Ne go tiabl e I nstr ume nt s L aw EH 4 0 3 — M id t e r m s ( 2 018- 2019 ) At t y.

B e r n ar d ino A mago

Negotiable Instruments Law

MIDTERMS (AY 2018-2019)
Based on the Syllabus and Discussions of Atty. Bernardino Amago

Credits to my class EH 403 (2018), EH403 & EH404 Notes (2016-2017), EH403 Notes
(2017-2018), case digests online and other notes. :D

Introduction
A. Historical background of the NIL
B. Application and purpose of the NIL
C. Functions and importance of negotiable instruments (SMMM)
D. Characteristics or features of negotiable instruments

Form and Interpretation

a. Formal requirements of negotiability in general (Sec 1)
i. Must be in writing
ii. Must be signed by the maker or drawer (Sec 18, 19, 21, & 22)
iii. Must contain an unconditional promise or order to pay (Sec. 3)
iv. the instrument must be payable in sum certain in money (Sec. 2)
a. With Interest 6
b. As to installments 7
c. As to default in payment of installment 7
d. As to exchange 7
Acceleration Clause 7
v. Must be payable at a fixed or determinable future time or on demand
(Sec. 4 & 7)
Payable on Demand 8
Payable at a determinable future time 8
vi. Must be payable to order or bearer (Sec. 8 & 9)
Payable to bearer: 9
Payable to the order of: 9
vii. Drawee must be named 9
b. Kinds of Negotiable Instruments
1. Promissory Note (Sec. 184) 9
Types of Promissory Note: 9
2. Bill of Exchange (Sec. 126) 10
i. Bill not an assignment of funds (Sec. 127) 10
ii. Bill addressed to more than one drawee (Sec. 128) 10
iii. Inland and foreign bills of exchange (Sec. 129) 10
iv. When bill may be treated as promissory note (Sec. 130) 10
3. Check (Sec. 185) 10
c. Parties
i. Holder in due course (Sec. 52, 58 & 59) 10
ii. Holder not in due course (Sec. 53) 11
iii. Referee in case of need (Sec. 131) 11
d. Additions and Omissions Not Affecting Negotiability
i. Terms used (Sec. 10) 11
ii. Additions (Sec. 5, 11 & 12) 11
iii. Omissions (Sec. 6) 11
e. Defects (refer also to Sec. 65 & 66)
i. Undated (Sec. 13) 11
ii. Incomplete but delivered (Sec. 14) 12
iii. Incomplete and Undelivered (Sec. 15) 12
iv. Complete but Undelivered (Sec. 16) 12
v. Forgery (Sec. 23) 12
vi. Material Alteration (Sec. 125 and 124) 12
f. Ambiguity (Sec. 17)

