fon - NEGOTIABLE INSTRUMENTS LAW MADE EASY Ova By: DEAN ANTONIO H. BBAD, JR. Dean, College of Law, Adamson University Bar Reviewer, Ateneo de Manila School of Law, Far Eastern University ‘Adamson University = Bar Examiner in Labor Law, 1999 Lecturer, U.P. Law Center, Institute of ‘Administration FIRST EDITION 2006 ANAMCON LINIVERSITY | IRRARV.MANII A” : 1TAw KF 525.51 NB #24 UG Ct Philippines Copyright, 2006 By By: Dean Antonio H. Abad, Jr. Supreme Court of the Philippines: ‘Davee Faura, Manila FROM THE CHAMBERS OF: Artemia V. Panganiban FOREWORD Once in a very rare while, one rediscovers “old” knowledge in an entirely different light. And from that one exhilarating experience comes a deeper sense of appre- ciation, understanding, and enlightenment. This book Negotiable Instrument Law Made Easy of- fers one such great experience. Written by Dean Antonio H. Abad, Jr., my former law partner, it recasts the Negotias ble Instruments Law (NIL) from the “dry subject” that it is often touted to be to a more comprehensible and, resul tantly, more exciting subject. Breathing, life into the various and sometimes difficult provisions of the NIL are the many interesting examples drawn by the author from commen, and real-life situations. The author wades through the complexities of the law with the art and skill of a master, breaking down complex ideas into more understandable concepts. At the same time, he points out the interrelations of the different sections for a more integrated picture of the law. As a teacher of the NIL for the past 20 years, Dean ‘Abad lends to the exposition his vast experience concem- ing the subject, thereby giving it depth and color. His classand bar review lectures have also formed the foundations of this book. Hence, it uses tried and tested means, by which to “make the subject lively and interesting” and thus keep his readers awake. For this accomplishment, | commend Dean Abad. ae ARTEMIO V. PANGANIBAN ‘Chief Justice of the Philippines PREFACE | had my first encounter with Negotiable Instruments Law as a teacher in 1976 when then Dean Neptali A. Gon- zales of the FEU Institute of Law assigned me to teach the subject. | had never taught the subject before and so | had to study Negotiable Instruments Law all over again. At times, | found myself just one or two chapters ahead of my students. The textbook we were using then was the one au- thored by Judge Federico C. Alikpala. Aside from this text- book, however, | read other references to augment my knowledge about the subject. | was deathly afraid that | may not be able to answer my students’ questions or, worse, lecture in such a way as to parade my ignorance. My other references were Negotiable Instruments, Law by Agbayani; Cases and Materials in Negotiable In- struments Law by Campos Lopez-Campos; The Negotia- ble Instruments Law by Alvendia; and much later, Pandect of Commercial Law and Jurisprudence by. Vitug. My lecture then in class, and especi iow, was a mix of the writings of the books | have read. So, also, in the writing of this book, | was influenced by them. For instance, in Chapter I, | did not follow the chronological order of the Jaw but, instead, the inter-relation of the sections with each other—ala Campos Lopez-Campos. Likewise, at the end of most chapters in the book, there is an enumeration of rele- vant cases—ala Alvendia. The book is replete with exam- ples to explain the law—ala Agbayani: In the course of my teaching the subject through the years at Far Easter University, Ateneo de Manila School ‘of Law, Adamson University College of Law and other barreview centers, | invariably noticed that the students found the subject boring and difficult to understand. Conse- had to devise ways and means to make the sub- teresting to keep my students awake and to revert their attention to the subject at hand. To make them understand the subject more fully, | had to simplify the law and go down to their level in a language that even a layman could comprehend. My examples were atrocious and my mnemonics naughty so that my students will never forget. My class was like a theater and my students were the actors in a play called the Negotiable Instruments Law. It was not until 1993 when this play found its way in some kind of a script as the Ateneo Central Bar Operations taperecorded my bar review on Negotiable Instruments Law. When | was given a transcription of my lecture in 1996, | was amazed to learn that my bar review lecture has been doing the rounds of bar reviewees of many law schools. It was then | decided to write this book, using said transcription as its foundation. But the writing of the book