Negotiable Instruments Law

Atty. Bernardino Amago IV, CPA

EH ROOM 403

Q: What are the conditions we deal with in NIL?

A: Conditions include UNKNOWN PAST to the parties;
and UNCERTAIN AND UNKNOWN FUTURE.

A: At sight refers to present to drawee for acceptance so

now becomes the ACCEPTOR; while on presentation
meant FOR PAYMENT.

Q: What has to be presented at the time he signed the

instrument?
A: The intent to be bound

When it states simultaneous to acceptance/payment

that that means it is payable on demand. This is
intended for acceptance and intended for payment by
principally obligated - acceptor or maker.

Q: Where should the signature be located?

A: The law doesnt specify such.
Q: are dates really necessary?
A: the law does not require such however, in
instalments, it is a must to indicate the date and
amount to be paid to know the due dates/maturity
dates.

Q: When do we say its payable to some future time?

A: one thats certain to happen.
When the period is accompanied by a cause, it then
becomes a condition hence, non-negotiable instrument.
Examples:

Q: when do we say that its payable on demand?

A: Section 7:

o I promise to pay X, or bearer for 1 M if X

dies negotiable.

1. When it is expressed to be payable on demand, or

at sight, or on presentation
2. 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.

o I promise to pay X, or bearer for 1M if X

dies of cancer? Non-negotiable.
If payments are to be made and stated therein the
word before instead of after, it will be nonnegotiable...
Example:

Q: what is the difference between AT SIGHT and ON

PRESENTATION?

WHERE WERE WE

o I promise to pay X, or bearer 1M before

death.

Negotiable Instruments Law

Atty. Bernardino Amago IV, CPA
o If after, you can still collect after the
happening of the event, supervening
event.
Q: What if its made to be paid 30 days after death?
A: Section 13. If not stated, still negotiable. In the hands
of the holder, it will be considered at a determinate
future time. He determines due date.

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d.) When the name of the payee does not
purport to the the name of any person or
e.) When the only or last indorsment is an
indorsement in blank
Q: Give an example of When it is payable to the order of
a fictitious person or non-existing person and such facts
was known to the person making it so payable
A: Example:

Examples:
o I promise to pay Teddy, or bearer 1 M on
Christmas. Non-negotiable
o I promise to pay Bear, or bearer 1 M on
Christmas 2016 negotiable.

o I promise to pay Iron man or order P1M

Q: Call Torcal Enumerates Section 1 again. What is the
4th requirement?
A: Must be payable to order or to bearer
Q: Another example

Q: when is again the instrument payable to bearer?

o I promise to pay Iron man or order P1M on or

before Christmas of 2016

A: Sec 9 sir. The instrument is payable to bearer

a.) When it is so expressed to be so payable
b.) When it is payable to a person named
therein or bearer
c.) When it is payable to the order of a
fictitious person or non-existing person
and such facts was known to the person
making it so payable

WHERE WERE WE

sgd Y
Q: is Y here a drawer or maker?
A: It is a maker. In the face of the instrument sir, It
doesnt mean sir just because the word order is there in
the above example it automatically becomes a bill of
exchange because sir the law says that it is a bearer
instrument and it is a promissory note

Negotiable Instruments Law

Atty. Bernardino Amago IV, CPA
EXPLANATION:
ATTY AMAGO: Y here is a maker because it is a
promissory note, it will only become a drawer if this is a
bill of exchange. In the example, you have here a
promise to pay and not an order to pay. Diba, I
emphasize it beforehand dont get confused with the
order mentioned in the second requirement and the
order mention in the fourth requirement thats why its
best if we distinguished between a promise to pay and
order to pay so that you dont get confused.
The order referred to their in the second requirement
of section 1 paragraph b: Must contain an unconditional
promise or order to pay a sum certain in money is the
order made by the drawer while the order referred in
the fourth requirement under sec 1 paragraph d, it says
Must be payable to order or to bearer is the order made
by the payee of the instrument. So the payee in the
instrument can be present in a promissory note and a
bill of exchange. Even if there is an order present or
stated here in this instrument because it is a promissory
note your party will just be a maker and not a drawer.

