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*All kinds of NI are either promises to pay or order to pay money

CHAPTER I FORM & INTERPRETATION which possess a characteristic of negotiability

SECTION 1. Form of negotiable instruments - An instrument to be 1. In order for a PROMISSORY NOTE to be negotiable, the
negotiable must conform to the following requirements: requirements in subsections: A, B, C, and D must be present.
For a BILL OF EXCHANGE, requirements in subsections: A,
(a) It must be in writing and signed by the maker or drawer; B, C, D, and E must be present.
2. Subsection A: Maker person issuing the promissory note.
(b) Must contain an unconditional promise or order to pay a sum Drawer- person issuing a bill of exchange.
certain in money; 3. Subsection B: Promissory Note = unconditional promise. Bill
of exchange = unconditional order.
(c) Must be payable on demand, or at a fixed or determinable future 4. Subsections C & D is applicable to both while E is only for
time; BOE.

(d) Must be payable to order or to bearer; and Formal Requirements Explained.

(e) Where the instrument is addressed to a drawee, he must be named 1. The instrument must be in writing reduced to a tangible
or otherwise indicated therein with reasonable certainty. form so that it can be passed from hand to hand.
- Written with a pen/pencil or printed
INSTRUMENT. Makes it difficult to determine
Commercial Paper written promises or obligations from liability.
commercial transactions with the use of promissory notes and 2. The instrument must be signed by the maker or drawer
bills of exchange. signature may appear anywhere on the paper even though
*either negotiable or non-negotiable and should arise from the gen. rule states that it should be place at the lower right
commercial transactions hand corner. A signature will be the binding force of the
Negotiable Instrument Section 1 give the definition of a instrument.
negotiable instrument. It is also a contractual obligation to pay - Signature is prima facie evidence (intention to be
money. bound/not) HOWEVER, if the signatorys capacity
is not clear, he will be deemed as an INDORSER &
Formal Requirements of Negotiability in General not the maker or the drawer.
- Signature of the maker/drawer is usually
*WON an instrument is negotiable or non-negotiable heavily depends WRITTEN. Preferably the full name but initials or
on its forms and content. any mark will suffice as long as SIGNATURE BE
USED AS A SUBSTITUTE and the maker/drawer
To determine the negotiability of the instrument: intend to be bound by it.
- Signatures are always presumed valid but if it is
1. The whole of the instrument questioned, the party questioning it must provide
2. Only what appears on the face of the instrument evidence/s to prove the invalidity of the signature.
3. The provisions of the NIL especially Section I Likewise, the party accused must prove its validity.
3. The instrument must contain an unconditional
Applicability of Formal Requirements promise/order to pay NI can either be classified as
promises or orders to pay.
4. The instrument must be payable in a sum certain in b) NNI may not be negotiated but it may be assigned or
money must call for the payment of a sum certain in transferred, thus, leave an express prohibition against
money. assignment/transfer on the face of the instrument.
- Money is the one standard of value in actual c) Transfers are governed by the Civil Code on assignment
business. a particular kind of current money in on contract rights. It also governs when a NI is
which payment is to be made improperly negotiated to a third person (transferee).
- Money = cash. Medium of exchange authorized by d) Persons who transfer or assigns contractual/non-
domestic and foreign government as part of its negotiable rights pass only the rights that they had.
currency. Includes all legal tender that currency
which a debtor can legally compel a creditor to Promissory Note defined.
accept in payment of a debt in money when
tendered by the debtor in the right amount. *NPN is an unconditional promise in writing made by one person to
5. The instrument must be payable at a fixed or another, signed by the maker, engaging to pay on demand, or at a
determinable future time or in demand. fixed or determinable future time, a sum certain in money to order or
6. The instrument must be payable at a fixed or to bearer.
determinable future time/on demand.
7. The instrument must be payable to order. - written promise to pay a sum of money
8. The instrument must be payable to bearer. - Referred to as note
9. The drawer must be named. - May be a demand instrument but is normally a time
- Cannot be a bill if not addressed to anyone but instrument.
acceptable without name as long as the drawee - PROMISE PAPER/two-party paper
indicated therein with reasonable certainty. (e.g.
treasurer of a named corporation) Original Parties to a Promissory Note
- For the payee or holder to know to whom he will
accept payment 1. Maker the one who makes and signs the instrument.
- Promissory note has NO DRAWEE. But the payee Payee to whom the promise is made/to whom the
must also be named with reasonable certainty instrument is payable to
2. Payee may designated by name/office/tittle(e.g.
Treasurer of X Corp)/unspecified (e.g. bearer)
3. May seek for payment or further negotiate the
instrument. The maker promises to pay to the payee
or to a holder.
Non-negotiable Instruments defined. 4. Makers signature must be present for him to be liable.
After PN/BOE is issued, additional parties may become
*Not negotiable instrument that does not meet the requirements for involved as well.
it to be negotiable or was negotiable until it lost its quality of
negotiability Bills of Exchange defined

a) Check Payable only to a SPECIFIED PERSON. (e.g. *NBOE is an unconditional order in writing addressed by one person
Pay to Lana del Rey) it ceases to become negotiable if to another, signed by the person giving it, and requiring the person to
it prohibits further transaction or negotiation of the whom it is addressed to pay upon the demand or at a fixed or
instrument. determinable future time a sum certain in money to order or to
- An order made by one person to another to pay money SECTION 2. What constitutes certainty as to sum - The sum payable
to a 3rd person. is a sum certain within the meaning of this Act, although it is to be
- Check drawn on a bank and payable on demand paid:
(most common type of order paper)
- Also known as ORDER PAPER (a) With interest; or

