Negotiable Instruments Law - Midterms - Mama Gie Notes

Mama Gie Notes | Negotiable Instruments Reviewer | Atty.
Timoteo Aquino | 1st Semester, AY 2022-2023 | SBCA-SOL
MODULE1
NEGOTIABLE INSTRUMENT
● It is a written contract for the payment of money which is intended as a substitute for money & passes
from one person to another as money, in such a manner as to give a holder in due course the right to
hold the instrument free from defences available to prior parties
● An oral arrangement cannot be considered a negotiable instrument
● If the instrument is payable to goods, wares, properties, labor or service, corporate stocks, or checks, it
is no longer negotiable because the same is not in payment of money; their value is not standard since
it fluctuates
● NOT legal tender; legal tender, as defined by Section 52 of RA 7653 (New Central Bank Act)
GSIS v. Court of Appeals [G.R. No. L-40824. February 23, 1989]
[T]he promissory note hereinbefore quoted, as well as the mortgage deeds subject of this case, are
clearly not negotiable instruments. These documents do not comply with the fourth requisite to be
considered as such under Section 1 of Act No. 2031 because they are neither payable to order nor
to bearer. The note is payable to a specified party, the GSIS. Absent the aforesaid requisite, the
provisions of Act No. 2031 would not apply; governance shall be afforded, instead, by the provisions
of the Civil Code and special laws on mortgages.
GOVERNING LAW
1. Negotiable Instruments Law (NIL, RA 2031) - enacted February 3, 1911, never amended
2. The NIL did not impliedly repeal provisions of the Code of Commerce;
3. Civil Code which applies suppletorily - if the instrument is non-negotiable, Civil Code & other special laws
will apply
4. Decisions of the Courts in the United States & England
FUNCTIONS OF NEGOTIABLE INSTRUMENTS

1. It operates as a substitute for money;
2. It is a means of creating & transferring credit;
3. It facilitates the sale of goods;
4. It increases the purchasing medium in circulation.
DISTINCTIVE FEATURES OF NEGOTIABLE INSTRUMENTS

1. Negotiability - allows negotiable instruments to be transferred from one person to another to give the
holder in due course the right to hold the instrument & to collect the sum payable for himself free from
defenses.
2. Accumulation of secondary contracts - secondary contracts are picked up & carried along with the
negotiable instrument as they are negotiated from one person to another; in the course of negotiation,
secondary liability arises.
NEGOTIABLE INSTRUMENTS NON-NEGOTIABLE INSTRUMENTS

Identity Negotiable instruments contain all requisite Non-negotiable instruments do not conain
es of Sec 1 of the NIL all requisites of Sec 1 of the NIL
Governing Laws Negotiable Instruments Law (NIL) NIL applies only by analogy
Code of Commerce Civil Code
Transferability By negotiation Only by assignment
By assignment
Possibility of due Transferee may become a holder in due Transferee remains an assignee & can
course holding course (HDC) provided all the requirements never be an HDC
under Section 52 of NIL are present
Defenses against Only real defenses may be raised against All manner of defenses; real & personal -
the holder an HDC may be raised against the
Sources include lecture notes, Atty. Aquino’s Nego book, San Beda Memory
Aids, and other reviewers. There may be errors. Use at your own risk. 1
Mama Gie Notes | Negotiable Instruments Reviewer | Atty. Timoteo Aquino | 1st Semester, AY 2022-2023 | SBCA-SOL
*Real defenses - valid against ordinary assignee/transferee

holders as well as holders in due course *Personal defenses - only valid against
ordinary
Nature of the An HDC requires a clean title to the By virtue of subrogation, the
Holder’s title instrument, free from infirmities in the assignee/transferee acquires merely a
instrument & defects in the title of prior derivative title to the instrument
endorses; the shelter rule may be invoked
Solvency of the Solvency of the debtor is guaranteed by the Solvency of the debtor is not deemed
Debtor endorsements made by prior endorsers guaranteed under Art 1628 of the CC,
because they guarantee that the instrument unless there is an express stipulation to that
will be accepted, paid or both & that they will effect
pay if the same is dishonoured
Metropolitan Bank and Trust Co. v. C.A. [G.R. No. 88866. February 18, 1991]
Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed
that they were "genuine and in all respects what they purport to be," in accordance
with Section 66 of the Negotiable Instruments Law. The simple reason is that this law is not
applicable to the non-negotiable treasury warrants. The indorsement was made by Gloria Castillo
not for the purpose of guaranteeing the genuineness of the warrants but merely to deposit them
with Metrobank for clearing. It was in fact Metrobank that made the guarantee when it stamped on
the back of the warrants: "All prior indorsement and/or lack of endorsements guaranteed,
Metropolitan Bank & Trust Co., Calapan Branch."
KINDS OF NEGOTIABLE INSTRUMENTS

1. Bill of Exchange (Section 126) - it is an unconditional order in writing addressed by one person to
another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand
or at a fixed or determinable future time a sum certain in money to order or to bearer. Also called a “draft.”
a. Check - a bill of exchange drawn on a bank payable on demand.
b. Time draft - a draft that is payable at a fixed date.
c. Sight or demand draft - a draft that is payable when the holder presents it for payment.
d. Trade acceptance - a bill of exchange used in contracts of sale whereby the seller as drawer
orders the buyer (as drawee) to pay a sum certain to the same seller (payee).
e. Draft - the term is used synonymously with a bill of exchange, although it usually refers to a bill
of exchange used in documentary exchange like letters of credit transactions.
f. Inland Bill - it is a bill which is, or on its face purports to be, both drawn & payable within the
Philippines.
g. Foreign Bill - a bill which is, or on its face, does not purport to be both drawn & payable within
the Philippines. For example, a bill of exchange drawn & payable in Hong Kong is a foreign bill.
A bill of exchange drawn in the Philippines but payable in Hong Kong is also a foreign bill.
h. Banker's acceptance - it is a time draft across the face of which the drawee, a bank, has written
the word "accepted."
i. Clean Bill of Exchange - a bill to which no document is attached when presentment for payment
or acceptance is made.
j. Documentary Bill of Exchange - a bill of exchange to which a document/s is/are attached when
presented for payment or acceptance.
k. Bills in set - this is one bill of exchange drawn in a set, each part of the set being numbered &
containing a reference to the other parts; the whole of the parts constitutes but one bill.
2. Promissory Notes (Section 184) - An unconditional promise in writing 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 (Section 8) or to bearer (Section 9)
a. Certificate of deposit - a form of promissory note which is a written acknowledgment of a bank
of its receipt of a certain sum with a promise to repay the same.
b. Bonds - a certificate or evidence of a debt on which the issuing company or governmental body
promises to pay the bondholders a specified amount of interest for a specified length of time &
to repay the loan on the expiration date.
c. Debenture - it is a promissory note or bond backed by the general credit of a corporation &
usually not secured by a mortgage or lien on any specific property.
3. Bill of exchange treated as a promissory note

a. When the drawer & the drawee of the bill of exchange are the same people
b. When the drawee is a fictitious person
c. When the drawee has no capacity to contract
d. When the instrument is so ambiguous that there is doubt whether it is a bill or a note
4. Checks (Section 185) - contain an unconditional order to the bank to pay a certain sum mentioned in
the instrument, from the drawer’s account to the person to whom it is issued, or to the order of the
specified person or the bearer
a. Ordinary check - drawn by a depositor, also called the drawer, on a bank, also known as the
drawee. By virtue of the check, the depositor requests the bank to pay a person named on the
check, called the payee, or to the order of the payee or to the bearer of the check, a certain
amount or sum of money. The issuance of the check does not of itself operate as an
assignment of any part of the funds in the bank to the credit of the drawer. In such a case, the
bank becomes liable only after it accepts or certifies the check. After the check is accepted for
payment, the bank would then debit the amount to be paid to the holder of the check from the
account of the depositor-drawer
b. Manager’s or cashier’s check - drawn by the bank’s manager or cashier, in the name of the
bank, against the bank itself. This is procured from the bank by allocating a particular amount
of funds to be debited from the depositor’s account or by directly paying or depositing to the
bank the value of the check to be drawn. Since the bank issues the check in its name, with
itself as the drawee, the check is deemed accepted in advance. Ordinarily, the check becomes
the primary obligation of the issuing bank & constitutes its written promise to pay upon
demand. Nevertheless, the mere issuance of a manager’s check does not ipso facto work as
an automatic transfer of funds to the account of the payee
c. Open check - also called an uncrossed check, it is one on which cash is payable at the
counter of the bank, or it is transferred to the bank account of the person whose name is
written on the check. It is negotiable, i.e. it is transferable in nature.
d. Bearer check - refers to the check which can be encashed by the person whose name is
written on the check or anyone who presents the check before the bank for payment. It is
negotiable in nature, which can be transferred by simply delivering it & so endorsement is not
needed. No identification of the presenter or holder is required in case of a bearer check.
e. Order check - the check which becomes payable to the person or organization whose name is
specified on the check or to his order. To convert a bearer check into an order check, the word
‘or bearer’ is stricken off from the check. Endorsement of the check to the third party is done
by simply signing on the check.
f. Crossed check - two transverse parallel lines at the top left corner of some checks, which
may or may not have the words – & Co., A/c payee or Non-Negotiable. Such checks are
regarded as crossed checks. The amount on such checks is credited to the account of the
payee.
g. Self check - When a person wants to withdraw money from his own account, by writing ‘self’
at the name of the payee, is called self-check. Do not cross the check or cancel the words ‘or
bearer’ from the check. These checks should not be crossed, as well as the words ‘or bearer’
should not be stricken off from the check, so that any person as your representative can
receive the amount on your behalf.
h. Blank check - A check which is only signed, but the name of the payee & date is not
indicated, is called a blank check. Such checks can be made account payee, & the maximum
limit of withdrawal can be mentioned.
i. Stale check - A check bears a date & is valid up to three months of the stated date. If a check
is presented before the bank, after the expiry of the reasonable period, i.e. three months after
the date, then it is called stale check.
j. Post-Dated check - When a check is drawn containing a future date, it is called post-dated
check. In such cases, money will not be payable by the bank before that date.
k. Ante-dated check - A check containing a prior date, is called an ante-dated check. Bank
honours checks until three months to the date mentioned.
l. Banker’s check - Otherwise called a pay order, it is a non-negotiable instrument, which is
issued by the bank on behalf of the customer, which is payable in the same city.
m. Canceled check - Due to any kind of mistakes while writing the check, it is canceled, & so it is
called cancelled check.
n. Mutilated check - A check which is torn, damaged, crushed or washed, is called a mutilated
check. Such checks are honored only when certain details are visible, after confirming with the
drawer.
o. Traveler’s check - A check issued by a bank for a fee, containing a fixed amount. These
checks are enchased or used to make payment in a foreign country, after endorsement by the
signature of the holder.
p. Gift check - checks that are used for the purpose of gifts & prizes, usually very large in size,
are called Gift checks. Banks charge a fee for issuing such checks
COMMERCIAL PAPERS - NEGOTIABLE INSTRUMENTS

1. Crossed check - Yes, complies with Sec 1 of NIL
2. Trade Acceptance - Yes, kind of bill of exchange
3. Money Order - No, governed by the postal rules & regulations which may be inconsistent with NIL
4. Bill of Lading - No, represents goods, not money
5. Warehouse receipt - No, it represents goods, not money
6. Pawn ticket - No, represents the item pawned
7. Trust receipt - No, it is an evidence of ownership of goods
PROMISSORY NOTE BILL OF EXCHANGE

It contains an unconditional promise It contains an unconditional order
There are 2 parties on its face There are 3 parties on its face
The person who signs it is the maker The person who signs it is the drawer
The maker is primarily liable The drawer is secondarily liable
There is only one presentment: for payment The drawee-acceptor is primarily liable
There are two presentments: 1) for acceptance, & 2)
for payment
BILL OF EXCHANGE CHECK