EH ROOM 403
PREVIOUS EXAMPLE:
I promise to pay Iron man or order P1M on or
before Christmas of 2016

Take note for it to be a bearer instrument, Its a

requirement that the person making the instrument
believe that person is really fictitious and in our example
because the maker believes ironman is existing then it
doesnt comply with the requirement under section 9.
But then again you cannot say that this instrument is an
order instrument, YES IT PROVIDES THE NAME ORDER
BUT because no one can order here then the instrument
is at best non-negotiable.
THE TWO REQUIREMENTS UNDER SECTION 9
PARAGRAPH C must be complied before it can be a
bearer instrument.
Q: WHAT IS SECTION 9 PAR. D
A: When the name of the payee does not purport to the
the name of any person or
Q: in this example, is this negotiable or not?

LETS GO BACK TO THIS: SECTION 9 Par c.

Example :
When it is payable to the order of a fictitious
person or non-existing person and such facts
was known to the person making it so payable

WHERE WERE WE

Pay to cash the amount of 1 Million

Negotiable Instruments Law

Atty. Bernardino Amago IV, CPA
Q:When is the instrument required to be addressed to a
drawee?

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EXAMPLE:
TO: X

A:Bill of exchange.

PAY TO CASH THE AMOUNT OF 1 MILLION

PESOS.

Q:When it is a bill of exchange?

A:When there is an unconditional order.
Q: Is there an unconditional order here?
A: No. that is a promissory note.

Take note: a drawee is only required if it is an ORDER.

Q: But in this example, is this a promise or an order?
C: An order.
Q: So if it is an order, who is the drawee?
A: Class, this is non negotiable. This is an ORDER. You
are ordering someone to pay. It does say I promise or
I obliged. It simply says pay to cash and in this case
there is NO DRAWEE mentioned and therefore, it is a
NON-NEGOTIABLE instrument! . A drawer can also be
the drawee but it must state class, did it state? Take
note class in the fifth requirement of SEC 1: Where the
instrument is addressed to a drawee he must be named
or otherwise indicated therein with reasonable
certainty. Is the drawee named here?

WHERE WERE WE

Class, if you do not see the words promise or words

of the same import, it is not a promise. It is a order. In
the example earlier if you read it really is a demand to
someone: PAY TO. But now that the drawee is placed
here, is this now negotiable?
A: Yes sir.
Q: Is this an order instrument or a bearer instrument?
A: Bearer instrument because whoever has the bill of
exchange, if the name of the payee is not indicated
specifically, it is a bearer instrument.
Lets change:
TO: X
PAY TO BEAR THE AMOUNT OF 1 MILLION PESOS.
A: that is still considered as a bearer instrument.
Q: Is it not a requirement in letter (d) that it be payable
to order? That the instrument originally is an order
instrument but because of certain defects, it becomes a
bearer instrument?

Negotiable Instruments Law

Atty. Bernardino Amago IV, CPA
A: it specifies a specific person.
ATTY AMAGO: Okay clarification: some authors really
took PAY TO CASH as valid. Supreme Court even says
that yes it is payable to bearer if it is pay to cash, cash
being not a name of a person. The problem there is if it
is a check, what you will see is pay to the order of
cash. That is still an order instrument. It still has words
of negotiability. In this case, we only say PAY TO BEAR
there are no words of negotiability and supposedly
this should have been rendered non-negotiable for
failure to comply with the requirement that it should be
payable to order or to bearer. We cannot say that this is
right away is a payable to bearer instrument just
because bear is not a name of a person because
letter (c) requirement, it has to be payable to order as
well. Otherwise, there can be no difference between
payable to bearer and all those without words of
negotiability.
Even if I say there: pay to Gocuan 1M. Gocuan is a
family name but to some, they may not know that
Had it been an order instrument, that would not have
complied. It must have a signature at the back for it to
be indorsed or negotiated. (action2x silag sign nya pasa
papil)
Q: So now, in section 9 it says that the last indorsement
is an indorsement in blank. What does that tell you?
What instrument was made?
WHERE WERE WE

