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INTRODUCTION o BOE: There is no person primarily liable
1. Kinds of Negotiable Instruments
(1) Promissory note – evidences a promise to pay money
a. Certificate of deposit – instrument issued by
a bank reciting a deposit of a certain sum of
money, payable either at a fixed time or on
demand, to the depositor named therein.
b. Bond – evidence of indebtedness issued by
a corporation, public or private, payable at a
definite date in the future, usually for a long
term.
(2) Bill of exchange – an order made by one person to
another to pay money to a third person
a. Check – always payable on demand
b. Draft – used mainly in transactions between
persons physically remote from each other.
It is an order made by one person (buyer)
addressed to a person having in his
possession funds of such buyer, ordering
the addressee to pay the purchase price to
the seller.
i. Bank draft – where the order is
made by one bank to another
bank
2. Parties and the Nature of their Liabilities
A. Parties
(1) To a promissory note
a. Promissor or maker
b. Payee
(2) To a bill of exchange
a. Drawer
b. Drawee
c. Payee
(3) When the payee of an instrument transfers it to
another by signing it at the back thereof, he is said to
have negotiated or endorsed the same and becomes
the indorser. The person to whom he negotiates it is
the indorsee, who becomes the holder of the
instrument. He may also negotiate it to another by
indorsement and so on.
A. Nature of their Liabilities
 Primarily liable party – the one who is absolutely and
unconditionally required to pay the instrument when it
falls due
o PN: The maker is the person primarily liable.
until and unless the drawee accepts the
order of the drawer to pay. When he does,
he becomes the acceptor who is absolutely
bound to pay. Acceptance is shown by a
signature.
 Secondarily liable party – liable should the primary
parties fail to pay (e.g. drawer of a BOE and indorsers
of either a BOE or PN). Their liability is conditioned on
two factors:
o That demand or presentment be duly made
on the primary party
o Should the said party dishonor (fail to pay or
accept) said instrument, that a notice of
dishonor be given to the secondary party
3. Functions of Negotiable Instruments
(1) as a substitute for money in payment for property or
services
(2) as a means of creating or transferring credit
(3) to facilitate the sale of goods
NCC Article 1249. The payment of debts in money shall be
made in the currency stipulated, and if it is not possible to
deliver such currency, then in the currency which is legal
tender in the Philippines.
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.
In the meantime, the action derived from the original
obligation shall be held in the abeyance.
4. The Concept of Negotiability
 This is the quality or attribute of a bill or note whereby
it may pass from hand to hand similar to money, so as
to give the holder in due course the right to hold the
instrument and collect the sum payable for himself
free from any infirmity in the instrument or defect in
the title of any of the prior parties, or defenses
available to them among themselves (Sec. 52, 57).
 The rule that one can pass no better title to personal
property than he himself has does not apply to
negotiable instruments. One who honestly and for
value acquires it from a thief or finder can hold it
against the world.
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5. The Origin of Negotiable Instruments
 The use of negotiable instruments originated from the
merchants and traders of the Middle Ages more
specifically among the Florentine and Venetian
merchants along the Adriatic sea.
 A (Venice, drawer) pays to  C (Venetian money
changer, addressee) writes a letter to  D (London,
correspondent with whom C has an account) pays to
 B (London, payee), armed with this letter, presents
it to D for payment.
o B may assign the letter but his transferee
would be able to collect only the balance after
D’s claim against B, if any, is deducted.

6. History of the NIL

 A verbatim reproduction of the Uniform Negotiable
Instruments Law of the US (1896), which in turn was
patterned after the English BOE Act (1882)
 Since its enactment in 1911, the NIL has not been
amended.
 In the US, however, during the first 50 years after the
Uniform Act, several changes were proposed. In 1958,
the Uniform Commercial Code was published
replacing the NIL in those states who have adopted it.

7. Applicability of the NIL

 Applies only to negotiable instruments (Sec. 1)
 Should any of the requisites be absent the instrument
would be governed not by the NIL but by the general
law on contracts.
 Any case not provided for shall be governed by the
rules of the Law Merchant (Sec. 196)
o Consists of certain principles of equity and
usages of trade which general convenience
and a common sense of justice have
established to regulate the dealings of
merchants and mariners in all the commercial
countries of the civilized world.

