NEGOTIABLE INSTRUMENTS

Negotiable Instrument CHARACTERISTICS OR FEATURES OF NEGOTIABLE INSTRUMENT

 Written contractual obligation that requires payment of money. 1. NEGOTIABILITY

 Quality or attribute of a bill or note whereby it may pass from one
person to another.
Section 1 FORM
Note: when transferability is limited or restricted, the paper may be
1. Must be in writing and signed by the maker or drawer said to be non-negotiable
2. Must contain an unconditional promise to pay sum certain in
ORDER – delivery and indorsement
money.
3. Must be payable on demand and on a fixed or determinable BEARER – delivery only
future time
4. Payable to order or bearer
5. When the instrument is addressed to the drawer, he must be 2. Accumulation of Secondary contracts
named or indicated therein with reasonable certainty.  The instrument can be transferred from one person to another.
Once issued other parties can become involved.
Note: signature can be any symbol executed or adopted by a person to
 More debts are added, the more advantageous for the holder as
authenticate the instrument.
he can proceed not only against the maker but also against all
Note: if the signature is so placed upon the instrument that it is not clear transferors.
in what the capacity the person intended to sign he is deemed to be an
indorser and not a maker or drawer.
Forms of negotiable instrument
Kinds of signature
1. Promissory note
1. Conventional signature
– issuer promise to pay sum of money
2. Personalized signature
– Two party paper. a) Maker; b) Payee
FUNCTION AND IMPORTANCE OF NEGOTIABLE INSTRUMENT
Note: if no time of payment is expressed an instrument is payable
1. Use as a substitute for money on demand.
2. Media of exchange for commercial circulation
2. Bill of exchange
3. A medium of credit transaction
– issuer has ordered a third person to pay.
4. Evidence of transaction of the parties

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Idea or purpose of a bill of exchange

a. Drawer’s fund in the hands of drawee MONEY

b. Liability of drawee for non-payment
 medium of exchange authorized or adopted by a domestic or
 Party to a BoE. (drawer, drawee & Payee)
foreign government as part of its currency
ACCEPTOR
LEGAL TENDER –
 the drawee who signs accepted and sign ceases to be a drawee.
 Currency which a debtor can legally compel a creditor to accept
 He becomes primarily liable like the maker of the note then the
in payment of a debt in money when tendered by the debtor in
DRAWER becoming only a surety.
the right amount.
3. Checks Examples:

Payable to order
If in doubt resolved in favour of negotiability.
February 14, 2019

Baguio City

INSTRUMENTS WITH LIMITED NEGOTIABILITY I promise to pay to the order of Yaslee the sum of eight thousand
1. LETTER OF CREDIT – in favour of a specified person and not to eight hundred eighty eight (php 8,888) on or before christmas 2019.
order (sgd.) Lily
2. TREASURY WARRANT – in favour of a public officer or
employee
3. POSTAL MONEY ORDER – only one indorsement is allowed
4. BILL OF LADING – without an unconditional promise or order February 14, 2019
to pay a sum certain in money
5. CERTIFICATE OF STOCK – named to a designated owner with Baguio City
designated no. of shares 28 days after date, I promise to pay to the order of Yaslee the sum of
6. WAREHOUSE RECEIPT - without an unconditional promise or eight thousand eight hundred eighty eight (php8888).
order to pay a sum certain in money (sgd.) Lily

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example: with interest at increased or reduced rate

PAYABLE TO BEARER
I promise to pay H2O or order seven thousand four hundred
fifty (7,450), with interest at 2% monthly and 5% if paid when due.
30 weeks after date, I promised to pay to Aiza or bearer the sum of (sgd) mary
php 7,777.

(sgd) Glen

b. By stated instalments
Bill of Exchange
Pay to BJ or bearer the sum of twenty thousand pesos by
instalment as follows:
Pay to the order of lola debi php 9,876. a. 9999 due on April 1,2019
(SGD.) Beshy b. 11111 due on August 1, 2019

To maldita
c. By stated instalments with acceleration clause
Metrobank bonifacio manager
Note: if with acceleration clause just add this portion (upon default in
payment of any of the instalment or interest, the whole sum shall become
SECTION 2 A SUM CERTAIN IN MONEY due and demandable.)

