Negotiable Instruments Law Compilation Based on the outlined discussion of Atty. Eduardo V. Soleng, Jr. Updated as of: AY: 2014 - 2015 Societas Spectra Legis Societas Spectra Legis Negotiable Instruments Law Compilation University of San Carlos School of Law and Governance | Based on the outlined discussion of EVSPage 2 TABLE OF CONTENTS THE NEGOTIABLE INSTRUMENTS LAW: (Act No. 2031) .................................................................................................. 8 INTRODUCTION ............................................................................................................................................................. 8 PHILIPPINE EDUCATION CO vs MAURICIO SORIANO ..........................................................................................................................................................................................11 I. FORM AND INTERPRETATION ....................................................................................................................................13 SECTION 1.Form of Negotiable Instruments .......................................................................................................................................................................... 13 CALTEX vs CA..........................................................................................................................................................................................................................................................14 SESBREO vs CA ....................................................................................................................................................................................................................................................16 METROBANK vs CA ................................................................................................................................................................................................................................................17 FIRESTONE TIRE & RUBBER COMPANY vs LUZON DEVELOPMENT BANK .........................................................................................................................................................22 SECTION 2. Certainty as to Sum; What Constitutes. .............................................................................................................................................................. 23 SECTION 3.When Promise is Unconditional........................................................................................................................................................................... 24 SECTION 4.Determinable Future Time; What Constitutes .................................................................................................................................................... 26 SECTION 5.Additional Provision Not Affecting Negotiability ................................................................................................................................................ 29 SECTION 6.Omission; Seal; Particular Money......................................................................................................................................................................... 31 SECTION 7.When Payable on Demand ................................................................................................................................................................................... 32 SECTION 8.When Payable to Order ......................................................................................................................................................................................... 32 SECTION 9.When Payable to Bearer ....................................................................................................................................................................................... 34 ANG TEK LIAN vs CA ..............................................................................................................................................................................................................................................36 SECTION 10.Terms, When Sufficient ....................................................................................................................................................................................... 37 SECTION 11.Date, Presumption As To .................................................................................................................................................................................... 37 SECTION 12.Antedated and Postdated ................................................................................................................................................................................... 38 SECTION 13.When Date May Be Inserted .............................................................................................................................................................................. 38 SECTION 14.Blanks; When May Be Filled ............................................................................................................................................................................... 39 SECTION 15.Incomplete Instrument Not Delivered ............................................................................................................................................................... 43 SECTION 16.Delivery; When Effectual; When Presumed ...................................................................................................................................................... 44 DBR vs SIMA WEI ...................................................................................................................................................................................................................................................44 SEC 17. Construction where instrument is ambiguous.......................................................................................................................................................... 48 SEC 18. Liability of person signing in trade or assumed name .............................................................................................................................................. 49 SEC 19. Signature by agent; authority; how shown. .............................................................................................................................................................. 49 SEC 20. Liability of person signing as agent ............................................................................................................................................................................ 50 PHILCOM vs ARUEGO ............................................................................................................................................................................................................................................50 FRANCISCO vs. CA..................................................................................................................................................................................................................................................51 SEC 21. Signature of Procuration ............................................................................................................................................................................................ 51 SEC 22. Effect of indorsement by infant or corporation........................................................................................................................................................ 51 SECTION 23.Forged Signature; Effect of ................................................................................................................................................................................. 52 JAI-ALAI VS BPI .......................................................................................................................................................................................................................................................52 REPUBLIC VS EBRADA:...........................................................................................................................................................................................................................................52 MWSS vs CA ...........................................................................................................................................................................................................................................................53 BDO vs EQUITABLE ................................................................................................................................................................................................................................................60 GEMPESAW vs CA ..................................................................................................................................................................................................................................................61 ASSOCIATED BANK vs CA ......................................................................................................................................................................................................................................61 METROPOLITAN BANK vs FIRST NATIONAL CITY BANK 24 hour notice ............................................................................................................................................................62 REPUBLIC BANK vs CA 24 hour notice..................................................................................................................................................................................................................63 PCIB vs CA 50-50 ....................................................................................................................................................................................................................................................63 RAMON ILUSORIO vs CA proximate cause ..........................................................................................................................................................................................................64 Societas Spectra Legis Negotiable Instruments Law Compilation University of San Carlos School of Law and Governance | Based on the outlined discussion of EVSPage 3 SAMSUNG CONSTRUCTION vs CA ........................................................................................................................................................................................................................64 II. CONSIDERATION .......................................................................................................................................................65 SECTION 24.Presumption of Consideration............................................................................................................................................................................ 