NEGOTIABLE INSTRUMENTS LAW (FIRST EXAM)
PART 1 Negotiable instrument can be a substitute to
ANSWER #1
A Negotiable Instrument, as distinguished from
other documents of title, has the
characteristics of negotiability i.e. it can be
transferred from one person to another as to
constitute the holder thereof. If it is a PAYABLE
TO BEARER, it is negotiated by mere delivery;
and if it is PAYABLE TO ORDER, it is negotiated
by indorsement and completed by delivery.
(SEC. 30 of NIL)
Also, it has the characteristic of accumulation
of secondary contract such that being it
transferrable to another person, it accumulates
secondary contracts and the holder thereof has
recourse from all prior parties thereto.
A negotiable instrument also must conform to
the requirements provided in Section 1 of the
Negotiable Instruments Law i.e. (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) it
must be payable on demand or at a fixed or
determinable future time; (4) must be payable
to order or bearer; and (5) where the
instrument is payable to bearer, the drawee
must be named or otherwise indicated therein
with reasonable certainty.
Such requirements when wanting will not
constitute a negotiable instrument and thus, it
can be regarded as other documents of title as
the case may be.
ANSWER #2
Negotiable Instruments are bound under
Negotiable Instruments Law or Act 2031 while
other documents of title are bound under New
Civil Code (NCC).
When it is non-negotiable, NCC shall apply.
NCC is suppletory to Act 2031.
Negotiable instruments are transferred to
another person who has the better right of
such instrument while other documents of title
merely pass the right to another.
money but not a legal tender, it can also be
the medium of commercial and credit
transactions, a specie of property or an
evidence in criminal case, administrative case,
civil case, and a proof of specific performance
if obligation or a proof of payment or
indebtedness.
The Negotiable Instruments Law (NIL) was
adopted under American law and effected on
June 2, 1911.
SUPPORTING ANS:
A negotiable instrument is a written instrument
signed by the maker/drawer that contains an
unconditional promise or order to pay a certain
sum of money which must be payable on
demand or at a fixed or determinable future
time. It must be payable to the bearer or order
(read: sequence) and if it is addressed to a
drawee, the drawee must be identified or
indicated with reasonable certainty. The
drawee requirement applies in case the
instrument is a negotiable bill of exchange (like
a check.) If there is no mention of a drawee,
the instrument will pertain to a negotiable
promissory note.
Two important features of a negotiable
instrument are negotiability and accumulation
of secondary contracts. Negotiability, simply
put, means the instrument can be transferred
from one person to another with the recipient
being given the right to collect. As the
instrument is negotiated from person to
person, juridical ties (secondary contracts) are
created between the parties involved in the
transaction.
Functions:
1.) Operates as a substitute for money
2.) Means of creating and transferring credit
3.) Facilitates the sale of goods
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NEGOTIABLE INSTRUMENTS LAW (FIRST EXAM)
4.) Increases the purchasing medium in
circulations
Kinds:
A.) Bills of Exchange
Unconditional written orders addressed by the
maker to another person (the payee,) signed
by the person giving it and requires the payor
to pay the payee on demand or on the date
indicated a sum certain in money to the bearer
or order.
Types
1.) Draft: sometimes called a bill of exchange
and normally refers to bills of exchange used in
documentary exchanges, like letters of credit
transactions.
2.) Inland and Foreign Bill: inland bills are bills
that are drawn and payable in the Philippines.
If the bill is drawn and payable elsewhere, it's
a foreign bill.
3.) Time Draft: drafts payable at a fixed date.
4.) Sight/Demand Draft: draft payable when
the holder presents is for payment.
5.) Trade Acceptance: bill used in sales
contracts where the seller (as drawer) orders
the buyer (as drawee) to pay the seller a
certain sum (as payee.)
6.) Banker's Acceptance: time draft where the
drawee has written "accepted" on its face.
7.) Check: the most common negotiable
instrument. Bill of exchange drawn on a bank
and payable on demand.
B.) Promissory Notes