was long in coming. Almost ten years passed before | fi- nally buckled down to work to finish writing the subject | have found to love. | wish to acknowledge the tremendous time and effort expended by Ms. Theresa Castafeda-Cunanan in typing the manuscript of this book. In the same manner, | wish to express my gratitude to my lovely wife, Atty. Marina Da- lena-Abad, for helping me proofread the manuscript of this ; and Atty. Christan Rhee Delfin B. Orencia for helping ‘some research. Likewise, | wish to thank the Ateneo Central Bar Operations of 1993 for giving me a copy of the transcription of my bar review lecture on Negotiable In- struments Law. Lastly, | wish to thank the Central Book Suppl particularly, its President, Atty. Jose Agaton R. “Tony” Sibal, for publishing this book. The author sincerely hope that this book will help law- yers and students of law alike to understand easily what heretofore was a difficult Negotiable Instruments Law.DEDICATION | dedicate this book to the memory of my parents — ' Prof. Antonio M. Abad of Cebu and ! Prof. Jesusa Aquino Henson of San Fernando, PampangaINTRODUCTION Act No. 2031, otherwise known as the Negotiable Instruments Law, has for its prototype the Uniform Negotiable Instruments Law of the United States and the English Bill of Exchange Act of 1882. It is a per- fect universal law that applies to all transactions in- volving negotiable instruments regardless of jurisdic- is is as it should be; otherwise, international intercourse will be unduly hampered i different jurisdictions have different interpretations as to the form and application of negotiable iristruments. The Negotiable instrument Law (NIL) treats of only two (2) kinds of instruments, namely, Promissory Notes and Bills of Exchange. (A check is a special Exchange.) These instruments facilitate commercial deal> among traders and merchants in domestic as well as foreign business transactions. This is so because of their innate characteristics as to negotiat mulation of secondary contracts. Ater the physical making of the instsument, it is the delivery thereof which gives it “life”. No rights can aris respect of any instrument under the Negotiable Instru- ments Law until it is delivered.’ An undelivered bill or note operative. Until delivery, the contract is revocable. And the issuance as well as the delivery of the (instrument) must be to a person who take it as a holder.” * George A. Kauffman vs. The Philippine National Bank, 42 Phil 82, 186 (1921). ? People vs. Yabut, 76 SCRA 624 (1977 )Whether the issued bill or note is negotiable or not would depend upon its compliance with the requisites of negotiability under Section 1 of the NIL. If the bill or note conforms with said requisites, it is negotiable; otherwise, It is not. A negotiable instrument is transferred from person to person by negotiation; whereas, a non-negotiable instru ment is transferred from person to person by assignment, In negot the transferee of the instrument can become a holder in due course arid, as such, can acquire rights superior to that of the transferor. Whereas, in as- signment, the transferee merely steps into the shoes of the transferor and, therefore, cannot acquire any better right than his immediate predecessor. Negotiable Instruments are used as substitutes for money. As the instrument is transferred from one person to another, secondary contracts are accumulated thereby. The instrument may be negotiated to another by delivery (for instruments payable to bearer) or by indorsement com- pleted by delivery (for instruments payable to order). The liabilities of parties on the instrument are de- pendent upon their warranties either as maker, drawer, acceptor or indorser. The maker and the acceptor are pri- marily liable on the instrument; whereas, the drawer and the indorsers are only secondarily liable thereon. The instrument's “life” is ended when it is discharged by payment or by any of the modes of extinguishing an obligation. That, in a nutshell, is what this book is all about. TABLE OF CONTENTS Page TITLE | CHAPTER | FORM AND INTERPRETATION SECTION 1. Form of negotiable instruments 4. Requisites of Negotiability 2. Itmust be in writing . 3. Itmust be signed . 4. Unconditional promise or order SECTION 3. When promise fs uncon: eens z 5. in money 6 SECTION 2. What constitutes certainty astosum.. 6 With interest . 6 Stated installments .. 7 Stated installments with accel- eration clause 7 With exchange ... 7 Costs and attorney's fees ... 