Rhenneshy S.

Garcia
Adlai John D. Magtoto Jr,
Genesis O. Cadag

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.

NEGOTIABLE INSTRUMENTS LAW (3)

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.

ACT NO. 2031

February 03, 1911
THE NEGOTIABLE INSTRUMENTS LAW
I. FORM AND INTERPRETATION
Section 1. Form of negotiable instruments. - An
instrument to be negotiable must conform to the
following requirements:
(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
(e) Where the instrument is addressed to a
drawee, he must be named or otherwise indicated
therein with reasonable certainty.

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

payable at a fixed period after date is issued
undated, or where the acceptance of an
instrument payable at a fixed period after
sight is undated, any holder may insert
therein the true date of issue or acceptance,
and the instrument shall be payable
accordingly. The insertion of a wrong date
does not avoid the instrument in the hands
of a subsequent holder in due course; but as
to him, the date so inserted is to be
regarded as the true date.
Sec. 14. Blanks; when may be filled. - Where the
instrument is wanting in any material particular, the
person in possession thereof has a prima facie
authority to complete it by filling up the blanks
therein. And a signature on a blank paper
delivered by the person making the signature in
order that the paper may be converted into a
negotiable instrument operates as a prima facie
authority to fill it up as such for any amount. In
order, however, that any such instrument when
completed may be enforced against any person
who became a party thereto prior to its completion,
it must be filled up strictly in accordance with the
authority given and within a reasonable time. But if
any such instrument, after completion, is

Sec. 16. Delivery; when effectual; when

presumed. - Every contract on a negotiable
instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving
effect thereto. As between immediate parties and
as regards a remote party other than a holder in
due course, the delivery, in order to be effectual,
must be made either by or under the authority of
the party making, drawing, accepting, or indorsing,
as the case may be; and, in such case, the
delivery may be shown to have been conditional,
or for a special purpose only, and not for the
purpose of transferring the property in the
instrument. But where the instrument is in the
hands of a holder in due course, a valid delivery
thereof by all parties prior to him so as to make
them liable to him is conclusively presumed. And
where the instrument is no longer in the
possession of a party whose signature appears
thereon, a valid and intentional delivery by him is
presumed until the contrary is proved.
Sec. 17. Construction where instrument is
ambiguous. - Where the language of the
instrument is ambiguous or there are omissions
therein, the following rules of construction apply
(a) Where the sum payable is expressed in words
and also in figures and there is a discrepancy
between the two, the sum denoted by the words is
the sum payable; but if the words are ambiguous
or uncertain, reference may be had to the figures
to fix the amount;
(b) Where the instrument provides for the payment
of interest, without specifying the date from which
interest is to run, the interest runs from the date of
the instrument, and if the instrument is undated,
from the issue thereof;
(c) Where the instrument is not dated, it will be
considered to be dated as of the time it was
issued;
(d) Where there is a conflict between the written
and printed provisions of the instrument, the
written provisions prevail;

(e) Where the instrument is so ambiguous that

there is doubt whether it is a bill or note, the holder
may treat it as either at his election;
(f) Where a signature is so placed upon the
instrument that it is not clear in what capacity the
person making the same intended to sign, he is to
be deemed an indorser;
(g) Where an instrument containing the word "I
promise to pay" is signed by two or more persons,
they are deemed to be jointly and severally liable
thereon.
Sec. 18. Liability of person signing in trade or
assumed name. - No person is liable on the
instrument whose signature does not appear
thereon, except as herein otherwise expressly
provided. But one who signs in a trade or
assumed name will be liable to the same extent as
if he had signed in his own name.
Sec. 19. Signature by agent; authority; how
shown. - The signature of any party may be made
by a duly authorized agent. No particular form of
appointment is necessary for this purpose; and the
authority of the agent may be established as in
other cases of agency.
Sec. 29. Liability of accommodation party. An accommodation party is one who has
signed the instrument as maker, drawer,
acceptor, or indorser, without receiving
value therefor, and for the purpose of
lending his name to some other person.
Such a person is liable on the instrument to
a holder for value, notwithstanding such
holder, at the time of taking the instrument,
knew him to be only an accommodation
party.

