spr ies Chapter1

APPLICABILITY OF NEGOTIABLE INSTRUMENTS LAW

If the drawee is a fictitious person, who should accept the

bill? If nobody would accept the bill, there is nobody can the
payee or holder presents the bill for payment. Hence, may be
treated as a note.
If the drawee has no capacity to contract, then it will be
invalid.

BAR QUESTIONS:

Bar Exam Year 2011

MCQ No. 86

P authorized A to sign a bill of exchange in his (P’s) name.

The bill reads: “Pay to B or order the sum of Php1 million.
Signed, A (for and in behalf of P).” The bill was drawn on P. B
indorsed the bill to C, C to D, and D to E. May E treat the bill as
a promissory note?
a. No, because the instrument is payable to order and has
been indorsed several times.
b. Yes, because the drawer and drawee are one and the
same person.
c. No, because the instrument is a bill of exchange.
d. Yes, because A was only an agent of P.

Author’s suggested answer: B

Under Sec. 130 of the Negotiable Instruments Law, where in a
bill the drawer and drawee are the same person or where the drawee is a
the holder
fictitious person or a person not having capacity to contract,
may treat the instrument at his option either as a bill of exchange or
as a promissory note. In the case at bar, it is clear that it was P who
authorized A to sign the bill in his name and that the bill was drawn
likewise on P. Therefore, the drawer and the drawee are the same person,
the holder may treat the instrument at his option either as a bill of
exchange or as a promissory note. (Note: In MCQ's, explain only when
required)
 INSTRUMENTS LAW SIMPLIFIED
52 NEGOTIABLE
(A Guide to Passing the Bar)

Bar Exam Year 2011

MCQ No. 33

If the drawer and the drawee are the same person, the
need of
holder may present the instrument for payment without
a case, the holdey
a previous presentment for acceptance. In such
treats it as a
a. Non-negotiable instrument.
b. Promissory note.
Letter of credit.
d. Check.

Author’s suggested answer: B

Under Sec. 130 of the Negotiable Instruments Law it provides
that, where in a bill the drawer and drawee are the same person or
where the drawee is a fictitious person or a person not having capacity
to contract, the holder may treat the instrument at his option either as a
bill of exchange or as a promissory note. (Note: In MCQ's, explain only
when required)

Bar Exam Year 2011

MCQ No. 25

A bill of exchange has T for its drawee, U as drawer, and F

as holder. When F went to T for presentment, F learned that T is
only 15 years old. F wants to recover from U but the latter insists
that a notice of dishonor must first be made, the instrument being
a bill of exchange. Is he correct?
a. Yes, since a notice of dishonor is essential to charging
the drawer.
b. No, since T can waive the requirement of notice of
dishonor.
c. No, since F can treat U as maker due to the minority of
T, the drawee.
 op . merch
Chapter 1
oe k
APPLICABILITY OF NEGOTIABLE INSTRUMENTS LAW

d. Ye S, since in a bill of exchange, notice of dishonor

is at
all times required.

| Author’s suggested answer: C

Under Sec. 130 of the Negotiable Instruments Law, it provides
that where in a bill the drawer and drawee are the same person or
where the drawee is a fictitious person or a person not having capacity
to contract, the holder may treat the instrument at his option either
as a bill of exchange or as a promissory note. In the giver case, since
the drawee is a minor, a person not having capacity to contract, F, the
holder can treat the bill as a promissory note thereby making U as the
maker. Hence, under Sec. 89, a notice of dishonor is not necessary to
charge a party primarily liable, in this case the maker, U. (Note: In
MCQ's, explain only when required)

Importance of treating the bill as a promissory note

Section 70 provides that presentment for payment is nec-
essary in order to charge the drawer and indorsers, parties sec-
ondarily liable. In this case when treated as a note, the drawer
becomes the maker, hence, the holder of the instrument need not
prove presentment for payment. In other words, it can be dis-
pensed with already. Besides, Sec. 114 likewise provides that no-
tice of dishonor is no longer required to make the drawer liable.

G. Option bill or note

Section 17(e) states that: “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.”

