Negotiable Instruments Law LECTURE MIdterms

Negotiable Instruments Law
(Act No. 2031)

Atty. Ronic Treptor
Important Provisions
• Sec. 1 – Elements of Negotiable Instrument
• Sec. 2 – certainty of the amount payable
• Sec. 3 in rel. to Sec. 47 – unconditional character of instrument
• Sec. 4 – determinable future time, fixed future time, contingency
• Sec. 5 – provisions that do not affect the negotiability of the
instrument
• Sec. 6 – omissions and additions
• Sec. 7 – payable on demand
• Sec. 8 – payable to order
• Sec. 9 – payable to bearer
• Sec. 11 – presumption of date (date is presumed correct)
• Sec. 12 – antedate and postdate
• Sec. 13 – insertion of date
• Sec. 14 – incomplete instrument but delivered
• Sec. 15 – incomplete and undelivered
• Sec. 16 – complete instrument but undelivered
• Sec. 23 – forgery
• Sec. 124 – material alteration
• Sec. 125 – material alteration
• Sec. 24 – presumption of valuable consideration
• Sec. 28 – want of consideration and failure of consideration
• Sec. 29 – accommodation party
• Sec. 30 – negotiation (referring to transfer of instrument)
• Sec. 33-39 – kinds of indorsement eg. Blank, special, restrictive (36), qualified,
conditional
• Sec. 48 – striking out indorsement
• Sec. 52 – what constitutes a holder in due course
• Sec. 59 - presumption
• Sec. 57 – rights of a holder in due course
• Sec. 60 – liability of a maker
• Sec. 61 – liability of a drawer
• Sec. 62 – liability of an acceptor
• Sec. 65 & 66 – warranties of an indorser
• Sec. 70-73 – presentment for payment
• Sec. 89 – notice of dishonor
• Sec. 126 – definition of bill of exchange
• Sec. 184 – definition of a promissory note
• Sec. 185 – definition of a check
What is a negotiable instrument?
• It is a written contractual obligation that requires payment of money
What is meant by “negotiable”?

• Can be passed upon from one person to another
• Note: not the same in Civil Law (obligations and contracts) – phase of a
contract
Purpose of negotiable instruments
• Payment in money
• Substitute for money
• Intended to pass like money
WRONG!
• Negotiable instruments are NOT considered legal tender!
FORM OF NEGOTIABLE
INSTRUMENTS
Essential Elements of a N.I. (Sec. 1)[SUDOR]
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. (Bill of
Exchange)
Essential Elements of a N.I. (Sec. 1)[SUDOR]
certain in money;
time;
Exchange)
1. In writing and signed by the maker or
drawer
• Maker if the N.I. is a promissory note
• Drawer if a Bill of Exchange
• Any kind of signature will do

• Conventional
• Personalized
“Itaga mo sa bato, magbabayad ako”
Essential Elements of a N.I. (Sec. 1)
certain in money;
time;
Exchange)
2. Must contain an unconditional promise or
order to pay a sum certain in money
• “unconditional” simply means not subject to any condition.
• Every obligation whose performance does not depend upon a future or
uncertain event, or upon a past event unknown to the parties, is demandable
at once. (Art. 1179 of the Civil Code)
• An instrument payable upon a contingency is not negotiable, and the
happening of the event does not cure the defect. (last sentence of Sec. 4 of
NIL)
• “sum certain in money” means the amount payable must be

determinate and in money.
• Note: Sec. 2, NIL
Unconditional promise or order
P15,000 6 October 2018

I promise to pay to the order of Pedro
15,000 pesos.
(Sgd) Dina Leligo
Promise to pay is not subject to any condition, thus negotiable.

P15,000 6 October 2018
Pay to Pedro or bearer, 15,000 pesos on
December 15, 2018.
To: Rando M. Dude

(Sgd) Dina Leligo
Order to pay is not subject to any condition, thus negotiable.

P15,000 6 October 2018

15,000 pesos if it rains today.
(Sgd) Dina Leligo
Promise to pay is subject to a condition (if it rains today), thus

not negotiable.
P15,000 6 October 2018

I promise to pay unconditionally to the
order of Pedro 15,000 pesos if it rains today.
(Sgd) Dina Leligo
Still subject to the same condition even if it contains the word

“unconditionally”, thus not negotiable.
P15,000 6 October 2018

I promise to pay unconditionally to the
order of Pedro 15,000 pesos if it rains today.
(Sgd) Dina Leligo
What happens if it rains? Will it now be negotiable?

P15,000 6 October 2018

15,000 pesos if my cow dies.
(Sgd) Dina Leligo
Is this negotiable?
P15,000 6 October 2018

15,000 pesos if my cow dies today.
(Sgd) Dina Leligo
This is not negotiable, because the promise to pay is subject to

an uncertain event. It is payable upon a contingency.
Unconditional promise or order (Sec. 3)
• Promise or order to pay remains unconditional although coupled
with:
(a) An indication of a particular fund out of which reimbursement is to be made
or a particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument.
But an order or promise to pay out of a particular fund is not unconditional.

• Promise or order is still unconditional: (still negotiable)
• Indicate fund for reimbursement
• Statement of transaction
• Promise or order is conditional: (not negotiable)

• Indicate fund for payment
• Reason: promise or order to pay is conditioned upon the existence and sufficiency of the
fund indicated.
• Fund for reimbursement
P15,000 6 October 2018
Pay to the order of Pedro Dela Cruz, 15,000 pesos and

reimburse yourself from my money in your custody.
To: Rando M. Dude

(Sgd) Dina Leligo
Here, the order to pay is not conditioned upon the existence and sufficiency of the fund
stated (money in your custody). It is the reimbursement that is conditioned upon its
existence and sufficiency, thus will not affect the negotiability of the instrument.
• Fund for payment
P15,000 6 October 2018
Pay to the order of Pedro Dela Cruz, 15,000 pesos out of my

money inside a chest in my room.
To: Rando M. Dude

(Sgd) Dina Leligo
Here, the order to pay is conditioned upon the existence and sufficiency of the fund
stated (money inside a chest). Thus, the instrument is not negotiable.
• Statement of the transaction
P15,000 6 October 2018

I promise to pay to the order of Pedro 15,000
pesos. This promissory note was executed between us
because I bought Pedro’s car on credit.
(Sgd) Dina Leligo
The statement of the transaction (sale of the car) will not affect the
promise to pay.
• Statement of the transaction
P15,000 6 October 2018

pesos after Pedro’s car is sold to me on credit.
(Sgd) Dina Leligo
Is this negotiable?
Sum certain in money (Sec. 2)
The sum payable is a sum certain within the meaning of this Act,
although it is to be paid: [ISAEC]
1. With interest
2. By stated installments
3. Acceleration clause
4. With exchange, whether at a fixed rate or at the current rate
5. Cost of collection or an attorney’s fee, in case payment shall be
made at maturity.
• With interest
P15,000 6 October 2018

pesos, with interest, on September 1, 2018.
(Sgd) Dina Leligo
P15,000 remains certain even if with interest.

• With interest
P15,000 6 October 2018

pesos, with interest, on September 1, 2018.
(Sgd) Dina Leligo
If the interest rate is not indicated, legal interest will apply (6% per
annum). Thus, still sum certain.
• With interest
P15,000 6 October 2018

15,000 pesos, with interest of 1,000,000% per
day on September 1, 2020.
(Sgd) Dina Leligo
Is this negotiable?
• By stated installments
P15,000 6 October 2018
I promise to pay to the order of Pedro 15,000 pesos by

installment as follows:
(a) P10,000 on September 1, 2018
(b) P5,000 on September 5, 2018
(Sgd) Dina Leligo
Note that if payable on installments, the instrument must include the

terms.
P15,000 6 October 2018
I promise to pay to the order of Pedro 15,000 pesos in three

equal installments, the first on September 1, 2018 the second on
September 5, 2018 and the last on September 10, 2018.
(Sgd) Dina Leligo
Still negotiable. “equal installments” will make the amount certain.

