3 purposes of the Negotiable Instruments Law

FIRST PURPOSE. Act No. 2031 or the Negotiable Instruments Law (NIL) applies only to negotiable instruments or to those instruments which meet the requirements laid down in Section 1 of the law.

[1] 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. ("Form of negotiable instruments." Section 1 of the NIL)

It is designed to describe fully the law of negotiable instruments. It covers the entire subject of negotiable instruments and must be , treated as a complete body of law upon the subject and controlling in all cases to which it is applicable. It is decisive as to all matters comprehended within its terms.

[2] In discussing the comprehensive coverage of the Act over negotiable instrument, De Leon and De Leon, Jr. (2010) cite Arnold vs. Jordan, 215 Ala. 693,112 So. 305 and Bank of Italy, etc. vs. Symmes, 118 Cal. App. 716,5 P. [2d] 956.

[3] Although the NIL covers all questions relating to negotiable instruments, it is silent with respect to crossed checks, although the Code of Commerce makes reference to such instruments. The Supreme Court has taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited and could not be converted into cash. Thus, the effect of crossing a check relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named therein. The crossing may be "special" wherein between the two parallel lines is written the name of a bank or a business institution, in which case the drawee should pay only with the intervention of that bank or company, or "general" wherein between two parallel diagonal lines are written the words "and Co." or none at all, in which case the drawee should not encash the same but merely accept the same for deposit. (G.R. No. 141001. May 21, 2009)

[4] In Bataan Cigar v. Court of Appeals, we enumerated the effects of crossing a check as follows: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once – to one who has an account with a bank; and (c) the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose; otherwise, he is not a holder in due course. (G.R. No. 141001. May 21, 2009)

SECOND PURPOSE. Any case not provided for by the Act shall be governed by the provisions of existing legislation or in default thereof, by the rules of the law merchant. (Sec. 196.) The Civil Code has no effect on its provisions except to supply any deficiency in cases not covered by the Act. (see Art 18, Civil Code.)
[5] Article 18. In matters which are governed by the Code of Commerce and special laws, their deficiency shall be supplied by the provisions of this [New Civil] Code.

[6] Damages are not provided for in the NIL. Thus, we resort to the Code of Commerce and the Civil Code. Under Article 2 of the Code of Commerce, acts of commerce shall be governed by its provisions and, "in their absence, by the usages of commerce generally observed in each place; and in the absence of both rules, by those of the civil law." This law being silent, we look at Article 18 of the Civil Code, which states: "In matters which are governed by the Code of Commerce and special laws, their deficiency shall be supplied" by its provisions. A perusal of these three statutes unmistakably shows that the award of interest under our civil law is justified. (G.R. No. 149454. May 28, 2004)

[7] And now, to the requisites before one accommodation maker can seek reimbursement from a co-accommodation maker. By Article 18 of the Civil Code in matters not covered by the special laws, "their deficiency shall be supplied by the provisions of this Code". Nothing extant in the Negotiable Instruments Law would define the right of one accommodation maker to seek reimbursement from another. Perforce, we must go to the Civil Code. (G.R. No. L-17845. April 27, 1967)

THIRD PURPOSE. The law was enacted for the purpose of facilitating, not hindering or hampering transactions in commercial paper. Thus, the said statute should not be tampered with haphazardly or lightly nor should it be brushed aside in order to meet the necessities in a single case. (State Investment House, Inc. vs. Court of Appeals, 217 SCRA 32 [1993].)

[8] The drawing and negotiation of a check have certain effects aside from the transfer of title or the incurring of liability in regard to the instrument by the transferor. The holder who takes the negotiated paper makes a contract with the parties on the face of the instrument. There is an implied representation that funds or credit are available for the payment of the instrument in the bank upon which it is drawn. Consequently, the withdrawal of the money from the drawee bank to avoid liability on the checks cannot prejudice the rights of holders in due course. In the instant case, such withdrawal renders the drawer, Nora B. Moulic, liable to STATE, a holder in due course of the checks. (G.R. No. 101163. January 11, 1993)

The discussion above is based on an outline by De Leon and De Leon, Jr. (2010) in their book on Act No. 2031. SOURCE: De Leon and De Leon, Jr. (2010). The Philippine Negotiable Instruments Law. Atty. Hector S. De Leon and Atty. Hector M. De Leon, Jr. 978-971-23-6523-2. Rex Book Store. https://www.rexestore.com/negotiable-instrument-law-books/977-the-philippine-negotiable-instruments-law-revised-edition.html