FORM AND

INTERPRETATION
STAGES IN THE LIFE OF A PN
• ISSUE (SEC. 191)
• NEGOTIATION
• PRESENTMENT FOR PAYMENT
• DISCHARGED/DISHONOR BY NON-PAYMENT
• NOTICE OF DISHONOR
STAGES IN THE LIFE OF A BOE
• ISSUE (SEC. 191)
• NEGOTIATION
• PRESENTMENT FOR ACCEPTANCE
• ACCEPTANCE
• DISHONOR BY NON-ACCEPANCE
• PRESENTMENT FOR PAYMENT
• DISCHARGED/DISHONOR BY NON-PAYMENT
• NOTICE OF DISHONOR
PARTIES
• PROMISSORY NOTE – MAKER (one who ISSUES the PN) AND PAYEE
(one upon whom payment is made)
• BILL OF EXCHANGE – DRAWER (one who issues the BOE), DRAWEE
(one ordered to pay the payee), PAYEE (one upon whom payment is
made)
ISSUE (SEC. 191)
• 1ST DELIVERY OF THE INSTRUMENT, COMPLETE IN FORM TO A PERSON
WHO TAKES IT AS A HOLDER (SEC. 191) – is the payee, indorsee, or
bearer.
How to issue a negotiable instrument?
• Must conform to the requirements in SEC. 1 OF NIL
• IN WRITING AND SIGNED BY THE MAKER OR DRAWER
• CONTAIN AN UNCONDITIONAL PROMISE TO PAY OR ORDER TO PAY A SUM
CERTAIN IN MONEY
• PAYABLE ON DEMAND, FIXED OR DETERMINABLE FUTURE TIME
• PAYABLE TO ORDER OR PAYABLE TO BEARER
• IF BOE, DRAWEE MUST BE NAMED OR OTHER WISE INDICATE WITH
REASONABLE CERTAINTY
EXAMPLE : PN
• I PROMISE TO PAY TO ATTY. DAVE NAMBATAC OR ORDER THE SUM OF
P1,000 SIGNED: RENAN SAGALES
EXAMPLE OF BOE
• TO ALAN MORENO

