LESSON I - PROMISSORY NOTES

17. Define a negotiable promissory note.

Promissory Note- A negotiable promissory note within the meaning of this Act is an
unconditional promise in writing made by one person to another, signed by the maker,
engaging to pay on demand, or at a fixed or determinable future time, a sum certain in
money to order or bearer. Where a note is drawn to the maker’s own order. It is not
complete until endorsed by him.( Section 184)

18. What are the special types of promissory notes?

a) Certificate of deposit. - it is a written acknowledgement by the bank of the receipt of

money on deposit which the bank promises to repay the depositor, bearer, to some
other person, to the demand of the depositor or to him or his order, at a later date
or on demand.

b) Bond- it is an evidence of indebtedness issued by a public or private corporation,

promising to pay a sum of money on a day certain in the future.

c) Bank note- it is an instrument issued by a bank for circulation as money payable to

bearer on demand.

d) Due bill it is a promissory note which shows on its face an acknowledgement by a

person on its indebtedness to another.

e) Mortgage note- the security contract, known as a mortgage. Most provides that the
mortgage can be foreclosed if the note is not paid when it is due;

f) Title retaining note- this type is secured by a conditional sales contract which
ordinarily provides that the title to the goods shall remain in the payee’s name until
the note is paid in full;

g) Collateral note- it is used when the maker pledges securities to the payee to secure
the payment of the amount of the note;

h) Judgment note- this is note which is added a power of attorney enabling the payee
to take judgment against the maker without the formality of a trial if the note is not
paid on its due date;

i) Installment note- it is a note payable in specified or periodic installments at pre

determined times.(Page 299-300 De Leon)

19. Define a certificate of deposit?

Certificate of deposit. - it is a written acknowledgement by the bank of the receipt of money

on deposit which the bank promises to repay the depositor, bearer, to some other person,
to the demand of the depositor or to him or his order, at a later date or on demand. (Page
300 De Leon)

20. What is bond?

 Bond- it is an evidence of indebtedness issued by a public or private corporation, promising
to pay a sum of money on a day certain in the future.(Page 300 De Leon)

21. Define a Bank note.

Bank note- it is an instrument issued by a bank for circulation as money payable to bearer
on demand. (Page 300 De Leon)

22. What is Due Bill?

Due bill it is a promissory note which shows on its face an acknowledgement by a person on
its indebtedness to another. (Page 300 De Leon)

LESSON 2 – BILL OF EXCHANGE

23. Define a negotiable bill of exchange.

Bill of Exchange- A bill of exchange is an unconditional order in writing addressed to pay on

demand or at a fixed or determinable future time a sum certain in money to order or to
bearer.( Sec 126)

24. Give the special types of bills of exchange.

Special types of bill of exchange:

(1) Draft- a bill of exchange drawn usually by a bank against its branch or another bank.

(2) Trade acceptance- a bill of exchange drawn by a seller on the purchaser of goods
and accepted by the purchaser

(3) Bankers acceptance- a bill of exchange drawn against a bank and accepted by the
later;

(4) Clean bill of exchange- a bill of exchange to which no document in attached when
presented for payment or acceptance;

(5) Documentary bill of exchange- a bill of exchange to which documents like shipping
documents or invoices are attached when presented for acceptance or payment;

(6) Sight bills- are bills of exchange which are payable upon presentation or sight or on
demand;

(7) Time bills- are bills of exchange which are payable at a fixed future time or at a
determinable future time.

