Negotiable

Instruments
Law
Secs. 1-13 Forms and Interpretation
of Negotiable Instruments
 REQUISITES OF NEGOTIABILITY

• SECTION 1. Form of negotiable instrument.—An instrument

to be negotiable must conform to the following requirements:
(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;
(Sec. 2 & Sec. 3)
(c) Must be payable on demand, or at a fixed or determinable future time; (Sec. 4)
(d) Must be payable to order or to bearer; and ( Secs. 7, 8, and 9)
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
 FORMAL REQUIREMENTS OF
NEGOTIABILITY IN GENERAL

• The following must be considered:

1. The whole of the instrument;
2. Only what appears on the face of the instrument; and
3. The Provisions of the Negotiable Instruments Law especially Sec. 1 thereof
which fully defines the requirements an instrument must meet in order to be
negotiable.
 APPLICABILITY OF FORMAL
REQUIREMENTS
PROMISSORY NOTE
Requirements indicated in
subsections a, b, c, and d
The maker issues the promissory
note
Unconditional promise
Section c and d applies
BILLS OF EXCHANGE
All subsections are necessary for
negotiability
The drawer issues a bill
Unconditional order
Section c, d, and e apply to bills
of exchange
 MUST BE IN WRITING

• The instrument must be in writing, or reduced to a tangible form; otherwise,

nothing could be negotiated or passed from hand to hand.
• Writing includes not only that which has been written on paper and with a pen
or pencil but also that which is in print or has been typed.
• The usual way is to have the instrument written or printed in durable paper.
Take note however that nowhere in the law is it required to be in paper.
• There is no such thing as an oral negotiable instrument.
SIGNED BY THE MAKER OR DRAWER
• May be placed anywhere and will remain valid so long as it appears that a
person intended to make the instrument his own.
• The signature is prima facie evidence of his intention to be bound as either
maker or drawer; However, if the placement is dubious then the person signing
may only be considered as an indorser.
• Preferably the full name or the surname should appear BUT the initials of a
person or any mark will be sufficient provided that such signature or mark used
as a substitute and the maker or drawer intends to be bound.
SIGNED BY THE MAKER OR DRAWER

• Where the genuineness of the signature of the maker or drawer is denied, the
party against whom it operates must provide some evidence of its invalidity
because the signature is presumed valid. The party asserting its validity must
then provide proof of its genuineness in long hand.
PROBLEM:

• Mr. Matthew Romeo borrowed P1,000.00 from Ms. Razel Mae as evidenced by
a promissory note executed by X as maker. All other requisites of negotiability
are present in the note except that Mr. Matthew Romeo did not affix his usual
signature thereon. As Mr. Matthew was ailing at that time, he was only able to
put “X” in the blank space meant for the signature of the maker. Is the requisite
that ” the instrument must be signed by the maker” complied with?
THE INSTRUMENT MUST CONTAIN AN UNCONDITIONAL
PROMISE OR ORDER TO PAY ( 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.
PROMISE TO PAY

• In order that a promissory note may be negotiable, it must contain an

unconditional promise to pay. It is not essential, however that the word
”promise” should be used. Any words equivalent to a promise or assumption of
responsibility for the payment of the note ( like “payable”, ”to be paid”, “I
agree to pay”, ” I guaranty to pay” “ X Obliges himself to pay”, ”Good for”,
”due on demand”, etc.) on the face of the instrument are sufficient to constitute
a “promise to pay”
PROMISE TO PAY

• A bare acknowledgement of indebtedness alone is not a negotiable instrument.