Illustration:

24 July 2015
00,000.00
I promise to pay Federer or bearer Php1
payable on 24 July 2016.
To: Raonic Sgd. Mirka
 TS | AW SIMPLIFIED
54 NEC ;OTIABLE INSTRUMEN
ing the Bar)
(A Guide to Pass

missory
It is basic in Negotiable Instruments Law that a propaye
maker and the e, [n
note has only two parties namely: the
this case, there appears a drawer which must be present only
whether the
in a bill of exchange. As such, there is ambiguity or holder
the payee
instrument is a note or a bill. For this matter,
may treat it as his discretion either as a bill or a note.

Non-negotiable Instruments
1. Letter of credit - a letter of credit is a financial device
developed by merchants as a convenient and relatively
safe mode of dealing with sales of goods to satisfy
the seemingly irreconcilable interests of a seller, who
refuses to part with his goods before he is paid, and a
buyer, who wants to have control of the goods before
paying. By definition, a letter of credit is a written
instrument whereby the writer requests or authorizes
the addressee to pay money or deliver goods to a
third person and assumes responsibility for payment
of debt therefor to the addressee. A letter of credit,
however, changes its nature as different transactions
occur and if carried through to completion ends
up as a binding contract between the issuing and
honoring banks without any regard or relation to the
underlying contract or disputes between the parties
thereto. (Transfield Philippines, Inc. v. Luzon Hydro
Corporation, G.R. No. 146717, 22 November 2004)
2. Trust receipt - is considered as a security transaction
intended to aid in financing importers and retail
dealers who do not have sufficient funds or resources
to finance the importation or purchase of merchandise,
and who may not be able to acquire credit except
through utilization, as collateral, of the merchandise
imported or purchased. ([53 Am. Jr. 961, cited in Samo
v. People, 115 Phil. 346, 349] Lee v. Rodil, G.R. No.
80544, 5 July 1989)

= Documeat of title - in a charter of the entire vessel,

the bill of lading issued by the master to the charter,
 , Chapter 1 55
APPLICABILITY OF NEGOTIABLE INSTRUMENTS LAW

as shipper, is in fact and legal contemplation merel

y
contract. It is
ii
title evid
:a pic enci'ngdocu
recei pt orof order
ment for athe deliv
title not ery of
certain goods. (Surigao Cent
u ry Sawmill,
i Co., Inc. v.
CA, G.R. No . 83889, 9 February 1993)

: Treasury warrant — is not within the scope of the

negotiable instruments law. For one thing, the
document bearing on its face the word is actually an
order for payment out of “a particular fund,” and
is not unconditional, and does not fulfill one of the
essential requirements of a negotiable instrument.
(Last sentence of Sec. 3 and Sec. 1[b] of the Negotiable
Instruments Law) In the United States, government
warrants for the payment of money are not negotiable
instruments nor commercial proper. (Abubakar v.
The Auditor General, G.R. No. L-1405, 31 July 1948)
Normally, a treasury warrant is a government issued
warrant for the payment of money.
Pawn ticket - is the pawnbrokers’ receipt for a pawn.
It is neither a security nor a printed evidence of
indebtedness. Pawn on the other hand is the personal
property delivered by the pawner to the pawnee as
security for a loan. A pawnshop refers to a person or
entity engaged in the business of lending money on
personal property delivered as security for loans and
shall besynonymous, and may be used interchangeably,
with pawnbroker or pawnbrokerage. (PD 114)
Postal money order - the weight of authority in the
United States is that postal money orders are not
negotiable instruments. (Bolognesi v. U.S. 189 Fed.
395; U.S. v. Stock Drawers National Bank, 30 Fed.
912) The reason behind this rule is, in establishing and
operating a postal money order system, the government
is not engaging in commercial transactions but merel
exercises a governmental power for the public benefit.
(Philippine Education Co., Inc. v. Soriano, GR. No.
L-22405, 30 June 1971) The reason behind this rule is,
56 NEGOTIABLE INSTRUMENTS LAW SIMPLIFIED
(A Guide to Passing the Bar)