7 5.3. Payable in money 8 SECTION 5. Additional provisions not affecting negotiability nme 8 5.3.2 Authorizes the sale of collateral securitiesTABLE OF CONTENTS 5.3.3 Confession of judgment 5.3.4 Waiver of benefit ensure 5.3.5 Gives the holder an election to require some other act in lieu of money 9 6. Payable on Demand ere 10 SECTION 7. When payable on demand .... 10 6.1 Expressed to be payable on demand .. 10 6.2 No time for payment is expressed 10 6.3. instrument is issued, accepted or in- dorsed when overdue ........ rm 1 7. Payable at a fixed or determinable future time ste bee 12 SECTION 4. Determinable future time; what consti tutes 12 7.1 Ata fixed period after date 13 7.2 Ata fixed period after sight 13 7.3 On or before a fixed or determinable future time 14 7.4 On or before the occurrence of a specified event . 14 8. Payable to order ....... 15 SECTION 8 When payable to order .. 15 SECTION 9, When payable to bearer... 18 9.1 Expressed to be so payable 19 9.2 Payable to a person or bearer 19 9.3. Payable to a fictitious person 20 xiv 9.4 9.5 10. Drawee must be named with certainty 23 SECTION 6. Omission; seal; particular money 23 SECTION 10. Terms, when sufficient 24 SECTION 11. Date, presumption as to 25 SECTION 12. Ante-dated and post-tated once 25 SECTION 13. When date may be inserted .. 26 SECTION 14. Blanks; when may be filled 29 SECTION 15. Incomplete instrument not delivered . 32 SECTION 16. Delivery; when effectual; when pre- —* sumed .. 34 SECTION 17. Construction where instrument is ambiguous 37 SECTION 18. Liability of Parmon signing in trade or assumed name 39 1. General Rule 39 2. Exceptions 40 SECTION 19. Signature by agent; authority; how shown . . 40 SECTION 20. | Llabiity ot person signing as agent, and so forth 40 SECTION 21. Signature by procuration; effect of .... 41 SECTION 22. Effect of indoreement by infant or corporation at ‘TaBLE OF CONTENTS Page Payee does not purport to be the same of any person at Only or last indorsement is @ blank in- dorsement aTABLE OF CONTENTS SECTION 23. Forged signature; effect of .. CASE: CHAPTER II CONSIDERATION SECTION 24. Presumption of consideration 50 SECTION 25. Value, what constitutes : 50 SECTION 26. What constitutes holder for value 51 SECTION 27. When lien on instrument constitutes holder for value ... 52 SECTION 28. Effect of want of consideration . 53 SECTION 29. Liability of accommodation party ...... 53 CASES: 55 CHAPTER II NEGOTIATION SECTION 30. What constitutes negotiation 87 SECTION 31. Indorsement; how made 87 SECTION 32. Indorsement must be of entire in- strument 7 57 SECTION 33. Kinds of indorsement 59 SECTION 34, Special indorsement; indorsement in blank ..... : 59 SECTION 35. Blank indorsement; how changed to special indorsement .... 59 Tale OF CONTENTS: SECTION 36. When indorsement restrictive .... SECTION 37. Effect of restrictive indorsement; rights of indorsee SECTION 38. Qualified indorsement SECTION 39. Gonditional indorsement 1. Kinds of indorsements 2. Special indorsement 3. Blank indorsement 4. 5. Restrictive indorsement Qualified indorsement 6. Conditional indorsement SECTION 40. Indorsement of instrument payable to bearer 65, SECTION 41. Indorsement where payable to two ‘or more persons : . 68 SECTION 42. Effect of instrument drawn or in- dorsed to a person as cashier 67 SECTION 43. Indorsement where name is mis- spelled, and so forth 67 SECTION 44. Indorsement in representative ca- pacity ne. : : 68 SECTION 45. Time of indorsement; presumption ... 68 SECTION 46. Place of indorsement, presumption .. 69 SECTION 47. Continuation of negotiable character. 69 SECTION 48. Striking out indorsement 70 SECTION 49. Transfer without indorsement; effect of n xviiTABLE OF CONTENTS Page SECTION 50. When prior party may negotiate instrument 72 CASE: 73 CHAPTER IV RIGHTS OF THE HOLDER SECTION 51. Right of holder to sue; payment ....... 74 SECTION 52. What constitutes a holder in due course 74 SECTION 53. When person not deemed holder in due course sun 76 SECTION 54, Notice before full amount pai SECTION 55. When title defective .. SECTION 56. What constitutes notice of defect .. SECTION 57. Rights of holder in due course SECTION 58. When subject to original defenses .. 83 SECTION 59. Who isdeemed holder in due course 84 CASES: : 86 CHAPTER V LIABILITIES OF PARTIES SECTION 60. Liability of maker sesreeueee 88 SECTION 61. Liability of drawer 88 SECTION 62. Liability of acceptor 90 SECTION 63, When a person deemed indorsers .... 92 TasLe OF ConTeNTS Page SECTION 64. Liability of irregular indorser cw 98 SECTION 65. Warranty where negotiation by de- livery and so forth .. 95 SECTION 66. Liabi ty of goneral indorser .. 97 SECTION 67. Liability of indorser whete paper negotiable by delivery .. 99 SECTION 68. Order in which indorsers are liable ... 