NOTES IN NEGOTIABLE

INSTRUMENT LAW
(Act. No. 2031)

By:

Prof. Joel G. Vedasto, AB, JD, MPA

Brief History:

NIL - a reproduction of the Uniform Negotiable

Instrument Law of the United States

- approved by National Conference of

Commissioner in 1896

- NIL in the Philippines was patterned after the

draft approved by the Commissioners on Uniform
States Law of US

- Enacted on February 3, 1911 and took effect 90

days after its publication on the official gazette of
the Philippines. took effect on June 2, 1911.
NEGOTIABLE INSTRUMENT

-written contract for payment of money which by its

form is intended as a substitute for money and
passes from hand to hand as money, so as to give
holder in due course (HDC) the right to hold
instrument and collect the sum for himself.

Functions/Importance of NI:

1) Used as substitute for money

2) Media exchange for most commercial transaction
3) Serve as a medium of credit transaction
Most Common forms of Negotiable Instruments:
Promissory Notes – this evidences a promise to pay money.
Parties:

1) Promissor, the one making the promise to pay. He is called

the maker.
2) The person to whom the promise to pay is made, called the
payee

Bill of Exchange – this evidences an order made by one person to

another to pay money to third person.
Parties:

1) Drawer, the person drawing or making the instrument, or the

person giving the order to pay.
2) Drawee, the addressee of the order to pay, or the person
required to pay the istrument.
3) Payee, the person to whom payment is to be made.

Check – this is a form of a bill of exchange issued by a person

(drawer) ordering his bank to pay the person named on the
check.
 Non-negotiable
Negotiable Instrument Instrument

1) contains all requisites of 1) Does not contains all

Sec. 1 of NIL requisites of Sec. 1 of
NIL
2) transferred by
2) transferred by
negotiation assignment

3) HDC may have right 3) transferee acquires

better than transferor only rights of transferor

4) prior parties warrant 4) prior parties merely

payment warrant legality of his
title
5) transferee has right of
recourse against 5) no such right of
intermediate parties recourse
Other Forms of NI:

1. Postal money order – an order for the payment of money to the

payee named therein drawn by one post office upon another
under authority of law.

2. Certificate of stocks – written instrument signed by a proper

officer of a corporation stating that the person named therein is
the owner of a designated number of shares of its stock.

3. Warehouse receipts – it is likewise without an unconditional

promise or order to pay a sum certain in money.

4. Treasury warrants – it is a government warrant for the

payment of money that issued in favor of a public officer or
employee covering payment of cash advances for official
expenditures.

5. letters of credit – it is a letter requesting one person to make

advances to a third person on the credit of the writer.
INCIDENTS IN THE “LIFE” OF A NEGOTIABLE INSTRUMENT:

1) ISSUE - it is the first delivery of the instrument, complete in

form, to a person who takes it as a holder. (Sec. 191)

Ex: where a promissory note made by Jieriel Herale payable to

George Abellanosa or Bearer is delivered by the former to the
latter who accepts it, the delivery is called “issue”

2) NEGOTIATION - is the transfer of a negotiable instrument

from one person to another in such manner to constitute
the transferee the holder thereof.

Ex: 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. (Sec.30)
3) Presentment for acceptance – presentment for
acceptance is the production of the bill of exchange to
the drawee for his acceptance. It is required only in
certain kinds of bills of exchange (Sec. 143)

4) Acceptance - acceptance of a bill of exchange is the

signification by the drawee of his assent to the order of
the drawer. It must be in writing and signed by the
drawee. (Sec. 132)

5) Dishonor by non-acceptance - a bill of exchange is

dishonored by non-acceptance when it is duly
presented for acceptance, and such acceptance is
refused or cannot be obtained, or when presented for
acceptance is excused, and the bill of exchange is not
accepted. (Sec. 149)
6) Presentment for payment - is the production of a
bill of exchange to the drawee or acceptor for
payment; or the production of a promissory note to
the party liable for payment of the same.

7) Dishonor of non-payment - the negotiable

instrument is dishonored by non-payment when it is
duly presented for payment and payment is refused
or cannot be obtained, or when presentment for
payment is excused and the negotiable instrument is
over-due and unpaid.