EH ROOM 403
Gocuan really is a family name. Thus, they will then
consider it negotiable then. And so, there has to be
words of negotiability. In fact, there are authors who
explain it clearly that only the first 2 examples in
SECTION 9 are deemed BEARER INSTRUMENTS on its
face. All the rest are order instruments. You need to
actually see here the word order for it to be considered
negotiable. The exception would be when it is pay to
cash because that has long been accepted.
Q:Now, lets go to the last (e). When do we say that the
last indorsement is an indorsement in blank? When do
we see this indorsement?
A: at the back of the instrument.
ATTY AMAGO: When we say that the instrument is
indorsed, something is written at the back, someone
signs at the back. Another difference between a bearer
instrument and an order instrument, is that a bearer
instrument need not be indorsed. It can be negotiated
by mere delivery. (action2x silag pasa pasa ug papil)
A: Order instrument.
Q: It is an order instrument because it requires an
indorsement but it just so happens that the last one is in
blank. What does that mean?
A: It does not specify to whom it should be delivered but
it contains a signature of the bearer or whoever is
holding it.

Negotiable Instruments Law

Atty. Bernardino Amago IV, CPA
EXAMPLE:

FRONT:

EH ROOM 403
Q: So the first person who will take hold of the
instrument after Y will be P. So what will P do now? He
will either go to X or negotiate
it. How does he do
that?
A: He will sign at the back.

To X

Pay to P or order.

Q: So can he now validly indorse? With just the

signature?
A: Yes, because that is an indorsement in blank or a
blank indorsement

BACK:

Sgd. P

Q: What should you see there?

A: name and signature of holder.
Q: Who will first receive the instrument?
A: it will be P because he will be the one to go to X and
ask for payment.

WHERE WERE WE

Q: Why is it a blank indorsement? Because what you see

is just the signature of the holder of the instrument. It
did not specify who will make the next order. By just
looking at this, you would not know who will make the
next order, unless its actually delivered now to another
person. That means whoever is holding it will be the
one who make the order on the instrument. And thats
the reason why it is now considered a bearer
instrument. Because when its already blank, whoever
holds the instrument becomes the holder of the
instrument. So it becomes a bearer instrument.
Otherwise the instrument would then be rendered nonnegotiable. But that is not the idea of the law because
what you look at is just the face of the instrument and it
complies with the negotiablility requirements under
Sec. 1. At the back though, you just see a signature. So
it will continue to be negotiable even if it contains a
signature at the back. So there is that indorsement
which is called an indorsement in blank. But because

Negotiable Instruments Law

Atty. Bernardino Amago IV, CPA
now it is an indorsement in blank, it will become a
bearer instrument, when originally it should have been
an order instrument.

EH ROOM 403
Pay to the order of P the amount of
Php1,000,000.

Q: When is it an order instrument?

Student: Under Sec. 8, an instrument is payable to order
where it is drawn payable to the order of a specified
person OR to him or his order.
ATTY AMAGO: 1st type of an order instrument > when
it is payable to the ordered of a specified person. Give
me an example.
S: Pay to the order of P.
Q: 2nd type of an order instrument -> when it is payable
to him (referring to a specified person) or his order.
Illustrate.
A: Pay to P or his order.

(Sgd.) Y
*Here, X is the drawee, Y is the drawer, and P is the
payee.
ATTY AMAGO: There is a third person in this case
because P is not the drawer and not the drawee. The
payee can also be a person who is not the maker of the
instrument.
Example:
I promise to pay to the order of P Php10,000.
(Sgd.) L
ATTY AMAGO: Sec. 8(b) When the instrument is drawn
payable to the order of the drawer or maker.

Q: Lets go to another specifics provided by law.

A: An instrument is payable to order if drawn payable to
the order of a payee who is not the maker, drawer, or
drawee. (Sec. 8(a))
Example:
To: X
WHERE WERE WE

Example 1: I promise to pay to the order of

myself Php10,000.
(Sgd.) L
*This is an instrument payable to the order of the
maker. Here, the maker and payee is L. Myself refers
to L.

Negotiable Instruments Law

Atty. Bernardino Amago IV, CPA

EH ROOM 403

Example 2:

A: Sec. 8(c) When the instrument is drawn payable to

the order of the drawee.

o To: X
Pay to the order of myself Php1,000,000.
(Sgd.) Y

Example:
o To: X
Pay to X or order Php1,000,0000.

