NEGOTIABLE AND INSTRUMENTS LAW REVIEWER e.

Where the instrument is addressed to a drawee, he must be named or otherwise

Navoa, Chantal H. indicated therein with reasonable certainty.

I. Introduction Functions of a Negotiable Instrument

1. History—Governing Law
1. U.S. Uniform Negotiable Instrument Act – where our law is patterned
2. U.S. Uniform Commercial Code
3. Code of Commerce – the law existing and in force as to negotiable instruments
prior to the passage of Act No. 2031, specifically Book II, Art. 443-556
4. Act No. 2031 – the negotiable instruments law of the PH, enacted on Feb. 3,
1911, publication on March 4, 1911, and took effect on June 2, 1911
a. Purpose: Facilitate transactions in commercial paper and to promote
free flow of credit
2. Applicability of the Negotiable Instruments Law
- Only applies to negotiable instruments or instruments
- Must meet the requirement laid down in Sec. 1 of the Act.
- Non-negotiable instruments shall be governed by the Code of Commerce, and
other provisions of the Civil Code
3. Concept of Negotiable Instruments
Definition
- It is a written contract or the payment of money which complies w/ the
requirement in Sec. 1 of Act No. 2031, which is intended for substitute for money
and passes from hand to hand as money, so as to give the holder in due course the
right to hold the instrument free from personal defense available to prior parties.
E.g.: Promissory Note as a written contract
Consent: I promise to pay
Object: Good or service
Consideration: The amount to be paid
Form of Negotiability (Sec. 1)
a. It must be in writing and signed by the maker or drawer;
b. Must contain an unconditional promise or order to pay a sum certain in money;
c. Must be payable on demand, or at a fixed or determinable future time;
d. Must be payable to order or to bearer; and
1. Operates as substitute for money
a. To be pass hand to hand and be freely accepted
2. As a medium of exchange in most commercial transactions
a. To increase the purchasing medium circulation
3. It is an evidence of transaction
4. A medium of credit transaction
a. Man does not always have property or valuable rights that can turn into
money
b. To conduct/ carry out the completion of business
Are checks a legal tender?
- No. They are only substitute for money.
- Their acceptance in the payment of debts is at the option of the creditor (Sec. 60,
NBA)
Legal Tender
Definition
- All notes and coins issued by the BSP shall be a legal tender in the PH for all
debts, both public and private. (Sec. 52 NCBA) (BSP Circular No. 537)
- 1, 5, & 10 peso – P1 000
- 1,5, 10, & 25 centavos – P100
Case Proper
PAL v. CA
Is the issued check payable to the sheriff is considered to fulfill the obligation of the PAL?
- WON payment made to the absconding sheriff by check in his name satisfy the
judgement debt?
- No. Payment of the absconding sheriff by check in his name did not satisfy
the judgement debt. According to 1240 of the NCC, payment shall be
made to the person in whose favor the obligation has been constituted,
or his successor in interest or any person authorized to received it.
Moreover, according to Article 1249 of the Civil Code, payment of debts
in money shall be made with the legal tender of the Philippines, in relation
 to Sec. 189 of Act 2031, stating that a negotiable instrument is only a Yes, following the accumulation of secondary contracts.
substitute for money and not money, hence, delivery of such instrument
does not, by itself, operate as payment. Can E go first to B?
Yes. Since you can go after to any transferors in any order.
In the present case, the payment of debt of PAL was not in cash or legal
tender, but through checks that was not even payable to Amelia Tan or Note:
Able Printing Press, but to Emilio Z. Reyes, the absconding Sheriff. Hence, - When it comes to dishonor, indorsers shall also be notified. Since w/o notification,
the judgement debt remained unsatisfied. indorsers cannot be held liable.
-
Therefore, the PAL was not relieved of its obligation due to failure to pay 5. Incidents in the Life of A Negotiable Instrument
the debt based on the legal tender and issuing a check not payable to the 1. Preparation and signing
payee. a. In PN, the maker
b. In BoE, the drawer
4. Characteristics of a Negotiable Instrument 2. Issuance
1. Negotiability - To whom it will be issued?
a. Whereby it may be pass hand to hand similar to money, so as to give the o In PN & BoE, the payee
holder in due course the right to hold the instrument and collect the sum 3. Negotiation
payable for himself free from any infirmity. - The transfer from one person to another
b. It is different from assignment of right. - When payee transferred the instrument, what is his position?
i. In an assignment, the assignee only stands in the shoes of the o Payee is now the transferor.
assignor. - How about the person where the instrument has been transferred?
2. Accumulation of secondary contracts o Transferee or the holder
a. As the instrument is pass from one hand to another, secondary contracts 4. Presentment for acceptance, in certain kind of BoE
are entered thereto increasing the chances of the holder to collect the - To whom will it be presented?
amount payable on the instrument. o In case of check, it will be the drawee.
b. Additional parties can become involved. - Why does it need to be presented?