The drawee may or may not be a bank The drawee is always a bank
It may be payable on demand or at a fixed or It is always payable on demand
determinable future time
It is not necessarily drawn on a deposit or checking It is necessary that a check be drawn on a deposit or
account a checking account
Death of a drawer of a BOE, with the knowledge of the Death of the drawer of a check, with the knowledge of
bank, does not revoke the authority of the banker to the bank, revokes the authority of the banker to pay
pay
May be presented for payment within a reasonable Must be presented for payment within a reasonable
time after its laast negotiation time after its issue
PARTIES IN NEGOTIABLE INSTRUMENTS

1. Parties in a Promissory Note
a. Maker - person who promises to pay the amount stated in the promissory note
b. Payee - the person who is supposed to be paid by the maker
2. Parties in a Bill of Exchange
a. Drawer - person who draws & signes the instrument; orders the drawee to pay
b. Draweee - person who is being ordered to pay; however, while he appears to be a party on the
face of the bill, he is not yet liable until he accepts it
c. Acceptor - the drawee (same person) who already accepted the bill of exchange; already
accepted the order of the drawer to pay
d. Payee - the one to whom payment should be made by the acceptor

3. Parties in a check
a. Drawer - the person who writes the check; signs & orders the bank to pay the sum
b. Drawee - the bank on which check is drawn or who is directed to pay the specified sum written
on the check
i. In cases of manager’s check, the bank is both the drawee & the drawer
c. Payee - the beneficiary; to whom the amount is to be paid
4. Other Parties
a. Indorsers - persons who transfer or negotiate an instrument by indorsement completed by
delivery
b. Holder - either a) a payee or indorsee of a bill or note who is in possession of a bill or note
payable to order or b) the bearer of a note or bill payable to bearer
c. Bearer - person who is in possession of a bill or note which is payable to bearer
INCIDENTS IN THE LIFE OF A NEGOTIABLE INSTRUMENT

1. Preparation & signing - complete with all the requisites provided for in Sec 1 of the NIL
2. Issuance - first delivery of the instruments to the payee
3. Negotiation - transfer from one person to another so as to constitute the transferee as a holder
4. Presentment for acceptance - for certain kinds of BOE; the BOE shall be presented to the drawee so
that the latter will signify his agreement to the order of the drawer to pay
5. Acceptance - written assent of the drawee to the order
6. Dishonor by non-acceptance - refusal to accept by the drawee
7. Presentment for payment - the instrument is shown to the maker or drawee/acceptor so that the said
maker or drawee/acceptor will pay
8. Dishonor by non-payment - notice to the persons secondarily liable that the maker or the
drawee/acceptor refused to pay or to accept the instrument
9. Notice of dishonor - notice to the persons secondarily liable that the maker or the drawee/acceptor
refused to pay or to accept the instrument
10. Protest
11. Discharge
CHARACTERISTICS OF PAYMENT
1. Integrity – The payment of the obligation must be completely made; Art 1233
2. Identity – The payment of the obligation must consist in the performance of the very thing due; Art 1244
& 1246
3. Indivisibility – The payment of the obligation must be in its entirety; Art 1248
ASSIGNMENT NO. 1 – NEGOTIABLE INSTRUMENTS LAW
1. Payment System.
a. Definition – Section 4 (p), R.A. No. 11127
i. The set of payment instruments, processes, procedures, & participants that ensures
the circulation of money or movement of funds
b. Rules on Payment. – Articles 1233, 1234, 1235, 1244, 1245, 1248, Civil Code (CC)
i. Article 1233 - A debt shall not be understood to have been paid unless the thing or
service in which the obligation has been completely delivered or rendered, as the
case may be
ii. Article 1234 - If the obligation has been substantially performed in good faith, the
obligor may recover as though there had been a strict & complete fulfillment, less
damages suffered by the obligee.
iii. Article 1235 - When the obligee accepts the performance, knowing its
incompleteness or irregularity, & without expressing any protest or objection, the
obligation is deemed fully complied with
iv. Article 1244 - The debtor of a thing cannot compel the creditor to receive a different
one, although the latter may be of the same value as, or more valuable than that
which is due.
1. In obligations to do or not to do, an act or forbearance cannot be substituted
by another act or forbearance against the obligee's will
v. Article 1245 - Dation in payment, whereby property is alienated to the creditor in
satisfaction of a debt in money, shall be governed by the law of sales
vi. Article 1248 - Unless there is an express stipulation to that effect, the creditor cannot
be compelled partially to receive the prestations in which the obligation consists.
Neither may the debtor be required to make partial payments.
c.
Payment through Negotiable Instrument – Article 1249, CC
i. Article 1249 - The payment of debts in money shall be made in the currency
stipulated, & if it is not possible to deliver such currency, then in the currency which
is legal tender in the Philippines.
1. The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only when
they have been cashed, or when through the fault of the creditor they have
been impaired.
d. Digital Payment. - Digital Payment means a “monetary transaction between two parties
(individuals, businesses, or government) through a digital payment instrument (such as cards,
bank transfer, mobile wallet, etc.) in which both the payer & the payee use an electronic
medium.”
2. Modules 1 & 2
a. Sections 1 to 10, 126, 184, 185,191, 192, Negotiable Instruments Law.
b. Section 1 - Form of Negotiable Instruments. — An instrument to be negotiable must
conform to the following requirements:
i. It must be in writing & signed by the maker or drawer;
ii. Must contain an unconditional promise or order to pay a sum certain in money;
iii. Must be payable on demand, or at a fixed or determinable future time;
iv. Must be payable to order or to bearer; &
v. Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
c. Section 2 - Certainty as to Sum; What Constitutes. — The sum payable is a sum certain within
the meaning of this Act, although it is to be paid —
i. With interest; or
ii. By stated instalments; or
iii. By stated instalments, with a provision that upon default in payment of any instalment
or of interest the whole shall become due; or
iv. With exchange, whether at a fixed rate or at the current rate; or
v. With costs of collection or an attorney's fee, in case payment shall not be made at
maturity.
d. Section 3 - When Promise is Unconditional. — An unqualified order or promise to pay is
unconditional within the meaning of this Act, though coupled with —
1. An indication of a particular fund out of which reimbursement is to be made,
or a particular account to be debited with the amount; or
2. A statement of the transaction which gives rise to the instrument.
ii. But an order or promise to pay out of a particular fund is not unconditional.
e. Section 4 - Determinable Future Time; What Constitutes. — An instrument is payable
at a determinable future time, within the meaning of this Act, which is expressed to be
payable -
1. At a fixed period after date or sight; or
2. On or before a fixed or determinable future time specified therein; or
3. On or at a fixed period after the occurrence of a specified event, which
is certain to happen, though the time of happening be uncertain.
ii. An instrument payable upon a contingency is not negotiable, & the happening
of the event does not cure the defect.
f. Section 5 - 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 —
1. Authorizes the sale of collateral securities in case the instrument be not paid
at maturity; or
2. Authorizes a confession of judgment if the instrument be not paid at
maturity; or
3. Waives the benefit of any law intended for the advantage or protection of
the obligor; or
4. Gives the holder an election to require something to be done in lieu of
payment of money.
ii. But nothing in this section shall validate any provision or stipulation otherwise illegal.
g. Section 6 - Omission; Seal; Particular Money. — The validity & negotiable character of an
instrument are not affected by the fact that —
1. It is not dated; or
2. Does not specify the value given, or that any value has been given,
therefore; or
3. Does not specify the place where it is drawn or the place where it is payable;
or
4. Bears a seal; or
5. Designates a particular kind of current money in which payment is to be
made. C
ii. 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.
h. Section 7 - When Payable on Demand. — An instrument is payable on demand —
1. Where it is expressed to be payable on demand, or at sight, or on
presentation; or
2. In which no time for payment is expressed.
ii. 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.
i. Section 8 - When Payable to Order. — The instrument is payable to order where it is drawn
payable to the order of a specified person or to him or his order. It may be drawn payable to
the order of —
1. A payee who is not maker, drawer, or drawee; or
2. The drawer or maker; or
3. The drawee; or
4. Two or more payees jointly; or
5. One or some of several payees; or
6. The holder of an office for the time being.
ii. Where the instrument is payable to order the payee must be named or otherwise
indicated therein with reasonable certainty.
j. Section 9 - When Payable to Bearer. — The instrument is payable to bearer — (a)When
it is expressed to be so payable; or (b)When it is payable to a person named therein or
bearer; or (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; or (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.
k. Section 10 - Terms, When Sufficient. — The instrument need not follow the language of this
Act, but any terms are sufficient which clearly indicate an intention to conform to the
requirements hereof.
l. Section 126 - Bill of Exchange, Defined. — A bill of exchange is an unconditional order
in writing addressed by one person to another, signed by the person giving it, requiring
the person to whom it is addressed to pay on demand or at a fixed or determinable

future time a sum certain in money to order or to bearer.
m. Section 184 - Promissory Note, Defined. — 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 to bearer. Where a note is drawn to the
maker's own order, it is not complete until indorsed by him.
n. Section 185 - Check, Defined. — 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.
o. Section 191 - Definition & Meaning of Terms. — In this Act, unless the context
otherwise requires —
i. "Acceptance" means an acceptance completed by delivery or notification;
ii. "Action" includes counterclaim & set-off;
iii. "Bank" includes any person or association of persons carrying on the
business of banking, whether incorporated or not;
iv. "Bearer" means the person in possession of a bill or note which is payable to
bearer;
v. "Bill" means bill of exchange, &
vi. "Note" means negotiable promissory note;
vii. "Delivery" means transfer of possession, actual or constructive, from one
person to another;
viii. "Holder" means the payee or indorsee of a bill or note, who is in possession
of it, or the bearer thereof;
ix. "Indorsement" means an indorsement completed by delivery;
x. "Instrument" means negotiable instrument;
xi. "Issue" means the first delivery of the instrument, complete in form, to a
person who takes it as a holder;
xii. "Person" includes a body of persons, whether incorporated or not;
xiii. "Value" means valuable consideration;
xiv. "Written" includes printed, & "writing" includes print
Section 192 - Persons Primarily Liable on Instrument. — The person "primarily" liable on an instrument
is the person who by the terms of the instrument is absolutely required to pay the same. All other
parties are "secondarily" liable.
NOTES ON AUGUST 19, 2022 CLASS
• Payment instrument – whether tangible or intangible

• Check – coming from checking account, aka demand deposit account
o Contract of loan
o Deemed extinguished ang obligation when funds are delivered/accepted by drawee bank
o What if this is not the original mode of payment that was agreed upon between the parties?
§ Obligation deemed paid upon acceptance & without protest or objection from the
creditor
• Manager’s Check – does not automatically produce the effect of payment unless cashed/deposited to
the creditor
• RA 11127 – transfer of funds is not necessarily to end obligation, it may also crate them
• Characteristics of payment
o Integrity
o Identity
o Indivisibility
MODULE2
REQUISITES OF NEGOTIABILITY
• Provided for in Section 1 of NIL which reads:
SECTION 1. Form of Negotiable Instruments. — An instrument to be negotiable must conform to
the following requirements:
a) It must be in writing & 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 to bearer; &
e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.
DISCUSSION ON THE REQUISITES OF NEGOTIABILITY