An unconditional written promise made by one
person to another, signed by the maker and to
be paid a certain sum of money to the bearer,
or order, on demand or at a fixed or
determinable future time. If it's drawn to the
maker's own order, it's not complete until he
endorses it.
Types
1.) Certificate of Deposit: written
acknowledgement of a bank of its receipt of a
certain sum of money with a promise to pay it.
2.) Bond: certificate/evidence of debt where
the issuing company (or the government body)
promises to pay the bondholder a specified
amount of interest for a specified period of
time and pay the loan when the period expires.
3.) Debenture: promissory note/bond backed
by a corporation's general credit and usually
not secured by a mortgage or lien on specific
property.
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.
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NEGOTIABLE INSTRUMENTS LAW (FIRST EXAM)
PART 2
According to the Negotiable Instruments Law
on instrument payable at a determinable future
time can be as follows:
a. Payable at a fixed date or time;
b. On or before payable at a specified time
or at a fixed time; and,
c. On or after such occurrence of a certain
time which is certain to happen.
NEW BILL DOCTRINE is when a person
making, issuing, drawing or accepting an
instrument which is already overdue, such
instrument becomes payable on demand.
PART 3
ORDER INSTRUMENT vs BEARER
INSTRUMENT
CHOICE 1:
An ORDER INSTRUMENT is drawn payable to
the order of a specific person made by either
the maker, drawer or two or more parties
designated as makers or drawers and such
instrument transfer to the payee.
The BEARER INSTRUMENT, on the other hand,
becomes, when it is expressed as to be
payable, payable to the name as indicated or
to the bearer, payable to a fictitious or non-
existing person and the one making such
instrument has knowledge that the one he
indicated is a fictitious or non-existing, and one
and only indorsement is an indorsement in
blank.
CHOICE 2:
In an ORDER INSTRUMENT, it must be
indorsed first to be transferred to a holder in
due course and it shall be completed by
delivery, while in BEARER INSTRUMENT, mere
delivery thereof is enough.
Also, in ORDER INSTRUMENT, if the
indorsement thereof is forged, the holder can
claim the defense of forgery only to the parties
subsequent to the forgery and not to the
parties prior thereto while in BEARER
INSTRUMENT, the defense of forgery cannot
be had since indorsement thereof is
unnecessary to the further of the instrument.
Order under Section 1 (b), as distinguished
from order under Section 1 (d) of the
Negotiable Instruments Law, refers to
promissory notes while in Section 1 (d) refers
to both promissory notes and bill of exchange.
PART 4
(A)
A COMPLETE AND DELIVERED instrument is
valid and effectual against any person who
becomes a party thereto. It can be enforced on
demand or at a fixed or determinable future
time by the holder thereof and can be
negotiated at the instance of the holder,
through indorsement and delivery should it be
payable to order and mere delivery should it be
payable to order.
(B)
A COMPLETE AND UNDELIVERED instrument is
emphasized in Section 16 of the Negotiable
Instruments Law (NIL) i.e. every contract in
negotiable instrument is incomplete or
revocable until delivery of the instrument for
the purpose of giving effect thereto.
As between immediate parties or as regards a
remote party other than the holder in due
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NEGOTIABLE INSTRUMENTS LAW (FIRST EXAM)
course, the delivery to be effectual, must be
made either by or under the authority if the
party making, drawing, accepting or indorsing
it as the case may be; in such case, the
delivery is conditional or for special purpose
only and not for the transferring of the
property in the instrument.
But where any such instrument is in the hands
of a holder in due course, a valid delivery
thereof by the parties prior to him as to make
them liable to him is conclusively presumed.
(D)
Section 15 of the Negotiable Instruments Law
provides for the consequences of an
INCOMPLETE AND UNDELIVERED negotiable
instrument; where an incomplete instrument
has not been delivered, it will not be valid in
the hands of any person as against those
whose signature was placed therein before
delivery, if such instrument was completed and
delivered without authority.