E.g.: A promise to pay B in the amount of P10 000 on March 3, 2024. B o It is necessary that the drawee signifies to be ordered to pay
negotiate it to C. C negotiate it to D. D negotiate to E. In the scenario, how the payee.
can you say that there is an accumulation of contracts? - It must be in writing
- If did not accept, may be dishonored.
In the case, the primary contract is between A and B. And, when B transfers o Notice of dishonor
or negotiate it to C, there has been a secondary contract wherein A is no o Protest to the drawee
longer liable. And, so on. 5. Acceptance
6. Dishonor by non-acceptance
If E presents to A, the maker the payment, but dishonored by A. Can E go 7. Presentment for payment
after B, C, D? - Instrument is shown so that the maker or drawer will pay.
- In PN, payee shall present the instrument to the maker.
 - In BoE, payee shall present the payment to the drawee. instrument Drawee – person to whom
8. Dishonor by non-payment Payee – to whom the the instrument is
- In cases of refusal to pay promise is made/ addressed/ who is
9. Notice of dishonor instrument is payable ordered/expected to pay
- In order for the transferors to be held liable Payee – party whose favor
10. Protest the bill is originally
- Protest to the maker or drawee issued/payable
11. Discharge
Example of BoE
6. Kinds of Negotiable Instrument December 30, 2010
1. Negotiable Promissory Note is an unconditional promise in writing made by one Manila
person to another, signed by the maker, engaging to pay on demand, or at a fixed P10 000.00
or determinable future time, a sum certain in money to order or to bearer. (Sec. Thirty days after date, pay to Juan dela Cruz or order the sum of Ten Thousand
184) (P10, 000.00) Pesos. Value received and charge the same to the account of
2. Bills of Exchange is an unconditional order in writing addressed by one person to [Sgd.] Pedro Santos
another, signed by the person giving it, requiring the person to whom it is To Metrobank
addressed to pay on demand or at a fixed or determinable future time a sum Davao
certain in money to order or to bearer. (Sec. 126)
a. Check is a BoE drawn on a bank payable on demand. (Sec. 185) Example of PN
August 30, 2010
Note Manila
- In Sec. 1, what items are applicable to PN? P10, 000.00
o Item letter a, b, c, and d Thirty days after date, I promise to pay to Juan dela Cruz or order the sum of Ten
- In terms of BoE, item letter a, b, c, d, and e are applicable. Thousand (P10, 000.00) Pesos.
[Sgd.] Pedro Santos
7. When Bill is Treated as Notes
- When the instrument is so ambiguous that there is doubt whether it is a bill or 9. Negotiable Instruments Compared to Other Papers
note the holder may treat it as at his election. (Sec. 17(e)) Negotiable Instruments Non-negotiable Instruments
- Where in (1) a bill drawer and drawee is the same person, or where the (2) drawee May be negotiated May not be negotiated
is a fictitious person, or a (3) person not having the capacity to contract, the holder May be assigned May be assigned
may treat it in his option, (Sec. 130) May be transferred May be transferred

8. Bills and Notes Distinguished

PN BoE 10. Some Non-Negotiable Instruments
Nature Unconditional promise Unconditional orer 1. Documents of Title
Parties Maker – one who makes Drawer – one who issues or 2. Letter of Credit
the promise/ signs the draws 3. Certificates of Stock
 4. Postal Money Order
5. Treasury Warrants
II. Form and Interpretation of Negotiable Instruments
1. How negotiability is determined
- It must conform to the form of negotiability found in Sec. 1 of the Act.
2. Effect of Estoppel
- Under the doctrine of estoppel, an admission or representation is rendered
conclusive upon the person making it and cannot be denied or disproved as
against the person relying thereon. A party may not go back on his own acts
and representations to the prejudice of the other party who relied upon them.
(Phil. Bank of Commerce v. Aruego)
3. Requisites of Negotiability (Sec. 1)
1. Must be in writing and signed by the maker/drawer
E.g.: What if I type the instrument, print it, and signed. Will it be considered to be
in writing?
Yes. Sec. 191 defines that written includes printed, and “writing” includes print.
What about the checks printed in a huge paper in game shows. Is it negotiable?
Yes, considering it requires with the Sec. 1. However, those huge paper are only for
photo ops.
2. Must contain an unconditional promise to pay (in relation to Sec. 3) or sum certain
in money (in relation to Sec. 2)
3. Must be payable on demand (in relation to Sec. 7), or at a fixed or determinable
future time (in relation to Sec. 4)
4. Must be payable to order (in relation to Sec. 8) or to bearer (in relation to Sec. 9)
5. Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
Sum Certain in Money (Sec. 2 in relation to Sec. 1(b))
The sum payable sum is a sum certain, although it is to be paid—
a. With interest; or
b. By stated installments or
c. By stated installments, with a provision that upon default in payment of any
installment or of interest the whole shall become due; or
d. With exchange, whether at a fixed rate or at the current rate; or
e. With costs of collection or an attorney's fee, in case payment shall not be made
at maturity.
Examples (Is it sum certain in money?)
1. With interest (Sec. 2 (a))
a. I promise to pay P or order P10,000.00, with interest at 15% per annum.
- Yes.
