ALUN LIBRARY NEGOTIABLE INSTRUMENTS LAW MADE EASY By: DEAN ANTONIO H. ABAD, JR. ean, College of Law, Adamson University Formos Dean, Institute of Law, Far Eastorn University ‘Bar Floviewer, Atoneo de Manila School of Law, ‘Far Eastern University ‘Adameon University . Bar Examiner in Labor Lav, 1988 i Lecturer, UP. Law Center, institute of “Juiolal Administration FIRST EDITION jga025 755401 2006 Publshea by CENTRAL BOOK SUPPLY, INC.SEP ~~ aay Prilppines Copyright, 2008 PREFACE By 1 had my frat encounter wth Negotiable Instruments Law aba toachar in 1976 when then Dean Neptal A. Gon: Jean Antonio , Zoe ofthe FEU Inaivte ot Law assigned me t teach the Oe Subject | had never taught ho subject before and so I had to tusy Negotable Instruments Law al over again. At times, found myself just one or two chapters ahead of my students ALLAIGHTS RESERVED The textbook we were using then was tne one au- = tore by Judge Federico C. Aikpala. Aside Irom ths text book, however, | read other elerences to augment my Krowedge about the subject. | was dost afraid that | may rot be ab! To answer my students questions oF ‘Wott, lecture in such away as 0 parade my fnorance My other references wore Negotiable Instruments Law by Agbayant Cases and Materials in Nogotibl sirumenta Law by Campos Lopez Campos; The Negot ble Instuments Law by AWendla: and much lls, Pandect of Commercial Law and Jureprudence by Vitug. My lature thon in Gass, and especialy during the bar review, was a ‘micol the writings 0 the 00K have read. So, aso, Inthe tring ofthis book, | was Iniuenced by them. For nstanc | in Chaptor | a not flow the chronolgieal odor ofthe 1 law but, instead, the inter-relation of the sections with each | btherala Campos Lopes-Campos. Lowi, athe ond ot ISBN 978-971-691-465-8, ‘ost chapters in tne book, there is an enumeration of role- ant cases—ala Alvendia, The book le replat with exam las fo explain he law-—ala Agbayari In the course of my teaching the subject through the at Far Eastern University, Atenoo de Manila Schoo! 1 Law, Adamson University College of Law and other bar Printed by CENTRAL PRINT ON DEMAND 827 Queson Avenue, Quezon Cy Tris | " ATENEO PROFESSIONAL SCHOCLS i TRDADYreview centers, | invarably noticed that the students found the subject boring and ficult to. une ‘quent, Thad to devise ways and m {ect ively and interesting to Keep my students awake and {o revert the atiemion to the subject at hand. To make them understand the subject more ful, | had to simplty the law ane go down her level ina language that ever 4 layman could comprehend. My examples wore atrocious land my mnemonics naughty so that my students will never forget. My cass was ike a theater and my students wore the actors in a play called the Negotiable inetrumonts Law. It was not uni 1993 when this play found its way in ‘some kind ofa soit asthe Ateneo Central Bar Operations taperecorded my bar review on Negotiable Instruments aw. When | was given a transcription of my lecture in 1996, | was amazed learn that my bar reviw lecture has been’ doing the rounds of bar reviewees of many lave schools. twas then | decided to write this book, Using ead transcription as its foundation. But the wring of the book was tong in coming. Almost ten years passed before f= Rally Ouckled down to work to inlen writing the eubject | have found t love. {wish to acknowledge the tremendous time and effort ‘expanded by Ms. Theresa Castaneda-Cunanan In typing the manuscript ofthis book. Inthe same mariner, I wish to ‘express my gratitude to my lovely wit, Atty. Marina Da- lena-Abad, or helping me proofread the manuscript of tis book: and Aty. Christan Rhee Delfin 8. Orencia for helping ‘me in some research, Likewise, | wish to thank the Ateneo Contral Bar Operations of 1993 for giving me a copy ofthe transcription of my bar review lecture on Negotiable In- stumens Law. Lastly, 1 wish fo thank the Central Book Supply, In, particulary, its President, Ay. Jose Agaton A. “Tony” Sibal, for publishing hs book. ‘The author sincerely hope that this book will help law yers and students of law alle to understand easily what heretotore was a dificult Negotiable Instrument Law.DEDICATION | dedicate tie book tothe memory of my parents ~ Prot. Antonio M, Abad of Cebu and Prat. Josusa Aquino Henson of ‘San Fernando, PampangaINTRODUCTION ‘Act No. 2081, otherwise known as the Negotiable Instruments Law, has for its prototype the Uniform Negotiable Instruments Law of the United States and the English Bill of Exchange Act of 1882. Its a per- fect universal law that applies to all transactions in- volving negotiable instruments regardless of jurisdic tions, This is as it should be; otherwise, international ‘commercial intercourse will be unduly hampered if different jurisdictions have different interpretations as to the form and application of negotiable instruments. ‘The Negotiable Instrument Law (NIL) tosis of only two (2) kinde of inetrumenta, namely, Promissory Notes. And Bils of Exchange. (A eneck Ie special Kind of Bil of Exchange.) These inettumens Taciate commercial deals among traders and merchants in domestic a8 well as In foreign business transactions. This ie 20 because of their inate characterstes as to negotabilly, utlly and accu mulation of secondary contracts ‘Alter the physical making of the instrument, it i the elverythereot which gives tite". No ighs can arise in respect of any instrument under the Negotiable instru: ‘ments Law unt itis delvered” An undelivered bill or note is inoperative. Unti devery, the contract is revocable. And the issuance as well as the dolvery of the (instument) must be to parson who take It as @ hole Gea A Kanan Te Pepe Nato Bak 42 Pa 22, s09 80) "cpl ve. 3b, 78 SCRA 82). &Whetner the iesued bill or note ie negotiable or not would depend upon its compliance with the requisites of regoiabilty under Section 1 of the NIL. If the bill or note Conforms with ead raqustes, It ls negoiable, therwisa, ‘A negotiable instrument is transferred trom person to person by negotiation, wnereas, « non-negotiable instru- ‘ment is transferred from person to person by assignment. In negation, the transferee of the instrument can ‘become a holder in due course and, as euch, can acquire fghissuperc otal ofthe vanstrer, Wheres, i as- ‘cannot acquire any better right ‘han his immediate predecessor. Negotiable Instruments are used as substitutes for ‘monoy. As the insumant is vansfered from one person to (forisstruments payable fo bearer or by Indorsement com pleted by devery (or inetruments payable Yo ord) The labios of parties on the Instrument are de- pendent upon thet warranties either as maker, drawer, ‘acceptor oF indorsr, The maker and the acceptor are pr ‘arly lable on the instrument, whereas, tho drawer and the indorsers are only eecondatiy lable thereon. The instrument's ite is ended when it is cischerged ‘by payment ot by ary of the modes of extinguishing an obligation. “That, in a nutshel is what this book I all about. ‘TABLE OF CONTENTS me! CHAPTER 1 FORM AND INTERPRETATION SECTION 1. Form of negotiable instruments 1, equisites of Nogotiabilty 2. Itemust be in writing 3. ttmustbe signed : ‘4. Unconditional promise or order SECTION 3. When promise is unconstional 5. Sum certain in money SECTION 2. What constitutes cetsinty 2s to sum 5.2.1. With interest. 5.22 Stated instalments 5.2.3. Stated insialiments with acce- eration cau 5.2.4 With exchange 5.2.5. Costs and attomey' f 53. Payable in money SECTION, Adon! provisions ot atecing egotiabity .n 5.32 Authorizes tt ‘ecurtion ‘ale of collateralThaue oF Contents 5.23. Confession of judgment 53.4 Waiver of benelt 5.35 Gives the holder an election to require some other actin leu of maney 8. Payable on Demana SECTION 7, When payabie on demand 6.1 Expressed tobe payable on demand 8.2. Notime for payment is expressed 8. Inetrament ie issued, accepted or i dorsed when overdue 7. Payable at @ fixed or determinable future me SECTION 4. Doterminable future ime; what const= ‘utes 7.1. Ata xed period ater date 72. Atatixed period alter sight 7.3 On or botore a fixed or determinable future ime 74 On of before the cccurrence of @ spectiod avent : 8. Payable to ordor os SECTION 8. Whon payable to order ‘SECTION 9, When payable to bearer 8.1 Expressed tobe so payable 8.2. Payable to a person or bearer 9. Payable to a tetious person 10 10 10 10 1" 1 13 3 4 1“ 18 1 16 1 19 20 “Taaie oF Covent 84 Payee coos not puport 10 be the same of any person | ‘85 Only or last Indorsement i a Banik in- ‘orsement 10. Drawee must be named with carinty SECTION 6. Omission; seal: particular money SECTION 10, Terme, whan auticient SECTION 11. Date, presumption as to SECTION 12. Ante-dated and post-dated SECTION 13. When date may be inserted SECTION 14, Blanks: when may be filed SECTION 15, Incomplete instrument not devored SECTION 16. Delvary; when effectust when pre- sumee SECTION 17. Construction where instrument is ‘ambiguous SECTION 18. Laity of Berson sri in ace or ‘assumed name 1. General Rule 2. Exceptions... SECTION 8. Signi by agen: stony now shown | SECTION 20. Lablty of person signing as agent and so forth SECTION 21, Signature by procuration;ettect of SECTION 22, Effect of indorsement by infant ot ‘corporation 4 a 9 39 40 40 40 “ aThue oF Contents Page SECTION 22, fect of re CASES: e CHAPTER It CONSIDERATION SECTION 24. Presumption of consideration xvas 50 SECTION 25, Value, what constttEs vcrnnnnn 60 SECTION 26. What constitutes older for value... 51 SECTION 27. When lion on instrument conatiutes holder for value. 2 [SECTION 26, Etec of want of consideration 53 SECTION 29. Liabilty of accommodation party... 53 CASES: 55 CHAPTER I NEGOTIATION SECTION 90, What constitutes negotiation. 7 SECTION 31, Indorsoment; how made s7 SECTION 32, Indossement must be of entire in- staument : s7 SECTION 33, Kinds of indorsement vee $8 SECTION 94. Special indorsement;indorsement in lank 9 SECTION 35, Blank indorsement; how changed to special indorsement 50 ‘TaoLe oF Contents SECTION 36. When indorsement restrictive SECTION 37. Effect of restictive indoreement; rights of indorsoo SECTION 38, Qualified indorsement SECTION 39. Condtonal indorsement Kinds of indoreoments Special indorsement Blank indorsoment Restrictive indorsement ‘Qualified indorsemant Conditional indorsement SECTION 40. Indorsement of instrument payable to bearer. SECTION 41. ndoreement where i 10 two ‘or more persons SECTION 42. Effect of instrument drawn of in \orsed toa person as cashier SECTION 43. Indorsement where name ie. mis- spelled, and so forth SECTION 44. Indorsement in representative ca- pacity SECTION 45. Time of indorsement: presumption. SECTION 48. Place of indorsement; presumption ppaepe SECTION 47. Continuation of negotiable character. SECTION 48. Striking out indorsement SECTION 49, Traneter without indoreement; ett OF nam . Pace 50 Ey © 60 60 60 a 6 6 e4 65 6s ° er sases mTague oF Contents SECTION $0, When prior ary may nepoi Tnstument Case: CHAPTER IV RIGHTS OF THE HOLDER SECTION 51. Right of holder to sue; payment. SECTION 52. What constitutes a Holder in duo SECTION 53. When person not deemed holder In ‘due couree SECTION 54. Notice before full amount pals. SECTION 55. When title defective SECTION 56. What constitutes notice of detect SECTION 57. Rights of holder In due course... SECTION 68. When subject to original defenses SECTION 59. Whois deemed holder in due course CASES: CHAPTER V ABILITIES OF PARTIES. SECTION 60, Liaity of maker ‘SECTION 61. abil of drawer . SECTION 62, Liablty of acceptor ns ‘SECTION 63. When a person deemed indorsers Page n SEB8IIaa g8e8 ‘asus oF Conrents SECTION 64. Lieilty of iregular indorser . SECTION 65, Warranty wnere negotiation by de livery and so forth SECTION 68. ability of genera indorser.. SECTION 67. ability of indorser where paper negotiable by delvory SECTION 68. Order in which indorsers ae able SECTION 69. Liability of an agent or broker ASE: CHAPTER VI PRESENTMENT FOR PAYMENT SECTION. 