25. Define a trade acceptance bill.

Trade acceptance- a bill of exchange drawn by a seller on the purchaser of goods and
accepted by the purchaser

26. Define a banker’s acceptance bill.

27. Is a treasury warranting negotiable?

Yes it negotiable in limited manner because they are used in commercial transactions
though they don’t have the essential requisites to be negotiable and they are beyond the
scope of the Negotiable Instrument Law and therefore, governed by other law. (Page 6 De
Leon)

28. Are postal money orders negotiable?

Postal money order is an order for the payment of money to the payee, Yes it negotiable in
limited manner because they are used in commercial transactions though they don’t have
the essential requisites to be negotiable and they are beyond the scope of the Negotiable
Instrument Law and therefore, governed by other law. (Page 6 De Leon)

29. Define a clean bill of exchange.

Clean bill of exchange- a bill of exchange to which no document in attached when presented
for payment or acceptance;

30. What is documentary bill?

Documentary bill of exchange- a bill of exchange to which documents like shipping

documents or invoices are attached when presented for acceptance or payment;
 31. Can a payee enforce payment on the bill against the drawee to which the bill is
addressed; if the drawee does not accept the bill?

32. May a bill of exchange be addressed to two or more drawees?

Yes, a bill of exchange can be addressed to more than one drawee; but not to two or more
drawee’s in the alternative or in succession. (Section 128)

33. Define an inland bill of exchange.

An inland bill of exchange is a bill which or on its face purports to be, both drawn and
payable within the Philippines. (Section 129)

34. Define a foreign bill of exchange.

A foreign bill of exchange is those not drawn but payable in the Philippines or payable but
not drawn in the Philippines. (Setion129)

35. Under what circumstances a bill may be considered a promissory note.

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 potion, either as a bill of exchange or a promissory note. (Section 130)

36. Who is a “Referee in case of Need”?

The drawer of the bill and any endorser may insert thereon the name of the person to
whom the order may resort in case of need, that Is to say, in case the bill is dishonored by
non acceptance or non- payment. Such person is called a referee in case of need. It is the
option of the holder to resort to the referee in case of need and not, as he may see fit.
(Section 131)

37. Is the holder duty bound to resort to the referee in case of need?

In case the bill is dishonored by non acceptance or non- payment. (Section 131)

LESSON 3 – CHECK

38. Define a Negotiable Check?

Section 185. - A check is a bill of exchange drawn on a bank payable on demand. Except as
herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable
on demand apply to a check.

39. Name the special types of checks.

(1) Memorandum Check- where the drawer agrees to absolutely pay the bona fide of
the check.

(2) Cashier’s Check- where the check is drawn by the bank upon itself and is accepted
already by the act of issuance. It is really the bank’s own check.
 (3) Manager’s Check- one that is drawn by the bank’s manager upon the bank itself.
Similar to the cashier’s check both as to effect and use.

(4) Crossed check- one which bears two parallel lines across face, indicating that the
check is for deposit.

(5) Stale check- one that is valueless because it was presented for payment after a lapse
of reasonable length of time from its issuance.

(6) Traveler’s check- is one upon which the holder's signature must appear twice, one
to be affixed by him at the time it is issued and the second or counter signature to
be affixed by him in the presence of the payee before it is paid, otherwise it is
incomplete.

(7) Certified check- it is one which bears upon its face on agreement by the drawer
bank that the check will be paid on presentation.

40. Define a cashier’s Check.

Cashier’s Check- where the check is drawn by the bank upon itself and is accepted already
by the act of issuance. It is really the bank’s own check. It is also an accepted practice in the
business sector that a cashier’s check is deemed cash.

41. Define manager’s Check.

Manager’s Check- one that is drawn by the bank’s manager upon the bank itself.

42. Can both cashier’s and manager’s checks be treated as promissory notes?

No they are not the same, though both cashier’s check and manager’s check be treated as
promissory note but the manager’s check is not legal tender.

43. Define a Memorandum check?

Memorandum Check- where the drawer agrees to absolutely pay the bona fide of the check.

44. Define a crosses a check.

Crossed check- one which bears two parallel lines across face , indicating that the check is
for deposit.

45. What is the purpose of crossing a check?

The purpose of crossing a check is to insure payment to the payee, particularly when it was
forwarded by mail or when it was entrusted to an agent.

46. Who crosses a check?

47. In how many ways may a check be crossed?

There are two in crossing a check:

 a) If crossed specially- the name of a particular bank or company is written or appears
between the parallel lines in which case the drawee bank must pay the check only
upon presentment by such bank or company.

b) If crossed generally- only the words “and Co.” are written between the parallel lines
or when nothing is written at all between said lines.