It does not constitute a promise to pay. However, if words of negotiability are
added, the instrument is negotiable although it contains no express promissory
words since the written promise to pay may be fairly inferred therefrom.
PROBLEM

“I.O.U. P 10,000.00 TO BE PAID ON SEPT. 30”

ORDER TO PAY

• It is also not necessary that the words order in a bill of exchange to satisfy the
requirement. Any other words which are equivalent to an order or which show
the drawer’s will that the money should be paid are sufficient.
• The language used in the law is not a request. The drawer does not merely ask
or even expect the drawee to pay. He demands that the drawee make payment.
• It is immaterial whether the drawee obeys the order to pay or not. The
negotiability of a bill depends upon the terms of the order.
WHEN UNCONDITIONAL

• The promise or order must not be unconditional , that is it must not be subject
to any condition or contingency except implied conditions of presentment,
protests, and notices of dishonors as provided in law.
• The note or bill must be payable absolutely.
PROBLEM

"I PROMISE TO PAY GIGI HADI OR ORDER P10,000.00 WHEN SAMUEL

TAN GETS MARRIED TO JUSTIN BEIBER”
TERMS NOT AFFECTING
UNCONDITIONAL LIABILITY

• The mere indication of the particular fund out of which reimbursement is to be

made, or an indication of a particular account to be debited with the amount
does not render the promise or order conditional. ( Applicable to bills of
exchange only)
• A negotiable instrument remains negotiable despite a statement of the
transaction which gives rise to it.
• Additional terms appearing on an instrument do not make the promise or order
conditional if the duty to pay is unaffected by such terms
INDICATION OF A PARTICULAR FUND
FOR REIMBURSEMENT

• An instrument which mentions a particular fund out of which reimbursement is

to be made is negotiable because the order to pay is not rendered conditional.
The drawee is not limited to the money in his hands belonging to the drawer
• The fund indicated is not the direct source of payment but only the source of
reimbursement which is an act subsequent to the payment.
INDICATION OF A PARTICULAR FUND
FOR REIMBURSEMENT
FUNDS FOR REIMBURSEMENT PARTICULAR FUND FOR PAYMENT

DRAWEE PAYS THE PAYEE FROM HIS OWND THERE IS ONLY ONE ACT: THE DRAWEE PAYS
FUNDS; AFTERWARDS, THE DRAWEE PAYS DIRECTLY FROM THE PARTICULAR FUND
HIMSELF FROM THE PARTICULAR FUND INDICATED. SUBJECT TO A CONDITION.

PARTICULAR FUND INDICATED IS NOT THE PARTICULAR FUND INDICATED IS THE

DIRECT SOURCE OF PAYMENT DIRECT SOURCE OF PAYMENT

INDICATION IN THE INSTRUMENT DOES NOT INDICATION IN THE INSTRUMENT MAKES

AFFECT THE UNCONDITIONAL NATURE OF THE PROMISE OR ORDER CONDITIONAL
THE PROMISE OR ORDER
INDICATION OF A PARTICULAR FUND
OUT OF WHICH PAYMENT IS MADE

• An instrument payable out of a particular or specified fund is non-negotiable

because the amount to be paid is made to depend upon the adequacy or existence
of the fund designated.
• The fund specified is the direct source of payment and the measure of liability. It
is immaterial whether or not the fund actually exists or is yet to be created. The
instrument remains non negotiable even if the fund is found to be sufficient at
maturity.
• The test of negotiability is whether the instrument carries the general personal
credit of the maker or drawer.
PROBLEM

• “Pay to the order of Tommy Buns P10,000.00 and reimburse yourself from the
P10,000,000.00 you owe me”
PROBLEM

• “Pay to the order of Tommy Buns P10,000.00 out of the P10,000,000.00 you
owe me”
PROBLEM

• (1) "I promise to pay P or order the sum of PI,000.00 to be debited with his
current account with me/'

• (2) "Pay P or order the sum of PI,000.00 and charge the same to my account" or
"to my share of the profits."

• (3) "Pay P or order PI,000.00 on account of my contract with you."

