 Requisites of Negotiable Instrument

1. It must be in writing and signed by the maker or drawer.

2. It must contain unconditional promise or order to pay a sum certain in money.
3. It must be payable in demand or at a fixed or determinable future.
4. It must be payable to order or bearer.
5. Where instrument is addressed to a drawee, be must be named or otherwise indicated
therein with reasonable certainty.

 Commercial paper – written promise or obligation arises from commercial transaction.

 “it must be in writing” means it should be on a tangible form
 Signature can be placed anywhere, as a general rule, it must be placed in the lower right
corner

 Negotiable instrument can be paid

1. With interest – certain interest.
2. In installments – due date of each installment should be stated.
3. With stated installment with a provision that upon default in payment, any installment or
interest, the whole becomes due.
 Acceleration clause must be on the part of maker, otherwise it becomes non- negotiable
4. With exchange, whether at fixed rate or current rate
5. With cost of collection or an attorney’s fee, in case payment is not made on maturity – the
cost shall be a fixed amount or percent.

 Instances where instrument can call for other act other than payment in money
1. Authorizes the sale of collateral incase instrument is not paid at maturity
2. Authorizes the confession of judgment if the instrument is not paid at maturity.
3. Give the HOLDER the election to require something to be done in lieu of payment of money.
4. Values the benefit of any law intended for the advantage or protection of the obligor.

 Determinable Future Time means

1. At a fixed period after date or sight
2. On or before a fixed or determinable future specified therein
3. On or after fixed period after the occurrence of a specified event which is certain to happen,
though the time of happening is uncertain.
 An instrument payable upon contingency is non-negotiable

 Omissions which do not render the instrument non-negotiable

1. Not dated.
2. Value given is not specified, or that any value has been given.
3. Place where it is drawn or payable is not specified.
4. Seal is not included.
5. Currency of payment is not included.
 Instances where Instrument is Payable on Demand
1. When it is expressed that it is payable on demand, or at sight, or at presentation.
2. When no time for payment is specified.
3. When instrument is issued, accepted or indorsed overdue.

 Instances where Instrument is Payable to Bearer

1. When it is expressed to be payable to bearer.
2. When it is payable to person named therein or bearer.
3. When it is payable to fictitious person.
4. Payable not to a person.
5. When the last indorsement is blank.

 Grammatical errors do not render the instrument non-negotiable.

 Ante-dated or post-dated instrument not done for illegal or fraud is considered negotiable.

 Cases where holder is authorized to put a date in an instrument

1. When instrument is payable at fixed period after date but it’s issued undated.
2. When instrument is payable at fixed period after sight but acceptance is undated.

 Effects of Insertion of Wrong Date

1. As to holder with knowledge – true date shall prevail.
2. As to subsequent holder in due course – date inserted is presumed to be the true date.

 Effects of Incomplete Instrument when delivered

1. As to holder – he can fill the blanks but the authority to put any amount shall conform to the
purpose of the maker.
2. As to party prior to completion – it can be enforced only against him if filled in accordance
with the authority given and within reasonable time.
3. As to holder in due course – he can enforce the instrument.

 Effects of Incomplete Instrument and Undelivered when Completed and Delivered w/o
Authority.
1. As to any holder – it will not be valid.
2. As to maker – he can raise real defenses.

 As a General Rule, only Persons whose signature appear on the instrument are liable, except:
1. When a person signs in a trade or assumed name.
2. Authorized agent’s signature.
3. Forged signature – forger becomes liable.
4. When acceptor signs in a different sheet.
5. When person makes a written promise to accept a bill before it is drawn.
 Requisites needed by Agent to Escape from Liability
1. He must be authorized.
2. He must add other words to his signature describing that he only sign as an agent to his
principal.
3. He must disclose his principal.
 In case one requisite is absent and he is being sued for payment, he may introduce
evidences that he signs only as an agent and that the party knew that this is the case.
 Principal is not bound if agent is not exceeded the actual limits of his authority.

 Persons who cannot be liable by the instrument or by indorsement

1. Minors, insane and deaf-mutes, who do not know how to write
2. Corporations if it arises from ultra-vires acts

 Instances where forgery does not render the instrument inoperative

1. If the party against for whom it is sought to enforce such right is precluded from setting up
forgery or want of authority.
2. If forged signature is not necessary to the holder’s title.
 As a general rule, forgery makes the whole instrument inoperative.

 Persons impossible to set up the defense of forgery

1. Those who by their acts are stopped from setting up the defense of forgery.
2. Indorsers, acceptors and persons negotiating by delivery

X forged signature of A
M P A B C

C can only collect from B, and then B will collect from X