65 SECTION 25.Value, What Constitutes ..................................................................................................................................................................................... 65 SECTION 26.What Constitutes Holder for Value .................................................................................................................................................................... 66 SECTION 27.When Lien on Instrument Constitutes Holder for Value .................................................................................................................................. 66 SECTION 28. Effect of Want of Consideration ........................................................................................................................................................................ 67 SECTION 29.Liability of Accommodation Party ...................................................................................................................................................................... 68 SADAYA vs SEVILLA ................................................................................................................................................................................................................................................69 CRISOLOGO-JOSE vs CA .........................................................................................................................................................................................................................................69 STELCO MARKETING vs CA....................................................................................................................................................................................................................................70 TRAVEL-ON vs CA...................................................................................................................................................................................................................................................70 BPI vs CA .................................................................................................................................................................................................................................................................71 AGRO-CONGLOMERATE vs CA..............................................................................................................................................................................................................................71 III. NEGOTIATION ..........................................................................................................................................................72 SECTION 30.What Constitutes Negotiation ............................................................................................................................................................................ 72 SECTION 31.Endorsement; How Made ................................................................................................................................................................................... 73 SECTION 32.Endorsement Must Be of Entire Instrument ..................................................................................................................................................... 73 SECTION 33.Kinds of Endorsement ......................................................................................................................................................................................... 74 SECTION 34.Special Endorsement; Endorsement in Blank.................................................................................................................................................... 74 SECTION 35.Blank Endorsement; How Changed to Special Endorsement ........................................................................................................................... 75 SECTION 36.When Endorsement Restrictive .......................................................................................................................................................................... 75 SECTION 37.Effect of Restrictive Indorsement; Rights of Indorsee ...................................................................................................................................... 76 SECTION 38.Qualified Indorsement ........................................................................................................................................................................................ 76 SECTION 40.Indorsement of Instrument Payable to Bearer ................................................................................................................................................. 77 SECTION 41.Indorsement Where Payable to Two or More Persons .................................................................................................................................... 78 SECTION 42.Effect of Instrument Drawn or Indorsed to a Person as Cashier ..................................................................................................................... 78 SECTION 43.Indorsement Where Name is Misspelled, and So Forth ................................................................................................................................... 78 SECTION 44.Indorsement in Representative Capacity........................................................................................................................................................... 78 SECTION 45.Time of Indorsement; Presumption ................................................................................................................................................................... 79 SECTION 46.Place of Indorsement; Presumption .................................................................................................................................................................. 79 SECTION 47.Continuation of Negotiable Character ............................................................................................................................................................... 79 SECTION 48. Striking Out Indorsement................................................................................................................................................................................... 79 SECTION 49.Transfer Without Indorsement; Effect of .......................................................................................................................................................... 80 SECTION 50.When Prior Party May Negotiate Instrument ................................................................................................................................................... 80 IV. RIGHTS OF A HOLDER ..............................................................................................................................................80 SECTION 51.Right of Holder to Sue; Payment ........................................................................................................................................................................ 80 SECTION 52.What Constitutes a Holder in Due Course ......................................................................................................................................................... 80 DE OCAMPO vs GATCHALIAN Exception..............................................................................................................................................................................................................82 MESINA vs IAC .......................................................................................................................................................................................................................................................83 SECTION 53.When Person Not Deemed Holder in Due Course ............................................................................................................................................ 83 SECTION 54.Notice Before Full Amount Paid ......................................................................................................................................................................... 83 SECTION 55.When Title Defective ........................................................................................................................................................................................... 84 SECTION 56.What Constitutes Notice of Defect .................................................................................................................................................................... 84 SECTION 57.Rights of Holder in Due Course........................................................................................................................................................................... 84 SECTION 58.When Subject to Original Defenses.................................................................................................................................................................... 84 Societas Spectra Legis Negotiable Instruments Law Compilation University of San Carlos School of Law and Governance | Based on the outlined discussion of EVSPage 4 SECTION 59.Who is Deemed Holder in Due Course .............................................................................................................................................................. 85 V. LIABILITIES OF PARTIES .............................................................................................................................................85 LIABILITY OF MAKER ................................................................................................................................................................................................................. 85 LIABILITY OF DRAWER .............................................................................................................................................................................................................. 86 LIABILITY OF ACCEPTOR ........................................................................................................................................................................................................... 88 WHEN PERSON DEEMED INDORSER ....................................................................................................................................................................................... 90 LIABILITY OF IRREGULAR INDORSER ....................................................................................................................................................................................... 