P15,000 6 October 2018
I promise to pay to the order of Pedro 15,000 pesos by

installment, the first on September 1, 2018 the second on September
5, 2018 and the last on September 10, 2018.
(Sgd) Dina Leligo
Is this negotiable?
• By stated installments, with an acceleration clause
P15,000 6 October 2018
I promise to pay to the order of Pedro 15,000 pesos by installment as follows:

(a) P5,000 on September 1, 2018
(b) P5,000 on September 5, 2018
(c) P5,000 on September 10, 2018
If I cannot pay any one of the foregoing installments, the whole obligation
immediately becomes due and demandable.
(Sgd) Dina Leligo
“If I cannot pay…” is not a condition, but a stipulation to make the

obligation immediately demandable. Thus, will not affect negotiability.
• Exchange
• Difference in value between the same amount of money by different
countries.
• May be:
• Fixed rate of exchange; or
• Current rate of exchange.
• Note: agreeing without fixing = current rate.

• The average rate that prevails on a particular day when the transaction occurs.
• Exchange (fixed rate)
$15,000 6 October 2018
I promise to pay to the order of Pedro the sum of $15,000 in

Philippine Peso at the exchange rate of P50 per $1 on September 15,
2018.
(Sgd) Dina Leligo
The sum is still certain in money. The parties just need to apply the
exchange rate.
• Exchange (current rate)
$15,000 6 October 2018
I promise to pay to the order of Pedro the sum of $15,000 in

Philippine Peso at the current rate of exchange on September 15,
2018.
(Sgd) Dina Leligo
Here, the parties agree on an exchange, but did not specify the rate,
thus the current rate of exchange on September 15, 2018 will apply.
• Cost of collection or attorney’s fees
P15,000 6 October 2018
I promise to pay to the order of Pedro the sum of P15,000 on

September 15, 2018. If I cannot pay on due date, and a case of
collection will be filed in court, I bind myself to pay additional 20% of
the principal amount to defray collection fees (or attorney’s fees, or
both).
(Sgd) Dina Leligo
This is not a condition but a stipulation that will not affect the
negotiability of the instrument.
certain in money;
time;
Exchange)
So far…
• Sec. 1. Essential elements of a negotiable instrument.
1. In writing and signed
• Any signature
• Conventional or personalized
2. Unconditional promise or order to pay sum certain in money
• Unconditional promise or order
• Sec. 4. If conditional, the happening of the event will not cure the defect.
• Sec. 3. still unconditional though coupled with:
• Fund for reimbursement (fund for payment = not unconditional = not negotiable)
• Statement of transaction
• Sum certain in money (Sec. 2), still sum certain:
• Interest
• Stated installments
• Stated installments with acceleration clause
• Exchange
• Cost or collection of attorney’s fees
3. Must be payable on demand, or at a fixed
or determinable future time
• When is an instrument payable on demand? (Sec. 7)
1. Expressly made payable on demand
2. If there is no time of payment indicated
3. Where an instrument is issued, accepted, or indorsed when overdue, it is,
as regards the person so issuing, accepting, or indorsing it, payable on
demand.
• When is an instrument payable on demand? (Sec. 7)
1. Expressly
2. No time
3. Overdue; issued, indorsed, accepted.
• On Demand - Expressed
P15,000 6 October 2018

On demand, I promise to pay to the order
of Pedro 15,000 pesos.
(Sgd) Dina Leligo

• On Demand - No time indicated
P15,000 6 October 2018

15,000 pesos.
(Sgd) Dina Leligo

• On Demand - No time indicated
P15,000 6 October 2018
Pay to Pedro or bearer, 15,000 pesos.
To: Rando M. Dude

(Sgd) Dina Leligo
• On Demand - Overdue
P15,000 20 July 2016
I promise to pay to the order of Pedro the sum of

P15,000 on September 15, 2016.
(Sgd) Dina Leligo
This note is already overdue. If this note is issued, indorsed, or accepted, it

becomes payable on demand as regards the person so issuing, indorsing, or
accepting it.
• On Demand - Overdue
Note: Sec. 47. Continuation of negotiable character. - An instrument
negotiable in its origin continues to be negotiable until it has
been restrictively indorsed or discharged by payment or
otherwise.
Restrictively indorsed – Sec. 36

Discharged by payment – Sec. 119
“Otherwise” – Sec. 119
• Fixed future time
P15,000 6 October 2018

15,000 pesos, with interest, on September 15,
2018.
(Sgd) Dina Leligo
Obviously, September 15, 2018 is a fixed future time.
• Fixed future time
P15,000 6 October 2018

I promise to pay to the order of Pedro Dela
Cruz 15,000 pesos, with interest, on Christmas
day of this year.
(Sgd) Dina Leligo
“Christmas day of this year” is a fixed future time. (December 25).
To: Girlie Dela Amzona

(Sgd) Pedro Dela Cruz
Feb. 15, 2019
Payable on demand? Fixed future time? Or determinable future time?

• Determinable Future Time
• Sec. 4. Determinable future time; what constitutes. - An instrument is
payable at a determinable future time, within the meaning of this Act,
which is expressed to be payable:
(a) At a fixed period after date or sight; or
(b) On or before a fixed or determinable future time specified
therein; or
(c) On or at a fixed period after the occurrence of a specified
event which is certain to happen, though the time of happening be
uncertain.
• Determinable future time
P15,000 6 October 2018

Cruz 15,000 pesos within 20 days after sight.
(Sgd) Dina Leligo
Payable within 20 days “after sight”

P15,000 6 October 2018

Cruz 15,000 pesos if my friend Malou Wang Na
dies.
(Sgd) Dina Leligo
This is a determinable future time. Death is considered certain, thus

will not subject the promise to pay to a contingency.
P15,000 6 October 2018

Cruz 15,000 pesos when my friend Malou Wang
Na dies of cancer.
(Sgd) Dina Leligo
Is this negotiable?
P15,000 6 October 2018
I promise to pay to the

order of Pedro Dela Cruz 15,000
pesos when my friend Malou
Wang Na dies of cancer.
(Sgd) Dina Leligo
P15,000 6 October 2018
I promise to pay to the

order of Pedro Dela Cruz 15,000
pesos if my friend Malou Wang Na
dies.
(Sgd) Dina Leligo

certain in money;
time;
Exchange)
4. Must be payable to order or to bearer;
• Sec. 8. When payable to order. - The instrument is payable to order where
it is drawn payable to the order of a specified person or to him or his order.
It may be drawn payable to the order of:
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must be named or
otherwise indicated therein with reasonable certainty.
• Sec. 8. When payable to order. - The instrument is payable to order
where it is drawn payable to the order of a specified person or to him
or his order.
Payable to order:
1. Drawn payable to the order of a specified person
2. Drawn payable to the specific person or his order
(c) The drawee; or
Payable to order (Sec. 8)
• Payable to the order of a specified person
P15,000 6 October 2018
Pay to the order of Pedro Dela Cruz the amount of

15,000 pesos on December 15, 2018.
To: Rando M. Dude

(Sgd) Dina Leligo
This is payable to the order of Pedro Dela Cruz. Note that this is not
only payable to Pedro Dela Cruz.
• Payable to a specified person or his order
P15,000 6 October 2018
Pay to Pedro Dela Cruz the amount of 15,000 pesos on

December 15, 2018, or his order.
To: Rando M. Dude

(Sgd) Dina Leligo
This is payable to Pedro Dela Cruz or his order.

P15,000 6 October 2018
Pay to Pedro Dela Cruz, or his order, the amount of

To: Rando M. Dude

(Sgd) Dina Leligo
Still payable to Pedro Dela Cruz or his order.

P15,000 6 October 2018
I promise to pay to Pedro Dela Cruz, or his order, the

amount of 15,000 pesos on December 15, 2018.
(Sgd) Dina Leligo
Sample promissory note payable to order.

(c) The drawee; or
Where the instrument is payable to order, the payee must be named
or otherwise indicated therein with reasonable certainty.
Note: Sec. 1. last paragraph.

