Negotiable Instruments Notes: Form

and Interpretation (Sec. 1 - 8)

THE NEGOTIABLE INSTRUMENTS LAW

I. FORM AND INTERPRETATION

*Section 1. Form of negotiable instruments. - An instrument

to be negotiable must conform to the following
requirements: (Always step 1 because it determines what law
is applicable) (WUPPA)

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

at least the surname should appear and generally the

signature (It may consist of mere initials or even
numbers)

where the name is NOT signed, the HOLDER must

prove that what is written is intended as a signature of
the person sought to be charged

how signature may be written: (must be shown to have

been adopted & used by the party as his signature)

printed

typewritten

stamped

engraved

photographed

lithographed
Location of signature: NOT material; usually written at
the bottom right hand corner

(b) Must contain an unconditional promise or order to pay a

sum certain in money;

Bill

Order (NOT mere authority to pay nor request)

may be equivalent

mere words of civility (i.e. will

oblige, by paying) - negotiable
Note

Promise

may be

equivalent (i.e. agree,shall pay,will

pay); or

implied (i.e. good to, payable on

demand)

BUT may not be implied

from the mere existence of a
debt
sum certain - ascertainable by mere mathematical
computation

money - NOT bonds, corp. stock, state paper, scrip,

checks, foreign bills, treasury certs.

Legal Tender in the Philippines (compels

creditor to accept)

However: certified checks such as

managers check may be similarly situated

Redemption by manager's check were

accepted or NOT accepted to on that
ground = VALID
may be in foreign money BUT must specify
denomination (NOT an invariable rule)

rate prevailing at the time of payment

(RA 529)

only agreement and NOT the claim can

be void

(c) Must be payable on demand, or at a fixed or determinable

future time;

(d) Must be payable to order or to bearer; and

order - equivalent

assigns

assignees

holder

on return of this certificate properly indorsed

(implies indorsement)
bearer

equivalent: possesor

bearer + specified person - NOT negotiable

because modifier only

(e) Where the instrument is addressed to a drawee, he must be

named or otherwise indicated therein with reasonable
certainty. - additional req. for bill

may be filled under iimplied authority

Importance of formalities: to distinguish from non-negotiable

insturments

Negotiable - apply negotiable instruments law

Determination o negotiability:

1. apply provisions especially Sec. 1 above

2. consider instrument as a whole

3. what appear on the face and NOT elsewhere

*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:

(a) with interest; or

silent: legal rate from time of judicial or extrajudicial

demand

Escalation clause is valid if there is deescalation clause

Escalation clause - stipulate that the rate of

interest agreed upon may be increased in the
event that the applicable maximum rate of
interest is increase by law or by the Monetary
Board

Deescalation clause - stipulate that the rate of

interest agreed upon may be reduced in the
event that the applicable maximum rate of
interest is decreased by law or by the Monetary
Board

(b) by stated installments; or

each installment maturity should be known

(c) by stated installments, with a provision that, upon default

in payment of any installment or of interest, the whole shall
become due; or (w/ acceleration clause) (d) with exchange,
whether at a fixed rate or at the current rate; or

exchange - difference in value of the same amount of

money in diff. countries (only for foreign bills)

may be at

2. current rate

3. fixed rate

(e) with costs of collection or an attorney's fee, in case

payment shall not be made at maturity.

Attorney's fee

need NOT be a sum certain

must be reasonable

if silent: NOT recoverable

Overdue instrument - NOT fully negotiable - holder NOT

holder in due course

*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

Fund for reimbursement (absolutely payable and

should NOT be from a restricted fund)

drawee pays the payee from his own funds

afterwards, drawee pays himself from the

particular fund indicated
Payment -direct source

drawee pays directly from the particular fund

indicated - NOT negotiable - conditional upon
the sufficiency of the funds

(b) A statement of the transaction which gives rise to the

instrument.