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Introduction
A. HISTORICAL BACKGROUND OF THE NIL
The practice of using negotiable instrument started during
the Pre-Christian era, or during the medieval times.
1. English Bills of Exchange Act of 1882 (BEA) — This
was the first law codified by the english parliament.
2. Uniform Negotiable Instruments Law of 1896
(UNIL) — which revised and codified the law merchant
in the US as there was much confusion and lack of
uniformity then in the court decisions.
‣ We patterned our NIL to this law with very slight
modifications.
3. Uniform Commercial Code (UCC) — which seeks to
simply and modernize the law of commercial
transactions. Replaced in part by Article 3 and in part
by other articles of the Uniform Negotiable
Instruments Act of US 1896.
4. Code of Commerce — law governing negotiable
instruments before the passage of the Act No. 2031.
All articles were repealed except those of crossed
checks.
5. Act No. 2031 — our own Negotiable Instruments Law,
with the purpose to facilitate transactions in
commercial paper and to promote free flow of credit.
‣ Enacted on: February 3, 1911
‣ Published on: March 4, 1911
‣ Effectivity: June 2, 1911 (90 days after its publication)
B. APPLICATION AND PURPOSE OF THE NIL
1. The act applies only to:
a. Negotiable instruments
b. Those instruments which meet the requirements
laid down in Section 1 of the law.
2. The Civil code has no effect on its provisions except to
supply any deficiency in cases not covered by the Act.
(Art. 18 of the NCC)
3. For the purpose of facilitating, not hindering or
hampering transactions in commercial paper.
The NIL is the primary law governing negotiable
instruments. It finds its relevance that it’s convenient to
deal with it. There is less risk and better security
compared to dealing with cash.
C. FUNCTIONS AND IMPORTANCE OF
NEGOTIABLE INSTRUMENTS (SMMM)
1) Substitute for money
‣ Instead of bringing with you loads of money, you can
just bring with you a checkbook.
‣ Check still cannot be considered as legal tender, it is
still not money.
2) Medium for exchange
‣ Transactions are perfected by the delivery or
exchange of negotiable instruments
At t y. B e r n ar d ino A mago
3) Medium for immediate payment
‣ Instead of bringing cash, you “tender” payment but
it does not really mean it extinguishes the obligation
4) Medium of credit transaction
‣ What is represented or the value of the negotiable
instrument is the credibility of the person or his
credit.
The value of the negotiable instrument is the credibility of
the person who issues it or the credit standing of the
person.
D. CHARACTERISTICS OR FEATURES OF
NEGOTIABLE INSTRUMENTS
Important Features of a Negotiable
Instrument
1) Negotiability — refers to the quality or attribute of an
instrument to be transferrable from one person to
another, and whoever holds that instrument, holds
such against defenses of prior parties.
2) Accumulation of secondary contracts — as NI is
being transferred from one person to another, there is
added an additional party to the instrument.
Negotiability
✏ What is an important feature of a negotiable instrument?
✤ A: Negotiability
✏ What is negotiability as a characteristic of a negotiable
instrument?
(1) Can be transferred;
(2) holder in due course free from personal defenses
of prior parties we
(3) person who receives may have prior rights than
previous holders
✏ Distinguish assignment from negotiability.
✤ You can only assign rights that you have thus if you
don't have a right over the object you cannot assign
a right even if there is physical transfer
✤ Spring cannot rise higher than its source
✏ I stole the mango of your classmate and then I gave it to
you, will you have rights over the mango?
✤ No. You can only assign rights to what you have. I do
not have rights and so, what I transferred was theft.
Accumulation of secondary contracts
✏ What is another important feature?
✤ Accumulation of secondary contracts
As negotiable instrument is being transferred from one
person to another, there is an added party. There are as
many contracts and there are parties. Each contract that
he has is separate and distinct.
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Note: It’s because of these two features that NI becomes
an important medium in a business transaction. It has also
become a choice of medium for most businessmen.
Because of such popularity, there is a need to regulate
that.
✏ How would you know what an instrument is negotiable or
not?
✤ General:
□ Used in commercial transactions
□ It conforms to the requirements in Section 1 of
the NIL
Types of Negotiable Instruments
✏ What are common types of negotiable instruments?
1) Promissory note
2) Bill of Exchange
3) Checks
✏ What can you understand of a promissory note? What is
the codal definition?
Sec. 184. Promissory note defined. – A negotiable
promissory note within the meaning of this Act is an
unconditional promise in writing made by one person
to another, signed by the maker, engaging to pay on
demand, or at a fixed or determinable future time, a
sum certain in money to order or to bearer. Where a
note is drawn to the maker’s own order, it is not
complete until indorsed by him.
There are only two parties involved: the one who made
the instrument (maker) and the one who should be paid
(payee).
✏ As opposed to a bill of exchange which is?
Sec. 126. Bill of exchange defined – A 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 on
demand or at a fixed or determinable future time a
sum certain in money to order or to bearer.
There are three persons involved. The one who drafted
(drawer), the one to whom the order is addressed
(drawee), and the person who is supposed to see what
was being ordered (payee).
✏ What is the difference between the definition of the bill
exchange and promissory note?
✤ Promissory note — Unconditional promise; only 2
parties; maker & payee
✤ Bill of exchange — Unconditional order; 3 parties;
drawer, drawee, payee
✏ Third common type is check. But it is only a special type of
negotiable instrument because it is a kind of bill of
exchange.
Sec. 185. Check defined. – A check is a bill of
exchange drawn on a bank payable on demand. Except
as herein otherwise provided, the provisions of this Act
At t y. B e r n ar d ino A mago
applicable to a bill of exchange payable on demand
apply to a check.
✏ Why is it considered a special kind of bill of exchange?
✤ The Bank is always the drawee.
✤ Another thing it makes it special is that it is always
payable on demand.
The first time of giving or delivery the negotiable
instrument is called “issuance”. The subsequent deliver or
transfer or indorsement is called “negotiation”.
There is a need to distinguish the type of negotiable
instrument. Once it is paid, discharge.
If it is a bill of exchange, there is an additional step taken.
It contains an order addressed to the drawee. The drawee
must be given the opportunity to accept. He will never be
bound unless he knows about it and accepts to be bound
by the drawer.
Process of Negotiable Instrument from its birth
Preparation → Signing → Issuance (first time) to payee →
negotiation (subsequent transfers or assignments) →
presented for payment to maker → instrument
discharged
Illustration 1: Atty. A(drawer) issues instrument to Ms.
Limpangug (payee).
Payee may either:
1) Present to drawee for acceptance
- So that the drawee will know that there is such an
order. Drawee be given the chance to accept or not
accept.
- Once the drawee accepts, he is considered an
acceptor and he holds himself primarily liable. He
stands in the shoes of the maker.
- Ms. Limpangug (payee) can keep the instrument
until maturity or further negotiate. After negotiating,
they may present the instrument for payment.
2) May further negotiate even before presenting to
drawee for acceptance
- Before the instrument matures, present the
instrument for acceptance. Once the instrument
reaches maturity, it is discharged.
Illustration 2: There is a bill of exchange, it was drafted
and issued to Ms. Lipangug. She presents it for
acceptance but drawee will NOT accept.
✏ What happens to the order of the drawer?
✤ Dishonored. When the instrument is dishonored,
you will have to do certain processes.
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Since nobody knows it was dishonored, Ms. Limpangog
can further negotiate. So she negotiates it and it reaches
to Mr. Ibarita and he presents it for acceptance but
drawee still does not accept.
Mr. Ibarita must follow the process and he must send
notice of dishonor to other indorsers. If he fails to notify,
the other parties of the instrument will be deemed
discharged.
❏ Dishonor by non-payment — dishonored because it
was not paid.
❏ Dishonor by non-acceptance — dishonored because it
was not accepted.
Form and Interpretation
A. Formal Requirements of
Negotiability in General (Sec 1)
✏ How do you draft a negotiable instrument? MEMORIZE!