(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
SEC 8. LAST PARAGRAPH SEC 1. LAST PARAGRAPH
Where the instrument is payable to order, the payee (e) Where the instrument is addressed to a drawee,
must be named or otherwise indicated therein with he must be named or otherwise indicated therein
reasonable certainty. with reasonable certainty.
Applies to Promissory notes and Bills of Applicable to Bills of Exchange only

exchange
Applies to Promissory notes and Bills of Applicable to Bills of Exchange only

exchange
PAYEE must be named or otherwise DRAWEE must be named or otherwise

indicated with reasonable certainty indicated with reasonable certainty
Purpose is to allow the drawee to Purpose is to allow the payee or

determine to whom payment is to be indorsee to know to whom to present
made, or to whose order. the instrument for payment.
Purpose is to allow the drawee to Purpose is to allow the payee or

determine to whom payment is to be indorsee to know to whom to present
made, or to whose order. the instrument for payment.
If payee is not indicated with reasonable If drawee is not named nor indicated
certainty, it will not affect the negotiability of the with reasonable certainty, the
instrument but will place the burden of
ambiguity to the party causing it. If the payee is
instrument is NOT negotiable, for lack of
not named nor indicated with reasonable an essential element of negotiability.
certainty, then it is not negotiable.
P15,000 6 October 2018

To: Rando M. Dude

(Sgd) Dina Leligo
Still payable to Pedro Dela Cruz or his order.

P15,000 6 October 2018

To: Rando M. Dude

(Sgd) Dina Leligo
Pedro Dela Cruz is the Payee.

P15,000 6 October 2018

To: Rando M. Dude

(Sgd) Dina Leligo
Rando M. Dude is the Drawee

4. Must be payable to bearer
• Sec. 9. When payable to bearer. - The instrument is payable to bearer:
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing
person, and such fact was known to the person making it so payable; or
(d) When the name of the payee does not purport to be the
name of any person; or
(e) When the only or last indorsement is an indorsement in
blank.
• Sec. 9. When payable to bearer: [FENIS]
1. Payee is Fictitious
2. Expressly made payable to bearer
3. Name does not purport to be the name of any person
4. Indorsement in blank (only one or last indorsement)
5. Specific person or bearer.
blank.
Payable to bearer (Sec. 9)
• When it is expressed to be so payable
P15,000 6 October 2018
Pay to bearer, the amount of 15,000 pesos.
To: Rando M. Dude

(Sgd) Dina Leligo
• When it is expressed to be so payable
P15,000 6 October 2018
I promise to pay the bearer, the amount of 15,000

pesos.
(Sgd) Dina Leligo

• When it is payable to a person named therein or bearer
P15,000 6 October 2018
Pay to Pedro Dela Cruz or bearer, the amount of

15,000 pesos.
To: Rando M. Dude

(Sgd) Dina Leligo
• When it is payable to the order of a fictitious or non-existing person,
and such fact was known to the person making it so payable
P15,000 6 October 2018
Pay to the order of Batman, the amount of 15,000

pesos.
To: Rando M. Dude

(Sgd) Dina Leligo
• When the name of the payee does not purport to be the name of any
person
P15,000 6 October 2018
Pay to CASH, the amount of 15,000 pesos.
To: Rando M. Dude

(Sgd) Dina Leligo
• When the name of the payee does not purport to be the name of any
person
P15,000 6 October 2018
Pay to BANK, the amount of 15,000 pesos.
To: Rando M. Dude

(Sgd) Dina Leligo
• When the only or last indorsement is an indorsement in blank
Sec. 34. Special indorsement; indorsement in blank. - A special

indorsement specifies the person to whom, or to whose order, the
instrument is to be payable, and the indorsement of such indorsee is
necessary to the further negotiation of the instrument. An
indorsement in blank specifies no indorsee, and an instrument so
indorsed is payable to bearer, and may be negotiated by delivery.
P15,000 6 October 2018
Pay to the order of Pedro Dela Cruz, the amount of

15,000 pesos.
To: Rando M. Dude

(Sgd) Dina Leligo
To: __________
• Here, the instrument was originally payable to order. But because of

the indorsement, it became a bearer instrument.

To:__________
(Sgd) Girlie Dela Amzona
• Last indorsement is in blank. Making the instrument payable to bearer.

blank.
Fictitious Payee Rule (PNB vs. Rodriguez)
• When the payee of the check is not intended to be the true recipient
of its proceeds, is the instrument payable to order or bearer?
• The instrument is considered a bearer instrument. One cannot expect a
fictitious payee to negotiate the check by placing his indorsement thereon.
Because the maker knew of this limitation, he must have intended for the
instrument to be negotiated by mere delivery
• If the payee is not the intended recipient of the proceeds of the check, the
payee is considered a fictitious payee and the check is a bearer instrument.
• Who bears the loss?
• The maker or drawer bears the loss. He was the one who caused all the
confusion that led to the loss. Otherwise, he can always deny the validy of an
indorsement.
• Exception: “Commercial Bad Faith”

• A showing of commercial bad faith on the part of the drawee bank, or any transferee of
the check for that matter, will work to strip it of this defense. The exception will cause it
to bear the loss. Commercial bad faith is present if the transferee of the check acts
dishonestly, and is a party to the fraudulent scheme.
• Who bears the loss?
• In a fictitious-payee situation, the drawee bank is absolved from liability
and the drawer or maker bears the loss. He was the one who caused all the
confusion that led to the loss. Otherwise, he can always deny the validity of
an indorsement.
• Exception: “Commercial Bad Faith”

• A showing of commercial bad faith on the part of the drawee bank, or any transferee of
the check for that matter, will work to strip it of this defense. The exception will cause it
to bear the loss. Commercial bad faith is present if the transferee of the check acts
dishonestly, and is a party to the fraudulent scheme.
Order instrument vs. Bearer instrument
Payable to Order (Sec. 8) Payable to Bearer (Sec. 9)
Payee must be named or indicated Payee need not be named.
therein with reasonable certainty.
Negotiated by indorsement and Negotiated by delivery (Sec. 30)
completed by delivery (Sec. 30)
Can be converted to be payable to Cannot be converted to payable to
bearer (Sec. 35) order (Sec. 34)
certain in money;
time;
Exchange)
Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty. (Bill of Exchange)
• Only applies to a Bill of Exchange.

• Only Bills of Exchange are addressed to a drawee.
• If the drawee is not named or otherwise indicated therein with

reasonable certainty, the instrument is not negotiable.
certain in money;
time;
Exchange)
Additional Provisions Not
Affecting Negotiability
Additional Provisions Not Affecting
Negotiability
• Sec. 5. Additional provisions not affecting negotiability. - An instrument which
contains an order or promise to do any act in addition to the payment of money
is not negotiable. But the negotiable character of an instrument otherwise
negotiable is not affected by a provision which:
(a) authorizes the sale of collateral securities in case the instrument be not paid at
maturity; or
(b) authorizes a confession of judgment if the instrument be not paid at maturity;
or
(c) waives the benefit of any law intended for the advantage or protection of the
obligor; or
(d) gives the holder an election to require something to be done in lieu of payment
of money.
But nothing in this section shall validate any provision or stipulation otherwise
illegal.
Negotiability
(a) authorizes the sale of collateral securities in case the instrument be
not paid at maturity; or
(b) authorizes a confession of judgment if the instrument be not paid
at maturity; or
(c) waives the benefit of any law intended for the advantage or
protection of the obligor; or
(d) gives the holder an election to require something to be done in lieu
of payment of money.
But nothing in this section shall validate any provision or stipulation
otherwise illegal.
Sale of Collateral Securities
P150,000 6 October 2018
I promise to pay Girlie Dela Amzona or bearer P150,000 on December

15, 2018. This obligation is secured by a mortgage involving my Toyota Vios
with plate number XXX 111 which may be sold by the holder in a public auction
sale and the proceeds thereof may be applied to satisfy the aforesaid
obligation in the event this note is not paid at maturity.
For this purpose, I hereby appoint the bearer as my attorney in fact to
undertake the public auction sale in my behalf.
(Sgd) Dina Leligo

