CHAPTER 2 AND 3 OF NIL

CONSIDERATIONS
zAND NEGOTIATIONS

-FOR EDUCATIONAL PURPOSES ONLY-

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CONSIDERATION
WHAT IS A CONSIDERATION? Sec 24 of NIL

It is the immediate, direct, or Every negotiable instrument is deemed

essential reason which induces a party prima facie to have been issued for a
to enter into a contract. valuable consideration. Every person
whose signature appears thereon is party
for value.

Thirty days after sight, I promise to pay X or

Pay to Y or order
order the amount of P20,000.
sgd B
sgd A
 z WANT OF CONSIDERATION
W issued the bill of exchange as
Pay to X or order the amount of payment for the Guitar he ordered.
10,000 on February 14, 2021 But it appears that there is no
guitar in the first place.
SGD. W

pay to Y or order X Indorses it to Y, a holder for

value.
SGD X

pay to Z or order Z is a holder in due course.

SGD
 z FAILURE OF CONSIDERATION

W issued the bill of exchange as

payment for the Guitar he ordered.
Pay to X or order the amount of But it appears that the guitar was
10,000 on February 14, 2021 sold to another person.

SGD. W

X Indorses it to Y, a holder for

pay to Y or order
value.
SGD X
 z
Inadequacy of consideration

X sold a piano to B amounting to

Inadequacy of consideration
10,000. B issued a promissory
does not invalidate the
note for only 8,000.
instrument.

B X
EXAMPLE

Q: R issued a check for P1M which he used to pay S for

killing his political enemy. Can the check be considered a
z negotiable instrument?
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HOLDER FOR VALUE
WHAT IS A VALUE?
Value It is any consideration
sufficient to support a simple
contract. An antecedent or pre-
existing debt constitutes value
and is deemed such whether the
instrument is payable on
demand or at a future time (NIL,
Sec. 25).
LET’S TALK ABOUT HOLDER FOR
VALUE
A holder for value is one who has given a
valuable consideration for the instrument.
A holder for value is deemed as such not
only as regards the party to whom the
value has been given to by him but also in
respect to all those who became parties
prior to the time when value was given.
(NIL, Sec.26)
 Sec.
z 27. When lien on instrument
constitutes holder for value.
Where the holder has a
lien on the instrument X owes Y 10,000 pesos.
arising either from
Pay to Y or Order 10,000
contract or by implication
of law, he is deemed a SGD X
holder for value to the
extent of his lien. Pay to Z or order

SGD Y

QUESTION: TO WHAT EXTENT CAN Y

COLLECT FROM X?
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ACCOMODATION PARTY

An accommodation party is one LIABILITY

who has signed the instrument
Section 29 of the Negotiable
as maker, acceptor, indorser or
Instruments Law provides that
drawer, without receiving value
an accommodation party is liable
therefor, and for the purpose of
on the instrument to a holder for
lending his name to some other
value, notwithstanding that such
person.
holder at the time of taking the
instrument knew him to be only
an accommodation party.
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Pay to the order of XYZ Bank the amount of

500,000

Sgd A and B (accommodation party)

What kind of liability was incurred by Rose?

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ACCOMMODATION PARTY REGULAR PARTY

Signs an instrument without receiving Signs an instrument without receiving

value therefor. value therefor Signs the instrument for

Purpose of signing is to lend his name Not for that purpose

to another person

Cannot avail of the defense of May avail of such defense

absence/failure of consideration
against a holder not in due course.

May sue reimbursement after paying May not sue

the holder/subsequent party
 z
NEGOTIATION
Negotiation is the transfer of an A “holder” means the payee or
instrument from one person to endorsee of a bill or note who is in
another so as to constitute the possession of it or the bearer thereof.
transferee the holder thereof
(NIL, Sec. 30)
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MANNER OF TRANSFER OF INSTRUMENTS

 By Assignment – Generally for non- By Negotiation

negotiable instruments. In
assignment, the assignee is merely
placed in the position of the
assignors and acquires the
instrument subject to all the
defenses that might have been set
up against original payee.
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METHODS OF NEGOTIATION
Negotiable Instruments may
be negotiated by:
1. By indorsement and
delivery if payable to order
2. By delivery if payable to
bearer
WHAT IS AN INDORSEMENT
It is the writing of the name
of the indorser on the
instrument with the intent to
transfer title to the same.
TAKE NOTE:
IT IS ALSO A CONTRACT.
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WHERE SHOULD AN INDORSEMENT BE CONTAINED

the indorsement must be written on The indorsement must be of the entire

the instrument itself or upon a paper instrument. Otherwise, the
attached thereto. The signature of the indorsement is not valid, but would
indorser, without additional words, is a only constitute a valid assignment
sufficient indorsement. binding between the parties.