90 WARRANTY WHERE NEGOTIATION BY DELIVERY AND SO FORTH ........................................................................................................................................ 91 LIABILITY OF GENERAL INDORSER ........................................................................................................................................................................................... 93 METROPOL vs. SAMBOK MOTORS CO. ................................................................................................................................................................................................................93 MARALIT vs. IMPERIAL ..........................................................................................................................................................................................................................................94 SAPIERA vs. CA .......................................................................................................................................................................................................................................................95 BPI vs. CA and NAPIZA ...........................................................................................................................................................................................................................................95 LIABILITY OF INDORSER WHERE PAPER NEGOTIABLE BY DELIVERY ..................................................................................................................................... 98 ORDER IN WHICH INDORSERS ARE LIABLE ............................................................................................................................................................................. 98 LIABILITY OF AN AGENT OR BROKER ....................................................................................................................................................................................... 99 VI. PRESENTATION FOR PAYMENT ................................................................................................................................99 EFFECT OF WANT OF DEMAND ON PRINCIPAL DEBTOR ....................................................................................................................................................... 99 PRESENTMENT WHERE INSTRUMENT IS NOT PAYABLE ON DEMAND AND WHERE PAYABLE ON DEMAND ................................................................. 101 PRUDENTIAL BANK vs. CA ...................................................................................................................................................................................................................................102 WONG vs CA ........................................................................................................................................................................................................................................................102 ICB vs Sps GUECO ................................................................................................................................................................................................................................................104 WHAT CONSTITUTES A SUFFICIENT PRESENTMENT ............................................................................................................................................................ 106 PLACE OF PRESENTMENT ....................................................................................................................................................................................................... 106 INSTRUMENT MUST BE EXHIBITED ....................................................................................................................................................................................... 107 PRESENTMENT WHERE INSTRUMENT PAYABLE AT BANK .................................................................................................................................................. 107 PRESENTMENT WHERE PRINCIPAL DEBTOR IS DEAD .......................................................................................................................................................... 108 PRESENTMENT TO PERSONS LIABLE AS PARTNERS ............................................................................................................................................................. 108 PRESENTMENT TO JOINT DEBTORS ...................................................................................................................................................................................... 108 WHEN PRESENTMENT NOT REQUIRED TO CHARGE THE DRAWER .................................................................................................................................... 108 WHEN PRESENTMENT NOT REQUIRED TO CHARGE THE INDORSER .................................................................................................................................. 109 WHEN DELAY IN MAKING PRESENTMENT IS EXCUSED ....................................................................................................................................................... 109 WHEN PRESENTMENT MAY BE DISPENSED WITH ............................................................................................................................................................... 109 WHEN INSTRUMENT DISHONORED BY NON-PAYMENT ...................................................................................................................................................... 110 LIABILITY OF PERSON SECONDARILY LIABLE, WHEN INSTRUMENT DISHONORED............................................................................................................ 111 TIME OF MATURITY ................................................................................................................................................................................................................ 111 TIME; HOW COMPUTED ........................................................................................................................................................................................................ 111 RULE WHERE INSTRUMENT PAYABLE AT BANK ................................................................................................................................................................... 112 WHAT CONSTITUTES PAYMENT IN DUE COURSE................................................................................................................................................................. 112 VII. NOTICE OF DISHONOR .......................................................................................................................................... 113 TO WHOM NOTICE OF DISHONOR MUST BE GIVEN ............................................................................................................................................................ 113 BY WHOM GIVEN.................................................................................................................................................................................................................... 114 NOTICE GIVEN BY AGENT ....................................................................................................................................................................................................... 115 EFFECT OF NOTICE GIVEN ON BEHALF OF HOLDER ............................................................................................................................................................. 115 EFFECT WHERE NOTICE IS GIVEN BY PARTY ENTITLED THERETO ....................................................................................................................................... 115 Societas Spectra Legis Negotiable Instruments Law Compilation University of San Carlos School of Law and Governance | Based on the outlined discussion of EVSPage 5 WHEN AGENT MAY GIVE NOTICE .......................................................................................................................................................................................... 116 WHEN NOTICE SUFFICIENT .................................................................................................................................................................................................... 116 FORM OF NOTICE ................................................................................................................................................................................................................... 116 TO WHOM NOTICE MAY BE GIVEN ....................................................................................................................................................................................... 117 SECTION 98.Notice Where Party is Dead .............................................................................................................................................................................. 117 NOTICE TO PARTNERS ............................................................................................................................................................................................................ 118 NOTICE TO PERSONS JOINTLY LIABLE ................................................................................................................................................................................... 118 NOTICE TO BANKRUPT ........................................................................................................................................................................................................... 118 TIME WITHIN WHICH NOTICE MUST BE GIVEN.................................................................................................................................................................... 118 WHERE PARTIES RESIDE IN SAME PLACE .............................................................................................................................................................................. 119 WHERE PARTIES RESIDE IN DIFFERENT PLACES ................................................................................................................................................................... 119 WHEN SENDER DEEMED TO HAVE GIVEN DUE NOTICE ...................................................................................................................................................... 120 DEPOSIT IN POST-OFFICE; WHAT CONSTITUTES .................................................................................................................................................................. 