- How about when it says that it is payable in 2 years with 15% interest?
(P13 000)
o Yes. The entire sum is still certain because the principal sum
of P10, 000.00 is certain as well as the amount of interest
due can easily be computed.
2. With interest at increased/reduced rate (Sec. 2 (a))
a. I promise to pay P or order P10,000.00 with interest at 18% per annum
from date until paid; 15% if paid when due.
- Yes. The entire sum is still certain because the principal sum of P10,
000.00 is certain as well as the amount of interest when due and
increase rate of in case of deliquency can easily be computed.
3. With interest—legal interest (Sec. 2(a))
a. I promise to pay P or order P10,000.00 with interest.
- Yes. The entire sum is still certain because the principal sum of P10,
000.00 and with regards to the interest, NCC provides that in the
absence of agreed interest, the applicable is 6% legal interest. (now
12%)
4. By stated installments (Sec. 2(b))
a. I promise to pay P or order the sum of P1,000.00 in two installments as
follows: P500.00, on or before November 1, 2020 and P500.00, on or
before December 1, 2020.
- Yes. Since the due date of each installment is fixed in the instrument.
Hence, it may still determine.
- Stated installment means that (1) the interest of each installment,
and (b) due date of each instrument must be fixed in the instrument.
5. I promise to pay P1,000.00 in two installments. - Yes. It can still be ascertained from the face of the instrument the sum
- No. It does not fixed the date when the installment is due and of P100 000 is certain as well as the amount of interest due can easily
demandable. be computed.
6. By stated installments, with a provision that upon default in payment of any
installment or of interest the whole shall become due (Sec. 2(c)) Note:
a. I promise to pay P or order P10,000.00 with interest at 15% per annum in - If the instrument provides for the payment of interest without stating the date
four equal monthly installments beginning July 1, 2020. Upon default in from which interest is to run, it shall be computed from the date of the instrument,
payment of any installment or interest, the whole sums shall become due and if the instrument is not dated, from the issue thereof.
and payable.
- Yes. The sum is still certain although payable by installment w/ an Word or Phrases That Indicate Negotiability/ Non-negotiability (In relation Sec. 3)
acceleration clause. The clause requires payment in full immediately PN
upon default on any installment. (not contingency) 1. Negotiable (Implied promise to pay)
- The acceleration is dependent on the maker. a. Due P or order
- Acceleration at the option of the holder is non-negotiable. b. Due P or bearer
7. With exchange (Sec. 2(d)) c. Due P or demand
a. I promise to pay P or order $1,000.00. d. IOU P10, 000.00 to be paid on June 1
- Yes. Payment in foreign currency does not destroy negotiability since e. Payable
the current rate of exchange at any given time may be easily f. To be paid
ascertained by inquiry from the banks dealing on exchange of g. I agree to pay
currencies. h. I guaranty to pay
- Although RA 8183 provides that every monetary obligation must be i. M obliges himself to pay
paid in PH currency, the legal tender. However, parties may still agree j. Good for
that the obligation be settled in any other currency. k. Due on demand
8. With exchange at the current rate (Sec. 2(d)) 2. Non-negotiable (Bare acknowledgement of indebtedness)
a. I promise to pay P or order the sum of $1,000.00 with exchange at the a. IOU P1, 000.00
current rate. b. Due P1, 000.00
- Yes. Payment in foreign currency does not destroy negotiability since c. For value received
the current rate of exchange at any given time may be easily d. I request you to pay
ascertained by inquiry from the banks dealing on exchange of e. I wish you would pay
currencies. f. I authorize you to pay
- The provision on payment w/ exchanges applies to instrument drawn g. I hope you will pay
in one country and payable in another.
9. With costs of collection or an attorney’s fee, in case payment shall not be made at BoE
maturity (Sec. 2(e)) 1. Negotiable
a. I promise to pay P or bearer P100,000.00 on or before December 4, 2020 a. Let the bearer
with 12% attorney's fee and costs of collection if not paid at maturity. b. W (drawee) will oblige R (drawer) to pay P or order, etc.
2. Non-negotiable
 a. Mere request to pay
Unconditional Promise or Order (Sec. 3)
SEC. 3. When promise is unconditional.—An unqualified order or promise to pay is
unconditional within the meaning of this Act, though coupled with—
(a) An indication of a particular fund out of which reimbursement is to be made,
or a particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument.
But an order or promise to pay out of a particular fund is not unconditional.
Examples (Is it an unconditional promise or order?)
It must not be subject to a condition or contingency
1. Indication of a particular fun out of which reimbursement is to be made (Sec.
3(a))
a. Pay to the order of P P1,000.00 and reimburse yourself from the rentals
of my house.
- Yes. In this case, the particular fund is not the direct source of
payment but only the source of reimbursement which is an act
subsequent to the payment.
- In cases of indication of a particular fund out of which payment is to
be made. It is conditional considering that the amount to be paid is
made to depend upon the adequacy or existence of the fund. Here,
the fund is the direct source of payment.
2. Indication of a particular account to be debited with the amount (Sec. 3(a))
a. I promise to pay P or order the sum of P1,000.00 to be debited with his
current account with me.