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CHAPTER I: REQUISITES OF NEGOTIABILITY
Section 1. Form of negotiable instruments. – An instrument to be
negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand, or at a fixed or determinable future
time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
Sec. 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.
Sec. 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.
Rivera v. Chua (2015) – Perez, J.
Rivera (obligor) argues that even assuming the validity of the
Promissory Note, demand was still necessary in order to charge him
liable thereunder. Rivera argues that it was grave error on the part of
the appellate court to apply Section 70 of the NIL.
Held: We agree that the subject promissory note is not a negotiable
instrument and the provisions of the NIL do not apply to this case.
The Promissory Note in this case is made out to specific persons,
herein respondents, the Spouses Chua, and not to order or to bearer,
or to the order of the Spouses Chua as payees. However, even if
Rivera’s Promissory Note is not a negotiable instrument and
therefore outside the coverage of Section 70 of the NIL which
provides that presentment for payment is not necessary to charge
the person liable on the instrument, Rivera is still liable under the
terms of the Promissory Note that he issued in accordance with NCC
Art 1169. It is expressly stipulated therein that upon failure to pay on
December 31, 1995, Rivera will pay an interest of 5% a monthly from
the date of default until the obligation is paid.
1. Written Form and Signature
Sec. 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
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signs in a trade or assumed name will be liable to the same extent as
if he had signed in his own name.
Sec. 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.
 The signature is binding so long as it is intended or
adopted as the signature of the signer or made with
his authority
 If it is not clear in what capacity the person intended to
sign, he is deemed an indorser, not a maker or a
drawer
2. Unconditional Order or Promise to Pay
 Mere acknowledgment does not constitute a promise.
Where a certain time of payment is stated or the
words “on demand” are used, there is a promise.
 A mere request or authority to pay does not constitute
an order.
o 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.
A. When unconditional
Sec. 3. When promise is unconditional. – An unqualified order or
promise to pay is unconditional within the meaning of this Act though
coupled with –
(a) An indication of a particular fund out of which
reimbursement is to be made, or a particular account to be
debited with the amount; or
(b) A statement of the transaction which gives rise to the
instrument.
But an order or promise to pay out of a particular fund is not
unconditional.
 Q: Shouldn’t all checks be non-negotiable, since their
payment is conditioned on the existence of funds in
the account drawn from?
o No. The un-conditionality refers to the
ORDER of the drawer.
 An order for payment out of a “particular fund” is not a
negotiable instrument. However, 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 will not render the amount
conditional.
 Unless reference to the fund clearly indicates an
intention that such fund alone should be the source of
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payment, courts usually decide in favor of
negotiability.
 Neither does the identification of the transaction for
which the instrument was issued make the promise or
order conditional (e.g. “as per contract”).
 The fact that the condition appearing on the
instrument has been fulfilled will not convert it into a
negotiable one.
Powell & Powell v. Greenleaf v. Currier (1930) – Slack, J.
FACTS:
The action is to recover the balance due on two instruments. The
instruments are of the following tenor:
 For and in consideration of a contract and agreement entered
into this day with us by Arthur A. Bishop & Co. of Boston, Mass.,
whereby we are entitled to the use of said company's system of
collections we hereby, for value received, promise to pay to said
Arthur A. Bishop & Co., or order, at their office in Boston, Mass.,
the sum of one hundred fifty dollars, in twelve equal monthly
payments of $12.50 each, the first monthly payment to be made
upon the signing of this contract note, and the remaining eleven
payments of $12.50 each to be made upon the same date of
each succeeding month; provided, however, that upon the
default on any one payment, the whole amount remaining then
unpaid shall at once become due and payable, and we hereby
acknowledge the receipt of a true copy of this entire agreement .
ISSUE/HELD:
Are these instruments negotiable, so that plaintiffs can maintain the
suit in their own names? YES
An instrument to be negotiable must contain, among other things, an
unconditional promise or order to pay a sum certain in money.
General Rule: Where a bill of exchange or promissory note contains
a reference to some extrinsic contract, such that the instrument is
made subject to the terms of said contract, the negotiability is
destroyed.
 However, it is well settled that negotiability is not affected by a
reference which is simply a recital of the consideration for which
the paper was given
 Or a statement of the origin of the transaction
 Or by a statement that it is given in accordance with the terms
of a contract of even date
To destroy negotiability, the reference to a collateral contract must
show that the obligation to pay is burdened with the conditions of that
contract.
Negotiability is NOT destroyed:
 By a statement that the note is part of a contract of a
certain date
 By a statement that the note is “for payment
 under contract of even date”
 By statement “in one machinery as per contract” after “For
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value received”
 By statement that note is one of a series “given in payment
of land described in a
 contract this day executed,”
 by statement “this note is given in accordance with a land
contract of even date between B and C
Here, the instruments contains 2 references to extrinsic contracts
(1) “For and in consideration of a contract and agreement
entered into this day with us by Arthur A. Bishop & Co. of
Boston, Mass., whereby we are entitled to the use of said
company's system of collection and we hereby, for value
received,” etc.,
 This is merely a recital of the consideration. This
does not affect negotiability
 Neither are instruments affected by the fact that
it appears therefrom that they were given for or
in consideration of service to be performed
 It cannot affect the negotiability of a note that its
consideration is to be hereafter realized, or that
from some contingency it may never be
enjoyed.”
(2) “we hereby acknowledge the receipt of a true copy of this
entire agreement.”
 This is a mere acknowledgement of the receipt of
a true copy of the entire agreement, nothing
more
It is argued that the instruments provide that first payment be made
upon the signing, hence not negotiable because the instrument must
be payable on demand or at a fixed or determinable future time
Payment is at a determinable future time within the meaning of the
statute. The signing determines the time, which is immediately after
Irving Trust Co. v. Leff (1930)
 Irving Trust Company (ITC) filed an action for a balance
of $4,933 with interest due on a promissory note made
by Joe Leff for $10,000.
 Leff answered, with a counterclaim for $1,000. He alleged
that Leff delivered to one Bragin a check in the sum of
$1,000, drawn on ITC and having on its face the following
words: ‘Void unless and until title to premises 502-14
Liberty Street, Camden, New Jersey is taken by Joe Leff’.
 Leff further alleged that the instrument was stolen from him
by Bragin and that the same had been paid by ITC without
inquiring as to whether the condition had been met.
Held:
 The check (order on the bank) was non-negotiable
because it did not contain an unconditional promise to pay.
The bank of course took a chance in paying that the
condition had been performed.
 To sustain ITC’s recovery herein, the check must have had
a valid inception. A check has no valid inception until
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delivery. Because it was non-negotiable, an allegation of
theft puts in issue the delivery of the checks. The
counterclaim must be given due course and not struck out.
3. Sum Payable Must be Certain
Sec. 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.
 An agreement to pay interest does not render the sum
uncertain if the exact amount thereof can be
computed without looking beyond the instrument.
 A stipulation to pay a higher rate of interest if not paid
at maturity or a lower rate if paid on or before maturity
does not render the instrument non-negotiable since it
is entirely without force until either the maturity thereof
or its payment before maturity.
 A provision for attorney’s fees but leaving the amount
thereof blank does not make the instrument non-
negotiable
4. Payable in Money
 Not negotiable if payable in personal property like
merchandise, shares of stock, or gold.
 If there is a stipulation that payment is to be made in a
currency other than PH currency, the stipulation is
ineffective but the negotiability of the instrument is not
affected.
 An instrument which contains an order/promise to do
an act in addition to payment of money is not
negotiable (e.g. to pay taxes assessed upon the note
or its mortgage security)
 But if it gives the holder an election to require
something to be done in lieu of payment, it
negotiability would not be affected thereby.
 But if the option to pay money or something in lieu
thereof is with the person primarily liable, the
instrument is not negotiable.
Incitti v. Ferrante (1933) – Del Mar, Judge.
Plaintiff sued defendants upon a PN allegedly made by defendants
for the sum of “15,400 Italian lires.”
Defendants move to strike out the complaint for lack of cause of
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action—that the note is not negotiable and therefore must allege a
consideration which it does not do.
Held: The contract sued on here is a contract for the payment of
money and not a commodity. It is also a contract for the payment of
Italian lire and, therefore, within the purview of the act of 1894, supra,