121 NOTICE OF SUBSEQUENT PARTY; TIME OF ........................................................................................................................................................................... 121 WHERE NOTICE MUST BE SENT ............................................................................................................................................................................................. 121 WAIVER OF NOTICE ................................................................................................................................................................................................................ 121 WHOM AFFECTED BY WAIVER .............................................................................................................................................................................................. 122 WAIVER OF PROTEST.............................................................................................................................................................................................................. 122 WHEN NOTICE IS DISPENSED WITH ...................................................................................................................................................................................... 122 DELAY IN GIVING NOTICE; HOW EXCUSED ........................................................................................................................................................................... 123 WHEN NOTICE NEED NOT BE GIVEN TO DRAWER ............................................................................................................................................................... 123 WHEN NOTICE NEED NOT BE GIVEN TO INDORSER............................................................................................................................................................. 124 NOTICE OF NON-PAYMENT WHERE ACCEPTANCE REFUSED .............................................................................................................................................. 124 EFFECT OF OMISSION TO GIVE NOTICE OF NON-ACCEPTANCE .......................................................................................................................................... 125 WHEN PROTEST NEED NOT BE MADE; WHEN MUST BE MADE .......................................................................................................................................... 125 VIII. DISCHARGE OF NEGOTIABLE INSTRUMENTS........................................................................................................ 126 INSTRUMENT; HOW DISCHARGED ........................................................................................................................................................................................ 126 WHEN PERSONS SECONDARILY LIABLE ON, DISCHARGED .................................................................................................................................................. 129 RIGHT OF PARTY WHO DISCHARGES INSTRUMENT ............................................................................................................................................................. 130 RENUNCIATION BY HOLDER .................................................................................................................................................................................................. 131 CANCELLATION; UNINTENTIONAL; BURDEN OF PROOF...................................................................................................................................................... 132 ALTERATION OF INSTRUMENT; EFFECT OF .......................................................................................................................................................................... 132 PNB vs CA .............................................................................................................................................................................................................................................................132 MONTINOLA V. PNB ............................................................................................................................................................................................................................................135 WHAT CONSTITUTES A MATERIAL ALTERATION .................................................................................................................................................................. 136 IX. BILLS OF EXCHANGE: FORM AND INTERPRETATION............................................................................................... 137 BILL OF EXCHANGE, DEFINED ................................................................................................................................................................................................ 137 BILL NOT AN ASSIGNMENT OF FUNDS IN HANDS OF DRAWEE .......................................................................................................................................... 137 BILL ADDRESSED TO MORE THAN ONE DRAWEE ................................................................................................................................................................. 137 INLAND AND FOREIGN BILLS OF EXCHANGE ........................................................................................................................................................................ 138 WHEN BILL MAY BE TREATED AS PROMISSORY NOTE......................................................................................................................................................... 138 REFEREE IN CASE OF NEED..................................................................................................................................................................................................... 139 X. ACCEPTANCE .......................................................................................................................................................... 139 ACCEPTANCE; HOW MADE, AND SO FORTH ........................................................................................................................................................................ 139 HOLDER ENTITLED TO ACCEPTANCE ON FACE OF BILL ........................................................................................................................................................ 140 Societas Spectra Legis Negotiable Instruments Law Compilation University of San Carlos School of Law and Governance | Based on the outlined discussion of EVSPage 6 ACCEPTANCE BY SEPARATE INSTRUMENT ........................................................................................................................................................................... 141 PROMISE TO ACCEPT; WHEN EQUIVALENT TO ACCEPTANCE ............................................................................................................................................. 141 TIME ALLOWED DRAWEE TO ACCEPT ................................................................................................................................................................................... 141 LIABILITY OF DRAWEE RETAINING OR DESTROYING BILL .................................................................................................................................................... 142 ACCEPTANCE OF INCOMPLETE BILL ...................................................................................................................................................................................... 143 KINDS OF ACCEPTANCE .......................................................................................................................................................................................................... 143 WHAT CONSTITUTES A GENERAL ACCEPTANCE ................................................................................................................................................................... 143 QUALIFIED ACCEPTANCE........................................................................................................................................................................................................ 143 RIGHTS OF PARTIES AS TO QUALIFIED ACCEPTANCE ........................................................................................................................................................... 144 XI. PRESENTMENT FOR ACCEPTANCE .......................................................................................................................... 144 WHEN PRESENTMENT FOR ACCEPTANCE MUST BE MADE ................................................................................................................................................. 144 WHEN FAILURE TO PRESENT RELEASES DRAWER AND INDORSER ..................................................................................................................................... 145 PRESENTMENT; HOW MADE ................................................................................................................................................................................................. 145 ON WHAT DAYS PRESENTMENT MAY BE MADE .................................................................................................................................................................. 147 PRESENTMENT WHERE TIME IS INSUFFICIENT .................................................................................................................................................................... 147 WHERE PRESENTMENT IS EXCUSED ...................................................................................................................................................................................... 147 WHEN DISHONORED BY NON-ACCEPTANCE ........................................................................................................................................................................ 147 DUTY OF HOLDER WHERE BILL NOT ACCEPTED ................................................................................................................................................................... 147 RIGHT OF HOLDER WHERE BILL NOT ACCEPTED .................................................................................................................................................................. 148 XII. PROTEST ............................................................................................................................................................... 148 IN WHAT CASES PROTEST NECESSARY .................................................................................................................................................................................. 