REQUISITES OF NEGOTIABILITY

1. Form – The elements of negotiability must be clear on the face of the

instrument applying Section 1 of the Negotiable Instruments Law (NIL);
2. Intention – The intention of the one who issues the instrument is to make or
draw a negotiable instrument; “issue” is a specific term under Section 191 (j)
which is “the first delivery of the instrument, complete in form, to a person
who takes it as a “holder”, described as the “payee or indorsee of a bill or a
note, who is in possession or it, or the bearer thereof (Section 191 [g]). After
its issue, the intention of the transferor of the instrument must be clear: to
constitute the transferee of the said instrument as a “holder” as well which
Section 30 calls as “negotiation”. The ultimate intent is to be able to identify
who is entitled to be paid under the instrument.
3. Delivery – The manner of the transfer and its clear intent is to transfer
possession of the negotiable instrument to the “holder”.

SECTION 14 (INCOMPLETE DELIVERED INSTRUMENT)

2 Types of Incomplete Instruments under Section 14:
1. Instruments wanting in material particular which renders the instrument
non-negotiable but duly signed by the maker or drawer;
2. A pre-signed blank paper delivered by the person making the signature in
order that the paper may be converted into a negotiable instrument
RULES:
1. The person in possession of the incomplete instrument has a prima facie
(disputable) authority to fill up the blanks.
2. The filling up of the blanks must be strictly in accordance with the authority
given and within a reasonable time in order to enforce the instrument to the
person who became a party thereto prior to its completion.
3. The delivery of the instrument is also disputably presumed to have been
made voluntarily by the maker or drawer to the person in possession of the
said instrument.
4. The instrument is VALID and EFFECTUAL for all purposes in the hands of a
HOLDER IN DUE COURSE (Section 52) even if the instrument is not filled up
strictly in accordance with the instruction of the person who drew or made
it.
 Example:
Agot issued to Manny a note in this wise:
“April 4, 2021
I promise to pay the bearer the amount of __________.
Sgd (Agot)”
Agot instructed Manny to fill up the instrument in the amount necessary to
settle her obligation of not more than PhP10,000. It turned out that the exact
amount of Agot’s obligation to Manny is PhP10,000.
1. Manny has the prima facie authority to fill up the missing detail in the note
which is the amount of PhP10,000.
2. Manny should fill the amount of PhP10,000 and within a reasonable period
of time from the date of the instrument. Thus, if Manny fills it up only on
April 4, 2022 then that is no longer a reasonable period of time.
3. As the note is in the possession of Manny, the disputable presumption is that
the note was voluntarily delivered to Manny by Agot.
4. Assume that the note was filled up by Manny in the amount of PhP100,000
on April 4, 2021 and negotiated to Andrew on the same day with Andrew
qualifying as a Holder in Due Course. Andrew can enforce the note against
Agot for PhP100,000. That the instrument was not filled up strictly in
accordance with the authority given by Agot to Manny is merely a PERSONAL
or EQUITABLE DEFENSE which is available to Agot in so far as Manny is
concerned but not against Andrew who is a holder in due course.
5. But if the note was filled up only a year after the date of the instrument (April
4, 2022), then negotiated to Andrew by Manny, Andrew will not qualify as a
Holder in Due Course and he will not be able to recover the full amount of
PhP100,000 from Agot.

SECTION 15 (INCOMPLETE UNDELIVERED INSTRUMENT)

RULES:
1. For an instrument to be considered negotiable, the drawer or maker has to
complete it in accordance with Section 1 of the NIL and deliver it to another
person with the intention of giving effect to it.
2. If both of these requisites are not present (incomplete and undelivered) then
this is a REAL DEFENSE available even against a holder in due course and the
party prior to the completion may avoid liability by introducing evidence to
the contrary.
3. When the instrument is no longer in the hands of the party who appears to
be the drawer or maker, there is prima facie (disputable) presumption that
the instrument was delivered to the holder. The party claiming that the 2
requisites are not present must introduce evidence that there was no
delivery of the instrument.

