Negotiable Instrument

January 30, 2018

Elements of negotiability:
Section 1. - An instrument to be negotiable must conform to the following requirements:
(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.

4th element: (d) Must be payable to order or to bearer

*payable to order
-make reference to section 8:
“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.”

In promissory notes, you have two distinct persons (parties): maker is different from the payee
-payable to the order of the maker(maker is also the payee)
- it is circulated through indorsement
Bill of exchange, 3 distinct persons (parties): payee is separated from drawer, drawee.
-payable to the order of the drawee
- it is circulated through indorsement

*Payable to bearer
-Make reference to section 9:
“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.”

*letter a and b bearer instruments on the face. You can see the word “bearer”.
*letter c, d and e are order instruments. You can see the word “order”

Example:
 A certificate of time deposit states:
“this is to certify that bearer has deposited in his bank, P40,000 only, repayable to the depositor 200
days after date.” Is it a negotiable instrument?
-caltex v CA 1992, this instrument is negotiable; it is an acknowledgement in writing by the bank
of the amount of deposit with the promise to repay the depositor or bearer at the specific time.

 “I promise to the order of cash, P10,000, signed B”

-negotiable. Basis sec. 9 (d)

 “pay to bearer A, P10,000, signed B”

- non-negotiable. Bearer here is an adjective, it merely describes A. bearer was not used in the
context of negotiability, it is descriptive of A only.

 “I promise to pay to the order of Darna, P10,000, signed B”

-negotiable. Applying section 9(c)

*Order instrument= endorsement + deliver

*Bearer instrument, circulation by mere delivery

Question: can an existing person be considered as fictitious payee?

- yes, fictitious payee rule.
Read full text of (PNB v. spouses Rodriguez G.R. No. 170325, September 26, 2008)
- PNB, bears the loss. It is payable to order, therefore mere delivery or non-verification make the
PNB liable to those checks.

*If there is correct invocation of fictitious payee rule, only drawer bears the loss. He cannot deny his
______ he was in a better position to prevent loss.
*Failure to prove fictitious payee rule, drawee bears the loss.

Element #5: (e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
- Applies only to bill of exchange.

*If there are two alternative drawees, is non-nogatiable.

Ex:
“Pay to the order of A, P50,000, signed B as the drawer to X, or in his absence Y”
-non-negotiable, order is conditional and the drawees are in succession.

“Pay to the order of A, P50,000, signed B as the drawer to X and Y as the drawees”
-negotiable, two or more drawees jointly is negotiable.