1.1. Must be in writing & signed by the maker
o No person liable on the instrument whose signature does not appear thereon
o Sec 18 of NIL: One who signs in a trade or assumed name liable to same extent as if he had
signed in his own name.
o Section 19 of NIL: Signature of party may be made by duly authorized agent; no particular form
of appointment necessary.
§ Enough that the maker or drawer affixed shows his intent to authenticate the writing
o "In writing" - includes print; written or typed
o Note also Sec 191 of NIL
o Electronic Messages – EM’s instructing a bank to debit depositor’s account are not negotiable
§ As per the SC, EM’s are not signed by the clients; it does not contain an unconditional
order to pay a sum certain & they are not payable to order or bearer but to a specifically
designated 3rd party
1.2. Must contain an unconditional order or promise to pay a sum certain in money
• Promise or order to pay – Section 3 of NIL: Terms, when sufficient. The instrument need
not follow the language of this Act, but any terms are sufficient which clearly indicate an
intention to conform to the requirements hereof.
§ Word "promise" is not absolutely necessary. Any expression equivalent to a promise
§ Promissory note:
• Promise To Pay: should be express on the face of the instrument
• Word "promise" is not absolutely necessary. Any expression equivalent to a
promise is sufficient.
• Mere acknowledgment of a debt insufficient
§ Bills Of Exchange:
• Order - command or imperative direction; the instrument, by its nature,
demanding a right.
• Words which are equivalent to an order are sufficient.
• A mere request or authority to pay does not constitute an order.
• Although the mere use of polite words like "please" does not of itself deprive
the instrument of its characteristics as an order, its language must clearly
indicate a demand upon the drawee to pay.
• Promise or order must be unconditional
§ The promise or order to pay, to be unconditional, must be unqualified
§ The negotiability of the instrument is destroyed if the same, on its face, contains either
a resolutory or suspensive condition
§ Reference to transaction – reference to another transaction or document must be
descriptive; the instrument must only give information that it was issued in connection
with a particular transaction or document & must not make the order or promise
dependent on or burdened by the other transaction
§ Subject to Transaction – it becomes non-negotiable if instrument is restricted by the

terms & conditions of another transaction
§ Sec 3 of NIL provides for reference to the fund: “An unqualified order or promise to pay
is unconditional within the meaning of this Act, though coupled with…”
• Paragraph 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
o Unconditional: Mere indication of the particular fund out of which
reimbursement is to be made, or an indication of a particular account
to be debited with the amount
• Paragraph B: A statement of the transaction which gives rise to the instrument
o Unconditional: mere recital of the transaction or consideration for
which the instrument was issued
o However, the fact that the condition appearing on the instrument has
been fulfilled will not convert it into a negotiable one
• Last Paragraph: But an order or promise to pay out of a particular fund is not
unconditional
o Conditional: when reference to the fund clearly indicates an intention
that such fund alone should be the source of payment
Fund for Reimbursement Particular Fund for Payment

Drawee pays the payee from his own There is only one act: the drawee pays
funds; afterwards, the drawer pays directly from the particular fund
himself from the particular fund indicated. Payment is subject to the
indicated condition that the fund is sufficient.
Particular fund indicated is NOT the Particular fund is the direct source of
direct source of payment but only the the payment
source of reimbursement
Indication in the instrument does not Indication in the instrument makes the
affect the unconditional nature of the promise or order conditional
promise or order
This stipulation does not affect the This stipulation renders the i
negotiability of the instrument
• Sum payable must be certain

§ A sum is certain if the amount to be unconditionally paid by the maker or drawee can
be determined on the face of the instrument & is not affected by the fact that the exact
amount is arrived at only after a mathematical computation
§ Under Sec 1 of NIL – if the amount is to be unconditionally paid by the maker or drawee
can be determined on the face of the instrument
§ Section 2 of the NIL provides the following
SECTION 2. Certainty as to Sum; What Constitutes. — The sum payable is a
sum certain within the meaning of this Act, although it is to be paid —
a) With interest; or
b) By stated installments; or
c) By stated installments, with a provision that upon default in payment of any
installment or of interest the whole shall become due; or
d) With exchange, whether at a fixed rate or at the current rate; or
e) With costs of collection or an attorney's fee, in case payment shall not be
made at maturity
§ Common feature of Section 2 of the NIL is that the principal amount to be paid is
unaffected, although certain amounts may be added
§ Stated installments:
• The dates of each installment must be fixed or at least determinable
• The amount to be paid for each installment must be fixed or determinable

With exchange – does not affect negotiability; stipulation preserves the equivalence of
§
amounts in value & does not allow for the introduction of uncertainty
• Must be payable in money
§ Money, as defined in Klanber v. Biggerstaff – generic & comprehensive term; includes
whatever is lawfully & actually current in buying & selling, of the value & as equivalent
of coin
§ Need not be legal tender – money as contemplated in Section 1(b) of the Nil is not
equivalent to legal tender; an instrument is still negotiable although
1.3. Must be payable on demand, or at a fixed or determinable future time
• Payable on demand when:
o Where expressed to be payable on demand, at sight or on presentation;
o Where no period of payment is stated;
o Where issued, accepted, or indorsed after maturity (only as between immediate
• Payable at a fixed or determinable future time when:
o At a fixed period after date or sight;
o On or before a fixed or determinable future time specified therein; or
o On or at a fixed period after the occurrence of a specified event, which is certain to
happen, though the time of happening is uncertain. (Section 4)
• If the day & the month, but not the year of payment is given, it is not negotiable due to its
uncertainty.
ACCELERATION CLAUSE INSECURITY CLAUSE EXTENSION CLAUSE
A clause that renders whole Provisions in the contract Clauses in the face of the
debt due & demandable which allows the holder to instrument that extend the
upon failure of obligor to accelerate payment if he maturity dates;
comply with certain deems himself insecure. a. At the option of
conditions. the holder;
b. Extension to a further
definite time at the option
of the maker or acceptor
c. Automatically upon or
after a specified act or
event.
Instrument is still negotiable Instrument is rendered Instrument is still negotiable
nonnegotiable because the
holder’s whim & caprice
prevail without the fault &
control of the maker
EXTENTION CLAUSE EXTENSION UNDER SEC 120 (f)

Stated on the face of the instrument Agreement binding the holder;
a. To extend the time of payment or
b. Postpone the holder’s right to enforce
the instrument
Parties are bound because they took the Binds the person secondarily liable (&
instrument knowing that there is an extension therefore cannot be discharged from
clause liabilities if:
a. He consents or
b. Right of recourse is expressly reserved.
1.4. Must be payable to order or to bearer

• An instrument originally payable to bearer can be negotiated by mere delivery even if it is
indorsed especially. If it is originally a BEARER instrument, it will always be a BEARER
instrument.
• As opposed to an original order instrument becoming payable to bearer, if the same is indorsed
specially, it can NO LONGER be negotiated further by mere delivery, it has to be indorsed.
• A check that is payable to the order of cash is payable to bearer. Reason: The name of the
payee does not purport to be the name of any person.
• Payable to order when:
SECTION 8. When payable to order. - The instrument is payable to order where it is drawn
payable to the order of a specified person or to him or his order. It may be drawn payable
to the order of:
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
(g) Where the instrument is payable to order, the payee must be named or otherwise
indicated therein with reasonable certainty.
• Payable to bearer when:

SECTION 9. When payable to bearer. - The instrument is payable to bearer:
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person, & such fact
was known to the person making it so payable; or
(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
1.5. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein
with reasonable certainty
• Applicable only to a bill of exchange
o The holder must know to whom he should present it for acceptance &/or payment;
otherwise, the purpose of negotiable instrument as a tool in commercial dealings will be
greatly hampered
• A bill may be addressed to 2 or more drawees jointly whether they are partners or not but not to
2 or more drawees in the alternative or in succession. (Section 128)
SECTION 130. When bill may be treated as promissory note. - Where in a bill the drawer &
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
• Fictitious Payee Rule

o An instrument is a bearer instrument if it is payable to the order of a fictitious or non-
existing person & such fact is known t the person making it so payable.
o In a fictitious payee situation, the drawee bank is absolved from liability & the drawer
bears the loss. When faced with a check payable to a fictitious payee, it is treated as a
bearer instrument that can be negotiated by delivery. The underlying theory is that one
cannot expect a fictitious payee to negotiate the check by placing his indorsement
thereon. & since the maker knew this limitation, he must have intended for the
instrument to be negotiated by mere delivery. Thus, in case of controversy, the drawer
of the check will bear the loss.
o The burden of proving that the instrument is payable to a fictitious payee rests on the
person making such allegation.
o Exception to Fictitious Payee Rule: A showing of commercial bad faith on the part of the
drawee-bank, or any transferee of the check for that matter, will work to strip it of this
defense. There is a commercial bad faith applicable when the transferee acts
dishonestly – where it has actual knowledge of the facts & circumstances that amount
to bad faith, thus itself becoming a participant to the fraudulent scheme.
Caltex (Philippines) vs. CA, 212 SCRA 448 (1992)

[T]he accepted rule is that the negotiability or non-negotiability of an instrument is determined
from the 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 circumstances 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.
Summary of Rules on Negotiability (From Atty. Aquino’s Book)

Requisite Summary of Rules
It must be in writing • It can be written in any material which is more or less
permanent and readily transferrable.
• “Writing” can be printed, handwritten, or typewritten, or any
other form
It must be signed by the maker or • The signature can be in any form (tamped, mark, etc.) so long
drawer as it is adopted as a signature, and it authenticates the
instrument
It must contain a promise or an • The words promise or order need not be used so long as
order equivalent words are present
• Mere acknowledgement is not sufficient promise
The promise or order must be • The promise or order to pay should not be subject to a future
unconditional and uncertain event
• The instrument cannot be subject or restricted by another
agreement or document
• An instrument which states that payment out of a particular
fund is conditional
• The instrument is not conditional if there is an indication of the
account to be debited or out of which reimbursement is to bne
made
Sum certain • The amount to be paid may be a fixed amount or one that is
determinable on the face of the instrument
• The following do not affect the certainty of sum
o Stipulation on payable interest, or attorney’s fees
o Payable in instalments
o Payable in instalments with an acceleration clause
Money • What should be paid need not be legal tender
• Payment cannot be in goods
• There can be an option to pay money or deliver goods
provided that the choice is with the holder
Payable on demand or at a fixed • An instrument is payable on demand if:
or determinable future time o It is so expressed to be payable on demand, or at
sight, or on presentation; or
o No time for payment is expressed
Payable to bearer or order • There are two ways to make an order instrument
o Make it payable “to the order of a specified person”;
or
o Make it payable “to a specified person or his order.”
• An instrument is payable to bearer

o When it is expressed to be so payable; or
o When it is payable to a person named therein or
bearer;
o 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; or
o When the name of the payee does not purport
If addressed to a drawee, he
must be named or indicated with
reasonable certainty
HOW TO DETERMINE NEGOTIABILITY

• Effect of Estoppel
o Note by luminaries on the above case: ruling is not sound
§ The negotiability of the instrument is determined bylaw & the parties cannot change
what is provided by law
§ Likewise, it is not necessary to use estoppel in rejecting the argument of BDO as the
SC already ruled that the jurisdiction of the PCHC also includes cases involving non-
negotiable instruments
• Factors in determining negotiability
o The whole of the instrument shall be considered
o Only what appears on the face of the instrument shall be considered
o The provisions of the NIL, especially Section 1 shall be applied
• Acceptance of a bill of exchange is not important in the determination of its negotiability. The nature of
the acceptance is important only on the determination of the kind of liabilities of the parties involved.
• The presence or lack of an indorsement of the instrument does not affect the negotiability of the
instrument. However:
o Section 184 of NIL – provision that a promissory note that is payable to the order of the maker
himself is not yet complete unless it is indorsed by the maker
o Section 36 of NIL – an indorser may prevent further negotiation of the instrument, in which
case, subsequent transferees can no longer be considered holders
Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corp. [G.R. No. 74917. January
20, 1988]
A commercial bank cannot escape the liability of an endorser of a check and which may turn out
to be a forged endorsement. Whenever any bank treats the signature at the back of the checks
as endorsements and thus logically guarantees the same as such there can be no doubt said
bank has considered the checks as negotiable. Apropos the matter of forgery in endorsements,
this Court has succinctly emphasized that the collecting bank or last endorser generally suffers
the loss because it has the duty to ascertain the genuineness of all prior endorsements
considering that the act of presenting the check for payment to the drawee is an assertion that
the party making the presentment has done its duty to ascertain the genuineness of the
endorsements.
NOTES FROM AUGUST 26, 2022 LECTURE
v Movement of Funds by using payment instruments

Ø Negotiable instrument is a kind of payment instrument
v Payment not limited to monetary obligation
Ø Remember the meaning of an obligation
Ø The focus of Nego is payment of MONETARY obligation

v Provisional credit – subject to clearing/collection of amount from drawee account
v Illustration
Ø Debtor borrows 10k from Creditor
Ø Creditor may assign the right to collect to A – B – D – E (pasa-pasa)
Ø Note: if the transferor is defective = defective pa rin
v Civil – always governed by the Principle of Privity (a relation between two parties that is recognized by
law, such as that of blood, lease, or service)
v Negotiable instrument – capable of accumulating secondary contracts
OMISSIONS & PROVISIONS THAT DO NOT AFFECT NEGOTIABILITY