- Yes. In this case, an instrument which contains direction to debit a
particular account is unconditional because the promise/order is
not also made conditional. The payment does not depend upon the
existence or adequacy of the particular account to be debited.
3. Indication of a particular account to be debited with the amount (Sec. 3(a))
a. Pay P or order the sum of P1,000.00 and charge the same to my account
or to my share of the profits.
- Yes. In this case, an instrument which contains direction to debit a
particular account is unconditional because the promise/order is
not also made conditional. The payment does not depend upon the
existence or adequacy of the particular account to be debited.
4. Indication of a particular account to be debited with the amount (Sec. 3(a))
a. Pay P or order P1,000.00 on account of my contract with you.
- Yes. In this case, an instrument which contains direction to debit a
particular account is unconditional because the promise/order is
not also made conditional. The payment does not depend upon the
existence or adequacy of the particular account to be debited.
- Here, it is only a mere recital of consideration for instrument/origin
of the transaction.
5. Indication of particular fund out of which payment is to be made
a. I promise to pay P or order the sum of P10,000.00 out of my salary in the
government or out of the proceeds of the sale of my shares of stocks.
- No. In this case, the maker is limited to the fund indicated and is not
supposed to pay if that fund should prove insufficient.
6. Indication of particular fund out of which payment is to be made
a. Pay to bearer the sum of P10,000.00 out of the dividends which I may
receive from X corporation.
- No. In this case, the maker is limited to the fund indicated and is not
supposed to pay if that fund should prove insufficient.
7. Indication of particular fund out of which payment is to be made
a. Pay to bearer the sum of P10,000.00 out of my money in your hands or
out of my share of the profits.
- No. In this case, the drawee is limited to the fund indicated and is
not supposed to pay if that fund should prove insufficient.
Determinable Future Time (Sec. 4)
SEC. 4. Determinable future time; what constitutes.—An instrument is payable at a
determinable future time, within the meaning of this Act, which is expressed to
be payable—
(a) At a fixed period after date or sight; or
(b) On or before a fixed or determinable future time specified therein; or
(c) On or at a fixed period after the occurrence of a specified event, which is
certain to happen, though the time of happening be uncertain.
 An instrument payable upon a contingency is not negotiable, and the happening
of the event does not cure the defect.
Examples (Is it determinable future time?)
1. At a fixed period (Sec. 4(a))
a. I promise to pay P or order the sum of P10,000.00 on September 10,
2020.
- Yes. Here, the future date is a fixed time.
2. At a fixed period after date (Sec. 4(a))
a. Sixty (60) days after date, I promise to pay P or order the sum of
P10,000.00.
- Yes. Here, the date of maturity may be determined beforehand by
counting 60 days from the date of its issuance.
3. At a fixed period after sight (Sec. 4(a))
a. Sixty (60) days after sight, pay to the order of P the sum of P10,000.00.
- Yes. Here, the date of maturity may be determined beforehand by
counting 60 days from the day it is presented to the drawee.
- After sight means after the instrument is seen by the drawee upon
presentment for acceptance, or accepted by the drawee.
4. On or before a fixed time (Sec. 4(b))
a. On or before September 10, 2020, I promise to pay P or order
P10,000.00.
- Yes. Here, the maker has the option to pay on Sept. 10, 2010 or
before date. Although, it is necessary that the date of maturity to
stated, otherwise, the time of payment although certain in time is
not determinable.
5. On or before a determinable future time (Sec. 4(b))
a. On or before the start of the next school semester, I promised to pay P
or order P10,000.00.
- Yes. Here, the determinable future time specified is “the next school
semester”. The maker may pay before the start of the semester if he
choose to.
- Determinable future time means a time that can be determined
with certainty after the execution of the instrument.
6. On the occurrence of a specified event (Sec. 4(c))
a. I promise to pay P or order the sum of P10 000.00 upon the death of his
father.
- Yes. Here, the instrument is negotiated because the specified event,
the death of the father of P, is absolutely certain to happen although
the time of happening or occurrence is not known or uncertain.
7. After the occurrence of a specified event
a. Thirty (30) days after the death of his father, I promise to pay P or order
the sum of P10, 000.00.
- No. Here, the date of maturity of the instrument can only be
ascertained after it has become overdue, and, therefore, the time
for payment is uncertain.
- The law only allows on or at a fixed period after.
8. Upon a contingency
a. Pay to the order of P the sum of P10, 000.00 upon his reaching the age
of majority.
- No. Here, the order is conditional. The payment is not certain since
there is a possibility that if P dies, the bill will never mature.
- The character of the negotiable instrument does not depend on the
future event.
- Contingency is an uncertain future event which may or may not
happen.
9. Upon a contingency
a. I promise to pay P or order the sum of P10, 000.00 if his father should
die w/in five years.
- No. If there is no length of time w/in which the death may take
place, the maturity is a determinable future time.
10. Payable when able, as soon as I can, etc.
- No.