Sec. 1. Form of negotiable instruments. - An
instrument to be negotiable must conform to the
following requirements: (W-U-P-P-A)
(a) It must be in writing and signed by the maker or
drawer;
(b) Must contain an unconditional promise or order to
pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or
determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he
must be named or otherwise indicated therein with
reasonable certainty.
✏ If you look at all the requisites, does it apply to all
negotiable instruments?
✤ No. Distinguish first if the negotiable instrument is
promissory note or bill of exchange.
✤ Sec. 1 (a) to (d) applies to both promissory note and
bill of exchange.
✤ Sed 1 (e) applies only to bill of exchange.
✏So what are the requisites for a promissory note to be
negotiable?
Negotiable Promissory Note
a. It must be in writing and signed by the maker
b. Must contain an unconditional promise to pay a
sum certain in money
c. Must be payable on demand, or at a fixed or
determinable future time
d. Must be payable to order or to bearer
✏What are the requisites bill of exchange to be negotiable?
Negotiable Bill of Exchange
a. It must be in writing and signed by the drawer
b. Must contain an unconditional order to pay a sum
certain in money
At t y. B e r n ar d ino A mago
c. Must be payable on demand, or at a fixed or
determinable future time
d. Must be payable to order or to bearer
e. Where the instrument is addressed to a drawee,
he must be named or otherwise indicated therein
with reasonable certainty.
i. MUST BE IN WRITING
✏ Can I write the negotiable instrument on this table?
✤ Negotiable because there is no hard and fast rule as
to where it can be written for as long as it can be
transferred from one hand to another
✤ May however affect acceptability
✤ Writing may be made upon leather, cloth or any
substitute for paper as long as it is movable in
nature.
✏ It requires in writing, can I type it?
✤ Yes. It can be printed, stamped, etc. The only
requirement is that it must be in writing.
ii. MUST BE SIGNED BY THE MAKER OR
DRAWER (SEC 18, 19, 21, & 22)
Sec. 18. Liability of person signing in trade or
assumed name. - No person is liable on the instrument
whose signature does not appear thereon, except as
herein otherwise expressly provided. But 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.
Sec. 19. Signature by agent; authority; how shown. -
The signature of any party may be made by a duly
authorized agent. No particular form of appointment is
necessary for this purpose; and the authority of the
agent may be established as in other cases of agency.
Sec. 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 so signing
acted within the actual limits of his authority.
Sec. 22. Effect of indorsement by infant or
corporation.- The indorsement or assignment of the
instrument by a corporation or by an infant passes the
property therein, notwithstanding that from want of
capacity, the corporation or infant may incur no
liability thereon.
Illustration 1:
I promise to Ms . Wee to pay Php 100,000.
🦋
✏ Is this a valid negotiable instrument?
✤ Not valid
1. No words of negotiability (e.g. “payable to the
order”)
2. First requisite is not complete. Only signature
(butterfly) is there. No name of the maker so how
would you know who is the maker.
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Even if a cross is placed as a signature or a butterfly, it still
complies. What is important is that there is an intention to
be bound by the signature.
iii. MUST CONTAIN AN UNCONDITIONAL
PROMISE OR ORDER TO PAY (SEC. 3)
Sec. 3. When promise is unconditional. - An
unqualified order or promise to pay is unconditional
within the meaning of this Act though coupled with:
(a) An indication of a particular fund out of which
reimbursement is to be made or a particular
account to be debited with the amount; or
(b) A statement of the transaction which gives rise to
the instrument.
But an order or promise to pay out of a particular fund
is not unconditional.
■ Condition — Any future event which may or may not
happen. It could also refer to a past event not known to
the parties which give rise to an obligation or
extinguishes an obligation.
■ Unconditional — It is not contingent on the happening
of a future event; not subject to any condition.
Unconditional though coupled with:
1) An indication of a particular fund out of which
reimbursement is to be made or
2) A particular account to be debited with the amount; or
3) A statement of the transaction which gives rise to the
instrument.
Illustration 1:
I promise to pay X or his order Php 10,000 on or before 16 Aug. 2018.
Sgd. CK
✏ Is this a negotiable instrument? Is it an unconditional
promise?
✤ Yes
✏ What is a condition?
✤ Any future event which may or may not happen.
✏ Is it only applicable to future event? What if it was a past
event?
✤ It could also refer to a past event not known to the
parties which give rise to an obligation or
extinguishes an obligation.
Illustration 2:
I promise to pay X or his order Php 10,000 on or before 16 Aug. 2018.
Sgd. CK
✏ Is this negotiable?
✤ No. This is a non-negotiable instrument.
At t y. B e r n ar d ino A mago
✤ It is made to depend on the sufficiency of the funds.
✏ From what case is this from?
✤ Metrobank vs CA
Metrobank vs CA
ISSUE:
1) Whether or not Metrobank can demand refund agaist Golden
Savings with regard to the amount withdraws to make up with the
deficit as a result of the dishonored treasury warrants.
2) Whether or not treasury warrants are negotiable instruments
HELD: No. Metrobank is negligent in giving Golden Savings the
impression that the treasury warrants had been cleared and that,
consequently, it was safe to allow Gomez to withdraw.
Without such assurance, Golden Savings would not have allowed the
withdrawals. Indeed, Golden Savings might even have incurred
liability for its refusal to return the money that all appearances
belonged to the depositor, who could therefore withdraw it anytime
and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that
Golden Savings deposited them to its account with Metrobank.
Golden Savings had no clearing facilities of its own. It relied on
Metrobank to determine the validity of the warrants through its own
services. The proceeds of the warrants were withheld from Gomez
until Metrobank allowed Golden Savings itself to withdraw them
from its own deposit.
Metrobank cannot contend that by indorsing the warrants in general,
Golden Savings assumed that they were genuine and in all respects
what they purport to be,ǁ in accordance with Sec. 66 of NIL. The
simple reason that NIL is not applicable to non negotiable
instruments, treasury warrants.
No. The treasury warrants are not negotiable instruments. Clearly
stamped on their face is the word: non negotiable.ǁ Moreover, and this
is equal significance, it is indicated that they are payable from a
particular fund, to wit, Fund 501. An instrument to be negotiable
instrument must contain an unconditional promise or orders to pay a
sum certain in money. As provided by Sec 3 of NIL an unqualified
order or promise to pay is unconditional though coupled with: 1st, an
indication of a particular fund out of which reimbursement is to be
made or a particular account to be debited with the amount; or 2nd, a
statement of the transaction which give rise to the instrument. But an
order to promise to pay out of particular fund is not unconditional.
The indication of Fund 501 as the source of the payment to be made
on the treasury warrants makes the order or promise to pay ―not
conditionalǁ and the warrants themselves non-negotiable. There
should be no question that the exception on Section 3 of NIL is
applicable in the case at bar.
Why was the secretary persistent? In order to be cleared
and to allow Mr. Gomez to withdraw.
What was the term used in the case? Exasperated.
What was the reason why it wasn’t cleared? There was
forgery in the signatures of some payees.
What did the SC discuss about the nature of the treasury
warrants?
Note: Not all treasury warrants are non-negotiable. It was
just in this case that it was from a particular fund which
makes it non-negotiable.
Illustration 3:
I promise to pay X or his order Php 10,000 on or before 16 Aug. 2018
and reimburse yourself from my salary.
Sgd. CK
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✏ What if I change it into this statement (above), does it
change anything?
✤ In this case, it makes the document negotiable. The
reimbursement is not based on the particular fund.
It does not affect the promise. The promise to pay is
still an unconditional promise.
■ Supposed procedure: You give money and then the post
office will give the postal order. Instead of charging it to
their account, they charged it to the Bank of America.
There was negligence on the part of Bank of America.
Postal money orders are not supposed to be negotiable
instruments.