An indorsement is usually written at

back of instrument and may be made
any form
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KINDS OF INDORSEMENT

SPECIAL INDORSEMENT
 it qualifies the person to whom or to
whose order the instrument is
payable, and the indorsement of
such endorsee is necessary to the
further negotiation of the instrument
(Section 34)
 z KINDS OF INDORSEMENT

BLANK INDORSEMENT
I promise to pay A or order the
it specifies no endorsee, and the instrument so
amount of 10,000
endorsed is payable to bearer and may be negotiated by Sgd B
mere delivery. (Section 34)
Pay to x
The holder may convert a blank indorsement
sgd A
into a special indorsement by writing over the
signature of the endorser in blank any
contract consistent with the character of the sgd X
endorsement. Pay the order of J

sgd X
 z KINDS OF INDORSEMENT
I promise to pay X or order the
ABSOLUTE INDORSEMENT
amount of 10,000
one by which the endorser binds himself to pay, upon no Sgd B
other condition than the failure of prior parties to do so and
of due notice to him of such failure. Pay to the order of J

CONDITIONAL INDORSEMENT sgd X

One by which the indorser imposes a condition Pay the order of J if it rains
to his liability. tomorrow

the party required to pay the instrument may disregard the sgd X
condition and make payment to the endorsee or his
transferee whether the condition has been fulfilled or not. Pay to K
But any person to whom an instrument so endorsed is Sgd J
negotiated will hold the same, or the proceeds thereof,
subject to the rights of the person indorsing conditionally.
(Section 39)
 z KINDS OF INDORSEMENT

RESTRICTIVE INDORSEMENT –
such indorsement either:  it completely destroys the
negotiable character of the
 Prohibits further negotiation of instrument instrument and it may no longer
be negotiated.
“Pay to X only”
  the rights of X to negotiate is
 Constitutes endorsee the agent of limited because the same must
endorser be within the scope of his
authority as agent.
“Pay to X as agent”
 X may negotiate the instrument
 Vest title in endorsee in trust for or to the only within the scope of his
use of some other person. authority as trustee.

“Pay to X in trust fro B”

 z KINDS OF INDORSEMENT

EFFECT OF RESTRICTIVE
INDORSEMENT: It confers upon the
endorsee the right  

 To receive payment of the instrument;

 To bring any action thereon that the

endorser could bring;

 To transfer his rights as such endorsee,

where the form of the indorsement
authorizes him to do so. (Section 37)
 z
KINDS OF INDORSEMENT
QUALIFIED INDORSEMENT
constitutes endorser a mere assignor of the title to the
instrument. It may be made by adding to the
endorser’s signature the words “without recourse” or
“sans recourse” or other terms of similar import.
(Section 38)
Qualified endorser has limited liability, i.e.,
he is liable if the instrument is dishonored
by non-acceptance or nonpayment due to:
 - Forgery
 - Lack of good title on the part of the
endorser;
 - Lack of capacity to endorse on the
part of the prior parties;
 The fact that at the time of the
endorsement, the instrument was
valueless or not valid, and he knew of
that fact.
 KINDS OF INDORSEMENT
z
JOINT INDORSEMENT IRREGULAR INDORSEMENT
where an instrument is payable to
the order of two or more payees or where a person, not otherwise a party to
indorsees who are not partners, all an instrument, places thereon his
must endorse, unless the one signature in blank before delivery, he is
indorsing has authority to endorse liable as an endorser. (Section 64)
for the others. (Section 41)

I promise to pay A and B or order 25,000 I promise to pay A or order 25,000

SGD M Sgd B

Pay to X
Sgd C
Sgd A and B
Pay to X PAY TO Z
Sgd A
Sgd B or C
 Click icon to add picture
Pay to superman or order 25,000.

sgd X
z
STRIKING
When it is payable to the order of a
Fictitious person or non-existing person,
A holder may at any time strike out and such fact was known to the person
making it so payable.
any indorsement which is not
necessary to his title. The Pay to Y
endorser whose indorsement is
Sgd Z
struck out, and all endorsees
subsequent to him, are thereby
relieved from liability on the
Pay to A
instrument. (Section 48)
Sgd Y
 Negotiation by a prior
z
party January 1, 2021
Pay to P or order the amount of 28,000
after date.
Where an instrument is negotiated
back to a prior party, such party SGD Z
may reissue and further negotiate
the same. However, he is not Pay to A
SGD P
entitled to enforce payment thereof
against any intervening party to Pay to B
SGD A
whom he was personally liable
(NIL, Sec. 50). Pay to C
SGD B

Pay to D
Pay to E SGD C
SGD B
Pay to B
SGD D