Additional Provisions Affecting Negotiability (Sec. 5)
SEC. 5. Additional provisions not affecting negotiability.—An instrument which
contains an order or promise to do any act in f addition to the payment of money
is not negotiable. But the negotiable character of an instrument otherwise
negotiable is not affected by a provision which—
(a) Authorizes the sale of collateral securities in case the instrument be not paid
at maturity; or
(b) Authorizes a confession of judgment if the instrument be not paid at maturity;
or
 (c) Waives the benefit of any law intended for the advantage or protection of the
obligor; or
(d) Gives the holder an election to require something to be done in lieu of
payment of money.
But nothing in this section shall validate any provision or stipulation otherwise
illegal.
General Rule: The instrument is non-negotiable if it contains a promise or order to do any
act in addition to the payment of money.
Exceptions: Those laid under Sec. 5
Examples
1. Application of the general rule
a. I promise to pay P or order the sum of P10,000.00 and to deliver a horse.
2. Sale of collateral securities (Sec. 5(a))
a. I promise to pay P or order the sum of P10,000.00 on November 25,
2013, secured by a ring I delivered to him by way of pledge and which he
could sell should I fail to pay him at maturity.
- Here, the additional act is to be performed after the date of
maturity when the instrument is no longer negotiable in the full
commercial sense. Until the date of maturity, the promise is to pay
money only.
The statement that an instrument is secured by a collateral only adds to the
marketability of the instrument as a substitute for money or credit
instrument.
3. Confession of judgement (Sec. 5(b))
a. "For value received, I promise to pay P or order the sum of P10,000.00
with interest at 15% per annum and I hereby authorize my attorney-at-
law to appear in any court of record after the obligation becomes due
and waive the issuing and service of process and confess a judgment
against me in favor of the holder of the note for such amount as may
appear to be unpaid thereon, together with cost of suit and 12%
attorney's fees, and thereupon to waive all errors in any such
proceedings and waive all rights of appeal."
- Warrants of attorney to confess is not authorized. The second
paragraph of the provision also states that nothing in the said
section “shall validate any provision or stipulation otherwise illegal.”
But the invalidity of die provision as to the confession of judgement
does not render the instrument non-negotiable.
- Confession of judgement enables the holder to obtain judgement
w/o delay usually incident to a law suit, as it eliminates the
necessity of a trial. It is a written statement signed by the
defendant, setting forth the basis of liability and authorizing the
entry of judgement thereon.
4. Waiver of benefit granted by law (Sec. 5(c))
a. Pay bearer P10,000.00. Notice of dishonor waived.
- Also includes:
o Waiver of protest
o Presentment for payment
o Demand
o Exemption from attachment or execution
o Homestead
5. Election of the promissor to require some other act
a. I promise to pay P or order P15,000.00 or brand new aircon.
- If the option is with the promissor, the instrument is non-negotiable
because the holder cannot compel him to make payment in money.
6. Election of holder to require some other act (Sec. 5(d))
a. I promise to pay P or order P15,000.00 or an aircon at the option of the
holder. (Sec. 5(d))
- Here, the holder has the choice.
Omissions, Seal, & Particular Money (Sec. 6)
SEC. 6. Omissions; seal; particular money.—The validity and negotiable character of
an instrument are not affected by the fact that—
(a) It is not dated; or
(b) Does not specify the value given, or that any value has been given therefor; or
(c) Does not specify the place where it is drawn or the place where it is payable;
or
(d) Bears a seal; or
(e) Designates a particular kind of current money in which payment is to be
made.
 But nothing in this section shall alter or repeal any statute requiring in certain
cases the nature of the consideration to be stated in the instrument.
Refer to this example
(date of issuance) January 1, 2021
I promise to pay Mr. X or order P8, 000 US currency payable in PH Peso on January 10
2022 (date of compliant) at a rate of 1 peso per dollar. [30 days after date]
Sgd. Y
Omission as to Date (Sec. 6(a))
GN: Omission of date is negotiable (Date will be the date of issuance)
XPN: When the date is necessary
Note
- Date of issuance may be omitted, date of compliant may not.
- If there is no date of issuance: date may be inserted by the holder
- Date is only necessary to identify it the payment has been made on time.
Examples
1. Where the said date is tied to the date issue
E.g.: I promise to pay P or order P10, 000.00 thirty days after date. (or after sight)
Here, the date of issue is necessary to determine the date from which to start
counting thirty days. Nevertheless, the instrument is negotiable although it is not
dated.
This is because the holder may still insert the true date. (Sec. 13). The insertion
of a wrong date. However, will not avoid the instrument in the hands of an
innocent 3rd party who may enforce the same notwithstanding the improper
date.
2. Where the interest is stipulated for the purpose of determining when the interest
is to run (see Sec. 17(c))
3. In case of PN, the date of issue, and in the case of BoE, the date of the last
negotiation thereof, for the purpose of determining whether a party acted w/in a
reasonable time in making presentment for payment. (see Sec. 70, 71, 144)
Note
- Presumption as to date (Sec. 11)
o The date of the instrument, acceptance or any indorsement is seemed
prima facie the true date of the making drawing, acceptance, or
indorsement.