8) Notice of dishonor - is bringing either verbally or by

writing to the knowledge of the drawer or indorser of
an instrument, the fact that a specified negotiable
instrument , upon proper proceedings taken, has not
been accepted, or has not been paid, and that the
party notified is expected to pay it.
9) Protest - is a formal statement in writing made by a
notary public under the seal of his office at the request
of the holder of a foreign bill of exchange, in which it is
declared that the same was on certain day presented
for acceptance, and such acceptance was refused or
where such foreign bill of exchange which has not
previously been dishonored by non-acceptance is
dishonored by non-payment, whereupon the notary
public protests against all parties to such instrument
and declares that they will be held responsible for all
loss and damage arising from its dishonor.

A formal declaration of the fact of non-payment or of

non-acceptance usually executed by a notary, but in its
popular sense it means all the steps accompanying the
dishonor of a bill or note necessary to change the
drawer or an indorser.

10) Discharge - it is discharge by any of the five (5)

causes provided for by Section 119.
SECTION 1:

When is an instrument negotiable?

a) It must be in writing and signed by the maker or drawer

b) It must contain an unconditional promise or order to pay a
sum certain in money.
c) It must be payable on demand, or at a fixed or
determinable future time.
d) It must be payable to order to bearer.
e) Where the instrument is addressed to a drawee, he must
be named or otherwise indicated therein with reasonable
certainty.

Note: First four (4) requirements applicable to a

Promissory Note
All Five (5) requirements applicable to a
Bill of Exchange
Illustration:

P10,000 Manila, Philippines

February 11, 2023

For value received, I promise to pay Mameng or order Ten

Thousand Pesos (10,000) on or before March 25, 2023, at
the Security Bank, Espana Branch.

(Sgd.) Dayang
Features & Characteristics:

“P10,000” – is the amount of the note to be paid and can easily be determined if written in words.

“Manila, Philippines” – the place where the contract to pay is executed.

“February 11, 2023” – usually inserted either to determine when the note is due or to fix the time
when interest is to run

“on or before March 25, 2023” – the date of maturity which indicates the time when the promise
to pay is to be fulfilled, if not, the instrument is payable on demand.

“I promise to pay” – an absolute promise to do something, that is to pay. It is not the subject to
the fulfillment of a condition.

“to the order of” – means that the promise is to pay as ordered or as commanded by the payee,
maybe payable to bearer.

“P” – the person to whose order or command the money is promised to be paid, known as payee.

“M” – maker of the note. He is the one who promises to pay at the first instance, may be signed by
more one person.

“at the Security Bank” – it indicates where the notes is to be paid.

“Ten Thousand Pesos” – indicates, as the figures do, the sum promised to be paid. As it is
written in words, cannot be easily altered, words are more likely to be accurate.

“for value received” – indicates that a consideration was given for the not, may be specified
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 in
demand or at a fixed or determinable future time a sum certain
in money to order or to bearer.

Illustration:

P10,000 Manila, Philippines

March 12, 2023

Pay to P or order Ten Thousand Pesos (P10,000) on demand.

(Sgd) D
BPI
FMPS Bldg. Intramuros,
Manila
Features & Characteristics:

1) The order or command to pay, “Pay to”. This is

an order or command to pay. Thus, instead of
a promise, the bill of exchange contains a
command or order to pay money.
2) The signature, “D”. D is the drawer. He
corresponds to the maker of a promissory
note.
3) The name, “X”. X is the drawee. He is the one
ordered or commanded to pay a sum certain
in money.
CHECK – is a bill of exchange drawn on a bank payable on
demand.

Illustration:

Check no. 012345

Security Bank and
Trust Company
Manila, Philippines
December 18, 2022

Pay to P or order Ten Thousand Pesos. (P10,000)

Sgd. D

Note:

The feature and characteristics of a check is the same as an

ordinary bill of exchange because a check is a bill of
exchange.
KINDS OF CHECK:

Memorandum check, where the drawer agrees to

absolutely pay the bona fide holder of the check.

Cashier’s check, where the check is drawn by the bank

upon itself and is accepted already by the act of
issuance.

Crossed check, one which bears two parallel lines across

its face, indicting that the check is for deposit.

Manager’s check, one drawn by the bank’s manager

upon the bank.

Stale check, one that is valueless because it was

presented for payment after a lapse of reasonable
length of time from its issuance.
SECTION 1 - REQUISITES:

a) It must be in writing & signed by the

maker or drawer

How written – with a pen or pencil, or that which

is print or printed.
Material upon which instrument written –
may be written upon parchment, cloth, leather
or any substitute for paper.
Signature of the maker or drawer – the full
name may be written, or at least the surname
should appear, or initial are sufficient to bind
himself.
Position or where signature appears – usually
the signature of the maker or drawer is at the
lower right-hand corner of the instrument.
b) It must contain an unconditional promise
(3) or order to pay a sum certain in money
(2).