• PAY ATTY. DAVE NAMBATAC OR ORDER THE SUM OF P1,000

• SIGNED: RENAN SAGALES

WHAT IS UNCONDITIONAL PROMISE
TO PAY/ORDER TO PAY?
• SECTION 3
• NO CONDITION ATTACHED TO THE PAYMENT
• EVEN IF THERE IS AN INDICATION OF A PARTICULAR FUND OUT OF
WHICH REIMBURSEMENT IS TO BE MADE OR PARTICULAR ACCOUNT
TO BE DEBITED/APPLICABLE ONLY TO BOE
• EVEN IF A STATEMENT OF TRANSACTION IS STATED
WHAT IS SUM CERTAIN IN MONEY
• SECTION 2
• FIXED AMOUNT OF MONEY STATED PLAINLY OR DETERMINABLE
FROM THE FACE OF THE INSTRUMENT
• PERMISSIBLE CLAUSE OR STIPULATION – interest, stated installments,
acceleration clause, exchange rate, cost of collection or attorney’s
fees
WHEN IS NI PAYABLE ON DEMAND?
• SECTION 7
• EXPRESSED TO BE PAYABLE ON DEMAND, PAYABLE AT SIGHT, OR
PAYABLE ON PRESENTATION
• NO TIME FOR PAYMENT IS EXPRESSED
• A DUE DATE WHICH IS NOT COMPLETE – IRREGULAR/NON-
NEGOTIABLE
WHAT IS A FIXED TIME?
• EXAMPLE: DECEMBER 25, 2017
WHAT IS DETERMINABLE FUTURE
TIME?
• SECTION 4
• EXPRESSED TO BE PAYABLE
• – FIXED PERIOD AFTER DATE OR SIGHT,
• - ON OR BEFORE A FIXED OR DETERMINABLE FUTURE TIME,
• - 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
WHEN IS NI PAYABLE TO ORDER
• SECTION 8
• PAYABLE TO THE ORDER OF A SPECIFIED PERSON (PAYEE) OR TO HIM
OR HIS ORDER
• PAYABLE TO THE ORDER OF A PAYEE, DRAWER OR MAKER, DRAWEE
OR HOLDER OF AN OFFICE
• PAYEE MUST BE NAMED OR OTHERWISE INDICATED WITH
REASONABLE CERTAINTY
WHEN IS NI PAYABLE TO BEARER
• SECTION 9
• EXPRESSED TO BE PAYABLE
• PAYABLE TO A PERSON NAMED OR BEARER
• PAYEE IS A FICTITIOUS PERSON OR NON-EXISTING PERSON
• PAYEE DOES NOT PURPORT TO BE THE NAME OF ANY PERSON
• ONLY OR LAST INDORSEMENT IS BLANK.
HOW TO DETERMINE NEGOTIABILITY?
• AT THE FACE OF THE INSTRUMENT IF ALL OF SECTION 1 IS PRESENT
• AN ORDER OR PROMISE TO DO ANY ACT IN ADDITION TO THE
PAYMENT OF MONEY MAKES THE INSTUMENT NOT NEGOTIABLE
• ADDITIONAL PROVISIONS NOT AFFECTING NEGOTIABILITY –
authorizes sale of collateral securities or confession of judgment if not
paid at maturity/waiver of any law for the advantage of the
obligor/gives the holder an election to require something to be done
in lieu of payment of money
OMMISSIONS NOT AFFECTING
NEGOTIABILITY
• SECTION 6
• NOT DATED
• NO STATEMENT OF TRANSACTION
• NO PLACE OF PAYMENT OR ISSUE
• NO SEAL
• SPECIFIES PARTICULAR KIND OF MONEY
DATE, presumption
• Sec 11
• Prima facie as the true date of making, drawing, acceptance or
indorsement
Effect of Ante-dated and post-dated
• Sec. 12
• Valid if not done for an illegal or fraudulent purpose
Insertion of date
• Sec 13
• Date is not important to Negotiability except: payable after date,
payable at a fixed period after sight or presentation, coupled with
interest, to determine whether holder acted within reasonable time
to collect payment (stale check)
• Remedy if not dated – holder may insert the correct date
• Effect of insertion of wrong date – as to holder in due course (Sec 52),
date inserted is to be regarded as true date while holder not in due
course will wait for the true date to arrive
Steps in the issuance of NI
• 1. mechanical act of writing the instrument in accordance with SEC. 1
• 2. delivery of the complete instrument by the maker or drawer to the
payee or holder
If the steps are not complied:
• Incomplete but delivered NI (Sec. 14)
• Incomplete and undelivered NI (Sec. 15)
• Complete but not delivered (Sec. 16)
Effect of Incomplete but delivered NI
• If completed in accordance with instruction: holder is paid accordingly
• If contrary to instruction
• - Holder in due course – valid and effectual for all purposes in his hands
• - Holder not in due course - party before completion is immune from liability
while party after completion becomes liable under Sec. 66 without prejudice
to recover from the guilty party
Effect of Incomplete and undelivered NI
• Not a valid contract in the hands of any holder
Effect of complete but not delivered NI
• For a HDC – delivery is conclusively presumed, hence, maker is liable
• For a HNDC – delivery is prima facie presumed, hence, maker is liable
unless proven there was no delivery
Construction of ambiguous NI
• Sum in words prevails over the figures
• Interest runs from date of instrument
• Dated as to time of issue
• Written words prevails over printed words
• Holder has the option to treat as a BOE or PN
• Deemed an indorse if signature is not clear in what capacity
• “I promise to pay” sign by 2 persons – jointly and severally liable
Effect of signature on the NI
• If signature appears = liable
• Except: agent (sec. 19 -20), signature of a minor/corp. ( Sec. 22), and
incompete and undelivere instrument (Sec. 15)
• If signature does not appear – not liable
• Except: signature under trade or assumed name (Sec. 18), signature
of agent but principal is liable, forger (Sec. 23), acceptance in separate
paper, constructive acceptors (Sec. 137)
Effect of forged signature
• Sec. 23
• Forgery means counterfeit-making or fraudulent alteration
• Instrument is wholly inoperative except: parties who cannot escape
liability on forged instrument – 1) estoppel, warrant or admit
genuineness i.e. indorsers (Sec.62), acceptors and persons negotiating
by delivery (sec. 65)
Effect of forgery of NI payable to order
• Party whose signature is forged an all parties prior to him cannot be
held liable even by a HDC
• Indorsers subsequent to the forgery are liable because they warrant
the geniuness of the NI
Effect of forgery of NI payable to bearer
• Indorsement is not necessary to title
• All parties are liable to a HDC except the party whose signature is
forged.
• HNDC cannot enforce payment against the party whose signature is
forged and all parties prior to him but parties subsequent to the
forgery are liable because of warranty under Sec. 65