in establishing and operating a postal ‘Money order

system, the government is not engaging In commercial
transactions but merely exercises a governmental
power for the public benefit. (supra) Because this is one
where the order for the payment of money to the payee
is drawn by a post office upon another.
Warehouse receipts —is a written document evidencing
receipt of goods for a fee. Under Sec. 2 of Act 2137, the
Warehouse Receipts Law, its elements are as follows:
Warehouse receipts needed not be in any
particular form, but every such receipt must embody
within its written or printed terms
a. The location of the warehouse where the goods
are stored,

b. The date of issue of the receipt,

c. The consecutive number of the receipt,
d. A statement whether the goods received will be
delivered to the bearer, to a specified person, or to
a specified person or his order,
e. The rate of storage charges,
f, A description of the goods or of the packages
containing them,
g- The signature of the warehouseman, which may
be made by his authorized agent,
h. If the receipt is issued for goods of which the
warehouseman is owner, either solely or jointly
or in common with others, the fact of such
ownership, and
i. Astatement of the amount of advances made and
of liabilities incurred for which the warehouseman
claims a lien. If the precise amount of such
advances made or of such liabilities incurred is,
at the time of the issue of the receipt, unknown
to the warehouseman or to his agent who issues
 APPLICABILITY OF NE Chapter 1 57
GOTIABLE INSTRUMENTS LAW

itj-a Statement of the fac

t that advances have
been made or liabilities inc
urred and the purpose
thereof is sufficient.

8. Income tax return (ITR) — An income tax return means

a statement of income tax of a taxpayer
showing the
nature and amount of his income less the
allowed
deductions and/or personal exemptions, if any for
the taxable year. It is an under oath declarat
ion of
the taxpayer reflecting his tax liability.
[For detailed
discussion, see Chapter 11, page 368 of “The Secrets
of Income Taxation,” Vol. I, 2013 Edit
ion by: Atty.
JLChavez, Jr. (A Guide to Passing the Bar.)]
Tax credit certificate (TCC) — is a_ certification,
duly issued to the taxpayer named ther
ein, by the
Commissioner or his duly authorized repr
esentative,
reduced in a BIR Accountable Form in accordance
with the prescribed formalities, acknowled
ging that
the grantee-taxpayer named therein is
legally entitled
a tax credit, the money value of whi
ch may be used
in payment or in satisfaction of any
of his internal
revenue tax liability (except those excluded
), or may
be converted as a cash refund, or may
otherwise be
disposed of in the manner and in accordanc
e with the
limitations, if any, as may be prescribed
by Revenue
Regulation 5-2000. [For detailed discussion, see
Chapter 5, page 234 of “Tax 2: Revealed,”
Vol. II, 2014
Edition by: Atty. JLUChavez, Jr. (A Guid e to Pa
ssing the
Bar.)]

Further, under RR 14-2011, it is provided

th at all
tax credit certificates (TCC’s) issued by the
Bure au of
Internal Revenue shall not be allowed to be tr
ansferred
or assigned to any person.
10. A certificate of stock - as held in M akat
i Sports
Club, Inc. v. Cheng (G.R. No. 178523, 1 6
June 2010),
a certificate of stock is the paper repr sent
ative or
tangible evidence of the stock itself ar
nd of variou
interests therei n. The s
certificate js not 4 st
ock in the
 LAW SIMPLIFIED
58 NEGOTIABLE INSTRUMENTS
(A Guide to Passing the Bar)

corporation but is merely evidence of the holder’s

interest and status in the corporation, his Ownership
in law the
of the share represented thereby. It is not
the contract
equivalent of such ownership. It expresses
between the corporation and the stockholder, but jg
not essential to the existence of a share of stock or the
nature of the relation of shareholder to the corporation,of
3, page 125
[For detailed discussion, see Chapter
“Corporation Law Simplified”, Vol. IV, 2012 Edition
Bar.)|
by: Atty. JLChavez, Jr. (A Guide to Passing the
le Bill of lading — as held in the case of Unsworth
Transport International Philis., Inc. v. CA (G.R. No,
166250, 26 July 2010), a bill of lading is an instrument
in writing, signed by a carrier or his agent, describing
the freight so as to identify it, stating the name of the
consignor, the terms of the contract for carriage, and
agreeing or directing that the freight to be delivered to
the order or assigns of a specified person at specified
place.” [For detailed discussion, see Chapter 4, page
105 of “Transportation Laws Simplified,” Vol. V, 2014
Edition by: Atty. JLChavez, Jr. (A Guide to Passing the
Bar.)]
 Chapter 2
NEGOTIABILITY

