BASICS

1. NEGO INSTRUMENT
a. Written contract for payment of money
b. Which is intended as sub for money
c. And passes from one person to another as money
d. In such a manner as to give a holder in due course
e. The right to hold the instrument free from defenses
f. Available to prior parties
g. The instrument must comply with sec 1 of the NIL to be
considered nego
2. REQS
a. W must be in writing
i. Intent controlling
b. U unconditional promise or order to pay a sum certain
in money
i. Unconditional even if coupled with:
1. An indication of particular fund out of which
reimbursement is to be made or a particular
account to be debited
2. A statement of the transaction which gives rise to
the instrument
ii. Sum certain in money
1. with interest
2. stated installments (number of, amount, dates fixed
or at least determinable)
3. stated installments with provision that upon
default, whole shall become due
4. with exchange at fixed/current rate
a. ra8183
b. cc 1129
c. sec 1 and 6 NIL
5. with cost of collection or attys fees
6. *** Even if other currency
7. *** Gives holder an election to require something
else to be done in lieu of payment of money
c. P payable on demand or at a fixed or determinable
future time
i. Payable on demand:
1. Expressed to be payable on demand, sight or
presentation
2. No time for payment is expressed
3. Instrument issued, accepted, indorsed when
overdue
4. ***OVERDUE
a. still nego, payable on demand
b. when an instrument is issued, accepted,
indorsed when already overdue,
c. it is as to the person IAI it, payable on
demand
ii. Determinable future time
1. At fixed period after date or sight
2. On or before a fixed or determinable future time
3. 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 (from death of
x)
iii. Acceleration clause? Nego
iv. Insecurity clause? Non nego

v. Extension clause? Nego

d. O payable to order or bearer

i. payable to bearer
1. expressed to be so payable
2. payable to person named therein or bearer
3. payable to order of a fictitious or non-existing
person and such fact was known to the person
making it
4. name of payee does not purport to be name of
any person (pay to cash)
5. when the only or last indorsement is an
indorsement in blank
ii. payable to order
1. 2 ways:
a. pay to order of specified person
b. pay to order of specified person or his
order
2. instrument may be made payable to order of:
a. payee, not maker drawer drawee
b. drawer/maker
c. drawee
d. two or more payees jointly
e. one or some of several payees
f. holder of an office for the time being
iii. *** examples:
1. payable to X corp? NO
2. check payable to order of cash is a bearer
instrument
e. A if addressed to a drawee, he must be named or
otherwise
indicated
therein
with
reasonable
certainty
i. May be made jointly but not on the alternative
3. NEGOTIATION
a. Transfer of an instrument
b. From one person to another
c. In such a manner as to constitute the transferee
d. A holder thereof
4. FUNCTIONS
a. Operates as substitute for money
b. Means of creating and transferring credit
c. Facilitates the sale of goods
d. Increases purchasing medium in circulation
5. *** checks not legal tender unless cleared and credited to
account of creditor

6. FEATURES OF NEGOTIABLE INSTRUMENT

a. Negotiability
i. Attribute or property whereby
ii. A bill, note or check
iii. May pass from hand to hand
iv. Similar to money
v. So as to give the holder in due course
vi. The right to hold the instrument
vii. And to collect the sum payable for himself
viii. Free from defenses
b. Accumulation of secondary contracts
i. 2ndary contracts are picked up and carried along
with them as they are negotiated from one person to
another
ii. a series of juridical ties between parties thereto arise
by either law or privity
7. PN (184)
a. Unconditional promise in writing
b. Made by one person to another
c. Signed by the maker
d. Engaging to pay on demand or at a fixed or determinable
future time
e. A sum certain in money
f. To order or bearer
g. Where a note is drawn to the makers own order, it is not
complete until indorsed by him
8. BoE (126)
a. Unconditional order in writing
b. Addressed by one person to another
c. Signed by the person giving it
d. Requiring the person to whom it is addressed
e. To pay on demand or at a fixed or determinable future time
f. A sum certain in money
g. To order or bearer
9. When can BoE be treated as a PN?
a. Drawer and drawee the same
b. Drawee fictitious
c. Drawee has no capacity to contract
d. Instrument is so ambiguous
10.

NEGO vs NON-NEGO
a. Application of NIL
b. Transfer (nego or assign vs assignment only)
c. Holder in due course

11.
a.
b.
c.
d.
e.
f.
12.

13.

14.