under which act the value of this foreign coin in money of the United
States is established by the Director of the Mint and proclaimed by
the Secretary of the Treasury. This note was made for a sum certain,
because a note for any number of Italian lire is only another form of
expression for the equivalent in dollars, which equivalent is now
established under the authority of the legislation previously referred
to.
Motion to strike out complaint denied.
5. Certainty of Time of Payment
A. When payable on demand
Sec. 7. When payable on demand. – An instrument is payable on
demand –
(a) When it is expressed to be so payable on demand, or at
sight, or on presentation; or
(b) In which no time for payment is expressed.
Where an instrument is issued, accepted, or indorsed when overdue,
it is, as regards the person so issuing, accepting, or indorsing it,
payable on demand.
 The maker likewise has an option to pay at any time,
and the refusal of the holder to accept will terminate
the running of interest. However, the obligation to pay
the note remains.
B. Payable at a fixed time
 Should the holder fail to demand payment on the fixed
date, the instrument becomes overdue but remains
valid and negotiable. It merely is converted to a
demand instrument.
C. Payable at a determinable future time
Sec. 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 –
(a) At a fixed period after date or sight; or
(b) On or before a fixed or determinable future time specified
therein; or
(c) 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.
An instrument payable upon a contingency is not negotiable and the
happening of the event does not cure the defect.
Sec. 11. Date, presumption as to. – Where the instrument or an
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acceptance or any indorsement thereon is dated, such date is
deemed prima facie to be the true date of the making, drawing,
acceptance, or indorsement, as the case may be.
Sec. 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 and also in
figures and 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, and 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 and 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 and severally liable thereon.
D. Effect of acceleration provisions
 Where the option to accelerate the maturity is on the
maker, the negotiability is not affected (Sec. 4(b))
 Where the acceleration is at the option of the holder:
o Negotiability is not affected: if the option can
be exercised only upon the happening of a
specified event or act over which he has no
control
o Not negotiable: if the right to exercise the
option is unconditional, in which case the time
of payment is rendered uncertain
Rehabilitation Finance Corporation v. CA (1954) – Concepcion, J.
Jesus de Anduiza borrowed money from petitioner. This was
evidenced by a negotiable PN in the amount of P13,800 payable in
10 equal installments. Anduiza failed to pay the yearly amortizations
that fell due on Oct. 31, 1942 and 1943.
Madrid thus offered to pay and actually paid the full amount of the
obligation to petitioner. He then sued RFC after it refused to cancel
the mortgage of Anduiza’s properties which were given as security
for the loan.
RFC claims that the payment made by Madrid on Oct. 4, 1944 of the
full amount of the obligation was not valid due to the fact that the
same was not yet due and demandable then. The PN provides that
the amount be paid “on or before Oct. 31, 1951.”
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Held: Although the full amount was not demandable before Oct. 31,
in view of the provision relative to payment in 10 installment, it’s clear
that the makers or debtors were entitled to make a complete
settlement of the obligation at any time before said date.
Utah State Nat’l Bank v. Smith (1919) – Wilbur, J.
USNB, claiming to be bona fide purchasers for value of a negotiable
PN, brought this action against the makers to enforce its payment.
Defendants claim the note is non-negotiable, on the basis of the ff.
provision accelerating the due date for default:
“If the interest is not paid when due, then both principal and interest
shall become due at the option of the holder”
Held: The note is negotiable. Under the law merchant the clause
accelerating the due date did not destroy its negotiability. It is still
payable at a “determinable future time.” This could be on
determinable at some time in the future, as well as one determinable
at present, or in advance.
Puget Sound State Bank v. Washington Paving Co.
The PSSB seeks recovery upon two PNs executed by WPC, each for
$5k payable to its own order, 90 days after date thereafter
transferred by it to the Olympia Bank & Trust Co. by indorsements
making them payable to its order and thereafter transferred by
delivery only, without indorsement, to PSSB.
The lower court ruled that defendants were entitled to set off against
the amount due on the PNs to PSSB a greater amount which was
owing to the WPC from Olympia upon a deposit credit at the time of
the transfer of the notes by that bank to PSSB.
Issue: Is PSSB wholly in the shoes of Olympia? If so, are the notes
negotiable in the sense that their transfer to PSSB destroys the
defense of set-off?
Held: The PNs contain the provision that they shall become due and
payable on demand at the option of the payee (Olympia) at any time
before maturity, a contingency over which the maker has no control.
This does not make them demand notes. They are non-negotiable
and therefore subject to any defense the paying company may have
against them existing at the time of their transfer to PSSB.
Henry v. Madison
Henry sued Madison upon an express contract and in connection
garnished the bank. The principal defendant had in the bank three
checking accounts, in the aggregate of $958.02. The bank held two
notes, $3k each, payable in installments at specified dates. The
notes contained an acceleration clause: “Failure to pay any
installment as the same becomes due shall render the entire
obligation then due and payable.”
Installments were not paid on the due dates. When payment was
made, there was merely an acceptance and an indorsement of the
payments of the notes. Nothing was said about extending the time of
payment or waiving the defaults. The garnishment summons were
later served on August 15 and the bank thereupon applied the
amounts of the deposits upon the notes.
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Issue: Did the bank waive its right to consider the notes as being
matured on August 15, 1932?
Held: No. The notes were due as a matter of law at the time the
summons were served, so the bank had the right to apply the
deposits as part payment thereon.
There was no extension or waiver of the unpaid installment. The
acceleration clause operated and the entire amount was due. To hold
otherwise would be to compel the parties to enter into a contract they
did not intend rather than to uphold the clauses of the contract which
they intended to enter.
E. Provisions extending time of payment
 Sometimes just another form of acceleration at the
option of the maker – would not affect negotiability
 Where a note with fixed maturity provides that the
maker has the option to extend the payment until the
happening of a contingency – non-negotiable (Sec. 4
par. 2). The time for payment may never come at all.
State Bank of Halstad v. Bilstad
Two promissory notes payable to the order of Fred B. Lawrence,
which the appellant Bank seeks to recover on, contained the
provision, “It is agreed that if crop […] is below 8 bushels per acre
this note shall be extended one year.” One was due on December
12, 1905 and the other on December 1, 1907.
Appellee argues that the PNs are non-negotiable because they were
not due upon a fixed or determinable future time.
Held: This still falls within the definition of a “determinable future
time” as it can be certainly determined after the execution of the note;
by its terms, the instrument must necessarily become due at some
future time, although the exact time be not then known. This differs
from a contingency, which is an event that may or may not happen.
Note: What is the event that is certain to happen here? It’s the
harvest. The extension will only depend on the amount of the
harvest.
Security Nat’l Bank of Sioux City v. Gunderson
The PN in suit contains “The makers, indorsers, and guarantors of
this note, and the sureties hereon, severally waive presentment for
payment, protest and notice of dishonor, and consent that the time of
its payment may be extended without notice, all defenses on the
ground of any extension of time of payment being hereby expressly
waived.”
Held: The note is negotiable. What was meant by the stipulation as to
the extension of time was simply that in case the holder and the
maker should agree upon an extension, the sureties and indorsers
should not be discharged. The holder and maker of any note may at
any time agree upon an extension; therefore the fact that they have
that right does not affect the negotiability of the paper.
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Provision that payment might be extended without notice and waiving
defenses by reason thereof was held by the Court not to make note
nonnegotiable.
6. Must be Payable to Order or Bearer
 These words serve as an expression of consent that
the instrument may be transferred.
 Bearer instrument – may be negotiated by mere
delivery
 Order instrument – requires not only a delivery but
also the indorsement of the transferor to be negotiated
A. When instrument is payable to order
Sec. 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.
Where the instrument is payable to order, the payee must be named
or otherwise indicated therein with reasonable certainty.
 Without the words “to order” or “to the order of,” the
instrument is payable only to the person designated
therein and therefore non-negotiable. Any subsequent
purchaser thereof will merely “step into the shoes” of
the person designated in the indorsement.
B. When instrument is payable to bearer
Sec. 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.
 A note payable to the order of an estate of a person
still alive – falls under Sec. 9 (b)
 A note payable to the order of an estate of an already
deceased person – falls under Sec. 9 (d)
 If the maker or drawer is not aware that the person he
named as payee is fictitious or non-existing, the
instrument is an order one.