70. et of want of demand on prepa! ‘abtor SECTION 71. Presentment where instrument is not ‘payable on demand and where payable on de- mand SECTION 72. What constitutes a sufi pre” ‘sentment SECTION 72. Place of presentment SECTION 74. Instrument must be exhibited SECTION 75. Preseniment where instrument pay- able at BAK or Te dead SECTION 77. Presenment to persons Hable as partners SECTION 78. Presentment where pnp debor Page ra 98 7 99 9 100 100 401 101 101 102 102 102 102 103Tass oF Contents SECTION 78, Presentment to joint debtors SECTION 78. When presentment not required to charge the drawer SECTION G0, When preseniment not requed to charge the indorser SECTION e1, When clay a raking Presentment Ts oxoused wn SECTION 62, When praseriment fr payment is ‘excused SECTION @9, When instument shonored by ‘non-payment SECTION 84. abity of person secondary table, ‘when insrumentaishonoved SECTION 86. Time of matunty SECTION 86, Time: how computed SECTION @7. Aule where instrument payable at ‘bank SECTION 88, What constiutes payment in due CASE: CHAPTER Vil NOTICE OF DISHONOR, SECTION 89. To wor notice of dishonor must be ‘ven : SECTION 90. By whom given SECTION 91. Note given be agent. 103 103 m= 108 103 103 108 104 108 104 105 105 108 108; 109 109 ‘Tams oF Contents SECTION 92. Effect of notice on bohal of holder SECTION 93. Effect where notice is given by party ented her 880 won SECTION 84. Whan agent may give notice .. SECTION 95. When notice sufclnt SECTION 98. Form ot notice SECTION 97. To whom notice may be given SECTION 98. Notice where party is dead SECTION 99. Notice to partners. SECTION 100. Notice to persons joint lable SECTION 101. Notice to bankrupt SECTION 102, Time within which notice must be ‘gen SECTION 103. Where partis reside in same place SECTION 104, Where parties reside in diferent places! a” SECTION 105. When sender deemed to have piven dus notice SECTION 108. Deposit in posto what consti- SECTION 107. Notice to subsequent party; tie of SECTION 108. Where notice must be SECTION 109, Waiver of notice SECTION 110. Whom affected by waiver SECTION 111. Waiver of protest Page 110 110 12 113 na 113 114 14 4 na us 18 6 a7 u7 18 18 19 120 120“Taaue oF Conrents SECTION 112. When notice is dispensed With wou 21 SECTION 113. Delay in giving notice: how ex- cuted 121 SECTION 114. When notice need nat be given to B1BW0F sone ve 121 SECTION 115. When note need not glven to indorser 123 SECTION 116, Nuss on nonsayment where ‘aoceptance refusOd un. ne SECTION 117. Eifect of omission to give notice of 124 or-acceptance 125 SECTION 118. When protest need not be made; nen must be made 126 CASES: 126 CHAPTER vii DISCHARGE OF NEGOTIABLE INSTRUMENTS SECTION 119, Instrument; how discharged 128 SECTION 120. When persons secondarily lable ‘on the instrument are decharged 129 SECTION 121. Fight of party who discharges in- SIMON enemies TO ‘SECTION 122. Renunciation by holder 133 SECTION 122, Canlaon; untentiona; burden of proot SECTION 124, Aeration of inetumant fc of SECTION 125. What consitutos @ material altora- tion ves 196 196 135 ‘Trois oF Contents "08 (CHAPTER Ix BILLS OF EXCHANGE, FORM AND INTERPRETATION SECTION 126. Billot exchange defined... 137 SECTION 127. iso an assignment o und n hands of drawee .... 140 SECTION 128. Bill addressed to more than one drawee 1a SECTION 129. inland and orig bil of exchange. 141 SECTION 130. When bil may be treated as prom- Issory note anes 142 SECTION 131. Releree incase of nee 143 case: 7 148 SECTION 132. Acceptance; how made, and so forth 145 SECTION 133. Holder entitled to acceptance on face of il. 7. renee 148 SECTION 134, Acceptance by separate instrument 146 SECTION 136. Promise to ascot, when equve- lent to acceptance... vr SECTION 136, Time allowed drawee to accent au. 148 SECTION 187, Lily of crave ruin or do stroying bil. . 148 SECTION 138, Acceptance ofincompot bill wv. 149 SECTION 199. Kinds of acceptance ... 150Tanut of Covrenas Page SECTION 140. What constitutes a general accep- tance 150 SECTION 14%, Quaifieg acceptance 150 SECTION 142, ighis of partes as to qualifiod acceptance 151 CHAPTER XI PRESENTMENT FOR ACCEPTANCE SECTION 143._ when presentmed} for acceptance must be made 153 SECTION 144, When fle to present releases ‘rawor and indorer SECTION 148. Presentment; how made SECTION 148." On what days preseniment may be 154 155 made 155 SECTION 147. Preeentment where te Is insu ent. 187 SECTION 148, Whore presentment i excused «168 SECTION 148, When dshonored by fan ‘acceptance 159 SECTION 10. Outy of Halder whore bil not ac- cepted SECTION 161, Rights of holder where bil not ac- PED smn CHAPTER Xi PROTEST SECTION 152. In what cases protest necessary ... 161 TABLE oF Contents SECTION 153, Protest; how made SECTION 154. Protest, by whom made, 1. Example ofa Notice of Protest 2, Example of a Centticate of Protest SECTION 188. Protest; when tobe made SECTION 186. Protest; where made SECTION 157. Protest both for non-acceptance ‘and non-payment SECTION 188. Protest before maturity where ac- ‘ceptor insolvent SECTION 189. When protest dispensed with SECTION 160, Protest where bill is lost and £0 CHAPTER Xi ACCEPTANCE FOR HONOR SECTION 161. When bil may be accepted tor honor. SECTION 162. Acceptance lor anor; now made SECTION 163. When deemed to be an accep- tance for honor ofthe erawor SECTION 164, Liailty of the acceptor for honor SECTION 165, Agreement o acceptor for honor SECTION 166. Maturiy of bil payee ater sight: ‘accepted for honor SECTION 167. Protest of bil accepted fr nono. ‘and ¢0 forty 162 163 169 164 165, 165 168 167 167 168 169 170 170 " m we m3Taste oF Cowtents ‘SECTION 168, Presentment for payment to aocep- tor for honor, now made 173 SECTION 160, When dla in making presentment isexcused wa CHAPTER XIV PAYMENT FOR HONOR SECTION 171, Whomay make payment for honor . 175 SECTION 172. Payment for honor; how made uu 175 SECTION 173. De ration betore payment for honor 178 SECTION 174, Prelerence of patos flaring to ay fr honor 178 SECTION 175 Exon subsequent patie where bilis pai for honor w SECTION 176. Where holier reluses 10 receve payment supra protest... w SECTION 177, Aighi of payer orhonor 178 CHAPTER Xv BILLS INSET SECTION 178, Bilin set constitute one Bill ovum 178 SECTION 179. Flight of holders where cifterent ars areriegotited 184 SECTION 160, Lisbilty of holder who indorses two ‘oF more parts ofa Seto diferent perEONS vcr. 181 SECTION 181. Acceptance of bls drawn insets... 181 “Taste oF Contents Page SECTION 182. Payment by aocepe ot is dawn insets 181 SECTION 189. Efecto dacharging one ofa set. 181 CHAPTER XVI PROMISSORY NOTES AND CHECKS SECTION 184. Promissory note defined 163 SECTION 185. Check dtined 184 1. Distinctions between a check and a bil of exchange 195 2. Some ype Of CHECKS wenn 185 SECTION 186, Within what time a check must be resented . 187 SECTION 187, Contication of eneck: eft of. 188 SECTION 188. Effect where the holder of check ‘procures ittobe cortfed .. 189 SECTION 189, When check operates an an as- ‘signment 189 CASES: . 190 CHAPTER Xvi GENERAL PROVISIONS SECTION 190. Shor tite : cone 192 SECTION 191. Definitions and meaning of terme. 192 SECTION 182, Persone primary able on ins ment 199 SECTION 198. Reasonebe time, what constitutes 189‘Tasue OF Contents go SECTION 194. Time, how computed; when last say fas on noisy 193 SECTION 195. Application of Act. 193 SECTION 198. Cases not provided for in Act wave 198 —ov0— NEGOTIABLE INSTRUMENTS LAW MADE EASY TITLE | CHAPTER | FORM AND INTERPRETATION SECTION 1. Form of negotiable Instrumente. An instrument to be negotiable must conform 10 the {ollowing requirements: (2) It must be In writing and signed by the maker or drawer; {b) Must contain an unconditional promise or ‘order to pay a sum certain in money: (c) Must be payable on demand, or at a fixed oF dotorminable future tm (a) Must be payable to order or to bearer; and (©) Where tho instrument Is addressed to 9 drawee, he must be named or otherwise Indicated rein with reasonable certainty. 1. Requisites of Negotiabiity 1.2 For a promissory note: The fist four (4) requ ‘tes enumerated in Section 1 above are the only on2 Nucomaus straws Lam Mioe Exar necessary io make the insttument negotiable, thus: (a) It_must be in witing and signed by the maker (©) It must contain an unconditional promise to pay a sum codain in money, (©) Itrmast be payable on demand or determin- ‘able future time: and (©) Itmustbe payable to order ort be 1.3 For a bill of exchange: All five (5) requistes ‘enumerated in: Section must be present 10 make the Instrument negotiabi, thus (2) It_must be in witing and signed by the (b) It must contain an unconctional order to pay sum carain in money: (6) Itmust be payable on demand or detormin- abl future (@) must be payable to order orto bearer; and (@) The crawee must be named or otherwise inceated therein with reaconable certainty. 2. Iemust be in wetting. 2a It must be in wing ie ob- vious. Since an instrument is a document, there must De Something in writen form that can be transfered trom Person 10 person. I here is nothing in wating, there Ie ‘othing that can be traneterrd, 22 Any orm wil sues. It may be printed or in long hand it may be in nk or in pene. It may be on paper or oF Parchment. It does not matter solong as itis in wring. The law didnot esting, Fou brenmneran, 3 2. must be signed. serch yi tater promis note must be sence stent ia of exchange, mst ve tnt ramen nator meee Ietrarumit he wa bneramega ced imonded tobe he signature oe pany tere 4. Unconditional promise or order. 4:1. *Unconsiional’ moaning that the promise of or dr to pay, must not be dependent upon a contingent ‘event that Ie net certain to happen. It must be abeokie |e. an absolute promise to pay or an absolute order te ay. I the payment of the instrument is dependant upon ae ‘vent that is at certain to happan, the promise of orasr te ay is not unconditional and, thertore, the instrument is ‘ot negotiate 42 Example: | promise to pay X or order the sum of 1,000.00 M wit marry (sa) ¥ Inte above example, he once) Ru Conditional because there is no certainty a WiNece. einen ens sepsa 42.1. Suppose M married ‘sory note now become negotiable? ofthe event wal not cure the detec4 Necorans srmavents Law Moe Easy 4.3. However, i the promise oF order to pay is de- pendent upon an event that fs certain to happen, the eame Wil rot render th instument non-negotiable. 43:1 Example: | promise to pay X or order the sum of 1,000.00 upon the death of Pedro. (soa) ¥ ment the death of Pee) i ‘condoned not destroy the negetiaity f the instrument. 