Unconditional promise – any form of expression

sufficient which can be deduced as a direct
promise to pay a sum certain in money will
suffice as a promise.

“I agree to pay”
“I guarantee to pay”
“this is to certify that I am to pay”
“We certify that we are bound to pay”
“Obliges himself to pay”
“Payable”
Unconditional order – the bill of exchange or
draft must contain an order for payment as
distinguished from a mere request. It is
something more than the mere asking of a
favor.

Unconditional promise or order – the promise to

the maker or the order of the drawer must be
unconditional.

Payable in a sum certain in money – the note or

the bill must be payable in “money” (should be
legal tender or foreign currency). If payable in
goods, wares, or merchandise, or in property,
labor or services, the same is not negotiable.
c) It must be payable on demand (7), or at a fixed or
determinable future time (4)

The instrument to be negotiable must be payable on demand, or at a fixed,

or determinable future time, and at a time morally certain to occur.

Illustrations

1) P10,000

“I promise to pay P or order Ten Thousand Pesos on December 25.”

(Sgd) M

Note: the instrument is irregular and not negotiable because it is not payable on demand or
at a fixed or determinable future time.

2) November 18, 2022

P10,000

“I promise to pay P or order Ten Thousand Pesos on December 25.”

(Sgd) M

Note: the instrument is irregular and but negotiable because the instrument is dated.
(bring down the year of the date of the instrument)
d) It must be payable to order (8) or to bearer (9)

To make a note or a bill negotiable, the words “to order” or

“to bearer”, or equivalent words must be used in the
body of the instrument. If not payable to order or
bearer, the instrument is not negotiable.

Bearer instrument – payable to bearer or to a fictitious or

impersonal payee or bearer or to an estate or to cash.
Order instrument – payable to a “named person or his
order” or “to the order of a named person”
Payee “only” – payable only to the payee or payable only
to himself. not negotiable
Specified person – not negotiable because it is not payable
to order to bearer.
Designation of Drawee

the drawee of a bill or check, whether an

individual, co-partnership, or corporation
should be sufficient expressed and
designated., to enable the payee or
holder to know upon whom he is to call
for acceptance or payment.
EXERCISES:

1) (Sgd.) M April 22, 2023

“I promise to pay P or order Ten Thousand pesos”.

(Negotiable: signature of the maker need not always appear at the bottom of the instrument)

2) “ I guaranty to pay P or order Ten Thousand pesos P10,000"

(Non-negotiable: not signed by the maker)

3) June 2, 2022
“Due to P Ten Thousand pesos.”

(Sgd) M

(Non-negotiable: this is only an acknowledgement and not a promise to pay)

4) June 2, 2022

“Due to P or order Ten Thousand Pesos payable on December 25, 2022.”

(Sgd.) M

(Negotiable: “Payable” implies a promise to pay)

SECTION 2: Certainty as to sum; what constitute:

The sum payable is a sum certain within the meaning of

the Act although it is to be paid:

a) With interest

- the requirement that negotiable papers to be certain as

to amount applies to the principal amount rather than to
the incidental addition of interest.

Example:
November 20, 2022

I promise to pay P or order P10,000 after six (6) months

with 12% interest per annum. Provided, however, that
when paid after maturity, the interest shall be 16%.

(Sgd.) M
b) By stated installments

- To be negotiable, the amount to be paid in installment

must be specified or could be made certain, for it not, the
instrument is defective and not negotiable.

Example 1:
September 28, 2022

“I promise to pay P or order P10,000 in two installments, as follows:

October 28, 2022 - P6,000

November 28, 2022 - 4,000
(Sgd) M

Example 2:
November 1, 2022

“I promise to pay P or order P10,000 in two equal monthly

installments beginning December 1, 2022”.

Sgd. M
c) By stated installments, with a provision that
upon default in payment of any installment
or of interest the whole shall become due.

Example:

“I promise to pay P or order P10,000 in four

equal monthly installments beginning November
25, 2022. Upon default in the payment of any
installment, the whole sum payable under this
note shall become due.”
(Sgd.) M
d) With exchange, whether at a fixed rate
or at the current rate

Exchange – is the difference in value of the same

amount of money in different countries. It
applies only to foreign bill, that is instrument
drawn in one country and payable in another.

