Section I: An instrument to be negotiable must The other persons who may become

conform to the following requirements: parties after the issuance of the

instrument are:
a. It must be in writing and signed by the
a. Indorser – party who transfers or
maker or drawer;
negotiates the instrument by
b. It must contain an unconditional
indorsement coupled with delivery.
promise or order to pay a sum certain in
b. Holder – the payee or indorsee of a bill
money;
or a note who is in possession of it, or the
c. It must be payable on demand, or at a
bearer thereof.
fixed or determinable future time;
d. It must be payable to order or bearer; &
A promissory note contains an
e. Where the instrument is addressed to a
unconditional promise while bill of
drawee, he must be named or otherwise
exchange contains an unconditional
indicated therein with reasonable
order.
certainty.
Promissory note - is an unconditional promise in
writing made by one person to another, signed
by the maker, engaging to pay on demand, or at
Parties to promissory note:
affixed or determinable future time, a sum
✓ Maker – person who writes the certain in money to order or to bearer.
promissory notes and gives the
Briefly stated, it is a written promise to pay a sum
unconditional promise to pay the
of money.
amount stated therein. He is primarily
liable to pay the obligation. Parties to a promissory note; 1) Maker; 2) Payee
✓ Payee – the creditor whom the promise
Bill of exchange – is an unconditional order in
to pay is given. He is the person who
writing addressed by one person to another,
shall receive the instrument.
signed by the person giving and requiring the
person to whom it is addressed to pay upon
Parties to a bill of exchange:
demand or at fixed or determinable future time
✓ Drawer – a person who draws or write
a sum certain in money or to bearer.
the bill of exchange. He gives the order
to pay a sum certain in money. His
liability on the instrument is secondary.
SECTION II: Certainty as to sum
✓ Drawee – the person to whom the order
to pay is addressed. He is ordered to pay A sum payable is sum certain although it is paid
from his own packet, and later through:
reimbursed himself from the funds of
1. With interest
the drawer. The drawee has no liability
2. With stated installment
until and unless he accepts and order to
3. With stated installment with a provision
pay. Once he accepts, he becomes the
that upon default on payment of any of
acceptor who is primarily liable on the
installment or interest, the whole shall
instrument.
become due.
 4. With exchange, whether at a fixed rate whether the instrument carries the
or at a current rate; or (applicable only general personal credit of the
to foreign bills) maker/drawer.
5. With cost of collection or an attorney’s
SECTION IV: Determinable future time; what
fee, in case payment shall not be made
constitutes – An instrument is payable at a
at maturity.
determinable future time w/in the meaning of
this Act, which is expressed to be payable
✓ Negotiability is no longer an issue when
the principal sum is certain. a. At a fixed period after date or sight; or
✓ For stated installments to be valid, it b. On or before a fixed or determinable
must state the a) maturity date of each future time specified therein; or
installment; (b) exact amount to be paid c. On or at affixed date after the
for each installment. occurrence of a specified event which is
certain to happen, though the time of
✓ With stated installment with provision happening be uncertain.
that upon default on payment of any of
An instrument payable upon a contingency is
installment or interest, the whole shall
not negotiable, and the happening of the
become due also known as “acceleration
event does not cure the defect.
dependent on maker”.
Q: When is the maturity date if the
✓ Acceleration at the option of the holder instrument is payable at a fixed period after
renders the instrument non-negotiable. date?

A: : For a Promissory note, “ after date” is

SECTION III: When promise is unconditional usually used. If there is no time specified for
the payment the maturity date shall be
An unqualified or unconditional promise or
counted from the date of instrument . if the
order is unconditional though coupled with –
instrument is undated the maturity date hall
a. An indication of particular fund out of be counted from the date of the issue.
which reimbursement is to be made or a
✓ An instrument payable upon a
particular account is to be debited;
contingency is not negotiable, and the
b. A statement of transaction which gives
happening of the event does not cure
rise to the instrument
the defect.
But an order or promise to pay out of a particular
fund is not unconditional. Contingency – an uncertain future event
or an event which may or may not
✓ An instrument payable out of a
happen.
particular fund or specified fund is non-
negotiable because the amount to be
Example: “ I promise to pay Pedro P or
paid is made to depend upon the
order Php. 1,000 on or before the 18th
adequacy or existence of the fund
birthday of Juan”
designated. The test negotiability is