NEGO NOT AFFECTED BY:

not dated
does not specify value given or that any value has been
given therefore
does not specify place where it is drawn or payable
bears a seal
designates a particular kind of current money
addressed to more than one drawee jointly

INSTRUMENT STILL NEGO EVEN IF:

a. Authorize sale of collateral securities in case not paid at
maturity
b. Authorizes confession of judgment
c. Waives benefit of law intended for the advantage or
protection of the obligor
d. Gives the holder an election to require something to be
done in lieu of payment of money
LEGAL TENDER
a. New central bank act only notes and coins issued by the
Bangko Sentral ng Pilipinas are considered legal tender
b. Checks representing demand deposits do not have legal
tender power UNLESS cleared and credited to the account
of the creditor, which shall be equivalent to delivery of
cash
RA 8183
a. Act repealing RA 529 an act to assure uniform value of
Philippines notes and currency
b. All monetary obligations shall be settled in the Philippine
currency which is legal tender in the Philippines. However,
the parties may agree that the obligation or transaction
shall be settled in any other currency at the time of
payment.

TRANSFER AND NEGOTIATION

15.

METHODS?
a. Negotiation
i. If payable to bearer by delivery
ii. If payable to order by indorsement and delivery
iii. *** bearer instrument always bearer instrument
1. payable to bearer
2. then indorsed specially
3. it may still be negotiated by delivery
4. but the indorser is liable only to such holders
who got title through his indorsement
iv. *** incomplete nego of order instrument
1. holder ONLY transfers for value w/out
indorsement
2. transferee acquires title the transferor had
therein
3. and right to have the indorsement of the
transferor
b. Assign
i. If assigned, the transferee does not become a holder
ii. He merely steps into the shoes of the transferor
iii. Any defense available against the transferor is
available against the transferee
iv. *** ex. Instrument payable to order merely delivered
without indorsement

16.

INDORSEMENT
a. must be of entire instrument
b. bawal pay to X AND Y

17.

NEGO BY PRIOR PARTY

a. When an instrument is negotiated back to a prior party
b. He may further negotiate it
c. BUT cannot enforce payment against any intervening party
to whom he was personally liable
d. AND he may strike out intervening indorsements

18.

HOLDER
a. Payee or indorsee of a bill or a note, who is in possession of
it, or the bearer thereof

19.
HiDC (sec. 52) holder who has taken the instrument
under the following:
a. It is complete and regular upon its face
b. He became the holder of it before it was overdue and
without notice that it has been previously dishonored
c. That he took it in GF and for VALUE

d. At the time it was nego to him, he had:

i. No notice of any infirmity in the instrument
ii. Or defect in the title of the person negotiating it
20.

DEMAND INSTRUMENTS (53)

a. Where an instrument payable on demand is negotiated
after an unreasonable length of time after its issue
b. The holder is not deemed a holder in due course
c. (nature of instrument and usage of trade)

21.
a.
b.
c.
d.
e.
22.
a.
b.
c.
d.
e.
f.
23.

GOOD FAITH
Although good faith is presumed
Such is destroyed if payee or indorsee
acquired possession of the instrument
under circumstances that should have put him to inquiry
as to the title of the holder who negotiated the instrument
VALUE
When transferee receives notice of any infirmity before
paying full amount agreed upon,
Deemed HiDC
ONLY to the extent that the consideration agreed upon
Has been paid, delivered, performed.
Non-performance of the obligation will give rise
To partial or full defense of failure of consideration

ACCOMODATION PARTY (29)

a. Lack of notice of infirmity or defect in title of persons
negotiating it HAS NO APPLICATION
b. However such inapplicability is limited to notice of absence
of consideration or notice that the party is a mere
accommodation party
c. Holder subject to personal defenses if there was notice of
other infirmity

24.
May one who fails to inquire as to an infirmity and defect
be a HiDC?
a. YES
b. No obligation to inquire
c. UNLESS failed to make such when circumstances indicate
defect
25.

RIGHTS OF HiDC
a. Free from personal defenses but not real
b. *** a holder who is not a HiDC who derived title from a
HiDC takes all the rights of a HiDC

26.

FORGERY (23)
When a signature is forged
OR made without the authority of the person whose
signature purports to be
The signature is WHOLLY INOPERATIVE
And no right to Retain Discharge Enforce payment

a.
b.
c.
d.

e. Can be acquired through such signature

f. UNLESS the party against whom it is sought to enforce
such right is precluded from setting up forgery or want of
authority
i. Those who warrants
ii. Ratified the forgery
iii. Negligent
g. *** GR: drawee bank cannot debit the drawers account
h. *** parties after the forgery are precluded from setting up
forgery against the holder since they warranted that the
instrument is genuine
i. *** forger deemed principal debtor
27.

INCOMPLETE DELIVERED (14)

a. If wanting in any material particular the Person in
possession thereof, is prima facie presumed authorized to
complete it
b. A signature on blank, delivered by the person making it, in
order that it may be converted into a negotiable
instrument, operates as prima facie authority to fill it up as
such for any amount
c. In both cases, the instrument must be filled up strictly in
accordance with the authority given and within reasonable
time in order that it may be enforced against any person
who became a party thereto prior its completion
d. Persons negotiating after its completion are liable because
of their warranties
e. A HiDC may enforce the instrument AS IF it was filled up
strictly in accordance with the authority given and within
reasonable time

28.