44, The unconditional promise or order to pay must be correlated with Secton 3 which provises as follows: SECTION 3. When promise Is unconditional {An unqualified order or promise to pay is uncondi- tional within the meaning of this Act though coupled with (®) An Intcation of particular fund out of Which reimbursement is to be made or a particular Account to be debited with the amount; oF (8) A statement of the transaction which gives tise tothe Instrument But an order or promise to pay out of a particular fund i¢ not unconattion ‘The Instrument will remain negotiable even if there ie fan inczaton of @ paricular fund ut of which reimburea- 's te even ia particular ited with he amount alter the instrument Is pal Fomu aso renoneraron 5 44.1 Exampe: Pay to X or order the sum of 1,000.00. Feimourse yourat om the proceeds of my farm, (Soa) ¥ Toz “The above example presupposes @ prior arrangement between the drawer and the drawoe with respect to payment ofthe instrument. Even i thera is no mony in Mis hands but the rawee accepts, then he must pay oUt of His ‘own pocket and reimburse hirneo later. In othr words, Z first pays X; then ator paying X,Z reimburses himeet from the proceeds of Y's farm. Thus, the order to pay ih tie case fs sil unconditional. Henca, the instrument remains tobe negotiable. However, if the panicular fund indicated is tended for reimbursement but one out of which payment is to be mado, the promise or ofder to pay becomes cond tonal. This is 60 because the assumption is that the pat= ticular fund indicated where payment i to be taken ls sut- Cent to pay the amount of the note or the bil In this case, the payment is conditioned upon the sufficiency of the fund. Hence, the instrument becomes non-negotiable. 442. Statement of the transaction An instrument is usualy Issued due to a transaction ‘The mere statoment ofthe transaction that gves rise tothe Instrument wil not destroy the negotablity of the instru- ment. However, I the Inetrument fe made subject fo the torms and condltions of the transaction, the instrument becomes non-negotiable. This is so because the nagotia- biity of an instrument is to be determined only by just look ing at the face of the instrument ftsaf and not any ise. Hence, ifthe instrument is burdened with the exms,6 Nesoruts hatramcnrs Low Moe Essy and conditions of the transaction, one has to look elso- ‘where to determine is negotbity. This isnot as it should be. 5. Sum certain in money ‘The prin! ameunt tobe pai must be carta: and t must be payable in torme of money only asa general ‘ue, 5A sum is certain if the amount to be paid as ted on the face of the instrument le fixed eum of money. 52 However, there are certain stipulations which wen included inthe Instrument tel wll not destroy the Ceriaity of the amount to be paid. Thus, Section 2 pro- Vides a3 ftows: SECTION 2. What constitutes certainty as to ‘surn—The sum payable fs a sum certain within the ‘meaning ofthis eet, although itis to be pald.— (2), With interest; oF (6) By stated installments, with a provision that, ‘upon detault in payment of any inetaliment or of inter: fet the whole shall become due: oF (6) With exchange, whether at a fixed rate or at the curren (@)_ With costs of collection or an attomey’s fee, Incase payment shall not be made at maturity. 52.1 Withinterest Even if payment of intrest is stipulated, it will not ‘make the sum uncertain because by a simple mathemati ‘cal computation the sum payable can be easly ascer- tained For ano brennan 7 5.22 Stated installments ‘An instrument payable by slated instalments, to re- ‘main negotiable, must contaln the follwing: (a) each in- stalment must be stated on the instrument, and (0) the ‘maturity of each instalment must be fixed; otherwise, the Instrument becomes non-negotiable for non-compliance withthe requisite thatthe inctrument must be payable on ‘demand or ata tked oF determinable future time. 52.9. Stated Installment with acceleration statement in an instrument whereby its agroed that in the event of faure to pay & sated instalment, the entire sum payable becomes cue ‘and demandable immedatoly. in other words, tho accel: eration clause hastens tho matuity of the entre inst ‘ment. Ths stipulation wil not render the instrument non- negotiable. 5.2.4 With exchange This contemplates ofa situation where the instrument is drawn in one country and made payable in another. The fact thatthe sum payable Is in a foreign curreney wil not affect the nogotabilty of the Instument because the rate ‘of exchange among the diferent curencios can be easily ‘determined. The certainty of the principal sum payeble can be arrived at by a simple mathematical computation 5.2.5 Coste and attomey's fees ‘The stipulation with respect tothe payment of attor- ney’s fees oF costs of iigation wll come into play only after ‘the matuity of the instrument when the amount duo re- maine unpaid. Therotoro, at that time, the ietrument ‘already overdue. So tha, ftom the date of the issue ofthe Instrument up to the date of ite matury, th ‘The sum becomes uncertain only when the instrument 1s already overdue; when the Inetumentle-no longer nogo-8 Nesom herrawenrs Low Moe Easy lable in its ful commercial sense. That is why this stipula- ton wil ot impal the nagotablty ofthe instrument. 5.3 Payable in money The sum payable In an instrument must be made payable only in money. It cannot be made payablo in ‘900d, services or property. This is so because in business ‘money isthe stancarg of value. 53.1. In some instances, the doing ofan actin caiion to the payment of money wil nat destroy the ‘egatiabie character of the intrumert, Thus, Section S provides a8 lollows: SECTION 5. Additional provisions not affecting ‘egotiablty.—An instrument which contains an order ‘or promise to do any actin adalton to the payment of ‘money is not negotiable. But the negotiable character of an instrument otherwise negotiable Is not affected by provision which— (2) Authorizes the sale of collateral secur cease the instrument be not pald at maturlty; or (©) Authorizes a confession of judgment i the Instrument be not paid at maturity; or (c)_ Waives the benefit of any law Intended for the advantage or protection of the obligor; ot (4) Gives the holder an election to require some- ‘thing tobe done In teu of payment of money. ‘But nothing in this section shall valldate any pro- Viston or stipulation otherwise Ilegel. Note that the law iso provides that an instrument which contains an order or promise to do any actin add tion fo the payment of money isnot negotiable, Tha ls the ‘ener rue. The exceptions are the folowing: Fon ano breroneraron ° 5.32 Authorizes the sale of collateral secu- rites ‘The act to be done In addon to the payment of ‘money ig 10 sol the collateral securties, But ths act of seling wil happen only If the instrument isnot pai atm tunity. Hence, at the time the collateral aacuniis are 1 be sold. ine insumiant i aceady-ovecdue. Cleary, therelore, from the issue olin instrument up to he time ot ts mat ly, there is no adkitonal.act-to-be-done other than the fhayment f-money. The addtional act wil arise ony ater the instrumant is overdue when the instrument sno longer ‘egotable in its full commereial sense. 5.33. Confession of judgment This is void as a son of is dyin court inst pubic policy as it denies per. 5.3.4 Waiver of benefit The waiver of any benefit granted by aw, 6.9. waiver of notice of cishonor,* wit not affect the negotabtty of the instrument. 5.3.5. Gives the holder an election to require ‘some other act in lleu of money I the instrument is payable in money or something else (6.9. giving of property), but the option is given to the holder, the instrument romaine negotiable. This ie £0 be cause the holder can stil insist thatthe payment be made in money. However, ifthe instrument is payable in money ‘and glving of property of rondion of services, the Intra ‘ment becomes non-negotiable. In this caso, the holder has * NB ve Mania 0% Raining & By-Produce Co, 42 Pi 444 1922, Paseo St. 109, NL10 Neooruats harmavents Li Maoe Easy 0 chose as the instrument isnot payable in money only but inclusve already of propery of services. Hence, the instrument is non-negotiable, 6. Payable on demand SECTION 7, When payable on demand.—An In- strument is payable on demand— |__(@), When so it Is expressed to be payable on ‘demand, of at sight, or on presentation; or (©) In which no time for payment Is expressed. Where an instrument is Issued, accepted, of In- ddorsed when overdue, It is, a8 regards the person $0 Tesuing, accepting, or indorsing It, payable on demand, [An instant payable on demand is due and de- ‘mandabie immediately trom its issue. 6.1. Expressed to be payable on demand. Example: | promse 10 pay A or order the sum of | 1,000.00 on demand (Soa)8 Instead of the words “on demang", the words “at ‘sight or “on prosentaton® may be used. Thu, the Inet ‘ment is payable at sigt or payable on presentation, as the ‘case mayo 62. No time for payment is expressed. Fos ano brneneraren 1” Example: | promise to pay A or order the sum of 1,000.00 (Soa) 8 ‘This is payable on demand because the note does ot express atime for payment, 6.2.1. Suppose the note read as follows: | promise to pay A or order the sum of 1,000.00 on (Dato (S90) 8 “The dato of payment is lett blank. Some authorties ‘consider this as sill payable on demand. It appears, Row. fever, that this is a case of an incomplete instrument and ‘may'be governed by the provisions of Sections 14, 15 of 16 of the Negotiable Instruments Law, depending on winether oF not the instrument has been delivered. 6.3 Instrument Is Issued, accepted or indorsed ‘when overdue. Example: A exocited bil of exchange in favor of B or order for 1,000.00 payable on January 18, 2006, addressed to C fs ‘drawee. However, A dalivered the Bil 10 B only on January 30, 2008, when the instrument was already over ‘lu. In this case, as regards A who issued tho bl, the Instruments payable on demand.12 Neots sraunents Law Mane Eaby 6.3.1 Suppose in the example above, 8 negot- ated the bil tC; as regards B who indorsed the bil, the instruments payable on demand. 6.32 Suppose, also, in the example above, D (older) presented the bil for acceptance to C, and C ‘accepted: as regards C who accepted the bil, the In- ‘uments payable on demand. 7. Payable ata fixed or determinable future time. SECTION 4. Determinable future time; what consttutes.—An instrument is payable at a determin- table future time, within the meaning of thie Act, which sxpressed to be payable— (2) Ata ixed period atter date or sight (©) On or betore a fixed or determinable future time specitied therein; or (6) On or ata fixed period atter the occurrance of «8 specified event whieh fe certain to happen, though thetime of happening be uncertain. ‘An instrument payable upon a contingency is not negotiable, and the happening of the event does not ‘cure the detect. ‘The instrument may be made payable ona txed d for at some other future time provided the maturity of the Instrument can be absolutely determined with certainty ‘Suppose the instrument is payable on Apr 30, isi ‘negotiable? No, indicated and, tn fact, in tis Fon a0 hreoneraron 13 7.1. Ata fixed period after date. Example: November 15, 2008 | promise to pay A or order the sum of 1,000.00 thy (30) daye ater date. (S08 “The noto is dated November 15, 2006, it will mature thiny (20) days from November 15, 2008. Hence, the note 's payable at a cotermnable future tims, by a simple ‘mathematical computation, on December 18, 2008 7.2 Ata ixed period ater sight ‘This usually applias toa bil of exchange. “After sight” simply means alter the crawee, to whom the bil I a ‘ressod, shall have seen the bil when i Is presented to him by the der for acceptance. Examol November 15, 2008 Pay to A oF order the sum of 1,000.00 thity (80) days ater sight. (S08 To A, the peyee (holder), prosents the instrument for ac- ceptance to C, draweo, on December 1, 2008. This ie the time C shall Rave soon the intrumert and the thirty (30) ‘lays wil begin to run only on Dacember 1, 2008, Hence,“ Neoruas hermaenrs Law Mage Exsr the Bilis payable ata determinable future time by a simple ‘mathemathical computation, on December 31, 2006. 