STATEMENT OF TRANSACTION WHICH
GIVES RISE TO INSTRUMENT
• Instruments are issued by reason of the transaction upon which they are based.
• The mere recital of the consideration for which the instrument was issued or
mere reference to a separate agreement out of which the instrument has arisen,
does not make it conditional. Such kind of reference has no adverse.
PROBLEM

• "I promise to pay to the order of P P300,000.00 being the price of a car this day
sold and delivered to me."
TERMS AND CONDITIONS CONTAINED
IN ANOTHER PAPER

• Not negotiable because the obligation to pay is burdened with the terms and
conditions of another contract, subjecting recovery on the instrument to
defenses available under the contract. Furthermore, this will require an
examination of said contract to determine the rights and obligations under the
instrument. Such instrument is non-negotiable regardless of what the terms of
that contract actually are.
• Negotiability is determined from what appears on its face alone and not
elsewhere.
THE INSTRUMENT MUST BE PAYABLE IN A
SUM CERTAIN IN MONEY ( SEC. 2, 5, AND 6)

• SEC. 2. Certainty as to sum ; what constitutes.—The sum

payable sum is a sum certain within the meaning of this Act,
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.
THE INSTRUMENT MUST BE PAYABLE IN A
SUM CERTAIN IN MONEY ( SEC. 2, 5, AND 6)

• 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.
THE INSTRUMENT MUST BE PAYABLE IN A
SUM CERTAIN IN MONEY ( SEC. 2, 5, AND 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.
SUM CERTAIN IN MONEY ( Sec. 2)

• Since a negotiable instrument is a device intended to take the place of money, it

is, therefore, essential that it represents a fixed amount to be paid wholly in
money.
• The amount to be paid must be stated plainly on the face of the instrument and
must be determinable from the face of the instrument itself without reference to
any outside source.
• It meets the “sum certain” requirement if the holder can determine from the
instrument itself the amount he is entitled to receive at maturity.
SUM CERTAIN IN MONEY ( Sec. 2)

• The sum is not rendered uncertain by a clause in the instrument that it is to be

paid with:
• Interest
• Stated installments
• Exchange
• Costs of collection
• Attorney’s fees.
• Acceleration clause
SUM TO BE PAID WITH INTEREST

A provision for the payment of interest does not render the instrument non-
negotiable because it does not make uncertain the sum payable.
Ex.
“I promise to pay B or order P10,000.00, with interest at 15% per
annum”
SUM TO BE PAID WITH INTEREST

• A provision for increased interest rate if the note is not paid at maturity or for a
reduced rate if payment is made at or before maturity or for payment of interest
on interests does not destroy negotiability.
• Ex.
“ I promise to pay P or order P10,000.00 with interest at 15% per annum, from date until
paid; 12% if paid when due”
SUMS TO BE PAID BY STATED
INSTALLMENTS

• Does not affect negotiability.

• Stated installments within the meaning of this section, means that:
• The interest of each installment, and
• The due date of each installment must be fixed in the instrument
PROBLEM

• “ I promise to pay Bert or order the sum of P10,000.00 in two installments as

follows: P5000 on or before August 1, 2023 and P 5000 on or before September
1, 2023”

• I promise to pay Bert or order the sum of P5000 in two installments.

INSTALLMENT WITH ACCELERATION
CLAUSE

• An acceleration clause is a common provision found in contracts whereby the

debtor promises that should they default on any installment or interest , the
whole amount due shall become due.
• In other words, it is a penalty clause which requires the payment of the whole
amount including interest upon failure to pay an installment.
• Ex.
“Upon default in payment of any installment or interest, the whole sum shall become due and
payable”
SUM TO BE PAID WITH EXCHANGE

• Section 2(d) refers to instruments that are payable in foreign currency. The
promise or order to pay “ with exchange” does not destroy negotiability.
• Exchange - It is the charge for the expense of providing funds at the place
where the instrument is payable to meet the instrument which is issued at
another place. It may be at a fixed rate or at the current rate.
• It does not affect negotiability because the value of foreign currency at any
given time may be determined easily
SUM TO BE PAID WITH EXCHANGE

• If the instrument is an inland or domestic bill, that is , both drawn and payable
at the same place, there can be no exchange so that a stipulation for payment in
exchange may be disregarded.
• Under R.A, No. 8183 – monetary obligations must be in Philippine Currency.
• Parties may agree otherwise.
COLLECTION OR ATTORNEY’S FEES