98 SECTION 69. Liability of an agent or broker 100 CASE: sous 100 CHAPTER VI PRESENTMENT FOR PAYMENT SECTION. 70. Effect of want of demand on principal debtor .. ve 101 SECTION 71. Presentment where instrument is not payable on demand and where payable on de- mand - 101 SECTION 72. What constitutes a sufficient pre- sentment 101 SECTION 73. Place of presentment 102 SECTION 74. Instrument must be exhibited 102 SECTION 75. Presentment where instrument pay- able at bank sane 102 SECTION 76. Presentment where principal debtor is dead 102 SECTION 77. Presentment to persons liable as Partners .. ‘ 103 xixTABLE OF CONTENTS Page SECTION 78. Presentment to joint debtors 103 SECTION 79. When presentment not required to charge the drawer 103 SECTION 80. When presentment not required to charge the indorser sen 103 SECTION 81. When delay in making presentment is excused .. 7 sesee 103 SECTION 82. When presentment for payment is excused 103 SECTION 83. When instrument dishonored by non-payment .. soe 104 SECTION 84. Liability of person secondarily liabie, when instrument dishonored 104 SECTION 85. Time of maturity 104 SECTION 86. Time: how computed 104 SECTION 87. Rule where instrument payable at bank .. 105 SECTION 88. What constitutes payment in due course . 105 CASE: senee 106 CHAPTER VII NOTICE OF DISHONOR SECTION 89. To whom notice of dishonor must be given .... . 108 SECTION 90. By whom given 109 SECTION 91. Notice given be agent .. 109 TABLE OF CONTENTS Page SECTION 92. Effect of notice on behalf of holder ... 110 SECTION 93. Effect where notice is given by party entitled thereto 110 SECTION 94, When agent may give notice . 112 SECTION 95. When notice sufficient cscs 113 SECTION 96. Form of notice - 113 SECTION 97. To whom notice may be given 113 SECTION 98. Notice where party is dead .. 114 SECTION 99. Notice to partners 114 SECTION 100. Notice to persons jointly liable 114 SECTION 101. Notice to bankrupt 114 SECTION 102. Time within which notice must be, given 118 SECTION 103. Where parties reside in same place 115 SECTION 104. Where parties reside in different places ...... 7 116 SECTION 105. When sender deemed to have given due notice = 117 SECTION 106. Deposit in post-office; what consti- tutes seen at 17) SECTION 107. Notice to subsequent party; time of 118 SECTION 108. Where notice must be sent 118 SECTION 109. Waiver of notice 119 SECTION 110. Whom affected by waiver ....... 120 SECTION 111. Waiver of protest 120TABLE OF CONTENTS Page SECTION 112. When notice is dispensed with 424 SECTION 113. Delay in giving notice; how ex- cused ... 121 SECTION 114. When notice need not be given to drawer a ao 121 SECTION 115. When notice need not given to indorser oa 123 SECTION 116. Notice on non-payment where acceptance refused .. a 124 SECTION 117. Effect of omission to give notice of non-acceptance . 125 SECTION 118. When protest need not be made; when must be made 126 126 DISCHARGE OF NEGOTIABLE INSTRUMENTS SECTION 119. Instrument; how discharged 128 SECTION 120. When persons secondarily ‘on the instrument are discharged 129 SECTION 121. strument 131 SECTION 122. 133 SECTION 123. of proof 134 SECTION 124. Alteration of instrument; effect of .... 134 SECTION 125. What constitutes a material altera- 135 Tass OF CONTENTS Page CHAPTER IX BILLS OF EXCHANGE FORM AND INTERPRETATION SECTION 126. Bill of exchange defined SECTION 127. Bill not an assignment of funds in hands of drawee SECTION 128. 137 140 Il addressed to more than one gravee, ae 144 SECTION 129. Inland and foreign bills of exchange 141 SECTION 130. When bill may be treated as prom- ssory note . 142 SECTION 131. Referee in case of need 143 CASE: : vo 148 SECTION 132. Acceptance; how made, and so forth = 145 SECTION 133. Holder entitled to acceptance on face of ee 146 SECTION 134. Acceptance by separate instrument 146 SECTION 135. Promise to accept; when equiva- lent to acceptance SECTION 136. Time allowed drawee to accept SECTION 137. Liability of drawee retaining or de- stroying bi a .. SECTION 138. Acceptance of incomplete SECTION 139. Kinds of acceptance 147 148 148 149 150TABLE OF CONTENTS Page SECTION 140. What constitutes a general accep- tance .. - 150 SECTION 141. Qualified acceptance 150 SECTION 142. Rights of parties as to qualified acceptance ....... . 151 CHAPTER XI PRESENTMENT FOR ACCEPTANCE SECTION 143. When presentment for acceptance must be made .. 153 SECTION 144. When failure to present releases drawer and indorser «....... SECTION 145. Presentment; how made SECTION 146. On what days presentment may be made a sessee 155 SECTION 147. Presentment where time is insuffi- cient .. 