Original Parties to a Bill of Exchange (b) By stated installments; or

*3 parties: drawer, drawee, and the payee (c) By stated installments, with a provision that, upon default in
payment of any installment or of interest, the whole shall become due;
1. Drawer person who issues & draws the order bill. He gives or
the order to pay money to a 3rd person. Pays indirectly.
2. Drawee party upon whom the bill is drawn. The bill is (d) With exchange, whether at a fixed rate or at the current rate; or
addressed to this party and is the one expected to pay the third
person in behalf of the drawer. (e) With costs of collection or an attorney's fee, in case payment shall
- Becomes an acceptor when he agrees to pay the not be made at maturity.
bill for the drawee.
- By accepting, he becomes personally liable like Certainty of Sum Payable
the maker of the note, the drawer becoming
only a surety. *requisite for the negotiability of the instrument to assure the clarity
3. Payee Whose favor of the bill is originally issued/payable and certainty in determining the value of the instrument
- May be specifically designated or may an
office/title, or unspecified. 1. Payment of fixed amount of money. as a substitute for
money it is essential that it represents A FIXED AMOUNT TO
Idea & Purpose of a Bill of Exchange BE PAID WHOLLY IN MONEY.
- The amount to be paid must be stated plainly
a) Drawers funds in hands of drawee the fundamental idea of on the face of the instrument WITHOUT
BOE is that the drawer has funds in the custody of the drawee REFERENCE TO ANY OUTSIDE SOURCE.
in which the former wants to be paid to the payee. - Sum Certain = the holder can determine the
b) Liability of drawee for non-payment If the drawer has exact amount he will receive from the
actual funds with the drawee and the latter refuses to accept, instrument
then, he will be liable to the drawee (for resulting damages and
harm done to his credit). If the drawer does not have funds Example:
with the drawee, it is presumed that the former has made
arrangements with the latter. The drawee may then ask for a. To pay 1,000 or what may be due on my current deposit/which
reimbursement. may be due to him/reasonable wage for six days work
- Drawee may be liable to drawer, if they have an
established agreement obliging the drawee to *Not negotiable if it calls for an act other that the payment
honor the order of the drawer or a DEBTOR- of money
CREDITOR relationship.
2. Permissible clauses or stipulations certain if a clause in the
instrument states that it is to be paid with interest, by
installments, with exchange, with costs of collection, or with 1. Meaning of exchange the charge for the expense of
attorneys fees. providing funds at the place where instrument is payable to
- The basic test for certainty is WON the holder meet the instrument which is issued at another place.
can determine by calculation/computation the - May be paid at a fixed/current rate
amount payable 2. Payment in foreign currency current rate of exchange at any
given time can easily be ascertained.
Sum to be paid with Interest - Deemed by the law as sum certain
3. Payment with exchange rate applicable only to foreign bills
1. Interest at fixed rate makes certain the sum payable and 4. Exchange not applicable to inland/domestic bill no
therefore renders the instrument negotiable exchange in inland/domestic
- R.A. No. 8183 = every obligation must be paid
Example: in Philippine currency but parties may agree
that the obligation be settled in any other
I promise to pay P2 or order 10,000, with interest at 15% per currency.
annum. *10k is specified and the interest makes it easier to
compute Sum to be paid with costs of collection or an attorneys fee

2. Interest at increased or reduced rate does not affect the 1. Increase in amount due effective after maturity until the
negotiability instrument matures, the amount payable is certain.
2. Liability for attorneys fee may be reduced by the courts if
Sum to be paid by stated installments unconscionable/unreasonable. Also, it will be in a reasonable
amount if not specified
*does not affect the negotiability 3. Acquisition of instrument after the maturity would not be a
holder in due course as if it were non-negotiable
Stated Installments a) interest of each statement, b) the due
date of each installment must be fixed in the instrument SECTION 3. When promise is unconditional - An unqualified order
or promise to pay is unconditional within the meaning of this Act
Sum to be paid by stated installments w/ acceleration clause though coupled with:
1. Acceleration dependent on maker does not affect the (a) An indication of a particular fund out of which reimbursement is to
negotiability be made or a particular account to be debited with the amount; or
- Acceleration clause means that a promise if any
installment/interest is not paid, the whole shall (b) A statement of the transaction which gives rise to the instrument.
become due.
- The payee/holder CANNOT accelerate the note But an order or promise to pay out of a particular fund is not
unless the maker fails to pay any installments unconditional.

Sum to be paid with exchange When a promissory note contains promise to pay

*Payable in foreign currency (does not destroy negotiability) 1. Implied promise to pay may not necessarily use the word
promise. Other words may be used like: payable, to be paid, I
agree to pay, obliges to pay, good for, and due on demand etc.
on the instrument.
2. Bare acknowledgement of indebtedness not negotiable if *Still negotiable because order to pay is conditional. The fund
I.O.U, due P 10000, for value received, etc. but becomes indicated is not the only source of payment but only the source of
negotiable if words like due P or order, due P or bearer, I.O.U. reimbursement which is a subsequent act
1000 to be paid on Sept. 3.
Indication of a particular fund out of which payment is to be
When bill of exchange contains an order to pay made

1. Words equivalent to an order to pay may use other words *An instrument payable out of a particular/specified fund is non-
like let the bearer, W will much oblige R to pay P or order. negotiable because the amount to be paid is dependent on the
2. Mere request to pay not a request and merely ask or expects adequacy or existence of the designated fund.
the drawee to pay but DEMANDS it.
- Order is a command/imperative direction. Reimbursement Payable out as DIRECT SOURCE of payment
Words like request, wish, hope, and authorize
will not suffice for negotiability. The use of Test of Negotiability = the instrument carries the general personal
please does not convert the order to request. credit of the maker/drawer.
3. Liability of drawer negotiability depends on the terms of the
order and not whether the drawee obeys to pay or not. Example:

When promise/order to pay unconditional a) I promise to pay P or order the sum P10000 out of my salary in
the government or out of the proceeds of the sale of my shares
1. Instrument payable absolutely the promise or order to pay of stock.
must not be subject to any condition/contingency b) Pay the bearer the sum of P10000 out of the dividends which I
- Except provided by law like implied conditions may receive from X corporation.
of presentment, protests, and notice of *drawee is limited to the fund indicated.
2. Reason for requisite enhances the ability of the instrument *The intention to limit the payment to a particular fund MUST BE
to circulate freely because people will not accept an instrument MADE PLAIN. Any ambiguous or vague words will render the
if the right to recover is not unconditional or absolute instrument non-negotiable.
- Non-negotiable if it contains a condition even if
the event will likely to happen or if it happened Indication of a particular fun to be debited with the amount
3. Terms not affecting unconditional liability indication of a
particular fund out of which reimbursement is to be made or *Negotiable because it is not conditional. The payment does not
an indication of a particular account to be debited w/ the depend on the existence or adequacy of the fund because payment is
amount does not render the promise/order conditional. made first before the account is debited.
- Additional terms such as statement of purpose
does not affect negotiability as long as the duty Statement of transaction which give rise to instrument
to pay is unaffected by such terms
1. Mere recital of consideration for instrument or origin of
Indication of a particular fund out of which reimbursement transaction does not render it conditional and non-
is to be made negotiable

I promise to pay to the order of P 400000 being the price of a car the person liable be required to pay or when will the obligation
this day sold and delivered to me or as per our contract. of the secondary parties arise.

