SECTION 2.

CERTAINTY AS TO SUM;
WHAT CONSTITUTES
Sum certain requirement - if the
holder can determine from the
instrument itself the amount he is
entitled to receive at maturity.
Holder should be able to compute the
amount payable when it is due.
An instrument giving the maker the
right to ascertain the amount rightly
payable is NON-NEGOTIABLE.
Sum to be paid w/ interest
I promise to pay P or order P10,000, with
interest at 15% per annum.
I promise to pay P or order P10,000, with
interest at 15% per annum, from date
until paid; 12% if paid when due.
Sum to be paid by stated instalments
Stated instalments the interest of
each instalments and due date of each
instalments must be fixed in the
instruments
I promise to pay P or order P10,000, in
two instalments as follows: p5,000, on or
before August 1, 2016 and P5,000, on or
before September 1, 2016.
Sum to be paid by stated
instalments with acceleration clause
acceleration clause promise that if
any instalment or interest is not paid as
agreed, the whole shall become due.

If a note provides for acceleration at

the option of the holder, it is nonnegotiable.

Sum to be paid with exchange

payable in foreign currency.
M promises to pay P or order $1,000 with
exchange at %.
If instrument is an inland or domestic
bill, both drawn and payable at the
same place, there can be no exchange
so that a stipulation for payment in
exchange may be disregarded.
Sum to be paid w/ costs of collection
or an attorneys fee
M promises to pay P or bearer P10,000
on or before Oct 4, 2016 with 15%
attorneys fee and costs of collection if
not paid on maturity
Stipulation for attorneys fees may be
reduced
by
courts
if
deemed
unreasonable.
SECTION 3. WHEN
UNCONDITIONAL

PROMISE

IS

Unconditional not subject to any

conditions or contingency except
implied conditions of presentment,
protests and notice of dishonour.

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

interest at 15% per annum, in four equal
monthly instalments beginning July 1,
2016

Indication of a particular fund out of

which reimbursement is to be made
is negotiable. The fund indicated is
not the direct source of payment but
only the source of reimbursement
w/c is an act subsequent to the
payment.

Upon default in payment of any

instalment or interest, the whole sum
shall become due and payable.

Pay to the order of P P10,000 and

reimburse yourself from the rentals of my
house.
Instrument
payable
out
of
a
particular or specified fund is NON-

NEGOTIABLE because the amount to

be paid is made to depend upon the
adequacy or existence of the fund.
it remains non-negotiable even if the
fund is adequate or sufficient.
Instrument w/c contains a direction
to debit a particular account is
negotiable. The payment does not
depend upon the adequacy or
existence of that account
I promise to pay P or order the sum of
P10,000 to be debited with his current
account with me
Mere recital of the consideration for
w/c the instrument was issued or
mere
reference
to
a
separate
agreement out of w/c the instrument
has
risen,
does
not
make
it
conditional.
I promise to pay to the order of P400,000
being the price of a car this day sold and
delivered to me.
If a promise/order is subject to terms
and conditions contained in another
paper, it is NON-NEGOTIABLE.
Negotiability or non-negotiability of
the instrument must be determinable
from what appears on its face alone
and not elsewhere.
SECTION 4. DETERMINABLE FUTURE
TIME; WHAT CONSTITUTES.
Instrument must be payable on
demand or at a fixed or determinable
future time so that the holder will
know when to enforce the instrument
and the maker to know when to pay
the dues.
An instrument is payable at a
determinable future time, within the
meaning of this Act, which is
expressed to be payable:

(a) At a fixed period after date or

sight; or
o After
sight

after
the
instrument is seen by the
drawee upon presentment for
acceptance or accepted by the
drawee
(b) On or before a fixed or
determinable
future
time
specified therein; or
o Determinable future time a
time that can be determined
with
certainty
after
the
execution of the instrument.
(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.
o a bill or note payable several
days before the occurrence of
the specified event is NONNEGOTIABLE, since the date of
maturity
can
only
be
ascertained after it has become
overdue and therefore the time
for payment is uncertain.
An instrument payable upon a
contingency is not negotiable, and
the happening of the event does not
cure the defect.
o Contingency uncertain future
event or an event which may or
may not happen
SECTION 5. ADDITIONAL PROVISIONS
NOT AFFECTING NEGOTIABILITY.
GENERAL RULE: The instrument is nonnegotiable if it contains a promise or
order to do any act in addition to the
payment of money.
I promise to pay P or order P10,000 and
to deliver a horse
EXCEPTIONS:

 Sale of collateral securities the

additional act is to be performed after
the date of maturity. This adds to the
marketability or acceptability of the
instrument.
Confession of judgment written
acknowledgment by the defendant of
his indebtedness or liability to the
plaintiff. It enables the holder to obtain
a judgment without the delay usually
incident to a lawsuit, as it eliminates
the necessity of a trial.
Waiver of benefit granted by law
neither does waiver of protest,
presentment for payment or demand,
destroy the negotiability of an
instrument.
Election of holder to require some
other act the holder has the choice
to the amount due or some other act.
SECTION
6.
OMISSION;
SEAL;
PARTICULAR MONEY
The validity and negotiable character of
an instrument are not affected by the
fact that
(a) it is not dated; or
o the instrument will be considered
to be dated as of the time it was
issued
o if the date stated is a date that
does not exist in the calendar, the
law will deem the nearest date of
the month the date intended.
o A date is necessary when said
date is tied to the date of
issue; interest is stipulated for
the purpose of determining
when the interest is to run; the
date of issue (PN) or date of
last negotiation (BOE) thereof,
for the purpose of determining
whether a party acted w/in a
reasonable time in making
presentment for payment.
(b) Does not specify the value given,
or that any value has been given
therefor; or

it is not necessary to state that

value has been received for the
instrument because consideration
is presumed.
Pay to bearer P10,000
(c) Does not specify the place where
it is drawn or the place where it is
payable; or
o an instrument that does not specify
the place of payment is presumed
to be payable at the place of
residence or business of the maker
or drawer
(d) Bears a seal; or
o It is non-negotiable under American
law, but not in the Philippines.
o It is advisable to have a bill or note
appear in a public instrument so
that it will be included among the
preferred credits w/ respect to
other property of the debtor.
(e) Designates a particular kind of
current money in which payment is
to be made.
o Promise or order must call for the
payment of money but the law
does not require that payment
should be made in legal tender.
o

But nothing in this section shall alter or

repeal any statute requiring in certain
cases the nature of the consideration
SECTION
7.
WHEN
PAYABLE
ON
DEMAND. An instrument is payable on
demand
o Not only as between the immediate
parties but also as to subsequent
parties.
(a) Where it is expressed to be
payable on demand, or at sight, or
on presentation; or
o It is due and payable at once
I promise to pay to bearer on
demand P10,000.00.
o At sight - payable as soon as it is
seen by the party primarily liable.
(b) In which no time for payment is
expressed.

Pay to P or order P10,000.00.

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
o refers only to immediate parties
since between immediate parties
there is no difference between a
holder in due course and a person
not a holder in due course.
SECTION 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:
o The instrument may be transferred
to whomever the payee orders,
allowing the further negotiation of
the instrument.
(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.
o If there is no payee, there is
nobody who could give the order or
authority to collect. There would be
nobody who could indorse the
instrument therefore, it is NONNEGOTIABLE.
SECTION 9. WHEN PAYABLE TO BEARER.
The instrument is payable to bearer
o Bearer person in possession of a
bill or note which is payable to
bearer or legally qualifies as a
bearer instrument

An instrument that fails to qualify

as
an
order
instrument
is
negotiable if it is payable to bearer.
(a) When it is expressed to be so
payable; or
I promise to pay to bearer P10,000.00.
(b) When it is payable to a person
named therein or bearer; or
Pay to P or bearer P10,000.00.
(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
o Fictitious person though
named as payee in an instrument,
has no right to it because the
maker or drawer so intended and it
matters not, whether the name of
the payee used by him be that one
living, dead or who never existed.
o The maker or drawer knows that
the payee is not capable of
indorsing, he cannot expect the
instrument to circulate through the
indorsement of the payee, and
therefore, he must have intended
the same to be transferred by mere
delivery.
(d) When the name of the payee
does not purport to be the name of
any person; or
Pay to cash Pay to sundries
(e)
When
the
only
or
last
indorsement is an indorsement in
blank.
o

SECTION 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 thereof.
o The substance of the transaction
rather than its form is the criterion
of negotiability. As long as there is
a clear intention of the parties to
make the instrument negotiable.