Agot prepared the following note and kept it in her bag:

“April 4, 2022
I promise to pay ________ or order the amount of __________.
Sgd (Agot)”

1. The instrument in this case is INCOMPLETE (without the payee and the
amount) and UNDELIVERED (kept inside the bag of Agot).
2. If Manny steals the note from the bag of Agot, puts his name and the amount
of PhP100,000 then negotiates it to Andrew and from Andrew to Rupert,
Agot is freed from liability if she is able to prove that there was no delivery
of the note as it was stolen from her bag. Even if Rupert is a holder in due
course, this will not prevail over the evidence introduced and proven by Agot
that there was no delivery of an incomplete instrument.
3. Although it will be presumed that there was delivery of the note as it is
already in the possession of Rupert, the party being made liable as the maker
of the instrument (or Drawer if it involves a Bill of Exchange) who is Agot in
this case, may prove that there was really no delivery. Thus, an incomplete
and undelivered instrument is a REAL DEFENSE which is available even
against a Holder in Due Course (Rupert).
SECTION 16 (COMPLETE UNDELIVERED INSTRUMENT)
RULES:
1. Delivery of the instrument is vital that to be considered effectual, it must be
made by or under the authority of the party making, drawing, accepting or
indorsing the instrument. Prior to delivery, the instrument is revocable.
2. Between IMMEDIATE PARTIES and as regards a REMOTE PARTY who is not a
holder in due course, the delivery must be made by or under the authority
of the party making, drawing, accepting or indorsing the instrument; 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.
3. But if the complete instrument is in the hands of a holder in due course, a
valid delivery by all parties prior to such holder in due course is
CONCLUSIVELY PRESUMED.

Agot prepared the following note and gave it to Manny but only for the purpose
of safekeeping:
“April 4, 2022
I promise to pay Manny or order the amount of PhP100,000.
Sgd (Agot)”

1. Even if the instrument is COMPLETE, the delivery of the note was not for the
purpose of Agot paying Manny the indicated amount but for safekeeping
only. Manny can not hold Agot liable on the instrument.
2. Now, aside from Manny who is an IMMEDIATE PARTY in relation to Agot
assume that Andrew was present when Agot handed the note to Manny and,
thus, was also very much aware of the purpose of the delivery of the
instrument. If instead of following the instruction of Agot, Manny negotiated
the note to Rupert; and from Rupert to Benny and from Benny eventually to
Andrew, broadly speaking, Andrew will also be treated as an IMMEDIATE
PARTY in relation to Agot. Andrew is “immediate in the sense of knowing or
being held to know the conditions or limitations placed upon the delivery of
the instrument.” Under Section 16, he is described as a REMOTE PARTY
 OTHER THAN A HOLDER IN DUE COURSE. Andrew may be remote physically
in relation to Agot but he is really an immediate party because of his
knowledge of the limitation placed upon the note. Like Manny in the
previous example, Andrew cannot hold Agot liable.
3. On the other hand, if Andrew qualifies as a HOLDER IN DUE COURSE then the
defense of COMPLETE but UNDELIVERED INSTRUMENT (the delivery was for
safekeeping only) is a personal defense which is not available against a
holder in due course. In the hands of a holder in due course, a valid delivery
of the instrument by all prior parties prior to such holder in due course is
CONCLUSIVELY PRESUMED. Agot as well as all the subsequent parties can be
held liable by Andrew.

Assume that a complete bearer note with Rupert as payee but was delivered by
Agot to Manny with the instruction that it should be delivered by Manny to
Rupert not for further negotiation but for safekeeping only, thus:

“April 4, 2022

I promise to pay Rupert or bearer the amount of PhP100,000.

Sgd (Agot)”

4. However, Manny negotiated the note to Rupert without disclosing the

instruction of Agot. Assume further that Rupert qualifies as a holder in due
course. Rupert may hold Agot liable even if it appears that Rupert is a party
immediate to Agot. He is really a REMOTE party due to his lack of knowledge
as to the limitation imposed upon the note.