The language of negotiability which characterize 4

negotiable paper as a credit instrument is its freedom to circulate
as a substitute for money. Hence, freedom of negotiability is the
touchtone relating to the protection of holders in due course,
and the freedom of negotiability is the foundation for the
protection which the law throws around a holder in due course.
This freedom in negotiability is totally absent in a certificate
indebtedness as it merely to pay a sum of money to a specified
person or entity for a period of time. (Traders Royal Bank v. CA,
G.R. No. 93397, 3 March 1997) Simply stated, the language or
the word of negotiability is “to order” or “to bearer” as provided
under par. (d), Sec. 1 of the NIL.
As held in Caltex (Philippines), Inc. v. CA (G.R. No. 97753,
10 August 1992):
The accepted rule is that the negotiability or non-
negotiability of an instrument is determined from writing, that
is, from the face of the instrument itself. In the construction of
a bill or note, the intention of the parties is to control, if it can
be legally ascertained. While the writing may be read in the
light of surrounding circumstance in order to more perfectly
understand the intent and meaning of the parties, yet as they
have constituted the writing to be the only outward and visible
expression of their meaning, no other words are to be added to
it or substituted in its stead. The duty of the court in such case
is to ascertain, not what the parties may have secretly intended
as contradistinguished from what their words express, but what
is the meaning of the words they have used. What the parties
meant must be determined by what they said.

59
 60 NEGOTIABLE INSTRUMENTS theLAWBar)SIMPLIFIED
(A Guide to Passing

able instruments
Use and consequence of negoti
1. Alternative for money
A substitute or means for credit transaction

N Medium of exchange for sales or commercia|

Fe
transactions

Accumulation of contracts
oO #

Instrument of credit
NQ

Instrument of consideration
Convenient form of payment in financial transactions
and obligations
8. Acontract right

BAR QUESTION:
Bar Exam Year 2012

MCQ No. 21

Negotiable instruments are used as substitutes for money,

which means —
That they can be considered legal tender.
b. That when negotiated, they can be used to pay
indebtedness.
c. That at all times the delivery of the instrument is
equivalent to delivery of the cash.
d. Thatatall times negotiation of the instruments requires
proper indorsement.

Author’s suggested answer: B

Settled is the rule that the language of negotiability which
characterizes a negotiable paper as a credit instrument is its freedom
fo circulate as a substitute for money. (Traders Royal Bank v. CA,
G.R. No. 93397, 3 March 1997) (Note: In MCQ's, explain only when
required.)
 Chapter 2 61
NEGOTIABILITY

Be that as it May, it is
cle ar that negotiable instruments
are not legal tender —
and as s uch, the creditor is not bound to
accept negotiable instrument S such as promissory note, bill of
exchange, checks, ete,
Under Sec. 52, RA 7653 provides
that:
Legal Tender Power. — All notes and coins issued
by the Bangko Sentral shall be fully guaranteed
Govern
by the
ment of the Republic of the Philippines and
shall be legal tender in the Philippines for all debts,
both public and private.
As to coins as legal tender fixed by the Monetary
Board, coins shall be legal tender and, the maximum
amount of coins to be considered as legal tender is
adjusted as follows:
ds One thousand pesos (Php1,000.00) for denomina-
tions of 1-Peso, 5-Peso and 10-Peso coins; and
One hundred pesos (Php100.00) for denominations
of 1-centavo, 5-centavo, 10-centavo, and 25-centa-
vo coins. BSP Circular No. 537, Series of 2006.
In the same stratum, RA 8183 also provides:
Section 1. All monetary obligations shall be settled
in the Philippine currency which is legal tender in the
Philippines. However, the parties may agree that the
obligation or transaction shall be settled in any other
currency at the time of payment.

