Negotiable Instruments Notes: Form And

Interpretation (Sec. 1 - 8)
THE NEGOTIABLE INSTRUMENTS LAW

I. FORM AND INTERPRETATION

  
*Section 1. Form of negotiable instruments. - An instrument to be
negotiable must conform to the following requirements: (Always step 1
because it determines what law is applicable) (WUPPA)
(a) It must be in writing and signed by the maker or drawer; 
 at least the surname should appear and generally the signature (It
may consist of mere initials or even numbers)

 where the name is NOT signed, the HOLDER must prove that what is
written is intended as a signature of the person sought to be charged

 how signature may be written: (must be shown to have been adopted

& used by the party as his signature)

 printed

 typewritten

 stamped

 engraved

 photographed

 lithographed

 Location of signature: NOT material; usually written at the bottom

right hand corner

(b) Must contain an unconditional promise or order to pay a sum certain in

money; 
 Bill
 Order (NOT mere authority to pay nor request)

 may be equivalent

 mere words of civility (i.e. will oblige, by paying) -

negotiable

 Note

 Promise

 may be 

 equivalent (i.e. agree,shall pay,will pay); or 

 implied (i.e. good to, payable on demand)

 BUT may not be implied from the mere

existence of a debt

 sum certain - ascertainable by mere mathematical computation

 money - NOT bonds, corp. stock, state paper, scrip, checks, foreign
bills, treasury certs. 

 Legal Tender in the Philippines (compels creditor to accept)

 However: certified checks such as managers check may be

similarly situated

 Redemption by manager's check were accepted or NOT

accepted to on that ground = VALID

 may be in foreign money BUT must specify denomination (NOT

an invariable rule)

 rate prevailing at the time of payment (RA 529)

 only agreement and NOT the claim can be void

(c) Must be payable on demand, or at a fixed or determinable future time;   

 (d) Must be payable to order or to bearer; and
 order - equivalent 

 assigns

 assignees

 holder

 on return of this certificate properly indorsed (implies

indorsement)

 bearer 

 equivalent: possesor

 bearer + specified person - NOT negotiable because modifier

only

(e) Where the instrument is addressed to a drawee, he must be named or

otherwise indicated therein with reasonable certainty. - additional req. for
bill 
 may be filled under iimplied authority 

Importance of formalities: to distinguish from non-negotiable insturments

 Negotiable - apply negotiable instruments law

Determination o negotiability:
1. apply provisions especially Sec. 1 above

2. consider instrument as a whole

3. what appear on the face and NOT elsewhere

*Sec. 2. What constitutes certainty as to sum. - The sum payable is a sum

certain within the meaning of this Act, although it is to be paid:
(a) with interest; or 
 silent: legal rate from time of judicial or extrajudicial demand

 Escalation clause is valid if there is deescalation clause

 Escalation clause - stipulate that the rate of interest agreed upon

may be increased in the event that the applicable maximum rate of
interest is increase by law or by the Monetary Board

 Deescalation clause - stipulate that the rate of interest agreed

upon may be reduced in the event that the applicable maximum rate of
interest is decreased by law or by the Monetary Board

(b) by stated installments; or

 each installment maturity should be known

(c) by stated installments, with a provision that, upon default in payment of

any installment or of interest, the whole shall become due; or  (w/
acceleration clause)   (d) with exchange, whether at a fixed rate or at the
current rate; or 
 exchange - difference in value of the same amount of money in diff.
countries (only for foreign bills)

 may be at

2.           current rate 
3.           fixed rate
(e) with costs of collection or an attorney's fee, in case payment shall not be
made at maturity.
 Attorney's fee 

 need NOT be a sum certain

 must be reasonable

 if silent: NOT recoverable

Overdue instrument - NOT fully negotiable - holder NOT holder in due course
*Sec. 3. When promise is unconditional. - An unqualified order or promise to
pay is unconditional within the meaning of this Act though 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 
 Fund for reimbursement (absolutely payable and should NOT be from a
restricted fund)

 drawee pays the payee from his own funds

 afterwards, drawee pays himself from the particular fund

indicated

 Payment -direct source

 drawee pays directly from the particular fund indicated - NOT

negotiable - conditional upon the sufficiency of the funds

(b) A statement of the transaction which gives rise to the instrument.

 Example:

 as per contract notes

 chattel notes

 conditional sales agreement

 reference to mortgages

 EX: in the note itself or part of the note - non-negotiable

bec. uncertainty of amount

 Subject to terms and conditions of the transaction stated = non-

negotiable

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

 as long as absolutely requires to pay
*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.
An instrument payable upon a contingency is not negotiable, and the
happening of the event does not cure the defect.