Example:

“Pay to P or order P10,000 with exchange at 1.2%.

(Sgd) D
To: X”
e) With costs of collection or an attorney’s
fee, in case payment shall not be made at
maturity.

In this connection although the sum payable after

maturity is uncertain, it will not affect the certainty of
the sum payable at maturity and, therefore will not
affect the negotiability of the instrument in which it is
stipulated.

Example:

“I promise to pay P or order P10,000 with interest

until paid. Upon failure I hereby agree to pay
collection and attorney’s fees.”

(Sgd) M
SECTION 3: Where promise is unconditional:
- An unconditional order or promise to pay is
unconditional within the meaning of the 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

The order or promise as stated in the

instrument is unconditional, what is conditional
is the reimbursement which is to be made.
Example1:

“Pay to P or order P10,000, and reimburse yourself out of my

money in your possession.”
(Sgd) D
To: X

Note: This instrument as written is negotiable, because the order to

pay P is unconditional. What is conditional is only the
reimbursement to be made.

Example2:

“Pay to P or order P10,000 out of my part of the estate.”

(Sgd) D

To: X

Note: This is non-negotiable because the payment is to be made

directly from the particular fund indicated.
b) Particular account to be debited,
explained.

- The instrument is to be paid first,

afterwards, the particular account indicated is
to be debited. The payment therefore, is not
subject to the sufficiency or adequacy of the
particular account to be debited.

Example:

“Pay to P or order P10,000 and charge to the

account of JV Law firm.

(Sgd) D
To: X
c) A statement of transaction which give rise to the
instrument.

- Be it noted that an instrument is not issued without any

transaction upon which it is based, although not stated in
the instrument because they are presumed by law.

Example1:

“If P paints the picture of D, and D issued a check in favor

of P, the transaction which give rise to the check is the
service performed by P.”

Example2:

“I promise to P or order P10,000 in payment for a horse I

bought from him last Sunday.”

(Sgd) M
SECTION 4. Determinable future time: what
constitutes:

An instrument is payable at a determinable future

time within the meaning of the Act, which is
expressed to be payable:

a) At a fixed period after date or sight

Examples:
“I promise to pay P or order P10,000, 30 days after date.”
(Sgd.) M
“Pay P or order P10,000, 30 days after sight.”
(Sgd) D
b) On or before a fixed or determinable
future time specified therein

Example:
“I promise to pay P or order P10,000 on or before
December 25, 2014.”
(Sgd) M

Note: Dec.25, 2014 is the future specified time

stated in the instrument, the maker has the
option to pay on Dec. 25 or before that date.
c) On or before fixed period after the
occurrence of a specified event, which is
certain to happen, though the time of
happening may be uncertain

Example:
“Thirty days after the death of W, I promise to pay
P or order P10,000.” (Sgd) M

Note: It is negotiable and is payable at a fixed period after the

occurrence of a specified event, the death of W. This event
is certain to happen though the time of happening is
uncertain.
An instrument payable upon a contingency is not negotiable and the
happening of the event does not cure the defect.
Example:
“I promise to pay P or order P10,000 30 days after X passes the CPA exams.”
(Sgd) M

SECTION 5. Additional provisions not affecting negotiability.

Rule: (as to the performance of additional act stated in the instrument)

An instrument must not contain an order or promise to do any act in

addition to the payment of money, otherwise it would be rendered non-
negotiable, for then the instrument would be payable not in money only
but in money and the additional act promised or ordered to be
performed.

Ex.
“I promise to pay P or order P10,000 and to deliver to him 10 horses.”
(Sgd) M

Note: This instrument is not negotiable because it contains an additional act to

be performed.
Illustrations of additional acts to be performed:

a) “And to pay taxes assessed upon the note or its mortgage

security”
b) “And to keep free from encumbrance property on which
the value of the collateral pledged for security of the
instrument depends”
c) “and to keep the machine, in payment for which it is given
in repair”
d) “And to deliver 100 cavans of IR 60 rice”

In all cases the court declared that the instrument is not

negotiable because it contains additional act to be
performed aside on the payment of money.

The test of negotiability is whether or not the promise would

give rise to a cause of action for breach of contract if the
additional act is not done. If it does, the instrument is
rendered non-negotiable.
Promise to furnish additional security

1) The promise of the maker to furnish additional

security will render the instrument non-
negotiable, because the note contains an
additional act to the promise to pay money.

