NEGOTIABLE INSTRUMENTS (POINTERS)

Q: What are the elements of a

negotiable instrument?
A: 1. In writing and signed by the
maker or drawer;
2. Contains an unconditional promise
or order to pay a sum certain in
money;
3. Payable on demand, or at a fixed or
determinable future time;
4. Payable to order or to bearer; (so
called badges of negotiability)
5. If addressed to a drawee, he must be
named or otherwise indicated with
reasonable certainty. (Sec. 1)
Q: What are the two kinds of
negotiable instruments under the
law?
A: 1. PROMISSORY NOTES (PN) An
unconditional promise in writing made
by one person to 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. (Sec. 184)
2. BILL OF EXCHANGE (BOE) 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)
Q: Is the date essential to make an
instrument negotiable?
A: The date is not essential (Sec. 6 [a]).
If dated, such date is deemed a prima
facie proof that it is the true date of the
making,
drawing,
acceptance
or
indorsement of the instrument. (Sec.
11)
Q: When is date important?

A: Date is important to determine

maturity, as when:
1. Where the instrument is payable
within a specified period after date, or
after sight.
2. When the instrument is payable on
demand,
date
is
necessary
to
determine whether the instrument was
presented within a reasonable time
from issue, or from the last negotiation.
3. When the instrument is an interest
bearing one, to determine when the
interest starts to run.
Q: When may date be inserted?
A: 1. Where an instrument expressed
to be payable at a fixed period after
date is issued undated, or
2. Where the acceptance of an
instrument payable at a fixed period
after sight is undated
Note: Any holder may insert
therein the true date of issue or
acceptance, and the instrument
shall be payable accordingly.
(Sec.13)
Q: What is the effect of insertion of
wrong date?
A: It does not avoid the instrument in
the hands of a subsequent holder in
due course. In the hands of a holder in
due course, the date inserted, even if
wrong, is to be regarded as the true
date (Sec. 13).
Q: Who has the authority to fill up
the blanks in an incomplete but
delivered instrument?
A: The holder has a prima facie
authority to complete it. 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 as a

prima facie authority to fill it up as

such for any amount. (Sec. 14)
Q:
When
is
an
instrument
incomplete?
A: When it is wanting in any material
particular. (Sec. 14)
Q: When may a prior party be bound
by an incomplete but delivered
instrument?
A: If it is filled up strictly in accordance
with the authority given and within a
reasonable time. But if 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. (Sec. 14)
Q: Lorenzo signed several blank
checks
instructing
Nicky,
his
secretary, to fill them as payment
for his obligations. Nicky filled one
check with her name as payee,
placed
P30,000.00
thereon,
endorsed and delivered it to Evelyn
as payment for goods the latter
delivered to the former. When
Lorenzo found out about the
transaction, he directed the drawee
bank to dishonor the check. When
Evelyn encashed the check, it was
dishonored.
Is Lorenzo liable to
Evelyn?
A: Yes. This covers the delivery of an
incomplete instrument, under Section
14 of the Negotiable Instruments Law,
which provides that there was prima
facie authority on the part of Nicky to
fill up any of the material particulars
thereof. Having done so, and when it is
first completed before it is negotiated to
a holder in due course like Evelyn, it is
valid for all purposes, and she may

enforce it within a reasonable time, as

if it had been filled up strictly in
accordance with the authority given.
Q: What is the rule when an
instrument
is
incomplete
and
undelivered?
A:
Not valid against the party whose
signature was placed before delivery,
whether the holder is a holder in due
course or not.
Q: What about the party whose
signature was placed after delivery?
A: Valid against the party whose
signature was placed after delivery like
an indorser because the indorser
warrants the instrument to be genuine
and in all respect what it purports to
be.
Q: Can a Holder in due course hold a
maker for instruments which are
incomplete
and
undelivered
supposing that the note was stolen,
filledup, and was subsequently
negotiated?
A: No. the law is specific that the
instrument is not a valid contract in
the hands of any holder. The phrase
any holder includes a holder in due
course.
Q: What is delivery?
A: Delivery refers to the transfer of
possession, actual or constructive,
from one person to another (Sec. 191),
with the intent to transfer title to payee
and recognize him as holder thereof.
Q: When is an instrument issued?
A: The instrument is deemed issued
the first delivery of the instrument,
complete in form, to a person who
takes it as holder. (Sec. 191)
Q: Can a creditor bank who was the
payee in a check FRAUDULENTLY

OBTAINED by a third person who

subsequently encashed it sue the
drawerdebtor, third person, and
drawee bank for the amount of the
check?
A: No, the payee of a negotiable
instrument acquires no interest with
respect thereto until its delivery to him.
WITHOUT the initial DELIVERY of the
instrument from the drawer to the
payee, there can be no liability on the
instrument. (Development Bank of
Rizal v. Sima Wei, G.R. No. 85419, Mar.
9, 1993)
Q: What is the effect if the
instrument is in the possession of a
holder in due course?
A: Valid delivery is conclusively
presumed. (Sec. 16)
Q: What if the instrument is in the
possession of a party other than a
holder in due course?
A: Possession of such party constitutes
prima facie presumption of delivery but
subject to rebuttal.
Q: Who are immediate parties?
A: Persons having knowledge of the
conditions or limitations placed upon
the delivery of an instrument. It means
privity, and not proximity.
Q: Who are remote parties?
A: Persons without knowledge as to the
conditions or limitations placed upon
the delivery of an instrument, even if
he is the next party physically.
Q: What
are
the
rules
of
construction in case of ambiguities
in a negotiable instrument?
A: 1. Words prevail over figures;
2. Interest runs from the date of the
instrument, if date from which interest
is to run is unspecified; if undated,
from the issue;

3. If undated, deemed dated on the

date of issue;
4. Written provisions prevail over
printed;
5. If there is doubt whether it is a bill
or note, the holder may treat it as
either at his election;
6. When not clear in what capacity it
was signed, deemed signed as an
indorser;
7. If "I promise to pay" but signed by
two or more persons, jointly and
severally liable.