157 SECTION 148, Where presentment is excused 158 SECTION 149. When dishonored by —_non- _ acceptance 159 SECTION 150. Duty of holder where bill not ac- cepted 1 159 SECTION 151. Rights of holder where bill not ac- cepted se 159 CHAPTER Xil PROTEST SECTION 152. In what cases protest necessary .... 161 ‘TaBLe oF CONTENTS Page SECTION 153. Protest; how made 162 SECTION 154. Protest, by whom made .. 1, Example of a Notice of Protest 163 2. Example of a Certificate of Protest .. 184 SECTION 155. Protest; when to be made . 165 SECTION 156. Protest; where made 165 SECTION 157. Protest both for non-acceptance and non-payment e168) SECTION 158. Protest before emery ceptor insolvent. 167 SECTION 159. When protest dispensed 167 SECTION 160. Protest where bill is lost and so forth .. oe 168. CHAPTER XIII ACCEPTANCE FOR HONOR SECTION 161. When bill may be accepted for honor : 169 SECTION 162, Acceptance for honor, how made 170 SECTION 163, When deemed to be an accep- tance for honor of the drawer ....... . 170 SECTION 164. Liability of the acceptor for honor .... 171 SECTION 165. Agreement of acceptor for honor .... 171 SECTION 166. Maturity of bill payable after sight; accepted for honor 4 e a 172 SECTION 167. Protest of bill accepted for honor, and so forth .. 173TABLE OF CONTENTS SECTION 168. Presentment for payment to accep- tor for honor, how made SECTION 169. When delay in making presentment is excused CHAPTER XIV PAYMENT FOR HONOR SECTION 171. Who may make payment for honor - SECTION 172. Payment for honor; how made SECTION 173. Declaration before payment for honor .. SECTION 174. Preference of parties offering to pay for honor .. N 175, | Etect on subsequent parties where bill is paid for honor SECTION 176. Where holder refuses to receive Payment supra protest SECTION 177. Rights of payer for honor SEC CHAPTER XV BILLS INSET SECTION 178. Bills in set constitute one bi SECTION 179. Right of holders where different parts are negotiated = SECTION 180. Liability of holder who indorses two or more parts of a set to different persons... SECTION 181. ‘Acceptance ot bis drawn in sets... revi Page 173 173 175 175 175 476 17 177 . 178 . 179 181 181 181 Taste oF CONTENTS: Page SECTION 182. Payment by acceptor of bills drawn in sets . . 181 SECTION 183. Effect of discharging one of a set ... 181 CHAPTER XVI PROMISSORY NOTES AND CHECKS SECTION 184. Promissory note, defined 183 SECTION 185. Check defined 184 1. Distinctions between a check and a bill of exchange . 185 2. Some type of checks .. 185 SECTION 186. Within what time a check must be presented 187 SECTION 107. Cerfiction of chock efoct of 189 SECTION 188. Effect where the holder of check procures it to be certified . 189 SECTION 189. When check operates a8 an as- signment 189 CASE: 190 CHAPTER XVII GENERAL PROVISIONS SECTION 190. Short ttle 192 SECTION 191. ns and meaning of terms ... 192 SECTION 192. Persons primarily liable on instru- ment 193 SECTION 193. Reasonable time, what constitutes . 193TABLE OF CONTENTS Page SECTION 194. Time, how computed: when lest day falls on holiday .. 193 SECTION 195. Application of Act..... 193 SECTION 196. Cases not provided for in Act 193 000 NEGOTIABLE INSTRUMENTS LAW MADE EASY TITLE | CHAPTER | FORM AND INTERPRETATION SECTION 1. Form of negotiable instruments.— An instrument to be negotiable must conform to the, following requirements: (a) It must be in wi 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; (qd) 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. 1g and signed by the maker 1.2. For a promissory note: The first four (4) requi- sites enumerated in Section 1 above are the only ones2 Necorisue INSTRUMENTS Law MaDe Easy necessary to make the instrument negotiable, thus: (a) It must be in writing and signed by the maker, (b) It must contain an unconditional promise to pay a sum certain in money; (©) It must be payable on demand or determin- able future time; and (d)_ It must be payable to order or to bearer. 1.3 For a bill of exchange: All five (5) requisites enumerated in Section 1 must be present to make the instrument negotiable, thus: (a) It must be in writing and signed by the drawer; (b) It must contain an_uncon Pay a sum certain in money; (©) It must be payable on demand or determin- able future time; (d) It must be payable to order or to bearer; and () The drawee must be named or otherwise indicated therein with reasonable certainty. jonal order to 2. It must be in writing. 2.1. The requirement that it must be in writing is ob- vious. Since an instrument is a document, there must be something in written form that can be transferred from Person to person. If there is nothing in writing, there is nothing that can be transferred. 