*Merely identifies the source of transaction and does not qualify When instrument payable at determinable future time
the order or promise to pay conditional
*Instrument only payable upon contingency is not negotiable because
2. Terms & Conditions contained in another paper renders the it does not appear on its face WON it will be paid.
instrument non-negotiable because this will require an
examination of the said contract. Examples:
- The negotiability or non-negotiability of the
instrument must be determined immediately on 1. Payable at fixed time the future date is specified
what appears on its face alone and not 2. At a fixed period after date - sixty days after date maturity
elsewhere. may be determined beforehand by counting 60 days from the
date of issuance
SECTION 4. Determinable future time; what constitutes - An 3. At a fixed period after sight means after the instrument is
instrument is payable at a determinable future time, within the seen by the drawee after acceptance
meaning of this Act, which is expressed to be payable: 4. On/before a fixed time on or before September 19, 2015
has an option to pay on the day or before. The year must be
(a) At a fixed period after date or sight; or stated in order for it to be determinable.
5. On/before a determinable fixed time on or before the school
(b) On or before a fixed or determinable future time specified therein; starts
or 6. On the occurrence of a specified event upon the death of his
(c) On or at a fixed period after the occurrence of a specified event 7. After the occurrence of a specified event 3 days after the
which is certain to happen, though the time of happening be death
uncertain. 8. Upon Contingency pay upon his reaching the age of
An instrument payable upon a contingency is not negotiable, and the - Non-negotiable because the order is
happening of the event does not cure the defect. CONDITIONAL. The person may die before
reaching the age of majority.
Certainty of time of payment - Contingency = uncertain future event or an
even which may not happen (e.g. will pay if his
1. Instrument payable at all events essential requirement for cat dies within 3 months)
negotiability for the payment of an instrument will certainly
become due & demandable on time/other SECTION 5. Additional provisions not affecting negotiability - An
2. When time of payment certain if theres a fixed term/time, instrument which contains an order or promise to do any act in
the instrument is payable upon maturity or upon the arrival of addition to the payment of money is not negotiable. But the negotiable
the time for payment. If payment on demand, the holder may character of an instrument otherwise negotiable is not affected by a
call for payment at any time. Checks must be payable on provision which:
3. Reasons why time must be certain so that the holder may (a) Authorizes the sale of collateral securities in case the instrument
know the when he can ENFORCE the instrument or when will be not paid at maturity; or
(b) Authorizes a confession of judgment if the instrument be not paid - Waiver of protest, presentment for payment, or
at maturity; or demand does not destroy negotiability
d) Election of holder to require some other act example:
(c) Waives the benefit of any law intended for the advantage or I promise to pay 10,100 or an air conditioner at the
protection of the obligor; or option of the holder
- Giving the holder an option does not affect
(d) Gives the holder an election to require something to be done in negotiability but if it is stated w/o the option
lieu of payment of money. then it becomes non-negotiable

But nothing in this section shall validate any provision or stipulation SECTION 6. Omissions; seal; particular money - The validity and
otherwise illegal. negotiable character of an instrument are not affected by the fact that:

Acts in addition to payment of money (a) It is not dated; or

*Must be payable in sum certain in money (b) Does not specify the value given, or that any value had been given
therefor; or
1. General Rule the instrument is non-negotiable if it
orders/promises to do an act aside to the payment of money. (c) Does not specify the place where it is drawn or the place where it is
Based on the fact that once could be indorsed, the other will payable; or
have to be assigned.
2. Exceptions (d) Bears a seal; or
a) Sale of collateral securities example: I promise to
pay P or order the sum of 10,000 on Sept. 19, 2015 (e) Designates a particular kind of current money in which payment is
secured by a ring I delivered to him by way of pledge to be made.
and which he could sell should I fail to pay him at
maturity. But nothing in this section shall alter or repeal any statute requiring in
- The additional act is to be done after the certain cases the nature of the consideration to be stated in the
maturity when the instrument becomes private instrument.
and non-negotiable. Until the maturity,
payment of money is assured. Effect of omission of date
- Adds to the marketability. NOTE: the additional
statement does not subject the promise/order 1. Date generally not necessary will not affect the negotiability
to the terms & conditions of the pledge because because a date in a bill or note is not necessary. The
it is done after. instrument will be considered to be dated as of the time of
b) Confession of judgment written acknowledgement by issuance.
the defendant of his liability to the plaintiff. 2. Date stated not in calendar the law will consider the nearest
- Example see page 39 date of the month the date intended. (e.g. September 31 will be
- Invalidity of the provision as to the confession September 30)
does not render the instrument non-negotiable 3. When date necessary cases where date is necessary to
- Confession after the action is brought to save determine the date of maturity:
expenses in VALID. a) Date is tied to the date of issue (e.g. payable thirty days
c) Waiver of benefit granted by law example: pay after date)
bearer 10,000. Notice of dishonor waived.
b) Where interest is stipulated, a date must be present for When instrument payable on demand
c) PN date of issue, BOE the date of the last *Instrument is payable in demand among secondary & immediate
negotiation parties. No difference between holder in due course and a person not a
- May be ante-dated/post-dated holder in due course in immediate parties.

Effect of omission of value Instruments payable on demand is due and payable

immediately after delivery. Its a present debt due at once.
*Does not affect negotiability because consideration is presumed Time Instruments payable at a definite time

Effect of omission of place 1. Expressed to be payable on demand

- On demand, at sight, on presentation, on call,
*Does not affect because it is presumed to be payable at the place of or anytime called for may be used
residence/business of the maker or drawer - PN = on demand, BOE = at sight
- Overdue instrument is automatically a demand
Effect of presence of seal paper.

*Prohibited in American law & will be governed by contracts under Example:

seal but not in the Philippines. It does not destroy negotiability
Pay to P or order 10,100 payable on demand because it
- It is advisable to have a bill or note appear in a does not express the time for payment
public instrument so that it will be included
among the preferred credits 2. Payable on demand as regards the maker

Effect of designation of particular kind of current money Example:

A noted date July, 2, 2013 and payable 30 days after the date
*does not require payment should be made in legal tender. Can either is issued on August 4, 2013 (when it is already due).
be domestic/foreign money which has FIXED VALUE in relation to
our money. 3. Payable on demand as regards the acceptor
SECTION 7. When payable on demand - An instrument is payable A bill payable on Aug. 20, 2013 is accepted by the drawee on
on demand: Aug. 21, 2013.
4. Payable on demand as regards
(a) When it is so expressed to be payable on demand, or at sight, or on Example:
presentation; or A note payable 3o days after after Aug. 1, 2013 is indorsed on
September 2013.
(b) In which no time for payment is expressed.
SECTION 8. When payable to order - The instrument is payable to
Where an instrument is issued, accepted, or indorsed when overdue, it order where it is drawn payable to the order of a specified person or to
is, as regards the person so issuing, accepting, or indorsing it, payable him or his order. It may be drawn payable to the order of:
on demand.
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or *A name or description with certainty is a must for the instrument
to be negotiable otherwise there will be no payee and nobody to
(c) The drawee; or give the order to/collect in authority