7.3. On or before a fixed oF determinab! time future Example: {, piypramise © pay A or order the sum of 100000 on or etove November 15, 2006. (S098 The instrument wil mature and wil become payable ‘on November 18, 2008; atiough B, the maker (the person ‘timarly able), has the option fo pay the note ear, This ‘wl nt impair the negoiansy of the Inttument. 7.4 On or before the occurrence of a specified event Example: | promise to pay A or order the sum of 1,000.00 on or bore tity (30) days after the ath of Pedro, (890) 8 ‘Tho instrument wil bocome payable thity (90) days ator the death of Pecro, @ determinable future time be- ‘cause Pecro wil surely die someday. As far as A (the ‘ayeeMolder) is concerned, he can demand payment of {he Instrument only ater try (20) daye from the death of Pedro. As Yar as 8 (the maker who te primary Hable) fe ‘concerned; he has the option Yo ether pay the instrument From avo enema 8 thity (80) days alter the death of Pedro or earier, Simi larly, this wil po affect the negotaiy of the instrument. 7.4.1. In tho example given above, suppose the instrument is payable thirty (30) days Before the death ‘of Pecto, isthe promissory note negotiable? No, the ‘note is not negotiable because the time fr ‘0 certain. Upon the death of Pedro, th Is already overdue 8. Payable to order SECTION 8 When payable to order.—The in- strument is payable to order where Its drawn payable to the order of @ specified person of to him of his of- der. It may be drawn payable tothe order of — (@) A payee who Is not maker, drawer, or drawee; oF (©) The drawer oF maker; of (6) The drawee; oF (@) Two oF more paves (6) One oF some of sev () The holder of an office forthe time being. Where the instrument is payable to order, the ‘payee must be named or otherwise Indleated therein, ‘with reasonable certainty. 8.1. One of the requistes of negotabilty is that the Instrument must be "payable. to order" or “payable to fare the words of negotiabilty. Ifthe instru- ble 10 “order” or “bearer” the Instrument ls16 Neooranue heranenrs Law Mage Ess Example: | promise te pay A the sum of P1,000.00 (S00) 8 In this example, the instrument does not contain the words of negotabiy. The instrument Is non-negotiable Because it snot payable 10 order orto bearer: tis payable toa spectiog person, 82 An instrument payable to order is negotiated by ‘endorsement completed by delivery. Hence, there must always be a payee; otherwise, here will bo nobody who wil ipdorse the instument. Tis is the reason why the payee must be named or otherwise indicated with reason ble eraity 83. Ordinarily, in an instrument payable to order, the payee is some person other than the maker, drawer or {rawoe In the Instument. 8.3.1. In a promissory note, tis unusual for 2 ‘maker 10 make nimsell the payee of the instrument. ‘Where the maker isthe payee, he Is in effect making ‘imo fable to himsel on the instrument, Thus, as it Js, he instrument procuces no legal elec. This note, ‘maker as paye, vill produce logal elects only ance the payee-maker indorses the instrument to another person because such indorsement wil then give rise {o rights and obligations of the parties under the Ine ‘sumer 8.32 Ina bill of exchange where the drawer ie the payee of the instrument, in effect tne drawer Is aking the drawoe to pay him (drawer). 3,3. In abil of exchange where the drawee Is the payee in effoct the drawers asking the drawee 10 pay heel (rawee), Forma sno breneneraren 7 8.4 Two or more payees jointly Example: | promise to pay tothe order A and B the s5um of P1,000.00. (9a) In case of indocsement, both A and 8 must indorse the instrument to pass te, unless one has authodty from the other 85 One or some of several payees Example | promise 10 pay to the order of A, B or C ‘the sum of P¥,000.00 (S94) 0 ‘The indorsement of any of them (A oF B or C) wil sul- fice 1 pass ti. 8.6 Holder of an office forthe time being Example: | promise to pay tothe order of the Com ‘missioner of the Bureau of Customs the sum of 1,000.00 (Soa) a ‘Thus, whoever isthe incumbent Commissioner of the Bureau of Customs at any given time isthe payee of the Instrument18 Neoonane hermes Law Mace Easy 8. Payable to bearer. SECTION 8. When payable to beater—The in- strument is payable to bearer— (@)_ When itis expressed to be so payable (®)_ When itis payable to a person named therein or bearer; of {c)_ When its payable to the order ofa fettious for non-existing person, and such fact was known to the person making it so payable; or (©) When the name of the payee does not pur- port fo be the name of any person’ oF (e)_ When the only or last indorsement Ie an en orsoment in blank. ‘An instrument payable to bearer is negotiated by ‘mere delivery. There ls no need to Indore the instrument In possession of the Instturment ie the bearer thereof; hence, he isthe holder of the instrument and the ‘same is payabie to him. The bearer (holder) can negotiate the instrument fo another by merely delivering the posses: sion ofthe instrument fo the latter. The wavranves of @ Petson wo negotiates by delivery extends only this im ‘ediate transl Example: In an instrument payable to bearer, A negotiated by mere dolar 19 8:8 10 G; Cte 0; DoE, hola, al BY every al, In this ilusration, E (holder) can only go against O. cannot go against © because the warrantise of © extends nly to hie immodiate the warranties of C do not extend up to Fora sno arenoneranon 19 8.1 Expressed to be #0 payable Pay to bearer the sum of P,000.00 (Soa) x To This bl of exchange is payable to bearer because it 's expressly stated to bo payable to bearer 9.2. Payable to a person or bearer Pay to Maria Sta, Mara or bearer the sum of P1,000.00 (S00) x Toy ‘The instruments payable to bearer because it is payable to @ porson named therein (Maria Sta, Mara) oF 10 ‘whoever 's Ih possession or holder of the bil, the bearer there. 92.1 However, in the example given, if the word bearer precedes the name o! the person spect. fied inthe ‘bil, the Insttument becomes non- negotiable, Pay to bearer Maria Sta, Maria the sum of 1,000.00 (Sa x To ‘The bil inthis case is no longer negotiable because the instrument is not payable to bearer but aiready payable to spectied person.20 Necoranrnunents Law Mane Exar 8.3 Payableto a fcttious person “The determinative factor is that the maker or rawor ‘making or drawing the inetrument knew that tho payee placed thereon i etious person, Example: {promise to pay Juan dela Cruz the sum ‘of P1,000.00 (S99) Pedto San Pedro this note payable to order orto bearer? The answer is: depends on the intention of the maker. If the maker Intends that he instrument be paid to Juan dela Cruz the symbol ofthe Fipino race, a fettous person, the note le payable to bearer. Although the words of negotallty (payable to “order or bearer’) are not watten on the in Strument, the note in this case fs negotiable, But # the maker intended the note to be made payabe to the real person names Juan dela Cruz whois president of the Ro- {ary Club of Diliman, the instrument 1s not payable to ‘beaver because itis not payable 10a fcttous person. It is ‘ot even payable fo order because the instrument is pay- able 10 a species person. In this case, the note is non- negotiable. However, itt can easily be deduced that the payee ‘named inthe instrument 's payable to bearer. Example: | promise to pay Batman the sum of ,000'00 (Soc) Pedro San Pedro Fm ano enero a ‘To say in this case that the negotiallty of the in ‘strument is dependent upon the Intention ofthe maker isto be lucierous. 924 Payee does not purport to be the same of ‘any person Example: ay to CASH the sum of P1,000.00| (Soe) x Tey This bil of exchange is payable to bearer because CASH” doos not appear tobe the name of any person 85 Only or last indorsement nk indore Indorsements are usually made at the Back ofthe in “strument. Ir the holder of the Instrument, be he the payee, (r the indorsee, just signs his name without ingoating to Whom the instrument is transfered, that is a blank in- ‘dorsement. Ifthe instrument is orginaly payable to order, the blank indorsement converis the Insitumant to one pay fable to bearer. In othor words, the order instrument be- ‘comes a Bearer instrument by virtue ofthe blank indorse ‘ment. Example: T promise to pay tothe order of B the eum ‘of P1,000.00 (S942 Neoorane hermes Law Made Easy ‘This fe a premissory note payable to order. The payee-holder of the note thon indorses the same at the Back of te instrument as follows: ($90) 8 ‘This a blank indorsement because B just signed his ‘name without naming the person to whom he is indorsing the note. Under this rule, the note payable to order be ‘comes a note payable to bearer and can, henceforth, be negotiated by more deliver. 9.5.1. Suppose alter the blank indorsoment ‘made by B, the attr gave the note t0C. In this cast C-can now negoiate the same note to D by mere de- livery. However, et us suppose that C instead of ne- galating the note by mere delivery, negotiated the Rote 19.0 by special Indorsemant completed by deliv- ery, 28 flows: PaytoD (S90) ¢ In this case, the note which was payable to bearer because ofthe Bak indoreement, once again becomes a ote payable to order because of th special indorsement 95.2 After the rote Is indorsed to D in the manner ehown nthe above example, suppose D now Negotiated the intrumont thru a Blank indorsement to Ey the note once more becomes an instrument pay- able fo bearer, This is so because the last indorse- ‘ments an indorsement in lank. 9.5. In cases of thie nature, what is important {0 consider Is the last indorsement. If the last in- ‘rsement isa special indorsemen, the instrument is Form no nomenon a yable to order. But the last indorsement isa blank Indorsement, the instrument s payable to bearer. 10, Drawee must be named with certainty. ‘This roquiste has reference only to abil of exchange, ‘The drawoe ls the person to whom the bil is adcressed for acceptance, i upon. presentment for acceptance, the ‘rawee accepts, the lator le now known a8 tho acceptor ‘who becomes primerly lable on the instrumont. the ‘rawae refuses to accept the instrument, the said instru ment is deemed dishonored; and procaecings on dishonor ‘ust be undertaken; otherwise, parties secondarly liable fn the intrument wil be discharged from habity SECTION 6. Omission: seal; particular money.— ‘The validity and negotiable character of an Instrument are not atfacted by the fact that— (@) Its not dated; oF (®)_ Does not specify the value given, or that any value had been given therefore; or {(@). Does not specify the place where It is drawn or the place where itis payable; or @) (@) Designates ‘a particular kind of current ‘money in which payment is to be made. But nothing In this section shall alter or repeat any statute requiring in certaln cases the nature of the ‘consideration tobe stated inthe instrument.26 Nora herruvewrs Law Moe Easy 1. Anegotabe promissory note reads as follows: 3100.00 Manila, Prilippne ‘April 23, 2008 For value recived, | promise to pay to the ‘order of Juan San Juan the sum of $100.00 at RBC Bank, Ayala Branch, Makati City (S90) Pablo San Pablo 8) Even i the date “April 23, 20" is nt writen fon the intrument, the note wll remain nego: ‘ial ) Even i the words "For value received" isnot found on the instrument, the note would sti De negotabe. This is s0 because considera tion i presumed. ©), So, also, even i! he phrase “st RCBC Bank, ‘Ayala Branch, Makati City’, the place where the note is payable, is not written thereon, the “instument ie not rendered’ non ‘negotable thereby. ) Even ifthe instrument bears a seal, the note is tll negotiable as the seal is a more for mali, «Even i payment is designated to be paid in ‘dolar (6, $100.00), that fact alone wil not aifect te negotabiliy ofthe instrument. The instrument wil be paid in legal tender. 