Chapter 1

Negotiable = conform to all requirements prescribed by NIL (Act 2031)

I. KINDS

1. Promissory Note – promise to pay money

 Certificate of Deposit – issued by a bank reciting a deposit of certain sum of money payable at
fixed time or on demand to the depositor named
 Bond – evidence of indebtedness issued by a corporation (public or private) payable at a definite
date in the future, usually long term; promise of the corporation to pay a definite sum of money
on day named

2. Bill of Exchange – order made by one person to another to pay money to a 3rd person (ex. Check –
always payable on demand)

 Draft – used in transactions between persons physically remote from each other. Order made by
1(buyer of goods) addressed to a person having in his possession funds of such buyer, to pay the
purchase price to the seller of the goods
o If the order is made by one bank to another, it is called a bank draft

II. Parties

1. PROMISSORY NOTE: Maker/Promissor and Payee

2. BILL OF EXCHANGE: Drawer, Drawee, Payee

 Drawer makes the order to pay, drawee is the addressee of the order (Person is drawer, Bank is
drawee)
 Payee of an instrument transfers to another by signing at the back  Negotiated or Indorsed;
Indorser = Indorsee; holder

3. Liabilities:

 Primary party  absolutely required to pay the instrument.

o Maker in PN
o None in BOE UNLESS drawee accepts order of drawer to pay (So ONLY when he accepts
 Secondary  drawer of BOE and indorsers; secondarily liable
o Liable if primary fails to pay: 1) demand or presentment be duly made on the primary
party 2) said party fails to pay or accept, notice of dishonor be given to the secondary
party
o Indorser  2 contracts: 1) Selling or transferring the instrument, assuming liabilities
similar to a seller 2) warrants that he will pay the instrument when the 2 conditions for
liability are fulfilled

III. Functions

1. sub for money (BUT IS NOT LEGAL TENDER)

2. means of creating/transferring credit

Ex. Letter of Credit

3. facilitate sale of goods

IV. Negotiability

 Person can rely on its face, no need to inquire into past events vs Non-Negotiable; can be
contested if consideration for the note is not fulfilled.

OPTION TO ACCELERATE MATURITY

GR: If Maker, NOT AFFECTED (Negotiability)

GR: if conditional/needs something to happen, NOT AFFECTED

 If UNCONDITIONAL, NON-NEGOTIABLE

OPTION TO EXTEND

GR: If MAKER, NOT AFFECTED

 EXC: makes payment based on contingent  NON NEGOTIABLE (time is uncertain)

GR: If HOLDER, NOT AFFECTED  CAN hold it after maturity nga, magiging on demand

PAYABLE TO BEARER

Payable to order of Fictitious person (if fictitious + alam ni drawer = bearer)

 Actual person can be fictitious if not intended for payee to receive proceeds
 IF MAKER/DRAWER does NOT know fictitious = payable to order BUT no one can indorse it lol
 IF MAKER/DRAWER DOES know fictitious = payable to bearer
o Intended instrument to be transferred by mere delivery

No name indicated

Indorsement in blank  can’t convert non-nego into nego

SIGNING

Maker/Drawer – sign on lower right hand corner

Payee and indorsees sign at the back  IN CASE OF AMBIGUITIY, assumed INDORSER
CHAPTER II
TRANSFER

Issue – first delivery of instrument

Delivery

 Must be intended
 w/o delivery, no liability on the instrument

PRESUMPTION

GR: Once no longer in hands of person who signed it, delivery is presumed UNTIL CONTRARY
PROVED

Holder in due course: presumption is conclusive provided instrument is complete

Negotiation – can be sale. Or gift

 Transferee becomes the holder

 VS TRANSFER = the umbrella term. Can be mere assignment BUT doesn’t become holder

To bearer – both Bearer AND Holder

 Negotiation – by delivery (Common practice to indorse tho)

To order – Holder

 Negotiation – by indorsement of holder and completed by delivery

Indorsement

 Signature of indorser is enough

 Allonge – slip of paper attached to instrument, firmly attached as to become part of

Indorsees; Who has to sign

If joint – GR: BOTH EXC: one is authorized by the other

If alternative – GR: Either

If misspelled name – made in the name he was designated BUT can add his proper signature

 Has to be the entire instrument = otherwise, mere assignment; not negotiation

o CAN be valid if installments and some parts paid; can negotiate unpaid installments
o RATIO: protect obligor; one action lang

KINDS

1) Special or in Blank

 Specifies to whom or to whose order VS payable to bearer, negotiated by delivery

o Blank = Only signature of Indorser
 o Special = Signature of both
 CONVERT BLANK TO SPECIAL: holder sign above the indorser UNLESS originally bearer
instrument
o OG Bearer  Always bearer instrument; not converted into Order
o OG Order  may be converted into bearer by blank indorsement; later reconvert into
order instrument

2) Restrictive or Qualified or Conditional

 Blank = signature only of indorser vs EVERYTHING ELSE

 Qualified = mere assignor of title “without recourse”  effect is to relieve indorser of his liability
to pay should maker fail; STILL NEGOTIABLE
 UNCONDITIONAL = every indorser is liable to pay the instrument
 CONDITIONAL = condition is annexed to indorser’s lliability (If he marries by 25)
o Maker can ignore, and choose to pay payee(holder): Not part of his original contract ung
conditions