(d) Two or more payees jointly; or SECTION 9. When payable to bearer - The instrument is payable to
(e) One or some of several payees; or
(a) When it is expressed to be so payable; or
(f) The holder of an office for the time being.
(b) When it is payable to a person named therein or bearer; or
Where the instrument is payable to order, the payee must be named or
otherwise indicated therein with reasonable certainty. (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;
When instrument payable to order or

*Standardized words of negotiability to the order of, or order, or (d) When the name of the payee does not purport to be the name of
bearer, and to bearer. Conveys the consent that the instrument may be any person; or
transferred and thus, allowing further negotiation.
(e) When the only or last indorsement is an indorsement in blank.
Instrument is payable to order where it is drawn payable:
When instrument is payable to bearer
1. To the order of a specified person; or
2. To him or his order Bearer person in possession of the bill/note which is payable to
bearer/legally qualifies as a bearer instrument.
*Therefore, an instrument payable to a specified person (e.g. Pay to
Lana) is not an order instrument and is not negotiable because it is *Instrument is discharge when an instrument is payable to bearer
only limited to one person. at/after maturity.

Examples: *For added security, the holder may require indorsement of the
1. Pay to the order of 10,000
2. Pay to P or order 10,000 *An instrument fails to qualify as an order instrument is negotiable if
it is payable to bearer.
*other words may be used like to P and assigns will do aside
from to the order of or or order. NOTE: Subsections A&B bearer of instruments o the face.
Subsections C, D, &E order of instruments on the face. Both are
See page 47 for persons to whose order an instrument may be bearer instruments.
made payable by the maker/drawer
1. Expressed to be payable to bearer I promise to pay to bearer
Effect where payee not named or described 10,000. <- negotiable. Payable to bearer, P <- non-negotiable
because it only describes P.
2. Payable to person named therein or bearer Pay to P or
bearer 10,000
3. Payable to order of a fictitious person Pay to John Doe or deemed prima facie to be the true date of the making, drawing,
order 10,000. <- payable to order and not to order. acceptance or indorsement, as the case may be.
- Fictitious person is meant to be one who has
not right to it because the maker/drawer *An instrument with a date is presumed that the said date is the date
intended it no matter if the name used is when it was made by the maker, drawn by the drawer, accepted by the
true/not. drawee, or indorsed by the payee/holder.
- Payable to bearer because the drawer knows the
payee is not capable of indorsing thus he - If another person claims otherwise, he shall
intended the same to be transferred by mere have the burden to establish such claim.
4. Payable to order of a non-existing person Payable to the Date in instrument payable at a fixed future date.
order of the King of Planet Jupiter. <- manifest intention of the
drawer is to make the instrument a bearer paper negotiable by *Date is not required for an instrument to be negotiable.
5. Name of payee not name of person Pay to cash, Pay to No need for date if instrument is payable at a: 1) Fixed Future Date
money <- does not purport to designate a specific payee thus w/o stipulation of interest. E.g. I promise to pay P or bearer P10, 000
a payable to bearer. on August 10, 2013 **without the interest, there is no need to
6. Only indorsement in blank see page 52 determine the date of issuance.
7. Last indorsement in blank see page 52
Date is necessary to determine MATURITY BUT NOT
*Blank indorsement does not render non-negotiability. It becomes NEGOTIABILITY.
negotiable as a bearer instrument.
SECTION 10. Terms, when sufficient - The instrument need not
follow the language of this Act, but any terms are sufficient which 1. Instrument payable at a fixed period after date. (e.g.) 30 days
clearly indicate an intention to conform to the requirements hereof. after date, I promise to pay P or order P10, 000.
2. Instrument payable at a fixed period after sight or
Criterion of Negotiability presentment. (e.g.) Pay P or order P10, 000 thirty days after
*Advisable to use the words prescribed by law but any words will
suffice. Date in instrument payable on demand.

1. Clear intention of the parties substance of the transaction *instrument payable on demand does not need any date since it is
over its form is the criterion. demandable any time.
- As long as the intention to make the instrument
negotiable can be determined, it will be However, it is required under Sec. 71 that a PM must be present for
enforceable. payment WITHIN A REASONABLE TIME AFTER ISSUE and in case
2. Mere defect in language or grammatical error does not of BOE, WITHIN A REASONABLE TIME AFTER LAST
affect the negotiability. (e.g. from himself order be change to NEGOTIATION thereof. Otherwise, persons secondarily liable may be
himself or order.) released from their liability.

SECTION 11. Date, presumption as to. Where the instrument or

an acceptance or any indorsement thereon is dated, such date is
Thus, THE DATE OF ISSUE IS REQUIRED IN THIS CASE to a) Where an instrument is payable at a fixed period after date but
determine WON a party has acted within the reasonable amount of is issued undated
time but not to make the instrument negotiable. b) Where an instrument is payable at a fixed period after sight
but the acceptance is undated
SECTION 12. Ante-dated and post-dated. The instrument is not
invalid for the reason only that it is ante-date or post-dated, provided *any holder in this case may insert the true date of issue or acceptance
this is not done for an illegal or fraudulent purpose. The person to and the instrument shall be payable accordingly. As aforementioned,
whom an instrument so dated is delivered acquires the title thereto as date is necessary to determine the maturity because one will never
of the date of delivery. know when an instrument may be due or be deemed demandable.

Ante-dated date is EARLIER than the true date of issuance. Effect of insertion of wrong date.