SECTION V. Additional provision not affecting
negotiability. — An instrument which contains
an order or promise to do any act in addition to
the payment of money is not negotiable. But
the negotiable character of an instrument
otherwise negotiable is not affected by a
provision which —
(a) Authorizes the sale of collateral securities in
case the instrument be not paid at maturity; or
(b) Authorizes a confession of judgment if the
instrument be not paid at maturity; or
(c) Waives the benefit of any law intended for
the advantage or protection of the obligor; or
(d) Gives the holder an election to require
something to be done in lieu of payment of
money.
But nothing in this section shall validate any
provision or stipulation otherwise illegal.
Authorizes the sale of collateral securities
“ I promise to pay P or order the sum of P10,000
on February 27, 2023 secured by a ring I delivered
to him by way of pledge and which he could sell
should I fail pay I maturity”
Confession of judgment – a written
acknowledgment by the defendant
indebtedness. It enables the holder to obtain a
judgment without delay as it eliminates the
necessity of trial.
Note: Warrant of attorney to confess judgment
are not authorize because the promissor bargain
away his rights.
Waiver of benefit granted by law
“ Pay bearer P1,000. Notice of dishonor waived”
Election by the holder to require some other act
“I promise to pay P or order P15,000 or an air
conditioner at the option of the holder”
In the case, the holder has the choice. The
instrument, therefore, is negotiable. If the
option is with promissor, the instrument is non-
negotiable.
SECTION VI: Omission; seal; particular money. —
The validity and negotiable character of an
instrument are not affected by the fact that —
(a) It is not dated; or
(b) Does not specify the value given; or
(c) Does not specify the place where it is drawn
or the place where it is payable; or
(d) Bears a seal; or
(e) Designates a particular kind of current money
in which payment is to be made.
But nothing in this section shall alter or repeal
any statute requiring in certain cases the nature
of the consideration to be stated in the
instrument.
Effect of omission of date
1. Date of the instrument is generally not
necessary
2. When date is necessary
✓ Where the date is tied to the date of the
issue, e.g. an undated note is “ payable
30 days after date”.
✓ Where interest is stipulated to
determine when the interest begins to
run.
3. Date stated not in the calendar
✓ The law will deem the nearest date
of the month the date intended.
Effect of omission of value
 ✓ It is not necessary to state the value
has been received for the
instrument because consideration is
presumed.
Effect of omission of place
✓ When the instrument does not
specify the place of payment is
presumed payable at the residence
or business of the maker or drawer.
Effect of presence of seal
✓ It does not affect the negotiability of
the instrument.
Effect of Designation of particular kind of current
money payable
✓ The promise or order must call for
the payment of money but the law
does not require that payment
should be made in legal tender.
Money is not necessarily limited to
legal tender. It includes any
particular kind of current money or
foreign money which has fixed value
in relation to our money.
Example: “ I promise to pay P or order the sum of
Php. 100,000 in Central Bank notes of Php.1,000
bills”
SECTION VII: When payable on demand. — An
instrument is payable on demand —
(a) When it is expressed to be so payable on
demand, or at sight, or on presentation; or
(b) In which no time for payment is expressed.
Where an instrument is issued, accepted, or
indorsed when overdue, it is, as regards the
person so issuing, accepting, or indorsing it,
payable on demand.
(a) When it is expressed to be so payable on
demand, or at sight, or on presentation;
✓ Refer to the immediate &
subsequent parties.
(b) In which no time for payment is
expressed.
✓ Refers only to immediate parties
An instrument is payable on demand is due and
payable immediately after delivery.
Instrument not payable on demand is called time
instrument.
An overdue instrument is necessarily a demand
paper. A holder has an immediate right of
payment for the money promised or ordered to
be paid.
SECTION VIII: When payable to order
The instrument is payable to order where it is
drawn to the order of a specified person or to
him or his order. It may be draw payable to the
following order:
a. A payee who is not maker, drawer or
drawee;
b. The drawer or maker;
c. The drawee; or
d. One or more several payees; or
e. The holder of an office for the time
being.
Where the instrument is payable to order , the
payee must be named or otherwise indicated
therein with reasonable certainty.
SECTION IX: When payable to bearer – the
instrument is payable to bearer –
 a. When it is expressed to be payable; or
b. When it is payable to a person named
therein or bearer;
c. When it is payable to the order of a
fictitious or non-existing person and
such fact was known to the person
making it so payable;
d. When the name of the payee does not
purport to be the name of any person; or
e. When the only or last indorsement is an
indorsement in blank

Q: “ I promise to pay to the order of Aquaman,

Php1,000”. Is it negotiable? What instrument?

A: It is a bearer instrument. Under Fictitious

payee rule. An instrument is a bearer instrument
if it is payable to the order a fictitious or non-
existing person and such fact is known to the
person making it so payable.

Q: May a fictitious payee be in reality a trust &

existing person?

A: Yes, but the instrument is still deemed

payable to bearer if the maker or drawer has no
intention to make the instrument payable to
such existing person.

Q: Why is it a bearer instrument?

A: Because fictitious person cannot indorse, so

the drawer/maker must have intended that the
instrument is a bearer instrument which cannot
be negotiated by mere delivery.