indorsement by writing over the signature of

the indorser in blank any contract consistent
with the character of the indorsement.
Sec. 52. What constitutes a holder in due course. A holder in due course is a holder who has taken
the instrument under the following
conditions:chanroblesvirtuallawlibrary
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was
overdue, and without notice that it has been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he
had no notice of any infirmity in the instrument or
defect in the title of the person negotiating
Sec. 56. What constitutes notice of defect? To constitutes notice of an infirmity in the
instrument or defect in the title of the
person negotiating the same, the person to
whom it is negotiated must have had actual
knowledge of the infirmity or defect, or
knowledge of such facts that his action in
taking the instrument amounted to bad
faith.

Sec. 34. Special indorsement; indorsement

in blank. - A special indorsement specifies
the person to whom, or to whose order, the
instrument is to be payable, and the
indorsement of such indorsee is necessary
to the further negotiation of the instrument.
An indorsement in blank specifies no
indorsee, and an instrument so indorsed is
payable to bearer, and may be negotiated
by delivery.

KINDS OF DEFENSES
1. real defense attaches to instrument; on
the principle that the right sought to be
enforced never existed/there was no
contract at all
2. personal defense growing out of
agreement; renders it inequitable to be
enforced vs. defendant
DEFENSES
1. INCAPACITY: real; indorsement/assign by
corp/infant: passes property but corp/infant
no liability
1. ILLEGALITY: personal, even if no K
because void under CC 1409
1. FORGERY: real (lack of consent):
1.
forged
2.
made without authority of person
whose signature it purports to be.
General Rule:
1. wholly inoperative
2. no right to retain instrument, or give
discharge, or enforce payment vs. any party,
can be acquired through or under such
signature (unless forged signature
unnecessary to holders title)
Exception:

Sec. 35. Blank indorsement; how changed to

special indorsement. - The holder may
convert a blank indorsement into a special

unless the party against whom it is sought to

enforce such right is precluded from setting up
forgery/want of authority

Sec. 33. Kinds of indorsement. - An

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

precluded:
1.

parties who make certain warranties, like a

general indorser or acceptor
2. estopped/negligent parties
* note rules on Acceptance/Payment Under
Mistake as applied to:
1. 1. overdraft
2. 2. stop payment order
3. 3. forged indorsements
1.

MATERIAL ALTERATION
Where NI materially altered w/o assent of
all parties liable thereon, avoided, except as
vs. a
1. party who has himself made, authorized or
assented to alteration
2. and subsequent indorsers.

But when an instrument has been

materially altered and is in the hands of a
HDC not a party to the alteration, HDC may
enforce payment thereof according to orig.
tenor

Material Alteration
1. change date
2. sum payable, either for principal or interest
3. time of payment
4. number/relations of parties
5. medium/currency of payment, adds place
of payment where none specified, other
change/addition altering effect of instrument
in any respect.
*material alteration a personal defense when used
to deny liability according to org. tenor of
instrument, but real defense when relied on to
deny liability according to altered terms.
1. FRAUD
2. fraud in execution: real defense (didnt
know it was NI)
3. fraud in inducement: personal defense
(knows its NI but deceived as to
value/terms)
1. DURESS

Personal, unless so serious as to give rise

to a real defense for lack of contractual
intent
1. COMPLETE, UNDELIVERED
INSTRUMENT

Personal defense (sec. 16)

If instrument not in poss. Of party who

signed, delivery prima facie presumed

If holder is HDC, delivery conclusively

presumed
1. INCOMPLETE, UNDELIVERED
INSTRUMENT

Real defense (sec. 15)

Instrument 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

INCOMPLETE, DELIVERED

Personal defense (sec. 14)

2 Kinds of Writings:
1. Where instrument is wanting in any
material particular: person in possession
has prima facie authority to complete it by
filing up blanks therein
2. Signature on blank paper delivered by
person making the signature in order that
the paper may be converted into a NI: prima
facie authority to fill up as such for any
amount

In order that any such instrument, when

completed, ma be enforced vs. any person
who became a party thereto prior to its
completion:
1. must be filled up strictly in accordance w/
authority given
2. within a reasonable time

but if any such instrument after completion

is negotiated to HDC, its valid for all
purposes in his hands, he may enforce it as
if it had been filled up properly.
Sec. 89. To whom notice of dishonor must be
given. - Except as herein otherwise provided,
when a negotiable instrument has been
dishonored by non-acceptance or non-payment,
notice of dishonor must be given to the drawer and
to each indorser, and any drawer or indorser to
whom such notice is not given is discharged.