Post-dated date is LATER than the true date of issuance. 1. As to holder with knowledge (holder not in due course)
insertion of wrong date by a person with knowledge acting in
Effect of ante-dating and post-dating. bad faith makes the instrument invalid but not to a
subsequent holder in due course who may enforce the same
1. Generally ante-dating and post-dating an instrument does notwithstanding the improper date.
not render it invalid or non-negotiable. 2. Subsequent holder in due course a person without
- CAN BE NEGOTIATED BUT NOT AFTER knowledge acting in good faith. The instrument is valid in this
MATURITY. case and the wrong date inserted is to be regarded as the true
- The person, who received such instrument, date.
acquires the title thereto as the DATE OF
DELIVERY. SECTION14. Blanks, when may be filled. Where the instrument is
2. If done for an illegal or fraudulent purpose The instrument wanting in any material particular, the person in possession thereof
becomes invalid. has a prima facie authority to complete it by filling up the blanks
Example: 1.) ante-dating to conceal the charge of usurious therein. And a signature on a blank paper delivered by the person
interest; 2.) post-dated check in payment of an obligation making the signature in order that the paper may be converted into a
because of insufficiency of funds w/o bona fide intention to negotiable instrument operates as a prima facie authority to fill it up
cover the amount of the check (unless the payee is informed). as such for amount. In order, however, that nay such instrument,
when completed, may be enforced against any person who became a
SECTION 13. When date may be inserted. Where an instrument party thereto prior to its completion, it must be filled up strictly in
expressed to be payable at a fixed period after date is issued undated, accordance with the authority given and within a reasonable time. But
or where the acceptance of an instrument payable at a fixed period of any such instrument, after completion, is negotiated to a holder in
after sight is undated, any holder may insert therein the true date of due course, it is valid and effectual for all purposes in his hands, and
issue/acceptance, and the instrument shall be payable accordingly. he may enforce it as if it had been filled up strictly in accordance with
The insertion of a wrong date does not avoid the instrument in the the authority given and within a reasonable time.
hands of a subsequent holder in due course; but as to him the date is
so inserted is to be regarded as the true date. INCOMPLETE DELIVERED. *personal defense meaning the
invalidity of instrument varies. It depends if the holder is in due
When date may be inserted. course. Ergo, a HIDC can raise this rule as personal defense but a
NHIDC cannot use this as a defense because he caused the invalidity
*this provision authorizes two cases in which insertion of date is of the instrument.
Steps in issuance of negotiable instrument. INCOMPLETE UNDELIVERED. *real defense meaning
instrument is really defective and deemed invalid in all
1. The mechanical writing of the instrument in accordance to the circumstances. It is totally ineffective like there is no contract at all.
provisions of NIL.
2. The delivery of the instrument with the intention of giving Rules:
effect to it.
1. The instrument will not be valid in the hands of any holder.
Rules where instrument incomplete but delivered. 2. The holder, however, can go after the party who caused the
invalid delivery and the parties after.
1. Authority to fill up the blanks the holder has the prima facie
authority to COMPLETE AN INCOMPLETE INSTRUMENT by SECTION 16. Delivery; when effectual; when presumed. - Every
filling up the blanks. contract on a negotiable instrument is incomplete and revocable until
- Material Particular: any particular proper that delivery of the instrument for the purpose of giving effect thereto. As
may be inserted in a negotiable instrument to between immediate parties and as regards a remote party other than a
make it complete, and the power to fill in the holder in due course, the delivery, in order to be effectual, must be
blanks extends, therefore, to every complete made either by or under the authority of the party making, drawing,
feature of the instrument. accepting, or indorsing, as the case may be; and, in such case, the
2. Authority to put any amount a signature on a blank delivery may be shown to have been conditional, or for a special
instrument serves as a prima facie authority to fill it up as such purpose only, and not for the purpose of transferring the property in
for any amount of money. the instrument. But where the instrument is in the hands of a holder
- the signee must have the intention to convert in due course, a valid delivery thereof by all parties prior to him so as
the signed paper to a negotiable instrument to make them liable to him is conclusively presumed. And where the
3. Right against party prior to completion the instrument may instrument is no longer in the possession of a party whose signature
be enforced only against a party prior to the completion (so appears thereon, a valid and intentional delivery by him is presumed
long the instrument is filled in strict accordance w/ the until the contrary is proved.
authority & w/in a reasonable amount of time.
4. Right of holder in due course the defense that the
instrument had not been filled up accordingly and within COMPLETE UNDELIVERED. *personal defense
reasonable time is not available as against a holder in due
course. Rules:

*The rule in section 14 simply states that if one or more persons 1. Complete instrument but not delivered is still considered
suffer due to the bad faith of another, the one who caused it must REVOCABLE.
hold the liability. Ergo, the rule protects persons who acted in - Delivery means transfer of possession, actual
good faith. or constructive, from one person to another.
- Issue meaning the first delivery of the
SECTION 15. Incomplete instrument not delivered. - Where an instrument, complete in form, to a person who
incomplete instrument has not been delivered, it will not, if completed takes it as holder.
and negotiated without authority, be a valid contract in the hands of - Holder means the payee or indorsee of a
any holder, as against any person whose signature was placed thereon bill/note who possesses it or the bearer.
before delivery. 2. As to immediate parties and remote parties, who are holders in
due course, for delivery to be effectual it must be in accordance
to the authority given. *there is a prima facie presumption of provisions of the instrument, the written provisions prevail;
delivery but subject to rebuttal
- Undelivered instrument is inoperative (e) Where the instrument is so ambiguous that there is doubt whether
because delivery is prerequisite to liability. it is a bill or note, the holder may treat it as either at his election;
- However, if it is no longer in the possession of
the person who signed it and it is complete in (f) Where a signature is so placed upon the instrument that it is not
terms, it is assumed that there was a valid and clear in what capacity the person making the same intended to sign,
intentional delivery. he is to be deemed an indorser;
a) Immediate parties parties having the knowledge
of the conditions/limitation placed upon the delivery of (g) Where an instrument containing the word "I promise to pay" is
the instrument. signed by two or more persons, they are deemed to be jointly and
b) Remote parties parties who are not in direct severally liable thereon.
contractual relation to each other. No knowledge or
notice of any defect in the instrument. Rules of construction in case of ambiguity or omission.

*When delivery is made, it is presumed to be made with the *The rules only apply if there is ambiguity or omission. If the
intention to transfer ownership of the instrument to the payee. instrument is clear, it must be enforced as it reads.

