But when an instrument has been materially altered and is in the hands of a holder in due course not a party to the
alteration, he may enforce payment thereof according to its original tenor.

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COURSE: NEGOTIABLE INSTRUMENTS LAW

PROFESSOR: ATTY. AMPIL
10/5/2010
Sec. 125. What constitutes a material alteration. - 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;
(f) 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.

II.

ENUMERATION

What are the 5 requisites for a bill of exchange to be considered negotiable?

1. It must be in writing and signed by the drawer;
2. Must contain an unconditional order to pay a sum certain in money;
3. Must be payable on demand, or at a fixed or determinable future time;
4. Must be payable to order or to bearer; and
5. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable
certainty.
What are the four requisites of a promissory note to be considered negotiable?
1. It must be in writing and signed by the maker;
2. Must contain an unconditional promise to pay a sum certain in money;
3. Must be payable on demand, or at a fixed or determinable future time;
4. Must be payable to order or to bearer; and
2

What are the 12 kinds of real defenses? F EU ADM WIWI

1. Forgery
2. Fraud in factum
3. Execution of an instrument between public enemies
4. Ultra vires acts of a corporation
5. Alteration
6. Duress amounting to forgery
7. Marriage
8. Minority
9. Want of delivery or an incomplete instrument
10. Insanity
11. Want of authority of agent
12. Illegality of contract
What are the requirements for an agent to avoid personal liability?
1. He must be duly authorized
2. He must indicate that he is signing as agent
3. He must disclose his principal
What are the offenses criminally punishable by the Warehouse Receipts Law
1. Where a warehouseman or his agent issues a receipt knowing that the goods described in the document have not
been actually received or not under his control
2. Where a warehouseman or his agent fraudulently issues a receipt for goods knowing that it contains any false
statement
3. Where a warehouseman or his agent issues a duplicate not so marked

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COURSE: NEGOTIABLE INSTRUMENTS LAW

PROFESSOR: ATTY. AMPIL
10/5/2010
4.
5.
6.

Where a warehouseman or his agent issues a receipt which does not state the ownership of the warehouseman of
the goods
Where a warehouseman delivers the good without obtaining the receipt
Where any depositor/holder of a receipt negotiates it for value with intent to deceive and to defraud his
creditors/mortgagee

What are the effects of a crossed check?

1. The check may not be encashed but only deposited in the bank;
2. The check may be negotiated only once to one who has an account with a bank; and
3. The act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose
so that he must inquire if he has received the check pursuant to that purpose, otherwise he is not a holder in due
course.
What are the four requisites to be considered a holder in due course?
1. That it is complete and regular upon its face;
2. That he became the holder of it before it was overdue, and without notice that it has been previously dishonored, if
such was the fact;
3. That he took it in good faith and for value;
4. That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of
the person negotiating it.
What are the four warranties of a general indorser?
1. That the instrument is genuine and in all respects what it purports to be;

2.
3.
4.

That he has a good title to it;

That all prior parties had capacity to contract; and
That the instrument is, at the time of his indorsement, valid and subsisting;

What are the five instances when notice of dishonor need not be given to drawer?
1. Where the drawer and drawee are the same person;
2. When the drawee is fictitious person or a person not having capacity to contract;
3. When the drawer is the person to whom the instrument is presented for payment;
4. Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument;
5. Where the drawer has countermanded payment.
What are the three instances when notice of dishonor need not be given to indorser?
1. When the drawee is a fictitious person or person not having capacity to contract, and the indorser was aware of that
fact at the time he indorsed the instrument;
2. Where the indorser is the person to whom the instrument is presented for payment;
3. Where the instrument was made or accepted for his accommodation
What are the differences between a check and an ordinary bill of exchange? (Memorize at least three)
1. A check is always drawn on a bank while an ordinary bill of exchange may or may not be drawn on a bank
2. A check is always payable on demand while an ordinary bill of exchange is payable on demand or at a fixed
determinable future time
3. A check is supposed to be drawn against previous deposit of funds, while an ordinary bill of exchange need not be
drawn against a deposit
4. A check need not be presented for acceptance while an ordinary bill is required to be present for acceptance in
certain cases
5. A check is ordinarily intended for immediate payment while an ordinary bill for circulation as an instrument of credit
6. The death of the drawer of a check with the knowledge of the bank revokes the authority of the bank to pay while the
death of the drawer of an ordinary bill does not revoke the authority of the drawee to pay
7. A check must be presented for payment within a reasonable time after its issue, while an ordinary bill must be
presented for payment within a reasonable time after its last negotiation
8. The drawer of a check not presented within a reasonable time after its issue is discharged from liability thereon to the
extent of the loss caused by the delay while the drawer of an ordinary bill is totally discharged

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COURSE: NEGOTIABLE INSTRUMENTS LAW

PROFESSOR: ATTY. AMPIL
10/5/2010
9.

When a check is accepted or certified, the drawer and indorsers are discharged from liability thereon while in an
ordinary bill, they remain liable in spite of the acceptance.

What are the 5 kinds of qualified acceptance?

1. Conditional; that is to say, which makes payment by the acceptor dependent on the fulfillment of a condition therein
stated
2. Partial; that is to say, an acceptance to pay party only of the amount for which the bill is drawn
3. Local; that is to say, an acceptance to pay only at a particular place;
4. Qualified as to time; and
5. The acceptance of some, one or more of the drawees but not all.

III.

OTHER REMARKS
1.
2.

Practice on problems in the sample exams. Practice is essential.

Expect enumeration, problem, MCQ and a bonus question (probably an essay on Sec. 124)

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