2, However, @ law may require a certain value to bo ‘ven by way of consideration forthe Instrument. There ‘appears 10 be no law in our jurisdiction inthis regard, SECTION 10. Torms, when sufficent—The in- ‘strument need nat fllow the language of thie Act, But Fone a Inesenetaen 2s any terms are sufficient which clearly Indleate an in- tention to contorm to the requirements hereot. 1. The exact words ofthe law need not be used so long as the words used cleary indicate an intention to adhere tothe requirements oft law. Hence, instead of "| promise to pay’ tho words “agree to pay" may be used. Instead of “Pay to bearer’ the words “Pay to the holder ‘ay 88 used. So long as the requisites of negotabilly re Present, the instrument will remain negotiable. SECTION 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. 1. This provision contemplates of three situations, thus: (a) The instrument is dated. Such date is deemed to 'e the true date of the making (Inthe case of a promissory ‘nota) or drawing (nthe case ofa bil of exchange) of the Instrument, (oyThe acceptance of the bl of exchange by the drawee Is dated. Such date Is deemed to be the true ato of acceptance of the instrument, and (c) The in- ‘orsemant ofthe instrument ie dated, Such date is doomed to be the true date ofthe indorsement ofthe instrument 2._ Since they are merely prima facie evidence othe ‘rue datos of the making, drawing, acceptance or Indorse ‘ent of the instrument, such dates may be overturned by Convinelng-evidence tothe contrary SECTION 12. Ante-dated and post-dated—The Instrument is not invalid for the reason only that it 1s ante-dated of postdated, provided this Is not done tor an illegal or fraudulent purpose. The person to whom fn instrument 80 dated ie delivered acquires the title ‘thereto as of the date of delivery26 Naor hatmuents Law Mae Ease 1. Antesdating cccurs when a date earler than the date of issuance ig place on the instrument. On the other hang, post dating accurs when a date later than the dato of Issuance is placed onthe instrument 2, Post dating or ante-dating an instrument wal not alec ts vakcty provided i not done for an ilagal or fraudulent purpose. Hence, ante-dting an instrument for the purpose of evading the provisions of a Usury Law will invalidate ine Instrument Because I is done for @ Traudu- lent purpose, 3,_When an ante-dated or postdated instrument is alvered to @ person, the latter acquires the ttle To the Insvument as of the date of fis delivery, regardless of the Gate appearing on the instrument. SECTION 13. When date may be inserted Where an instrument expressed to be payable at a fixed period after date fe fesued 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 Instrur ‘ment shall be payable accordingly. The insertion of ‘Wrong date does not avold the Instrument Inthe hands ‘ofa subsequent holder In due course; but as to him, the date so Inserted Isto be regarded as the true date, 1. The date ot npn for purposes of te ne acti of nator 2. tte deo es ofthe instrument may be- comme maar for puposes of Sotemiing anaber ot tRerolce acted wit pagoabie ignesina promesoy rote te Inroren must Bs PST for payment wh ‘etaonatia ne aes vena of exchange the hhavament mu be presertd fo payment wee Sorable tna teat negotiation Otherwise noth cos, persons secondary table co te nate Be erage tom tay. However, a neste date Fons asa envaerarn a becomes inponant fr purposes of dtemining he mat ity ofthe inerumort. Ts especialy tue in neuen payable athe para afer dato nd aves una In insvumentspayabl at 8 eed porod ae ight accepted nated In bath instances he matty of inarumont canna be determined hou owing he we Ato oaoue or aszopiance of tensor Sreamod. 3. "When an instumentpayabo ala fixed pod af- te dl tovedundatea he note of uch esumon ihoian by aw lace the eat ot sue ot al inset ts matty. 3.1 Example: Today | promise to pay Maria or order the sum of 1,000.00 tity (30) days ater date. (Sao) ose “This is @ promissory note payable thity (90) days at- {or date but the instrument is lesued undated. Ifthe date of the delvery of the instrument to Jose is September 1 £2006, Jose must Insert the date "September 1, 2008 on {the instrument which isthe true date of the issusice of the ‘romissory note; and the instrument wil be. pals acc0%e ingly onthe date ofits maturity on October 1, 2008 4, When an instrument payable ata fixed period at- ter sight is accepted without date, the holder of such in- sirument 's authorized by law to insert the ue Sate of ‘acceptance of said instrument to fix ts maturty.28 Necorums harmasenrs Law Mace Esse 4 Example ‘September 1, 2008 Pay to the order of Maria the sum of 1,000.00 tity (80) days aftr sight. (Soe) Jose Tor Josue This is a bil of exchange payable thy (30) days aftor sight, Let us suppose that ose presented the instrument for acceptance to Jesus only on ‘September 8, 2006, and ‘Jesus accopted but cd not place the date of his accep- lance. Inthe ease, Jose must Insert the date “Seplember 9, 2008" which i the tue date o! the acceptance by the ‘rawoe of tho bil of exchange: and the instument wll be paid accordingly on the date ‘ofits maturity on October 8, aoe. 42. However, suppose Jose presented the in- Sstument for acceptance to Jesus on September 9, 2006, as ilustated above, but Jesus delayed the ac- ‘ceptance and manilested his aosoptance of the bil ‘only on September 11, 2006, wnat fe the tue date of ‘acceptance in his case? The answer is September 8, 2006 because Josa can init thatthe aocentancs be ‘the date when it was first prosented and seen by the ‘raweo Josus. ‘5, What i the rule in the case of an undated instu- ‘mant (where the date is material to determine Its maturity) land the holder wrote the wrong date thereon? 5.1 Section 13 merely states that “()he inser- tion ofa wrong date does not avold the Instrument In the hangs of holder in due course,” Hence, the clear Inference tnecatore le that in the hands of a holder ho is not @ holder In due course, the instrument Ie Fons no esoneraron 2 ‘avoided. That being the case, such holder cannot run after the maker or drawer ofthe instrument 5.2 However, If the instrument whare a wrong date was inserted is already in the hands ofa holder in due cours, then that instrument remaine valid: and insolar as such holder in due course is concerned, the wrong date shall be deemed tobe the tue date, SECTION 14. Blanks; when may be filed — Where the instrument Is wanting in any material par- ticular, the person in possession thereet has a prima facie authority to complete I by fling up the blanks therein, And a signature on a blank paper ‘the person making the signature in order that the pa er may be converted into. a negotlable instrument ‘operates as a prima fecie authority to il t up as auch for any amount. in order, however, that any such in: ‘trument when completed may be enforced. against ‘any person who became a party thereto prior to Its ‘completion, it must be filed up siretly in accordance withthe authority given and within a reasonable time But if any instrument, after completion, ie negotiate to.a holder In due course Its valid and effectual for all purposes in his hands, and he may enforce it ae if i had been filled up strictly In accordance with the au- ‘thority given and within a reasonable time, 1. In the execution of negotiable instruments, the two (2) steps involved are as folows: Filly the mechan cal wring ofthe instrument completely n accordance with the requisites of negotiablty under Section 1, NIL; and Secondly, the delivery of the instrument by the maker or ‘drawer tothe pay inorder to give logal eect thereto 2. Its the duty of the maker or drawer to Issue a ‘complete instrument. If the maker or drawer is remiss in this duty, and the instruments lacking in any material Particular, the holdarot the Instrument has the prima facie30 Nucorans metres Law Mice Easy ‘uthatty to compote the instrument in accordance withthe 2.1 A partcular ie materia if i is essential to complete the nstument. Thus, the name ofthe payee fr the amount, # elt blank, may be filed in by the holeer. 2.2 What is @ reasonable time is dependent upon the crcumetances of each case. In determining ‘aati a reasonable tine, card is o be had fo the re ol the insvument, the usage of trade or bust ‘aaa a reget sue sro, One T acts ‘ole paricular caso: 3, Rules as to Incomplete but delivered instru- ments To hold a persen who became a party tothe inst: ‘ment prio is completion fable thereon to one who isnot {holder In dve cours, the folowing requisites must cor- ur (2) the Incomplete but daiverod intument must have been fled up_sttety_In_acaordance with the authorty ‘given: and 2) the compiotion of the insizument must have ‘madihia reasonable tne ater is issue. 3.1. However, if the instrument aftr its compie- tion i In the hands of holder in due course, “kis ‘valid and effectual for al purposes in his hands, and he may enforce (he insument ae ft had been filed Up sty i accordance with the euthorty given and ‘ini reasonebie 32. Example: FACTS: A issued a promissory note in fa- \or of 8 o¢ order payable on December 10, 2006, {na left tne amount blank but with the specific in- Stucton given fo place an amount not exceeding Fon so earn at 10,000.00. However, 8 placed the amount of 100,000.00 and negotiated the instrument to C. QUESTION: Can ¢ go against A? 3.2.1. Yes, if C is @ holder in due course, because the instrument is vali and effectual for all purposes in his hands, and he may enforce the promissory note as if it had been filed up lve in accordance wit the authorty given and within @ reasonable time. Therelore, G can go ‘against A for P100,000.00. A an C are both n- ‘nocent parties; but as between two innocent par ties, the party who made possible tho commis. ‘ion ofthe wrong shall bear the loss. 322 No, tC Is not a holder in due course, because to hold A lable it must be shown that the promissory nota was fled up strictly in accordance wit the auhorty given and within @ reasonable time. In this case, the sttument was no flo up in aczorace with authority given. Thorofor, the promissory note is ‘ot valid and etfectua in the hands of C. Hence, Cannot go against A. 4. Signature on a blank paper A signature on a blank paper may be converted into @ negotiable instrument only I the petsan who afixed such ‘signature has such intonton; In whien cae, the Holder h ‘the prima facie authority to fill up for any amount. How. fever. the person who signed a blank paper Nas no i tion of convering the same info # negotiable instumer {2.9. only for autograph purposes), the person in posses the Signature. on-ne lane paper ine 2 napotabi taanon for eny amount. Even Iueh ininumentis ia tap hands of2 Neaoraats herent Law Maze Easy «8 holder in due course, the latter cannot make'ihe signa- tory table tnereon. 