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 “Pay to cash” or “pay to sundries” – examples of Sec.
9 (d)
Traders Royal Bank v. CA (1997)
Defendant Filriters is the registered owner of Central Bank Certificate
of Indebtedness (CBCI) No. D891. Under a deed of assignment
dated November 27, 1971, Filriters transferred CBCI No. D891 to
Philfinance. Subsequently, Philfinance transferred CBCI No. D891,
which was still registered in the name of Filriters, to appellant Traders
Royal Bank (TRB). The transfer was made under a repurchase
agreement dated February 4, 1981, granting Philfinance the right to
repurchase the instrument on or before April 27, 1981. When
Philfinance failed to buy back the note on maturity date, it executed a
deed of assignment, dated April 27, 1981, conveying to appellant
TRB all its right and the title to CBCI No. D891.
Armed with the deed of assignment, TRB then sought the transfer
and registration of CBCI No. D891 in its name. Central Bank,
however, refused to effect the transfer and registration in view of an
adverse claim filed by defendant Filriters.
TRB filed a special civil action for mandamus against the Central
Bank in the RTC Manila. The lower court ruled that the assignment to
Philfinance was fictitious and thus the subsequent transfer to TRB
was null and void. Failing to get a favorable judgment, TRB comes to
the SC on appeal.
Issue: Is the CBCI a negotiable instrument, allowing TRB to have
acquired it as a holder in due course?
Held: The CBCI is not a negotiable instrument in the absence of
words of negotiability within the meaning of the NIL. As worded, the
instrument provides a promise "to pay Filriters Guaranty Assurance
Corporation, the registered owner hereof." Very clearly, the
instrument is payable only to Filriters, the registered owner, whose
name is inscribed thereon.
 The Central Bank of the Philippines (the Bank) for
value received, hereby promises to pay bearer, of if
this Certificate of indebtedness be registered, to
FILRITERS GUARANTY ASSURANCE
CORPORATION, the registered owner hereof, the
principal sum of FIVE HUNDRED THOUSAND
PESOS.
A certificate of indebtedness pertains to certificates for the creation
and maintenance of a permanent improvement revolving fund, is
similar to a "bond.” Being equivalent to a bond, it is properly
understood as acknowledgment of an obligation to pay a fixed sum of
money. It is usually used for the purpose of long term loans.
PNB v. Sps Rodriguez (2008)
Facts:
 Respondent-Sps Rodriguez were clients of petitioner
PNB. Sps Rodriguez were engaged in the informal
lending business. In line with their business, they had
a discounting3 arrangement with the PEMSLA, an
association of PNB employees. PEMSLA was likewise
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a client of PNB.
 PEMSLA regularly granted loans to its members.
Spouses Rodriguez would rediscount the postdated
checks issued to members whenever the association
was short of funds. As was customary, the spouses
would replace the postdated checks with their own
checks issued in the name of the members.
 It was PEMSLA’s policy not to approve applications
for loans of members with outstanding debts. To
subvert this policy, some PEMSLA officers took out
loans in the names of unknowing members, without
the knowledge or consent of the latter. The PEMSLA
checks issued for these loans were then given to the
spouses for rediscounting.
 In return, the spouses issued their personal checks
(Rodriguez checks) in the name of the members and
delivered the checks to an officer of PEMSLA. The
PEMSLA checks, on the other hand, were deposited
by the spouses to their account
 Rodriguez checks were deposited directly by PEMSLA
to its savings account without any indorsement from
the named payees. This was an irregular procedure
made possible through the facilitation of Edmundo
Palermo, Jr., treasurer of PEMSLA and bank teller in
the PNB Branch. It appears that this became the usual
practice for the parties
 Spouses issued 69 checks, in the total amount of
P2,345,804.00. These were payable to 47 individual
payees who were all members of PEMSLA.
 Petitioner PNB found out and closed the current
account of PEMSLA. As a result, the PEMSLA checks
deposited by the spouses were returned or
dishonored for the reason "Account Closed." The
corresponding Rodriguez checks, however, were
deposited as usual to the PEMSLA savings account.
The amounts were duly debited from the Rodriguez
account. Thus, because the PEMSLA checks given as
payment were returned, spouses Rodriguez incurred
losses from the rediscounting transactions.
Held:
1. Are the checks payable to order or to bearer? – ORDER
 When the payee is fictitious or not intended to be the
true recipient of the proceeds, the check is considered
as a bearer instrument. A check is "a bill of exchange
drawn on a bank payable on demand." It is either an
order or a bearer instrument.
 A check that is payable to a specified payee is an
order instrument. However, under Section 9(c) of the
NIL, a check payable to a specified payee may
nevertheless be considered as a bearer instrument if
it is payable to the order of a fictitious or non-existing
person, and such fact is known to the person making
it so payable
 An actual, existing, and living payee may also be
"fictitious" if the maker of the check did not intend for
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the payee to in fact receive the proceeds of the check.
(AmJur)
 In a fictitious-payee situation, the drawee bank is
absolved from liability and 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. Thus, in
case of controversy, the drawer of the check will bear
the loss. This rule is justified for otherwise, it will be
most convenient for the maker who desires to escape
payment of the check to always deny the validity of
the indorsement. This despite the fact that the
fictitious payee was purposely named without any
intention that the payee should receive the proceeds
of the check. The rule protects the depositary bank
and assigns the loss to the drawer of the check who
was in a better position to prevent the loss in the first
place. Due care is not even required from the drawee
or depositary bank in accepting and paying the
checks.
 EXCEPTION: Commercial Bad Faith
o 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.
2. Should PNB bear the loss? – YES
 For the fictitious-payee rule to be available as a
defense, PNB must show that the makers did not
intend for the named payees to be part of the
transaction involving the checks. At most, the bank’s
thesis shows that the payees did not have knowledge
of the existence of the checks. This lack of knowledge
on the part of the payees, however, was not
tantamount to a lack of intention on the part of
respondents-spouses that the payees would not
receive the checks’ proceeds. Considering that
respondents-spouses were transacting with PEMSLA
and not the individual payees, it is understandable
that they relied on the information given by the officers
of PEMSLA that the payees would be receiving the
checks
 Verily, the subject checks are presumed order
instruments. This is because, as found by both lower
courts, PNB failed to present sufficient evidence to
defeat the claim of respondents-spouses that the
named payees were the intended recipients of the
checks’ proceeds. The bank failed to satisfy a
requisite condition of a fictitious-payee situation – that
the maker of the check intended for the payee to have
no interest in the transaction.
 Because of a failure to show that the payees were
"fictitious" in its broader sense, the fictitious-payee
rule does not apply. Thus, the checks are to be
deemed payable to order. Consequently, the drawee
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bank bears the loss
 PNB was remiss in its duty as the drawee bank. It
does not dispute the fact that its teller or tellers
accepted the 69 checks for deposit to the PEMSLA
account even without any indorsement from the
named payees. It bears stressing that order
instruments can only be negotiated with a valid
indorsement
 A bank that regularly processes checks that are
neither payable to the customer nor duly indorsed by
the payee is apparently grossly negligent in its
operations.
Wettlaufer v. Baxter (1910)
The case is an action by the holder against the payee-indorser of the
note. Baxter was the holder of a note that read, “we promise to pay to
Newton J. Baxter, $250…” He wrote his name on the blank of the
note and discounted it with Wettlaufer. It was dishonored on
presentment. Wettlaufer sued Baxter.
Held: This note, which was payable to Baxter alone, and did not
contain the words “to order” or “bearer,” was not a negotiable
instrument.
GR: The usual form of a negotiable instrument has a provision for
payment to “order” or “bearer.” Words like these are necessary for
negotiability and are required by statute.
EXC: A note which is non-negotiable due to the lack of such words is
still valid and may be declared on. The Court also held that Baxter’s
indorsement did not convert the note into a negotiable instrument.
The statutory provision that “the instrument is payable to bearer
when the only or last indorsement is an indorsement in blank” does
not mean that an indorsement in blank converts a non-negotiable
note (on its face and by its terms) into a negotiable one. This
provision considers the situation where a note negotiable on its face
might become payable to bearer. It does not apply to notes that are
not negotiable.
Ang Tek Lian v. CA (1950)
Facts:
Ang Tek Lian, knowing he had no funds therefor, drew a check upon
the China Banking Corporation for the sum of P4,000 payable to the
order of “cash.” He delivered the check to Lee Hua Hong in
exchange of money which the latter handed on the act. The next
business day, Lee Hua Hong presented the check to the drawee
bank for payment, but it was dishonored for insufficiency of funds.
In consequence, Ang Tek Lian was made liable for swindling, which
is punished under Article 315, paragraph (d), subsection 2 of the
RPC. In his defense, Ang Tek Lian argued that as the check had
been made payable to “cash” and had not been endorsed by Ang
Tek Lian, then he is not guilty of the offense charged. He said that by
uniform practice of all banks in the Philippines, a check so drawn is
invariably dishonored. When, therefore, Lee Hua Hong accepted the
check from Ang Tek Lian, he did so with full knowledge that it would
9

