Negotiable Instruments
Negotiable Instruments
Negotiable Instruments
Requisites
- It can be made on leather or on whatever surface so long as it is movable. Its negotiability can be
understood from the face of the instrument. The signature can be placed at any place of the instrument.
The burden of proving the legitimacy of a signature belongs to the one alleging its falsity.
The place and the date are not essential to the negotiability of the instrument except in certain cases
when the date is necessary to determine when the note is due
A negotiable 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. (Sec. 126.)
From the foregoing, it will be seen that a bill of exchange is essentially an order made by one person to
another to pay money to a third person. For brevity, a bill of exchange is usually called a "bill." If drawn
on a bank and payable on demand, the order bill is, by definition, called check. (Sec. 185.) The check is
the most common form of order paper
A drawee-bank is not liable for its refusal to pay a check on account of insufficient funds
notwithstanding the fact that a deposit may be made later in the day. Where the
deposit is sufficient, the failure of a bank to pay the check of the drawer entitles the
drawer to substantial damages without any proof of actual damages.
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.
The drawee is not limited to the money in his hands belonging to the drawer. In other words, the fund
indicated is not the direct source of payment but only the source of reimbursement which is an act
subsequent to the payment.
EXAMPLE:
"Pay to the order of P PI,000.00 and reimburse yourself from the rentals of my house."
The drawee may pay the amount out of any fund. It is only the reimbursement that is to come from the
rentals.
But an instrument which is simply chargeable to a particular account (infra.) is negotiable. In this case,
payment is not confined to that fund, but is to be made whether it should fail or otherwise, and it is
mentioned only for the purpose of informing the drawee, as to his means of reimbursement.
The test of negotiability in every case is said to be whether or not the instrument carries the general
personal credit of the maker or drawer. If it does, the instrument is negotiable; if it carries only the
credit of a particular fund, the instrument is non-negotiable.
(1) "I promise to pay P or order the sum of P10,000.00 out of my salary in the government," or "out of
the proceeds of the sale of my shares of stocks."
(2) "Pay to bearer the sum of P10,000.00 out of the dividends which I may receive from X corporation."
(3) "Pay to bearer the sum of PI0,000.00 out of my money in your hands" or "out of my share of the
profits."
In each of the above cases, the maker or drawee is limited to the fund indicated and is not supposed to
pay if that fund should prove insufficient. The note, however, is not made uncollectible. The right or
contract must be resolved under ordinary contract law.
The intention to limit payment to a particular fund must be made plain. If the language used is
ambiguous or obscure, courts usually decide in favor of negotiability
EXAMPLES:
(1) "I promise to pay P or order the sum of PI,000.00 to be debited with his current account with me/'
(2) "Pay P or order the sum of PI,000.00 and charge the same to my account" or "to my share of the
profits."
(3) "Pay P or order PI,000.00 on account of my contract with you."
In the above cases, the instrument is payable absolutely and not out of a particular fund. It merely
indicates a particular account out of which the holder or drawee is to reimburse himself. The instrument
is to be paid first after which the particular account indicated will be debited.
"I promise to pay to the order of P P300,000.00 being the price of a car this day sold and delivered to
me."
The statement merely identifies the transaction which gives rise to the instrument. It does not qualify
the order or promise to pay making it conditional. The instrument is to be paid whether or not the cont
Terms and conditions contained in another paper. — If the promise or order is "subject to or governed
by the terms and
conditions of our contract executed by us on ___________________ ," the
instrument is not negotiable because the obligation to pay is burdened with the terms and conditions of
another contract, subjecting recovery on the Instrument to defenses available under the contract.
Furthermore, this will require an examination of said contract to determine the rights and obligations under
the instrument. Such instrument is non-negotiable regardless of what the terms of the contract actually are.
As already stated, the negotiability of the instrument must be determinable from what appears on its face
alone and not elsewhere, (see Sec. 1.)
In short, to destroy negotiability, the reference to a collateral contract must show that the obligation to
pay is burdened with the conditions of that contract. (Powell & Powell v. Greenleaf & Currier, 104 Vt.
480,162 Atl. 377.)
The rule in Section 3 may be stated thus: "The negotiability of a bill or note is not affected by a reference
which is simply: (a) a recital of the consideration for which the paper was given; or (b) a statement of
the origin of the transaction; or (c) a statement that it is given in accordance with the terms of a contract
between the same parties." (ibid.)
1. At a fixed period after date or sight – after sight means after being seen
2. On or before a fixed or determinable future time – time that can be determined with certainty
3. On or at a fixed period after the occurrence of a specified event which is certain to happen,
though the time of its happening be uncertain – specified means certain to happen and not a
contingency which not uncertain. Must be after the occurrence
ABA
Section 5- GR if it contains an additional act to be done, then it is non-negotiable, exceptions are the
following. CCWE
1. Not dated
Take note that omission would still not affect negotiability since the holder is allowed to
fill them up.
