PART I:

The Negotiable
Instruments Law
(Act No. 2031)
 Applicability of the Negotiable
Instruments Law
1. Limited Application
- Act applies only to negotiable instruments
- Instruments that meet the requirements laid down in Sec.1 of the law.
- Designed to describe fully the law of negotiable instruments.
- Governs all matters comprehended within its terms

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 Applicability of the Negotiable
Instruments Law
2. Supplementary Application of Other Laws:
- Any case not provided by the act shall be governed by the provisions of
existing legislation/ default.

- Civil Code has no effect on its provisions except to supply any deficiency
in cases not covered by the Act.

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 Functions & Importance of
Negotiable Instruments
1. Substitute for Money
2. Negotiable Papers (Checks) constitute, at
present, the media of exchange for most
commercial transactions
3. A Medium of Credit Transaction

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Characteristics/ Features of Negotiable Instruments

1. Negotiability
– quality or attribute of a bill or note whereby it may pass from one
person to another similar to money, so as to give the holder in due
course the right to collect on the instrument the sum payable for
himself free from any defect in the title of any of the prior parties or
defenses available to them among themselves.

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Characteristics/ Features of Negotiable Instruments

2. Accumulation of Secondary Contracts as

they pass from one person to another
- Once an instrument is issued additional parties can become involved.

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FORMS OF NEGOTIABLE
INSTRUMENTS
COMMON FORMS SPECIAL TYPES
⦁ Promissory Notes ⦁ Certificate of Deposit
⦁ Bills of Exchange ⦁ Bank Notes
⦁ Due Bills
⦁ Bonds
⦁ Drafts
⦁ Trade Acceptances
⦁ Banker’s Accepetances

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Instruments with Limit
1) Letter of Credit
- A letter from a merchant
or bank or banker in one
place, addressed to another,
in another place or country,
requesting the addressee to
pay money/ deliver goods
to a third party.
2) Trust Receipt 3) Treasury Warrant
-A document of security - A government warrant for
pursuan to which a bank the payment of money such
acquires a “security as issued in favor of a
interest” in the goods public officer or employee
undwr trust receipt covering payment or
replenishment of cash
advances for official
expenditures
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Instruments with Limit
4) Postal Money Order 5) Bill of Lading 6) Certificate of Stock
- It is without - A written instrument
- An order for the payment unconditional promise to signed by a proper officer
of money to the payee pay or order to pay a sum of a corporation stating that
named therein drawn by certain in money. the person named therein is
one post office upon the owner of a designated
another under authority of number of shares of its
law. stock.

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Instruments with Limit
7) Warehouse Receipt 8) Pawn Ticket
- A document of title -It is not a negotiable
likewise without an instrument under the
unconditional promise to negotiable instruments law
pay a sum certain in nor a negotiable document
money.

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TITLE I:
NEGOTIABLE
INSTRUMENTS IN
GENERAL
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 CHAPTER 1
Form and Interpretation
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 Section 1
Form of Negotiable Intruments.

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 bearer; and
e) Where the instrument is addressed to a drawee, he must be named
or otherwise indicated therein with reasonable certainty.
“ Commercial Paper is a
written promises or Obligations
that arise out of commercial
transactions from the use of such
instruments as promissory notes
and bills of exchange

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Formal Requirements of Negotiability
⦁ Form & Content
- A negotiable instrument is a
contractual obligation to pay
money.
- A valid instrument is not
necessarily negotiable
⦁ Matters to be considered
- the whole of the instrument;
- only what appears on the face of
the instrument; and
- The provisions of the
Negotiable Instruments Law
especially Sec.1 thereof which
fully define the requirements an
instrument must meet in order
to be negotiable.
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Non-negotiable NATURE OF NON-
Instrument NEGOTIABLE INSTRUMENT

defined 1. Merely a simple

contract in writing
- Is an instrument which does not
meet the requirements laid down 2. May not be negotiated
to qualify an instrument as a but may be assigned to
negotiable one, or an instrument transferred
which in its inception is
negotiable but has lost its quality
of negotiability

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Negotiable Original Parties to a
Promissory Note Promissory Note
- Is an unconditional promise in
writing made by one person to Maker
Payee
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

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Negotiable Original Parties to a
Bill of Exchange Bill of Exchange
- Is an unconditional order in writing
Drawer Drawee
addressed by one person to another, Payee
signed by the person giving it, and
requiring the person to whom it is
addressed to pay upon demand or at
a fixed or determinable future time a
sum certain in money to order or to
bearer

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 Section 2
Certainty as to sum; what constitutes.-

The sum payable is a sum certain within the meaning of this

Act, although it is to be paid
a) With interest; or
b) By stated installments; or
c) By stated installments with a provision that upon
default in payment of any installment or of interest, the
whole shall become due; or
 Section 2
Certainty as to sum; what constitutes.-

(continuation)
d) With exchange, whether at a fixed rate or at the
current rate; or
e) With costs of collection or any attorney’s fee, in case
payment shall not be made at maturity
 Section 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
 Section 3
When promise is unconditional.