Illustration 4: Reasons why postal money order is not a negotiable

instrument.
I promise to pay X or his order Php 10,000 on or before 16 Aug. 2018
based on the terms of our contract. 1) Government in rendering service is not engaged in
commercial but in a governmental function.
Sgd. CK 2) Postal Money orders are subject to conditions which
does not fall with Section 3.
✏ What do you think of this instrument?
✤ It is still a negotiable instrument.
What other instruments did the SC say that was not a
✤ Basis: Sec. 3(b) The statement of the transaction
negotiable instrument in our cases in the syllabus?
which gives rise to the instrument.
✤ This is different with the terms and conditions. In this 1) Special withdrawal slips
document, it is merely stated that this was just a 2) Pawn Tickets
statement or basis of an obligation.
✤ A statement of what gave rise of the obligation to iv. THE INSTRUMENT MUST BE PAYABLE IN
pay does not render the order or the promise SUM CERTAIN IN MONEY (SEC. 2)
conditional. Sec. 2. What constitutes certainty as to sum — The
sum payable is a sum certain within the meaning of
this Act, although it is to be paid:
Is death a condition? (a) with interest; or
No. Death is not considered a condition because everyone (b) by stated installments; or
is certain to die. It is the exact time when death will (c) by stated installments, with a provision that, upon
happen is uncertain but death itself is certain. It is just a default in payment of any installment or of interest,
period. the whole shall become due; or
(d) with exchange, whether at a fixed rate or at the
current rate; or
Illustration 5: (e) with costs of collection or an attorney's fee, in case
payment shall not be made at maturity.
I promise to pay X or his order Php 10,000 on or before 16 Aug. 2018 if
I die.
Sgd. CK The sum payable is a sum certain
a. with interest; or
✏ What do you think of this instrument? b. by stated installments; or
✤ This is conditional because it is not sure if you die on c. by stated installments, with a provision that, upon
that certain date. default in payment of any installment or of interest, the
whole shall become due; or
✏ What if it says I die of cancer? d. with exchange, whether at a fixed rate or at the current
✤ It is still conditional because rate; or
e. with costs of collection or an attorney's fee, in case
payment shall not be made at maturity
Philippine Educators Co vs Soriano
ISSUE:Whether or not the postal money order in question is a
negotiable instrument. Sum certain in money — There is clarity as to the amount
HELD: No. It is not disputed that the Philippine postal statutes were to be received by the holder of the instrument.
patterned after similar statutes in force in United States.
The Weight of authority in the United States is that postal money
orders are not negotiable instruments, the reason being that in A. WITH INTEREST
establishing and operating a postal money order system, the
government is not engaged in commercial transactions but merely Illustration 1:
exercises a governmental power for the public benefit. Moreover,
some of the restrictions imposed upon money orders by postal laws I promise to pay X or his order Php 10,000 on 25 December 2018 with
and regulations are inconsistent with the character of negotiable interest.
instruments. For instance, such laws and regulations usually provide
for not more than one endorsement; payment of money orders may be Sgd. Y
withheld under a variety of circumstances.