48. When is a check said to be crossed specially?

If crossed specially- the name of a particular bank or company is written or appears between
the parallel lines in which case the drawee bank must pay the check only upon presentment
by such bank or company.

49. When is a check said to be crossed generally?

If crossed generally- only the words “and Co.” are written between the parallel lines or when
nothing is written at all between said lines.

50. What is traveler’s check?

Traveler’s check- is one upon which the holder's signature must appear twice, one to be
affixed by him at the time it is issued and the second or counter signature to be affixed by
him in the presence of the payee before it is paid, otherwise it is incomplete.

51. What is a certified check?

Certified check- it is one which bears upon its face on agreement by the drawer bank that
the check will be paid on presentation.

52. What is the effect of certification of a check?

The effect of a certification of a check with regards to the parties the holder enables to use
the check as money.

53. Who may procure a check to be certified?

The holder of the check has the right to procure the instrument to be certified.

54. What is the effect if the check is certified procured by the holder?

Where the holder of a check procures it to be accepted or certified, the drawer and all
endorsers are discharge from liability thereon.section188

55. What is the effect of certification of the check procured by the drawer?

If procured by the drawer, the drawer is not discharge even if he has the check certified at
the request of the one to whom it is payable.

Page 250 Suarez

56. When does a check operate as an assignment of the fund of the drawer with the drawee
bank available for payment?
 A check of itself does not operate as an assignment to any poarts of the fund to the credit of
the drawer with the bank, and the bank is not liable to the holder, unless and until it accepts
or certifies a check. (Section 188)

57. Within what time shall a check be presented for payment?

A check must be presented for payment within a reasonable time after its issue or the
drawer will be discharged from liability thereon to the extent of the loss caused by the
delay. (Section 186)

58. How do you call a check which is not presented for payment within a reasonable time
after its issue?

Stale check- one which has not been presented for payment within a reasonable time after
its issue. Page 306 De Leon

59. When is a drawer of a check discharged from liability in the event it has become stale?

The drawer in case presentment was not made within a reasonable time would be caused the
insolvency of the bank subsequent to the delivery and prior to the presentment of the check.
(Page 308 De Leon)

60. What is the effect upon the liability of the endorser in case the check is not presented
for payment within a reasonable time after its issuance?

An endorser is wholly discharge thereby, irrespective of any question of loss or injury by the
delay in presentment unless the presentment is excused or dispensed with. (pg308DL)
LESSON 4 – REQUISITES OF NEGOTIABILITY

61. What are the essential requisites of a negotiable instrument?

The requisites of a negotiable instrument are:

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 bearer

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

indicated therein with reasonable certainty.

62. What are the essential requisites of a negotiable promissory note?

The requisites of a negotiable promissory note are:

a) It must be I writing and signed by the maker;

b) Must contain an unconditional promise 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 bearer;

63. What are the essential requisites of a negotiable bill of exchange?

The requisites of a negotiable bill of exchange are:

a) It must be in writing and signed by the drawer;

 b) Must contain an unconditional 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;

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

indicated therein with reasonable certainty.

64. What are the essential requisites of a negotiable check?

The requisites of a negotiable check are:

a) It must be in writing and signed by the drawer;

b) Must contain an unconditional order to pay;

c) Must be payable on demand;

d) Must be payable to order or bearer;

e) Where the instrument is addressed to a bank, it must be named or otherwise

indicated therein with reasonable certainty.
LESSON 5 – WRITING

65. What constitutes in writing?

The instrument must be in writing so that we have something to pass hand to hand and it
includes letters, paper, numbers, symbols, and others.

66. What is doctrine of substantial compliance?

No, it need not to follow the language of the Act as long as the intention is clearly indicated
because the substance of the transaction rather than it’s form is the criterion of
negotiability.