5. An incomplete but dalivered instrument can be put detense only against is pot a herlore, is only-a per- red Instrument cannot be a person who is @ holder in {ue course. & personal defense cannot provent a holder in {ue course rom enforcing the Instrument, 6.1. Consequenty, therefor, the holder in due course can go against ail parties to the instrument re- ‘araloss of whothor they are parties prior to or subse. {quent tothe completion ofthe instrument SECTION 15, incomplete instrument not dl eredWhere an ingomplate Instrument has not been Sine we complete ud nogtatd w- out author, bssralld contract In the hands of any holder es against any person whose signature wa placed thereon before deivery. “This section involves an instrument which is incom- Plote and undelivered. This is a case where the two steps in the executon of a negotiable instrument ware not com- plied wits. (1) the mechanical writng ofthe Instrument completely; anid (2) the delivery of the instrument. Conse- ues. an incomplete and undelivered instrument has no iogal ative, eat tlaratcan ee ms aug oe ae os cae att co SE Fm 0 Irenenranon ey 1.No rights can ariso in respect of any instrument 2 Negotiable Intrumonts Law until tie delivered ‘What is of decisive importance. isthe. ab th. in strument. The delvery of the insument is the final act, ‘essential to its consummation as an obligation. An unde re bil or pote is inoperative. Untl delvery, the contract ‘s revocable.” 1.1. In simple parlance, delivery gives He to the Instrument. Without delivery, the instnument ie dead, se to sneak, Incomplete and undelivered instru {tact Th the hands of any holder as against a person who ‘signed the instrument prior to its delivery. Note thatthe law ‘says “any holder. The law did not lstnguish between a holder in due course and a holder who ls not a hold ‘due course. Therefore, it includes both. As against a per- ‘son whose signature was placed on the instrument prir to Its dolvory, ne cannot be held lable on the instrument by the holder even I the holder Is a holder in due course 2.1 However, as against persons whose signa tures ate placed on the instrument after ts delvery, they can be held lable thereon by the holder who la & holder in due course, 22 Example: A executed a promissory in favor of B or order but lft tho amount blank and opt the instrument in Fis desk * George A Keutinn ve. The Pine Naonal Bank, 42 Phi poe te2n786 80 Poop. abu 7 SCRA 624 (1977,24 Neaoraaus hermes Law MaDe Esse raver. 8 soe the oot, entered the eum of Pt0,00.00, find negated the inrumentto ©; © ©, Oto E, holder. inthe example ven above, E cannot go agaist A, ven Esa node n due course Because the law s8yS tha he itunes nota valid contract nthe hands of thy fedoras agus A whose egature wes Paced Sroreon port ts dover However € can go against B (he wrong doer who mst aro te eouuauenes oth a and © & 0, Airose signturos ware placed on the Fnetument afer ts Uetvery, Because as general Indorers thoy warrant that the novumort is vad ana substting and, a4 such, here: fore they aro stoped to deny te vaidy of the Ins ment SECTION 16. Delivery; when effectual; when ssumed,—Every contract on a negotiable instcument ‘Incomplete and revocable until delivery of the in- fo. As between immediaie patties and as cagaria a remote party other 32, the delivery, in {Be auhely ofthe facty making, drain. asserting Srindorsing.aa.the-case- may he: and, in auch case, ‘feuinany maybe on 42ave hen candtona ‘or fora special purnosa. only, and not for the purpose ‘of ranaterting the proporyy_intho-inetrument. But ‘were the For 190 renneranon 35 ‘This section deals with an instrument that is complete but undelivered. As adverted to eatler, there are two acts involved in the making of a negotiable instrument. inthis Section, the first act of the mechanical wring of the Ine Strument completely was accomplished. However, the second act of delivery was not accomplshed, Because ee was no delivery, the maker or drawer thertore cid not intend to give legal effect tothe instrument. For as ong a8 the instrument temas UTeNveret tre instrument 1 ‘ineffectual and it may be revoked at will by the maker or ‘he drawer, asthe case may be. 1. Delivery by the maker or drawer tothe payee who takes ine insin threct is the determinative fact that 2 ine strument. o Transtar th paren acaes hie every 1 be etfoctual must be made by or undor the authorty of the person making, drawing, accepting of Indorsing tho instrument 2.1 Delivery, athough instructed by the princi- pal, i not suifcient through an agent unt the agent ‘2ctually delivers the instrument to the payee for whom, itis intended, 22 Maling a negotiable instument to the Payee is sufficient dlivary to give legal etfact thereto. 3. Ordinarly, the delivery of the instrument implies the transfer of onnership of such instrument from one por- ‘0n to another. However, it may be shown thal immediate partes intended the delvery for a purpose other than leanster of ownership over the inetrument. For example, {he delivery of the instrument is only for purposes of coiae: tion; Renee, the transferee is merely insiuted as agent of the holder ofthe instrument. In this case, there is no trans fer of ownership over the instrument.96 Neconame stants Law Mae Easy 4. Once an instrument is no longer in the posses- sion oa party whose signature appears thereon, the prima very of the ‘vals ‘ona. However, ithe said nolder is ah ‘courte, the vakd and imtentonal delivery ofthe instrument is concusvely presumed 4. Example: A exscuted a complete promis- sory rote and kept the same In his desk drawer. B stole the note and negotiated the instrument 10 C, hole. 4.1.1. Sines the note is 90 longer in the possession of A wno signed the instrument, a rime facie presumption of delivery arises In fa- ‘vor of G, the holder, Inasmuch as the presump- ton is only prima facie In nature, proof to the onttary may be presentod by A that there was fo delivery of the Instrument to B and that the lator sto the samo. If proven in this case, tho presumption le destroyed and C cannot go ‘against A, uniess C can prove that he is a older indue cours 4.12 IC can show that he acquired the Instrument under the following circumstances, he ‘wil be deemed to be a Rolder in course: com plete and regular upon is face; betore it was fvetdue or value and in good faith, and with no notice of any detect of tle or equites between the parties” As such holder in due course, the ‘vad and intentional delivery ofthe instrument by 2a B ls conclusively presumed, hence, A can ‘ot ba allowed to prove the contrary. In this case ‘Geean go against A Fons ano nenoneraon 7 SECTION 17. Construction where instrument is is ing rules of canstnuction-epply: A, Where the sum_pa in Beiveen the two, the sum denoted bythe words Te the ‘Sm yabie hiring wordesemigos ounce {aig elerence-may-bo-hoa-to te figucen ia lithe ©), Where the Instrument provides for the pay- ut_apeciiying.thedata irom ment_of Int ot whi nferetinia.cn, the interet una fem he date ¢ Instrument, and ifthe Instrument 1s undated, ‘ome asus thereor * 3) dated as of the timeit was issued the instrument is so ambiguous that the toler ‘may Weat it as ether at his election; {Where «signature placed upon the in strument that Ts Not learn whl sapaciy the per sn aklng- ihe aaa intended ie cigh ae ao be ens antaderer (g) Where_an instrument containing the word “I promos to nai" is signa yf ors. poreone thay ea thence 1. Ros of constuction of ambiguovs language in ‘the instrument: meee 2) As between the sum payable which is ex: reseed in words and that expressed in iy:38 Neco straws Law MADE Esse » o 8 Lures, the one expressed in words shall pre val However, I the one expressed in words. are uncertain, reference may be made tothe figure to fx the amount ofthe sum payable, In the event the inetrument provides for the ‘payment of intrest but the instrument doos fot stato the date when the intorest shal ‘commance to run, then the interest shall bo gin to run from the date of the instrument; but ITthe Instrument dos nat bear a dato, the in terest shall begin to run from the dato of the of he instrument When the instrument is undated, it wil be ated as ofthe day the instrument is issued. [AS between witen and printed provisions, the wtlon provisions shall preva Where the instrument tsot ie 60 ambiguous that # cannot be datermined with certainty wether itis @ promissory note or a bill of ex: Change, the holder may treat it as either at is option Example: ‘sum of P1,000.0. To: Antonio Antonio promise o pay Pablo Pablo or order the (S00) Jose Jose ‘The Instrument sppears to be a promissory note be- ‘:tuse ofthe use ofthe phrase “I promise to pay’; but at ‘ho same timo, the insirumant appears also to be a bl of ‘exchange because of the presence of a drawee. In this, ‘286, the holder may reat the instrument ether as a prom- 'seory note oa il of exchange, at his option, Fons ano nrenneranon 39 1) In case a party tothe instrument signed the instrument in such a way that It cannot be ‘determined whother he oid 0 ae a maker, ‘drawer, acceptor or indorser, then he will be ‘considered fo have signed the instrument as an indorser. 9) If an instrument containing the phrase “I promise to pay" i signed by two or more Bales thereto, al of them are soldary ‘bie thereon 4 [toe he pola rte he alten and carta the pase We promise 0 pay he paca are only liable jointly. iad * SECTION 18. Liabilty of person signing in trade of ageumed name-—No person's lable on the instr cept 48 herein otherwise expressly provided But one ‘wo signin aade a satned aie lo lao the same extent as ithe had signed In his awn name. 1. Gone Rute: No person can be hai Sable on tha jastamant this signature 00s a on 1.4. Thus, the drawina is not table-oa_the-in- strument unless he-accopto-the-oame, However, once ‘he crawee acceots the instument he bacomés the ‘coaplarand-a6-suchbo~poron-prmerty habe ‘herson.” {Part ve, Goma, 7 Pri 94 Pinter Bank v. CA, 218 SCRA 720 196, 30 Necoruas harraeors Law Mane Easy 2. Exceptions: 1. A person who signs in an assumed name or ‘radename. . The signature of a party made by a duly au- en The torger, in cases of forgany_who forges te signtute of another person. Under Section 134, NIL, in acceptance by a separaieinstument. Under Section 135, NIL, inylving.an_uncon- diana peomise in wating to-accopt-sBil be- Joreitis drawn. |. The holder who negotiates, an inetrumant payable to Bearer by mere delvery is table ‘hereon. SECTION 18. Signature by agent; authority; how shown—The signature of any party may be made by @ Guly authorized agent. No particular form of appoint- ‘ment is necessary for this purpose; and the authority fof the agent may be established as in other cases of agency. SECTION 20. Liability of person signing as fagent, and so forth—Where the Instrument contains for a person adds to his signature words indleating that he signs for or on behalf of a principal or in a repre- sentative capacity, he IS Métllable on the Instrument If hho was duly. authorized; b entative character, without disclosing his principal, ‘does not exempt him from personal lablty. Stony. Fora 190 nnenmeranon| 4“ SECTION 21. Signature by, procuration; effect Of-—A signature by “procuration” operates ea notice that the agent has but a limited authority to sign, and the principal 1s bound only in ease the agent in so signing acted within the actual mits of his authority. 1. It person authorizes another to sign an inst: ‘ment for and in his own behat, that is good ae If he signed the instrument personaly 2, The authorty ofthe agent may be given verbally ‘or in iting 25 no form of appoinimant is required by la, ‘except only in cases covered by the statute of rauds 3. Rqusites 10 negative personal libilty of agent 4) He must be duiy authorizes )He must act within the scope of his authority: ©) He must inicate inthe inetrument that he is signing merely as agent: and ©) He must disclose his principal Al the above requisites must concur; otherwise, the agent can be held personaly abe on the inerument. 