*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:

GR: Order or promise to any act in addition to the payment of money = non-
negotiable
EX: (CCWH)
(a) authorizes the sale of collateral securities in case the instrument be not
paid at maturity; or  (merely accelerable = negotiable)
GR: promise of the maker to furnish additional security (additional act to the
promise to pay in money) = non-negotiable 
(b) authorizes a confession of judgment if the instrument be not paid at
maturity; or   
2 kinds of confession: 
1. Cognovit actionem (NOTE: differs from warrant of attorney)

 written confession of an action by a defendant, subscribed, but not

sealed, and irrevocably authorizing any attorney of any court of record to
confess judgment and issue execution usually for a sum named

 given in order to save expense 

      2.  Confesion relicta verificatione

 confession of judgment made after plea is pleaded, such as cognovit
actionem, accompanied by a withdrawal of a plea

      *Warrant of attorney 
 instrument in writting addressed to 1 or more attorneys named
therein, authorizing them, generally, to appear in any court, or in some
specified court on behalf of the person giving it, and to confess judgment
in favor of some particular person therein named in an action of debt

 Effect of confession of judgment in the Phils. = VOID as against public

policy - because:

 they enlarged the field for fraud

 under this instrument, the promissor bargains away his right to a

day in court

 the effect of the instrument is to strike down the right of appeal

accorded by statute

(c) waives the benefit of any law intended for the advantage or protection of
the obligor; or   
 benefits or protection of the obligor that may be waived:

1. presentment of payment

2. notice of dishonor

3. protest

(d) gives the holder an election to require something to be done in lieu of

payment of money.
 it has to be the holder's option and not the drawee

 Example: pay to A or order money or property at the option of the

holder (negotiable) vs. I promise to pay A or order money or
property (non-negotiable)

But nothing in this section shall validate any provision or stipulation

otherwise illegal.
NOTE: (b) is still void bec. of this
 Test of negotiability: If the promise would give rise to a cause of action
for breach of contract if the additional act is NOT done = non-negotiable

*Sec. 6. Omissions; seal; particular money. - The validity and negotiable

character of an instrument are not affected by the fact that: (DVPSC)
 If payment on demand, statute of limitations begin immediately 

(a) it is not dated; or   

 However, there are cases where the date is necessary to fix the
maturity date

(b) does not specify the value given, or that any value had been given
therefor; or   
 consideration is presumed

(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.
 contract that foreign currency has fixed value in relation to the money
of the country in w/c the instrument is payable but no such contract
exists in the Phils.

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.

*Sec. 7. When payable on demand. - An instrument is payable on demand:

(a) When it is so expressed to be payable on demand, or at sight, or on
presentation; or   
 at sight - not ordinarily used in promissory note since for presentment

(b) In which no time for payment is expressed. (payable in demand)

 when blank for time for payment unfilled- may be filled under
incomplete intruments Sec 14,15 or 16
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.

 only as to immediate parties

*Sec. 8. When payable to order. - The instrument is payable to order where

it is drawn payable 

1. to the order of a specified person or (order - designated by him)

2. to him or his order. 

It may be drawn payable to the order of: (PJS-D2MH)

(a) A payee who is not maker, drawer, or drawee; or  
(b) The drawer or maker; or   (acceptor in favor of drawer)
(c) The drawee; or   
(d) Two or more payees jointly; or (and)
(e) One or some of several payees; or (or)
(f)  The holder of an office for the time being. (Example: cashier of co.)
Where the instrument is payable to order, the payee must be named or
otherwise indicated therein with reasonable certainty. 
GR: name of payee unfilled = non-nego
EX: incomplete under Sec. 13-15 depending on how it was delivered

Sec. 9. When payable to bearer. - The instrument is payable to 

bearer:chanroblesvirtuallawlibrary
(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. 10. Terms, when sufficient. - The instrument need not follow the
language of this Act, but any terms are sufficient which clearly indicate an
intention to conform to the requirements hereof. 

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.  chanrobles law 

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. 

Sec. 13.  When date may be inserted. - Where an instrument expressed to

be payable at a fixed period after date is issued undated, or where the
acceptance of an instrument payable at a fixed period after sight is undated,
any holder may insert therein the true date of issue or 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. 

Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in

any 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 into a negotiable instrument operates as a prima
facie authority to fill it up as such for any amount. In order, however, that
any such instrument when completed may be enforced against any person
who became a party thereto prior to its completion, it must be filled up
strictly in accordance with the authority given and within a reasonable time.
But if any such instrument, after completion, is negotiated to a holder in due
course, it is valid and effectual for all purposes in his hands, and he may
enforce it as if it had been filled up strictly in accordance with the authority
given and within a reasonable time. 