COMPLETE UNDELIVERED (16)

a. Delivery is essential and must be coupled with the
intention of transferring title to the instrument
b. However, if the instrument is in the hands of a HiDC, valid
delivery is conclusively presumed.
c. Defense of want of delivery is only a personal defense

29.

INCOMPLETE UNDELIVERED (15)

a. This is a real defense

30.

UNDATED INSTRUMENT (13)

a. The insertion of a wrong date will not avoid the instrument
in the hands of a HiDC
b. But as to him, the date inserted is to be regarded as the
true date.

31.

MATERIAL ALTERATION (124-125)

a. any alteration which changes the
i. date
ii. sum payable
iii. time or place of payment
iv. number or relation of parties
v. medium or currency of payment
vi. or adds place of payment

vii. where none is specified or which alters the effect of

the instrument in any respect
b. effect?
i. Avoids the instrument, EXCEPT as against the party
who made, authorized or assented to the alteration
and subsequent indorsers.
ii. HiDC can enforce it according to its original tenor.
32.

FRAUD
a. In execution (in factum)
i. Di niya alam na note/ bill
ii. Real defense
b. In inducement
i. Consent vitiated

33.

PERSONS W/ SECONDARY AND PRIMARY LIABILITY

a. Maker (primary)
i. Engages to pay according to the tenor of the
instrument
ii. Admits existence of the payee and his capacity to
indorse
b. Acceptor (primary)
i. Engages to pay according to the tenor of the
instrument
ii. Admits existence of:
1. The drawer
2. Genuineness of his signature
3. His capacity and authority to draw the
instrument
iii. Admits existence of the payee and his capacity to
indorse
c. Drawer (secondary)
i. Admits existence of the payee and his capacity to
indorse
ii. Engages that the instrument will be accepted or paid
by the party primarily liable
iii. Engages that if the instrument is dishonored, and
proper proceedings are brought, he will pay to the
party entitled to be paid.
d. *** drawee bank not liable unless it accepts or certifies the
check, the remedy of the holder is against the drawer
provided notice of dishonor has been given to him

34.

WARRANTIES
a. Qualified Indorsement or Delivery (65)
i. Instrument is genuine and in all respect what it
purports to be
ii. that he has good title
iii. All prior parties has capacity to contract
iv. No knowledge of any fact which would impair the
validity of the instrument or render it valueless
v. *** if delivery, extends only to the immediate
transferee
b. General Indorsement (66)

i. Instrument is genuine and in all respect what it

purports to be
ii. that he has good title
iii. All prior parties has capacity to contract
iv. that at the time of endorsement, instrument is valid
and subsisting
35.

ACCOMMODATION PARTY (29)

a. One who has signed the instrument As maker drawer
acceptor or indorser Without receiving value therefor And
for the purpose of lending his name to some other person
b. Liable to holder for value even if the latter knew him to be
only an accommodation party

36.

PRESENTMENT
a. For payment
i. Not necessary to charge persons primarily liable
ii. Necessary to charge persons secondarily liable
EXCEPT:
1. As to drawer, when there is no right to expect
that the drawee will pay
2. As to indorser, where the instrument was made
for his accommodation and he has no reason to
expect that the instrument will be paid if
presented
3. Dispensed with under sec 82
4. When
instrument
dishonored
by
nonacceptance
b. For acceptance
i. Mandatory
1. Bill is payable within a fixed period after sight
or in any other case where it is necessary to fix
the maturity of the instrument
2. Bill expressly stipulates that it shall be
presented for acceptance
3. Bill drawn is payable elsewhere than the
residence or place of business of the drawee
ii. When excused?
1. Delay is excused
2. Drawee is dead or absconded or fictitious
3. Presentment cannot be made after exercise of
reasonable diligence
4. Although presentment has been irregular,
Acceptance has been refused on some other
ground

37.

ACCEPTANCE

a. Signification by the drawee of his assent to the order of the

drawer
b. It must be in writing
c. Signed by the drawee
d. It must not express that the drawee will perform his
promise by any other means than the payment of money
38.

BILL IN SET
a. Definition? Only one bill that is composed of several parts,
Each part numbered and containing a reference to other
parts
b. Purpose? Bill sent, by each part, to distant place through
different conveyance
c. The acceptor is only bound to accept one part. If different
parts are negotiated separately and there are HiDC, the
holder whose title first accrues is considered the true
owner

39.

DISCHARGE
PiDC by or on behalf of principal debtor
PiDC by the party accommodated, where the instrument is
made or accepted for his accommodation
Intentional cancellation thereof
By any act which will discharge a simple contract for
payment of money
When principal debtor becomes holder of the instrument in
his own right

a.
b.
c.
d.
e.