■ Postal money orders are subject to conditions. ✏ Is that negotiable?

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✤ Yes. Even if there was indicated of how much 2) Exchange rate

interest, it is presumed to be paid with the legal
interest of 6%. The denomination or currency must be stated.

Even if an interest rate is added it still complies with the Illustration: (wrong illustration)
requirement that it is a sum certain in money because
additional statement with legal interest does not affect the To BPI
negotiability of the instrument. Pay Ms Y or order P10,000 based on the current exchange rate on 16
Aug 18.
However, if there is no specific legal interest rate, it is still a
common commercial knowledge that legal interest rate Sgd. Ms. V
is at 6%.
It may comply with the current exchange rate. However,
B. AS TO INSTALLMENTS there is no currency stated.
As to installments, it should specify:
1) amount of of installment Correct illustration:
2) specific due date To BPI
Pay Ms Y or order P10,000 based on the current exchange rate on 16
Without it, it renders the instrument non-negotiable. Aug 18 rate of Philippine peso to US dollars.

Illustration 2:
I promise to pay X or his order Php 10,000 on two(2) equal monthly
installments
Sgd. Y
✏ Is that negotiable?
✤ No.
A payment maybe made in installment but it should
contain due dates. On the given example, it does not
contain any due dates. It should contain the exact dates,
the year, the month and the day of payment, along with
the amount to be paid on each installment dates.
Sgd. Ms. V
e. As to Attorney’s Fees
This will not affect the negotiability of the instrument
because when there is an imposition of attorney’s fee, it
presupposes that the obligation had already matured.
And once the instrument had already matured, it ceases
to be negotiable, thus the stipulation of attorney’s fee and
collection cost is irrelevant for negotiability.
Illustration: (wrong illustration)
To BPI
Pay Ms Y or order P10,000 based on the current exchange rate on 16
Aug 18 and attorney’s fees.

✏ If the instrument does not contain a date, is there no Sgd. Ms. V

presumption?
✤ Payable on demand This is non-negotiable because the attorney's fees in this
case does . This renders the amount uncertain already.
C. AS TO DEFAULT IN PAYMENT OF INSTALLMENT
Illustration 3: ACCELERATION CLAUSE
Does NOT affect the negotiability of the instrument.
To BPI
Pay Ms Y or order Php 10,000 on equal installments on 1 Dec. 2018 &
1 Jan 2019. Upon default, the entire amount must be paid. v. MUST BE PAYABLE AT A FIXED OR
DETERMINABLE FUTURE TIME OR ON
Sgd. Ms. V DEMAND (SEC. 4 & 7)
✏ Is that negotiable? Sec. 4. Determinable future time; what constitutes. -
An instrument is payable at a determinable future
✤ Yes. time, within the meaning of this Act, which is
expressed to be payable:
(a) At a fixed period after date or sight; or
D. AS TO EXCHANGE (b) On or before a fixed or determinable future time
To be negotiable then you have to indicate what are the specified therein; or
currencies involved. (c) On or at a fixed period after the occurrence of a
specified event which is certain to happen, though
the time of happening be uncertain.
It should specify: An instrument payable upon a contingency is not
negotiable, and the happening of the event does not
1) Currency cure the defect.