Sale of Collateral Securities
• “in the event that not is not paid at maturity” is not a condition.
• This will not affect the promise to pay.
• This is an option given to the bearer. The bearer upon presentment for
payment, has the option to sell the car if the note is not paid. But the
obligation to pay is still unconditional. Thus the instrument is still negotiable.
Negotiability
at maturity; or
otherwise illegal.
Confession of Judgment
• 3 types of confession of judgment:
1. Warrant of attorney (one applicable to negotiable instruments)
2. Cognovit Actionem
3. Relita Verificationem
• Warrant of Attorney
• Confession of judgment made before an action filed in court.
• Note: This form of judgment is void because it enlarges the field of fraud,
denies a party his day in court, and deprives a party his statutory right to
appeal.
• If a warrant of attorney is contained in a note, just disregard the stipulation

because it is void. It will not affect the negotiability of the instrument.
Warrant of Attorney
P150,000 6 October 2018
I promise to pay Girlie Dela Amzona or bearer P150,000 on December

15, 2018.
In the event I cannot pay at maturity, I authorize my attorney-in-fact to
confess judgment in my behalf to admit any liability I will incur by reason of the
issuance and negotiation of this instrument.
(Sgd) Dina Leligo

Warrant of Attorney
• The phrase “I authorize my attorney-in-fact to confess judgment in my
behalf to admit…” is an authorization to confess judgment. Such
stipulation will not affect the negotiability of the instrument. The
promise to pay is still not subject to any condition.
• Note that even if the stipulation is void (allows confession of

judgment before action in court), it will not affect the negotiability of
the instrument. Negotiability does not depend on the validity of the
instrument or its stipulations.
• Cognovit Actionem
• Confession made when there is a case filed or is pending in court. This
confession is valid. If the confession is unreasonable, the court will decide if it
is reasonable or not.
• Relicta Verifiationem
• The party will deny liability by setting up a defense in his answer but later on,
he will abandon such defense. When a party abandons his answer or defense,
in effect he is confessing judgment. This is also valid.
Negotiability
at maturity; or
otherwise illegal.
Waiver
• Waiver of any right, advantage or privilege.
• Example:
• Under Sec. 89 of NIL, when a negotiable instrument has been dishonored by
non-acceptance or non-payment, notice of dishonor must be given to the
drawer and to each indorser, and any drawer or indorser to whom such notice
is not given is discharged.
• This is a benefit given to drawer or indorser. If no notice of dishonor is given
to the drawer or indorser, he is discharged from liability.
Waiver
P15,000 6 October 2018
December 15, 2018.
To: Rando M. Dude

(Sgd) Dina Leligo
On December 15, 2018 Pedro went to Rando M. Dude to present the instrument
for acceptance (See Sec. 62). If Rando accepts, he becomes an acceptor and thus he
will be liable to pay the instrument.
Waiver
P15,000 6 October 2018
December 15, 2018.
To: Rando M. Dude

(Sgd) Dina Leligo
Let us assume that Rando does not accept the instrument on Dec. 15, 2018. The
instrument will then be dishonored by non-acceptance. In this case, Dina Leligo
(drawer) must be notified to make her liable (in accordance with Sec. 89).
Waiver
P15,000 6 October 2018
December 15, 2018.
To: Rando M. Dude

(Sgd) Dina Leligo
If no notice of dishonor is given to Dina Leligo, she will not be held liable to the
instrument. Thus, the provision requiring a notice of dishonor before the drawer
can be held liable is a provision that benefits the drawer. This provision may be
waived.
Waiver
P15,000 6 October 2018
Pay to Pedro or bearer, 15,000 pesos on December
15, 2018. Notice of dishonor is waived.
To: Rando M. Dude

(Sgd) Dina Leligo
In this case, Dina Leligo, the drawer, is waiving her right to a notice of dishonor. If
Rando will not accept the instrument on Dec. 15, 2018, Dina Leligo will be liable
even without a notice of dishonor given to her. This provision will not affect the
negotiability of the instrument.
Negotiability
at maturity; or
otherwise illegal.
Gives the holder an election to require something
to be done in lieu of payment of money.
• The holder may make a choice in lieu of payment of money.
• This is an exception to the rule that the negotiable instrument must
contain an obligation to pay a sum certain in money.
NOTE!!
• Sec. 5. Additional provisions not affecting negotiability. - An instrument
which contains an order or promise to do any act in addition to the
payment of money is not negotiable. But the negotiable character of an
instrument otherwise negotiable is not affected by a provision which:
(a) xxxx
(b) xxxx
(c) xxxx
(d) gives the holder an election to require something to be done in lieu of
payment of money.
otherwise illegal.
• If the stipulation gives the holder the option to require something to
be done in lieu of payment of money = does not affect negotiability.
• If the stipulation requires something to be done in addition to the
payment of money = not negotiable.
P15,000 6 October 2018
Pay to Pedro or bearer, 15,000 pesos on December 15,

2018 or deliver to him 15 horses from my stable, at the option
of the holder.
To: Rando M. Dude

(Sgd) Dina Leligo
This instrument contains one obligation with two objects in the alternative. The 1st
is to pay a sum certain in money (P15,000). The 2nd obligation contained in the
instrument is to deliver 15 horses. Note that the option is given to the holder.
P15,000 6 October 2018

of the holder.
To: Rando M. Dude

(Sgd) Dina Leligo
In this case, the holder may choose between payment of money OR delivery of the
horses. Note that the order to pay a sum certain in money is still not subject to a
condition.
P15,000 6 October 2018

of the holder.
To: Rando M. Dude

(Sgd) Dina Leligo
This provision will not affect the negotiability of the instrument.

P15,000 6 October 2018

2018 and deliver to him 15 horses from my stable.
To: Rando M. Dude

(Sgd) Dina Leligo
This instrument contains two obligations. But not in the alternative. Both the
obligations must be complied with because of the word “and.” Note that this
instrument is compliant with Sec. 1 of NIL. But because of Sec. 5, this instrument is
not negotiable.
P15,000 6 October 2018

2018 and deliver to him 15 horses from my stable.
To: Rando M. Dude

(Sgd) Dina Leligo
Sec. 5. An instrument which contains an order or promise to do any act in addition

to the payment of money is not negotiable.
• Thus:
• In lieu of payment at the option of holder (OR) = Negotiable!
• In addition to payment of money (AND) = Not Negotiable!

Negotiability
at maturity; or
otherwise illegal.
Omissions; Seal; Particular
Money
Omissions; Seal; Particular Money
• Sec. 6. Omissions; seal; particular money. - The validity and negotiable
character of an instrument are not affected by the fact that:
(a) it is not dated; or
(b) does not specify the value given, or that any value had been given
therefor; or
(c) does not specify the place where it is drawn or the place where it is
payable; or
(d) bears a seal; or
(e) designates a particular kind of current money in which payment is to be
made.
But nothing in this section shall alter or repeal any statute requiring in
certain cases the nature of the consideration to be stated in the instrument.
Omissions
(a) it is not dated; or (DATE)
therefor; or (CONSIDERATION)
payable; (PLACE)
Dates
• Sec. 11. Date, presumption as to. - Where the instrument or an
acceptance or any indorsement thereon is dated, such date is
deemed prima facie to be the true date of the making, drawing,
acceptance, or indorsement, as the case may be.
Not Dated
• Date of Payment
• Date of Issue
• Date of Acceptance
Date of Payment (due date)
• If the date of payment is not indicated, the instrument will be payable
on demand. (Sec. 7)
Presumption (Sec. 11)
• Sec. 11. Date, presumption as to. - Where the instrument or an
acceptance or any indorsement thereon is dated, such date is
deemed prima facie to be the true date of the making, drawing,
acceptance, or indorsement, as the case may be.
Date of Issue (Sec. 13)
• Not dated?
• Where an instrument is expressed to be payable at a fixed period after date is
issued undated, any holder may insert therein the true date of issue, and the
instrument shall be payable accordingly.
• The insertion of a wrong date does not avoid the instrument in the hands of a
subsequent holder in due course; but as to him, the date so inserted is to be
regarded as the true date.
• NOTE also that if an instrument is not dated, it will be considered
dated as of the time it was issued (This is why even if the date is
omitted, it will not affect the negotiability of the instrument). In this
case the holder may insert (indicate/write) the date of issue.
Date of Acceptance (Sec. 13)
• Not dated?
• Where the acceptance of an instrument payable at a fixed period after sight is
undated, any holder may insert therein the true date of acceptance, and the
instrument shall be payable accordingly.
• The insertion of a wrong date does not avoid the instrument in the hands of a
subsequent holder in due course; but as to him, the date so inserted is to be
regarded as the true date.
Ante-Dated / Post-Dated
• Sec. 12. Ante-dated and post-dated. - The instrument is not invalid for
the reason only that it is ante-dated or post-dated, provided this is
not done for an illegal or fraudulent purpose. The person to whom an
instrument so dated is delivered acquires the title thereto as of the
date of delivery.
• Example of illegal or fraudulent purpose:
• Ante-dating or post-dating to increase or decrease interest accrued on the
note or bill.
Omissions
payable; (PLACE)
Consideration
• Sec. 24. Presumption of consideration. - Every negotiable instrument
is deemed prima facie to have been issued for a valuable
consideration; and every person whose signature appears thereon to
have become a party thereto for value.
• That is why even if the consideration is not indicated in the