2.2. Any form will suffice. It may be printed or in long hand. it may be Itmay be on paper or on parchment. It does not matter so fong as itis in writing. The law did not distinguish. Form avo INTERPRETATION 3 . It must be signed. 3.1 If the instrument is a promissory note, it must be igned by the maker. 3.2 If the instrument is a bill of exchange, it must be signed by the drawer. 3.3. The signature does not necessarily have to be the full name of the maker or the drawer. Any mark or sign whatsoever, any scribbling, or anything that is placed on the instrument like a thumbmark, will suffice so long as it is, intended to be the signature of the party to the instrument. 4, Unconditional promise or order. 4.1. “Unconditional” meaning that the promise or or- der to pay, must not be dependent upon a contingent event that is not certain to happen, It must be absolut Le., an absolute promise to pay or an absolute order to Pay. If the payment of the instrument is dependent upon an event that is not certain to happen, the promise or order to pay is not unconditional and, therefore, the instrument not negotiable. 42 Example: | promise to pay X or order the sum of 1,000.00 if M will marry W. (Sad.) Y In the above example, the promise to pay is not un- conditional because there is no certainty that M will marry W. Hence, the instrument is not negotiable. 4.2.1 Suppose M married W, will the promis- sory note now become negotiable? No, the happening of the event will not cure the defect.’ " Please see Section 4, NIL.4 Negorisste Instruvenrs Law Mape Easy 4.3. However, if the promise or order to pay is de- pendent upon an event that is certain to happen, the same will not render the instrument non-negotiable. 4.3.1 Example: | promise to pay X or order the sum of 1,000.00 upon the death of Pedro. (Sod) ¥ In the above example, the condition given for pay- ment (the death of Pedro) is certain to happen. Hence, the condition did not destroy the negotiability of the instrument. 4.4 The unconditional promise or order to pay must be correlated with Section 3 which provides as follows: SECTION 3. When promise is unconditional— An unqualified order or promise to pay is uncondi- tional 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 ise to the instrument. But an order or promise to pay out of a particular fund is not unconditional. The instrument will remain negotiable even if there is an indication of a particular fund out of which reimburse- ment is to be made after payment is made. The same thing is true even if a particular account is indicated to be deb- ited with the amount after the instrument is paid. Foau ao INTERPRETATION 5 4.4.1 Example: Pay to X or order the sum of P1,000.00. Reimburse yourself from the proceeds of my farm. (Sad.) ¥ To:zZ The above example presupposes a prior arrangement between the drawer and the drawee with respect to the payment of the instrument. Even if there is no money in his hands but the drawee accepts, then he must pay out of his own pocket and reimburse himself later. In other words, Z first pays X; then after paying X, Z reimburses himself from the proceeds of Y's farm. Thus, the order to pay in thi case is still unconditional. Hence, the instrument remains. to be negotiable. However, if the particular fund indicated is not in- tended for reimbursement but one out of which payment to be made, the promise or order to pay becomes condi tional. This is so because the assumption is that the par- ‘ticular fund indicated where payment is to be taken is suffi- jent to pay the amount of the note or the bill. In this case, the payment is conditioned upon the sufficiency of the fund. Hence, the instrument becomes non-negotiable. 4.4.2. Statement of the transaction An instrument is usually issued due to a transaction. The mere statement of the transaction that gives rise to the instrument will not destroy the negotiability of the instru- ment. However, if the instrument is made subject to the terms and conditions of the transaction, the instrument becomes non-negotiable. This is so because the negotia- ity of an instrument is to be determined only by just look- ing at the face of the instrument itself and not anywhere else. Hence, if the instrument is burdened with the terms6 Necoriaate Instruments Law Mane Easy ions of the transaction, one has to look else- where to determine its negotiability. This is not as it should be. 5. Sum certain in money The principal amount to be paid must be certain; and it must be payable in terms of money only as a general rule. 5.1 A sum is certain if the amount to be paid as stated on the face of the instrument is a fixed sum of money. 