PARTIES, RIGHTS AND LIABILITIES

1. Primary
a. Maker promissory note
b. Drawee bill of exchange
- Liable only upon acceptance
2. Secondary
a. Drawer bill of exchange
b. Indorser of a promissory note
or a bill of exchange
Maker (section 60)
- Only to a promissory note
- Liable upon making the note
- In a promissory note there is no need to
present the instrument for payment to
hold the maker liable because his liability
commences from the moment he made
such instrument.
January 02, 1993
I promise to pay to the order of B, 2,000.00
on Dec. 10, 1993.
(SGD) A
-

A is liable as of January 02, 1993.

As liability cannot be demanded until Dec.
10, 1993, the maturity date.
Upon making the instrument, the maker
admits the following:

1. Payees existence
2. Payees capacity to indorse.
Drawer (section 61)
- Only to bills of exchange
- Secondary liable
- Unlike a maker, upon drawing the bill, the
drawer is not yet liable.

Presentment and demand cannot be made

over the telephone.
Q: When presentment is not required for
payment?

Q: When will the drawer be liable?

1. Bill was presented for payment to the
drawee.
2. The bill was dishonored for nonacceptance or non-payment by the
drawee.
3. Notice of dishonor should be given to
the drawer for him to be liable.

General rule:
To charge the drawer and
indorsers, the instrument should be
presented for payment.
Exceptions: (Section 82)
1. After the exercise of due/reasonable
diligence, presentment could not be
made; (S82)-Active Search
2. Where drawee is a fictitious
person(S82); - John Doe or Tony
Stark
3. If presentment is expressly or impliedly
waived; (S82)
4. Where drawer has no right to expect or
require that the drawee or acceptor will
pay; (S79)
5. To charge an indorser, where the
instrument was made or accepted for
his accommodation, and he has no
reason to expect that the instrument
will be paid when presented. (S80)

Once drawer becomes liable, he engages

to pay not only the holder but any
subsequent indorser who may have paid
the holder.
Example:
Pay to the order of P 10,000
To: W
(SGD) R
At the back:
Pay to: A
Pay to: B
Pay to: C
(Holder)
-

(SGD) P
(SGD) A
(SGD) B

Holder C must first present the bill to

drawee W for acceptance.
If W accepts, he is now primarily liable. He
is now considered an acceptor.
Upon maturity Holder C may now present
the bill to W for payment.
If W dishonors the bill, C must give notice
of dishonor to drawer R to make the latter
liable.
If notice was not given, drawer R will be
absolved from any liability.

Presentment (Modes and Methods)

By whom?

Holder / authorized
representative

When?

Reasonable time on a
business day. In case of a
bank, during banking hours.

To whom?

To the person primarily

liable. (Section 72)
maker/acceptor
If maker/acceptor cannot be
found present it to any
person found at the place
for presentment.
If dead personal
representative / executor /
administrator

How made?
-

(Section 77)
The instrument must be
exhibited to the maker or
acceptor.

The person to make

payment has the right to
examine the instrument.

Waiver may be before or after maturity/

express/ implied.

#4 (Sec. 79)
- Refers only to drawer.
Example:
1. Drawer has no funds with the
drawee;
2. Drawer of check has stopped
payment; -bank
3. Drawer of a check has withdrawn
funds from the drawee bank.
4. Drawer and drawee are the same
person.

#5 (Sec. 80) to charge an indorser

-Only to an indorser for whose
accommodation an instrument is made
or accepted.

Dishonor by non-payment (Sec. 83)

When?
1. Presented by payment is refused or cannot
be obtained;
2. Presentment is excused and the
instrument is overdue and unpaid.
-

There is already dishonor as long as the

instrument is not yet paid although the
party is willing to pay.

Effects? Right of recourse to all

secondary parties provided notice of
dishonor to the drawer and each of the
indorsers must be given.