67. For an instrument to be negotiable must if follow literally the language of the
Negotiable Instrument Law?

No, it need not to follow the language of the Act as long as the intention is clearly indicated
because the substance of the transaction rather than its form is the criterion of
negotiability.

68. What is the difference between written and printed?

LESSON 6 – SIGNATURE

69. What are the rules regarding signature?

a) You can place your signature anywhere

b) Initials or any mark is sufficient

c) Full name or at least the last name should appear.

70. What is general rule as to the liability of a person whose signature does not appear on
the instrument?

No signature, No liability

71. What are the exceptions to this general rule?

(1) Where a person signs in a trade or assumed name;

(2) The principal is liable if a duly authorized agent signs on his own behalf;
 (3) In case of forgery, the forger is liable even his signature does not appear on the
instrument;

(4) Where the acceptor makes his acceptance of a bill on a separate paper;

(5) Where a person makes a written promise to accept a bill before it was drawn.

72. What are requisites must be followed so that the agent in so signing his principal will not
be personal liable?

This are requisites must be followed so that the agent in so signing his principal will not be
personal liable:

(1) He is duly authorized;

(2) He adds words to his signature indicating that he signs as an agent, that is, for or on
behalf of a principal, or in a representative capacity;

(3) He discloses his principal.

73. Suppose an agent sign as follows:

(Sgd.) Juan de la Cruz

Agent of Pedro Reyes:

Under such signature who shall liable?

The principal shall be liable because the agent discloses his principal.

74. What is meant by “disclosure of the principal”?

You must indicate your principal, the agent and sign in a representative capacity.

75. Must disclosure of the principal be made always on signature?

76. What is signature per procuration?

77. How is signature per procuration made?

78. What is the effect of signature per procuration?

79. What is the effect of an endorsement by an infant or corporation?

As a rule, a minor cannot give consent to a contract and a contract entered by him is
voidable. In like manner a corporation cannot perform acts beyond the scope of their
authority. In Section 22 if a minor or a corporation indorses an instrument, the indorsee or
holder can enforce it against the maker other parties prior to the minor. Such parties cannot
set up as a defense to the incapacity of the indorser

80. Define forgery.

Forgery is meant the counterfeit-making or fraudulent alteration of any writing, and may
consist in the signing of another's name or the alteration of the instrument in the name,
amount, description of the person and the like, with the intent thereby to defraud.

81. In how many ways may forgery of signature be done?

a) Where the signature on the instrument is affixed by one who does not claim to act
as an agent and who has no authority to bind the person whose signature he has
forged;

b) Where the signature is affixed by one who purports to be an agent but has no
authority to bind the alleged principal.

82. What are the other forms of forgery?

a) Forgery of an indorsement on the note;

b) Forgery on the maker’s signature.

c) Forgery of an indorsement on the bill;

d) Forgery on the drawer signature.

83. Explain fraud in factum?

84. How is duress amounting to forgery done?

85. Supposing A represents himself to be Jose Reyes, when in fact he is not. Through this
misrepresentation A obtains from X a negotiable note payable to the order of Jose
Reyes. Then A endorses the note, signing “JOSE REYES” Is this forgery?

86. What are the effects of forgery of a signature on the instrument in general?

When a signature is forged or made without the authority of the person whose signature it
purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a
discharge therefore, or to enforce payment thereof against any party thereto, can be
acquired through or under such signature unless the party against it is sought to enforce
such right is precluded from the setting up the forgery or want of authority. (Section 23)

87. Who are the persons precluded from setting up the defense of forgery?

a) Those who by their acts, silence, or negligence, are stopped from setting up the
defense of forgery;

b) Those who warrant or admit the genuineness of the signatures in the questions.
(page 82 De Leon)

88. If a broker or agent negotiates an instrument by delivery who shall be liable? Is it the
agent or the principal?

The principal shall be liable as long as the agent is:

a) Duly authorized;
 b) Discloses his principal;

c) Ads words to his signature indicating that he is signing in a representative capacity.