 EVEN IF STIPULATED TO BE PAID d. With exchange, whether at a fixed rate or at a current rate
a. With interest I promise to pay to the order of Meagan the sum of two
Example: with fixed interest rate thousand US Dollar in Philippine Peso at a rate of php49 per dollar on
May 5, 2019.
(sgd) ran
I promise to pay J or order seven thousand four hundred fifty
(7,450), with interest at 12% annually.
I promise to pay to the order of Meagan the sum of two
(sgd) mon thousand US Dollar in Philippine Peso at the current exchange rate.
(sgd) ran
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e. Cost of Collection or/and Attorneys Fee
I promise to pay to the order of Chard fifty thousand pesos on or
before June 12, 2019.
2025.
In the event I fail to pay and a case will be filed against me, I bind
myself to pay an additional amount equivalent to 10% of the principal
obligation and to pay cost of collection and attorney’s fee.
SECTION 4 - DETERMINABLE FUTURE TIME
a. Fixed period
I promise to pay Lam or order the sum of 5000 on May 5,
(sgd) G
b. Fixed period after date (counted from the date of issuance)
12 days after date, I promise to pay Lam or order the sum of 5000.
(sgd) G
c. Fixed period after sight (counted from the date it is seen by
the drawee upon presentment for acceptance) a BoE always

Section 3 – Promise is Unconditional 60 days after sight, pay to the order of Wil the sum of 6666.
Order or promise to pay is Unconditional To J (SLU Chief Accountant) (sgd) K
a. An indication of a particular fund – for reimbursement d. Payable on or before a fixed time
Note: date of maturity must be stated for it is necessary.
Pay to the order of lampitok the sum of two thousand pesos
Maker: option to pay in advance
(php2,000) and charge the same to my account.
Payee: demand only at a fixed time
To inday (bdo luneta hill branch manager) (sgd) pitak
On or before May 5, 2025, I promise to pay Lam or order
I promised to pay lampitok or order two thousand pesos (php2,000) 9,876,543. (sgd) G
to be debited to his account with me.
(sgd) pitak e. Payable on or before a future time. (Determined with
certainty after the execution of the instrument.)

b. Statement of transaction which gives rise to the instrument On or before Labor Day, I promise to pay Lam or order
8,000,000. (sgd) G
I promise to pay LEX or order two million (php2,000,000)
being the price of the house and lot sold and delivered to me this 12th f. payable on the occurrence of a specified event
day of July 2019. I promise to pay Lam or order the sum of 5000 after finishing
(sgd) LEXI his digest. (sgd) G

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g. Payable after the occurrence of a specified event Example: I promise to pay Vienna or order Php30,000 and hereby
authorize my attorney at law to confess judgement against me in favour
Example: 8 days after graduation, I bind myself to pay Go of the holder of the note.
Ju or order eight thousand eight hundred eighty eight (php
3. Waiver of benefit given by law
8,888). (sgd) mari
Example: Pay to the order of jayson Php 20,000 on May 1,
2019.
Notice of Dishonor is hereby waived.
h. Payable upon contingency
To: Ben(drawee) (sgd) bena (drawer)
 An uncertain future event, or an event which may or may
not happen
 It is non- negotiable for the order is conditional and the
In relation to section 89 persons secondarily liable (drawer/indorser) is
happening of the event does not cure the defect.
entitled to notice of dishonour. They have an advantage to be
Example: pay to the order of mariflor the sum of Php 13,131 upon discharge/relieved from liability.
surrendering to the authority.
NOTICE OF DISHONOR
OR I promise to pay JEFF or order Php 13,131 if it rains today.
 Made by the holder informing the persons secondarily liable the
fact that the instrument was refused payment or acceptance.
 But even if one did not received a NOTICE, he is still liable.
SECTION 5