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Sec. 7. When payable on demand. - An instrument is
payable on demand:
(a) When it is so expressed to be payable on demand, or
at sight, or on presentation; or
(b) In which no time for payment is expressed.
Where an instrument is issued, accepted, or indorsed
when overdue, it is, as regards the person so issuing,
accepting, or indorsing it, payable on demand.
PAYABLE ON DEMAND
a. Expressed to be payable on demand, or
b. At sight, or
c. On presentation; or
d. No time for payment is expressed
Illustration 1:
I promise to pay X or bearer 10,000.
Sgd. Y
This is not a sum certain in money. There is no currency.
Illustration 2:
I promise to pay X or bearer Php 10,000.
Sgd. Y
It is now negotiable. Even if there is no date stated, it is
payable upon demand.
a. Expressed to be payable on demand
I promise to pay X or bearer Php 10,000 upon demand.
Sgd. Y
b. At sight
Means payable as soon as soon it is seen by the party
primary liable (drawee).
■ Applies only to bill of exchange.
■ When it is presented to the drawee for acceptance.
There is no need for the instrument to be accepted.
What it is required is it to be presented for acceptance.
Then it goes without saying that if the instrument is not
accepted that you can order the acceptance of such
instrument.
c. On Presentation
I promise to pay X or bearer Php 10,000 on presentation.
Sgd. Y
When the negotiable instrument is presented to the
drawee or maker for payment.
EH 4 0 3 — M id t e r m s ( 2 018- 2019 ) At t y. B e r n ar d ino A mago
■ Applies to both promissory note and bill of exchange.
d. No time for payment is expressed
I promise to pay X or bearer Php 10,000.
Sgd. Y
An Instrument which is OVERDUE
Where an instrument is issued, accepted, or indorsed
when overdue, it is, as regards the person so issuing,
accepting, or indorsing it, payable on demand.
It is payable on demand to those persons:
1) Issuing
2) Accepting
3) Indorsing
When someone negotiated this instrument now, indorsed
it, or in the case of the bill of exchange someone must
have accepted it even the date stated there has already
elapsed then the instrument is deemed payable on
demand.
PAYABLE AT A DETERMINABLE FUTURE TIME
a. At a fixed period after date or sight; or
b. On or before a fixed or determinable future time
specified therein; or
c. On or at a fixed period after the occurrence of a
specified event which is certain to happen, though the
time of happening be uncertain.
a. At a Fixed Period after date or sight
I promise to pay X or bearer Php 10,000 30 days after date.
Sgd. Y
“Date” here means the date of the instrument.
When there is no date stated, it pertains to the date when
the instrument was issued.
b. On or before a fixed or determinable
I promise to pay X or bearer Php 10,000 on or before 10 Dec 2018.
Sgd. Y
c. On or at a fixed period after the
occurrence of a specified event which is
certain to happen
Illustration 1:
I promise to pay X or bearer Php 10,000 15 days after his father’s death.
Sgd. Y
Yes, it is determinable.
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The death of X’s father is an event which is certain to
happen.
Illustration 2:
I promise to pay X or bearer Php 10,000 5 days before his death.
Sgd. Y
This is a non-negotiable instrument. The law states “after
the occurrence of a specified event”.
Illustration 3:
I promise to pay X or bearer Php 10,000 5 days after his death
from malaria.
Sgd. Y
This is a non-negotiable instrument.
This sets a condition that he must die of malaria.
This creates a contingency.
vi. MUST BE PAYABLE TO ORDER OR BEARER
(SEC. 8 & 9)
Sec. 8. When payable to order. - The instrument is
payable to order where it is drawn payable to the 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.
Sec. 9. When payable to bearer. - The instrument is
payable to bearer:
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or
bearer; or
(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; or
(d) When the name of the payee does not purport to be
the name of any person; or
(e) When the only or last indorsement is an indorsement
in blank.
PAYABLE TO BEARER:
1) Expressed to be so payable; or
2) Person named therein or bearer; or
3) Order of a fictitious or non-existing person, and such
fact was known to the person making it so payable
4) Name of the payee does not purport to be the name
of any person;
5) Only or last indorsement is an indorsement in blank.
EH 4 0 3 — M id t e r m s ( 2 018- 2019 ) At t y. B e r n ar d ino A mago
PAYABLE TO THE ORDER OF:
1) A payee who is not maker, drawer, or drawee;
2) Drawer or maker; or
3) Drawee; or
4) Two or more payees jointly; or
5) One or some of several payees; or
6) The holder of an office for the time being.
vii. DRAWEE MUST BE NAMED
B. Kinds of Negotiable Instruments
1. PROMISSORY NOTE (SEC. 184)
Sec. 184. Promissory note, defined. - A negotiable
promissory note within the meaning of this Act is an
unconditional promise in writing made by one person
to another, signed by the maker, engaging to pay on
demand, or at a fixed or determinable future time, a
sum certain in money to order or to bearer. Where a
note is drawn to the maker's own order, it is not
complete until indorsed by him.
TYPES OF PROMISSORY NOTE:
1. Bond — Evidence of an indebtedness of a public or
private corporation.
Difference of a bond from other types of PM is that (1) they
are made for relatively large sums of money, and (2) they
are for long term purposes.
2. Certificate of Deposit — issues by a bank whenever a
deposit is made to the bank.
Differentiated from a Savings Deposit in that there is a
separate piece of paper that requires the bank to pay a
sum certain in money at a fixed or determinable future
time, whereas there is no promise made when you
deposit to a Savings Deposit. The deposit slip is merely an
acknowledgement that a certain amount was deposited
to the bank for safe keeping.
Differentiated from a Bank Note in that a Bank Note does
not refer to a certain bank account or particular deposit
account, usually time deposit
3. Due Bill — Not just a mere acknowledgement that a
debt is due and demandable, but one which contains
words of negotiability.
4. Mortgage Note
2 Kinds:
1) Chattel Mortgage Note
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2) Real Estate Mortgage Note
PN with a stipulation that if the obligation is not paid on
demand or at the fixed or determinable future time, the
mortgage of the property mentioned may be foreclosed.
Differentiated from a Collateral Note in that the latter is
secured by a pledge, not a mortgage.
1. Title Retaining Note
Made by the Buyer and held by the Vendor when payment
for goods are not yet due.
Allows the seller to negotiate it even before the buyer has
paid for the goods. Title to the goods are retained by the
seller until full payment of the purchase price.
2. Judgement Note
Creates a power of attorney that states that the maker is
willing to accept whatever judgment in favor of the payee
on the debt in case the note is not paid, without going to
trial.
Not valid for being contrary to public policy as held in the
case PNB vs Manila Oil Case:
Confession of judgement that allows the payee to acquire
a judgement against a debtor is void for being against
public policy. It enlarges the field of fraud by allowing
creditor to bring cases to court even after payment is
made, is tantamount to bargaining away
the debtor’s right to a day in court, and deprives the
debtor of his right to appeal.
Distinguished from:
Cognavit actionem – the defendant acknowledges his
indebtedness to the plaintiff after the action has been
filed.
Relicta verificationem – the defendant withdraws his
defense.
In both cases (Cognavit actionem and Relicta
verificationem) there is a case filed before the court.
Acknowledgement of debt or withdrawal of defense has
happened when the trial has already begun.
Compared to judgment note, there is no trial at all. The
debtor is precluded from participating in the trial.
TN: The judgment note even though against public policy
is still negotiable it’s just that the stipulation is void and the
rest of the instrument that is valid is still enforceable.
8. Installment Note
A note which allows payment of installment.
2. BILL OF EXCHANGE (SEC. 126)
instrument under the following conditions:
Sec. 126. Bill of exchange, defined. - A 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 on demand or at a fixed or
determinable future time a sum certain in money to
order or to bearer. 