2) But if the note states that the holder may

demand collateral and failure to furnish it will
accelerate the instrument which is negotiable,
being merely on the non-performance of an
optional act, instrument will not be rendered
non-negotiable.
Additional acts which will not destroy the
negotiability of the instrument

a) Authorizes the sale of collateral securities in case

the instrument be not paid at maturity

-This will arise when the transaction which gave rise to the
instrument is secured by a mortgage or pledge.

Ex: November 6, 2022

“M borrowed to pay P or order P10,000, one year after

date, and if not paid at maturity, the ring pledged may
be sold by P and the proceeds thereof will be applied to
the values of this note.”

(Sgd.) M
b) Waives the benefit of the law intended at the advantage
or protection of the obligor.

Ex.
“I promise to pay P or order P10,000. Notice of dishonor
waived.”

(Sgd) M

After the issue of the instrument, P indorsed the instrument to A,

A to B, B to C, holder. If C presented the instrument to M,
and M did not pay, C’s obligation is to send notice of dishonor
to each of the indorsers, otherwise they can not be held
liable. In this case, any of all of the indorsers can be held
liable even without notice of dishonor, because there is a
waiver written on the instrument and all the indorsers are
bound by such waiver.
c) Gives the holder an election to require something to
be done in lieu of payment of money

Be it noted that even if there is an additional act to be done,

the instrument remains negotiable provided that the right
to choose between payment of money or the performance
of the additional act is in the hands of any holder.

Ex:
“Pay P or order P10,000 or 30 cavanes of wag-wag rice, at the option
of the holder.” (Sgd) M

To: X

Note: the holder, not the drawee has the option or choice of
demanding either money or the 30 cavanes of rice. This
instrument therefore is negotiable.
However, if the choice in the instrument lies with the debtor,
or maker, or drawee, the instrument is non-negotiable.

1) Ex:
“Pay P or order P10,000 or 30 cavanes of wag-wag rice at your
option.”

To: X (Sgd) D

2) Ex:
“I promise to pay P or order P10,000 or 30 cavanes of wag-wag
rice.”

(Sgd) M

Note: These two cases, the instrument is not negotiable because the
choice or option does not belong to the holder of the instrument.
SECTION 6. Omission; seal; particular money

The validity and negotiable character of an instrument

are not affected by the fact that:

a) It is not dated; or
b) Does not specify the value given; or
c) Does not specify the place where it is drawn or the
place where it is payable; or
d) Bears a seal; or
e) Designates a particular kind of currency 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.
Pro-forma of a negotiable instrument:

1) Promissory note
December 1, 2022
Manila, Philippines

“I promise to pay P or order Ten thousand Pesos on demand at

Makati Avenue, Makati.”

P10,000 (Sgd) M

2) Bill of exchange
December 1, 2022
Manila, Philippines

“Pay P or order ten thousand pesos (P10,000) on December 25,

2022 at Makati Avenue, Makati City.”

To: X
Makati Avenue, Makati (Sgd) D
The nonappearance or omissions of the
following will not invalidate or render
the instrument non-negotiable:

a) no date
b) no words for value received
c) no place when instrument is drawn
d) no seal
e) no designation of particular kind of
currency in which payment is to be
made
Effect of omission:

a) Date – even when the instrument is not dated still the

instrument is not rendered non-negotiable. However,
there are cases where the date is necessary to fix the
date of maturity.

Ex:
“I promise to pay P or order P10,000 30 days after date.”

(Sgd) M

Note: In this case, the instrument must be dated otherwise

we cannot fix the maturity of the instrument and
therefore the instrument is non-negotiable.
b) No value consideration given – instrument
remains negotiable because Art. 1324 presumes
that even if the cause is not stated in the
contract it is presumed that it exist and at the
same time lawful (Civil Code). Under Sec 24
(NIL) “every negotiable instrument is presumed
to have been issued for a valuable
consideration”.

c) No place where it is drawn, or place where

it is payable – the negotiable character of the
instrument is not affected by the fact that it
does not specify the place where it is drawn or
the place where it is payable.

Note: The requirement of negotiability is only to

be complied substantially and not literally.
SECTION 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

Ex: (1)

“I promise to pay P or order P10,000 on demand”.

(Sgd) M
Ex: (2)

“I promise to pay P or order P10,000 on presentation.”

(Sgd) M
- No time for payment is expressed.