be dishonored upon presentment. Hence, Ang Tek Lian could not be
said to have acted fraudulently because the Lee Hua Hong, in so
accepting the check as it was drawn, must be considered to have
done so fully aware of the risk he was running thereby.
Issue: Whether or not the check was validly issued by Ang Tek Lian
to make him liable for it.
Held: It was validly issued. Under NIL Section 9(d), a check drawn
payable to the order of “cash” is a check payable to bearer, and the
bank may pay it to the person presenting it for payment without the
drawer’s indorsement. Where a check is payable to the order of
“cash,” the word cash does not purport to be the name of any person,
hence the instrument is payable to bearer. The drawee bank did not
obtain any indorsement of the check, but may pay it to the person
presenting it without indorsement.
Vistan v. Ng Wee (2017)
Ng Wee was enticed to make money placements with Wincorp.
Offered to him were “sans recourse” transactions with the following
mechanics:
A corporate borrower who needs financial assistance or funding to
run its business or to serve as working capital is screened by
Wincorp. Once it qualifies as an accredited borrower, Wincorp enters
into a Credit Line Agreement for a specific amount with the
corporation which the latter can draw upon in a series of availments
over a period of time. The agreement stipulates that Wincorp shall
extend a credit facility on "best effort" basis and that every drawdown
by the accredited borrower shall be evidenced by a promissory note
executed in favor of Wincorp and/or the investor/s who has/have
agreed to extend the credit facility. Wincorp then scouts for investors
willing to provide the funds needed by the accredited borrower. The
investor is matched with the accredited borrower. An investor who
provides the fund is issued a Confirmation Advice which indicates the
amount of his investment, the due date, the term, the yield, the
maturity and the name of the borrower.
Unknown to Ng Wee, however, was that on the very same dates the
Credit Line Agreement and its subsequent Amendment were entered
into by Wincorp and Power Merge, Side Agreements were likewise
executed by the two corporations absolving Power Merge of liability
as regards the Promissory Notes it issued.
Despite repeated demands, Ng Wee was not able to collect Power
Merge's outstanding obligation under the Confirmation Advices in the
amount of ₱213,290,410.36. This prompted Ng Wee, on October 19,
2000, to institute a Complaint for Sum of Money with Damages
Held: Virata, majority stockholder of Power Merge, is liable for the
Promissory Notes even as an accommodation party.
A promissory note is a specie of negotiable instruments. Under
Section 60 of the Negotiable Instruments Law, the maker of a
promissory note engages that he will pay it according to its tenor. In
this case, the Promissory Notes executed by Virata in behalf of
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Power Merge are couched in the following wise:
PROMISSORY NOTE
For value received, I/We ____________________, hereby promise
to pay WESTMONT INVESTMENT
CORPORATION (WINCORP), either for itself or as agent for and on
behalf of certain INVESTORS who have placed/invested funds
with WINCORP the principal sum of ________________
(__________), Philippine Currency, on _______ with interest rate of
___________ percent (___%) per annum, or equivalently the
Maturity Amount of ______________ PESOS
(______________)Philippine Currency. (emphasis added)
It is crystal clear that Power Merge, through Virata, obligated itself to
pay Wincorp and those who invested through it the values stated in
the Promissory Notes.
Virata postulates that he merely executed the Promissory Notes on
behalf of Power Merge as an accommodation for Wincorp, and that
neither he nor Power Merge received any pecuniary benefit from the
credit facility. He thus claims that he and Power Merge cannot be
held liable for the Promissory Notes that were executed.
The argument is specious.
On its face, the documentary evidence on record reveals that Power
Merge actually received the proceeds from the Credit Line
Agreement. But even if We assume for the sake of argument that
Power Merge, through Virata, is as a mere accommodation party
under the Promissory Notes, liability would still attach to them in
favor of the holder of the instrument for value.
In Gonzales v. Philippine Commercial and International Bankthe
Court held that an accommodation party lends his name to enable
the accommodated party to obtain credit or to raise money; he
receives no part of the consideration for the instrument but assumes
liability to the other party or parties thereto. Prescinding from the
foregoing, an accommodation party is one who meets all the
following three requisites, viz:
(1) he must be a party to the instrument, signing as maker, drawer,
acceptor, or indorser;
(2) he must not receive value therefor; and
(3) he must sign for the purpose of lending his name or credit to
some other person.
The first element, that Power Merge, through Virata, executed the
Promissory Notes as maker cannot be disputed. Meanwhile,
petitioners would have the Court hypothetically admit that they did
not receive the proceeds from the drawdowns, in satisfaction of the
second requisite. And lastly, this was allegedly done for the purpose
of lending its name to conceal Wincorp's direct borrowing from its
clients.
In gratia argumenti that the above elements are established facts
herein, liability will still attach to the accommodation parties pursuant
to Sec. 29 of the Negotiable Instruments Law. The provision states:
Sec. 29. Liability of accommodation party. - An accommodation party
10