instrument, it will not affect the negotiability of the instrument
because it is already presumed.
Omissions
payable; (PLACE)
Place
• Where it is drawn
• Where it is payable
Where the instrument is drawn
• The place where the instrument is just not material to the
negotiability of the instrument. Omitting this detail will not make the
instrument non-negotiable.
Where the instrument is payable
• Sec. 73. Place of presentment. - Presentment for payment is made at the
proper place:
• (a) Where a place of payment is specified in the instrument and it is there
presented;
• (b) Where no place of payment is specified but the address of the person
to make payment is given in the instrument and it is there presented;
• (c) Where no place of payment is specified and no address is given and the
instrument is presented at the usual place of business or residence of the
person to make payment;
• (d) In any other case if presented to the person to make payment wherever
he can be found, or if presented at his last known place of business or
residence.
Where the instrument is payable
• Because of Sec. 73 (b), (c), and (d), an omission of place of payment
will not affect the negotiability of the instrument.
• (b) Residence (if indicated)
• (c) Usual place of business or residence
• (d) Where the person to make payment may be found
Omissions
payable; (PLACE)
therefor; or
payable; or
made.
Seal
• When an instrument bears a seal, it will not affect the negotiability of
an instrument.
• Seals are mere ornamentations of the instrument usually used for
advertisement.
FUN FACT
• polar BEARS feed mainly on ringed and bearded SEALS.
therefor; or
payable; or
made.
Particular kind of current money
• Designation of denomination will not affect the negotiability of the
instrument.
• EX: “I promise to pay Pedro Dela Cruz or bearer, P15,000.00 on January 15,
2019. I will make payment in the form of 150 pieces of 100 peso bills.”
• This is not a condition. This will not affect the negotiability of the instrument.
• vs. Exchange (Sec. 2) – Exchange speaks of two different currencies.
therefor; or
payable; or
made.
INTERPRETATION OF
NEGOTIABLE INSTRUMENTS
Interpretation
• Sec. 17. Construction where instrument is ambiguous. - Where the
language of the instrument is ambiguous or there are omissions
therein, the following rules of construction apply:
(a) Where the sum payable is expressed in words and also in figures and there is
a discrepancy between the two, the sum denoted by the words is the sum
payable; but if the words are ambiguous or uncertain, reference may be had to
the figures to fix the amount;
• WORDS > FIGURES

• Words are uncertain, reference may be had to the figures.
Interpretation
(b) Where the instrument provides for the payment of interest, without
specifying the date from which interest is to run, the interest runs from the date
of the instrument, and if the instrument is undated, from the issue thereof;
• With INTEREST, no date from which interest is to run = DATE OF INSTRUMENT.

• NO DATE OF INSTRUMENT? = DATE OF ISSUE.
Interpretation
(c) Where the instrument is not dated, it will be considered to be dated as of
the time it was issued;
• NO DATE OF INSTRUMENT? = DATE OF ISSUE.

Interpretation
(d) Where there is a conflict between the written and printed provisions of the
instrument, the written provisions prevail;
• WRITTEN > PRINTED

Interpretation
language of the instrument is ambiguous or there are omissions therein,
the following rules of construction apply:
(e) Where the instrument is so ambiguous that there is doubt whether it is a bill or
note, the holder may treat it as either at his election;
• Cannot determine if a bill or note? HOLDER may treat it as either.
• NOTE Sec. 130. When bill may be treated as promissory note. - Where in a bill the
drawer and drawee are the same person or where the drawee is a fictitious person
or a person not having capacity to contract, the holder may treat the instrument at
his option either as a bill of exchange or as a promissory note.
Interpretation
(f) Where a signature is so placed upon the instrument that it is not clear in
what capacity the person making the same intended to sign, he is to be deemed
an indorser;
• Signature, not clear in what capacity = indorser

Interpretation
(g) Where an instrument containing the word "I promise to pay“ is signed by
two or more persons, they are deemed to be jointly and severally liable
thereon.
• Promise to pay signed by two or more persons = SOLIDARY LIABILITY.

NEGOTIATION
Negotiation
• Sec. 30. What constitutes negotiation. - An instrument is negotiated
when it is transferred from one person to another in such manner as
to constitute the transferee the holder thereof. If payable to bearer, it
is negotiated by delivery; if payable to order, it is negotiated by the
indorsement of the holder and completed by delivery.
Negotiation
• Concept: An instrument is negotiated when it is transferred from one
person to another in such manner as to constitute the transferee the
holder thereof.
• NOT JUST AN ASSIGNEE OR A DEPOSITARY
• "Holder" means the payee or indorsee of a bill or note who is in

possession of it, or the bearer thereof; (Sec. 191)
Negotiation
• Manner of negotiation: If payable to bearer, it is negotiated by
delivery; if payable to order, it is negotiated by the indorsement of the
holder and completed by delivery.
• BEARER INSTRUMENT (payable to bearer) = negotiated by delivery

• ORDER INSTRUMENT (payable to order) = negotiated by indorsement
and completed by delivery
Bearer instrument but indorsed
• Sec. 40. Indorsement of instrument payable to bearer. - Where an
instrument, payable to bearer, is indorsed specially, it may
nevertheless be further negotiated by delivery; but the person
indorsing specially is liable as indorser to only such holders as make
title through his indorsement.
• IT WILL REMAIN A BEARER INSTRUMENT. (it may nevertheless be

further negotiated by delivery)
Bearer instrument but indorsed
• “but the person indorsing specially is liable as indorser to only such
holders as make title through his indorsement.”
• This will be discussed under the title “Liabilities”, but simply, this only means
that the indorser of a bearer instrument will be held liable as an indorser to
the person who acquired title through his indorsement.
• SEE sec. 65, 66, 67.
Kinds of Indorsement
• Special (Sec. 34)
• In blank (Sec. 34)
• Restrictive (Sec. 36)
• Qualified (Sec. 38)
• Conditional (Sec. 39)
Special Indorsement
• Sec. 34. Special indorsement; indorsement in blank. - A special
Special Indorsement
P15,000 6 October 2018
Pay to Pedro Dela Cruz or his order, 15,000
pesos on December 15, 2018.
To: Rando M. Dude

(Sgd) Dina Leligo
Face of the instrument. Pedro Dela Cruz is the Payee. He is the

one to indorse.
Special Indorsement
Back of the instrument. Pedro specifies Girlie as the indorsee,

and signs it. This is a special indorsement.
Indorsement In Blank
• Sec. 34. Special indorsement; indorsement in blank. - A special
Special Indorsement
P15,000 6 October 2018
Pay to Pedro Dela Cruz or his order, 15,000
pesos on December 15, 2018.
To: Rando M. Dude

(Sgd) Dina Leligo
Face of the instrument. Pedro Dela Cruz is the Payee. He is the

one to indorse.
Special Indorsement
To: _______________
Back of the instrument. Pedro specifies no indorsee, and signs it. This is an
indorsement in blank. This instrument is thus converted to a bearer
instrument. It can now be negotiated by delivery.
Restrictive Indorsement
• Sec. 36. When indorsement restrictive. - An indorsement is restrictive
which either:
(a) Prohibits the further negotiation of the instrument; or
(b) Constitutes the indorsee the agent of the indorser; or
(c) Vests the title in the indorsee in trust for or to the use of
some other persons.
But the mere absence of words implying power to negotiate
does not make an indorsement restrictive.
• Prohibits further negotiation of the instrument
To: Girlie Dela Amzona ONLY
Back of the instrument. Pedro specifies Girlie as indorsee, and also

restrictively indorsed the instrument by writing the word “only.”
• Prohibits further negotiation
To: Girlie Dela Amzona ONLY
In this case, the instrument ceases to be negotiable.