BAR QUESTION:

Bar Exam Year 2005

No. 1 — Negotiability

he What is a negotiable instrument? Give the characteris-

tics of a negotiable instrument? (2%)
Distinguish a negotiable document from a negotiable
instrument. (2%)
 y
‘OTIABLE INSTRUMENTS | AW SIMPLIFIED
62 NEGOT! (A Guide to Passing the Bar)

hn »xpl ain whether the : following are ne OH

3, State and exp de r the Negotiable Instrume 1a
instruments un nts Lay

i. Postal Money Order;

ii, A certificate of time deposit which State “Thi, ic
certify that bearer has deposited in this bs Sto
(Phpa g y nk
n
sum of FOUR THOUSAND PESOS
‘ N00,
only, repayable to the depositor 200 day 00)
date.”
iii, Letters of Credit
iv. Warehouse Receipts;
v. Treasury warrants payable from a specific fund,
(5%)
Author’s suggested answer:
1. A negotiable instrument under Sec. 1 of the Negotiable
Instruments Law is an instrument in writing signed by the
maker or drawer containing unconditional promise to pay
a sum certain in money payable on demand or at a fixed
determinable future time payable to order or bearer. Ang
when the instrument is addressed to a drawee, he must
be named or otherwise indicated therein with reasonable
certainty. (Note: There is no exact definition of a negotiable
instrument under Act 2031, but the same can be inferred
under Sec. 1.)
The following are the characteristics of a negotiable
instruments:
a. Alternative for money
b. Asubstitute or means for credit transaction
c. Medium of exchange for sales or commercial
transactions
d. Accumulation of contracts
e. Instrument of credit
f. Instrument of considerat
ion
 Chapter 2 63
NEG JTIABILITY

& Convenient aarHOns

and obli ga re
rn t of payment gs
infinanci alvt transactions
ons
h, A contract right
The distinctio
n bet ween a negotiable document and a
negotiable instru
me nts are as follows:
A
cue ae : A negotiable
:
a.
document is governed by the
bth ode while a negotiable instrument is governed
y the Negotiable Instruments Law;

fon ec A negotiable document under Sec.

title in =) Civil Code provides that a document of
which it is stated that the goods referred to
Waves Crein will
be deliv ered
to the bearer, or to the order
of any person named in such document is a negotiable
document of title while, an instrument to be negotiable,
it must conform with the requirements of Section of the
Negotiable Instruments Law.
As to subject matter: The subject matter of a negotiable
document may either be things or goods while in a
negotiable instrument, the subject matter is a sum
certain in money;
As to contract: A negotiable document does not
result in an accumulation of contracts while a
negotiable instrument when indorsed has the effect of
accumulating contracts.

Postal money order is not a negotiable instrument

because it has no unconditional promise to pay or order.
Sec. 1 of the Negotiable Instruments Law requires that
it must contain an unconditional promise or order to
pay,
A certificate of time deposit is a negotiable instrument
because it is in writing acknowledged by the bank as
to the amount of deposit with a promise to pay the
depositor named in the certificate or bearer at a fixed or
specific time;
 INSTRUMENTS LAW SIMPLIFIED
NEGOTIABLE
™ (A Guide to Passing the Bar)

A letter of credit is not negotiable because jt is 4

payable to order or bearer and is usually a requeg, om
mere authority to pay money or del lver goods to q thing
person. Section 1 of the Negotiable Instruments Law
requires that it must be payable to order or bearer:
d. Warehouse receipt is not a negotiable instrumen,
because the subject matter is things or goods, Section
q of the Negotiable instruments Law requires tha, i
must be a sum certain in money.
e. Treasury warrant is not a negotiable instrument be-
cause it is payable from a specific fund. Section 1 of
the Negotiable Instruments Law requires that Must
contain an unconditional promise to pay. The fact tha
it is payable from a specific fund makes it conditiong|
because such specific fund may or may not exist, oy
may be sufficient or not.