(continuation)
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.
 Statement of Transaction
which gives rise to Instrument

1. Mere recital of consideration for instrument or origin of transaction

2. Terms and Conditions contained in another paper

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 Section 4
Determinable future time; what constitutes

An instrument is payable at a determinable future time,

within the meaning of this Ac, 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
 Section 4
Determinable future time; what constitutes

(continuation)
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.
When instrument payable at determinable future time
1)Payable at a fixed time
2) Payable at a fixed period after date
3) Payable at a fixed period after sight
4) Payable on or before a fixed time
5) Payable on or before a determinable future time
6) Payable on the occurrence of a specified event
7) Payable after the occurrence of a specified event
8) Payable upon contingency

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 An uncertain
future event, or an
event which may
or may not happen

Contingency
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 Section 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
 Section 5
Additional provisions not affecting negotiability

(continuation)
a) Authorizes the sale of collateral securities in case the instrument be not paid
at maturity; or
b) Authorizes a confession of judgement if the instrument be not paid at
maturity; or
c) Waives the benefit of any law intended to 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.
 Section 5
Additional provisions not affecting negotiability

(continuation)

But nothing in this section shall validate any provision or

stipulation otherwise illegal
 Exceptions
General Rule a) Sale of Collateral Securities

The instrument is non- b) Confession on judgement

negotiable if it c) Waiver of benefit granted by

law
contains a promise or
d) Election of holder to require
order to do any act in
some other act
addition to the
payment of money.

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 Section 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 has 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
 Section 6
Omissions; seal; particular money.

(continuation)
e) Designates a particular kind of current money in which payment is to
be made.

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.
Effect of Omission of Date
Date of instrument When date necessary Date stated not in
generally not calendar
necessary a) Date is tied to - The law will
- Omission of the the date of issue deem the nearest
date will not make b) Interest is date of the month
the instrument non- stipulated for the
the date intended.
negotiable purpose of
determining
- It will be when the interest
considered dated is to run
as of the time it c) Date of
was issued. negotiation

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 Section 7
When payable on demand

An instrument is payable on demand

a) Where it is 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.
 Section 8
When payable to order

The instrument is payable to 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
b) The drawer or maker; or
c) he drawee; or
d) Two or more payees jointly; or
e) One or more of several payees; or
f) The holder of an office for the time being.
 Section 8
When payable to order

(continuation)

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

named or otherwise indicated therein with reasonable
certainty
 Section 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
 Section 9
When payable to bearer

(continuation)

d) When the name of the payee does not purport to be

name of any person; or
e) When the only or last indorsement is an
indorsement in blank
“ Bearer
The person in possession of
a bill or note which is
payable to bearer or legally
qualifies as a bearer
instrument

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Fictitious Person
Meant to be the one who,
though named as payee in an
instrument, has no right to it
because the maker/drawer so
intended and it matters not,
whether the name of the payee
used by him be that one living
or dead, or one who never
existed.
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A Blank Indorsement,
However, cannot make a non-negotiable instrument,
because payable to a specified person, negotiable as a
bearer instrument; otherwise, the person who last
signed his name on the back of the instrument would
be able to change entirely the contract as entered into
between the parties and make the character of the
instrument depend upon the manner of the
indorsement, and not upon the terms expressed
therein.

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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 hereof.
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 true date of the making, drawing,
acceptance or indorsement, as the case may be.
“Prima Facie meaning
based on the first impression;
accepted as correct until proved
otherwise.

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 Section 12
Ante-dated and post-dated

The instrument is not invalid for the reason only that it is

ante-dated or post-dated, provided that this is not done for
an illegal or fraudulent purpose. The person to the title
thereto as of the date of delivery.
⦁ ANTE-DATED ⦁ POST-DATED
When it contains a date When it contains a date
earlier than the true date later than the true date of
of its issuance issuance

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Effect of Ante-dating and Post-dating

GENERALLY
⦁ Ante-dating or Post-dating an
IF DONE FOR AN ILLEGAL
instrument does not render it
OR FRAUDULENT PURPOSE
invalid or non-negotiable by
that fact alone. ⦁ The instrument is rendered
invalid.
⦁ It may be negotiated before or
after the date given as long as
it is not negotiated after its
maturity

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 Section 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
 Section 13
When date may be inserted

(continuation)
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.
 Section 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 a prima facie
 Section 14
Blanks, when may be filled

(continuation)
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.
 Section 14
Blanks, when may be filled

(continuation)
But in 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.
Steps in issuance of negotiable instrument
1. The mechanical act of 2. The delivery of the
writing the instrument complete instrument by
completely and in the maker or the drawer
accordance with the to the payee or holder
requirements of Section with the intention of
1. giving effect to it.