• A provision which includes the costs of collection or attorney’s fees upon

default does not render the instrument non-negotiable.
• The sum in money is still certain.
• The fees written may be reduced by the courts should they be unconscionable
or unreasonable.
ACTS IN ADDITION TO MONEY (SEC. 5)

• As a 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.
• Ex.
• I promise to pay P or order P2000 and to deliver an ipad
EXCEPTIONS

• Sale of Collateral Securities

Ex. “ I promise to pay X or order the sum of P25,000.00 on September 11, 2023
secured by my PS5 that I delivered to him by way of pledge and which he could
sell should I fail to pay him at maturity.”
The additional act is to be performed after the date of maturity of the instrument
and when it is no longer considered negotiable in a full commercial sense. Until
the date of maturity, the promise is to pay money only.
EXCEPTIONS

• Confession of judgement- It is a written acknowledgement by the defendant of

his indebtedness or liability to the plaintiff. It enables the holder to obtain a
judgement without the delay usually incident to a lawsuit as it eliminates the
necessity of trial.
• Not allowed under our laws. Denies the person his day in court.
• A confession of judgment given AFTER the action is brought to save expenses
is valid and may be considered as a voluntary settlement of the case.
• Ex.
• “I promise to pay Ernalin or bearer the sum of P9,000 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.”
WAIVER OF BENEFIT GRANTED BY
LAW

• Waiver of protest
• Waiver of Presentment for payment
• Waiver of Demand
Does not destroy the negotiability
ELECTION OF HOLDER TO REQUIRE
SOME OTHER ACT

• The holder has the choice. The instrument is therefore negotiable as it is as

good as an instrument payable in money.

• If the option is with the promisor, the instrument is non-negotiable because the
holder cannot compel him to make payment in money.
• Ex.
• I promise to pay X or order P5000.00 or 20 sacks of rice at the option of the holder.

• I promise to pay X or order P5000.00 or 20 sacks of rice.

Sec. 6 OMISSIONS; SEAL; PARTICULAR
MONEY

• EFFECT OF OMISSION OF DATE

• A date is generally not necessary. The omission thereof does not render the instrument
non-negotiable. By virtue of Sec. 17 (c ) it will be dated as of the time it was issued.
• If there is a date stated but there is no such date in the calendar, the law will deem the
nearest date of the month the date intended.
WHEN A DATE IS NECESSARY

• Where said date is tied to the date of issue, e.g.. an undated note is payable thirty
days after date
• Where interest is stipulated for the purpose of determining when the interest is to
run
• In the case of promissory note, the date of issue, and in the case of the bill of
exchange, the date of the last negotiation thereof for the purpose of determining
whether a party acted within a reasonable time in making presentment for payment.
• Instruments may be ante-dated or post-dated.
NO DATE - WHAT HAPPENS

• The holder may insert the true date ( Sec. 13)

• The insertion of a wrong date does not avoid the instrument in the hands of an
innocent third party who may enforce the same notwithstanding the improper
date.
OMMISSION OF VALUE

• Value does not refer to the sum of money to be paid.

• Value refers to the reason for the issuance of negotiable instrument. It is not
necessary to state that value has been received for the instrument because
consideration is presumed.
OMISSION OF PLACE

• There is no requirement under Sec. 1. Thus, the negotiability of the instrument

remains.
• Should the place of presentment be unavailable, it is presumed to be payable at
the place of residence or business of the maker or drawer.
PRESENCE OF A SEAL

• Under our laws there is no prohibition of seals on negotiable instruments.

Negotiability remains. U.S.A. law prohibits seals on negotiable instruments.
DESIGNATION OF A PARTICULAR KIND
OF CURRENT MONEY PAYABLE

• There is nothing in Section 1 which prohibits that payment should be done in

legal tender.
• Money is not equivalent to legal tender as defined by law. It includes any
particular kind of current money or foreign money which has fixed value in
relation to our money.
INSTRUMENT MUST BE PAYABLE AT A FIXED OR
DETERMINABLE FUTURE TIME OR ON DEMAND.