(a) where said date is tied to the date of issue (e.g., an undated note is "payable thirty days after date");
or
(b) where interest is stipulated for the purpose of determining when the interest is to run (see Sec.
17[c].); or
(c) in the case of the promissory note, the date of issue, and in the case of the bill of exchange, the date
of the last negotiation thereof, for the purpose of determining whether a party acted within a
reasonable time in making presentment for payment
2. Does not specify the value given – there is presumption that money or consideration is given. No
need to say what it was
3. Does not specify the place where it was drawn or where it is payable
4. Bears a seal – no change in effect if with seal and without seal
5. Designates a particular kind of money to be payment. This allowed
DVPBP
The instrument is still negotiable although it is payable in foreign money which is not current in
the Philippines if the obligation may be discharged in pesos of equivalent amount.
1. Of a specified person
2. To him or his order
It is then indorsed by him when purchased. The buyer will be simply be the assignee of the right
The payee then would have to be specified or indicated with certainty. So he could indorse it and it
could become negotiable
If the instrument bears a date, it is presumed that said date is the date when it was made or drawn
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.
(1) An instrument is ante-dated when it contains a date earlier that the true date of its issuance. Thus,
an instrument issued on July 30,2010 but is dated July 15,2010 is antedated.
(2) An instrument is post-dated when it contains a date later than the true date of its issuance. It is just
the reverse of an antedated instrument. In the example given, if the instrument was issued on July
15,2010, but bears a date of July 30,2010, it is postdated.
Blanks to be filled
Then the holder or any subsequent holder may insert the true date. But if wrong date was inserted, it
shall be void as the holder or any subsequent holder who knew that it was wrong for it being fraudulent.
However if it was indorsed to a holder in due course then for him the wrong date is the true date and it
will be enforced as such.
14, 15, 16
Section 14 applies only to an incomplete instrument which has been delivered by the maker or the
drawer to the payee or holder; Section 15, to an incomplete instrument and undelivered; and Section
16, to a complete instrument but undelivered.
When considering Section 14, it is important to bear in mind the distinction between the two classes of
instruments:
(1) Those in which obvious blanks are left at the time they are made or indorsed, of such a character as
manifestly to indicate that the instruments are incomplete until such blanks shall be filled up; and
(2) Those which are apparently complete, containing blanks only because the written matter does not so
fully occupy the entire paper as to preclude the insertion of additional words or figures, or both.
With respect to the first class, one who signs or indorses is liable to bona fide holders thereof on the
doctrine of implied authority, while with respect to the second class, the liability for the amount of the
instrument which has been increased by filling up unoccupied spaces therein is placed upon the doctrine
of negligence
(1) Authority to fill up the blanks. — The holder or the person in possession has prima facie authority to
complete an incomplete instrument by filling up the blanks therein. •
(a) The law speaks of material particular. It may be
defined as any particular proper to be inserted in a negotiable
instrument to make it complete; and the power to fill in
blanks extends, therefore, to every incomplete feature or the instrument.
It is an authority to complete and not alter. You may not alter those already filled
(4) Right of holder in due course. — The defense that the instrument had not been filled up in
accordance with the authority given and within a reasonable time is not available as against a holder in
due course
Sec 15, incomplete instrument not delivered. Is not valid and will not hold maker liable even to a holder
in due course unless the maker was negligent and there is a presumed delivery which he must rebut
The thief and subsequent indorser of the instrument are made liable for it
However a complete instrument which was undelivered but found to be with a remote or immediate
party privy to the knowledge is presumed to have been delivered and the contrary must be proven
There is presumption to transfer title and it was for a special or particular purpose then prove it and that
there was privy to knowledge
In the hands of a holder in due course.—If a complete instrument is in the hands of a holder in due
course, a valid delivery thereof by all parties prior to him is conclusively presumed
1. Sums expressed in words and in figures different – words prevail if there is ambiguity to the
words, figure prevail
2. Instrument provides interest but Is not dated where it first accrues – it runs from the date of the
instrument if it has no date then from when it was issued
3. Undated then the date is the date of issue – issue refers to the first delivery . it can be contested
between immediate parties but it is already conclusive for a holder in due course
4. Written prevail over printed for being true intention
5. If there is doubt if it is a bill or a note then holder may choose
6. If doubt as to capacity then he is an indorser only if sign in ambiguous location. Note that
maker/drawer at lower right, drawee lower left and holder who indorses on the back
7. I promise to pay signed by 2 then solidary and we promise to pay joint only