1. Sums expressed in words and in figures different Words

3. Instrument if in the hands of HIDC, delivery is conclusively
control over figures. Reason: it is easy to change the figures/to
commit mistakes on them.
*HIDC instrument is valid and he can collect 2. Words ambiguous or uncertain Words outweigh figures.
*NHIDC instrument is invalid and he cannot When words are unclear, reference may be made to the figures.
collect/demand. Reference should be made ONLY when the words are unclear.
Otherwise, words should always be followed.
SECTION 17. Construction where instrument is ambiguous - Where 3. Date when stipulated interest to run not specified the
the language of the instrument is ambiguous or there are omissions interest will run from the DATE OF ISSUANCE.
therein, the following rules of construction apply: 4. Instrument undated considered to be dated as of the date of
(a) Where the sum payable is expressed in words and also in figures 5. Written and printed words in conflict Written words prevail
and there is a discrepancy between the two, the sum denoted by the over printed ones. Reason: written words are deemed to
words is the sum payable; but if the words are ambiguous or express the TRUE INTENTION of the maker or drawer
uncertain, reference may be had to the figures to fix the amount; because he placed them there by himself.
6. Whether instrument bill/note in doubt the holder of the
(b) Where the instrument provides for the payment of interest, instrument may decide whether it is a bill or note
without specifying the date from which interest is to run, the interest 7. Capacity in which person signed in doubt the person who
runs from the date of the instrument, and if the instrument is signed with doubt as to capacity becomes an indorser.
undated, from the issue thereof; (because it assumes least liability)
- the placement of signature in the instrument is
(c) Where the instrument is not dated, it will be considered to be not in accordance to the norm or the law
dated as of the time it was issued; 8. Instrument signed by two/more persons liability may either
be solidary/joint.
(d) Where there is a conflict between the written and printed
- I promise to pay and signed by two or more *Giving authority to an agent may be given orally or in writing subject
persons gives rise to solidary liability. to the provisions of the Statute of Frauds. It will suffice, however, if
Meaning, the parties involved will pay the the agent signs along with the name of the principal. Then, it will
WHOLE AMOUNT. If the amount is 5k, each clearly show that the agent the authority to sign in the principals
will pay 5k to the payee. behalf.
- We promise to pay and signed by two or more
persons gives rise to joint liability. Meaning,
the parties involved will pay the amount SECTION 20. Liability of person signing as agent, and so forth. -
EQUALLY. If the amount is 5k, it will be Where the instrument contains or a person adds to his signature
divided among the parties. words indicating that he signs for or on behalf of a principal or in a
representative capacity, he is not liable on the instrument if he was
SECTION 18. Liability of person signing in trade or assumed name. duly authorized; but the mere addition of words describing him as an
- No person is liable on the instrument whose signature does not agent, or as filling a representative character, without disclosing his
appear thereon, except as herein otherwise expressly provided. But principal, does not exempt him from personal liability.
one who signs in a trade or assumed name will be liable to the same
extent as if he had signed in his own name. When agent may escape personal liability.

Persons liable on an instrument. 1. He is duly authorized

2. He adds words to this signature indicating that he is an agent,
1. General rule only persons whose signatures appear on an signing in behalf of a principal
instrument are liable. 3. He discloses his principal
2. Exceptions:
a) Person signs in a trade or assumed name Use of descriptive words w/o disclosure of principal.
b) Principal is liable if the duly authorized agent signs on
his own behalf *Descriptive words are not sufficient to relieve the agent from
c) In case of forgery, the forger is liable even if his personal liability. There is a need to disclose the principal in order for
signature does not appear on the instrument the agent to be free from any liabilities. Words like agent, trustee,
d) When acceptor makes his acceptance of a bill on a or guardian, etc. are but descriptive personae (i.e. describing the
separate paper person who signed the instrument.) As between immediate parties,
e) When a person makes a written promise to accept a bill evidence may be presented to show that the signer acted as mere
before it is drawn agent to a principal and the payee knew this fact. (In case the agent is
being sued by the payee)
Signing in trade or assumed name.

*One who signs in a trade/assumed name is liable AS IF HE SIGNED

HIS OWN NAME. SECTION 21. Signature by procuration; effect of. - A signature by
"procuration" operates as notice that the agent has but a limited
authority to sign, and the principal is bound only in case the agent in
SECTION 19. Signature by agent; authority; how shown. - The so signing acted within the actual limits of his authority.
signature of any party may be made by a duly authorized agent. No
particular form of appointment is necessary for this purpose; and the Procuration act by which a principal gives power to another to act
authority of the agent may be established as in other cases of agency. in his place as he could himself (i.e. proxy)

Signature by an authorized agent.

*Procuration gives a warning that the agent has limited authority. alteration of an instrument in the name, amount, description of
Ergo, the person dealing with him must know the agents limitations. the person and the like, with the intent to defraud.
The agent will be liable if he exceeds his actualy limits of authority.
Application of Section 23.
SECTION 22. Effect of indorsement by infant or corporation.- The
indorsement or assignment of the instrument by a corporation or by Two cases:
an infant passes the property therein, notwithstanding that from want
of capacity, the corporation or infant may incur no liability thereon. 1. Signature on the instrument affixed by one who is not an
agent/has no authority to bind the person whose signature he
Effect of indorsement by incapacitated persons. has forged
2. Signature affixed by one who pretends to be an agents but has
1. Minors contracts entered into a minor are voidable at his actually no authority to bind the alleged principal
instance or his guardian.
- Minors are NOT BOUND by his indorsement *Effect: signature will be wholly inoperative and no right can be
but it does not mean that the transfer is invalid. acquired through the forged signature. Forgery is a REAL DEFENSE
INDORSEMENT BY MINORS IS VALID. even against a holder in due course.
Minority is a real defense.
- However, a minor may be held liable if he is *Forgery is not presumed. It must be proven with clear and
guilty of fraud. (e.g. pretending to be of age convincing evidence.
even if he is not)
2. Other incapacitated persons their capacity is a real defense. Rules on forgery.

Effect of indorsement by a corporation. 1. In case of forgery, the instrument is not totally void. Only the
forged signature/indorsement is inoperative.
*Section 22 applies only when a corporation commits ultra vires 2. General Rule: no right can be acquired through forged
acts or acts beyond its power. signature or indorsement.
3. Exceptions:
*Corporation is not liable in suit thereon by an indorsee, where a) Preclusion
the corporation is w/o capacity to make the contract in fulfillment - Estoppel: persons who act in silence or
of which they were executed. negligence will be estopped from waving the
defense of forgery
SECTION 23. Forged signature; effect of. - When a signature is - Those who warrant the genuineness of the
forged or made without the authority of the person whose instrument
signature it purports to be, it is wholly inoperative, and no right to b) Forged signature is not necessary to acquire title
retain the instrument, or to give a discharge therefor, or to enforce c) Four possible situation
payment thereof against any party thereto, can be acquired - PN payable to order
through or under such signature, unless the party against whom it - PN payable to bearer
is sought to enforce such right is precluded from setting up the - BOE payable to order
forgery or want of authority. - BOE payable to bearer

Forgery counterfeit-making or fraudulent alteration of any Promissory Note

writing, and may consist in the signing of anothers name or the
Payable to order Payable to bearer
1. Parties prior to forgery are 1. Prior parties may be held
not liable even to holder in liable but only to a HIDC.
due course (Because it is already
negotiated when it is
delivered. Mere delivery can
pass on title, indorsement is
2. Subsequent parties are not required.) Remedy of
liable prior parties: go after the

Bill of Exchange

Payable to order Payable to bearer

1. The drawee may not debit

the drawers account in 1. The drawee may debit the
case of forged instrument. drawers account in spite the
If he debits, he is liable. forged signature (Indorsement is
Remedy: go after the one not necessary to vest title.
who indorsed Delivery is sufficient.) Remedy of
the drawer: go after the forger.

2. Prior parties are not

SECTION 26. What constitutes holder for value. - Where value has
SECTION 24. Presumption of consideration. - Every negotiable at any time been given for the instrument, the holder is deemed a
instrument is deemed prima facie to have been issued for a valuable holder for value in respect to all parties who become such prior to that
consideration; and every person whose signature appears thereon to time.
have become a party thereto for value.
What constitutes a holder for value.