5.2 However, there are certain stipulations which when included in the instrument itself will not destroy the certainty of the amount to be paid. Thus, Section 2 pro- vides as follows: SECTION 2. What constitutes certainty as to sum.—The sum payable is a sum certain jin the meaning of this act, although it is to be paid.— (a) With interest; or () By stated installments, with a provision that, upon default in payment of any installment or of inter- est, the whole shall become due; or (c) With exchange, whether at a fixed rate or at the current rate; or (a) With costs of collection or an attorney's fee, in case payment shall not be made at maturity. 5.2.1 With interest Even if payment of interest is stipulated, it will not make the sum uncertain because by a simple mathemati- cal computation the sum payable can be easily ascer- tained. Form AND INTERPRETATION 7 5.2.2 Stated installments An instrument payable by stated installments, to re- main negotiable, must contain the following: (a) each in- stallment must be stated on the instrument, ard (b) the maturity of each installment must be fixed; otherwise, the instrument becomes non-negotiable for non-compliance with the requisite that the instrument must be payable on demand or at a fixed or determinable future time. 5.2.3 Stated installment with acceleration clause An acceleration clause is a statement in an instrument whereby it is agreed that in the event of failure to pay a stated installment, the entixe sum payable becomes due and demandable immediately. in other words, the accel- eration clause hastens the maturity of the entire instru- ment. This stipulation will not render the instrument non-” negotiable. 5.2.4 With exchange This contemplates of a situation where the instrument is drawn in one country and made payable in another. The fact that the sum payable is in a foreign currency will not affect the negotiability of the instrument because the rate of exchange among the different currencies can be easily determined. The certainty of the principal sum payable can be arrived at by a simple mathematical comput 5.2.5 Costs and attorney's fees The stipulation with respect to the payment of attor- ney's fees or costs of litigation will come into play only after the maturity of the instrument when the amount due re- mains unpaid. Therefore, at that time, the instrument is ready overdue. So that, from the date of the issue of the instrument up to the date of its maturity, the sum is certain. The sum becomes uncertain only when the instrument is already overdue; when the instrument is no longer nego-8 NEGOTIABLE InstRUMENTs Law Mabe Easy tiable in its full commercial sense. That is why this stipula- tion will not impair the negotiability of the instrument. 5.3. Payal in money The sum payable in an instrument must be made payable only in money. It cannot be made payable in goods, services or property. This is so because in business money is the standard of value. 5.3.1 _ In some instances, the doing of an act in addition to the payment of money will not destroy the negotiable character of the instrument. Thus, Section 5 provides as follows: SECTION 5. Additional provisions not affecting negotlabitity.—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 negotlable Is not affected by a provision which— (a) Authorizes the sale of collateral securities (n 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 some- thing to be done in lieu of payment of money. But nothing in this section shall validate any pro- vision or stipulation otherwise ilteg: Note that the law itself provides that an instrument which contains an‘ order or promise to do any act in addi tion to the payment of money is not negotiable. That is the general rule. The exceptions are the followin, Form ano INTERPRETATION 9 5.3.2, Authorizes the sale of collateral secu- rities The act to be done in addition to the payment of money is to sell the collateral securities. But this act of selling will happen only if the i turity. Hence, at the time the col sold, the instrument is already overdue. Clearly, therefore, from the issue of the instrument up to the time of its matur- ity, there is no additional act to be done other than the payment of money. The additional act will arise only after the instrument is overdue when the instrument is no longer negotiable in its full commercial sense. 5.3.3 Confession of judgment This is void as against public policy as it denies a per- ‘son of his day in court.” . 5.3.4 Waiver of benefit The waiver of any benefit granted by law, e.g. waiver of notice of dishonor,’ will not affect the negotiability of the instrument. 