Example:

as per contract notes

chattel notes

conditional sales agreement

reference to mortgages

EX: in the note itself or part of the note -

non-negotiable bec. uncertainty of amount
Subject to terms and conditions of the transaction
stated = non- negotiable

But an order or promise to pay out of a particular fund is not

unconditional.

as long as absolutely requires to pay

*Sec. 4. Determinable future time; what constitutes. - 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 (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.

An instrument payable upon a contingency is not negotiable,

and the happening of the event does not cure the defect.

*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:

GR: Order or promise to any act in addition to the payment of

money = non-negotiable

EX: (CCWH)

(a) authorizes the sale of collateral securities in case the

instrument be not paid at maturity; or (merely accelerable =
negotiable)

GR: promise of the maker to furnish additional security

(additional act to the promise to pay in money) = non-
negotiable

(b) authorizes a confession of judgment if the instrument be

not paid at maturity; or

2 kinds of confession:

1. Cognovit actionem (NOTE: differs from warrant of

attorney)

written confession of an action by a defendant,

subscribed, but not sealed, and irrevocably authorizing
any attorney of any court of record to confess judgment
and issue execution usually for a sum named

given in order to save expense

2. Confesion relicta verificatione

confession of judgment made after plea is pleaded,

such as cognovit actionem, accompanied by a
withdrawal of a plea

*Warrant of attorney

instrument in writting addressed to 1 or more attorneys

named therein, authorizing them, generally, to appear
in any court, or in some specified court on behalf of the
person giving it, and to confess judgment in favor of
some particular person therein named in an action of
debt

Effect of confession of judgment in the Phils. = VOID

as against public policy - because:

1. they enlarged the field for fraud

2. under this instrument, the promissor bargains

away his right to a day in court

3. the effect of the instrument is to strike

down the right of appeal accorded by statute

(c) waives the benefit of any law intended for the advantage
or protection of the obligor; or

benefits or protection of the obligor that may be

waived:

1. presentment of payment

2. notice of dishonor

3. protest

(d) gives the holder an election to require something to be

done in lieu of payment of money.

it has to be the holder's option and not the drawee

Example: pay to A or order money or property at the

option of the holder (negotiable) vs. I promise to pay A
or order money or property (non-negotiable)

But nothing in this section shall validate any provision or

stipulation otherwise illegal.

NOTE: (b) is still void bec. of this

Test of negotiability: If the promise would give rise to

a cause of action for breach of contract if the additional
act is NOT done = non-negotiable

*Sec. 6. Omissions; seal; particular money. - The validity and

negotiable character of an instrument are not affected by the
fact that: (DVPSC)

If payment on demand, statute of limitations begin

immediately

(a) it is not dated; or

However, there are cases where the date is necessary to

fix the maturity date

(b) does not specify the value given, or that any value had
been given therefor; or

consideration is presumed

(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.

contract that foreign currency has fixed value in

relation to the money of the country in w/c the
instrument is payable but no such contract exists in the
Phils.

But nothing in this section shall alter or repeal any statute

requiring in certain cases the nature of the consideration to be
stated in the instrument.

*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

at sight - not ordinarily used in promissory note since

for presentment

(b) In which no time for payment is expressed. (payable in

demand)

when blank for time for payment unfilled- may be

filled under incomplete intruments Sec 14,15 or 16

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.

only as to immediate parties

*Sec. 8. When payable to order. - The instrument is payable

to order where it is drawn payable

1. to the order of a specified person or (order - designated

by him)

2. to him or his order.

It may be drawn payable to the order of: (PJS-D2MH)

(a) A payee who is not maker, drawer, or drawee; or

(b) The drawer or maker; or (acceptor in favor of drawer)

(c) The drawee; or

(d) Two or more payees jointly; or (and)

(e) One or some of several payees; or (or)

(f) The holder of an office for the time being. (Example:

cashier of co.)

Where the instrument is payable to order, the payee must be

named or otherwise indicated therein with reasonable
certainty.

GR: name of payee unfilled = non-nego

EX: incomplete under Sec. 13-15 depending on how it was

delivered