Mere defect in language or

grammatical errors does not render
an instrument non-negotiable.

SECTION 11. DATE, PRESUMPTION AS

TO. where the instrument or an
acceptance or any indorsement thereon
is dated, such date is deemed prima
facie to be the true date of the making,
drawing, acceptance or indorsement, as
they may be.
o If the instrument bears a date, it is
presumed that said date is the date
when it was made by the maker,
drawn by the drawer, accepted by the
drawee, or indorsed by the payee or
holder.
SECTION 12. ANTE-DATED AND POSTDATED. 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.
Ante-dated contains a date earlier
than the true date of its issuance.
Post-dated contains a date later
than the true date of its issuance.
Example of illegal post-dating:
issuing a post-dated check in payment
of
an
obligation
because
of
insufficiency of funds w/o bona fide
intention to cover the amount of the
check. However, if the payee was
informed that the check was not
covered by adequate funds, the
drawer would not be guilty of bad faith
or estafa in issuing it because there
was no deceit.
SECTION 13. WHEN DATE MAY BE
INSERTED
Any holder may insert the true date of
issue
or
acceptance,
and
the
instrument
shall
be
payable
accordingly when:

An instrument is payable at
a fixed period after date but
is issued undated
o An instrument is payable at
a fixed period after sight but
the acceptance is undated.
The insertion of a wrong date in an
undated instrument by one having
knowledge of the true date of issue or
acceptance will avoid the instrument
as to him but not as to a subsequent
holder in due course who may enforce
the
same
notwithstanding
the
improper date.
Insertion of a wrong date constitutes a
material alteration. In the hands of a
holder, the date inserted, even if
wrong, is to be regarded as the true
date.
o

SECTION 14. BLANKS, WHEN MAY BE

FILLED
(INCOMPLETE
INSTRUMENT
DELIVERED BY THE MAKER OR THE DRAWER
TO PAYEE OR HOLDER)
Steps
in
issuance
of
negotiable
instrument
1. Mechanical act of writing the instrument
completely and in accordance w/ the
requirements of Sec. 1.
2. Delivery of the complete instrument by
the maker or drawer to the payee or holder
w/ the intention of giving effect to it.
Rules where instrument incomplete but
delivered
The holder has the prima facie
authority to complete an incomplete
instrument by filling up the blanks.
o Material particular any
particular proper to be inserted
in a negotiable instrument to
make it complete.
Authority to complete is not an
authority to alter.
A signature on a blank paper delivered
in order that may be converted into a
negotiable instrument operates as

prima facie authority to fill it up as

such for any amount.
The instrument may be enforced only
against a party prior to completion if
filled up strictly in accordance w/ the
authority given and w/in a reasonable
time.
The presumption is that the blank was
filled up in accordance with the
authority given and w/in a reasonable
time
The defense that the instrument had
not been filled up in accordance w/ the
authority given and w/in a reasonable
time is not available as against a
holder in due course.
SECTION 15. INCOMPLETE INSTRUMENT
NOT DELIVERED. Where an incomplete
instrument has not been delivered it
will not, if completed and negotiated
w/o authority, be a valid contract in the
hands of any holder, as against any
person whose signature was placed
thereon before delivery.
The
fact
that
an
incomplete
instrument, completed w/o authority,
had not been delivered, is a defense
even against a holder in due course.
The invalidity of the instrument is only
w/ reference to the parties whose
signatures appear on the instrument
before and not after delivery.