Remember:
Sec. 47. Continuation of negotiable character. - An instrument
negotiable in its origin continues to be negotiable until it has been
restrictively indorsed or discharged by payment or otherwise.
which either:
some other persons.
• Constitutes the indorsee the agent of the indorser

For collection only
Back of the instrument. Pedro specifies Girlie as an agent to collect the

amount payable. (Girlie cannot further negotiate the instrument without the
authority of Pedro)
which either:
some other persons.
• Vests the title in the indorsee in trust for or to the use of some other
persons.

In trust, for my Son Juan Dela Cruz
Back of the instrument. Pedro vests title to Girlie in trust for the benefit of
Juan. Girlie cannot further negotiate the bill, unless otherwise authorized.
which either:
some other persons.
• But the mere absence of words implying power to negotiate does not
make an indorsement restrictive.
• This means that the Negotiable Instuments Law favors negotiability. The party
who wishes to indorse restrictively must indicate it expressly.
Qualified Indorsement
• Sec. 38. Qualified indorsement. - A qualified indorsement constitutes
the indorser a mere assignor of the title to the instrument. It may be
made by adding to the indorser's signature the words "without
recourse" or any words of similar import. Such an indorsement does
not impair the negotiable character of the instrument.
• This form of indorsement limits the liability of the indorser, but will
not impair the negotiability of the instrument.
• Qualified indorsement

Sans Recourse/Without Recourse
The words “sans recourse” or “without recourse” qualifies the indorsement

made by Pedro.
• As a rule, an indorser has the following warranties: (Sec. 66 in relation to Sec. 65)
Every indorser who indorses without qualification, warrants to all subsequent
holders in due course:
1. That the instrument is genuine and in all respects what it purports to be;
2. That he has a good title to it;
3. That all prior parties had capacity to contract; ; and
4. That the instrument is, at the time of his indorsement, valid and subsisting;
And, in addition, he engages that, on due presentment, it shall be accepted or paid,
or both, as the case may be, according to its tenor, and that if it be dishonored and
the necessary proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent indorser who may be compelled to pay
it.
• Thus, a general indorser engages that he will pay the amount
indicated in the instrument.
• A qualified indorser on the other hand, DOES NOT!

• In case of a qualified indorsement, Sec. 65 will apply as to his warranties.
• Sec. 65. Warranty where negotiation by delivery and so forth. — Every
person negotiating an instrument by delivery or by a qualified
indorsement warrants:
1. That the instrument is genuine and in all respects what it purports to be;
2. That he has a good title to it;
3. That all prior parties had capacity to contract;
4. That he has no knowledge of any fact which would impair the validity of
the instrument or render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of
no holder other than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to a person
negotiating public or corporation securities other than bills and notes.
• Note that under Sec. 65, there is no engagement on the part of the
qualified indorser to pay the amount in case the instrument is
dishonored.
• THUS, his liability, is limited. (limited to his warranties under Sec. 65. If the
dishonor is based on any of the four warranties, then the qualified indorser is
still liable.)
• BUT REMEMBER: a qualified indorsement will limit the liability of the

indorser, but it will not affect the negotiability of the instrument.
Conditional Indorsement
• Sec. 39. Conditional indorsement. - Where an indorsement is
conditional, the party required to pay the instrument may disregard
the condition and make payment to the indorsee or his transferee
whether the condition has been fulfilled or not. But any person to
whom an instrument so indorsed is negotiated will hold the same, or
the proceeds thereof, subject to the rights of the person indorsing
conditionally.
• Note that this has nothing to do with the promise or order to pay. This will not
affect the negotiability of the instrument.
• Where an indorsement is conditional, the party required to pay the
instrument may disregard the condition and make payment to the
indorsee or his transferee whether the condition has been fulfilled or
not.
• Payor may disregard the condition imposed in the indorsement.

• Conditional Indorsement
P15,000 6 October 2018

I promise to pay Pedro Dela Cruz or his order,
15,000 pesos on or before January 15, 2019.
(Sgd) Dina Leligo

• Conditional Indorsement
To: Construction W. Orker

If Mr. Orker will finish the construction of
my house on December 15, 2018.
The indorsement is subject to a condition that Mr. Orker will

finish the construction of the house. Dina (maker), may
disregard this condition and pay Mr. Orker.
• But any person to whom an instrument so indorsed is negotiated will
hold the same, or the proceeds thereof, subject to the rights of the
person indorsing conditionally.
• This means that the holder will be the trustee of the conditional
indorser. In the example, Dina may pay Orker, even before the
construction of the house is done. If Dina pays, and the house was
not constructed, Orker will hold the amount (proceeds of the
instrument) for Pedro Dela Cruz. Because the indorsement was
subjected to the condition.
Striking Out of Indorsements
• Sec. 48. Striking out indorsement. - The holder may at any time strike
out any indorsement which is not necessary to his title. The indorser
whose indorsement is struck out, and all indorsers subsequent to
him, are thereby relieved from liability on the instrument.
• Example of an indorsement not necessary to the title of the holder:

Indorsement of a bearer instrument. In this case, the instrument can
be negotiated by mere delivery, thus the indorsement made is not
necessary to the title of the holder.
• Another example is when an instrument is negotiated back to a prior
party.
• Example of an instrument negotiated back to a prior party
P15,000 6 October 2018

(Sgd) Dina Leligo

To: Dina Capanti
(sgd) Pedro Dela Cruz
To: Dina Bergen

(sgd) Dina Capanti

(sgd) Dina Bergen
To: Dina Capanti

(sgd) Girlie Dela Amzona
• Dina Leligo issued to Pedro Dela Cruz
• Pedro Dela Cruz indorsed to Dina Capanti
• Dina Capanti indorsed to Dina Bergen
• Dina Bergen indorsed to Girlie Dela Amzona
• Girlie Dela Amzona indorsed to Dina Capanti
DINA LELIGO PEDRO DELA CRUZ DINA CAPANTI
GIRLIE DELA
DINA BERGEN
AMZONA
GIRLIE DELA
DINA BERGEN
AMZONA
Here, Dina Capanti may strike out the indorsement of Dina Bergen and Girlie
Dela Amzona, because it is not material to her title. It is as if it was still Pedro
Dela Cruz who indorsed it to her.
• Sec. 48. Striking out indorsement. - The holder may at any time strike
out any indorsement which is not necessary to his title. The indorser
whose indorsement is struck out, and all indorsers subsequent to
him, are thereby relieved from liability on the instrument.
• Effect of striking out of indorsements: the indorser whose

indorsement is struck out, and all indorsers subsequent to him, are
thereby relieved from liability on the instrument.
• If a party will strike out an indorsement which is necessary to his title,
it will be considered an alteration of the instrument.
• Sec. 124. Alteration of instrument; effect of. - Where a negotiable

instrument is materially altered without the assent of all parties liable
thereon, it is avoided, except as against a party who has himself
made, authorized, or assented to the alteration and subsequent
indorsers.
Negotiated Back to Prior Party
• Sec. 50. When prior party may negotiate instrument. - Where an
instrument is negotiated back to a prior party, such party may, subject
to the provisions of this Act, reissue and further negotiate the same.
But he is not entitled to enforce payment thereof against any
intervening party to whom he was personally liable.
• Where an instrument is negotiated back to a prior party, such party
may, subject to the provisions of this Act, reissue and further
negotiate the same.
• But he is not entitled to enforce payment thereof against any