Negotiability
The commercial paper’s capability to have its title
transferred by indorsement and delivery, or delivery alone, gives
the transferee a rightful claim on it. Negotiability (which pertains
to commercial paper) differs from assignability (which pertains
to contracts in general) because an assignee traditionally takes
title subject to all equities, and an assignment is not complete
without notice to the debtor, whereas an indorsee takes free of
all equities and without any notice to the debtor. (Black’s Law
Dictionary, 7th Ed., p. 1058)
It is basic in negotiable instruments law that to be negotiable,
the instrument must conform with Sec. 1, to wit:

“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;
 Chapter 2 65
NEGOTIABILITY

c. Mu
ot St be payable on demand, or at a fixed or
€rminable future tim
e:
Must be payable to order or to bearer; and
Wh .
a
drawe = in strument is addressed to
be named or otherwise
indi °c, he must
tainty.
cated therein with reasonable cer
It is important to bear in mind that the negotiation of
* negotiable Instrument must be distinguished from the
assignment or transfer of an instrument whether that be negotiable
ws non-negotiable. Only an instrument qualifying as a negotiable
Eeeereratiettt under the relevant statute may be negotiated either by
indorsement thereof coupled with delivery, or by delivery alone
where the negotiable instrument is in bearer form. A negotiable
instrument may, however, instead of being negotiated, also
be assigned or transferred. The legal consequences of negotiation
as distinguished from assignment of a negotiable instrument are,
of course, different. A non-negotiable instrument may, obviously,
not be negotiated; but it may be assigned or transferred, absent
an express prohibition against assignment or transfer written in
the face of the instrument. (Sebreno v. CA, G.R. No. G.R. No.
89252, 24 May 1993)

BAR QUESTIONS:

Bar Exam Year 2013

Essay No. 1 — Negotiability

Antonio issued the following instrument:

10 August 2013
Makati City
Php100,000.00
Sixty days after date, I promise to pay Bobby
or his designated representative the sum of ONE
HUNDRED THOUSAND PESOS (Php100,000.00)
 SIMPLIFIED
JEC SOTIABLE INSTRUMENT. S LAW
= ’ (A Guide to Passing the Bar)

by this due date, the sun

from my BPI Acct. No. 1234 if,
ning and rises jp
still sets in the west to usher in the eve e the day,
to welcom
the east the following morning
(Sgd.)Antonio Reyes

Explain each requirement of negotiability present or abseny

in the instrument. (8%)

Author’s suggested answer:

Under Sec. 1 of the Negotiable Instruments Law, an instrument
to be negotiable must conform to the following requirements;
a. It must be in writing and signed by the maker oy
drawer;
b. Must contain an unconditional promise or order to pay
a sum certain in money;
c. | Must be payable on demand, or ata 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.
In the case at bar, the following are the discussions on the
requirement of negotiability:
First, it is in writing and signed by the maker, Antonio Reyes.
Second, it does not contain an unconditional promise to pay a sum
certain in money because the money will be coming from BPI Account
No. 1234. It is a promise to pay out of a particular fund. Under Sec.
4, it is not unconditional. While as to sum, it is certain because of the
Php100,000.00.
_ Third, the instrument is payable at a fixed determinable future
time because the setting of the sun in the west in the evening and rising
in the east in the morning is certain to happen. Under Sec. 4, it provides
 ¢ hapter 2
NEGOT IABILITY .

that an instrument is payable at q

expressed to be payable determinable future time which is
on or at
specified event which is ce at a fixed period after the occurrence of a
rtain to happen, though the time of happening
be uncertain.
Fourth, it does 5
ne, pe not contain the words of negotiability which is
payable to “order” or “bearer.” x ,
Lastly, par. e of Sec. 1 does not apply because the instrument )
ts
10Seed to
suppos d tO be a promisso
be 5 +
ry y
note where there are onl 1 two partie s, the
maker and the payee,

Bar Exam Year 2012

Essay No. 4

Indicate and explain whether the promissory note is

negotiable or non-negotiable.
a. I promise to pay A or bearer Php100,000.00 from my
inheritance which I will get after the death of my father.
(27%)
b. I promise to pay A or bearer Php100,000.00 plus the
interest rate of ninety (90)-day treasury bills. (2%)
c. I promise to pay A or bearer the sum of Php100,000.00
if A passes the 2012 bar exams. (2%)
d. I promise to pay A or bearer the sum of Php100.000.00
on or before December 30, 2012. (2%)

e. I promise to pay A or bearer the sum of Php100,000.00.