SECTION
16.
DELIVERY;
WHEN
EFFECTUAL;
WHEN
PRESUMED
(COMPLETE BUT UNDELIVERED)

Issue 1st delivery of the instrument,

complete in form, to a person who
takes it as holder
Holder payee or indorsee of a bill or
note who is in possession of it, or the
bearer thereof
2. in possession of party other than a
holder in due course there is a prima
facie presumption of delivery but subject to
rebuttal
If the instrument is no longer in the
possession of the person who signed it
and it is complete in its terms, a valid
and intentional delivery by him is
presumed until the contrary is
proved.
Immediate parties having/being
held to know of the conditions or
limitations placed upon the delivery of
the instrument (contemplates privity
not proximity)
Remote parties not in direct
contractual relation to each other.
Considered as immediate parties if
they are chargeable, ex: w/ knowledge
of defect in instrument
3. delivered conditionally or for a
special purpose if delivery was made
or authorized, it may be shown to have
been conditional only and not for the
purpose of transferring the property to
the instrument
4. in the hands of a holder in due
course a valid delivery thereof by all
parties prior to him is conclusively
presumed. (presumption is conclusive
when admission of evidence to the
contrary is not allowed)

RULES
WHERE
INSTRUMENT
MECHANICALLY COMPLETE
1. undelivered every contract on
negotiable instrument even if it is completely
written is incomplete and revocable until its
delivery for the purpose of giving effect
Delivery transfer of possession,
actual or constructive from one person
to another

SECTION 17. CONSTRUCTION WHERE

INSTRUMENT IS AMBIGUOUS
RULES:
1. sums expressed in words and
figures are different the sum denoted
by the words is the sum payable

2. words ambiguous or uncertain

reference may be had to the figures to
determine the true amount
3. date when stipulated interest to
run not specified the interests runs
from the date of the instrument or if
undated from the date of its issue
4. instrument is undated considered
dated as of the date of its issue
5. written and printed words in
conflict written provisions prevail
because these words are deemed to
express the true intention of the maker or
drawer because they are placed there by
himself
6. whether instrument bill or note in
doubt holder may treat either at his
election
7. capacity in w/c person signed in
doubt in case of doubt in what capacity
the person making the instrument
intended to sign, he is to be deemed an
indoser (ambiguous location of the
signature)
8. instrument signed by two or more
persons their liability may be either
solidary or joint
o Solidary anyone of the signers
may be held liable for the whole
amount of the instrument. (I)
o Joint there are as many debts as
there are debtors, each debt being
considered distinct and separate
from each other (WE)
SECTION 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
GENERAL RULE: only persons whose
signatures appear on an instrument are
liable thereon.
EXCEPTIONS:

1. Where a person signs in a trade or

assumed name (sec. 18)
2. The principal is liable if a duly
authorized agent signs on his own
behalf (sec. 19)
3. In case of forgery, the forger is liable
even if his signature does not appear
on the instrument
4. Where the acceptor makes his
acceptance of a bill on a separate
paper (sec. 134)
5. Where a person makes a written
promise to accept a bill before it is
drawn
SECTION 19. SIGNATURE BY AGENT;
AUTHORITY;
HOW
SHOWN.

the
signature of any party may be made by
a duly authorized agent. No particular
from of appointment is necessary for
this purpose and the authority of the
agent may be established as in other
cases of agency.
o Authority of the agent may be
shown to have been given orally or
in writing subject to the provisions
of the Statute of Frauds
SECTION 20. LIABILITY
SIGNING AS AGENT, ETC.

OF

PERSON

WHEN AGENT MAY ESCAPE PERSONAL

LIABILITY
o He is duly authorized
o He adds words to his signature
indicating that he signs as an
agent, that is, for or on behalf of a
principal, or in representative
capacity
o He discloses his principal
o if one of the requisites is missing, the
agent may be held liable on the
instrument. However, if the agent is being
sued by the payee, the agent may
introduce evidence that he signed only in
a representative capacity and that the
payee knew this to be the case.
o Descriptio personae describing the
person who signed the instrument

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 so
signing acted w/in the actual limits of
his authority.
o Procuration act by w/c a
principal gives power to another to
act in his place as he could himself
The agent has limited authority so it is
the duty of the person dealing w/ him to
inquire into the extent of his authority
The principal is not bound if the agent has
exceeded the actual limits of his authority
SECTION 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.
while a minor is not bound by his
indorsement by lack of capacity, he is,
however, not incapacitated to transfer
certain rights
a minor may be held bound by his
signature in an instrument where he is
guilty of actual fraud
applies to cases where the corporation
has committed ultra vires acts or acts
beyond its powers
a corporation is not liable on notes in a
suit thereon by an indorsee, where the
corporation is w/o capacity to make the
contract in fulfilment of which they were
executed
SECTION
EFFECT

23.