• 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.
INSTRUMENT PAYABLE AT ALL EVENTS

• It is an essential requirements for negotiability of an instrument that its

payment will certainly become due and demandable one time or other, though
it may be uncertain when that time will come.
• On Demand/ After sight = after the instrument is seen by the drawee upon
presentment for acceptance or accepted by the drawee.
• A term or time instrument is payable only upon the arrival of the time for
payment.
CONTINGENCY

• An instrument which is only payable on a contingency is not negotiable

because it does not appear on its face whether or not it will be paid.
• Contingency refers to an uncertain future event or an even which may or may
not happen.
DETERMINABLE FUTURE TIME

• Payable at a fixed time – On Sept 12, 2023

• Payable at fixed period after date - 30 days after Sept 12, 2023
• Payable at fixed date after sight. – 10 days after sight
• Payable on or before a fixed time. – on or before Sept 12, 2023
• Payable on or before a determinable future time . On or before my death
• Payable on the occurrence of a specified event. On the death of my cat
• Payable after the occurrence of a specified event. 10 days after the death of my
beloved cat.
WHEN PAYABLE ON DEMAND

• 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.
WHEN PAYABLE ON DEMAND

• An instrument payable on demand is due and payable immediately after

delivery. It is a present debt due at once.
EXPRESSED TO BE PAYABLE ON
DEMAND

• Instead of “on demand” the words ”at sight” or “ on presentation” or “on call”
or “ at any time called for” may be used.
• The words ”on demand” are ordinarily used in promissory notes while the
words “ at sight” in bills of exchange.

An overdue instrument is necessarily a demand paper. A holder has an immediate

right of payment for the money promised or ordered to be paid.
NO TIME EXPRESSED

• When no time for payment is expressed, a negotiable instrument automatically

becomes payable on demand.
• Ex.
• Pay to P or order P5.00
THE INSTRUMENT MUST BE PAYABLE
TO ORDER ( SEC. 8)
• SEC. 8. When payable to order.—The instrument is payable to
order where it is drawn payable to the order of a specified person
or to him or his order. It may be drawn payable to the order of—
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.Where the instrument is
payable to order the payee must be named or otherwise indicated
therein with reasonable certainty.
WHEN IS IT PAYABLE TO ORDER

• An instrument is payable to order where it is drawn payable

• To the order of a specified person; or
• To him or his order,

Ex. Pay to X or order P5000

Pay to X P5000
ORDERS

• It is not essential that the words ” to the order of” or “or order” be used. The
words “to P and assigns” have been held to be equivalent words which will
render the instrument negotiable.
• It should be noted that in an order instrument a specified person must always be
named therein before or after the word order. Without anyone to give an order
the instrument becomes non negotiable.
• It is sufficient if the payee though not named is described with reasonable
certainty.
PAYABLE TO ORDER
• 1. To order of payee who is not the maker
• 2. To order of payee who is not the drawer
• 3. To order of payee who is not the drawee
• 4. To order of drawer.
• 5. To order of Maker
• 6. To order of drawee
• 7. To order of two or more payees jointly
• 8. To order of one or some of several payees
• 9. To order of holder of an office for the time being
Examples

1. To order of payee who is not the maker:

” I promise to pay P2,000.00 to the order of P
(sgd.) M”
2. To order of payee who is not the drawer:
“ Pay to the order of X P10,000.00.
(sgd.) R”
Examples

• 3. To order of payee who is not the drawee

Pay to the order of P P10,000.00
Sgd.R
To W
Manila
Examples

4. To order of drawer
“Pay to the order of myself P10,000.00
sgd. R

To W
Manila”
Example

• 5. To order of maker
“ I promise to pay to the order of myself P10,000.00
Sgd. M”
Example

• 6. To order of drawee
“Pay to the order of yourself P 10,000.00
Sgd. R

To W
Manila”
Example

• 7. To order of two or more payees jointly

“ Pay to the order of P and A P10,000.00”

8. To order of one or some of several payees.

“Pay to the order of P,A, or B P1000.00 or “ Pay to the order of P,A and B, or
any of them or any two of them.”
Example

• To order of holder of an office for the time being.