(2%)
Author’s suggested answer:
a. Non-negotiable. The promise to pay a sum certain in
money is not unconditional. It contains a promise to pay
out of a particular fund. Not only that it violates Sec. 1,
par. b of the Negotiable Instruments Law which provides
that that instrument to be negotiable, it must contain an
unconditional promise or order to pay a sum certain in
 W SIMPI IFIED
NEGOTIABLE INST RUME NTS LA
68 1g the Bar)
(A Guide to Passit

in consonance wit h Sec. 3, par. q

money, it is liket vise not itiona|
ualifi ed ord er¢ or promise to pay ts uncond
that an unq
ine lication of a particular fund out of
though coupled with an account
e or a particular
which reimbursement is to be mad missory note jg
, The pro
to be debited with the amount in money from inheritance
ment
conditional because the pay
sum stated in the
may or may not be sufficient to cover paythe out of a particulay
e to
instrument. It contains a promis
fund.
Non-negoti able. The promise to
pay a sum certain in money
is not uncon ditional. It contai
ns a promise to pay, which does
it violates Sec. 1,
not specify the interest rate. Not only that provides
Law which
par. b, of the Negotiable Instruments
ain an
that that instrument to be negotiable, it must cont in
a sum certain
unconditional promise or order to pay
money, it is likewise not in consonance with Sec. 2, par.paida,
ough it is to be
the sum payable is a sum certain alth
with interest. The promissory note is conditional because
the payment of money coupled with interest is not clearly
established. There is no interest rate.

Non-negotiable. The promise to pay a sum certain in money

is not unconditional. It contains a promise to pay, which
does not specify the interest rate. It violates Sec. 1, par. b,
of the Negotiable Instruments Law which provides that that
instrument to be negotiable, it must contain an unconditional
promise or order to pay a sum certain in money. Further,
under Sec. 4, last paragraph, an instrument payable upon
a contingency is not negotiable, and the happening of the
event does not cure the defect.
Negotiable. The instrument conforms with the requirements
of Sec. 1 of the Negotiable Instruments Law which provides
that an instrument to be negotiable must conform to the
following requirements: It must be in writing and signed by
the maker or drawer, must contain an unconditional promise
or order to pay a sum certain in money, must be payable
on demand, or at a fixed or determinable future time, must
 69
Chapter 2
NEGOTIABILITY

where the instrument

be payable to order or to bearer, and
Is addresdsed to a drawee, he must be named or otherwise
indicate therein with reasonable certainty.
e. Negotiable. The instrument conforms with the requiremen ts
of Sec. 1 of the Negotiable Instruments Law and that
according to Sec. 7, it is payable on demand because there is
no time for payment indicated in the instrument.

| Bar Exam Year 2011

MCQ No. 3

A writes a promissory note in favor of his creditor, B. It

says: “Subject to my option, I promise to pay B Php1 Million or
his order or give Php1 Million worth of cement or to authorize
him to sell my house worth Php! Million. Signed, A.” Is the note
negotiable?
a. No, because the exercise of the option to pay lies with
A, the maker and debtor.
b. No, because it authorizes the sale of collateral securities
in case the note is not paid at maturity.
c. Yes, because the note is really payable to B or his order,
the other provisions being merely optional.
d. Yes, because an election to require something to be
done in lieu of payment of money does not affect
negotiability.

Author’s suggested answer: A

The instrument is not negotiable because the promise is not
unconditional and that the option belongs to the maker not to the
holder. Sec. 5 par. d of the Negotiable Instruments Law provides
that the negotiable character of the instrument is not affected when
it gives the holder an election to require something to be done in
lieu of payment of money. (Note: In MCQ’s, explain only when
required.)
 FIED
INST RUMENTS LAW )SIMPLI
NEGOTIABLE Bar
(AC juide to Passing the

[ Bar Exam Year 2002 |

No. 15 — Negotiability
of
fo ll ow in g stip ul ations or features
Which of the tiabilit
aff ect or do not affect its nego
promissory not e (PN) is e ne go ti able? Indicate io ri
PN is ot he rw
assuming that t he gr ap h nu mb er of the stipul n
at
the pa ra
answer by writit ng below and your correspo
ndin
of the PN as sh ow n 8
or feature
or “N ot aff ect ed. ” Explain. (5%)
answer, either “Aff ect ed”
February 2002.”
1. The date of PN is “30
on the last day of each
2. The PN bears interest payable
al to five percent (5%)
calendar quarter at a rate equ
asury Bill rate as
above the then prevailing 91-day Tre
calendar quarter,
published at the beginning of such
ion to make payment
3. The PN gives the maker the opt
lent value
either in money or in a quantity of equiva
4. The PN give the holder the option either to require
as
payment in money or to require the maker to serve
the bodyguard or escort of the holder for 30 days.

