When is an instrument payable to order?
signature of the indorser , without additional words,
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.
When is an instrument 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.
What is the Fictitious Payee Rule?
This is a rule that is applied to a negotiable
instrument if the payee is not really fictitious but is
considered fictitious under certain circumstances.
If the payee is not the intended recipient of the
proceeds of the instrument, then the payee is
considered a fictitious payee, and the instrument
will be a bearer instrument.
How can an order instrument be negotiated?
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.
How can a holder indorse the instrument?
The indorsement must be written on the instrument
itself or upon a paper attached thereto. The
is a sufficient indorsement.
What is a special indorsement?
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.
What is a blank indorsement?
An indorsement in blank specifies no indorsee, and
an instrument so indorsed is payable to bearer, and
may be negotiated by delivery.
What are the differences between an order
instrument and a bearer instrument?
In an order instrument, the payee must be named or
indicated therein with reasonable certainty. In a
bearer instrument, the payee need not be named.
An order instrument is negotiated by indorsement
by the holder and completed by delivery. A bearer
instrument is negotiated by delivery.
An order instrument, if indorsed in blank is
converted to a bearer instrument, while a bearer
instrument in its origin cannot be converted to an
order instrument.
What is the additional requirement for
negotiability of a bill of exchange?
Where the instrument is addressed to a drawee, he
must be named or otherwise indicated therein with
reasonable certainty.
Note: that this is only applicable to a bill of
exchange because only bills of exchange have
drawees in the NIL.
What is a bill of exchange?
A bill of exchange is an unconditional order in
writing addressed by one person to another, signed
by the person giving it, requiring the person to
whom it is addressed to pay on demand or at a fixed
or determinable future time a sum certain in money
to order or to bearer.
What are the distinctions between Sec. 1 (e) and
the last sentence of Sec. 8?
Sec. 1 (e) Where the Last sentence of Sec. 8
instrument is addressed Where the instrument is
to a drawee, he must be payable to order, the
named or otherwise payee must be named or A confession of judgment in relation to negotiable
indicated therein with otherwise indicated instruments is a provision in the instrument where
reasonable certainty therein with reasonable the maker or the drawer authorizes a confession on
certainty. his or her liability.
Purpose is to allow the Purpose is to allow the
payee or indorsee to drawee to determine to What are the three kinds of confession of judgment?
know to whom to whom payment is to be Warrant of Attorney; Cognovit Actionem; Relita
present the instrument made, or to whose order. Verificatione
for payment. Moreover, an order What is a warrant of attorney?
instrument is negotiated A warrant of attorney is a confession of judgment
by indorsement and made before an action is filed in court.
delivery and the payee is
the 1st one to indorse the This provision is void because it enlarges the field
instrument. of fraud. It denies a party his day in court, and
If drawee is not named If the payee is not deprives a party his statutory right to appeal. If a
nor indicated with named nor indicated warrant of attorney is contained in a note, just
reasonable certainty, the with reasonable disregard the stipulation because it is void. It will
instrument is not certainty, then it is not not affect the negotiability of the instrument
negotiable, for lack of an negotiable for lack of an because n egotiability does not depend on the
essential element of essential element of validity of the instrument or its stipulations.
negotiability under Sec. negotiability under Sec.
1 (e) 1 (d) What is a Cognovit Actionem
This applies to Bills of This applies to It is a c onfession made when there is a case filed or
Exchange only. Promissory Notes and is pending in court. This confession is valid. If the
Bills of Exchange. confession is unreasonable, the court will decide if
Drawee must be named Payee must be named or it is reasonable or not.
named or otherwise otherwise indicated with
indicated with reasonable certainty. What is a Relicta Verificatione
reasonable certainty. It is a confession made when the party will deny
liability by setting up a defense in his answer but
What are additional provisions in an instrument later on, he will abandon such defense. When a
that will not affect negotiability? party abandons his answer or defense, in effect he is
Sec. 5. Additional provisions not affecting confessing judgment. This is also valid.
negotiability. An instrument which contains an
order or promise to do any act in addition to the What happens to the negotiability of the
payment of money is not negotiable. But the instrument if the holder is given the option to
negotiable character of an instrument otherwise require something to be done in lieu of payment
negotiable is not affected by a provision which: of money?
(a) authorizes the sale of collateral securities in case The option will not affect the negotiability of the
the instrument be not paid at maturity; or instrument. If the option is given to the maker, then
(b) authorizes a confession of judgment if the the promise to pay a sum certain in money is no
instrument be not paid at maturity; or longer unconditional. The maker can decide if he or
(c) waives the benefit of any law intended for the she will pay a sum certain in money or deliver the
advantage or protection of the obligor; or alternative obligation.
(d) gives the holder an election to require something
to be done in lieu of payment of money. What are the omissions in the negotiable
But nothing in this section shall validate any instrument that will not affect its negotiability?
provision or stipulation otherwise illegal. Sec. 6. Omissions; seal; particular money . The
validity and negotiable character of an instrument
What is confession of judgment? 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.
What is the effect on the negotiability of the
instrument if it is not dated?
The omission of the date will not affect the
negotiability of the instrument.
What are the relevant dates in an instrument?
Date of issue; Date of payment; Date of acceptance
What happens if there is no date of payment?
The instrument is payable on demand.demand.
What happens if there is no date of issue?
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.
Note that if the 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.
What happens if the holder inserts a wrong date
of issue?
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.
What happens if the acceptance of the
instrument is 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.
Can the maker or drawer ante date or post-date
the instrument?
Yes. 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.
What is the effect on the negotiability of the
instrument if the consideration is not indicated
in the instrument?
It will not affect the negotiability of the instrument.
Why?
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. 24,
NIL)
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.
What is the effect on the negotiability of the
instrument if such instrument did not indicate a
place of issue or place of payment?
The omission has no effect on the negotiability of
the instrument.
The place of issue of the instrument is not relevant
to its negotiability. Omission of the place of issue is
not material to the instrument.
Where should the instrument be paid if there is
no indication of place of payment?
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.
What is the effect on the negotiability of the
instrument if the instrument contains a seal?
The validity and negotiability of the instrument are
not affected by the fact that it bears a seal.
Seals are mere ornamentations of the instrument
usually used for advertisement.
What are the rules in interpreting a negotiable
instrument in case there is doubt?
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;
(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.
What is the rule if the instrument provided for
an interest, but it did not indicate when the
interest would start to run?
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
What happens if the instrument is undated?
If the instrument is undated, the interest runs from
the issue thereof;
Where the instrument is not dated, it will be
considered to be dated as of the time it was issued;
What is the rule if there is a conflict between the
written and printed provisions of the
instrument?
The written provisions prevail.
What is the rule if there is doubt whether the
instrument is a bill of exchange or a promissory
note?
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.
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.
What is the rule if there is a signature in an
instrument, but it is not clear as to what capacity
is the signature for?
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.
What is the rule if an instrument contains the
words “I promise to pay”, but it is signed by two
or more persons?
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.
What is the rule in case there is a discrepancy
between the words and the figure of the amount
payable?
The sum denoted by the words is the sum payable.
What is the rule if the words are ambiguous or
uncertain?
Reference may be had to the figures to fix the
amount.