148 PROTEST; HOW MADE ........................................................................................................................................................................................................... 149 PROTEST; BY WHOM MADE................................................................................................................................................................................................... 149 PROTEST; WHEN TO BE MADE .............................................................................................................................................................................................. 150 PROTEST; WHERE MADE ........................................................................................................................................................................................................ 150 PROTEST BOTH FOR NON-ACCEPTANCE AND NON-PAYMENT ........................................................................................................................................... 150 PROTEST BEFORE MATURITY WHERE ACCEPTOR INSOLVENT ............................................................................................................................................ 150 WHEN PROTEST DISPENSED WITH ........................................................................................................................................................................................ 151 PROTEST WHERE BILL IS LOST, AND SO FORTH.................................................................................................................................................................... 151 XIII. ACCEPTANCE FOR HONOR ................................................................................................................................... 151 WHEN BILL MAY BE ACCEPTED FOR HONOR ........................................................................................................................................................................ 151 ACCEPTANCE FOR HONOR; HOW MADE .............................................................................................................................................................................. 152 WHEN DEEMED TO BE AN ACCEPTANCE FOR HONOR OF THE DRAWER ........................................................................................................................... 152 LIABILITY OF THE ACCEPTOR FOR HONOR ............................................................................................................................................................................ 152 AGREEMENT OF ACCEPTOR FOR HONOR ............................................................................................................................................................................. 153 MATURITY OF BILL PAYABLE AFTER SIGHT; ACCEPTED FOR HONOR ................................................................................................................................. 153 PROTEST OF BILL ACCEPTED FOR HONOR, AND SO FORTH ................................................................................................................................................ 153 PRESENTMENT FOR PAYMENT TO ACCEPTOR FOR HONOR, HOW MADE ......................................................................................................................... 153 WHEN DELAY IN MAKING PRESENTMENT IS EXCUSED ....................................................................................................................................................... 153 DISHONOR OF BILL BY ACCEPTOR FOR HONOR ................................................................................................................................................................... 154 XIV. PAYMENT FOR HONOR ........................................................................................................................................ 154 WHO MAY MAKE PAYMENT FOR HONOR ............................................................................................................................................................................ 154 PAYMENT FOR HONOR; HOW MADE .................................................................................................................................................................................... 154 DECLARATION BEFORE PAYMENT FOR HONOR ................................................................................................................................................................... 154 PREFERENCE OF PARTIES OFFERING TO PAY FOR HONOR .................................................................................................................................................. 155 Societas Spectra Legis Negotiable Instruments Law Compilation University of San Carlos School of Law and Governance | Based on the outlined discussion of EVSPage 7 EFFECT ON SUBSEQUENT PARTIES WHERE BILL IS PAID FOR HONOR ................................................................................................................................ 155 WHERE HOLDER REFUSES TO RECEIVE PAYMENT SUPRA PROTEST ................................................................................................................................... 156 RIGHTS OF PAYER FOR HONOR ............................................................................................................................................................................................. 156 XV. BILLS IN A SET ....................................................................................................................................................... 156 BILLS IN SETS CONSTITUTE ONE BILL .................................................................................................................................................................................... 156 RIGHTS OF HOLDERS WHERE DIFFERENT PARTS ARE NEGOTIATED ................................................................................................................................... 156 LIABILITY OF HOLDER WHO INDORSES TWO OR MORE PARTS OF A SET TO DIFFERENT PERSONS ................................................................................. 156 ACCEPTANCE OF BILLS DRAWN IN SETS ............................................................................................................................................................................... 157 PAYMENT BY ACCEPTOR OF BILLS DRAWN IN SETS ............................................................................................................................................................. 157 EFFECT OF DISCHARGING ONE OF A SET .............................................................................................................................................................................. 157 XVI. PROMISSORY NOTES AND CHECKS ...................................................................................................................... 157 PROMISSORY NOTE, DEFINED ............................................................................................................................................................................................... 157 CHECK, DEFINED ..................................................................................................................................................................................................................... 159 STATE INVESTMENT HOUSE VS COURT OF APPEALS ........................................................................................................................................................................................161 BATAAN CIGAR VS COURT OF APPEALS .............................................................................................................................................................................................................162 CITYTRUST BANKING CORP VS INTERMEDIATE APPELLATE COURT ................................................................................................................................................................162 TAN VS. COURT OF APPEALS ..............................................................................................................................................................................................................................163 WITHIN WHAT TIME A CHECK MUST BE PRESENTED .......................................................................................................................................................... 165 PAPA vs. AU VALENCIA AND CO. ........................................................................................................................................................................................................................165 CERTIFICATION OF CHECK; EFFECT OF .................................................................................................................................................................................. 167 EFFECT WHERE THE HOLDER OF CHECK PROCURES IT TO BE CERTIFIED ........................................................................................................................... 167 WHEN CHECK OPERATES AS AN ASSIGNMENT .................................................................................................................................................................... 168 XVII. GENERAL PROVISIONS ........................................................................................................................................ 168 REASONABLE TIME, WHAT CONSTITUTES ............................................................................................................................................................................ 168 Societas Spectra Legis Negotiable Instruments Law Compilation University of San Carlos School of Law and Governance | Based on the outlined discussion of EVSPage 8 THE NEGOTIABLE INSTRUMENTS LAW: (Act No. 2031) INTRODUCTION Discuss briefly the history of Negotiable Instruments Law: The Negotiable Instruments Law of the Philippines was patterned after the draft approved by the Commissioners on Uniform State laws in the United States which was patterned after the Bills of Exchange Act of England which was codified in that country in 1882. Prior to the Bills of Exchange Act in 1882, from what law did the English people patterned the said act? From the law of merchants. The English copied this law and codified it under the Bills of Exchange Act. Then it was copied by the United States of America until such time that they decided a unified Negotiable Instruments Law. Since the Philippines was under the dominion of the USA at that time, we patterned our NIL from their unified NIL. What are the governing laws of Negotiable Instruments in the Philippines?