“ Pay to the order of the Commissioner of Internal Revenue”

EFFECT WHERE PAYEE NOT NAMED OR
DESCRIBED

• In an order instrument a specified person must always be named therein either

before or after the word “order.” If there is no payee, there is nobody who
could give the order or authority to collect. In other words, there would be
nobody who could indorse the instrument and, therefore, there is no point
considering it negotiable.
• An instrument payable to the order is NOT negotiable because the payee is not
named. But it is sufficient if the payee though not named is described with
reasonable certainty
THE INSTRUMENT MUST BE 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.
INSTRUMENT PAYABLE TO BEARER

• When an instrument is payable to bearer, payment to any person in possession

thereof in good faith and without notice that his title is defective, at or after
maturity, discharges the instrument.
• Delivery alone is enough to effect negotiation of the instrument.
• Whoever possesses it is the bearer.
• For added security, the holder may require indorsement of the instrument.
• An instrument that fails to qualify as an order instrument is nonetheless
negotiable if it is payable to bearer.
WHEN IS IT A BEARER INSTRUMENT

• 1. Expressed to be so payable
• 2. Payable to person named therein or bearer
• 3. Payable to order of a fictitious person
• 4. Payable to order of a non-existing person.
• 5. Name of payee not name of person
• 6. Only indorsement in blank.
• 7. Last indorsement in blank.
Examples

1. Expressed to be payable to bearer

“ I promise to pay bearer P 2000.00”
“ I promise to pay bearer, P, P2000.00” not negotiable

2. Payable to person named therein or bearer

“ Pay to P or bearer P10,000.00”
“Pay to P or holder P10,000.00”
Examples

3. Payable to order of a fictitious person

“ Pay to Mr. X or order P 1000.00”

“ Pay to Donald Trump or order P10,000.00”

“Pay to John Doe or order P2000.00”

Rationale

The bill is payable to bearer and not to order because Mr. X is a fictitious person. A
name is fictitious when it is feigned or pretended.
A fictitious person is meant to be one who, though named as payee in an instrument, has
no right to it because the maker or drawer so intended and it matters not, whether the
name of the payee used by him be that one living or dead, or one who never existed.
The maker or drawer knows that the payee is not capable of indorsing, he cannot expect
the instrument to circulate through the indorsement of the payee, and therefore, he must
have intended the same to be transferred by mere delivery just like an instrument
payable to bearer.
Examples

4. Payable to order of a non-existing person.

”Pay to the order of Batman P10,000.00”

“Pay to the order of Santa Claus P2000.00”
Examples

5. Name of payee not name of a person

“ Pay to cash”
“ Pay to cash or order”
“ Pay to money”
“Pay to sundries”
Examples

6.Only indorsement in blank

• Pay to P or order P10,000

sgd. M
To W
Manila
X======================================================x
sgd. P
Examples

7. Last indorsement in blank

Pay to P or order P10,000
sgd. M
To W
Manila
X========================================================x
To J sgd. P;
sgd. J
Blank Indorsement

• A blank indorsement, however, cannot make a non-negotiable instrument,

because payable to a specified person, negotiable as a bearer instrument.
• “Indorser” would be able to change the tenor of the whole instrument.
• The word indorsement as used by the law refers only to negotiable instrument.
Section 10

• SEC. 10. Terms, when sufficient.—The instrument need

not follow the language of this Act, but any terms are
sufficient which clearly indicate an intention to conform
to the requirements hereof.
Criterion of Negotiability

• It is not required to use the exact words of the law.

• The substance rather than its form is the criterion of negotiability.
• As long as the clear intention of the parties to make the instrument negotiable
can be determined, the law will give it force and effect.
• Mere defect in language or grammatical error does not render an instrument
non-negotiable.