• Negotiability affected when an instrument contains a promise or order to do any act in addition to the
payment of money
• Provisions not affecting negotiability
o General list:
§ Collateral
§ Confession of a Judgement
• Cognovit actionem – written confession by the defendant acknowledging his
indebtedness to the plaintiff after the action has been filed against him
• Relicta verificationem – a confession of judgment by withdrawal of the defense
§ Waiver by obligor
o General rule: an instrument must not contain an order or promise to do any act in addition to the
payment of money.; otherwise, instrument would be rendered non-negotiable
o Exceptions as listed in Section 5 of NIL
§ Authorizes the sale of collateral securities in case of failure to pay- the additional act to
be performed is to be executed after the date of maturity. Before the date of maturity,
no additional act is to be performed except the payment of money
§ Authorizes a confession of judgment if the instrument be not paid- the additional act is
to be performed after the date of maturity when the instrument ceases to be negotiable
in its full commercial sense.
• A power of attorney to confess judgment anytime before maturity renders a
note non-negotiable.
• Further, in the Philippines, confessions of judgment have been declared void
as against public policy because
o They enlarge the field for fraud.
o Promissor bargains away his day in court & the effect of the instrument
is to strike down the right of appeal accorded by the statute. But while
the provision as to confession of judgment is not rendered valid
(because it is illegal) by virtue of the last par. of Section5, the
instrument is nevertheless negotiable.
§ Waives the benefit of any law intended for the advantage or protection of the obligator-
such as the rights to (1) presentment for payment (Section70); (2) notice of honor
(Section110); (3) protest (Section111). These being rights, they may be waived unless
the waiver be contrary to law, public policy, etc. (Article 6 of NCC.)
§ Gives the holder an election to require something other than money- even if there is an
additional act, the instrument still remains negotiable provided that the right to choose
is in the hands of the holder
SECTION 5. 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.
SECTION 109. Waiver of Notice. — Notice of dishonor may be waived, either before the time of giving
notice has arrived or after the omission to give due notice, and the waiver may be express or implied.
• Omissions not affecting negotiability

o Rule on payment in other currencies (pertaining to paragraph e)
§ Even if the money in which the instrument is to be payable is not legal tender, provided
is current money or foreign money which has a fixed value in relation to the money of
the country in which the instrument is payable, the negotiability of the instrument is not
affected, as it is still considered payable in money.
SECTION 6. Omission; Seal; Particular Money. — The validity & 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 that any value has been given therefor; 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.
INTERPRETATION OF NEGOTIABLE INSTRUMENTS

• As provided for in Section 17 of NIL (Rules of Construction)
SECTION 17. Construction Where Instrument is Ambiguous. — Where the language of the
instrument is ambiguous or there are omissions therein, the following rules of construction apply:
a) Where the sum payable is expressed in words & also in figures & there is a discrepancy
between the two, the sum denoted by the words is the sum payable; but if the words are
ambiguous or uncertain, reference may be had to the figures to fix the amount;
b) Where the instrument provides for the payment of interest, without specifying the date from
which interest is to run, the interest runs from the date of the instrument, & if the instrument
is undated, from the issue thereof;
c) Where the instrument is not dated, it will be considered to be dated as of the time it was
issued;
d) Where there is a conflict between the written & printed provisions of the instrument, the written
provisions prevail;
e) 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;
f) Where a signature is so placed upon the instrument that it is not clear in what capacity the
person making the same intended to sign, he is to be deemed an indorser;
g) Where an instrument containing the word "I promise to pay" is signed by two or more persons,
they are deemed to be jointly & severally liable thereon.
• Notes for Section 17

o Sec 17 (a) – the amount in numbers shall prevail if the amount in words is not clear
o Sec 17 (b) & (c) – if there is no date indicated in the instrument, the date of issuance is the
accrual date of interest
o Sec 17 (d) – the rule does not cover marginal notes
§ Such marginal notes only regarded as simple reference or abridgement for convenience
& form no part of the instrument
o Sec 17 (g)
§ Under Art 1207 of the NCC, the presumption is that the liability of the debtors is joint
• Same article also states that there is solidary liability when the obligation
expressly states or when the law or the nature of the obligation requires
solidarity
• In case of ambiguity, the ambiguity shall be construed against the party who cause the vagueness
• EFFECTS OF BEING AN ADOPTED STATUTE

o Interpretation of Courts of the United States of the provisions of NIL can be applied in this
jurisdiction.
o If there is no provision of the NIL or the Code of Commerce, the provisions of the the Negotiable
Instruments Law (U.S.) or the Bill of Exchange Act of 1882 can be applied.
o Opinions & comments of authorities or legal writers on the provisions of the Uniform Negotiable
Instruments Law or the BEA 1882 may also be applied in this jurisdiction.
• EFFECT OF IMPLIED REPEALS ON THE CODE OF COMMERCE
o The NIL impliedly repealed the provisions of the code of commerce on promissory notes & bills
but there are provisions in the Code of Commerce involving Negotiable Instruments e.g. crossed
checks.
• SAMPLE PROMISSORY NOTE
• SAMPLE CHECK
• SAMPLE BILL OF EXHCANGE
MODULE3
TRANSFER & NEGOTIATION OF NEGOTIABLE INSTRUMENTS
MODES OF TRANSFER
• Transfer of Non-Negotiable Instruments
o May only be transferred through assignment (see below for definition)
• Kinds of Transfer of Negotiable Instruments
o Assignment - transfer of title to the instrument, with the assignee generally taking only such title
as his assignor has, subject to all defenses available against his assignor
§ The transferee does not become a holder and he merely steps into the shoes of the
transferor. Any defense available against the transferor is available against the
transferee.
o Negotiation - transfer of a negotiable instrument from one person to another made in such a
manner as to constitute the transferee the holder thereof
SECTION 30. What constitutes negotiation. - An instrument is negotiated when it is
transferred from one person to another in such manner as to constitute the transferee
the holder thereof. If payable to bearer, it is negotiated by delivery; if payable to order,
it is negotiated by the indorsement of the holder and completed by delivery.
o *By Operation of Law – such as by succession, by insolvency.

ARTICLE 348. The assignor shall answer for the legality of the credit and the
capacity in which he made the transfer; but he shall not answer for the solvency of
the debtor unless there is an express agreement to the effect. (Code of Commerce)
• Distinctions
NEGOTIATION ASSIGNMENT
Refers only to negotiable instruments; Refers generally to an ordinary contract;
The transferee is a holder; The transferee is an assignee;
A holder in due course is subject only to real An assignee is subject to both real and personal
defenses; defenses;
A holder in due course may acquire a better right Generally, an assignee merely steps into the
than that of a prior party shoes of the assignor;
A general indorser warrants the solvency of prior An assignor does not warrant the solvency of
parties; prior parties unless expressly stipulated or the
insolvency is known to him;
An indorser is not liable unless there be An assignor is liable even without notice of
presentment and notice of dishonor; dishonor;
Negotiation is governed by the NIL. Governed by Arts. 1624 to 1635 (on assignment
of credits) of the Civil Code.
NEGOTIATION OF INSTRUMENTS
• Issuance
o First delivery of the instrument in form to a person who takes it as a holder (Sec 191)
o Steps:
1. Mechanical act of writing the instrument completely and in accordance with the
requirements of Section 1;
2. The delivery of the complete instrument by the maker or drawer to the payee or holder
with the intention of giving effect to it.
o Delivery is essential – transfer of possession of the instrument by the maker or drawer with the
intention to transfer title to the payee and recognize him as holder thereof
o Pertinent sections of the NIL
§ Section 14 – if the instrument is incomplete when it was delivered, the person who
received it has prima facie authority to complete it
§ Section 16
• Every contract on a negotiable instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving effect thereto
• The delivery, in order to be effectual, must be made either by or under the
authority of the party making, drawing, accepting, or indorsing
• Negotiation of Bearer and Order Instruments.
o This is under Subsequent Negotiation
§ Order instrument – indorsement and delivery
• Without indorsement, the negotiation is incomplete and the transferee does not
become a holder
§ Bearer instrument – delivery only
o Delivery is essential for both
• Indorsement of Bearer Instrument
o where an instrument, payable to bearer, is indorsed specially, it may nevertheless be further
negotiated by delivery; but the person indorsing specially is liable as indorser to only such
holders as make title through his indorsement. (sec 40)
o Note: The rule only applies to originally bearer instruments. If it is originally a BEARER
instrument, it will always be a BEARER instrument. As opposed to an original order instrument
becoming payable to bearer, if the same is indorsed specifically, it can NO LONGER be
negotiated further by mere delivery, it has to be indorsed.
• Incomplete Negotiation of Order Instrument
o Two Rules under Section 49:
§ Where the holder of the instrument payable to his order transfers is for value without
indorsing it, the transfer vests in the transferee such title as transferor had therein, and
the transferee acquires in addition, the right to have the indorsement of the transferor.
§ For the purpose of determining whether the transferee is a holder in due course, the
negotiation takes effect as of the time the indorsement is actually made.
o The transaction is an equitable assignment and the transferee acquires the instrument subject
to the defenses and equities available among prior parties.
§ If the transferor had legal title, to maintain legal action against the maker or acceptor or
other party liable to the transferror
o In addition, the presumption of sufficiency of consideration and title that is enjoyed by the holders
will not be enjoyed by the transferee contemplated under Section 49
INDORSEMENT
• What is Indorsement, How and Where to Indorse.
o Indorsement - legal transaction effected by the writing of one's own name
SECTION 31. Indorsement; How Made. — The indorsement must be written on the
instrument itself or upon a paper attached thereto. The signature of the indorser, without
additional words, is a sufficient indorsement.
o Where?
§ back of the instrument or
§ upon a paper (allonge) attached thereto with or without additional words specifying the
person to whom or to whose order the instrument is to be payable whereby one not only
transfers legal title to the paper transferred but likewise enters into an implied guaranty
that the instrument will be duly paid.
o General Rule: indorsement must be of the entire instrument.
o Exception: where instrument has been paid in part, it may be indorsed as to the residue.
SECTION 32. Indorsement Must Be of Entire Instrument. — The indorsement must be
an indorsement of the entire instrument. An indorsement which purports to transfer to the
indorsee a part only of the amount payable, or which purports to transfer the instrument to
two or more indorsees severally, does not operate as a negotiation of the instrument. But
where the instrument has been paid in part, it may be indorsed as to the residue
• Persons who will indorse

SECTION 63. When Person Deemed Indorser . — A person placing his signature upon an
instrument otherwise than as maker, drawer, or acceptor is deemed to be an indorser, unless he
clearly indicates by appropriate words his intention to be bound in some other capacity
SECTION 41. Indorsement Where Payable to Two or More Persons . — Where an instrument is
payable to the order of two or more payees or indorsees who are not partners, all must indorse,
unless the one indorsing has authority to indorse for the others
SECTION 42. Effect of Instrument Drawn or Indorsed to a Person as Cashier. — Where an
instrument is drawn or indorsed to a person as "cashier" or other fiscal officer of a bank or
corporation, it is deemed prima facie to be payable to the bank or corporation of which he is such
officer; and may be negotiated by either the indorsement of the bank or corporation, or the
indorsement of the officer.
SECTION 44. Indorsement in Representative Capacity. — Where any person is under obligation
to indorse in a representative capacity, he may indorse in such terms as to negative personal
liability.
o If in case of misspelled name -

SECTION 43. Indorsement Where Name is Misspelled, and So Forth. — Where the
name of a payee or indorsee is wrongly designated or misspelled, he may indorse the
instrument as therein described, adding, if he thinks fit, his proper signature
• Time and Place of Indorsement

SECTION 45. Time of Indorsement; Presumption. — Except where an indorsement bears date
after the maturity of the instrument, every negotiation is deemed prima facie to have been effected
before the instrument was overdue.
SECTION 46. Place of Indorsement; Presumption. — Except where the contrary appears, every
indorsement is presumed prima facie to have been made at the place where the instrument is dated.
• Note: Effect of transfer without indorsement:

o transfer vests in the transferee such title as the transferor had therein (assignment), and
o the right to have the indorsement of the transferor.