(1) Act No. 2031 (which was enacted on February 3, 1911 and took effect 90 days after its publication was completed. This was on March 4, 1911 and therefore, the Act took effect on June 2, 1911.) (2) The Code of Commerce (those provisions which were not repealed by the passage of the New Civil Code) (2) New Civil Code (applied suppletorily to the NIL) Why is it important for us to determine the origin of the NIL? It is important because in interpreting our NIL, the courts, particularly our Supreme Court, may consult English or American jurisprudence, in instances where there are vague provisions in our NIL. The English and American NIL laws are our main sources of the NIL. What are the common forms or kinds of negotiable instruments?These are: (1) promissory notes, (2) bills of exchange, and (3) checks, which are a special kind of a bills of exchange. *What is a negotiable promissory note? It is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand or at a fixed or determinable future time, a sum certain in money to order or to bearer. Give an example of a promissory note: P10,000Cebu City, Philippines December 1, 2013 For value received, I promise to pay to the order of Jo Black the sum of Ten Thousand Pesos (P10,000) on or before December 31, 2014 at the River Bank, Cebu City. (Sgd.) Chris Brown What are the general characteristics of a promissory note: (1) The promise, I promise to pay consists of an absolute promise to pay. It is not subject to the fulfillment of a condition. (2) The words to the order of means that the promise is to pay as ordered or commanded by the payee. But an instrument may be payable to bearer. (3) The name Jo Black is the person whose order of command the money is promised to be paid. He is known as the payee. (4) The signature Chris Brown is made by the maker of the note. He is the one who promised to pay it at the first instance. Societas Spectra Legis Negotiable Instruments Law Compilation University of San Carlos School of Law and Governance | Based on the outlined discussion of EVSPage 9 (5) The amount Ten Thousand Pesos indicates, as the figures do, the sum to be promised to be paid. As it is written in words, it cannot be easily altered and since it takes longer to write in words than the figures, the words are more likely to be accurate. What are the elements of negotiability? 1) It must be in writing and signed by the maker or drawer; 2) Must contain an unconditional promise or order to pay a sum certain in money; 3) Must be payable on demand, or at a fixed or determinable future time; 4) Must be payable to order or to bearer; and 5) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

What are the special kinds of promissory notes? Bank notes, Bonds, certificate of deposit, due bills. What are bank notes? They are promissory notes of the issuing bank payable to bearer on demand and intended to circulate as money. They are regarded as cash and pass from hand to hand without any evidence of title in the holder than that which arises from possession. However, they are not money. What is a bond? It is promise, under seal, to pay money. It may also be defined as a series of instruments representing unites of indebtedness regarded as parts of one entire debt. The bond certifies that the issuing company is indebted to the bondholder for the amount specified on the face of the bond and contains an agreement of the company to pay a specified interest on the principal amount at regular intervals. Bonds are negotiable if they conform with Section 1 of the NIL. Is it the same bond you issue to NLRC in order to perfect an appeal? No because the purpose of that bond is to pay the claims of the workers in case your appeal is dismissed while the bond in the concept of negotiable instrument is a promise, under seal, to pay money. What is a certificate of deposit? It is a written acknowledgement by a bank of the receipt of money on deposit which the bank promises to pay to the depositor, bearer, or to some other person or order. It is not ipso facto a negotiable instrument. To be such, it must conform to Section 1 of the NIL. What is a due bill? It is an instrument whereby one person acknowledges his indebtedness to another. If it conforms with Section 1 of the NIL, a due bill is considered a negotiable promissory note. Give an example of a due bill: Due B, P200, payable to his order. (Sgd.) A *What is a bill of exchange?It is an unconditional order in writingaddressed by one person to anothersigned by the person giving it,requiring the person to whom it is addressedto pay on demand or at a fixed or determinable future timea sum certain in money to order or to bearer. Give an example of a bill of exchange:P10,000Cebu City, Philippines December 1, 2013 Thirty days after sight, pay to the order of Pedro Alamban, the sum of Ten Thousand Pesos (P10,000). Value received and charge the same to the account of (Sgd.) Ernesto Reyes To Augusto Tolentino Societas Spectra Legis Negotiable Instruments Law Compilation University of San Carlos School of Law and Governance | Based on the outlined discussion of EVSPage 10 What are the characteristics of a bill of exchange? (1) The order or command to pay Pay to. This is an order or command to pay. (2) The signature, Ernesto Reyes. He is the drawer. (3) The name Augusto Tolentino. He is the drawee, i.e., the one ordered or commanded to pay a sum certain in money. Distinguished between a bill of exchange and a promissory note: Bill of ExchangePromissory Note As to the number of parties:3 (drawer, drawee, payee)2 (maker, payee) As to the unconditional thing to do It is an unconditional order or a command It is an unconditional promise As to the person who executes the written order or promise: The drawerThe maker As to whose primarily liable:The draweeThe maker As to the number of presentments: 2 (presentment for acceptance, presentment for payment) 1 (presentment for payment) What are the special types of bills of exchange? (1) bankers acceptance (2) draft (3) money orders (4) trade acceptance (5) treasury warrants (6) clean bill of exchange What is a bankers acceptance? It is a bill of exchange of which the acceptor is a bank or banker engaged generally in the business of granting bankers acceptance credit. It is similar to a trade acceptance, the fundamental difference being that the bankers acceptance is drawn against the bank instead of the buyer. What is a money order? A species of draft drawn by the post-office upon another for an amount of money deposited at the first office by the person purchasing the money order and payable at the second office to payee named in the order. Is a money order negotiable? Postal money orders are not negotiable instruments because in establishing and operating a postal money order system, the government is not engaging in commercial transactions but merely exercises a governmental power for the public benefit. What is a draft? It is a common term for all bills of exchange and they are used synonymously. What is a trade acceptance? It is a bill of exchange drawn by the seller on the buyer of goods sold and accepted by such buyer. It is a negotiable instrument because it complies with the requisites under the Negotiable Instruments Law. What is a treasury warrant? It is actually an order for payment out of a particular fund and is not unconditional and does not fulfill one of the essential requirements of a negotiable instrument, i.e, the unqualified order or promise to pay must be unconditional and an order or promise to pay out of a particular fund is not unconditional. Treasury warrants are paid out of a particular fund, i.e., Fund 501 which makes it not unconditional. This is a non-negotiable instrument. Societas Spectra Legis Negotiable Instruments Law Compilation University of San Carlos School of Law and Governance | Based on the outlined discussion of EVSPage 11 What is a clean bill of exchange? Is one to which are not attached documents of title to be delivered to the person against whom the bill is drawn when he either accepts or pays the bill. PHILIPPINE EDUCATION CO vs MAURICIO SORIANO FACTS: Enrique Montinola sought to purchase from Manila Post Office ten money orders. He managed to steal such checks and a message was sent to instruct all banks that it must not pay for the money order stolen. Philippine Education Co received one of the above mentioned money orders as part of its sales receipts. The following day it deposited the same with the Bank of America, and one day thereafter the latter (BA) cleared it. After learning that the money order had been irregulary issued, the Money Order Division deducted BAs clearing and the latter, in turn, debited appellants account.

ISSUE: Whether or not the postal money order in question is a negotiable instrument. HELD: Postal money orders are not negotiable instruments, the reason behind this rule being that, in establishing and operating a postal money order system, the government is not engaging in commercial transactions but merely exercises a governmental power for the public benefit. Moreover, there are provisions in the postal money order law of the Philippines which are not in consonance with our Negotiable Instruments Law. For instance, such laws and regulations usually provide for not more than one endorsement. While under our NIL, endorsements are allowed for a number of times. What is a time bill? It is a bill which is payable at a fixed future time or at a determinable future time. What is an inland bill? It is a bill of exchange which is both drawn and payable within the Philippines. What is a foreign bill? A bill which on its face purports to be drawn and payable outside the Philippines. Any bill which does not fit the specification of an inland bill. What if it is drawn in the Philippines but payable outside the Philippines? It is still a foreign bill.What if it is drawn outside the Philippines but payable in the Philippines? It is still a foreign bill. What is a check? A bill of exchange drawn on a bank payable on demand. What are the general characteristics of a check? 