4. Signature by procuration. This may also be incated by the abbreviation "Per proc’, of the intale ‘A signature per procuraton is notioe thatthe ay has limited authorty, and the prinipal fe bound on Instrument only if the agent signed withis the limits of his ‘authority, Hence, anybody dealing with an agent per proc ‘088 80 at his own per SECTION 22. Effect of indorsement by infant or ‘corporation —The Indorsement or assignment of the Instrument by 8 corporation or by Infant passes the property thereln, notwithstanding” that from want of ‘capacity, the corporation or Infant may Inour no labli= Ity thereon.2 Negorane strane Law Mane Easy 1. AS a general rule, a minor does not have the ca- pacity to conse and any contract entered into by him is Eonadered voidabia, Hence, the minor cannot Bo held tape 2A corporation can only perform acts which are within ‘the soope ol ts powers; otherwise, all acts done utede ois powers are considered ulra vires and can be ‘avoided. Hence, the corporation cannot be held lable. 3. Nonetheless, indorsement of an instrument by a ‘minor or a corporation acting ula vies, passes tte {hereon and the indorsee acquires ownership over such instument as holder, euch that he can enforce payment ‘thereon againa all prior pares. 4, Example: ‘A, maker, executed a promissory note payable to the crder of B, payee, who is a minor. 8 Indorses the note to ic 0, holer. ‘Athough 8 is a minor, his indorsement passes tite cover the nee to C: and © can negotiate the instrument to ‘as holder. D ean not enforce payment against B, minor, ‘tho cannot beheld lable on the note asthe instrument ‘oldabe a his instance or athe Inetance of hig, guardan. D ean go against (maker) and C (ndoreen)* because they cannot put vp the minorty of B as a defense due to ther warranties, te, the existence of the payee and his then copacty to indoreee; thatthe Instrument is vali and subsisting, respectively. SECTION 23. Forged signature; effect of. When a signature Is forged or made without the au- {horty of the person whose signature it purports to be, iis wholly inoperative, and no right to retain the in- strument, or to gWve @ discharge therefore, or to en- Fora ano inrenneranion «a force payment therot against thereto, can be acquired through or under euch elggatures the party againet whom It is sought te enfores "ight fe precluded tom sting up the forgery or wer of authority. our oo * aston 28 sols ony 1 red agnts or syne fof apply fo aered amounts or other mattas hat aller ne Sift of he Instumont in whic cave, Secon Tar on mato araton vil govern 1. Section 23 above states tho gonera te, th tect ol fogery and the excapin fo hel, Pus, 8) The general ris that ho forged signature ma : operiver though he eatunont ie ‘oan betas =a ») The otf stument {eonore payment hereot apt any 96 there, canbe: asl oop o-oo Ep ein cee 5 ©) The excoption to the rule is when the party Sturt -ouachted mn antag up Wo ‘orgery oc want autor. 2. The folowing are precluded from seting up the dotonse of forgery: ) The ladorsars of instauments-payable-toor. 4 Example: A.maker executed note payabie to ine ‘order of B, payee. 8 lost the note, X Tound i, sighed the,“ Neaoraae harman Law MiDe Easy ‘name of B snd negoated the instrument to C; C to D; D to E holder, E can go a and X (forge). They are pee tudes bo as ‘General Indorsers thay warrant tha he instrument is geru- ‘ne andi a espe wha pupa n bean tht the insvurent is vail and subsisng.* X is Goemed to have ‘Signed in an assumed rame and, therefore, has the sam warranties a a general indorser. However, E cannot go against 8 because & noth ‘signed the inttument, nor authorized X to sign for hi.” 50, also, E cannot go. agaist A, maker, because the {8 Als concemed, what C acquired are only the rights of Torger which wae tanafered to D and thence to E, holder. Thereore, E has no ight to rataln the incrument of 10 enforce payment thereot as against A. NB. In cases ofthis nature, he cut-ol formula may bbe used to determine the lables of partes to the holder lhe mstrument Consider the example given above: Stern 88 Ta.n, Fm ao ronan “6 snes vonecen | | 8 (payee tos ne nt) | (ouex — © (indorser) i oseweuteth i | 2 treme t Fe “The cutoff is atthe point where the forgery occured, ‘All those above the cuvotl cannot ba held fable by the holder. Al those below the cu-of are liable to the hole, 1b) The forgary ofthe indorsement ofa payin an instrument payable to bearer beanies ‘such forged indorsement i not necessary 19 the tile of the older since bearer insu. ‘mens can be negotiated by mere deiner, ©) The acceptor ina bil of exchange. Example X Wlorget) executed a bil of exchange by signing ine name of Y-as drawer, making hime! (X) 35 payee of ine Inrument and addressed tne bu to Z as drawee, Then X \Vorger-payee) negotiates the bil to A who presents the lesen! 2 for acnpiare, 2 azo rear ba“6 Neooran herman Law Mioe Esse Ou ting vp crawor? “The answer is No, Z is precluded from putting up the lense of forgery, As acceptor, Z warrants the genuiness (ofthe signaturo ofthe drawer.* 4) The terger. (Pl hereot) ©) Those under estoppel by their declaration, actor omissir tions: Gan Z later refuse to pay the bill by put- otense of forgery of the signature of the 5 S00 example in 2(a) Example X (lrgee) executed a promissory note by signing the name of Yas maker, making himself (X) a8 payee cl the instrument. Than X (lxgerpayee) negotiates the note to A but before accepring he note, A asks Y everything isin fraer wth the note to whien ¥ says: "Ves, That's OKT In this case, Y is precluded from puting up the defense of forgery Because by his decaration, Re Is estopped from denying the vabty ofthe instrument 3. Forgery of @ check where payse's signature is forges. Example: [A (Grawer) signed a check payable to B (payee), ‘drawn against RCBC Bank, as drawee bank. C traudu: lomty obtained sald check and forged the signature of Bas indoreer to himself (G, forger). Then C personaly signs the ‘check and deposits the check to his account at PCIBenk. ‘Then PCIBank indorsed the check to ACBC Bank which aid the amount and consequent charged the account of A drawer, Seton 6, Seaton 2 Pe 1, Rule of Court For no renoneranon a ‘What are the rights and liaities of the pares inthis case? 8) OBC Bank cannot charge te sist of rawer A. CBC as depositoy bank has the contractual obiga- tion to A as depositor pay only the person designated by the drawer as payee or nis order and ne ote ') Since A sutfered no damage inasmuch as CAC Bank cannot ch count, Ais stl babe ‘outstanding ebigation, ©) PCiBank, as collecting bank, is Eabo asin Worser to RCBC Bank. PCIBank shal bear {he loss ts ery remedy is 6 go aga he lorger. ‘As succinctly held by the Supreme Cour in Great Easton Lie Insurance Co, vs. Hongkong & Shana nk" “Where a check is drawn payable to he or er of one person and is presented toa bark by ‘another and purpors upon is face to have duly endorsed by the payee ofthe check, iis te dy ‘ofthe bank to know that the check wes Ga en orsed by the original payee, and wher the bank pays the amount Of the’ check to thie Person, who has forged the signature of the payee, the loss fais upon the bank who cashed the check, and its only remedy is ageinst the Person to whom it paid the money.” ©) A, crawer, cannot go against PCIBank be- Ccuse there is no privity of contract between them * 4a Pa. 0701000,48 Necorane herminents Law Mine Easy 4, Forgery of a check where drawers signaturo is forged, Example: X stole an Aled Bank Chock of Y. X then placed his name on the check as payee and therealter signed the ‘name oY. After personaly signing his name atthe back of ‘he check, X encashed the check at Aliod Bank which paid {and charged the amount to the account of Y. In ths example, Alles Bank cannot charge the ac- count of'Y. Said the Supreme Court in the case of San Carlos. Miting Co, Li Vs. Bark of the Pl. and China Banking Corporation “A bank is boune 10 know the signatures of its customers; it pays a forged check, it must be considered ae making the payment out of funds, and cannot orsinarly charge the ammount 80 paid to the account of the depositor whose fame was forged” cases 1. The instrument in order to be considered nogota- be mist contain the so-called "words of negotiabiliy—Le., ‘must be payable to "order" orto “bearer. (Salas ve. Court (of Appeals, 181 SCRA 296 (1990). 2. The negoibilly or non-negotiabity of an instru. ‘ments determined Irom the writing that is from the face of the instrument tse. (Caltex [Phi]. Inc. vs. Court of Ap Deals, 212 SORA 448 8. Persons wring their names on the face of the promissory notes are makers. (Astro Elactronic Corp. vs. Phi, Export and Foreign Loan Guarantse Corporation, 411 ‘SORA 462 (2003), * 50 Pa. 50,1809, etng 7 Cs, 69. Fon so esoneranon « 4. A.note payable fo @ spectc person is covered by ‘the general provisions of the New Chil Code, not the Nev gotisble Instruments Law. (Garcia vs. Llamas, 417 SCRA 282 (2003). 5. A forged signature ie “wholly inoperative" and payment made “through or under euch signature” i ine fectual or does not discharge the instrument. (Samsung Construction Company Philippines, Inc. vs. Far East Bark ‘and Trust Company, 438 SCRA 402 [2004}, 6. A forged signature is real or absolute delense, ‘and a person whose signature on a negotiable instrument 's forged is deemed to Rave never becoma 8 party thereto {and fo have never consented to the contract that alogely (gave rise to I. (Bank of the Philippine Islands vs. Casa Montsssor Internationale, 430 SCRA 261 [2004),CHAPTER II CONSIDERATION SECTION 24. Presumption of consideration — every person whose signature appears thereon to hhave become a party thereto for value SECTION 25. Value, what constitute ‘any consideration sufficient to support a simple con- {tact An antecedent oF pre-existing debt constitutes value; and is deemed such whether the instrument is payable on demand or ata futur time, 1. Consideration is, some right, interest, benef, or toss or cisscvaniage suffered or undertaken by the pro- mises other than to such a he is at tho time of consent Bound to sur" 2, Valuable consideration means in general terms, some right, interest, profit or benefit to the party who ‘makes te contac, or some forebegrance, detriment, loss, Feeponsbilly, ele on he other side 2.1. Simply put, valuable consideration may be {ned as the obtgation of contracting partis to give ‘ta door not to Go as the cause or mative forthe con: tract ots reason for being. Nps Wore dese PRL AD, touvent ae bat B 50 Consoenaon a ._ Uke any other contract, a negotiable instrument ‘must Be supported by valuablo consideration. Under the law, valuable consideration is presumed, even ifthe words “For Value Received is not written on the instrument However, this is only @ prima facia presumption; hence, it admits of evidence to the contrary. But whoever alleges absence of consideration has the Burden of proot to show the contrary. 