AN INSTRUMENT WHICH CONTAINS AN ORDER Or PROMISE TO

DO ANY ACT IN ADDITION of the payment of money is not negotiable. But SECTION 6
not affected by the following:
1. Omissions (may be intentional or not)
1. Sale of collateral securities a. It is not dated
Example: I promise to pay to the order of Jay Php5,000 on  When it is not dated and one does not know when it was
February 29, 2022 secure by a bag and which he could sell if I fail executed, “then the holder can put the date of issue”.
to pay on maturity date. (sec.17 (c))
2. Confession of judgement b. Does not specify the value given
 Warrant of attorney  There is presumption that it is in exchange of a valuable
 Confess judgement against his own client consideration. (sec. 24 – presumption of consideration)

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c. Does not specify the place where it is issued or drawn  Overdue yet it was indorsed payable on demand
 In relation to section 73 (place of payment)  When you indorsed an overdue instrument it is payable on
a. Obligors residence demand.
b. Place of business or  Note: Section 47 – an instrument negotiable in its origin continues
c. Any other place where he could be found to be negotiable until it has been restrictively indorsed or
2. Additions discharge by payment or otherwise.
a. Seal – not applicable in the Philippines
b. Particular kind of current money which payment to be SECTION 8 – Payable to ORDER
made. ( ex. Designating of denomination) -when it is drawn payable to the order of a specified person or to him or his
order.
Example: I promise to pay John or order Php 10,000 with use of 100
Drawn payable to the order of
pieces of Php100 bills.
a. A payee who is not maker, drawer or drawee
Example: I promise to pay 5000 to the order of G. (sgd) H
Pay to the order of north 444. (sgd) drawer
SECTION 7 – PAYABLE ON DEMAND
Pay to the order of east 444/. (sgd)seven To nine
a. Overdue b. Drawer or maker
b. No time for payment is indicated Example: Pay to the order of celine 3333. (sgd)b To c
c. Expressly made payable on demand I promise to pay to the order of W 1010. (sgd) W
A note payable to the order of the maker is not complete until indorsed
Example: expressly- On demand, pay to the order of Jack twenty by him.
thousand (php20,000). c. Drawee
Example: Pay to the order of yourself 12000. (sgd) Y To Yourself
To Chan (sgd) Clar Being both the drawee and payee, W(yourself) can pay himself on maturity from the funds
belonging to the drawer in his possession.
No time- Pay to the order of Jack twenty thousand pesos d. Two or more payees jointly
(Php20,000). Example: Pay to the order of J and D 40000.
e. One or more of several payees
To Chan (sgd) Clar Example: Pay to the order of J, H, and I 20000. / pay to the order of J, H,
and I or any of them or any two of them.
Overdue-
f. The holder of an office for the time being
Baguio City Example: Pay to the order of XYZ corp. president or pay to the order of
May 3, 2019 the COO (chief operating officer) of XYZ corp.
I promise to pay to kath or bearer eight thousand
pesos on june 12, 2019. 6
(sgd) pablo
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 NEGOTIABLE INSTRUMENTS
Where the instrument is payable to order, the payee must be named or 2. Mere defect in the language or gramatical error does not make it
otherwise indicated therein with reasonable certainty. non negotiable.

Instrument payable to a specified person is not an order instrument and

therefore non-negotiable. SECTION 11. Presumption of date
The date indicated in the instrument is PRESUMED to be the date when
SECTION 9 Payable to BEARER. it was made by the maker, drawn by the drawer, accepted by the
Bearer is a person in possession of a bill of exchange or note payable which is drawee, or indorsed by the payee or holder.
payable to bearer or legally qualifies as bearer instrument. Note that:
a. The date is necessary or material to determine the date of maturity
or date from which to start counting. (fixed period after date)
a. Expressly
b. The date of presentation is necessary to determine whether the
Example: Pay to bearer 20111
period indicated (fixed period after sight) will commence to run.
b. Person named or specified therein or bearer
Example: Pay to Jose or bearer 2587.
SECTION 12. ANTE DATED AND POST DATED
Note: a bearer instrument does not need indorsement can be merely by
Ante dated – contains a date earlier than the true date of issuance.
delivery
c. Fictitious person/Payee and such is known to the person making it Post-dated – a date later than the true date of its issuance.
payable. Ante dating and post dating is negotiable provided it is not done for an
Example: Pay to the order of Superman 3000. illegal or fraudulent purposes.
d. Name of the payee does not purport to the name of any person It may be negotiated before or after the date as long as it is not
negotiated after its maturity.
Example: Pay to the order of CASH.
e. When the only or last indorsement is an INDORSEMENT IN BLANK.
SECTION 13. INSERTION OF DATE
Any holder may insert the true date to determine the date of maturity.