Consideration/Cause immediate, direct, or essential Holder for value one who has given a valuable
reason which induces a party to enter into a contract. consideration for the instrument issued/negotiated to him.

Contract of Sale (Consideration) 1. The holder is deemed as such not only by immediate parties
but as well as parties prior to the time when value was given.
Buyer Object Sold 2. Holder of a negotiable instrument = holder for value. Unless
otherwise proven.
Seller Price

*Negotiable Instrument must have a consideration/cause. There is SECTION 27. When lien on instrument constitutes holder for value.
presumption that an instrument is issued for a valuable consideration. Where the holder has a lien on the instrument arising either from
Thus, it is not necessary that the cause be expressly stated in the contract or by implication of law, he is deemed a holder for value to
instrument. Presumption is only prima facie and is still the extent of his lien.
Where a holder has lien on instrument.
1. Distinguished from Motive which is personal or private reason
of a party which is usually unknown and does not affect the *one who has taken a negotiable instrument as COLLATERAL
validity of the contract. SECURITY FOR A DEBT.

SECTION 25. Value, what constitutes. Value is any consideration Lien - a right to keep possession of property belonging to another
sufficient to support a simple contract. An antecedent or pre-existing person until a debt owed by that person is discharged.
debt constitutes value; and is deemed such whether the instrument is
payable on demand or at a future time. 1. Amount of instrument more than debt secured the payment
for an instrument is more than the actual debt, the one who
Adequacy of consideration. pledge the instrument becomes a holder for value to the extent
Need not to be adequate as long as it is a valuable one. of his lien. Pledgee can collect the full value of instrument and
deliver the surplus to the pledgor.
Antecedent/pre-existing debt. - A pledge is a bailment that conveys possessory
It is a valuable consideration. May be that of a 3rd person and the title to property owned by a debtor (the
payment of such debt is a valuable consideration for an instrument. pledgor) to a creditor (the pledgee) to secure
repayment for some debt or obligation and to
*basically the reason for the issuance of a negotiable instrument is to the mutual benefit of both parties. A pledge is
pay off an existing debt. type of security interest. (is a property interest
created by agreement or by operation of law
over assets to secure the performance of an Example: The land of B is existent but failed to deliver it to A because
obligation, usually the payment of a debt.) B sold it to a HIDC who, in return, registered the sale. There is now a
failure of consideration. But if only half of the land was delivered to
2. Amount of instrument less than/the same as the debt secured the other party, B can recover the half of it only because A is not liable
Pledgee becomes holder for value for the full payment and for the other half.
recover all.
3. Party Liable has defenses SECTION. 29. Liability of accommodation party. - An
accommodation party is one who has signed the instrument as maker,
Party Liable drawer, acceptor, or indorser, without receiving value therefor, and
for the purpose of lending his name to some other person. Such a
Personal Defense Real Defense (forgery) person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of taking the instrument,
Pledgee can collect only to the Pledgee cannot recover knew him to be only an accommodation party.
extent of the amount of the anything.
debt. a) Accommodation note/bill loan of ones credit.
Accommodation party puts his name without consideration for
SECTION. 28. Effect of want of consideration. - Absence or failure the purpose of accommodating other party who will use and
of consideration is a matter of defense as against any person not a pay for it.
holder in due course; and partial failure of consideration is a defense b) Accommodation party one who signed the instrument as
pro tanto, whether the failure is an ascertained and liquidated amount maker, drawer, acceptor, or indorser who does not receive
or otherwise. anything but only to lend his name to another party.
- Expects that the accommodated party will pay
Meaning of absence or want of consideration. - a total lack of and not him. ONLY LENDS HIS CREDIT.
any valid consideration for the contract, in consequence the alleged - Classified according to the accommodated
contract must fail. *PERSONAL DEFENSE partys status. If the accommodated party is the
maker he will be liable to subsequent parties as
the maker and not just the accommodated
Against holder in due party.
As between parties
course c) Accommodated party the party lending the credit of the
accommodation party. He will raise money upon the
No recovery from the note HIDC can recover from instrument using the other partys credit.
the maker of the note.
Liability of accommodation party to a holder.
Example: A issued a note to B in payment of a parcel of land but it is
non-existent. Ergo, between A and B, there will be no recovery 1. Absence of a consideration is not a defense
because of absence of consideration. But it the note is indorsed to a accommodation party is liable to a holder even if the holder
HIDC, then, the HIDC can recover from A. knows he is just an accommodation party or not.

Meaning of failure of consideration. - failure/refusal of one of 2. Accommodation party, in effect, a surety

the parties to do, perform or comply with the consideration agreed accommodation party will go after the accommodated party for
upon. *DEFENSE PRO TANTO. (I.e. liable only to that extent***) reimbursement. (surety - one who provides a warrant or
guarantee to another)
Meaning of without receiving value therefor. - No negotiation if the transfer does not make the
transferee the holder
Accommodation Party Receiving Value
Methods of transfer of a negotiable instrument.

In consideration for 1. Issue Where the legal life of an instrument begins. The first
lending his name transfer of an instrument to a payee.
2. Negotiation involves indorsement. It operates to make the
From the transferee the holder.
instrument 3. Assignment It is the transfer of the title to an instrument
with the assignee taking only such title or right as his assignor
Kinds of accommodation party. has.
- Involves a transfer of rights under contract.
a) Accommodation Maker M, as accom party, issues a PM Does not involve indorsement.
payable to P who may then negotiate it to A. - Transfer for non-negotiable instrument
b) Accommodation Drawer M, as accom party, signs a BOE is always an assignment.
with P as payee, and P may indorse the same to A.
c) Accommodation Indorser M, as accom party, signs as an Methods of Negotiation.
indorser in blank, the bill/note made by P in favor of A, before
it is delivered to A.
Payable to Order Payable to Bearer
Accommodation Party versus Regular Party
Signs w/o receiving value therefor Sign for value 1. Indorsement by the
Signs for the purpose of lending payee/presentment
Does not sign for that purpose
his credit holder
May always show by parol Cannot disclaim or limit his 1. Negotiated by mere delivery
evidence that he is only such personal liability 2. Delivery to the next
Cannot avail the defense of holder
May avail the defense against
absence/failure of consideration
against a nHIDC Payment of instrument by drawee not negotiation.
May sue for reimbursement after May not sue any subsequent party
paying the holder for reimbursement *payment of a check or other bill by the drawee is not a negotiation
and does not make the bank a holder.
1. Bank neither payee nor indorsee. Check cannot be circulated
SECTION 30. What constitutes negotiation. - An instrument is because it is already extinguished upon payment.
negotiated when it is transferred from one person to another in such 2. Writing the name of the holder on the back of the check before
manner as to constitute the transferee the holder thereof. If payable to payment does not constitute indorsement.
bearer, it is negotiated by delivery; if payable to order, it is negotiated
by the indorsement of the holder and completed by delivery. Effect of delivery of order instrument w/o indorsement.