83.5 Gives the holder an election to require some other act in lieu of money If the instrument is payable in money or something else (e.g. giving of property), but the option is given to the holder, the instrument remains negotiable. This is so be- cause ‘the holder can still insist that the payment be made in money. However, if the instrument is payable in money and giving of property or rendition of services, the instru- ment becomes non-negotiable. In this case, the holder has, ® PNB vs: Manila Oil Refining & By-Products Co., 43 Phil. 444 (1922), * pase see Sec. 100, NIL10 NeGoTiAaLe Instruments Law MaDe Easy no choice as the instrument is not payable in money only but inclusive already of property or services. Hence, the instrument is non-negotiable. 6. Payable on demand SECTION 7. When payable on demand.—An in- strument is payable on demand— (a) When so it Is expressed to be payable on demand, of at sight, or on presentation; or (b) Inwhich no time for payment is expressed. Where an instrument is issued, accepted, or in- dorsed when overdue, it Is, as regards the person so issuing, accepting, or indorsing it, payable on demand. An instrument payable on demand is due and de- mandable immediately from its issue. 6.1 Expressed to be payable on demand. Example: | promise to pay A or order the sum of 1,000.00 on demand. (Sad.) B Instead of the words “on demand”, the words “at sight" or “on presentation” may be used. Thus, the instru- ment is payable at sight or payable on presentation, as the case may be. 62 Notime for payment is expressed. FoaM AND INTERPRETATION " Example: | promise to pay A or order the sum of P1,000.00 (Sod) B This is payable on demand because the note does not express a time for payment. 6.2.1 Suppose the note read as follows: | | promise to pay A or order the sum ot P1,000.00 on (Date) (Sod)B | + The date of payment is left blank. Some authorities consider this as still payable on demand. It appears, how- ever, that this is a case of an incomplete instrument and may be governed by the provisions of Sections 14, 15 or 16 of the Negotiable Instruments Law, depending on whether or not the instrument has been delivered. 6.3 Instrument when overdue. Issued, accepted or indorsed Example: A executed bill of exchange in favor of B or order for 1,000.00 payable on January 15, 2006, addressed to C as drawee. However, A delivered the bill to B oniy on January 30, 2006, when the instrument was already over- due. In this case, as regards A who issued the the instrument is payable on demand.12 Necoriaate InsTRUMENTS Law Mane Easy 6.3.1. Suppose in the example above, B negoti- ated the bill to C; as regards B who indorsed the bil the instrument is payable on demand. 6.3.2 Suppose, also, in the example above, D (holder) presented the bill for acceptance to C, and C accepted; as regards C who accepted the bil, the in- strument is payable on demand. 7. Payable at a fixed or determinable future time. SECTION 4. Determinable future time; what constitutes.—An instrument is payable at a determin- able future time, within the meaning of this Act, which is expressed to be payable— (a) Ata fixed period after date or sight; or (b) On or before a fixed or determinable future time specified therein; or (c)_ Onorata 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. The instrument may be made payable on a fixed date or at some other future time provided the maturity of the instrument can be absoiutely determined with certainty. ‘Suppose the instrument is payable on April 30, is it negotiable? No, because there is no year indicated and, is not payable on a fixed date. 'n fact, in this case, one cannot determine as to when the instrument becomes payable. For ANo INTERPRETATION 13 7.1 Ata fixed period after date, Example: November 15, 2008 | promise to pay A or order the sum of 1,000.00 thirty (30) days after date. (Sg) B The note is dated November 15, 2006. It will mature (80) days from November 15, 2006. Hence, the note is payable at a determinable future time, by a simple mathematical computation, on December 15, 2008. 7.2 Ata fixed period after sight. This usually applies to a bill of exchange. “After sight” simply means after the drawee, to whom the bill is ad- dressed, shall have seen the bill when it is presented to him by the holder for acceptance. Example: November 15, 2006| Pay to A or order the sum of P1,000.00 thirty (80) days after sight. (Sad) B To: G A, the payee (holder), presents the instrument for ac- ceptance to C, drawee, on December 1, 2006. This is the time C shall have seen the instrument and the thirty (30) days will begin to run only on December 1, 2006. Hence,