(page74 De Leon)

LESSON 7 – PARTIES

89. Who is payee? Holder? Bearer?

Bearer means the person in possession of a bill or note which is payable to bearer.

Holder means the payee or indorsee of a bill or note, who is in possession of it, or the bearer
thereof.

Payee means the holder or indorsee of a bill or note.

90. Who is maker?

Maker is the one who issues a promissory note.

91. Who is drawer?

Drawer is the one who issues bill of exchange.

92. Who is drawee?

Drawee is the one who accepts the bill of exchange, and primary bound on the instrument.

93. What is a bank?

Bank includes any person or association of persons carrying on the business of banking,
whether incorporated or not.

94. Who is an acceptor?

95. Who is an accommodation party?

96. Who is an accommodated party?

97. How many accommodation party are there?

98. Must an accommodation party not receive any consideration at all?

99. What is the legal position of an accommodated party?

100. Is the accommodation party liable to the accommodated party?

101. To whom, then shall an accommodation party be liable on thee instrument?

LESSON 7A – LIABILITIES OF PARTIES

102. What kind of liability has the maker?

103. What are the warranties of maker?

 (a) That he will pay the instrument according to its tenor;

(b) Admits the existence of the payee and his then capacity to indorse.

104. What kind of liability has the drawer?

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. The drawer has his liability under the law.

105. What is the warranties doe’s drawer make?

(a) Admits the existence of the payee and his then capacity to indorse.

(b) That if the instrument is presented, it will be accepted, or paid, or both.

© That if the dishonored are duly taken he binds himself to pay the holder, or any of the
subsequent endorsers who may be compelled to pay.

106. What kind of liability has the drawee?

If the drawee refuses to accept when he has funds for the purpose, he becomes liable to the
drawer for the resulting damages and the harm done to his credit.

Pg 21

107. As Acceptor, what kind of liability does he have?

(1) The existence of the drawer, the genuineness of his signature and his capacity and
authority to draw the instrument.

(2) The existence of the payee and his then capacity to endorse

108. What warranties does an acceptor make?

(1) By accepting the instrument, he engages that he will pay it according to the tenor of
his acceptance;

(2) Admits the existence of the drawer, the genuineness of his signature, and authority
to draw the instrument.

109. In what respect does a maker differ from the acceptor as regards their primary
liability?

LESSON 8 – UNCONDITIONAL PROMISE OR ORDER

110. When promise or order is considered unconditional within the meaning of the
Act?

An unqualified order or promise to pay is unconditional 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;

(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.

111. In the following instrument, is the promise unconditional?

“I promise to pay to the order of B P1, 000 out of the proceeds of he sale of my car.

112. Suppose the fund stated on the instrument is the source of reimbursement, will
the promise or order remain unconditional?

113. Is the following instrument negotiable:

Pay to order of B P5, 000 on Dec. 1, 1987 and reimburse yourself out of my deposit with
you.

To: X (Sgd.)”A”

114. Will an indication of a particular account to be debited with the amount affect
negotiability?

115. Is the following instrument negotiable:

“I promise to pay to the order of B P5, 000 in payment of the car I purchased B.
(Sgd.)”A”

116. If on the face of the instrument there are additional provisions as something to
be done or added, will the instrument be negotiable?

117. What is the test to determine whether additional acts will or will not impair
negotiability?

118. What acts in addition to payment of money will not affect negotiability?

119. Which of the following instrument negotiable?

“I promise to pay the order of B P1, 000 on Dec. 1, 1987. In case of default I hereby
authorize the sale of my law books I pledge as a security. (Sgd.)”A”

120. What is meant by “confession of judgment”?

121. If an instrument contains a confession of judgment, will the instrument remain

negotiable?

122. In case there is an option to require something to be done in lieu of money on

the instrument, will that affect negotiability?

LESSON 9 – SUM CERTAIN MONEY

123. What constitutes sum certain in money?

 124. If the instrument contains the following:

“To pay P1, 000 and all other sums due”, is the sum certain in money?