1) There is an order or command to pay; 2) There is a signature of the drawer;3) The name of the Bank who is ordered or commanded to pay a sum certain in money. What are the special types of checks? The following are special types of checks: 1) cashiers check 2) managers check 3) memorandum check 4) certified check 5) crossed check What is a cashiers check? It is one drawn by the cashier of a bank in the name of the bank against the bank itself payable to a third person or order. There is an assurance that the check is funded. Societas Spectra Legis Negotiable Instruments Law Compilation University of San Carlos School of Law and Governance | Based on the outlined discussion of EVSPage 12 What is a managers check? It is a check drawn by the manager of a bank in the name of the bank against the bank itself. It is similar to the cashiers check as to effect and use. It is negotiable because it complies with the requisites on forms under the Negotiable Instruments Law. What is a memorandum check? A check on which is written the word memorandum, memo and mem, signifying that the drawer engages to pay the bona fide holder absolutely and not upon a condition to pay upon presentment and non-payment. It is given by the borrower to the lender as evidence of his indebtedness. What is the purpose of a memorandum check? It is one of the securities given to the lender by the borrower. It is not supposed to be presented for payment. It is simply an evidence of the borrowers indebtedness. Can the lender still present it for payment? Yes, it can be presented for payment. Can the borrower, as a matter of defense in a BP 22 case, say that is it just a memorandum check, that it is not supposed to be presented for payment? No, it is not a matter of defense. He can still be held liable under BP 22. What is the purpose of BP 22? The purpose is to punish those who issue checks with insufficient fund. What is a certified check? A check on which the drawee bank has written an agreement whereby it undertakes to pay the check at any future time when presented for payment such as, by stamping on the check the word certified and underneath it is written the signature of the cashier. What is cross check? It is a check where there is stamped across the face of the check the name of a certain banker through whom it must be presented for payment, and if presented by any one else, it will not be honored. How is the crossing of check done? Crossing of the check is usually done by drawing parallel lines transversally on the face of the check. A check may be crossed 1) specially or 2) generally. What is the purpose of crossing the check For security reasons, it gives assurance to the drawer that it will be paid to the rightful owner especially when it is to be forwarded by mail or when it is entrusted to any agent. Is a cross-check a negotiable instrument? Yes, because such complies with the requirements on negotiable instrument under Section 1 of the NIL. How about a warehouse receipt, is it a negotiable instrument? No, it is not a negotiable instrument because a warehouse instrument represent goods, not money. What about pawn tickets (papel de agencia)? No, it is not a negotiable instrument because pawn tickets represent the pawned item(s), not the money. What about a bill of lading? No, it is not a negotiable instrument because a bill of lading represents goods, not money. What about trust receipt? No, it is not a negotiable instrument because it is an evidence of ownership. Societas Spectra Legis Negotiable Instruments Law Compilation University of San Carlos School of Law and Governance | Based on the outlined discussion of EVSPage 13 Distinctions between a check and a bill of exchange. (add as to) CHECKBILL OF EXCHANGE A check is always drawn upon a bank or bankerAn ordinary bill may or may not be drawn against a bank. A check is always payable on demandAn ordinary bill may be payable on demand or at a fixed or determinable future time. A check is not necessarily presented for acceptance. Not to be accepted but presented at once for payment. (However, if the holder requests, and the banker desires, he may accept.) An ordinary bill must be presented for acceptance. A check is drawn on a deposit. The drawer must have funds in the hands of the drawee, otherwise it would be fraud. An ordinary billis not drawn on a deposit. In other words, it is not necessary that a drawer of a bill of exchange should have funds in the hands of a drawee. The death of the drawer of a check, with knowledge by the banks, revokes the authority of the banker to pay. The death of a drawer of a bill of exchange, with knowledge by the banks, does not revoke the authority of the banker to pay. A check must be presented for payment within a reasonable time after its issue. A bill of exchange may be presented for payment within a reasonable time after its last negotiation. What is a negotiable instrument? It is a written contract for a payment of money which is intended as a substitute for money in such a way as to make the holder, as a holder in due course, free from personal defenses. What is negotiation? It is such transfer of an instrument from one person to another as to constitute the transferee the holder of the instrument. What is negotiability? It is an attribute or property whereby a bill, note or check passes or may pass from hand to hand similar to money, so as to give the holder in due course the right to hold the instrument and collect the sum payable for himself free from defense. What is the purpose of negotiability? The primary purpose of negotiability of a negotiable instrument is to allow bills and notes the effect which money, in the form of government bills or notes, supplies in the commercial world. What is a holder? A holder is the payee or endorsee of a bill or note who is in possession of it or the bearer thereof. I. FORM AND INTERPRETATION SECTION 1.Form of Negotiable Instruments. An instrument to be negotiable must conform to the following requirements:1) It must be in writing and signed by the maker or drawer; 2) Must contain an unconditional promise or order to pay a sum certain in money; 3) Must be payable on demand, or at a fixed or determinable future time; 4) Must be payable to order or to bearer; and 5) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. Societas Spectra Legis Negotiable Instruments Law Compilation University of San Carlos School of Law and Governance | Based on the outlined discussion of EVSPage 14 How do you determine the negotiability of an instrument The negotiability of an instrument is to be determined: 1) by the provisions of the Negotiable Instruments Law, particularly Section 1 thereof; 2) by considering the whole of the instrument; and 3) by what appears on the face of the instrument and not elsewhere. Is there a need for you to consider external documents in determining the negotiability of an instrument? No need to trace other documents. You only limit you examination on the negotiability on the face of the document itself. We use negotiable instruments in lieu of using money, for example in a promissory note we need look into or inquire into the loan agreement. In fact you cannot demand from the person issuing the negotiable instrument any documents to prove the validity of sufficiency of the negotiable instrument. CALTEX vs CA FACTS: On various dates, Security Bank and Trust Co issued 280 certificates of time deposit (CTD) in favor of one Angel dela Cruz who deposited with the bank the aggregate amount of P1.12 million. Anger de la Cruz delivered the CTDs to Caltex in connection with his purchase of fuel products from the latter. Subsequently, dela Cruz informed the bank that he lost all the CTDs, and thus executed an affidavit of loss to facilitate the issuance of the replacement CTDs. De la Cruz was able to obtain a loan of P875,000 from the bank, and in turn, he executed a notarized Deed of Assignment of Time Deposit in favor of the bank. Thereafter, Caltex presented for verification the CTDs (which were declared lost by de la Cruz) with the bank. Caltex formally informed the bank of its possession of the CTDs and its decision to preterminate the same. The bank rejected Caltex claim and demand, after Caltex failed to furnish copy of the requested documents evidencing the guarantee agreement, etc. In 1983, de la Cruz loan matured and the bank set-off and applied the time deposits as payment for the loan. Caltex filed the complaint, but which was dismissed. ISSUE 1: Whether or not the Certificate of Time Deposits in question are negotiable ISSUE 2: Whether the CTDs negotiation require delivery only. HELD: ISSUE 1: Yes, the CTDs in question are negotiable instruments. Section 1 of NIL enumerates the requisites for an instrument to become negotiable and the CTDs in question undoubtedly meet the requirements of the law for negotiability.The negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself.In the construction of a bill or note, the intention of the parties is to control, if it can be legally ascertained. The duty of the court in such case is to ascertain, not what the parties may have secretly intended as contradistinguished from what their words express, but what is the meaning of the words they have used. ISSUE 2: Although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it (Caltex) and de la Cruz requires both delivery and indorsement; as the CTDs were delivered to it as security for dela Cruz purchases of its fuel products, and not for payment. Herein, there was no negotiation in the sense of a transfer of title, or legal title, to the CTDs in which situation mere delivery of the bearer CTDs would have sufficed. The delivery thereof as security for the fuel purchases at most constitutes Caltex as a holder for value by reason of his lien. Is a Certificate of Time Deposit negotiable? It depends. In the case of Caltex vs CA, the court held the CTD as negotiable. What are the governing laws on negotiable instruments? Act No 2031 (Negotiable Instruments Law); Code of Commerce whose provisions are not conflict with the Negotiable Instruments Law; Civil Code (suppletory) Distinguished ordinary check from memorandum check Societas Spectra Legis Negotiable Instruments Law Compilation University of San Carlos School of Law and Governance | Based on the outlined discussion of EVSPage 15 Ordinary checkMemorandum check The word memorandum written upon the check describes the nature of the contract As to form and appearanceDoes not differ from an ordinary check except the word memorandum, mem or memo is written upon its face. As to purposeFor paymentGiven by the drawer to the payee as memorandum of indebtedness As to the steps taken before the holder can maintain an action against the drawer Demand for payment and a refusal on the part of the bank The drawer may be sued the same as upon a promissory note What are the FUNCTIONS of negotiable instruments?1)They are a substitute for money. 2)They increase the purchasing medium in circulation. 3)They facilitate the sale of goods. 4)They operate to supplement the currency of the government. 5)They are a means of creating and transferring credit. Is giving and taking of negotiable instrument or managers check considered as absolute payment as in case of money? No, because a negotiable instrument is not a legal tender, it is merely a prima facie conditional payment. The delivery of promissory notes payable to order or bills of exchange shall produce the effect of payment only when they have been cashed or when through the fault of the creditor, they have been impaired. In the meantime, the action derived from the original obligation shall be held in abeyance. What is legal tender? That kind of money which the law compels a creditor to accept in payment for his debt when tendered by the debtor in the right amount. What are the two principal FEATURES of negotiable instrument? 