At t y. B e r n ar d ino A mago
Sec. 129. Inland and foreign bills of exchange. - An
inland bill of exchange is a bill which is, or on its face
purports to be, both drawn and payable within the
Philippines. Any other bill is a foreign bill. Unless the
contrary appears on the face of the bill, the holder may
treat it as an inland bill. 

 

Sec. 130. When bill may be treated as promissory note.
- Where in a bill the drawer and drawee are the same
person or where the drawee is a fictitious person or a
person not having capacity to contract, the holder may
treat the instrument at his option either as a bill of
exchange or as a promissory note.
i. BILL NOT AN ASSIGNMENT OF FUNDS (SEC. 127)
Sec. 127. Bill not an assignment of funds in hands of
drawee. - A bill of itself does not operate as an
assignment of the funds in the hands of the drawee
available for the payment thereof, and the drawee is
not liable on the bill unless and until he accepts the
same.
ii. BILL ADDRESSED TO MORE THAN ONE DRAWEE
(SEC. 128)
Sec. 128. Bill addressed to more than one drawee. - A
bill may be addressed to two or more drawees jointly,
whether they are partners or not; but not to two or
more drawees in the alternative or in succession.
iii. INLAND AND FOREIGN BILLS OF EXCHANGE (SEC.
129)
Sec. 129. Inland and foreign bills of exchange. - An
inland bill of exchange is a bill which is, or on its face
purports to be, both drawn and payable within the
Philippines. Any other bill is a foreign bill. Unless the
contrary appears on the face of the bill, the holder may
treat it as an inland bill.
iv. WHEN BILL MAY BE TREATED AS PROMISSORY
NOTE (SEC. 130)
Sec. 130. When bill may be treated as promissory
note. - Where in a bill the drawer and drawee are the
same person or where the drawee is a fictitious person
or a person not having capacity to contract, the holder
may treat the instrument at his option either as a bill
of exchange or as a promissory note.
3. CHECK (SEC. 185)
Sec. 185. Check, defined. - A check is a bill of
exchange drawn on a bank payable on demand. Except
as herein otherwise provided, the provisions of this Act
applicable to a bill of exchange payable on demand
apply to a check.
C. PARTIES
i. HOLDER IN DUE COURSE (SEC. 52, 58 & 59)
Sec. 52. What constitutes a holder in due course. - A
holder in due course is a holder who has taken the
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was
overdue, and without notice that it has been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
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(d) That at the time it was negotiated to him, he had no
notice of any infirmity in the instrument or defect in
the title of the person negotiating it.
Sec. 58. When subject to original defense. - In the
hands of any holder other than a holder in due course,
a negotiable instrument is subject to the same defenses
as if it were non-negotiable. But a holder who derives
his title through a holder in due course, and who is not
himself a party to any fraud or illegality affecting the
instrument, has all the rights of such former holder in
respect of all parties prior to the latter.
Sec. 59. Who is deemed holder in due course. - Every
holder is deemed prima facie to be a holder in due
course; but when it is shown that the title of any
person who has negotiated the instrument was
defective, the burden is on the holder to prove that he
or some person under whom he claims acquired the
title as holder in due course. But the last-mentioned
rule does not apply in favor of a party who became
bound on the instrument prior to the acquisition of
such defective title.
ii. HOLDER NOT IN DUE COURSE (SEC. 53)
Sec. 53. When person not deemed holder in due
course. - Where an instrument payable on demand is
negotiated on an unreasonable length of time after its
issue, the holder is not deemed a holder in due course.
iii. REFEREE IN CASE OF NEED (SEC. 131)
Sec. 131. Referee in case of need. - The drawer of a
bill and any indorser may insert thereon the name of a
person to whom the holder may resort in case of need;
that is to say, in case the bill is dishonored by non-
acceptance or non-payment. Such person is called a
referee in case of need. It is in the option of the holder
to resort to the referee in case of need or not as he may
see fit.
D. ADDITIONS AND OMISSIONS NOT
AFFECTING NEGOTIABILITY
i. TERMS USED (SEC. 10)
Sec. 10. Terms, when sufficient. - The instrument
need not follow the language of this Act, but any terms
are sufficient which clearly indicate an intention to
conform to the requirements hereof.
ii. ADDITIONS (SEC. 5, 11 & 12)
Sec. 5. Additional provisions not affecting
negotiability. - An instrument which contains an
order or promise to do any act in addition to the
payment of money is not negotiable. But the negotiable
character of an instrument otherwise negotiable is not
affected by a provision which:
(a) authorizes the sale of collateral securities in case the
instrument be not paid at maturity; or
(b) authorizes a confession of judgment if the
instrument be not paid at maturity; or
(c) waives the benefit of any law intended for the
advantage or protection of the obligor; or
(d) gives the holder an election to require something to
be done in lieu of payment of money.
But nothing in this Sec. shall validate any provision or
stipulation otherwise illegal.
Sec. 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. 
At t y. B e r n ar d ino A mago
Sec. 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.
iii. OMISSIONS (SEC. 6)
Sec. 6. Omissions; 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 that any value
had been given therefor; 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 current money in
which payment is to be made.
But nothing in this Sec. shall alter or repeal any statute
requiring in certain cases the nature of the
consideration to be stated in the instrument.
E. DEFECTS (REFER ALSO TO SEC. 65 & 66)
Sec. 65. Warranty where negotiation by delivery and
so forth. — Every person negotiating an instrument by
delivery or by a qualified indorsement warrants:
(a) That the instrument is genuine and in all respects
what it purports to be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
(d) That he has no knowledge of any fact which would
impair the validity of the instrument or render it
valueless.
But when the negotiation is by delivery only, the
warranty extends in favor of no holder other than the
immediate transferee.
The provisions of subdivision (c) of this Sec. do not apply
to a person negotiating public or corporation securities
other than bills and notes.
Sec. 66. Liability of general indorser. - Every indorser
who indorses without qualification, warrants to all
subsequent holders in due course:
(a) The matters and things mentioned in subdivisions
(a), (b), and (c) of the next preceding Sec.; and 