125. What is meant by the phrase “stated installment”?

126. If the instrument contains the following: that the sum of P1, 000 is payable in
two equal instruments”, will that satisfy the stated installments as required by law?

127. Suppose the phrase is the following:

“The sum of P1,000 payable in two equal monthly installments to start on August 1, 1987” is
the sum certain in money?

128. How does an acceleration clause affect the certainty of the sum payable?

129. What is meant by “exchange”?

130. Does the phrase “with exchange” destroy negotiability?

131. Suppose the instrument is payable in foreign currency, will that destroy
negotiability?

132. How does the stipulation on costs and attorney’s fees affect negotiability?

LESSON 10 – DEMAND

133. When an instrument is considered payable on demand?

Jan. 10, 1987.

134. I promise to pay to the order B P1, 000 on Jan. 15, 1987.

(Sgd.) A

This note though made by A last Jan. 1, 2010 was issued by A to B only last Jan. 18, 2010.
When is this note payable?

135. But if the note above was issued by A to B last Jan. 10, 2010 but was only
endorsed by B to C last Jan. 20, 2010, when is it payable?

LESSON 11 – FIXED DATE

136. What are the rules regarding fixed date?

LESSON 12 – DETERMINABLE FUTURE TIME

137. When is an instrument said to be payable at determinable future time?

138. To what does the phrase “after date” refer?

139. To what does the phrase “after sight” refer?

 140. Can a promissory note be maid payable either at a fixed period after date or
after sight?

141. Can a bill of exchange be drawn payable at a fixed period after date or sight?

142. If a bill of exchange payable “10 days after sight” has been presented for
acceptance on Aug. 1, 1986 but at that same time it was refused acceptance by the
drawee, when shall maturity date be?

143. If an instrument is payable on or before Dec. 1, 1987, can the maker be

compelled to pay before Dec. 1, 1987?

144. Where the determinable future time specified on the instrument is sure to
happen or is certin when it shall happen, can the instrument be payable at a fix period
before such event?

145. Suppose the event mentioned is “death of a person”, can the instrument be
made payable before such event?

146. I promise to pay to the order of B when X gets married to Y. is the instrument
payable on a determinable future time?

LESSON 13 – ORDER

147. In how many ways may an instrument be made payable to order?

148. To whose order may an instrument be drawn?

149. I promise to pay to the order of the Treasurer P1, 000 on demand. Is the above
instrument payable to order?

150. Must the payee to whose order the instrument is payable be always named?

145. Can you consider the note complete, if it is .payable to the order of the maker himself?

LESSON 14 – BEARER

146. When is an instrument payable to bearer?

147. Does the Negotiable Instruments Law distinguish between fictitious person and a non –
existing person?

148. What requisites must be present so that an instrument where the payee named therein
is fictitious or non – existing be considered payable to bearer?

149. I promise to pay to Santa Claus P5, 000 on demand.

(Sgd.)”A”

Here A knows that his payee is non – existing, is the instrument payable to bearer?

150. If an instrument payable to order has been endorsed in blank, can it be subsequently
negotiated by mere delivery?
LESSON 15 – RULES ON CONTRUCTION

151. State the rules of construction where the instrument is ambiguous.

152. When are the above rules applicable

LESSON 16 – RULES REGARDING DATE

153. What are the rules regarding date?

154. Is date of issuance essential for negotiability?

155. When is an instrument considered ante – dated?

156. When is the instrument considered post – dated?

157. Does ante – dating or post – dating an instrument invalidate the instrument?

158. As of what date shall a person acquire title to an instrument which is ante – dated or
post – dated but not for an illegal or fraudulent purpose?

159. Under what instances may date of issuance or acceptance be inserted in the
instrument?

160. What is the authority of the holder as regards the insertion of the date?

161. Will insertion of wrong date invalidated the instrument?

LESSON 17 – OMISSIONS NOT AFFECTING NEGOTIABILITY

162. What factor may be omitted on the face of the instrument, yet will not impair
negotiability?