SECTION 10. CRITERION OF NEGOTIABILITY

Insertion of the wrong date of a person having knowledge of the true
Note: to avoid uncertainty must conform with the form. But the law does not
date of issue or acceptance will AVOID the instrument as to him but not
require.
to a subsequent holder in due course for as to him the wrong date is the
to be regarded as the TRUE DATE.
1. Clear intention of the parties to make it negotiable, the law will give
force and effect.

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SECTION 14. INCOMPLETE AND DELIVERED (PERSONAL DEFENSE)
a. The person in possession has a prima facie authority to complete it by
filling up the blanks therein.
PROVIDED: it must be filled up with the authority given and within a
reasonable time.
b. The signature operates as a prima facie authority to the holder to fill it
up as such to any amount.
Note: But after completion, negotiated to a holder in due course (HIDC) it is valid
and effectual for all purposes in his hands, and can enforce it.
d. The time negotiated to him no infirmity or defect in the title of the
person negotiating it.
Liable to a HIDC as if it was filled up strictly in accordance with the authority
given.
SECTION 15. INCOMPLETE AND UNDELIVERED (REAL DEFENSE)
If it was completed and negotiated without authority the instrument is not
a valid contract in the hands of any holder. The instrument cannot be
enforced by the holder even a holder in due course against the person who
became the party thereto prior to the delivery.

SECTION 16. COMPLETE BUT UNDELIVERED (PERSONAL DEFENSE)

RULES
THERE MUST HAVE BEEN A DELIVERY BURT NOT EFFECTUAL (delivery was
1. AUTHORITY to fill up the blanks
made by a person not authorized.
Example: pay to the order of J PHP__________.
The delivery is only effectual if made by the drawer/maker
Authority to fill up does not include authority to alter.
(indorser/acceptor or anyone who is authorized by him. But it must be made
either BY THE AUTHORITY OR UNDER THE AUTHORITY GIVEN)
2. Authority to put any amount.
The instrument is COMPLETE but Contract involving the complete
To have the authority, payee must show that maker purpose is to
instrument is INCOMPLETE if there is NO DELIVERY.
convert the blank instrument into a negotiable instrument.
No authority considered FRAUD IN FACTUM
Kinds of delivery.
a. Conditional delivery – the happening of the suspensive condition the
3. Right against party prior to completion
delivery becomes effectual.
- May be enforced ONLY against a party prior to completion if filled
b. Delivery for a special purpose – to make the person to whom it is
up strictly in accordance with the authority given and within
delivered a TRUSTEE or DEPOSITARY special purpose of safekeeping.
reasonable time.
c. Delivery not intended to transfer title, it may transfer physical
- A holder not in due course cannot recover.
possession but not the title.

4. Rights of a HOLDER IN DUE COURSE

Q: What if there is no effectual delivery but it is in the hands of a holder in
a. Taken the instrument complete and regular upon its face
due course?
b. Became holder before it was overdue and w/o notice of dishonour
previously A: there is a conclusive presumption that there is a valid and intentional
c. Took it in good faith and for value delivery by all parties prior to him.

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a. He is duly authorized
IMMEDIATE PARTY b. He adds words in his signature that he signs as an agent.
- One who knows the defect/infirmity of the instrument c. He discloses his principal.