Example:
“I promise to pay P or order P10,000.”
(Sgd) M

b) when blank for time is unfilled.

Example:
“___________________after date I promise to pay P or bearer
P10,000.”
(Sgd) M
Note:

If the time for payment is not expressed, or is unfilled, or in

blank, the instrument is payable on demand. However, there
are commentaries which state that the instrument will be
considered an incomplete instrument which may fall under
Secs 14, 15, 16 (NIL). Moreover, a note payable “On
___________” was held payable on demand.
c) where an instrument is issued, accepted, or
indorsed when overdue, it is as regards the
person so issuing, accepting or endorsing it,
payable on demand.

(1) as to person issuing after it is overdue.

Ex:
“Pay to P or order P10,000 on December 25, 2022.”

To: X (Sgd) D

Note: If D issues the instrument on January 10, 2023,

after it is overdue, the instrument as to him is
payable on demand.
Ex:
“Pay to P or order P10,000 on December 25, 2022.”

To: X (Sgd) D

(2) as to the person accepting after it is overdue.

In the above example, if D issues the bill before

maturity, but X, the acceptor, accepted it after
maturity, as to him (X) the instrument is payable on
demand.

(3) as to person endorsing after it is overdue.

In the above example, if D issues and X accepts the

bill before maturity, but P endorses the instrument to
A after the date of maturity, example December 31, as
to him (P) the instrument is payable on demand.
SECTION 8 – When payable to order

The instrument is payable to order where it is drawn

payable to 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.
Meaning of “payable to order”

Ex:
December 1, 2022
“I promise to pay P or order P10,000.”
(Sgd) M

Note: In this example, M promises to pay P or if not to P, to anybody

designated by P to whom M must pay to or to anybody designated
by the person designated by P, and so on. The designation is by
endorsement. Thus, suppose the following endorsements appear at
the back of the note:

Pay to A (Sgd.) P
Pay to B (Sgd.) A
Pay to C (Sgd.) B
Pay to D (Sgd.) C
By diagram illustration:

C (Holder)
B

P
M

M, in this case, is liable to C because he promised to pay P

or to anybody designated by P, who happens to be A; or
to anybody designated by A, which is B, or person
designated by B, which is C.
Payee must be named or indicated with reasonable
certainty

The payee is an instrument payable to order must be named or

otherwise indicated with reasonable certainty. The payee must
be a person in being, natural or legal, and ascertained at the
time of issue. If there is no payee, when the instrument is
payable to order, one could endorse the instrument.
Consequently, it is useless to consider it negotiable (Agbayani,
Commercial Laws. Vol. I)

Blank for name of payee unfilled

Example:
“Pay to _______________ or order P10,000”
(Sgd) X
To: X

Note: This note is not payable to order because the payee is not
named, neither is he designated with reasonable certainty. This
note may be considered as an incomplete instrument and may
be covered by Sections 14, 15, 16.
To whose order the instrument may be made or drawn:

A note may be made and a bill may be drawn to the order of:

a) A payee who is not the maker, drawer or drawee.

“I promise to pay P or order P10,000”. (Sgd) M

b) The drawer or maker.

“Pay to the order of myself” Sgd D, addressed to X.

d) The drawee

“Pay to yourself or order P10,000”. Sgd D, addressed to X

Note: “X” who is the drawee, is also the payee. The effect of this is to
authorize the drawee to pay himself from funds belonging to the
drawer which are in the possession of the drawee.
d) Two or more payee jointly.

“I promise to pay P1 and P2 or order P10,000.” (Sgd)

M

e) One or more of several payees

“I promise to pay P1 or P2 or P3 or order P10,000.”

(Sgd) M

Note: The instrument in this example may also be made

payable “to the order P1, P2, and P3 or anyone of
them or any two of them”

f) Holder of office for the time being as the payee.

“Pay to the order of the cashier of the CPA Review School

of the Philippines (CPAR) P10,000”, (Sgd) D.
Addressed to X.
SECTION 9 – When payable to bearer:

The instrument is payable to bearer:

a) When it is expressed to be so payable.

“Pay to bearer P10,000”. (Sgd) D, addressed to X

b) When it is payable to a person named

therein or bearer

“Pay to P or bearer P10,000”. (Sgd) D, addressed

to X
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.

Example:
“Pay to John Doe P10,000”. (Sgd) D, addressed to X

Requisites of this paragraph:

1) The payee named must be fictitious or non-existent.