(b) That the instrument is, at the time of his
indorsement, valid and subsisting;
And, in addition, he engages that, on due presentment,
it shall be accepted or paid, or both, as the case may
be, according to its tenor, and that if it be dishonored
and the necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder, or
to any subsequent indorser who may be compelled to
pay it.
i. UNDATED (SEC. 13)
Sec. 13.  When date may be inserted. - Where an
instrument expressed to be payable at a fixed period
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.
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ii. INCOMPLETE BUT DELIVERED (SEC. 14) (b)

Sec. 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 making the signature in order that the paper
may be converted into a negotiable instrument operates
as a prima facie authority to fill it up as such for any
amount. In order, however, that any such instrument
when completed may be enforced against any person
who became a party thereto prior to its completion, it
must be filled up strictly in accordance with the
authority given and within a reasonable time. But if
any such instrument, after completion, is negotiated to
a holder in due course, it is valid and effectual for all
purposes in his hands, and he may enforce it as if it
had been filled up strictly in accordance with the
authority given and within a reasonable time.
iii. INCOMPLETE AND UNDELIVERED (SEC. 15)
Sec. 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 whose signature was
placed thereon before delivery.
iv. COMPLETE BUT UNDELIVERED (SEC. 16)
Sec. 16. Delivery; when effectual; when presumed. -
Every contract on a negotiable instrument is
incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. As
between immediate parties and as regards a remote
party other than a holder in due course, the delivery, in
order to be effectual, must be made either by or under
the authority of the party making, drawing, accepting,
or indorsing, as the case may be; and, in such case, the
delivery may be shown to have been conditional, or for
a special purpose only, and not for the purpose of
transferring the property in the instrument. But where
the instrument is in the hands of a holder in due
course, a valid delivery thereof by all parties prior to
him so as to make them liable to him is conclusively
presumed. And where the instrument is no longer in
the possession of a party whose signature appears
thereon, a valid and intentional delivery by him is
presumed until the contrary is proved.
(c)
The sum payable, either for principal or interest;
The time or place of payment:
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be
made;
(f) Or which adds a place of payment where no place of
payment is specified, or any other change or
addition which alters the effect of the instrument in
any respect, is a material alteration.
F. AMBIGUITY (SEC. 17)
Sec. 17. Construction where instrument is
ambiguous. - Where the language of the instrument is
ambiguous or there are omissions therein, the following
rules of construction apply:
(a) Where the sum payable is expressed in words and
also in figures and there is a discrepancy between
the two, the sum denoted by the words is the sum
payable; but if the words are ambiguous or
uncertain, reference may be had to the figures to fix
the amount;
(b) Where the instrument provides for the payment of
interest, without specifying the date from which
interest is to run, the interest runs from the date of
the instrument, and if the instrument is undated,
from the issue thereof;
(c) Where the instrument is not dated, it will be
considered to be dated as of the time it was issued;
(d) Where there is a conflict between the written and
printed provisions of the instrument, the written
provisions prevail;
(e) Where the instrument is so ambiguous that there is
doubt whether it is a bill or note, the holder may
treat it as either at his election;
(f) Where a signature is so placed upon the instrument
that it is not clear in what capacity the person
making the same intended to sign, he is to be
deemed an indorser;
(g) Where an instrument containing the word "I promise
to pay" is signed by two or more persons, they are
deemed to be jointly and severally liable thereon.

v. FORGERY (SEC. 23)

Sec. 23. Forged signature; effect of. - When a
signature is forged or made without the authority of the
person whose signature it purports to be, it is wholly
inoperative, and no right to retain the instrument, or to
give a discharge therefor, or to enforce payment thereof
against any party thereto, can be acquired through or
under such signature, unless the party against whom
it is sought to enforce such right is precluded from
setting up the forgery or want of authority.

vi. MATERIAL ALTERATION (SEC. 125 AND 124)

Sec. 124. Alteration of instrument; effect of. - Where
a negotiable instrument is materially altered without
the assent of all parties liable thereon, it is avoided,
except as against a party who has himself made,
authorized, or assented to the alteration and
subsequent indorsers. 

But when an instrument has been materially altered
and is in the hands of a holder in due course not a
party to the alteration, he may enforce payment thereof
according to its original tenor.
Sec. 125. What constitutes a material alteration. -
Any alteration which changes:
(a) The date;

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