*This is an instrument payable to the order of the

drawer. Y is the drawer and payee.
A: If it says:

(Sgd.) Y
*X is the drawee who happens to be the payee as well.

o To: X
Pay to myself or order Php1,000,000.

Q: Sec. 8(d) When it is drawn payable to the order of

two or more payees jointly. First and foremost, when is
it joint?

(Sgd.) Y
Q: Is this negotiable?

A: It is joint when you use words of conjunction - and.

A: Yes. This instrument is payable to Y (being the drawer

and payee) OR his order.

Q: Its solidary if theres the word or there because it

gives an option. Anyway, when do you have a joint
obligation, aside from knowing that theres the word
and there? How would you know its joint?

Q: This is exactly the reason why the first paragraph

mentions that the instrument is payable to order when it
is payable to the order of a specified person OR to him
or his order. So even if it did not say Pay to the order of
myself, its just the same as saying Pay to myself or
order. So this is now payable to a specified person or
his order. This is still a negotiable instrument - an
example of an instrument payable to the order of the
drawer. Now, third example.

WHERE WERE WE

S: (inaudible)
Q: You actually count just the credits. Because joint can
either be on the part of the creditor and can also be on
the part of the debtor. A joint obligation is actually
defined as an obligation where there are as many debts
as there are parties. So in this case, you would know that
it is payable to joint payees when it uses the word and.

Negotiable Instruments Law

Atty. Bernardino Amago IV, CPA
Example:
o To: X
Pay to X and Z or their order P1 milion.
(sgd) Y

Sir: So that means that they can separately negotiate the

instrument?
A: No, the indorsement required must also be joint
because you cannot separate the instrument. So when
they indorse the instrument, it has to be signed jointly
by them. So that it would actually transfer the full
amount of 1 million to whomever they are ordering to
receive it.
But it need not be stated in the above example. It can
state that pay to X P500k and Z P500k or their order.
This means that they will still have to indorse it jointly
because of the conjunction and.
Sir: How about to 2 or more several payees?
Instead of using and, you can just make use of or.
Example: Pay to X or Z or their order P1 million.
Sir: What about to order of holder of an office for the time
being?
A designation of such office would suffice.
WHERE WERE WE

EH ROOM 403
Example: Pay to the order of the Professor of NIL in
EH403.
The designation must be specific. It has to refer to a
position which can be occupied by one person alone.
It is only true for that particular period. Example
President of the Philippines, Secretary of Justice or
simply pay to the treasurer or his order. Treasurer in
this example refers to the office and not to the
person.
Sir: The last requirement for negotiability of an instrument
is, Where the instrument is addressed to a drawee, he must
be named or otherwise indicated therein with reasonable
certainty. And this applies only to bills of exchange and we
would know when it is a bill of exchange if there is an
unconditional order to pay a sum certain in money. Can a
promissory note be an order instrument?
Yes. You separate the order in requirement no. 2
and no. 4.
Sir: Can a promissory note be a bearer instrument?
Yes.
Sir: Can a bill of exchange be an order instrument? Can it be
a bearer instrument?
Yes because that 4th requirement applies to both
promissory note and bill of exchange. So do not get

Negotiable Instruments Law

Atty. Bernardino Amago IV, CPA
confused that an order is automatically referring to
a bill of exchange. You should look at where you find
the order. If the order is in relation to a payee, then
that refers to it being an order instrument and not
as a bill of exchange. So the demand refers to the
order for it to become a bill of exchange under the
2nd requirement.
Cases:
CALTEX PHILS. vs. CA
Facts:
On various dates, Security Bank and Trust Co. (SEBTC),
through its Sucat branch, issued 280 certificates of time
deposit (CTD) in favor of one Angel dela Cruz who
deposited with the bank the aggregate amount of P1.12
million. Angel dela Cruz delivered the CTDs to Caltex in
connection with his purchase of fuel products from the
latter. Subsequently, dela Cruz informed the bank that he
lost all the CTDs, and thus executed an affidavit of loss to
facilitate the issuance of the replacement CTDs. De la Cruz
was able to obtain a loan of P875,000 from the bank, and in
turn, he executed a notarized Deed of Assignment of Time
Deposit in favor of the bank. Thereafter, Caltex presented
for verification the CTDs (which were declared lost by de la
Cruz) with the bank. Caltex formally informed the bank of
its possession of the CTDs and its decision to preterminate
the same. The bank rejected Caltex claim and demand,
after Caltex failed to furnish copy of the requested
WHERE WERE WE