§ For the purpose of determining whether the transferee is a holder in due course, the
negotiation takes effect as of the time when the indorsement is actually made.
§ Applicable only to order instruments
• Kinds of Indorsement (Blank and Special Indorsement; Qualified Indorsement; Conditional

Indorsement; and Restrictive Indorsement)
o Special Indorsement – specifies the person to whom or to whose order the instrument is to be
payable (sec 34)
o Blank Indorsement – specifies no indorsee
§ Instrument becomes payable to bearer and may be negotiated by delivery (Section 34)
§ May be converted to special indorsement by writing over the signature of indorser in
blank any contract consistent with character of indorsement (Section 35)
o Qualified Indorsement – constitutes the indorser a mere assignor of the title to the instrument.
(Section 38)
§ An indorser by placing his indorsement in the instrument is actually entering into two
contracts:
• The contract for the assignment or transfer of his right over the instrument
• Secondary contract where he assumes secondary liability
§ For Qualified Indorsement
• made by adding to the indorser's signature words like "sans recourse,” “without
recourse", "indorser not holder", "at the indorser's own risk", etc.
• The purpose of this kind of indorsement is to transfer title without guaranteeing
payment by the primary party.
• It does not mean, however, that the qualified indorser incurs no liability at all.
The effect is merely to limit his liability. He is secondarily liable for breach of is
warranties as an indorser under Section 65. Thus, he is liable if the instrument
is dishonored by NON-ACCEPTANCE or NON-PAYMENT due to:
o forgery;
o lack of good title to the instrument indorsed;
o lack of capacity to contract on the part of prior parties; or
o the fact that the instrument was valueless or not valid at the time of
the indorsement which fact was known to him.
o Conditional Indorsement
§ right of the indorsee is made to depend on the happening of a contingent event
§ Party required to pay may disregard the conditions.
§ This kind of indorsement has no effect on the further negotiation of the instrument. The
party required to pay, if he chooses, may make payment, disregarding the condition
without incurring any liability because he is expressly authorized to do so under Section
39. But the person who received payment will hold the proceeds subject to the right of
the conditional indorser.
o Restrictive Indorsement
§ when the indorsement either:
• Prohibits further negotiation of the instrument; or
• Constitutes the indorsee the agent of the indorser; or
• Vests the title in the indorsee in trust for or to the use of some other persons.
But mere absence of words implying power to negotiate does not make an
indorsement restrictive.
§ A restrictive indorsement confers upon the indorsee the right:
• To receive payment of the instrument;
• To bring any action thereon that the indorser could bring;
• To transfer his rights as such indorsee, where the form of the indorsement
authorizes him to do so.
§ But all subsequent indorsees acquire only the title of the first indorsee under the
restrictive indorsement. (Section 37)
§Such indorsement destroys the negotiability of the instrument and bars further
negotiation to a holder in due course
o *Absolute Indorsement
§ one by which indorser binds himself to pay:
• upon no other condition than failure of prior parties to do so; and
• upon due notice to him of such failure.
o *Joint Indorsement
§ indorsement of instrument payable to 2 or more persons; all must indorse in order for
the transaction to operate as a negotiation.
§ Exceptions to the rule requiring joint indorsement:
• Where the payees or indorsees are partners; and
• Where the payee or indorsee indorsing has authority to indorse for the others.
o *Irregular - a person who, not otherwise a party to an instrument, places thereon his signature
in blank before delivery.
SECTION 34. Special Indorsement; Indorsement in Blank. — A special indorsement specifies the
person to whom, or to whose order, the instrument is to be payable; and the indorsement of such
indorsee is necessary to the further negotiation of the instrument. An indorsement in blank specifies
no indorsee, and an instrument so indorsed is payable to bearer, and may be negotiated by delivery
SECTION 35. Blank Indorsement; How Changed to Special Indorsement. — The holder may
convert a blank indorsement into a special indorsement by writing over the signature of the indorser
in blank any contract consistent with the character of the indorsement.
SECTION 36. When Indorsement Restrictive. — An indorsement is restrictive which either —
(a)Prohibits the further negotiation of the instrument; or
(b)Constitutes the indorsee the agent of the indorser; or
(c)Vests the title in the indorsee in trust for or to the use of some other persons.
But the mere absence of words implying power to negotiate does not make an indorsement restrictive
SECTION 37. Effect of Restrictive Indorsement; Rights of Indorsee. — A restrictive indorsement
confers upon the indorsee the right —
(a)To receive payment of the instrument;
(b)To bring any action thereon that the indorser could bring;
(c)To transfer his rights as such indorsee, where the form of the indorsement authorizes him to
do so.
But all subsequent indorsees acquire only the title of the first indorsee under the restrictive
indorsement
SECTION 38. Qualified Indorsement. — A qualified indorsement constitutes the indorser a mere
assignor of the title to the instrument. It may be made by adding to the indorser's signature the words
"without recourse" or any words of similar import. Such an indorsement does not impair the negotiable
character of the instrument
SECTION 39. Conditional Indorsement. — Where an indorsement is conditional, a party required
to pay the instrument may disregard the condition and make payment to the indorsee or his
transferee whether the condition has been fulfilled or not. But any person to whom an instrument so
indorsed is negotiated will hold the same, or the proceeds thereof, subject to the rights of the person
indorsing conditionally.
Kinds of Indorsements & Their Consequences (From Atty. Aquino’s book)

Examples: Words comprising the Type of Indorsement NIL Provisions on Indorser’s
indorsement of “Juan Dela Cruz” Liability
Juan Dela Cruz Blank Secondary liability;
Liabilities of General Indorser, Sec.
66, NIL
Pay to Pedro Santos, Juan Dela Special Secondary liability;
Cruz
Liabilities of General Indorser, Sec.

66, NIL
Without recourse, Juan Dela Cruz Qualified (blank for No secondary liability;
further negotiation) But with liability for breach of
warranty under Sec. 65, NIL
Pay to Pedro Santos, without Qualified (special for No secondary liability;
recourse, Juan Dela Cruz further negotiation) But with liability for breach of
warranty under Sec. 65, NIL
Pay to Pedro Santos on the Conditional (special for Secondary liability only if the
condition that he completes the further negotiation) condition is met
repair of my house gate on or before If condition is met, liabilities under
February 2, 2020 Sec. 66 are present
- Juan Dela Cruz
Pay to Pedro Santos only, Juan Dela Restrictive – prevents Secondary liability but only to
Cruz further negotiation Pedro Santos
(Section 36[a], NIL)
For deposit, Juan Dela Cruz Restrictive – endorsee is The indorser is the principal of the
an agent (Section 36[b], indorsee and is not liable to
NIL) subsequent persons who may
acquire it.
If the agent-restrictive indorsee
further indorses it, the subsequent
indorsee’s right is limited to that of
an agent
Pay to Pedro Santos in trust for John Restrictive – in trust The indorser is the principal of the
Cruz, sgd. Juan Dela Cruz (Section 36[c], NIL) indorsee and is generally not liable
to subsequent persons who may
acquire it.
If the trustee-restrictive indorsee
further indorses it, the subsequent
indorsee’s right is limited to that of
an trustee
• Parts of a Check
NEGOTIATION BY PRIOR PARTY

• where an instrument is negotiated back to a prior party, such party may reissue and further negotiate the
same. But he is not entitled to enforce payment thereof against any intervening party to whom he was
personally liable.
• In the following cases, a prior party cannot further negotiate the instrument:
o Where it is payable to the order of a third person, and has been paid by the drawer;
o Where it was made or accepted for accommodation and has been paid by the party
accommodated;
o In other cases, where the instrument is discharged when acquired by a prior party.
SECTION 50. When Prior Party May Negotiate Instrument. — Where an instrument is negotiated
back to a prior party, such party may, subject to the provisions of this Act, reissue and further negotiate
the same. But he is not entitled to enforce payment thereof against any intervening party to whom he
was personally liable
SECTION 121. Right of Party Who Discharges Instrument. — Where the instrument is paid by a
party secondarily liable thereon, it is not discharged; but the party so paying it is remitted to his former
rights as regard all prior parties, and he may strike out his own and all subsequent indorsements, and
again negotiate the instrument, except —
(a)Where it is payable to the order of a third person, and has been paid by the drawer; and
(b)Where it was made or accepted for accommodation and has been paid by the party
accommodated.
STRIKING OUT OF INDORSEMENT

• the holder may at any time strike out any indorsement, which is not necessary to his title. The indorser
whose indorsement is struck out and all indorsers subsequent to him, are thereby relieved from liability
on the instrument.
• Negotiation by prior party is also related to this – Section 50, Section 121
• If the instrument is payable to bearer on its face, then whether or not there are indorsements on the back
of the instrument would be immaterial to the title of the bearer, who is presumptively the owner and holder
by his mere possession of such instrument. None of the indorsement would be necessary to it’s title since
mere delivery would have been sufficient to transfer title from one holder to another.
• Where the instrument is payable to order on its face, the situation is different.
o First, the indorsement of a special indorsee is necessary for the further negotiation of the
instrument.
o Second, the last indorsement controls the method of further negotiation.
SECTION 48. Striking Out Indorsement. — The holder may at any time strike out any indorsement
which is not necessary to his title. The indorser whose indorsement is struck out, and all indorsers
subsequent to him, are thereby relieved from liability on the instrument.
CONSIDERATION
• Presence or absence of consideration in the issuance and transfer of negotiable instruments affects the
rights and liabilities of the parties
• Presumption of consideration. - every negotiable instrument is deemed prima facie to have been
issued for a valuable consideration; and every person whose signature appears thereon to have become
a party thereto for value.
o Value - any consideration sufficient to support a simple contract. An antecedent or pre-existing
debt constitutes value; and is deemed such whether the instrument is payable on demand or at
a future time.
o Holder for value – one who has given a valuable consideration for the instrument issued or
negotiated to him.
§ What constitutes holder for value: where value has at any time been given for the
instrument, the holder is deemed a holder for value in respect to all parties who become
such prior to that time.
§ where the holder has a lien on the instrument arising either from contract or by
implication of law, he is deemed a holder for value to the extent of his lien.
Lien Encumbrance
A monetary claim against property intended to Any claim against a property, not just one to
ensure payment ensure payment; can affect the transferability of
the property and restrict its free use
• Effect of want of consideration: a matter of defense as against any person not a holder in due course;
and partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and
liquidated amount or otherwise.
• Absence of consideration – total lack of any valid consideration for the contract is only a personal
defense.
• Failure of consideration – failure or refusal or one party to do, perform or comply with the consideration
agreed upon is also only a personal defense.
• Payee need not be obligee – the payee of a negotiable instrument need not be the same obligee of the
obligation in consideration for which the instrument was issued or negotiated
• Discounting
o The instrument is negotiated to another because the transferee will pay the amount of the
instrument
o The transferee charges or deducts a certain percentage from the principal as the compensation
• Donation and Gifts – a transferee who acquired the instrument as a gift or donation from another is not
considered a holder for value
o NOT a valuable consideration
o But STILL a consideration
SECTION 24. Presumption of Consideration. — Every negotiable instrument is deemed prima facie to
have been issued for a valuable consideration; and every person whose signature appears thereon to
have become a party thereto for value.
SECTION 25. Value, What Constitutes. — Value is any consideration sufficient to support a simple
contract. An antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument
is payable on demand or at a future time
SECTION 26. What Constitutes Holder for Value. — Where value has at any time been given for the
instrument, the holder is deemed a holder for value in respect to all parties who became such prior to that
time.
SECTION 27. When Lien on Instrument Constitutes Holder for Value. — Where the holder has a lien
on the instrument, arising either from contract or by implication of law, he is deemed a holder for value to
the extent of his lien
SECTION 28. Effect of Want of Consideration. — Absence or failure of consideration is matter of
defense as against any person not a holder in due course; and partial failure of consideration is a defense
pro tanto, whether the failure is an ascertained and liquidated amount or otherwise
SECTION 29. Liability of Accommodation Party. — An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose
of lending his name to some other person. Such a person is liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation
party
NOTES FROM SEPTEMBER 9, 2022 CLASS
v What kind of consideration – enough to support a simple contract