P15,000 6 October 2018

(Sgd) Dina Leligo

To: Dina Capanti
To: Dina Bergen

(sgd) Dina Capanti

(sgd) Dina Bergen
To: Dina Capanti

• Dina Leligo issued to Pedro Dela Cruz
• Pedro Dela Cruz indorsed to Dina Capanti
• Dina Capanti indorsed to Dina Bergen
• Dina Bergen indorsed to Girlie Dela Amzona
• Girlie Dela Amzona indorsed to Dina Capanti
GIRLIE DELA
DINA BERGEN
AMZONA
GIRLIE DELA
DINA BERGEN
AMZONA
Here, the instrument is negotiated back to a prior party (Dina Capanti). The NIL
provides that Dina Capanti can still negotiate the instrument.
• Thus Dina Capanti can still negotiate the instrument.
To: Dina Capanti
To: Dina Bergen

(sgd) Dina Capanti

(sgd) Dina Bergen
To: Dina Capanti

To: Facundo May-as

(sgd) Dina Capanti
• In this case, Facundo is now the holder. If the instrument will be
presented by Facundo for payment to Dina Leligo (maker), she must
pay Facundo.
• If Dina Leligo does not pay, Facundo may serve a notice of dishonor to
the indorsers to make them liable.
• Sec. 89. To whom notice of dishonor must be given. - Except as herein
otherwise provided, when a negotiable instrument has been
dishonored by non-acceptance or non-payment, notice of dishonor
must be given to the drawer and to each indorser, and any drawer or
indorser to whom such notice is not given is discharged.
• Sec. 68. Order in which indorsers are liable. - As respect one another,
indorsers are liable prima facie in the order in which they indorse;
• This is applicable among the indorsers. But not to the holder. The
holder may enforce payment (upon serving a notice of dishonor) from
any of the indorsers.
• Thus Dina can still negotiate the instrument.
To: Dina Capanti
To: Dina Bergen

(sgd) Dina Capanti

(sgd) Dina Bergen
To: Dina Capanti

To: Facundo May-as

(sgd) Dina Capanti
• All of the indorsers are liable to Facundo May-as;
• Girlie Dela Amzona is liable to Dina Capanti;
• Dina Bergen is liable to Girlie Dela Amzona;
• Dina Capanti is liable to Dina Bergen;
• Pedro Dela Cruz is liable to Dina Capanti;
• Dina Leligo is liable to Pedro Dela Cruz.
• NOTE: Provided that they are all the indorsers are given the appropriate notices of dishonor.
• If Facundo gives a notice of dishonor to Dina Capanti (the one who
indorsed the instrument to him), Dina Capanti is liable to pay based
on her warranties under Sec. 65.
• Dina Capanti can then seek reimbursement from the prior indorsers,
provided she gives them notices of dishonor.
• BUT!!! Note Sec. 50!!!

• Sec. 50. When prior party may negotiate instrument. - Where an
instrument is negotiated back to a prior party, such party may, subject
to the provisions of this Act, reissue and further negotiate the same.
GIRLIE DELA
DINA BERGEN
AMZONA
Remember that Dina Capanti is a prior party under Sec. 50.

GIRLIE DELA
DINA BERGEN
AMZONA
Thus, she is not entitled to enforce payment thereof against any intervening party to whom he
was personally liable. This means that Dina Capanti cannot enforce payment of the instrument
against Dina Bergen and Girlie Dela Amzona (intervening parties).
• The reason for this rule is to prevent multiplicity of suits.
• IF Dina Capanti can enforce payment against the intervening parties,

the same intervening parties can enforce payment against her being a
prior indorser in relation to them.
• This is the result if Sec. 50 does not exist: Facundo enforces payment from
Capanti, Capanti enforces payment from Dela Amzona, Dela Amzona enforces
payment from Bergen, Bergen enforces payment from Capanti, Capanti
enforces payment from Dela Cruz.
• Because Sec. 50 exists, this is the result: Facundo enforces payment from
Capanti, Capanti enforces payment from Dela Cruz. Capanti cannot enforce
payment from the intervening parties (Dela Amzona and Bergen)
• Let us dissect it further:
• This means that if the “prior party” is not personally liable to the
intervening party, he can enforce payment.
• How does this happen? IF the prior party made a qualified indorsement, his
liability is limited. Thus, if the reason for the dishonor does not relate to a
qualified indorser’s warranties (Sec. 65) then, he may enforce payment,
because the reason behind the disallowance of enforcement of payment
under Sec. 50 does not exist.
• Dina Capanti makes a qualified indorsement to Dina Bergen
To: Dina Capanti
To: Dina Bergen, without recourse

(sgd) Dina Capanti

(sgd) Dina Bergen
To: Dina Capanti

To: Facundo May-as

(sgd) Dina Capanti
• When Facundo presents for payment, Dina Leligo was not able to pay due
to her insolvency.
• Facundo then serves a notice of dishonor to Dina Capanti by reason of this
dishonor by non-payment.
• Dina Capanti a GENERAL indorser as to Facundo May-as is liable to pay
because of her warranty under Sec. 66.
• Dina Capanti then serves a notice of dishonor to Girlie Dela Amzona and
required Girlie to reimburse her of what she paid to Facundo.
• Girlie then argues that she cannot be held liable by Dina Capanti because
Dina Capanti is a prior party, and Girlie is an intervening party. She cites
Sec. 50 of the NIL. is Girlie correct?
No, Girlie is not correct in refusing to pay Dina Capanti based on Sec. 50 of the NIL.
Under the NIL, a prior party can enforce payment from an intervening party to
whom he is not personally liable.
Under the same law, a qualified indorser has limited liability when it comes to his
indorsement. A qualified indorser does not engage to pay an instrument when it is
dishonored by non-payment on the ground of insolvency.
Here, Dina Capanti indorsed to Dina Bergen in a qualified manner by writing
“without recourse” in her indorsement. Dina Capanti is thus not liable to pay Dina
Bergen or her subsequent indorsees in case the instrument is dishonored by reason
of the insolvency of the maker. Girlie Dela Amzona will be bound by such qualified
indorsement made by Dina Capanti, thus Dina Capanti is not personally liable to
Girlie in this case.
Dina Capanti not being personally liable to Girlie Dela Amzona, she may then
enforce payment from her, because Sec. 50 of the NIL is not applicable to them.
HOLDERS
Concept of a Holder
• "Holder" means the payee or indorsee of a bill or note who is in
possession of it, or the bearer thereof;
Rights of a Holder
• Sec. 51. Right of holder to sue; payment. - The holder of a negotiable
instrument may to sue thereon in his own name; and payment to him
in due course discharges the instrument.
1. Sue thereon in his own name (not in a representative capacity);