4. Value is. any consideration suiclont te suppoda ‘simple_ contrac. Consideration is important to determine ‘omer o nota hoger ea holder for valuo. A heder whe ' nota holder for value cannot be a holder in due course. ‘5, What the law requires is valuable consideration, ‘ot suitcleney or adequacy of consideration. Sufficiency 6 latinguished from adequacy in that the formers rele to the value given as to whether iis enaugh or not whereas, the latter relers to the commensuraioness of the transac: tion as to whether the value given by one to the other is equivalent to each other Example: A prime property in Makati City with a ‘market value of P25,000.00/sq.m. was eold by Esmeralda {or only P10,000.00isq.m. to Tibureo, in connection ‘with which the latter issued a check to the former to conclude the sale. Alter encashment, Esmeralda cannot complain, thatthe sum given is not adequate for the property Sol (Please see Ar. 1388, CC.) The law presumes that man 's capable of managing fis own affairs, and whether his Dargaine are wise or unwise is not @ proper quastion for ‘ether a legal or equitable buna SECTION 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52 Neconua srr Law MaDe Easy pect to al parties who become such prior to that time. 1. A pay who gives valuble consideration forthe inatumen fe note for velo. inthe same manne, to aor (oi the ast inoreee ofan insur Ts so Sonadred a hole for value wih repect to al persone fire becane pares fo the iarumet prio th tne ts {Shown hat valuable conedraton had Boon giver. "2. Scamp sero ‘A issued a promissory in favor of B or order out ove and affection. eS ‘negotiates the note to C as a birthday ie napotates 1 Tor sorvons rendered 0 &, falc is holes or vale with expec to C, 9 & A (even ‘no wate senlgeration was given by one fo fe Sho) because rom te tne of 0 vaiale consideration Was Showa to nov boon given, and tey sre partes to the iRerumont plo he ime valusie conscerton wes sven SECTION 27. When lien on instrument consti- tutes holder for value.—Where the holder has a lien on the Instrument, arising elther trom contract or by im- pllation of law, he Is deemed a holder for value to the extent of his len. Example: ‘A iseued @ promissory note in favor of 8 or order for 1,000.00 In exchange for one sack of sugar. It so hap- ‘Bens that 8 owes © P800.00 and C wanted to colect the sum tom B.To sete is obigaion, 8 nepotiated he note In this example, C has @ lien on he instrument tothe ‘extent of P800,00 ony. Therefore, Cis @ holder for value to he extent of 800.00 whichis his lion on the instrument. With respect to the P200.00, C is not & holder for value Consoenaron 53 thereot because he dd not give valuable consideration taretor. SECTION 28. Effect of want of consideration — ‘Absence or failure of consideration le a matter of Ge- fense as against any person not a holder In due ‘course; and partial fallure of consideration io a de- {fense pro tanto, whether the falure Is an ascertained ‘and liquidated amount or otherwise. 1._ There is absence of consideration # no considera tion is given, oF the consideration i legal 2. There is failure of consideration if the agrees consideration cid not materialize. Partial tai eration Is a defense pro tanto, meaning to the. tal 3, Absence or failure of consideration is only @ per- sonal ‘detense because it Is a good defense only as ‘against a holder who Ie nota holder in due course, It care ‘ot be put up as a defense against a older in due course, 4. Example: A issued a promissory note to B or order as a birhday Git. 8 negotiated fr value to C; C10 0; D 10, holder WE isnot @ holder in due course (e.g. € obtained the ote ater ite overdue). A can put up the detenee of want of consideration and & cannot enforce the instrument against A. Howaver, it Eis a holder in due course, E can 90 against A because want or absence of consideration Is ‘nly @ personal defense which cannot be put up against a holder in due coure, SECTION 29, Liability of accommodation panty. “s/n aecommadtton party i one who hab signed the instrument as maker, drawer, acceptor or ndoronr twtnout receiving value therefor, and forthe purpose of lending his name to some other person. “Such a person a able on tne instrument to 8 Role for value54 Nevorane hermamrs Law Mioe Ease notwithstanding euch holder, at the time of taking the Inatrument, knew him to be only an accommodation party. 1. Requisites tobe an accommodation party 1) The party to the instrument signs as maker, drawer, acceptor or indorser; ) without receiving value therefor; and ©) forthe purpose of lending his name to some ‘other person. Wall the above requisites concur, the accommodation pry is fable fo the holder fr value ofthe instrument even euch holder knew that he ony lent his name to accom- ‘medate another person 2._Itie nota valid defense that the accommodation pary did not receive any valuable consideration when he fxeeuted the Inetument. Its not correct to say thatthe holder for value Is not @ holder in due course merely be- Cause at the ime fe acquired the instrument he knew that ‘he (pany) was only an agcommodation party. ‘2. The accommodation party is liable to the holder for value ofthe instrument in the capacity that he signed. But the accommodation party Is not lable to the accom= mmodated pary,. As a matter of fac, the accommodation Bary is hel lable bythe holder for value, the accommoda- tion party is ented to be reimbursed by the accommo- ‘ated pay 4. Example Peco wanted to borrow money trom Juan, However, ‘Juan was witing 1 give the loan only it Pedro can get Pablo to sign a promissory note in his favor. Hence, with- out receiving “any valuable consideration, the folloing Dromissory note was extended by Pablo Ty ean scan sa zon, aa SSSA Cconseneen 58 100,000.00 Manila, Philippines ‘Apr 30, 2006. | promise to pay to the order of Pecko the sum ‘of “One Hundred Thousand. Pesos {F100.00000, payable ity (0) dye aor (S90) Pablo ‘Then Pedro negotiated the Instrument to Juan, There Juan loaned Pedro the amount of P 100,000.00. In the above example, Pablo is the accommodation party signing as maker, Pedro is the accommodated party. ‘Juan is the Neldar for valve of the inatrumont. ueh cor hold Pabio lable on the note ae maker even Il the former ‘knew that the latter is ony an accommodation party. Pablo cannot put up the defense of absence of consideration, In the event Pablo pays the instrument, he fs entited under the law to be reimbursed by Pedro. although Pedro signed nly as an indorser(orainaniy onty fan accommodated party, Pedro ls really the person prin ly ible on the instrument. cases po 1m aeons based upon a nogolabeinarumer ls umocanary to aero roe ooacerton Co ston ap snout ha ne negate raat (Ong Ye, People, 248 SCRA {2000)). " on " 2. Section 26 oft Negtabie Inserts Law rei & presumption tat every party 6 an ote tcued eamefr a canals fora. Wark 2° Gout Appeae sdb SORA 189 0035 9, Under Seaion 29 of At 2001, an aeconmodaton ary a taba ore pause oa Pt a56 Nesorais Insta Law Mace EASY I, at ho ime of its takng, the lator knew the former to be ‘only an accommodating party. (Garcia vs, Llamas, 417 ‘SCRA 292 (2009), 4. The relationship of an accommodation party and the party aocommodated Is In effect one of principal and surety, such that afte: making payment an accommodation ary has the right 0 claim reimbursement from the party ‘accommodated. (Caneda, ur. vs. Court of Appeals, 181 ‘SCRA 762 [1900). 5. A holder of a check who is not @ holder in due course cannot sue the draweraccommodation patty. (Gloleo Marketing Corporation vs. Court of Appeals, 210 SORA 51 {1992}. ‘6. Where the holder has a len on the instrument afsing trom contrac, ne is deemed a Molde for value 0 the extent of is len, (Caex (Phi Inc. vs. Court of Ap peale, 212 SCRA 448 (1982)) sy unten rf Stionansey Pee ore eRe CHAPTER I NEGOTIATION SECTION 30, What constitutes negotiation —An Instrument 1s negotiated when its traneterred from ‘one person to anather in such manner ae to constitute the transferee the holder thereof. If payable to bearer, It te negotiated by delivery; I payable to order, Ite ‘egotlated by the Indorsement of the holder completed by delivery. g i SECTION 31. Indorsement; how made.—The in dorsement must be waitten on the Instrument itelt or ‘upon a paper attached thereto. The signature of the Indorser, without additional words, 1s a sufficient In- dorsement, SECTION 32. Indorsement must be of entire in- strument.—The Indorsement must be an indorsement of the entire instrument. An Indorsement which pul Ports to transfer to the Indorsee a part only of the ‘amount payable, or which purports to transter the in- strument to two of more Indorsees severally, does not ‘operate as @ negotiation of the instrument. But where the instrument has been paid in part, it may b dorsed as tothe resi 1. Negotiation is the process of transferring an in strument from one person {0 another 20 as t0 consute ‘the transferee the holder thereo. 2. I the instruments is payable to bearer, itis nego- tiated by mere delivery. Indorsement of the instument ‘ot necessary. The person who is the bearer in phylcal possession of ine incrument isthe holr i sr50 ——_Necoraue arnaturs Law Mage Easy 2, If he instrament is payable to order, itis negot- ated by indorsement completed by delivery. ‘The last In- ‘orsee jin physical possession of the instrument is the holder thoroot. 3.1. an instrument payable to order is merely The indorsement was mace betore the instrument was overdue, ‘This is important because a holder in due must have ‘acquired the instrumont before tis overdue on: The indorsement is dated afer them tury of he instrument. 2._ Prima facie presumption > The indorsement was ‘made atthe place where the instrument was dated, ‘This is important in order to determine what fw wit apply as diferent states may have alillarent lave, Fs shown by contrary evidence that the instrument was dated In one place and the Indore: ‘ment thereof occured in another place SECTION 47. Continuation of negotiabie charae- ter.—An instrument negotiable in ite origin continues to be negotiable until thas been restritively Incorsed or dlscharged by payment or otherwise, {An instrument which is originally negotabo continues tobe negotiable unt the folowing occur 1. The instrument is restricively indorsed in such @ ‘manner as to prohibit its futher negotiation; 2, The instrument is clscharged by payment; and7 Neco arrears Law Mine Easy ‘3 The instrument is discharged by the other causes ‘enumerated under Seo. 119 hereot SECTION 48. Striking out Indorsement—The holder may at any time strike out any indorsement vihich is not necessary to his ttle, The indorser whose Indorsement is stuck out, and all Indorsers subso- {quent to him, are thereby relieved from lability on the Instrument. 1._ As aderted to olseanere, an instrument payable to bearer can be negotiated by mere dsivery. Eran i Boar near endorsed ape he aun sod nef be negotatas mere delve, Hence the spec ingersement of a bearer instrument isnot necessary fo the tHe of te Peder Sich boing the cane, the holder may Sie out sid indoremont a any eve 2. Aninsrumen! payable o order cen be negotted by indorsement compote by solver. However, te ony oat indorment an indorsemant in Dank the ger instumen ts converted to ane whi is payable fo boar. In ther words, ie order insvument becomes @ bea insiument due tote bank indorsement nti latter case, al specal indorsements euosequen to the blank Indoremeris may be stieken out bythe holder because thoy are not necessary to tha te. Thee ao becauee the holder then wil be deemed to have acquted tle To the instument tthe lank ndorsemen 2. However, the ease o an istument payable 10 crser wit spect idorsements alle, way up 10 the Fe the itr cannot sie out any of the spac

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