Author’s suggested answer:

1. Paragraph (1) - the negotiability of the promissory note i
NOT AFFECTED by the fact that it is dated. The Negotiable
cate Law does not require an instrument to be dated
so that the same is negotiable. Such date 1
convenience of the parties. li il
Zi pees be — the negotiability of the promissory note is
igi ad by the fact that it bears interest. Under
oa ee iable Instruments Law, the sum payable
me ina though it is to be paid with interest. This
oe ecause in the case at bar, the interest is to be
puted at a determinable time which does not make the
promise unconditional or the sum uncertain
.
3. Pa
pe te Oe the negotiability of the promissory note is
. 1 of the
- This run against the provision of Sec
 Chapter 2
NEGOTIABILITY

Negotiable Instruments
: ,
its Law because by giving an option tot
the make "rit will make the promise le
conditional.
" Paragraph (4) — the negotiability of the promissory note
'. NOT AFFECTED, Under Sec. 5 of the Negotiable
nial in Law an instrument which contains an order or
ve £0 do any act in addition to the payment of money ts
not negotiable, But the negotiable character ofan instrument
otherwise negotiable is not affected by a provision which
Sives the holder an election to require something to be done
in liew of payment of money. (par. d) The giving of the option
to the holder of the instrument does not make the promise
conditional.

Bar Exam Year 2000

No. 5, (a) — Negotiability

a. MP bought a used cell phone from JR. JR preferred
cash but MP is a friend so JR accepted MP’s promissory note
for Php10,000.00. JR thought of converting the note into cash by
endorsing it to his brother KR. The promissory note is a piece
of paper with the following hand-printed notation: “MP WILL
PAY JR TEN THOUSAND PESOS IN PAYMENT FOR HIS
CELLPHONE 1 WEEK FROM TODAY.” Below this notation
MP’s signature with “8/1/00” next to it, indicating the date of
the promissory note. When JR presented MP’s note to KR, the
latter said it was not negotiable instrument under the law and so
could not be valid substitute for cash. JR took the opposite view,
insisting on the note’s negotiability. You are asked to referee.
Which of the opposing views is correct? Explain. (3%)

Author’s Suggested Answer:

As referee, the view of KR that the promissory note is not negotiable
is correct.
Under Sec. 1 of the Negotiable Instruments Law, an instrument
to be negotiable must conform to the following requirements:
a. — It must be in writing and signed by the maker or drawer;
 LAW SIMPLIFIED
NEGOTIABLE INSTRUMENTS
(A Guide to Passing the Bar)

¢
l promise or order to pay
b. Must contain an unconditiona
sum certain in money;
erminable
Must be payable on demand, or at a fixed or det
future time;
d. — Must be payable to order or to bearer; and
drawee, he mus,
Where the instrument is addressed to a
be named or otherwise indicated therein with reasonable
certainty.
In the case at bar, the promissory note issued by MP iy
m JR is me
consideration of the used cell phone he purchased fro
negotiable simply because it is not in conformity with Section
1 of the Negotiable Instruments Law. This is clear because the
instrument lacks the words of negotiability payable “to order or
bearer.” Hence, KR is correct in saying that the instrument is not
negotiable.

Promissory Note and Bill of Exchange

PN BE
1. Parties Two: Maker & Payee Three: Drawer,
drawee & payee
2. Liability | Maker: Primary liable Drawer: Secondarily
liable
Drawe: Not liable
until he accepts
Section1 | Only pars. atod Pars. a toe
Y

Contains | Unconditional promise | Unconditional order

a

Correlation of Section 1

Par. a Signature — Secs. 18-23

Par. b Unconditional promise — Sec. 3
Sum certain in money — Sec. 2