- Antedated and postdated (Sec 12)
o It doesn’t render the instrument invalid, provided that it is not done for an
illegal or fraudulent purpose. Hence, instrument may be ante-date or post-
dated
o Antedated is when it contains a date earlier than the true date of its
issuance
o Postdated is when it contains a date later than the true date of its
issuance
- When date may be inserted (Sec. 13)
o Payable at a fixed period after date is issued undated
o Acceptance of an instrument payable at a fixed period after sight is
undated
- Date stated in calendar: No date in calendar, apply the nearest date of the month
Omission of Value (Sec. 6(b))
Effect
- Usual to state in the instrument that it is given for “value received” w/o specifying
what that value is. But it is not even necessary to state that value has been received
for the instrument because consideration is presumed. (Sec. 24; prima facie)
E.g.: Pay to bearer P10 000.00.
The bill is negotiable although it does not specific the value given or that any
value has been given thereof. They payable amount is the one need to be
included.
Omission of Place (Sec. 6(c))
Effect
- Sec. 1 of the Act does not require a negotiable instrument to specify the place where
it is made or drawn or where it is payable.
- However, Sec. 73 specifies where presentment for payment should be made when the 2. I promise to pay P or order P10, 000 upon receipt to me of my share from the
place of payment is not specified. estate of X or upon demand.
- An instrument that does not specify the place of payment is presumed to be payable
at the place of residence of business of the maker or drawer. Here, P may rely on the word upon demand.

Presence of Seal (Sec. 6(d)) Note:

Effect - Other permissible words:
- Under our law, there is no such distinction. The fact that the instrument bears a seal o On demand (mainly on PN)
does not destroy its negotiability. o At sight (mainly on BoE)
- Advisable for the instrument to appear in public so that it will be included among the o On presentation
preferred credits w/ respect to other property of the debtor. o On call
o At any time called for
Designation of a Particular Kind of Current Money Payable (Sec. 6(e)) - An overdue instrument is necessarily a demand paper.
Effect
- Promise/order call for payment of money but the law does not require that payment Payable on demand as regards the maker
should be made in legal tender. - A note dated July 3, 2013 and payable “thirty days after date” is issued on August 4,
- Money, as used in law, is not necessarily limited to legal tender. 2013. (when it is already overdue)
E.g.: I promise to pay to P or order the sum of P100 000.00 in Central Bank notes
of P1, 000 bills. Payable on demand as regards the acceptor
- A bill payable on August 20, 2013 is accepted by the drawee on August 21, 2013.
It is valid, although is designates a particular kind of money, in which payment is (which is already overdue)
to be made. - A note payable thirty days after August 1, 2013 is indorsed on September 1, 2013.

Payable on Demand (Sec. 7)
SEC. 7. When payable on demand.—An instrument is payable on demand—
(a) Where it is expressed to be payable on demand, or at sight, or on
presentation; or
(b) In which no time for payment is expressed.
Where an instrument is issued, accepted, or indorsed when overdue, it is, as
regards the person so issuing, accepting, or indorsing it, payable on demand.
Expressed to be Payable on Demand (Sec. 7(a))
Examples
1. I promise to pay bearer on demand P10, 000.00.
Payable to Order (Sec. 8) (different from Sec. 1(d))
SEC. 8. When payable to order.—The instrument is payable to order where it is
drawn payable to the order of a specified person or to him or his order. It may
be drawn payable to the order of—
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order the payee must be named or
otherwise indicated therein with reasonable certainty..

Note
- “P or order” or “to the order of P” refers to P and assigns
Examples
1. Pay to the order P P10, 000.00. [nego]
2. Pay to P or order P10, 000.00. [nego]
3. Pay to P P10, 000. 00. [non-nego]
4. To order of payee who is not the maker. (Sec. 8(a))
a. I promise to pay P10, 000.00 to the order of P.
(Sgd.) M
5. To order of payee who is not the drawer. (Sec. 8(a))
a. Pay to the order of P P10, 000.00.
(Sgd.) R
6. To order of payee who is not the drawee. (Sec. 8(a))
a. Pay to the order of P P10, 000.00.
(Sgd.) R
To: W
7. To order of drawer. (Sec. 8(b))
a. Pay to the order of myself (R) P10, 000.00.
(Sgd.) R
To: W
8. To order of maker. (Sec. 8(b))
a. I promise to pay to the order of myself (M) P10, 000.00.
(Sgd.) M
9. To order of drawee. (Sec. 8(c))
a. Pay to the order of yourself P10, 000.00.
(Sgd.) R
To: W
10. To order of two or more payees jointly. (Sec. 8(d))
a. Pay to the order of P and A P10, 000.00.
11. To order of one or some of several payees. (Sec. 8(e))
a. Pay to the order of P, A, or B P10, 000.00.
Pay to the order of P, A, and B or any of them or any two of them.
(Sgd.) M
12. To order of holder of an office for the time being. (Sec. 8(f))
a. Pay to the order of the CIR
Pay to the order of the Treasurer, PNB.