FORGED

SIGNATURE;

forgery

counterfeit-making
or
fraudulent alteration of any writing, etc.
w/ intent to defraud

APPLICATION OF SECTION 23
1. where the signature on the instrument
is affixed by one who does not claim to
act as an agent and who has no
authority to bind the person whose
signature he forged
2. where the signature is affixed by one
who purports to be an agent but has
no authority to bind the alleged
principal
Effect of forged signature in both cases,
the signature is wholly inoperative and so no
right can be acquired through the forged
signature. It is therefore a real defense even
against a holder in due course
Proof of forgery must be proven w/ clear
and convincing evidence
Cases of forgery in general
promissory notes
o forgery of an indorsement on the note
o forgery of the makers signature
bills of exchange
o forgery of an indorsement on the bill
o forgery of the drawers signature,
either
w/ acceptance by the drawee
w/o such acceptance but the bill is
paid by the drawee
right may still exist and be enforced by
virtue of such instrument as to those
whose signatures are found to be genuine
Exception to the general rule
GR: no right or title can be acquired to a
negotiable instrument through or under a
forged or unauthorized signature
EXCEPTIONS
1. If the party against whom it is sought
to enforce such right is precluded from
setting up the forgery or want of
authority.
2. Where the forged signature is not
necessary to the holders title in w/c
case the forgery may be disregarded
Persons precluded from setting up the
defense of forgery

1. Those who by their acts, silence or

negligence, are estopped from setting
up the defense of forgery
2. Those who warrant or admit the
genuineness of the signatures in
question, namely:
a. Indorsers;
b. Acceptors
c. Persons negotiating by delivery
Rights of parties in cases of forged
indorsements
1. Where note payable to order the
party whose indorsement is forged is not
liable to any holder, even a holder in due
course
2. Where note payable to bearer the
party whose indorsement is forged is
liable to a holder in due course, but not to
one who is not a holder in due course
Instrument being originally payable
to bearer can be negotiated by
mere delivery. Indorsement is
not necessary to the title of the
holder
3. Where bill payable to order the
party whose indorsement is forged is
not liable to any holder even a holder
in due course
If the drawee pays under a forged
indorsement, the drawer is not
liable on the bill and the drawee
may not debit the drawers account
The checks are received merely for
collection and deposit, the bank, as
agent, cannot be expected to know
or ascertain the genuineness of all
prior indorsements
4. Where bill payable to bearer the
drawee may debit the drawers

account in spite of the forged

indorsement because indorsement is
not necessary to the title of the holder.
The drawee cannot recover from the
holder.
SECTION
30.
WHAT
CONSTITUTES
NEGOTIATION

An
instrument
is
negotiated when it is transferred from
one person to another in such manner
as to constitute the transferee the
holder thereof. If payable to bearer, it is
negotiated by delivery; if payable to
order,
it
is
negotiated
by
the
indorsement of the holder completed by
delivery.
Negotiation transfer of a negotiable
instrument from one person to another made
in such a manner as to constitutes the
transferee the holder thereof
There is no negotiation if the transfer
does not make the transferee the
holder of the instrument
Methods of transfer of a negotiable
instrument
1. Issue 1st delivery of the instrument
in complete form to a person who
takes it as a holder
2. Negotiation ordinarily involves
indorsement
3. Assignment transfer of the title to
an instrument, w/ the assignee taking
only such title or rights as his assignor
has, subject to all defences available
against his assignor
Methods of negotiation
1. Instruments payable to order