Sec. 15. Incomplete instrument not delivered. - Where an incomplete

instrument has not been delivered, it will not, if completed and negotiated
without authority, be a valid contract in the hands of any holder, as against
any person whose signature was placed thereon before delivery. 

Sec. 16. Delivery; when effectual; when presumed. - Every contract on a

negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. As between immediate
parties and as regards a remote party other than a holder in due course, the
delivery, in order to be effectual, must be made either by or under the
authority of the party making, drawing, accepting, or indorsing, as the case
may be; and, in such case, the delivery may be shown to have been
conditional, or for a special purpose only, and not for the purpose of
transferring the property in the instrument. But where the instrument is in
the hands of a holder in due course, a valid delivery thereof by all parties
prior to him so as to make them liable to him is conclusively presumed. And
where the instrument is no longer in the possession of a party whose
signature appears thereon, a valid and intentional delivery by him is
presumed until the contrary is proved. 

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:chanroblesvirtuallawlibrary
(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; 

(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; 

(c) Where the instrument is not dated, it will be considered to be dated as of

the time it was issued; 

(d) Where there is a conflict between the written and printed provisions of
the instrument, the written provisions prevail; 

(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; 

(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; 

(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.
Sec. 18. Liability of person signing in trade or assumed name. - No person is
liable on the instrument whose signature does not appear thereon, except as
herein otherwise expressly provided. But one who signs in a trade or
assumed name will be liable to the same extent as if he had signed in his
own name. 

Sec. 19. Signature by agent; authority; how shown. - The signature of any

party may be made by a duly authorized agent. No particular form of
appointment is necessary for this purpose; and the authority of the agent
may be established as in other cases of agency. 

Sec. 20. Liability of person signing as agent, and so forth. - Where the

instrument contains or a person adds to his signature words indicating that
he signs for or on behalf of a principal or in a representative capacity, he is
not liable on the instrument if he was duly authorized; but the mere addition
of words describing him as an agent, or as filling a representative character,
without disclosing his principal, does not exempt him from personal liability. 

Sec. 21. Signature by procuration; effect of. - A signature

by "procuration" operates as notice that the agent has but a limited
authority to sign, and the principal is bound only in case the agent in so
signing acted within the actual limits of his authority. 

Sec. 22. Effect of indorsement by infant or corporation.- The indorsement or

assignment of the instrument by a corporation or by an infant passes the
property therein, notwithstanding that from want of capacity, the
corporation or infant may incur no liability thereon. 

Sec. 23. Forged signature; effect of. - When a signature is forged or made

without the authority of the person whose signature it purports to be, it is
wholly inoperative, and no right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against any party thereto,
can be acquired through or under such signature, unless the party against
whom it is sought to enforce such right is precluded from setting up the
forgery or want of authority. 
II. 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. 

Sec. 25. Value, what constitutes. — Value is any consideration sufficient to

support a simple contract. An antecedent or pre-existing debt constitutes
value; and is deemed such whether the instrument is payable on demand or
at a future time. 

Sec. 26. What constitutes holder for value. - Where value has at any time
been given for the instrument, the holder is deemed a holder for value in
respect to all parties who become such prior to that time. 
Sec. 27. When lien on instrument constitutes holder for value. — Where the
holder has a lien on the instrument arising either from contract or by
implication of law, he is deemed a holder for value to the extent of his lien. 

Sec. 28. Effect of want of consideration. - Absence or failure of consideration

is a matter of defense as against any person not a holder in due course; and
partial failure of consideration is a defense pro tanto, whether the failure is
an ascertained and liquidated amount or otherwise. 

Sec. 29. Liability of accommodation party. - An accommodation party is one

who has signed the instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the purpose of lending his name to
some other person. Such a person is liable on the instrument to a holder for
value, notwithstanding such holder, at the time of taking the instrument,
knew him to be only an accommodation party. 
III. 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. 

Sec. 31. Indorsement; how made. - The indorsement must be written on the

instrument itself or upon a paper attached thereto. The signature of the
indorser, without additional words, is a sufficient indorsement. 

Sec. 32. Indorsement must be of entire instrument. - The indorsement must

be an indorsement of the entire instrument. An indorsement which purports
to transfer to the indorsee a part only of the amount payable, or which
purports to transfer the instrument to two or more indorsees severally, does
not operate as a negotiation of the instrument. But where the instrument
has been paid in part, it may be indorsed as to the residue. 

Sec. 33. Kinds of indorsement. - An indorsement may be either special or in

blank; and it may also be either restrictive or qualified or conditional. 
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. 

Sec. 35. Blank indorsement; how changed to special indorsement. - The

holder may convert a blank indorsement into a special indorsement by
writing over the signature of the indorser in blank any contract consistent
with the character of the indorsement.