I promise to pay to the order of P

10,000.
Pay to A
Pay to B
Pay to C

Signed P
Signed A
Signed B

Form of notice (Sec. 96)

- No special form, it can be oral, written or
party oral and party in writing.
- Sufficiently describe the instrument and
must give information as to whether the
dishonor is by non-acceptance or nonpayment.
- Informal letter stating the amount, date of
maturity, names or makers and indorsers
and that the note was not attended to and
demanding payment is sufficient notice.
- If notice is given by a notary public, it is
called a protest.

Q: Who gives the notice?

- By the holder or his agent or by any party
to the instrument who might be
compelled to pay it to the holder and who
upon taking it up, would have a right to
reimbursement from the party to whom
notice is given, or by his agent.
I promise to pay to the order of P, 10,000.

The benefit depends on who gives the

notice. If given by the holder or his agent, the
notice inures for the benefit of all subsequent
holders and all prior parties who have a right
of recourse against the party to whom it is
given.

Example:
I promise to pay to the order of P 10,000.

X is primarily liable to C
If X refuses to pay, C must give notice of
dishonor to P, A, & B.
Without notice to the persons secondarily
liable, they are discharged from liability.

Notice of Dishonor
1. Notice of dishonor by non-acceptance.
- Applies to bills of exchange only.
2. Notice of dishonor by non-payment.
- Applies to both promissory note and
bill of exchange.

To: X
M
At the back:
Pay to A
Pay to B
Pay to C
(HOLDER)
-

(SGD)

Signed P
Signed A
Signed B

C present to X but the latter dishonors by

non-acceptance.
C must give notice to M, P, A & B to hold
them liable, otherwise they will be
discharged from any liability.
After giving notice of dishonor, C further
indorses the bill to D, and D to E, present
holder.
Pay to A
Signed P
Pay to B
Signed A
Pay to C
Signed B
o Dishonored notice to M, P, A & B
Pay to D
Signed C
Pay to E
Signed D
Effects:
- Notice to M, P, A & B by C benefits E, the
present holder.
- The notice given by C to M benefits P, A, B
& C. In effect if E makes P, A, B & C liable,
they may seek reimbursement from maker
M even without them giving notice to M.

Section 93
- If notice is given by a party entitled to such
notice? indorser
I promise to pay to the order of B, 10,000.
(SGD) A

(SGD) M

At the back:
Pay to A
Pay to B
Pay to C
Pay to D
(HOLDER)
-

(SGD)
(SGD)
(SGD)
(SGD)

P
A
B
C

D claims from M but the latter dishonors it.

D must notify P, A, B & C.
If D notifies C only, who may be compelled to
pay D, C must notify P, A & B
If D notifies B only, the effect is to discharge
C, because B has no responsibility to give
notice to C, only to P and A.
Dishonor but further negotiated.

Q: Who are benefited by notice of dishonor?

Remember: Dishonor does not destroy
negotiability
- Sec. 92 & 93.

At the back:
Pay to C
Pay to D
Pay to E

Signed B
Signed C
Signed D

Effects:
- Upon dishonor by A, E gave notice to D. D
should give notice to C and B for
reimbursement.
- If C pays, remember C did not give notice
to B, C can seek reimbursement from B
because the notice given by D to B
benefits C.
Protest
- Formal document made under the hand
and seal of a notary public certifying to the
circumstances of the dishonor of a foreign
bill of exchange.
Drawee

No liability, only an addressee.

His name appears, but not his signature.
Simply a person to whom the bill of
exchange is addressed.
- Sec. 18, a party is not liable unless his
name and signature appears thereon.
When is he liable?
- He is liable from the time he accepts the
bill, making him an acceptor
How many drawees?
- One or more. If 2 or more they must be
joint. Not in the alternative.
-

Example:
I promise to pay to the order of P
10,000.

At the back:

Once accepted the acceptors liability

becomes primary.

How? (S145)
1. By the holder or his agent.
2. At/during reasonable hours.
3. On a business day.
4. Before it becomes overdue.
5. To the drawee or any authorized person.
Sec. 132 Acceptance
- Signification of drawees assent to the
order of the drawer
- Writing accepted / I will pay and adds
his signature.
- Drawee cannot write that he will pay in
some other kind than in money.