Ø Valuable consideration
§ If you get something for free = not a valuable consideration but still a negotiation
v Negotiation - transfer of a negotiable instrument from one person to another made in such a manner as
to constitute the transferee the holder thereof
v Issuance - first delivery of the instrument complete in form to a person who takes it as a holder
v How do we know if the payee is the holder
Ø Section 191 - A payee or endorsee of a bill or note who is in possession of it or the bearer thereof
v Effect of absence of consideration to negotiability
Ø Absence can only be used as a defense
Ø Not a requisite of negotiability
MODULE4–HOLDERS OF INSTRUMENTS
(SECTIONS 51 TO 59, NIL).
Meaning of Holder
• Section 191 – the payee or indorsee of a bill or note who is in possession of it or the bearer thereof
• The payee or indorsee is the holder of an order instrument, while the payee is the holder of the bearer
instrument
• Kinds of Holders
o Simple holders
SECTION 51. Right of Holder to Sue; Payment. — The holder of a negotiable
instrument may sue thereon in his own name; and payment to him in due course
discharges the instrument
o Holder for value
SECTION 26. What Constitutes Holder for Value. — Where value has at any time
been given for the instrument, the holder is deemed a holder for value in respect to all
parties who became such prior to that time.
o Holder in due course
SECTION 52. What Constitutes a Holder in Due Course. — A holder in due course
is a holder who has taken the instrument under the following conditions:
a. That it is complete and regular upon its face;
b. That he became the holder of it before it was overdue, and without notice that
it had been previously dishonored, if such was the fact;
c. That he took it in good faith and for value;
d. That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
Rights of Holders in General

• Section 51:
o May sue in his own name
o Payment to him in due course discharges the instrument
• Not necessary that the holder is the holder in due course before he can enforce payment if there are no
defenses available to the parties
• Disadvantage: a holder who is not a holder in due course, the negotiable instrument is subject to defenses
as if it were non-negotiable
SECTION 51. Right of Holder to Sue; Payment. — The holder of a negotiable instrument may sue
thereon in his own name; and payment to him in due course discharges the instrument
Rights of Holders Not in Due Course.

• Holders not in due course:
o One who became a holder of an instrument without any, some or all of the requisites under Sec.
52 of the NIL
o Section 53: With respect to demand instruments, if it is negotiated an unreasonable length of
time after its issue, the holder is deemed not a holder in due course.
• Rights:
o It can enforce the instrument and sue under it in his own name
o Prior parties can avail against him any defense among these prior parties and prevent the said
holder from collecting in whole or in part the amount stated in the instrument
o *Note: If there are no defenses, the distinction between a HDC and one who is not a HDC is
immaterial.
• General Rule
o Failure to make inquiry is not evidence of bad faith.
• Exceptions:
o Where a holder’s title is defective or suspicious that would compel a reasonable man to
investigate, it cannot be stated that the payee acquired the check without the knowledge of said
defect in the holder’s title and for this reason the presumption that it is a holder in due course or
that it acquired the instrument in good faith does not exist
o Holder to whom cashier’s check is not indorsed in due course and negotiated for value is not a
holder in due course.
SECTION 53. When Person Not Deemed Holder in Due Course. — Where an instrument payable on
demand is negotiated an unreasonable length of time after its issue, the holder is not deemed a holder
in due course.
Holders In Due Course: Presumption.

• Prima facie presumption is that every holder is a holder in due course, and it is up to the person who is
resisting to prove that the holder is not a holder in due course
• When the presumption does not apply:
o It can’t operate if the demand instrument is negotiated for an unreasonable length of time (see
Section 53)
o Holder can’t be presumed as a holder for value if there is no proof whatsoever how the person
who is claiming the rights of a holder in due course, acquired the instrument
Requisites of Holders
• Meaning of Holder
o Section 191 – the payee or indorsee of a bill or note who is in possession of it or the bearer
thereof
o The payee or indorsee is the holder of an order instrument, while the payee is the holder of the
bearer instrument
o Holder – person or entity who is given the right to demand the performance of the obligation
• Complete and Regular

o Not complete and regular if it contains material alteration
o If the alteration is not apparent (like if the case where it cannot be discovered even on close
scrutiny) the first requirement is still present because it is complete and regular on its face
o Holder will not be holder in due course if he took the instrument at a time when the instrument
was irregular on its face
• Taking before Overdue
o In cases of instalment instrument
o Holder is not holder in due course if transfer of instrument is made after the maturity of one or
more parts of the instalment
o BUT, purchaser of instalment note after an instalment is overdue can be holder in due course
as to the balance if there is no notice of failure to pay the first instalment
• Notice of Infirmity and Defect
o Such notice will destroy due course holding
o Infirmity – any irregularity in the instrument
o Defect is enshrined in Section 55
o The title to a person in an instrument becomes defective either:
§ in the acquisition of the instrument –
• by fraud - refers to fraud in inducement - he acquires the instrument by Falsely
inducing its issuance or negotiation.
• by duress, or force and fear - refers to the use of violence and intimidation to
cause the issuance or negotiation.
• by other unlawful means - such as theft.
• for an illegal consideration - the instrument is issued or negotiated as a
consideration for an illegal act or omission.
§ in the negotiation of the instrument –
• with breach of faith - refers to negotiation of the instrument in contravention of
the terms of the agreement, or negotiation after it has been paid (discharged),
or negotiation before the consideration for the instrument is given.
• under circumstances as amount to a fraud. - refers to negotiation after being
told that payment would be resisted, or transferor had no legal right to transfer.
o What constitutes notice of defect.
§ The person to whom it is negotiated must have:
• actual knowledge of the infirmity or defect, or
• knowledge of such facts that his action in taking the instrument amounted to
bad faith. (sec. 56)
o Notice before full amount is paid
§ where the transferee receives notice of any infirmity in the instrument or defect in the
title of the person negotiating the same before he has paid the full amount agreed to be
paid, he will be deemed a holder in due course only to the extent of the amount paid by
him.
• Good Faith
o Means that the person taking the instrument acted with due honesty with regard to the rights of
the parties liable on the instrument and that at the time of taking, the holder had no knowledge
of any defect or infirmity
• Holder for Value
o Value – consideration sufficient to support a simple contract
o Lien – a person with security interest over the instrument is a holder for value up to the extent
of his lien
o Effect of the Personal Property Security Act (PPSA)
§ If a negotiable instrument is the personal property that will be used as collateral, the
security interest is perfected by the execution of a security agreement
• Security agreement is perfected by possession of the instrument
Payee as Holder in Due Course

• Payee can be a holder in due course under any circumstance in which he meets the requirements of
Section 52:
o A holder in due course is a holder who has taken the instrument under the following conditions:
§ That it is complete and regular upon its face;
§ That he became the holder of it before it was overdue, and without notice that it had
been previously dishonored, if such was the fact;
§ That he took it in good faith and for value;
§ That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it
Rights of Holders in Due Course

• Generally, free from personal defenses. The person who is sought to be made liable on the instrument
can’t refuse to pay the holder in due course if his justification is a personal defense
• As listed:
o he may sue on the instrument in his own name;
o he may receive payment and if payment is in due course, the instrument is discharged.
o holds the instrument free from any defect of title of prior parties,
o holds the instrument free from defenses available to prior parties among themselves, and
o may enforce payment of the instrument for the full amount thereof against all parties liable
thereon.
• Personal Defenses
o A holder in due course holds the instrument free from any defect of title of prior parties and free
from defenses available to prior parties among themselves and may enforce payment of the
instrument for full payment against all parties liable
• Real Defenses
o Holder in due course is NOT free from real defenses
o The claim of a holder in due course can still be defeated by the person primarily or secondarily
liable if the latter has in his favor real defenses
SECTION 55. When Title Defective. — The title of a person who negotiates an instrument is defective
within the meaning of this Act when he obtained the instrument, or any signature thereto, by fraud,
duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates
it in breach of faith, or under such circumstances as amount to a fraud.
Rights if Not Holder in Due Course

• where an instrument payable on demand is negotiated on an unreasonable length of time after its issue,
the holder is not deemed a holder in due course.
• Reasonable time, what constitutes – regard is to be had to the
o nature of the instrument,
o the usage of trade or business with respect to such instruments, and the
o facts of the particular case.
• Effect:
o in the hands of any holder other than a holder in due course, a negotiable instrument is subject
to the same defenses as if it were non-negotiable.
• General Rule:
o every holder is deemed prima facie to be a holder in due course
• Exception:
o when it is shown that the title of any person who has negotiated the instrument was defective,
the burden is on the holder to prove that he or some person under whom he claims acquired the
title as holder in due course (shifting of burden of proof).
• Limitation:
o the last-mentioned rule does not apply in favor of a party who became bound on the instrument
prior to the acquisition of such defective title
SECTION 59. Who is Deemed Holder in Due Course. — Every holder is deemed prima facie to be a
holder in due course; but when it is shown that the title of any person who has negotiated the instrument
was defective, the burden is on the holder to prove that he or some person under whom he claims
acquired the title as holder in due course. But the last-mentioned rule does not apply in favor of a party
who became bound on the instrument prior to the acquisition of such defective title.
Shelter Rule
• A holder who derives his title through a holder in due course, and who is not himself a party to any fraud
or illegality affecting the instrument
• Exception: Repurchase by a prior party
o The rule in section 58 does not apply if he was a previous holder not in due course who
repurchased the instrument either personally or through an agent
SECTION 58. When Subject to Original Defenses. — In the hands of any holder other than a holder in
due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. But a
holder who derives his title through a holder in due course, and who is not himself a party to any fraud or
illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to
the latter.
Effect on Consumer Transactions

• Constitutionally mandated – Section9, Article XVI, 1987 Constitution
o SECTION 9. The State shall protect consumers from trade malpractices and from substandard
or hazardous products
• RA 7394 – Consumer Act of the Philippines
o Article 146. Sale of Consumer Products On Installment Payment
§ In a consumer credit sale other than one pursuant to an open-end credit plan, the
obligation of the consumer to whom credit is being extended shall be evidenced by a
single instrument which shall include, in addition to the disclosures required by this act,
the signature of the seller and the person to whom credit is extended, the date it was
signed, a description of the property sold and a description of any property transferred
as a trade-in. The instrument evidencing the credit shall contain a clear and
conspicuous typewritten notice to the person to whom credit is being extended that:
• he should not sign the instrument if it contains any blank space;
• he is entitled to a reasonable return of the precomputed finance charge if the
balance is prepaid; and
• he is entitled to an exact, true copy of the agreement.
§ In cases where the instrument will be sold at a discount to a bank, financing company
or other lender, the said transferee shall be subject to all claims and defenses which
the debtor could assert against the seller of consumer products obtained hereto or with
the proceeds thereof.
o Article 4. Definition of Terms. – For purposes of this Act, the term:
§ n) "Consumer" means a natural person who is a purchaser, lessee, recipient or
prospective purchaser, lessor or recipient of consumer products, services or credit.
§ o) "Consumer credit" means any credit extended by a creditor to a consumer for the
sale or lease of any consumer product or service under which part or all of the price or
payment therefor is payable at some future time, whether in full or in installments.
§ p) "Consumer loan" means a loan made by the lender to a person which is payable in
installments for which a finance charge is or may be imposed. This term includes credit
transactions pursuant to an open-end-credit plan other than a seller credit card.
§ q) "Consumer products and services" means goods, services and credits, debts or
obligations which are primarily for personal, family, household or agricultural purposes,
which shall include but not limited to food, drugs, cosmetics, and devices.
§ s) "Consumer transaction" means (1) (i) a sale, lease, assignment, award by chance,
or other disposition of consumer products, including chattels that are intended to be
affixed to land, or of services, or of any right, title, or interest therein, except securities
as defined in the Securities Act and contracts of insurance under the Insurance Code,
or (ii) a grant of provision of credit to a consumer for purposes that are primarily
personal, family, household or agricultural, or (2) a solicitation or promotion by a
supplier with respect to a transaction referred to in clause (1).
§ x) "Credit Sale" means a sale products, services or an interest in land to a person on
credit where a debt is payable in installments or a finance charge is imposed and
includes any agreement in the form of a bailment of products or lease of products or
real property if the bailee or lessee pays or agrees to pay compensation for use a sum
substantially equivalent to or in excess of the aggregate value of the products or real
property involved and it is agreed that the bailee or lessee will become, or for no other
or a nominal consideration has the option to become, the owner of the products or real
property upon full compliance with the terms of the agreement.
§ y) "Credit transaction" means a transaction between a natural person and a creditor
in which real or personal property, services or money acquired on credit and the
person's obligation is payable in installment.
Rights of Holder in Bills in Set