(Sgd.) M
Payable to Bearer (Sec. 9)
SEC. 9. When payable to bearer.—The instrument is payable to bearer—
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or person, and such fact was
known to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of any person;
or
(e) When the only or last indorsement is an indorsement in blank, sufficient
terms.
Example
1. Expressed to be payable to bearer (Sec. 9(a))
a. I promise to pay bearer P10, 000.00.
I promise to pay bearer, P, P10, 000.00.
2. Payable to person named therein or bearer. (Sec. 9(b))
a. Pay to P or bearer, P10, 000.00.
Pay to P or holder, P10, 000.00.
3. Payable to order of a fictitious person. (Sec. 9(c))
a. Pay to John Doe or order P10, 000.00.
4. Payable to order of non-existing person. (Sec. 9(c))
a. Payable to the order of the king of the planet Jupiter.
5. Name of payee not name of person. (Sec. 9(d))
a. Pay to cash
b. Pay to cash or order
c. Pay to money
6. Only indorsement in blank (Sec. 9(e))
FACE
Pay to P or order P10, 000.00
Sgd (R)
To: W
Manila
 If no rate of interest is mentioned, it will draw interest at the legal rate.
BACK 4. Instrument undated (Sec. 17(b&c))
_______(blank) a. Considered dated as of the date of its issue.
Sgd (P) b. Issue is the 1st delivery of the instrument complete in form, to a person
7. Last indorsement in blank (Sec. 9(e)) who takes it as holder.
FACE E.g.: If the PN has no date but it was delivered to the payee on Oct. 15,
Pay to P or order P10, 000.00 2010, then the note will be considered dated as of the same time.
Sgd (R ) 5. Written and printed provisions in conflict (Sec. 17(d))
To: W a. Written prevail
Manila b. Written word are deemed the true intention of the maker or drawer
because they are place there by himself.
BACK 6. Whether instrument bill or note in doubt. (Sec. 17(e))
Pay to A a. Holder may treat either at his election.
Sgd (P) E.g.:
Pay to B I promise to pay P or order P10, 000.00
Sgd (A) (Sgd.) R
_______(blank) To: W
Sgd. (B) 7. Capacity in which person signed in doubt (Sec. 17(f))
a. Doubt as to what capacity the person making the instrument intended
When are terms sufficient (Sec. 10) to sign, he is to be deemed an indorser.
- Any terms are sufficient which clearly indicate an intention to conform to the b. Only applies when there is ambiguity w/ the location of the signature.
requirements. i. For maker, lower right-hand corner
ii. For drawee, lower left-hand corner
Rules of Construction Where the Instrument is Ambiguous (Sec. 17) iii. For holder, negotiates by signing on the back
1. Sums expressed in words and in figures are different. (Sec. 17(a)) E.g.: A promissory note payable to the order of P is signed by M as
a. When there is discrepancy bet. the two, the former controls. maker.
b. Reason: It is easier for the figures to be changed or commit a mistake on
them than the words. If P writes his name across the face of the note, P will be deemed an
2. Words ambiguous or uncertain (or when omitted) (Sec. 17(a)) indorser. P cannot be an acceptor because the instrument is not a BoE.
a. Reference may be made to the figures to determine the amount. 8. Instrument signed by two or more persons
E.g.: If a check bears the figure P365.00 and the amount written is a. It gives rise to solidary liability. Hence, anyone of the signers may be held
“three-sixty five pesos.” liable for the whole amount of the instrument.
3. Date when stipulated interest to run not specified (Sec. 17(b)) E.g.: (Rule also applies) “I, we, or either of us promise to pay” or “I or we
a. Interest runs from the date of the instrument promise to pay”
E.g.: A PN payable “w/ interest at 16% per annum from…” will earn
interest from the date of the note, or the date – of its issue. (Rule do not apply when) “We promise to pay” signed by two makers, it
only imparts joint liability.

III. Transfer and Negotiation
Incomplete but Delivered Instruments (Sec. 14)
SEC. 14. Blanks; when may be filled.—Where the instrument is wanting in any material
particular, the person in possession thereof has a prima facie authority to complete it
by filling up the blanks therein. And a signature on a blank paper delivered by the
person making the signature in order that the paper may be converted into a
negotiable instrument operates as a prima facie authority to fill it up as such for any
amount. In order, however, that any such instrument when completed may be
enforced against any person who became a party thereto prior to its completion, it
must be filled up strictly in accordance with the authority given and within a
reasonable time. But if any such instrument, after completion, is negotiated to a
holder in due course, it is valid and effectual for all purposes in his hands, and he may
enforce it as if it had been filled up strictly in accordance with the authority given and
within a reasonable time.
Dissection of the Provision
1st sentence in relation to 3rd sentence
Wanting in any material particular: Incomplete or blank
- When incomplete, the person in possession of the instrument has a prima facie
authority to complete it by filing up the blanks.
4th sentence
Holder in Due Course (HDC)
- If an instrument is negotiated to HDC, it is valid and effectual…he may enforce it as if
it had been filled up strictly in accordance w/ the authority given and w/in a
reasonable time.