Negotiation transfer of negotiable instrument from one person to 1. Transfer operates as an ordinary assignment assignee is
another so as to make the transferee the holder of the instrument merely placed in the position of the assignor. Assignee
acquiring the instrument subject to all defenses available Can there be a negotiation to a payee?
against the assignor.
2. Transferee does not become holder of instrument Transferee 1. 1st delivery of instrument to payee payee, as the first holder,
would not be the holder of the instrument w/o indorsement. acquires title through issuance not by negotiation.
3. Where indorsement subsequently obtained transfer operates 2. 1st delivery of the instrument to other payee acquires title
as a negotiation only as of the time the indorsement is actually through negotiation if delivery is made through an agent of the
made. However, assignee requires the right to have the maker/drawer.
indorsement of the assignor. 3. Delivery of the instrument by the payee by last holder there
is negotiation. Indorsement of the last holder is not necessary
Negotiation and assignment distinguished. because payee is remitted to this former rights and all
intervening parties are discharged from their liability.
*Only negotiable instruments can be negotiated. Non-negotiable
instruments can only be transferred or assigned. SECTION 31. Indorsement; how made. - The indorsement must be
written on the instrument itself or upon a paper attached thereto. The
signature of the indorser, without additional words, is a sufficient
Negotiation Assignment indorsement.

Only refers to negotiable Only refers generally to an Indorsement writing of the name of the payee on the instrument
instruments ordinary contract with the intent either to transfer the title to the same or to strengthen
the security of the holder by assuming a contingent liability for its
Transferee is a holder Transferee is an assignee future payment or both.

HIDC is subject to real Assignee is subject to both real 1. Indorser payee signing the instrument and delivering it to
defenses and personal defenses another person. Indorsee the person who receives the
indorsed instrument.
HIDC may acquire better 2. Indorsement is completed by delivery.
title/greater rights under the
Assignee merely steps into the
instrument than those Nature of Indorsement.
shoes of the assignor
possessed by the transferor or
a prior party *Not only a mode of transfer. It involves a new contract and obligation
on the part of the indorser an implied guaranty that the instrument
Assignor does not warrant the will be paid.
General indorser warrants the solvency of prior parties unless
solvency of prior parties expressly stipulated or the Necessity of indorsement.
insolvency is known to him
1. Essential to the execution of an instrument payable to the
Indorser is not liable unless order of the maker/drawer
Assignor is liable even w/o
there be presentment of 2. Essential to the negotiation of an order instrument (not
notice of dishonor
dishonor bearer)
3. Without indorsement, one may acquire the title of such
Governed by Articles 1624 instrument but one cannot be a holder in due course
Negotiation is governed by NIL
1635 of the Civil Code
Form of indorsement. When partial indorsement is allowed.

*Must be written or be in writing and in print. (Rubber stamp or *Only when a part of the amount has already been paid. Ergo, the
typewritten on the instrument is valid) other part will be indorsed.

1. Use of the word assign does not automatically make the SECTION 33. Kinds of indorsement. - An indorsement may be
instrument and assignment. either special or in blank; and it may also be either restrictive or
2. Signature of the indorser w/o words will suffice and shall be qualified or conditional.
called as blank indorsement.
3. Special Indorsement is the name of the indorsee is specified. Classification of indorsement
May also add words prohibiting or limiting further negotiation 1. As to the methods of negotiation:
of the instrument. a) Special
b) Blank
Place of indorsement. 2. As to the kind of title transferred:
a) Restrictive
1. Indorsa, latin. writing on the back. But the PLACE IS b) Non-restrictive
NOT ESSENTIAL. May write either on the face or on the back 3. As to scope of liability of indorser:
of the instrument. Intention over form. a) Qualified
2. Indorsment is on a slip paper physically attached to the b) Unqualified or general
instrument is known as allonge. 4. As to presence or absence of limitations:
a) Conditional
SECTION 32. Indorsement must be of entire instrument. - The b) Unconditional
indorsement must be an indorsement of the entire instrument. An 5. The other kinds of indorsements:
indorsement which purports to transfer to the indorsee a part only of a) Joint
the amount payable, or which purports to transfer the instrument to b) Successive
two or more indorsees severally, does not operate as a negotiation of c) Irregular/anomalous
the instrument. But where the instrument has been paid in part, it d) Facultative
may be indorsed as to the residue. *if negotiable, no indorsement, even restrictive one, can negate its
Indorsement must be of entire instrument.
SECTION 34. Special indorsement; indorsement in blank. - A
- General Rule. special indorsement specifies the person to whom, or to whose order,
- Bill or note divided into different parts divides a the instrument is to be payable, and the indorsement of such indorsee
single cause of action, i.e., ground for complaint is necessary to the further negotiation of the instrument. An
indorsement in blank specifies no indorsee, and an instrument so
Indorsement to multiple payees or indorsees. indorsed is payable to bearer, and may be negotiated by delivery.

1. Joint payees valid because it is combined or joined together. Special Indorsement (specific indorsement or indorsement
Indorsement of all the indorsees is required for further in full) - where the name of the payee is specified. Unqualified
negotiation. indorsements are special and blank.
2. Alternative payees indorsement may be made by either of
the payees
1. Forms
a) Specifies the person to what the instrument is payable.
(i.e. Pay to F)
b) Specifies the person to whose order is payable. (i.e. Pay
to the order of F)
2. Negotiation of order and bearer instruments
a) PTO negotiated by special indorsement
b) PTB mere delivery will suffice

Blank indorsement explained.

*specifies no particular indorsee

1. Consists only with the signature
2. If payable to bearer, mere delivery will suffice w/o need for
further indorsements regardless if it is originally payable to
bearer or not
3. Check payable to the order of a named person and indorsed by
him in blank on the back makes it a bearer instrument

SECTION 35. Blank indorsement; how changed to special

indorsement. - The holder may convert a blank indorsement into a
special indorsement by writing over the signature of the indorser in
blank any contract consistent with the character of the indorsement.

Conversion of blank indorsement to special indorsement.

*payable to order becomes payable to bearer if indorsement is in


Payable to bearer through blank indorsement may be converted to

order by writing over the signature of the indorser in blank any
contract consistent with the character of the indorsement. But bearer
instrument always remains as is negotiable by mere delivery WON last
indorsement is a blank or special one.