• Bills in set – one bill drawn in a set
• Section 178 – where a bill is drawn in a set, each part of the set being numbered and containing a
reference to the other parts, the whole of the parts constitutes one bill
• Rights contained in Sections 179, 180, 181
SECTION 179. Rights of Holders Where Different Parts are Negotiated. — Where two or more
parts of a set are negotiated to different holders in due course, the holder whose title first accrues is
as between such holders the true owner of the bill. But nothing in this section affects the rights of a
person who in due course accepts or pays the part first presented to him.
SECTION 180. Liability of Holder Who Indorses Two or More Parts of a Set to Different Persons.
— Where the holder of a set indorses two or more parts to different persons he is liable on every such
part, and every indorser subsequent to him is liable on the part he has himself indorsed, as if such
parts were separate bills.
SECTION 181. Acceptance of Bills Drawn in Sets. — The acceptance may be written on any part
and it must be written on one part only. If the drawee accepts more than one part, and such accepted
parts are negotiated to different hold
M O D U L E 5: P E R S O N S W H O A R E L I A B L E
Nature of Liability
• Primary and Secondary Liability
o Active subject – the holder (person or entity who is given the right to deman the performance of
the obligation)
o Passive subject – the obligor/debtor, the person against whom the holder/obligee-creditor can
enforce the right represented by the instrument is the person primarily liable
o Primarily liable to pay promissory note = maker
o Primarily liable to pay bill = acceptor
o Secondarily liable = drawers and general indorsers
Section 192. Persons primarily liable on instrument. - The person "primarily" liable on an
instrument is the person who, by the terms of the instrument, is absolutely required to pay the
same. All other parties are "secondarily" liable.
• Distinguished from Warranties
o Warranties = affirmations of fact on the part of the parties that impose no direct obligation to pay
in the absence of breach
o In case of breach of warranties, the person who breached the same may either be liable or he
may be barred from asserting a particular defense
Primary & Secondary Liability of Parties Warranties of Parties

Makes the parties liable to pay the sum certain in Impose no direct obligation to pay in the absence of
money stated in the instrument. breach thereof. In case of breach, the person who
breached the same may either be liable or barred
from asserting a particular defense.
Conditioned on presentment and notice of dishonor Does not require presentment and notice of
dishonor.
Maker (Sec. 60, NIL)

• Liability of the maker is primary and unconditional. One cannot shift the liability to any person without the
payee’s consent
• The engagement of the maker is to pay according to the tenor of the instrument
• The maker has the following warranties or admissions
o Maker admits the existence of the payee
o Maker admits the capacity of the payee to indorse
Section 60. Liability of maker. - The maker of a negotiable instrument, by making it, engages that he
will pay it according to its tenor, and admits the existence of the payee and his then capacity to indorse
Drawer
• Drawer is secondarily liable, the drawer being the one ordering the drawee to pay
• If drawee doesn’t pay, drawer promises to pay holder
o Indorsers are also secondarily liable
• Drawer’s warranties or admissions which he can no longer contradict
o Drawer admits to the existence of the payee
o Drawer admits to the capacity of the payee to indorse the instrument
Section 61. Liability of drawer. - The drawer by drawing the instrument admits the existence of the
payee and his then capacity to indorse; and engages that, on due presentment, the instrument will be
accepted or paid, or both, according to its tenor, and that if it be dishonored and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to any subsequent
indorser who may be compelled to pay it. But the drawer may insert in the instrument an express
stipulation negativing or limiting his own liability to the holder.
Acceptor
• Relationship with Drawee
o The drawee by acceptance becomes liable to the payee or his indorsee and also to the drawer
himself
o Drawee does not become liable until he accepts the bill or unless he certifies the check
o Section 62 triggers the operation of liabilities of the drawee
o Acceptor is liable even if no obligation is owed by the drawee-acceptor to the drawer to honor
the bill or the check or even if the drawee did not receive any consideration from the drawer
o If the acceptor pays the holder, the recourse of the drawee in case he paid the payee is to seek
reimbursement from the drawer
• Relationship with Collecting Bank
o Failure of bank employee to credit the amount deposited by the drawee-depositor to his account
resulting in the dishonor of checks constitutes actionable negligence
o Manager’s or cashier’s checks is accepted upon its issuance and mere issuance creates a privity
of contract between the holder and the drawee bank
o Collecting bank as agent and general indorser
§ The collecting bank does not become the owner of the amount covered by the check
as the same is only being collected from the drawee bank for the principal, the depositor
Warranties of the collecting bank

§
• That the instrument is genuine and in all respects what it purports to be
• That he has a good title to it
• That all prior parties had capacity to contract
• That the instrument is at the time of his indorsement, valid and subsisting
§ duty of care
• care required includes the obligation not only of the drawee but the collecting
bank as well
• law imposes duty of diligence
• Payment without Acceptance in Checks
o Acceptance is an unnecessary step insofar as instruments that are payable on demand are
concerned
o Checks are not to be presented for acceptance
o Acceptance = a promise to perform an act
o Payment = actual performance
o Section 62 applies to the drawee that paid without accepting the check
• Warranties or admissions by acceptor
o Acceptor admits the existence of the drawer
o Acceptor admits the genuineness of the signature of the drawer
o Acceptor admits the capacity of the drawer to draw the instrument
o Acceptor admits the existence of the payee
o Acceptor admits the capacity of the existence of the payee to indorse
• Tenor of Acceptance
o Paying with accordance to the tenor of his acceptance
o If there is an alteration of amount, the tenor of the acceptance is for the original amount
§ Therefore, the acceptor/drawee is liable only to the extent of the bill prior to alteration
Section 62 Liability of acceptor. - The acceptor, by accepting the instrument, engages that he will pay
it according to the tenor of his acceptance and admits:
a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to
draw the instrument; and
b) The existence of the payee and his then capacity to indorse.
Primarily Liable
Maker Acceptor or Drawee
A. Engages to pay according to the tenor of the A. Engages to pay according to the tenor of his
instrument; and acceptance;
B. Admits the existence of the payee and his B. Admits the existence of the drawer, the
capacity to indorse. genuineness of his signature and his capacity
and authority to draw the instrument; and
C. Admits the existence of the payee and his
capacity to indorse.
A bill of itself does not operate as an assignment of

funds in the hands of the drawee available for the
payment thereof and the drawee is not liable unless
and until he accepts the same (Sec.127)
Relationship of Parties in Checks (Chapter 10, Aquino NIL 2018)

• Liability of Drawer (Section 30)
o Drawer means a person who signs a cheque or a bill of exchange ordering his or her bank to
pay the amount to the payee.
o In case of dishonour of cheque or bill of exchange by the drawee or the acceptor, the drawer of
such cheque or bill of exchange needs to compensate the holder such amount. But, the drawer
needs to receive due notice of dishonour.
o So, the nature of the drawer’s liability on drawing a bill is:
§ On due presentation:- It should be accepted and paid accordingly.
§ In the case of dishonour:- Drawer needs to compensate the holder such amount, only
when he receives a notice of dishonour by the drawee.
• Liability of the Drawee of Cheque (Section 31
o The person who draws a cheque i.e drawer having sufficient funds of the drawer in his hands
properly applicable to the payment of such cheque must pay the cheque when duly required to
do so and, or in default of such payment, he shall compensate the drawer for any loss or damage
caused by such default.
o The drawee of a cheque will always be a banker. As a cheque is a bill of exchange, drawn on a
specified banker by the drawer, the banker is bound to pay the cheque of the drawer, i.e., the
customer. For the following conditions are need to be satisfied:
§ Sufficient amount of funds to the credit of customer’s account should be there with the
banker.
§ Such funds are required to be properly applied against the payment of such cheque,
e.g., the funds are not under any kind of lien etc.
§ The cheque is duly required to be paid, during banking hours and on or after the date
on which it is made payable.
o If the banker unjustifiably refuses to honour the cheque of its customer, it shall be liable for
damages.
• Liability of Acceptor of Bill and Maker of Note (Section 32)
o As per section 32 of negotiable instrument act, in the absence of a contract to the contrary, the
maker of a promissory note and the acceptor before the maturity of a bill of exchange are under
the liability to pay the amount thereof at maturity.
o They need to pay the amount according to the apparent tenor of the note or acceptance
respectively. The acceptor of a bill of exchange at or after maturity is liable to pay the amount
thereof to the holder on demand.
o The liability of the acceptor of a bill or the maker of a note is absolute and unconditional but is
subject to a contract to the contrary and may be excluded or modified by a collateral agreement.
• Liability of Endorser (Section 35)
o An endorser is the one who endorses and delivers a negotiable instrument before maturity.
Every endorser has a liability to the parties that are subsequent to him
o Also, he is bound thereby to every subsequent holder in case of dishonour of the instrument by
the drawee, acceptor or maker, to compensate such holder of any loss or damage caused to
him by such dishonour. However, he is to compensate only after the fulfilment of the following
conditions:
§ There is no contract to the contrary
§ The Endorser has not expressly excluded, limited or made conditional his own liability
§ And, such endorser shall receive due notice of dishonour
• Liability of Prior Parties (Section 36)
o Until the instrument is duly satisfied, every prior party to a negotiable instrument has a liability
towards the holder in due course. The prior parties include the maker or drawer, the acceptor
and all the intervening endorsers. Also, there liability to a holder in due course is joint and
several. In the case of dishonour, the holder in due course may declare any or all prior parties
liable for the amount.
• Liability Inter-se
o Every liable party has a different footing or stand with respect to the nature of liability of each
one of them.
• Liability of Acceptor when Endorsement is Forged (Section 41
o An acceptor of a bill of exchange who had already endorsed the bill is not relieved from liability
even if such endorsement is forged. This is so even if he knew or had reason to believe that the
endorsement was forged when he accepted the bill.
• Acceptor’s Liability when Bill is drawn in a Fictitious Nam
o An acceptor of a bill of exchange who draws a bill in a fictitious name, payable to the drawer’s
order will be liable to pay any holder in due course. He or she will not be relieved from such
liability by reason that such name is fictitious.
Indorsers
• Indorser – person who negotiates the instrument through indorsement completed by delivery
o Presumption – person whose signature appears on the instrument is deemed to be the indorser
o Express intent – person who is signing may indicate that he is not an indorser and indicate that
he is a guarantor
o Indorsement can be made through an agent
o Two or more people can simultaneously indorse an instrument
Section 63. When a person deemed indorser. - A person placing his signature upon an
instrument otherwise than as maker, drawer, or acceptor, is deemed to be indorser unless he
clearly indicates by appropriate words his intention to be bound in some other capacity.
• General Indorsers
o General indorser – one who indorses the instrument without any qualification
o Secondary Liability and Warranties
§ Secondarily liable to the holder or any subsequent indorser who may be compelled to
pay the instrument
§ Warranties
• That the instrument is genuine and in all respects what it purports to be
• That he has a good title to it
• That all prior parties had capacity to contract
• That the instrument is at the time of his indorsement, valid and subsisting
§ Distinction from Section 65 – under paragraph D, there is no breach of warranty even if
the instrument is actually impaired if the qualified indorser is not aware of such fact
while under Section 66, the general indorser will be liable for breach of warranty even
if he is not aware of the impairment of the instrument
Section 66. Liability of general indorser. – Every indorser who indorses without qualification,
warrants to all subsequent holders in due course:
a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding
section; and
b) That the instrument is, at the time of his indorsement, valid and subsisting;
And, in addition, he engages that, on due presentment, it shall be accepted or paid,
or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it.
• Order of Liability
o No order of liability is provided by law for the enforcement of liability of the general indorses by
the holder
o The holder is free to choose to recover from any indorser if the maker dishonors the instrument
o As respect one another, indorsers are liable prima facie in the order in which they indorse in the
order in which they indorse unless the contrary is proven
o General Rule – One whose signature does not appear on the instrument shall not be liable
thereon.
o Exceptions:
§ The principal who signs through an agent is liable;
§ The forger is liable;
§ One who indorses in a separate instrument (allonge) or where an acceptance is written
on a separate paper is liable;
§ One who signs his assumed or trade name is liable; and
§ A person negotiating by delivery (as in the case of a bearer instrument) is liable to his
immediate indorsee.
Section. 68. Order in which indorsers are liable. - As respect one another, indorsers are liable
prima facie in the order in which they indorse; but evidence is admissible to show that, as between
or among themselves, they have agreed otherwise. Joint payees or joint indorsees who indorse
are deemed to indorse jointly and severally.
• Qualified Indorser (Sec. 65, NIL)