2) The one making the instrument so payable must know to
him to be fictitious or non-existing.

“Fictitious person” – mean to be a person who has no right to

the instrument because the drawer or the maker of it so
intended, and, therefore, it does not matter whether the name
of the payee used by the drawer or maker be that of one living
or dead, or one who never existed.
d) When the name of the payee does not purport to be the
name of any person

“Pay to P or order P10,000”. (Sgd) D, addressed to X.

at the back of the instrument: P signed his name and delivered it

to A. The instrument now becomes payable to bearer, because
there is only one endorsement and that endorsement is in blank.
Also, if there are several endorsement but the last endorsement is
in blank, the instrument is payable to bearer.

e) When the only or last indorsement is an indorsement in

blank
Ex:
“Pay to cash”
“Pay to the order of money”
“Pay to the order of cash”
“Pay to the sun”

In these cases, the name of the payee does not purport to be the
name of any person. The instrument therefore is payable to
bearer.
Where payable to the estate of deceased
person:

Ex:
“Pay to the order of the intestate estate of
Diana Z. Gomez, deceased, P10,000.”

(Sgd) D
To: X

Note: This has been held to be payable to bearer.

But this decision is criticized because the estate
of a deceased person is considered as a juridical
person. It would seem, therefore, that the
forgoing instrument is payable to order.
SECTION 10 – Terms, when sufficient

The instrument need not follow the language

of the Act, but any terms are sufficient
which clearly indicate an intention to
conform to the requirements hereof.

Note: Although it is not necessary to use the

exact words of the law, it is advisable to follow
them clearly if possible to avoid uncertainty or
doubt. But be it noted that the clear rule is only
a substantial compliance and not literal
compliance is required.
SECTION 11 – Date, presumption as to

Where the instrument or an 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.

“Prima facie” – a Latin words which mean that the evidence

produces for the time being but this result may be
controverted by contrary evidence.

Application of this Section

1) The instrument contains the date of issue.
2) If bill is accepted, the acceptance is dated.
3) If instrument is endorsed, endorsement is dated.

The date of the instrument, of the acceptance, or date or

indorsement is deemed prima facie to be the true date of
the making, drawing, acceptance or indorsement.
SECTION 12 – Ante-dated and post-dated

The instrument is not invalid for the reason

only that it is ante-dated or post-dated,
provided this is not done for an illegal or
fraudulent purpose. The person to whom
an instrument so dated is delivered
acquires the title thereto as of the date of
delivery.

Application

This section contemplates a situation where an

instrument is ante-dated or post-dated by the
parties in accordance with a mutual agreement
to that effect.
a) When ante-dated

An instrument is ante-dated when the date written thereon

is earlier than the true date of the issuance.

Example:

December 14, 2022

“I promise to pay P or order P10,000.”

(Sgd) M

Note: The date of the instrument is December 14, 2022. But if

this instrument is really delivered by M to P on January 14,
2023, the instrument is considered ante-dated because the
date written thereon is earlier than the true date of its
issuance or delivery.
b) When post-dated

An instrument is post-dated when the date written

thereon is later than the true date of its issuance or
delivery.

Example:
December 14, 2022

“I promise to pay P or order P10,000.”

(Sgd) M

Note: The date of the instrument is December 14, 2014.

But if this instrument is really delivered by M to P on
November 14, 2022, a date earlier than December 14,
2022, date appearing on the instrument, the
instrument is said to be post-dated.
Effect of ante-dating or post-dating

An ante-dated or post-dated instrument is

not rendered invalid or non-negotiable
by that fact alone. It may be negotiated
before or after the date given as long as
it is not negotiated after its maturity.
When ante-dating or post-dating invalidates an
instrument?

The ante-dating or post-dating will invalidate the

instrument if it is done for an illegal or fraudulent
purposes.

Ex:
P wants to charge 24% on a loan of P10,000. He may
acquire the borrower (M) to make a promissory note and
ante-dated it by one year, in order to make it appear
that the period for the payment is two years and that
the interest is for two (2) years at 12% a year.

Note: In this case, the ante-dating is done for the purpose

of avoiding the usury law. The instrument is avoided or
cannot be enforced.
When title is acquired

The person to whom the instrument is delivered acquires

title or ownership over it, not as of the date written on
the instrument, but as of date of actual delivery.