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.
The basis for the liability under Section 29 is the underlying relation
between the accommodated party and the accommodation party,
which is one of principal and surety.
In a similar fashion, the accommodation party cum surety in a
negotiable instrument is deemed an original promisor and debtor
from the beginning; he is considered in law as the same party as the
debtor in relation to whatever is adjudged touching the obligation of
the latter since their liabilities are so interwoven as to be inseparable.
It is beyond cavil then that Power Merge and Virata can be held liable
for the amounts stated in the Promissory Notes. Consequently, they
are also liable for the assignment to Ng Wee of portions thereof as
embodied in the Confirmation Advices.
7. Parties Must be Designated with Certainty
A. Maker and drawer
 The maker or drawer must sign the instrument, and
his signature is usually written at the lower right-hand
corner thereof
 The drawee’s name is usually written on the lower left-
hand corner, although in checks the bank’s name
sometimes appears across top
B. Payee
 An instrument may be made payable to anyone of the
ff. as payees:
(1) Payable to the order of the payee who is not a
maker, drawer or drawee.
(2) Payable to the order of the maker or drawer
(3) Payable to the order of the drawee.
(4) Payable to two or more payees jointly.
(5) Payable to one or some of several payees in the
alternative.
(6) Payable to the holder of an office for the time
being.
C. Drawee
Sec. 128. Bill addressed to more than one drawee. – A bill may be
addressed to two or more drawees jointly, whether they are partners
or not; but not to two or more drawees in the alternative or in
succession.
Sec. 130. When bill may be treated as promissory note. – Where in a
bill the drawer and drawee are the same person, or where the
drawee is a fictitious person, or a person not having capacity to
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contract, the holder may treat the instrument, at his option, either as
a bill of exchange or as a promissory note.
 It may not be addressed to two or more drawees in
the alternative or in the successive.
 Where the drawer = drawee, or where the drawee is a
fictitious person or a person having no capacity to
contract, the holder may treat the instrument as either
a bill or a note, because otherwise no one can ever
be made primarily liable on the bill. Since the drawer
named the drawee, it is assumed he intended to be
primarily liable himself.
 If the bill names no drawee but is accepted by a third
party, although the issuer of the bill cannot be held as
drawer, the acceptor could be held as maker  PN
8. Provisions Not Affecting Negotiability
Sec. 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.
 Does not affect negotiability:
o A statement that the collateral may be sold
for discharging the debt, thus discharging the
instrument itself. An authorization however
which empowers the holder to sell the
collateral before maturity renders it non-
negotiable.
o A clause which waives the rights of
secondary parties to have the instrument duly
presented for payment, and to due notice of
dishonor and protest
o The fact that the instrument bears a seal or
designates a particular kind of current money
in which payment is to be made
PNB v. Manila Oil Refining & By-Products Co. (1922)
Facts: Manila Oil Refining and By-‐Products company, through its
Manager and Treasurer, executed and delivered a promissory note in
favor of PNB containing a provision which states that in case the
same is not paid at maturity, the maker authorizes any attorney to
11