2. Payment in due course made to the holder will discharge the
instrument.
Holder in Due Course
• Sec. 52. What constitutes a holder in due course. - A holder in due
course is a holder who has taken the instrument under the following
conditions:
• (a) That it is complete and regular upon its face;
• (b) That he became the holder of it before it was overdue, and without notice
that it has been previously dishonored, if such was the fact;
• (c) That he took it in good faith and for value;
• (d) That at the time it was negotiated to him, he had no notice of any infirmity
in the instrument or defect in the title of the person negotiating it.
• Presumption: every holder is presumed to be a HDC.
• Sec. 59. Who is deemed holder in due course. - Every holder is deemed prima
facie to be a holder in due course; but when it is shown that the title of any
person who has negotiated the instrument was defective, the burden is on
the holder to prove that he or some person under whom he claims acquired
the title as holder in due course. But the last-mentioned rule does not apply
in favor of a party who became bound on the instrument prior to the
acquisition of such defective title.
Rights of a Holder in Due Course
• Sec. 57. Rights of holder in due course. - A holder in due course holds
the instrument free from any defect of title of prior parties, and free
from defenses available to prior parties among themselves, and may
enforce payment of the instrument for the full amount thereof
against all parties liable thereon.
• He may sue on the instrument in his own name.
• He may receive payment and if payment is in due course, the
instrument is discharged.
• Holds the instrument free from any defect of title of prior parties.
• Holds the instrument free from any defenses available to prior parties
among themselves.
• May enforce payment of the instrument for the full amount thereof
against all parties liable thereon.
Real Defenses (valid against a HDC) Personal Defenses (not valid against a HDC)
Examples: Examples:
1. Alteration 1. Absence or failure of consideration
2. Non-delivery of incomplete instrument (incomplete and undelivered) 2. Want of delivery of a complete instrument (complete but underlivered)
3. Duress amounting to forgery (when signature is acquired by duress) 3. Insertion of a wrong date in an instrument
4. Fraud in factum 4. Filling up of blank contrary to authority given or not within reasonable time,
5. Minority where the instrument is delivered. (incomplete but delivered)
6. Ultra vires acts of a corporation(absolutely prohibited) 5. Fraud in inducement
7. Want of authority of an agent 6. Acquisition of instrument by unlawful means
8. Forgery 7. Acquisition of instrument by force, duress or fear
9. Prescription 8. Acquisition of the instrument for an illegal consideration
10. Discharge in insolvency 9. Negotiation in breach of faith
10. Negotiation under circumstances amounting to fraud
11. Mistake
12. Intoxication
13. Ultra vires acts of a corporation (not prohibited to issue, but no authority to
issue for the particular instance)
14. Want of authority of agent where he has apparent authority
15. Insanity where there is no notice of insanity on the part of the one
contracting with the insane person
16. Illegality of contract where the form or consideration is illegal.
• Defenses will be discussed after the midterms.
• Sec. 52. What constitutes a holder in due course. - A holder in due
course is a holder who has taken the instrument under the following
conditions:
• (a) That it is complete and regular upon its face;
• (b) That he became the holder of it before it was overdue, and without notice
that it has been previously dishonored, if such was the fact;
• (c) That he took it in good faith and for value;
• (d) That at the time it was negotiated to him, he had no notice of any infirmity
in the instrument or defect in the title of the person negotiating it.
• All conditions must be present for a person to be considered a HDC.
That it is complete and regular upon its face
• An instrument is complete if it is not lacking in any material particular.
• An instrument wanting in any material particular is an incomplete instrument.
Omissions of provisions not important to the instrument will not render it
incomplete.
• The instrument must also be regular upon its face. If it has any
alteration, tampering, or erasures, which is apparent on its face, then
it will give the holder a warning that the instrument is not regular.
That he became the holder of it before it was overdue,
and without notice that it has been previously
dishonored, if such was the fact;
• An instrument is overdue:
1. At the time fixed in the instrument if any;
2. If payable on demand, then it is overdue upon presentment. It must be
presented within a reasonable time upon its issuance. After the lapse of
such reasonable time, the instrument is deemed overdue.
3. If payable on a determinable future time, then after that future time has
arrived.
• To be a HDC, the holder must become such before the instrument

becomes overdue.
That he became the holder of it before it was overdue,
and without notice that it has been previously
dishonored, if such was the fact;
• Sec. 53. When person not deemed holder in due course. - Where an
instrument payable on demand is negotiated on an unreasonable
length of time after its issue, the holder is not deemed a holder in
due course.
That he took it in good faith and for value;
• To determine good faith all the circumstances surrounding the case

will be considered. It is a case to case basis.
• Note that good faith is presumed.
• The holder must also take the instrument for value. This means that
he gave a consideration for the instrument.
That at the time it was negotiated to him, he had no
notice of any infirmity in the instrument or defect in the
title of the person negotiating it.
• Note that it is determined at the time the instrument was negotiated.
• if the holder will have notice after he already acquired the instrument, then
he can still be considered a HDC. But note Sec. 54.
• Sec. 54. Notice before full amount is paid. - Where the transferee receives
notice of any infirmity in the instrument or defect in the title of the person
negotiating the same before he has paid the full amount agreed to be paid
therefor, he will be deemed a holder in due course only to the extent of the
amount therefore paid by him.
• Examples of infirmity in the instrument:
• Forgery
• Material alteration
• Filling up without the authority
• Sec. 55. When title defective. - The title of a person who negotiates
an instrument is defective within the meaning of this Act when he
obtained the instrument, or any signature thereto, by fraud, duress,
or force and fear, or other unlawful means, or for an illegal
consideration, or when he negotiates it in breach of faith, or under
such circumstances as amount to a fraud.
That at the time it was negotiated to him, he had
no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.
• Sec. 56. What constitutes notice of defect. - To constitutes notice of
an infirmity in the instrument or defect in the title of the person
negotiating the same, the person to whom it is negotiated must have
had actual knowledge of the infirmity or defect, or knowledge of
such facts that his action in taking the instrument amounted to bad
faith.
Shelter Rule
• Sec. 58. When subject to original defense. - In the hands of any holder
other than a holder in due course, a negotiable instrument is subject
to the same defenses as if it were non-negotiable. But a holder who
derives his title through a holder in due course, and who is not
himself a party to any fraud or illegality affecting the instrument,
has all the rights of such former holder in respect of all parties prior
to the latter.
Shelter Rule
• A holder who is a holder not in due course will be considered a holder
in due course.
• Provided:
1. He derives his title from a HDC;
2. He is not a party to any fraud or illegality affecting the instrument.
• He has all the rights of the HDC in respect of all parties prior to the
HDC where he derived his title.

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Negotiable Instruments Law LECTURE MIdterms

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Negotiable Instruments Law

(Act No. 2031)

What is meant by “negotiable”?

• Drawer if a Bill of Exchange

• Any kind of signature will do

• “sum certain in money” means the amount payable must be

P15,000 6 October 2018

(Sgd) Dina Leligo

Promise to pay is not subject to any condition, thus negotiable.

To: Rando M. Dude

Order to pay is not subject to any condition, thus negotiable.

P15,000 6 October 2018

(Sgd) Dina Leligo

Promise to pay is subject to a condition (if it rains today), thus

P15,000 6 October 2018

(Sgd) Dina Leligo

Still subject to the same condition even if it contains the word

P15,000 6 October 2018

(Sgd) Dina Leligo

What happens if it rains? Will it now be negotiable?

P15,000 6 October 2018

(Sgd) Dina Leligo

P15,000 6 October 2018

(Sgd) Dina Leligo

This is not negotiable, because the promise to pay is subject to

But an order or promise to pay out of a particular fund is not unconditional.

• Promise or order is conditional: (not negotiable)

P15,000 6 October 2018

Pay to the order of Pedro Dela Cruz, 15,000 pesos and

To: Rando M. Dude

P15,000 6 October 2018

Pay to the order of Pedro Dela Cruz, 15,000 pesos out of my

To: Rando M. Dude

P15,000 6 October 2018

P15,000 6 October 2018

(Sgd) Dina Leligo

P15,000 6 October 2018

P15,000 remains certain even if with interest.

P15,000 6 October 2018

P15,000 6 October 2018

I promise to pay to the order of Pedro 15,000 pesos by

(Sgd) Dina Leligo

Note that if payable on installments, the instrument must include the

I promise to pay to the order of Pedro 15,000 pesos in three

(Sgd) Dina Leligo

Still negotiable. “equal installments” will make the amount certain.

I promise to pay to the order of Pedro 15,000 pesos by

(Sgd) Dina Leligo

I promise to pay to the order of Pedro 15,000 pesos by installment as follows:

(Sgd) Dina Leligo

“If I cannot pay…” is not a condition, but a stipulation to make the

• Note: agreeing without fixing = current rate.

I promise to pay to the order of Pedro the sum of $15,000 in

(Sgd) Dina Leligo

I promise to pay to the order of Pedro the sum of $15,000 in

(Sgd) Dina Leligo

I promise to pay to the order of Pedro the sum of P15,000 on