EH ROOM 403
documents evidencing the guarantee agreement, etc. In
1983, de la Cruz loan matured and the bank set-off and
applied the time deposits as payment for the loan. Caltex
filed the complaint, but which was dismissed.
Issues:
1. Whether the CTDs are negotiable instruments.
2. Whether the CTDs negotiation require delivery only.
Held:
1. The CTDs in question meet the requirements of the law
for negotiability. Contrary to the lower courts findings, the
CTDs are negotiable instruments. Negotiability or nonnegotiability of an instrument is determined from the
writing and language used, i.e. from the face of the
instrument itself. The documents provided that the
amounts deposited shall be repayable to the depositor. The
amounts are to be repayable to the bearer of the
documents, i.e. whosoever may be the bearer at the time
of presentment.
2. Although the CTDs are bearer instruments, a valid
negotiation thereof for the true purpose and agreement
between it (Caltex) and de la Cruz requires both delivery
and indorsement; as the CTDs were delivered to it as
security for dela Cruz purchases of its fuel products, and
not for payment. Herein, there was no negotiation in the
sense of a transfer of title, or legal title, to the CTDs in
which situation mere delivery of the bearer CTDs would

Negotiable Instruments Law

Atty. Bernardino Amago IV, CPA
have sufficed. The delivery thereof as security for the fuel
purchases at most constitutes Caltex as a holder for value
by reason of his lien. Accordingly, a negotiation for such
purpose cannot be effected by mere delivery of the
instrument since the terms thereof and the subsequent
disposition of such security, in the event of non-payment of
the principal obligation, must be contractually provided for.
Sir: Why did they have to raise the issue of the instrument
being negotiable?
The reason is because there was an assignment but
not negotiation. Yes, the instrument was negotiable
but because it was just assigned, it was not
intended to give Caltex the right on the instrument.
There was just in effect an assignment. Because
there was merely an assignment, they can only
exercise the right of Angel and that right happens to
be burdened by a loan. If its between the bank and
Caltex, the bank has more rights because it was the
bank that was defrauded by Angel.
PHILIPPINE EDUCATION CO., INC. vs. MAURICIO A. SORIANO
Postal Money Order is not a negotiable instrument for
the following reasons:
1. The restrictions imposed upon money orders are
inconsistent with negotiable instruments;
2. In establishing and operating a postal money order
system, the government is not engaged in commercial
transactions but they merely exercise government
power for the public benefit.
WHERE WERE WE

EH ROOM 403
IMPORTANCE:
Thats why class it is important that when I ask you
what a negotiable instrument is, you should say that it is a
instrument used in commercial transaction which complies
with the requirements in Section 1. Because it this case
says that even if the document complies with the
requirement of Section 1, such document was held non
negotiable because it was not used in commercial
transaction. Thus, cannot be negotiated.
METROBANK VS. CA
The treasury warrants are not negotiable instruments.
Clearly stamped on their face is the word: non negotiable.
Moreover, and this is equal significance, it is indicated that
they are payable from a particular fund, to wit, Fund 501.
An instrument to be negotiable instrument must contain an
unconditional promise or orders to pay a sum certain in
money.
As provided by Sec 3 of NIL an unqualified order or
promise to pay is unconditional though coupled with: 1st,
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 2nd, a statement of the
transaction which give rise to the instrument. But an order
to promise to pay out of particular fund is not
unconditional. The indication of Fund 501 as the source of
the payment to be made on the treasury warrants makes
the order or promise to pay not conditional and the
warrants themselves non-negotiable. There should be no

Negotiable Instruments Law

Atty. Bernardino Amago IV, CPA
question that the exception on Section 3 of NIL is
applicable in the case at bar.

WHERE WERE WE

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