SECTION 21. SIGNATURE BY PROCURATION

REMOTE PARTY
- A party other than that holder in due course who is not aware of
the defect or infirmity of the instrument.
- One who received an instrument after overdue.
Section 17. Language of the instrument is ambiguous.
a. Sum denoted in words shall be considered if there are discrepancy. But
if the words is ambiguous or uncertain refer to the figures.
b. Interest will run from the date of issue or the date of the instrument.
c. Not Dated; dated as of the time it was issued.
d. Conflict between written and printed ; written will prevail
e. Note is ambiguous the holder may treat it as either at his election.
f. Signature placed upon the instrument not clear in what capacity he is
deemed an INDORSER
g. Word is “I promise to pay” signed by two or more persons, they are
deemed to be jointly and severally liable ( solidarily liable) but if the
word is “we promise to pay” signed by two or more person gives rise to
a joint liability where they are liable distinct and separate from each
other or they are liable proportionately.
SECTION 18. Liability of person signing in trade or assumed name
One who signs in a trade or assumed name is liable as if he signed
his own name. But he intends to be bound by his signature.
Example; ERap Estrada ; TS company
SECTION 19. SIGNATURE OF AGENT
SECTION 20. LIABLITY OF PERSON SIGNING AS AGENT
Not liable or can escape liability provided the ff.
Procuration
- The act by which the principal gives power to another to act in his
place as he could himself. (proxy)
- A waning that the agent has but a limited authority, so that it is the
duty of the person dealing with him to inquire into the extent of his
authority.
SECTION 22. EFFECT OF INDORSEMENT BY INFENT OR CORPORATION
1. MINORITY IS A REAL DEFENSE but if the minor actually guilty of actual
fraud he is bound by his signature.
2. Other incapacitated person (insane and demented persons) is a real
defense available even to a holder in due course.
3. Corporation is not liable on notes for the ULTRA VIRES acts or acts
beyond its powers.
SECTION 23. FORGERY (limited to the defect in the signature)
- Counterfeit – making of another’s signature with the intention to
constitute forgery.
- Signature obtained thru fraud (i.e fraud in factum)
Example: person signing a paper not knowing that the paper will be
made a negotiable instrument.
- Signature obtained thru irresistible force or uncontrollable fear.
(FRAUD IN INDUCEMENT)
- Signature place without authority.
FORGERY IS A REAL DEFENSE.

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4. That the instrument is at the time of his indorsement is valid and
EFFECT OF FORGERY subsisting.
1. The forge signature is rendered WHOLLY INOPERATIVE On due presentment, It shall be accepted or paid or both according
2. No right to retain the instrument to its tenor and if that be dishonoured he will pay the amount to
3. No right to enforce the instrument the holder or any subsequent indorser (even NHIDC) who may be
4. No right to give a discharge compelled to pay it.
- If the drawee banks pays then cannot debit against the drawer’s account.

SECTION 124: MATERIAL ALTERATION

WHO MAY BE LIABLE IN CASE OF FORGERY
EFFECTS:
1. The forger
2. The subsequent indorser. (For they warrants the instrument is genuine and in The instrument is AVOIDED except as to the person who assented
all respects what it purports to be.) or authorized the alteration
3. The acceptor or drawee who accepts an instrument where the signature of the The instrument cannot be enforced against the party who did not
drawer was forged. authorize nor assented to the alteration.
A HIDC can enforce the instrument according to its original tenor.
REMEDY: dishonour the instrument if there is a doubt in the signature. (but not as altered but only to its original tenor)

Section 65 QUALIFIED INDORSEMENT MATERIAL ALTERATION IS A REAL DEFENSE.

Requisites:
1. Warrants the instrument is genuine and in all respect what it purports Q: WHO MAY BE LIABLE?
to be. A: 1. THE PARTY WHO
2. He has a good title a) MADE
3. That all prior parties had a capacity to contract b) AUTHORIZED
4. He has no knowledge of any fact which woul impair the validity of the c) ASSENTED TO THE ALTERATION.
2. A subsequent indorser because of his warranty that the instrument is genuine ad in
instrument or render it valueless all respects what it purports to be.

SECTION 66 UNQUALIFIED/ GENERAL INDORSER ALTERATION FORGERY

Requisites:
1. Warrants the instrument is genuine and in all respect what it purports
to be.
2. He has a good title
3. That all prior parties had a capacity to contract

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1. IT REFERS TO ANY UNAUTHORIZED 1. IT PERTAINS TO UNAUTHORIZED
CHANGE. SIGNATURE.

2. THE INSTRUMENT IS AVOIDED. 2. THE FORGE SIGNATURE IS RENDERED

INOPERATIVE.
3. A HINC MAY RECOVER BUT IS LIMITED
ONLY AS TO THE ORIGINAL TENOR. 3. THE HIDC CANNOT RECOVER IN SOME
INSTANCES.

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