Examples
1. M gives P a blank (as to amount) promissory note for safekeeping purposes. If P
inserted P10, 000.00 and negotiates it to A. Can A collect from M?
If A is not HDC: No. But he can go after P as an indorser.
If A is HDC: Yes.
Examples
Do P have the prima facie authority to complete the document?
- No. Prima facie authority can only be referred to that there is such
authority if the person trying to promise wants it to be converted to a
negotiable instrument.
Here, the only purpose is for safekeeping purposes, not negotiation.
2. M gives P a blank (as to amount) promissory note and authorize him to insert
P5000.00. P inserted P5, 000.00 and negotiates it to A. Can A collect from M P5,
000.00?
If A is not HDC: Yes.
If A is HDC: Yes.
He can collect regardless if he is HDC or not because it was filled up strictly in
accordance w/ the authority given.
What is the difference bet. the 1st and 2nd example?
- 1st: safekeeping purposes only
- 2nd: authorize him to insert P5, 000.00
3. M gives P a blank (as to amount) promissory note and authorize him to insert P5,
000.00. However, P inserted P10, 000.00 and negotiates it to A. Can A collect
from M P10, 000.00.
If A is not HDC: No. Either P5, 000.00 or P10, 000. Since he did filled it up strictly
in accordance with the authority given to him.
- If A is HDC: Yes. At the amount of P10, 000.00. For the reason that he may
enforce it as if it had been filled up strictly in accordance w/ the authority given
and w/in a reasonable time.
Incomplete and Undelivered Instruments
Incomplete and undelivered is a real defense
SEC. 15. Incomplete instrument not delivered.—Where an incomplete instrument has
not been delivered it will not, if completed and negotiated, without authority, be a
valid contract in the hands of any holder, as against any person whose signature was
placed thereon before delivery.
 1. Suppose M makes a note for P10, 000.00 with the name of the payee in the blank
and keeps it in his drawer. P steals the note and insert his name as payee and
then indorses the note to A, A to B, B to C, and C, to D, a HDC. Can D collect from
M?
D being a holder cannot collect from M.
Where an incomplete instrument has not been delivered it will not, if completed
and negotiated, without authority, be a valid contract in the hands of any holder,
as against any person whose signature was placed thereon before delivery.
Hence, considering that the instrument in the case is incomplete and
undelivered D cannot collect from M, regardless if he is a HDC. (even if he is not
an HDC)
- Why is the instrument incomplete?
▪ Since the name of the payee is blank?
- Why is it undelivered?
▪ Since P merely steals the note and is not intended for delivery
Complete but Undelivered Instruments (Sec. 16)
SEC. 16. Delivery; when effectual: when presumed.—Every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the
purpose of giving effect thereto. As between immediate parties, and as regards a
remote party other than a holder in due course, the delivery, in order to be effectual,
must be made either by or under the authority of the party making, drawing,
accepting, or indorsing, as the case may be; and in such case the delivery may be
shown to have been conditional, or for a special purpose only, and not for the purpose
of transferring the property in the instrument. But where the instrument is in the
hands of a holder in due course, a valid delivery thereof by all parties prior to him so
as to make them liable to him is conclusively presumed. And where the instrument is
no longer in the possession of a party whose signature appears thereon, a valid and
intentional delivery by him is presumed until the contrary is proved.
Concept of Remote and Immediate Parties
Definition
- Remote parties are those who are not in direct contractual relation to each other.
- Immediate parties are those who are “immediate” in the sense of having or
being held to know the conditions or limitations placed upon the delivery of the
instrument.
- Contemplate privity
Illustration
1. Supposed M makes a note for P10, 000.00. payable to P and keeps it in his
drawer. P steals the note and then indorses the note to A, A to B, B to C, and C to
D.
a. D, C, D, A is a remote party as regards to M.
b. P is immediate party as regards to M.
2. Supposes D knows that P stole the note.
a. D is immediate party as regards to M.
3. Supposed M delivers the note to P for safekeeping purpose only and D know the
purpose.
a. D is immediate party as regards to M.
Example
- Supposed M makes a note for P10, 000.00 payable to P and keeps it in his drawer.
P steals the note then indorses the note to A, A to B, B to C, and C to D. Can D
collect from M if:
o D is not HDC: D as an immediate party, and not HDC. He cannot.
o D is HDC: He can collect. Applying the 3rd sentence
An undelivered instrument is inoperative because delivery is a prerequisite to
liability. Technically, for M to be liable, in case where D is not HDC, and the
instrument was undelivered. D cannot collect since there is no delivery that took
place. Hence, there is also no liability.
Question
- What if there is an evidence that the delivery is invalid?
o In such case where the instrument is in the hands HDC, it is considered a
valid delivery by all parties prior to him so as to make them liable to him
is conclusively presumed.
Hence, even if there is evidence presented that the delivery is invalid,
but because of the conclusive presumption, D can still collect.
Two Kinds of Presumption
- Conclusive must be accepted w/o any opportunity to be rebuttable
- Rebuttable is presumes to be true unless proven otherwise