Such instrument, complete and delivered, is negotiable and may be enforced

accordingly.
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 Rules where instrument incomplete
but delivered

Right
Right of holder in against party
due course. prior to
completion

Authority to Authority to
put any fill up the
amount blanks

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 Section 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.
 Rules where instrument incomplete
and undelivered

Defense Defense
available to even against
parties prior a holder in
to delivery due course

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 Section 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 as a remote party other than a holder in due course,
the delivery, in order to be effectual, must be made either
by under or the authority of the party
 Section 16
Delivery; when effectual; when presumed.

(continuation)
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
 Section 16
Delivery; when effectual; when presumed.

(continuation)
Prior to him so as to make them liable to him is
conclusively presumed. And where the instrument is no
longer in possession of a party whose signature appears
thereon, a valid and intentional delivery by him is presumed
until the contrary is proved.
 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 it effect.

Delivery Issue Holder

- Transfer of possession, - First delivery of the - Payee or indorsee of a
actual or constructive, instrument, complete in bill or note who is in
from one person to form, to a person who possession of it, or the
another takes it as holder bearer thereof.

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 Rules where instrument mechanically complete
2) Delivered
The delivery of the instrument is the final act essential to its consummation as an
obligation. It can be made either by the maker, drawer, or through a duly authorized
agent

3) In possession of a party other than a holder in due course

If a complete instrument is found in the possession of an immediate party or a
remote party other than a holder in due course, there is a prima facie presumption of
delivery but subject to rebuttal.

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 Rules where instrument mechanically complete

An undelivered instrument is inoperative because delivery is

a prerequisite to liability.

Immediate Parties Remote Parties

- It refers to those who are - Parties who are not in
“immediate” in the sense of direct contractual relation to
having or being held to each other
know of the conditions or
limitations placed upon the
delivery of the instrument

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 Section 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 sum payable; but if the words are ambiguous or
uncertain, reference may be had to the figures to fix the amount
 Section 17
Construction where instrument is ambiguous

b) Where the instrument provides for the payment of interest,

without specifying the date from which interest is to run, the
instrument runs from the date of 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;
 Section 17
Construction where instrument is ambiguous

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;
 Section 17
Construction where instrument is ambiguous

f) Where a signature is so placed 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 the instrument containing the words “I promise to pay” is
signed by two or more persons, they are deemed to be jointly and
severally liable thereon.
 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.
 Persons liable on an instrument
• GENERAL RULE
Only persons whose signatures appear on an instrument are liable.

⦁ EXCEPTIONS
a) Where a person signs in a trade or assumed name
b) The principal is liable if a duly authorized agent signs on his
own behalf

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 Persons liable on an instrument
⦁ EXCEPTIONS
c) In case of forgery, the forger is liable even if his signature
does not appear on the instrument
d) Where the acceptor makes his acceptance of a bill on a
separate paper
e) Where a person makes a written promise to accept a bill
before it is drawn.

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 Section 19
Signature by agent; authority; how shown

The signature of any party may be made by 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.
 Section 20
Liability of person signing as agent, etc.

Where the instrument contains or a person adds to his signature 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 duly
authorized; but the mere addition of words describing him as an agent,
or as filling a representative character, without disclosing his principal,
does not exempt him from personal liability.
When agent may escape
personal liability
⦁ He is duly authorized
⦁ He adds words to his signature indicating
that he signs as an agent, that is, for or on
behalf of a principal, or in a representative
capacity; and
⦁ He discloses his principal

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 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 within the
actual limits of his authority.
Procuration
-Act by which a principal gives power to another to act
in his place as he could himself

- It is also understood as agency or proxy, for one

who signs is merely acting as agent for another

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 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.
 Section 23
Forged signature; effect

When a signature is forged or made without the authority of the person

whose signature it purports to be, it 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 forgery or want of
authority.
“ Forgery is the counterfeit-
making or fraudulent alteration of
any writing and may consist in the
signing of another’s name or the
alteration of an instrument in the
name, amount, description of the
person, ,and the like, with intent
thereby to defraud..

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 Exemptions to the General Rule

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 holder’s title, in which
case the forgery may be disregarded.

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Thanks!

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