SECTION 13 – When date may be inserted

Where an instrument expressed to be payable at a

fixed after date is issued undated, or where the
acceptance of an instrument payable at a fixed
period after sight is undated, any holder may insert
therein the true date of issue or acceptance and
the instrument shall be payable accordingly. The
insertion of a wrong date does not avoid the
instrument in the hands of a subsequent holder in
due course; but as to him, the date so inserted is to
be regarded as the true date.
When date is necessary

As a rule, the date is not necessary for the

negotiability of the instrument. However, the date
may be necessary to determine the date of
maturity.

In the following cases, the date in the instrument

is also necessary:

1) Where interest is stipulated, to determine when

the interest shall begin to run.
2) To determine whether a party has acted within
a reasonable time, but not to make the
instrument negotiable.
Where holder of the instrument may insert the date:

a) When the instrument is payable at a fixed period

after date.

Example:
“I promise to pay P or order P10,000, 30 days
after date.”

(Sgd) M

Note: In this case, the date of the instrument is necessary

to determine the date of maturity. Under this section,
the holder of the instrument may insert the true date
of issue.
b) When instrument is payable at a fixed period after
sight

Example:
November 10, 2022

“Pay to P or order P10,000, 30 days after sight.”

(Sgd) D
To : X

Note: This instrument was accepted by X, but no date

appears on the instrument as of the date of
acceptance. Under this section, the holder may insert
the true date of acceptance.
SECTION 14 – Blanks; when may be filled

Where the instrument is wanting in any

material particular, the person in possession
thereof has a prima facie authority to complete
it by filling up the blanks therein. And a
signature on a blank paper delivered by the
person…..

Coverage of this section:

The following are the steps in the execution of a

negotiable instrument:

1) The act of writing the instrument completely as

laid down in Section 1.
2) The delivery of the instrument to someone with an
intention of giving effect to it.
Person in possession has authority to fill up the blank:

“Where the instrument is wanting in any material

particular, the person in possession thereof has a prima
facie authority to complete it by filling up the blanks
therein”.

Facts from which prima-facie authority is presumed:

1) want of a material particular in the instrument

2) possession thereof by a person
3) that the person allude has the authority to fill up the
blank.

Example:
November 6, 2022
“I promise to pay to P or order ___________.”

(Sgd) M
Note: If this instrument is found in the possession of P, under
this section, P has a prima-facie authority to fill up the
blank.

Person in possession has authority to fill up to any

amount:

The authority to fill up for any amount requires the following

requisites:

a) The signature appearing in a blank instrument.

b) The person signing in blank delivers it in order that the
paper may be converted into a negotiable instrument. Mere
possession therefore is not enough. Unlike in No. 2 the
authority is to fill up the blank, but not the amount of the
instrument. Example: the date, rate of interest, place of
payment, or anything that will not render the instrument
non-negotiable.
Requisites to hold prior parties liable:

November 26, 2022

I promise to pay to P or order ___________ on demand.

(Sgd) M

Note: M delivers the note to P, and authorizes him to put in

the blank P10,000. In here, the holder may hold M, the
maker and a prior party to the completion because the
two requisites are met, namely:

a) The blank must be filled up in accordance with the

authority given.
b) It was filled up within a reasonable time by assumption.
SECTION 15 – Incomplete instrument not
delivered

Where an incomplete instrument has not been

delivered, it will not, if completed and
negotiated, without authority, be a valid
contract in the hands of any holder, as against
any person who signature was placed thereon
before delivery.

Coverage:

This section applies to an instrument incomplete

and at the same date undelivered.
Effect of want of completion and delivery

a) To parties signing before delivery.

As a rule, the delivery of an incomplete instrument is

necessary to a valid inception of the contract. Although
possession is an evidence of delivery, the perception can be
rebutted. The non-delivery of an incomplete instrument is
a valid defense, not only between the original parties but
also against a holder in due course.

Example:
Date ___________

“I promise to pay ____ or order ___________”

(Sgd) M
b) To parties participating after completion and delivery.
The holder of an original incomplete and undelivered
instrument may enforce payment against parties
signing the instrument after its completion.

November 14, 2022

“I promise to pay to P or order P___________”

(Sgd) M

Real Defense – the defense of a party signing the

instrument prior to its delivery that it is not valid for
having been incomplete and undelivered. Such a
defense can be interposed not only against one who
is not a holder in due course but also against a holder
in due course. Be it noted that the law uses the term
“any holder” which includes a holder in due course.
Therefore, a real defense.