appear and confess judgment thereon for the principal amount, with
interest, costs, and attorney's fees, and waives all errors, rights to
inquisition, and appeal, and all property exceptions.
Issue: Whether or not the stipulation is valid.
Held: It is not valid. Neither the Code of Civil Procedure nor any other
remedial statute expressly or tacitly recognizes a confession of
judgment commonly called a judgment note. On the contrary, the
provisions of the Code of Civil Procedure, in relation to constitutional
safeguards relating to the right to take a man's property only after a
day in court and after due process of law, contemplate that all
defendants shall have an opportunity to be heard.
The attorney for PNB contends that the NIL expressly recognizes
judgment notes, and that they are enforcible under the regular
procedure. The NIL, in section 5, provides that "The negotiable
character of an instrument otherwise negotiable is not affected by a
provision which ". . . (b) Authorizes a confession of judgment if the
instrument be not paid at maturity." We do not believe, however, that
this provision of law can be taken to sanction judgments by
confession, because it is a portion of a uniform law which merely
provides that, in jurisdiction where judgment notes are recognized,
such clauses shall not affect the negotiable character of the
instrument. Moreover, the same section of the law concludes with
these words: "But nothing in this section shall validate any provision
or stipulation otherwise illegal."
Notes:
2 kinds of judgment by confession
1. COGNOVIT ACTIONEM – A defendant’s written confession of
action against him; impliedly authorizes plaintiff’s attorney to
sign judgment and issue execution
2. RELICTA VERIFICATIONE – A confession of judgment made
after plea pleaded
Pacheco v. CA (1999)
Facts: Pacheco spouses were engaged in a construction business. In
1989, they obtained a series of loans from Mrs. Luz Vicencio which
amounted to P85,000 at an interest of 10%. Instead of merely
requiring a note of indebtedness, Mrs. Vicencio required the Pacheco
spouses to issue undated checks (there were a total of 6 checks
issued) as evidence of the loan which allegedly will not be presented
to the bank. Despite being informed by petitioners that their bank
account no longer had any funds, Mrs. Vicencio insisted that the
spouses must issue the checks, which according to her were only for
formality. Thus, petitioner Virginia Pacheco issued the undated
checks in order to secure the loan. The checks were given with the
understanding that they were not to be encashed but were merely
intended as en evidence of indebtedness which cannot be
negotiated.
Of the P85,000 loan, Pacheco spouses were able to settle P70,000.
When the remaining balance of P15,000.00 on the loans became
due and demandable, petitioners were not able to pay despite
demands to do so. On August 3, 1992, Mrs. Vicencio together with
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her husband (a former judge) and their daughter Lucille, went to
petitioners' residence to persuade Virginia to place the date "August
15, 1992" on checks nos. 101756 and 101774, although said checks
were respectively given undated to Mrs. Vicencio on May 17, 1989
and July 21, 1989. Check no. 101756 was required by Mrs. Vicencio
to be dated as additional guarantee for the P15,000.00 unpaid
balance allegedly under check no. 101774. Despite being informed
by petitioner Virginia that their account with RCBC had been closed
as early as August 17, 1989, Mrs. Vicencio and her daughter insisted
that she place a date on the checks allegedly so that it will become
evidence of their indebtedness. The former reluctantly wrote the date
on the checks for fear that she might not be able to obtain future
loans from Mrs. Vicencio.
Later, petitioners were surprised to receive on August 29, 1992 a
demand letter from Mr. Vicencio spouse informing them that the
checks when presented for payment on August 25, 1992 were
dishonored due to "Account Closed". Consequently, upon the
complaint of Mr. Vicencio, with whom petitioners never had any
transaction, two informations for estafa, defined in Article 315 (2) (d)
of the Revised Penal Code, were filed against them. The
informations which were amended on April 1, 1993 alleged that
petitioners "through fraud and false pretenses and in payment of a
diamond ring (gold necklace)" issued checks which when presented
for payment were dishonored due to account closed. After entering a
plea of not guilty during arraignment, petitioners were tried and
sentenced to suffer imprisonment and ordered to indemnify the
complainant in the total amount of P25,000.00. On appeal, the CA
affirmed the decision of the court a quo. Hence this petition.
Issue: Whether or not the Pacheco spouses are guilty of estafa when
they issued the checks.
Held: They are not guilty. The essential elements in order to sustain
a conviction under Article 315, paragraph 2(d) of the RPC are:
(1) that the offender postdated or issued a check in payment of an
payment obligation contracted at the time the check was issued;
(2) that such postdating or issuing a check was done when the
offender had no funds in the bank, or his funds deposited therein
were not sufficient to cover the amount of the check;
(3) deceit or damage to the payee thereof.
The first and third elements are not present in this case. A check has
the character of negotiability and at the same time it constitutes an
evidence of indebtedness. By mutual agreement of the parties, the
negotiable character of a check may be waived and the instrument
may be treated simply as proof of an obligation. There cannot be
deceit on the part of the obligor, petitioners herein, because they
agreed with the obligee at the time of the issuance and postdating of
the checks that the same shall not be encashed or presented to the
banks.
Side notes: The Vicencio spouses need not even ask the petitioners
to place a date on the check, because as holder of the check, he
could have inserted the date pursuant to Section 13 of the NIL. As
stated in Section 14 thereof, Mrs. Vicencio, as the person in
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possession of the check, has prima facie authority to complete it by
filling up the blanks therein. Besides, pursuant to Section 12 of the
same law, a negotiable instrument is not rendered invalid by reason
only that it is antedated or postdated.
A check must be presented within a reasonable time from issue. By
current banking practice, a check becomes stale after more than 6
months. In fact a check long overdue for more than two and one-‐half
years is considered stale.
9. Omissions Not Affecting Negotiability
Sec. 6. Omission; seal; particular money. – The validity and
negotiable character of an instrument are not affected by the fact that
– It is not dated; or Does not specify the value given; or Does not
specify the place where it is drawn or the place where it is payable;
or Bears a seal; or 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.
Evangelista v. Mercator Finance (2003)
Facts: Sps. Evangelista and Embassy Farms, Inc. executed a real
estate mortgage over 5 parcels of land owned by the Evangelista
sps. in favor of Mercator Financing Corp. When Mercator foreclosed
the mortgage and subsequently sold the properties, they sought the
annulment of the new titles on the ground that the mortgage is void.
They said that they signed the note as officers of Embassy Farms;
that the mortgage was without any consideration as to them since
they did not personally obtain any loan or credit accommodation.
For its part, Mercator Finance alleged that the petitioners signed the
promissory note as co-makers, thereby making themselves solidarily
liable with Embassy Farms. Due to their failure to pay the obligation,
the foreclosure and subsequent sale of the mortgaged properties are
valid.
Issue: Whether or not the Petitioners bound themselves to be
solidarily liable on the note.
Held: The Petitioners were solidarily liable. The first promissory note,
and the notes subsequently executed by the petitioners, show that
the petitioners bound themselves to be “jointly and severally liable” to
pay Mercator Finance P844,625.78. There was no ambiguity in the
note; hence, an interpretation by the court is unnecessary. Courts
can interpret a contract only if there is doubt in its letter. Section
17(g) of NIL states: “Where an instrument containing the word ‘I
promise to pay’ is signed by 2 or more persons, they are deemed to
be jointly and severally liable thereon.” Even if they did intend only to
sign as officers of Embassy Farms, still this does not erase the fact
that they subsequently entered into a continuing surety agreement.
10. Rules of Constructions
Sec. 17. Construction where instrument is ambiguous. – Where the
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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 and also in
figures and 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, and 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 and 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 and severally liable thereon.
Continental Illinois Bank & Trust Co v. Clement
The case concerns a promissory note that was signed by Clement
and Thorpe. The case only involved Clement. Clement’s defense
was that since there were two of them who signed in the promissory
note, the note is a joint obligation. The action cannot prosper for
Thorpe was not made a party defendant in the case.
Held: NIL states that where an instrument containing the words “I
promise to pay” and was signed by two or more persons, they are
deemed jointly and severally liable. The promissory note in the case
used singular verbs throughout the note and it follows that the note is
the joint and several obligation of the makers. Remanded.
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CHAPTER II: TRANSFER
Sec. 191. Definition and meaning of terms. – In this Act, unless the
1. Delivery & Issuance context otherwise requires:

Sec. 16. Delivery; when effectual; when presumed. – Every contract xxx
on a negotiable instrument is incomplete and revocable until delivery
of the instrument for the purpose of giving effect thereto. As between “Bearer” means the person in possession of a bill or note which is
immediate parties, and as regards a remote party other than a holder payable to bearer;
in due course, the delivery, in order to be effectual, must be made
either by or under the authority of the party making, drawing, xxx
accepting, or indorsing, as the case may be; and, in such case, the
delivery may be shown to have been conditional, or for a special
“Holder” means the payee or indorsee of a bill or note who is in
purpose only, and not for the purpose of transferring the property in
possession of it, or the bearer thereof;
the instrument. But where the instrument is in the hands of a holder
in due course, a valid delivery thereof by all parties prior to him so as
to make them liable to him is conclusively presumed. And where the xxx
instrument is no longer in the possession of a party whose signature
appears thereon, a valid and intentional delivery by him is presumed
until the contrary is proved. 3. Methods of Negotiation
4. How Indorsement Made
A. By signature on instrument or on allonge
SMC v. Puzon (2010)
F: Puzon, owner of Bartenmyk Enterprises, was a dealer of beer Sec. 31. Indorsement; how made. – The indorsement must be written
products of petitioner. To ensure payment and as a business on the instrument itself or upon a paper attached thereto. The
practice, SMC required him to issue postdated checks equivalent to signature of the indorser, without additional words, is a sufficient
the value of the products purchased on credit before the same were indorsement.
released to him. Said checks were returned to Puzon when the
transactions covered by these checks were paid or settled in full.
Clark v. Thompson (1915)
SMC filed a complaint for theft against Puzon, for having allegedly
stolen the postdated check Puzon issued to SMC. Issue arose as to
whether ownership transferred to SMC already.
B. In case of joint payees
H: Court held that although Sec. 12 of the NIL provides that the
person to whom an instrument so dated is delivered acquires the title
thereto as of the date of delivery, it noted that delivery as the term is
used in Sec. 12 of the NIL means that the party delivering did so for C. If name misspelled
the purpose of giving effect thereto. Court found that the check was
accepted, not as payment, but in accordance with the longstanding Sec. 43. Indorsement where name is misspelled, and so forth. –
policy of SMC to require its dealers to issue postdated checks to Where the name of a payee or indorsee is wrongly designated or
cover its receivables. Since Puzon gave the check as security for the misspelled, he may indorse the instrument as therein described
payment of his obligation, and NOT as payment for the same, there adding, if he thinks fit, his proper signature.
was no delivery as contemplated by the provision.

Young v. Hembree (1937)

In Re Martens’ Estate (1939)

5. Indorsement Must Be of Entire Document

2. Negotiation Sec. 32. Indorsement must be of entire instrument. – The

Sec. 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 completed by delivery.
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.
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Blake v. Weiden (1943)

6. Kinds of Indorsements

A. Basis of Classification
B. Special & Blank Indorsements

C. Qualified Indorsement

D. Conditional Indorsement

E. Restrictive Indorsement

7. Indorsement to or by collecting bank

8. Negotiation by joint or alternative payees or indorsees
9. Unindorsed instruments
10. Cancellation of indorsements
11. Indorsement by agent
12. Presumption as to indorsements
13. Continuation of negotiable character

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CHAPTER III: HOLDER IN DUE COURSE

1. Rights of a holder in due course

2. Holder for value
3. Holder in good faith
4. Complete & regular

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