1) Negotiability 2) Accumulation of secondary contracts as they are transferred from one person to another. What is the concept of negotiability? It is that attribute or property whereby a bill, note or check passes from hand to hand similar to money, so as to give the holder in due course the right to hold the instrument and collect the sum payable for himself free from defense. The defenses from which a holder in due course is free are personal defenses but he is not free from real defenses. What is the purpose of negotiability? The primary purpose of negotiability of negotiable instrument is to allow bills and notes the effect which money, in the form of government bills or notes, supplies in the commercial world. Illustration of negotiability. (1) A induces B by fraud to make a promissory note payable to the order of A in the sum of P1000.00 payable on demand. This is fraud in inducement which is a personal defense. If A files an action against the maker B for the amount, B can interpose the defense that he was induced to make the note by fraud and that he did not receive any valuable consideration for it. (2) But suppose that instead of trying to collect from B, A transfers the note to C, who pays P1000.00 and acquires the note under circumstances that make him a holder in due course. And then C files an action against B for P1000.00. If the note were not negotiable, B can still interpose the same defense that he could interpose against A. But if the note is Societas Spectra Legis Negotiable Instruments Law Compilation University of San Carlos School of Law and Governance | Based on the outlined discussion of EVSPage 16 negotiable, B cannot interpose the personal defense of fraud, because C as a holder in due course has the right to hold the instrument and collect the sum payable regardless of defenses which might obtain between the original parties. What is accumulation of secondary contracts A characteristic of a negotiable instrument in which secondary contracts are picked and carried along with them as they are negotiated from one person to another. This attribute is just as essential as negotiability, if they are to serve as substitute for money. The party to whom it is offered may not know anything about the original parties on their solvency and can afford to take the paper only if the party with whom he is dealing with adds his credit. A B CD; B to C and C to D are the secondary contracts. From whom should D collect the amount? D must present the instrument to A, the maker, who is primarily liable.If, however, A cannot pay, who shall D make liable? First with C, where a secondary contract was created between them. If however, C cannot pay, C can enforce the instrument against B whom C created a secondary contract with. What is the advantage of accumulation of secondary contracts? The negotiable instruments improve as they pass from hand to hand, as more debtors are added. There are as many secondary contracts and debtors as the endorsements. The more endorsements, the more debtors there will be, and the more debtors there are, the greater the chances that the holder has to collect the amount payable on the instrument. Differentiate negotiability from assignability.NegotiabilityAssignability negotiability pertains only to a special class of contracts, namely, to negotiable instruments. Assignability is a more comprehensive term than negotiability and pertains to contracts in general. a person who takes an instrument by negotiation takes it free from the personal defenses available among the parties. A person who takes an instrument by assignment takes the instrument subject to the defenses obtaining among the original parties The endorser is not liable on his endorsement unless there be presentment for payment at maturity and prompt notice of dishonor in case of dishonor. When these steps are taken, he becomes immediately liable on the instrument. The general endorser is secondarily liable for any cause which the party primarily liable on a negotiable instrument does not or cannot pay. He warrants the solvency of the party primarily liable. The qualified endorser and the person negotiating by mere delivery have a limited secondary liability. The assignor in good faith, does not warrant the solvency of the debtor unless it has been expressly stipulated or unless the insolvency was prior to the assignment and of common knowledge. He merely warrants the existence and legality of the credit assigned at the time of the assignment. SESBREO vs CA FACTS: Raul Sesbreo made a money market placement in the amount of P300,000.00 with Philfinance. Philfinance delivered to Raul Sesbreo a Denominated Custodian Receipt, issued by Pilipinas Bank, indicating both their custody of the Delta Motors promissory note and to undertake the physical delivery of the promissory note upon its maturity. However when Raul Sesbreo made demands to Pilipinas Bank for the physical delivery of the promissory note, the latter allowed Raul to examine the note which on its face has the stamp NON-NEGOTIABLE, but did not release the the same as the note has yet to mature. When Raul made demand after the note matured, Pilipinas Bank simply referred the matter to Philfinance for written instructions. Raul also made demands to Delta Motors Societas Spectra Legis Negotiable Instruments Law Compilation University of San Carlos School of Law and Governance | Based on the outlined discussion of EVSPage 17 for the partial satisfaction of the promissory note, but the latter denied any liability claiming that it had previously agreed with Philfinance to offset its promissory note against another issuedby Philfinance in favor of Delta Motors. ISSUE 1: Whether or not negotiability is the same as assignability. ISSUE 2: Whether or not Pilipinas Bank is liable. HELD: ISSUE 1: No. Only an instrument qualifying as a negotiable instrument may be negotiated either by endorsement coupled with delivery, or by delivery alone where the negotiable instrument is in bearer form. A negotiable instrument may, instead of being negotiated, also be assigned or transferred. The legal consequences of negotiation as distinguished from assignment of a negotiable instrument are, of course, different. A non-negotiable instrument may, obviously, not be negotiated; but it may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument. In the instant case while the Delta Motors promissory note is marked "non-negotiable," was not at the same time stamped "non-transferrable" or "non-assignable." It contained no stipulation which prohibited Philfinance from assigning or transferring, in whole or in part, that Note. The assignment effected by Philfinance in favor of Raul Sesbreo was a valid one and that Raul accordingly became owner of the Delta Motor promissory note to the extent of the portion thereof assigned to him. ISSUE 2: Yes. While there is nothing in the Denominated Custodian Receipt that establishes an obligation on the part of Pilipinas to pay Raul, Pilipinas had breached its undertaking under the DCR to Sesbreo. A contract of deposit was constituted by the act of Philfinance (who assigned such rights to Raul) in designating Pilipinas as custodian or depositary bank. The depositary in a contract of deposit is obliged to return the security or the thing deposited upon demand of the depositor (or, in the present case, of the beneficiary) of the contract, even though a term for such return may have been established in the said contract. In the instant case, Pilipinas bank refused to deliver the security deposited with it when Sesbreo first demanded physical delivery. Therefore, Pilipinas bank must respond to petitioner for damages sustained by him arising out of its breach of duty. This is without prejudice to such right of reimbursement as Pilipinas may have vis-a-vis Philfinance. What was the reason given by the Delta Motors in refusing to honor the promissory note? The promissory note was not intended to be negotiated as manifested by the word "non-negotiable" stamp across the face of the Note and because Delta and Philfinance intended the note to be offset againstthe outstanding obligation of Philfinance represented by a promissory note issued to Delta as payee; Who was held to be liable in this case? Pilipinas Bank for damages. Ultimately, according to the Supreme Court, who should be made liable? Philfinance. METROBANK vs CA FACTS: Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38 treasury warrants with a total value of P1,755,228.37. All these warrants were subsequently endorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account in the Metrobank.Due to the repeated inquiries of Gloria and as an accomodation for a valued client, Metrobank allowed Golden Savings to withdraw from the proceeds of the warrants before the same was cleared. Golden Savings subsequently allowed Gomez to make withdrawals from his own account. Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury and demanded the refund by Golden Savings of the amount it Societas Spectra Legis Negotiable Instruments Law Compilation University of San Carlos School of Law and Governance | Based on the outlined discussion of EVSPage 18 had previously withdrawn, to make up the deficit in its account. The demand was rejected. Metrobank then sued Golden Savings. ISSUE 1: Whether or not treasury warrants are negotiable instruments. ISSUE 2: Whether or not Metrobank can demand refund from Golden Savings HELD: ISSUE 1: No. The treasury warrants in question are not negotiable instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501. Under the NIL law, an instrument to be negotiable must contain an unconditional promise or order to pay a sum certain in money; But an order or promise to pay out of a particular fund is not unconditional. The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay "not unconditional" and the warrants themselves non-negotiable. ISSUE 2: The amount Gomez has withdrawn must be charged not to Golden Savings but to Metrobank, which must bear the consequences of its own negligence. But the balance should be debited to Golden Savings, as obviously Gomez can no longer be permitted to withdraw this amount from his deposit because of the dishonor of the warrants. To also credit the balance to Golden Savings would unduly enrich it at the expense of Metrobank, let alone the fact that it has already been informed of the dishonor of the treasury warrants. Distinctions between a negotiable instrument and a non-negotiable instrument NEGOTIABLE INSTRUMENTNON-NEGOTIABLE INSTRUMENT May be negotiated either by endorsement thereof coupled with delivery, or by delivery alone where the negotiable instrument is in bearer form. A negotiable instrument may also be assigned or transferred. A non-negotiable instrument may not be negotiated; May be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument. A person who takes an instrument by negotiation takes it free from the personal defenses available among the parties. A party who takes an instrument by assignment takes the instrument subject to the defenses obtaining between the original parties. The general endorser is secondarily liable for any cause for which the party primarily liable on a negotiable instrument does not or cannot pay.He warrants the solvency of the party primarily liable. The