And where the instrument is no longer in the

hands of the person whose signature appears
thereon, a valid and intentional delivery is
presumed until the contrary is proved.
PART 5
(C )

A negotiable instrument that is INCOMPLETE

AND DELIVERED is provided in Section 14 of
the Negotiable Instruments Law as well as its
consequences, i.e. where an instrument is
wanting in material particular, the person in
possession thereof has a prima facie authority
to complete It by filling up the blanks therein.

And a signature on a blank paper delivered by

the person making the signature in order that
the paper may be converted to a negotiable
instrument operates a prima facie authority to
fill it up as such for any amount.

In order, however, that any such instrument

when completed be enforced to any person
becoming a party thereto, it must be filled up
in accordance with the authority given and
within a reasonable time.

But when any such instrument is in the hands

of a holder in due course, it is valid for all
purposes in his hand and he may enforce it as
if it had been filled up strictly in accordance
with the authority given and within reasonable
time.

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NEGOTIABLE INSTRUMENTS LAW (FIRST EXAM)
PART 6
a.) No. Good Bank cannot claim
reimbursement from Alfred.
In the case of Associated Bank vs Court of
Appeals, the Supreme Court ruled that if the
drawer is proven to have been negligent or in
bad faith, he may be liable in apportion to the
amount drawn from the collecting bank.
In this case, Alfred issued the check with
diligence in consideration of the electronic
gadget as payment. It is clear that Cesar was
the one being negligent in this case by
misplacing the check.
Therefore, it being not in conformity in the
case of Associated Bank vs. CA for absence of
proof of negligence, Alfred cannot be held
liable and Good Bank cannot claim for
reimbursement.
b.) In this case, Cesar has no liability when
Dexter found the check, he becomes the
bearer of the instrument.
When the instrument is payable to bearer,
indorsement is not necessary and only delivery
is required.
c.) No. Solar Bank cannot further negotiate the
instrument.
Under Section 23 of NIL, when the instrument
is forged, the instrument is inoperative as a
whole and cannot retain its title.
Therefore, Solar Bank cannot further negotiate
the check.
PART 7
When the instrument is payable to bearer,
indorsement is not necessary, but delivery. The
person can only run against the drawer or the
person whose signature appears in the
instrument.
In this case, Solar Bank can only claim against
Alfred since he is the one whose signature
appeared in the check.
PART 8
If the check was issued originally payable to
order, the liabilities of the parties shall be the
following:
As to the drawee bank, Good Bank, it may
claim reimbursement from the collecting bank,
Solar Bank, since collecting bank warrants and
guarantees the indorsement made, therefore,
as an indorser, it is now subject to its
responsibility to warrant such indorsement and
must be held responsible for the loss.
However, the Solar Bank can also claim
reimbursement from the one who forged the
instrument, i.e. Dexter, for he is not a party in
the instrument, as his forging of the signature
of Cesar is wholly inoperative. Thus, Cesar is
not a valid party thereto and his indorsement
cannot be, therefor considered as valid and
effectual, and since it was Dexter who forged
the signature of Cesar, he must be liable for
the loss occurred to Solar Bank.
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NEGOTIABLE INSTRUMENTS LAW (FIRST EXAM)
Cesar also, following the Blondeau Doctrine
must be held liable for being negligent causing
the check to be lost and his signature to be
forged.

PART 9

Yes, Good Bank may sue Solar Bank for the

amount it has paid.

In the case of Associated Bank vs CA, Good

Bank as drawee can claim reimbursements
from the collecting bank. In this case, Solar
Bank, since it was the latter who guarantees all
previous indorsements, therefore, it has the
responsibility to make up to such guarantee.
Unless, the drawee bank is not negligent on its
part it cannot be made liable to pay for the
check in which the indorsement thereof was
forged. And since the collecting bank has the
means to know the genuineness of the
signature of the indorser, it is not bound to
exercise diligence and to make sure that such
were genuine before guaranteeing it. Thus,
Good Bank may sue Solar Bank for the amount
paid.