o Qualified indorser – one who indorses the instrument with qualification
§ Indorser indorses by removing the indorser’s secondarily liability
§ Works by adding the word “without recourse” or “sans recourse”
o No secondary liability – no engagement in the case of a qualified indorser
o The qualified indorser’s liability to his immediate transferee may remain
o Parole evidence – oral testimony is not admissible to establish that an unqualified indorsement
is in fact qualified
Section. 65. Warranty where negotiation by delivery and so forth. — Every person
negotiating an instrument by delivery or by a qualified indorsement warrants:
a) That the instrument is genuine and in all respects what it purports to be;
b) That he has a good title to it;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would impair the validity of the instrument
or render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no holder other than
the immediate transferee.
The provisions of subdivision (c) of this section do not apply to a person negotiating public or
corporation securities other than bills and notes.
• Conditional Indorsers.
o makes payment by the acceptor dependent on the fulfilment of a condition therein stated.
• Irregular Indorser
o An irregular indorser is a person, not otherwise a party to an instrument, who placed thereon his
signature in blank before delivery
o Liability
§ If the instrument is payable to the order of a third person, he is liable to the payee and
to all subsequent parties
§ If the instrument is payable to the order of the maker or drawer, or is payable to bearer,
he is liable to all parties subsequent to the maker or drawer
§ If he signs for the accommodation of the payee, he is laible to all parties subsequent to
the payee
• Restrictive Indorsers.
o A restrictive indorsement confers upon the indorsee the right:
§ To receive payment of the instrument;
§ To bring any action thereon that the indorser could bring
§ To transfer his rights as such indorsee, where the form of the indorsement authorizes
him to do so.
o But all subsequent indorsees acquire only the title of the first indorsee under the restrictive
indorsement. (sec. 37)
• Indorser of Bearer Instruments
o If he indorses the instrument without qualification, he incurs all the liabilities of a general indorser,
he is secondarily liable and he is liable for breach of his warranties
Section. 67. Liability of indorser where paper negotiable by delivery. — Where a person
places his indorsement on an instrument negotiable by delivery, he incurs all the liability of an
indorser
Secondarily Liable
Drawer General Indorser Irregular Indorser
A. Admits the existence of the A. Warrants all Subsequent A person, not otherwise a party to
payee and his capacity to HDC - an instrument, places his
indorse; a. That the instrument is signature thereon in blank before
B. Engages that the genuine and in all delivery. (Sec. 64)
instrument will be accepted respect what it
or paid by the party purports to be A. If instrument payable to the
primarily liable; and b. He has good title to it; order of a 3rd person, he is
C. Engages that if the c.All prior parties had liable to the payee and
instrument is dishonored capacity to contract subsequent parties.
and proper proceedings are d. The instrument is, at B. If instrument payable to
brought, he will pay to the the time of order of maker or drawer or
party entitled to be paid. endorsement, valid to bearer, he is liable to all
and subsisting. parties subsequent to the
B. Engages that the instrument maker or drawer.
will be accepted or paid, or C. If he signs for
both, as the case may be, accommodation of the
according to its tenor; and payee, he is liable to all
C. If the instrument is parties subsequent to the
dishonored and necessary payee.
proceedings on dishonor be
duly taken, he will pay to the
party entitled to be paid.
Person Negotiating by Delivery (Section 65)

• A person negotiates by merely delivery if the instrument is a bearer instrument
• The warranties is also found under Section 66
o The warranties of the person negotiating by mere delivery extend only in favor of his immediate
transferee
• No secondary liability
Limited Liability
Qualified Indorser Person Negotiating by Delivery
Every person Negotiating instrument by delivery or A. Warranties same as those of qualified
by a qualified endorsement warrants that: indorsers; and
A. Instrument is genuine and in all respects B. Warranties extend to immediate transferee
what it purports to be; only.
B. He has good title to it;
C. All prior parties had capacity to contract;
D. He has no knowledge of any fact which
would impair the validity of the instrument or
render it valueless
Person Negotiating By Mere Delivery or By General Indorser

Qualified Indorsement
No secondary liability; but is liable for breach of There is secondary liability, and warranties
warranty
Warrants that he has no knowledge of any fact Warrants that the instrument is, at the time of his
which would impair the validity of the instrument or indorsement, valid and subsisting
render it valueless
Agents
• Agents
o Requisites for an agent to escape liability
§ The agent must be duly authorized.
§ Must add words to his signature indicating that he signs as an agent, that is, for or on behalf
of a principal.
§ Must disclose his principal.
o An agent incurs all liabilities as such maker, drawer, acceptor or indorser, unless he discloses the
name of his principal, and the fact that he is acting only as an agent
o When a person signs through his authorized agent, the effect is the same as the situation where he
personally signed the instrument
o If the agent signs in the manner prescribed by the NIL, the agent is not personally liable and the only
person who is liable is the principal
• Corporate Agents
o The agent when so signing for the corporation should indicate that he is merely signing in behalf of
the principal and must disclose the name of his principal, otherwise he shall be held personally liable
• Tradename or assumed name

o If a person uses a trade name or assumed name and they sign using such, they are liable as if they
signed using their real name
• Agents Per Procuracion
o “per procuracion” – are an express limitation of a special or limited authority and a person taking a
bill so drawn, accepted or indorsed, is bound to inquire into the extent of authority
Section. 18. Liability of person signing in trade or assumed name - No person is liable on the
instrument whose signature does not appear thereon, except as herein otherwise expressly provided. But
one who signs in a trade or assumed name will be liable to the same extent as if he had signed in his own
name.
Section. 19. Signature by agent; authority; how shown. - The signature of any party may be made by
a duly authorized agent. No particular form of appointment is necessary for this purpose; and the authority
of the agent may be established as in other cases of agency.
Section. 20. Liability of person signing as agent, and so forth. - Where the instrument contains or a
person adds to his signature words indicating that he signs for or on behalf of a principal or in a
representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition
of words describing him as an agent, or as filling a representative character, without disclosing his
principal, does not exempt him from personal liability.
Section. 21. Signature by procuration; effect of. - A signature by "procuration" operates as notice that
the agent has but a limited authority to sign, and the principal is bound only in case the agent in so signing
acted within the actual limits of his authority.
Section. 69. Liability of an agent or broker. - Where a broker or other agent negotiates an instrument
without indorsement, he incurs all the liabilities prescribed by Section Sixty-five of this Act, unless he
discloses the name of his principal and the fact that he is acting only as agent.
Accommodation Party. (Aquino NIL 2018, pp. 223-241).

• Requisites of Accommodation Parties
o He must be a party to the instrument, signing as maker, drawer, acceptor, or indorser
o He must not receive value therefor
o He must sign for the purpose of lending his name or credit to some other person
• Consideration
o Accommodation party receives no part of the consideration for the instrument but assumes
liability to the other parties thereto
• Liability of Accommodation Parties
o Solidary accommodation party may seek reimbursement from the accommodated party or other
accommodation parties subject to the following rules
§ A joint and several accommodation party such as an accommodation maker may
demand from the principal debtor reimbursement for the amount that he paid to the
payee
§ A joint and several accommodation maker who pays on the said promissory note may
directly demand reimbursement from his co-accommodation maker without first
directing his action against the principal debtor provided that:
• He made the payment by virtue of a judicial demand
• The principal debtor is insolvent
o Liability of an accommodation party under Section 29 does not apply to corporations
§ If the corporation is not liable, the holder may turn to its officers for relief personal liability
of the officers and directors may attach in certain instances
Section. 29. Liability of accommodation party. - An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose
of lending his name to some other person. Such a person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation
party.
****END OF MIDTERM COVERAGE****

Negotiable Instruments Law - Midterms - Mama Gie Notes

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Negotiable Instruments Law - Midterms - Mama Gie Notes

Uploaded by

Copyright:

Available Formats

Mama Gie Notes | Negotiable Instruments Reviewer | Atty.

Timoteo Aquino | 1st Semester, AY 2022-2023 | SBCA-SOL

GSIS v. Court of Appeals [G.R. No. L-40824. February 23, 1989]

FUNCTIONS OF NEGOTIABLE INSTRUMENTS

DISTINCTIVE FEATURES OF NEGOTIABLE INSTRUMENTS

NEGOTIABLE INSTRUMENTS NON-NEGOTIABLE INSTRUMENTS

*Real defenses - valid against ordinary assignee/transferee

KINDS OF NEGOTIABLE INSTRUMENTS

3. Bill of exchange treated as a promissory note

COMMERCIAL PAPERS - NEGOTIABLE INSTRUMENTS

PROMISSORY NOTE BILL OF EXCHANGE

BILL OF EXCHANGE CHECK

PARTIES IN NEGOTIABLE INSTRUMENTS

d. Payee - the one to whom payment should be made by the acceptor

INCIDENTS IN THE LIFE OF A NEGOTIABLE INSTRUMENT

ASSIGNMENT NO. 1 – NEGOTIABLE INSTRUMENTS LAW

the person to whom it is addressed to pay on demand or at a fixed or determinable

NOTES ON AUGUST 19, 2022 CLASS

• Payment instrument – whether tangible or intangible

DISCUSSION ON THE REQUISITES OF NEGOTIABILITY

§ Subject to Transaction – it becomes non-negotiable if instrument is restricted by the

Fund for Reimbursement Particular Fund for Payment

• Sum payable must be certain

• The amount to be paid for each installment must be fixed or determinable

EXTENTION CLAUSE EXTENSION UNDER SEC 120 (f)

1.4. Must be payable to order or to bearer

• Payable to bearer when:

• Fictitious Payee Rule

Caltex (Philippines) vs. CA, 212 SCRA 448 (1992)

Summary of Rules on Negotiability (From Atty. Aquino’s Book)

• An instrument is payable to bearer

HOW TO DETERMINE NEGOTIABILITY

NOTES FROM AUGUST 26, 2022 LECTURE

v Movement of Funds by using payment instruments

Ø The focus of Nego is payment of MONETARY obligation

OMISSIONS & PROVISIONS THAT DO NOT AFFECT NEGOTIABILITY

• Omissions not affecting negotiability

INTERPRETATION OF NEGOTIABLE INSTRUMENTS

• Notes for Section 17

• EFFECTS OF BEING AN ADOPTED STATUTE

• SAMPLE PROMISSORY NOTE

• SAMPLE BILL OF EXHCANGE

TRANSFER & NEGOTIATION OF NEGOTIABLE INSTRUMENTS

o *By Operation of Law – such as by succession, by insolvency.

• Persons who will indorse

o If in case of misspelled name -

• Time and Place of Indorsement

• Note: Effect of transfer without indorsement:

o the right to have the indorsement of the transferor.

• Kinds of Indorsement (Blank and Special Indorsement; Qualified Indorsement; Conditional

Kinds of Indorsements & Their Consequences (From Atty. Aquino’s book)

Liabilities of General Indorser, Sec.

NEGOTIATION BY PRIOR PARTY

STRIKING OUT OF INDORSEMENT

NOTES FROM SEPTEMBER 9, 2022 CLASS

v What kind of consideration – enough to support a simple contract

Rights of Holders in General

Rights of Holders Not in Due Course.

Holders In Due Course: Presumption.

• Complete and Regular

Payee as Holder in Due Course

Rights of Holders in Due Course

Rights if Not Holder in Due Course

Effect on Consumer Transactions

END OF MIDTERM COVERAGE