I promise to pay to the order of

myself 500,000.
(SGD) M
At the back:
Pay to A
Pay to B
Pay to C

Q: When is it qualified?
1. Conditional payment dependent on
the fulfillment of a condition
2. Partial partial payment only
3. Local payment only at a designated
place.
4. Qualified as to time
5. Acceptance of one or more drawees,
but not of all.

Indorser
- Secondarily liable only
Classification:
1. Irregular indorser
2. Qualified indorser
3. General indorser

Payable to the order of the maker or

drawer or bearer, he is liable to all
subsequent parties to the maker or
drawer.

Example:

1) General acceptance
- Unqualified/unconditional acceptance
2) Qualified acceptance
- Qualified
- Varies the effects of the bill as drawn.

Warranties of Acceptor
1. He engages to pay
2. The drawer exists
3. His signature is genuine
4. His capacity
5. The payee exists
6. Payee has capacity to indorse

(SGD) X
Pay to A
(SGD) P
Pay to B
(SGD) A
X is an irregular indorser, and is liable to P,
payee and subsequent parties A and B.

Kinds of Acceptance
- Drawee may accept it under certain terms
or conditions.
- Sec. 62 acceptor is liable according to
the tenor of his acceptance.

Irregular indorser not a party to the

instrument but places his signature in blank
before delivery.

(SGD) I
(SGD) M
(SGD) A
(SGD) B

I is not liable to M but to A, B & C.

Qualified indorser Sec. 65

General indorser indorsement without

qualification or condition.
- Secondarily liable
- Sec. 66 liabilities/warranties.
1. Instrument is genuine
2. He has good title to it.
3. Prior parties have capacity to
contract
4. The instrument at the time of his
indorsement is valid and subsisting.
______________________

HOLDER
1. Right to sue on the instrument.
2. Right to receive payment on the
instrument.
Holder in Due Course (Sec. 52)
A holder in due course is a holder who has
taken the instrument under the following
conditions:
1. That it is complete and regular upon its
face;
2. That he became the holder of it before
it was overdue, and without notice that
it had been previously dishonored, if
such was the fact;
3. That he took it in good faith and for
value;

4. That at the time it was negotiated to

him he had no notice of any infirmity in
the instrument or defect in the title of
the person negotiating it.
Defenses available to avoid paying the holder:
1. Real Defenses
- Defenses available against any holder
including holders in due course.
- They include the ff:
o Incapacity of the parties
o Forgery
o Lack of Authority
o Duress amounting to forgery
o Incomplete and undelivered
instrument
o Fraudulent alteration by the holder.
o Prescription
o Discharge in insolvency / bankruptcy

2. Personal defense
- Defenses available among immediate
parties and against one who is not a
holder in due course (mere holder)
- They include the ff:
o Insertion of wrong date
o Incomplete but delivered instrument
o Complete but undelivered instrument
o Lack or failure of consideration
o Simple fraud in inducement
o Acquisition of instrument for an
illegal consideration
o Negotiation in breach of faith.
Notes: The abovementioned defenses
mean that whenever a holder claims, a
party can set up such defenses to avoid
payment.
If the party from whom you are
claiming properly set up a real defense, it
means that you as a holder (even if you

are an HDC) cannot claim anything from

him. On the other hand, if the party set up
personal defenses only, a holder in due
course (HDC) can still claim from him as
oppose to an ordinary or mere holder only.

Pointers:
1. Definitions: Negotiable Instrument, Bill of
Exchange, Promissory Note, Negotiability,
Treasury Warrant, Maker, Drawer, Drawee,
Indorser, Payee, Holder in due course,
Irregular indorser, Qualified indorser,
General indorser, Acceptor, Accomodation,
Issue, Delivery, Special indorsement,
Issue, Special indorsement, Restrictive
indorsement.
2. Memorize Section 1 and review the
requisites (WUPOA) including the
circumstances and examples on the
negotiability of an instrument. I.e.
conditional promise, sum certain in money,
fixed and determinable future time, etc.
3. Take note of the list of available defenses:
Real and personal defenses.
4. Take note on the problems in this handout,
review them properly.