Requisites of Negotiability

1. Written form and signature

Sec. 18 - Liability of person signing in trade or assumed name. - No person is liable on the
instrument whose signature does not appear thereon, except as herein otherwise
expressly provided. But one who signs in a trade or assumed name will be liable to the
same extent as if he had signed in his own name.

Sec. 19 – Signature by agent; authority; how shown. – The signature of any party may be
made by a duly authorized agent. No particular form of appointment is necessary for this
purpose; and the authority of the agent may be established as in other cases of agency.

The first requisite of negotiability is that the instrument be in writing and signed by the maker or
drawer.

“In writing” includes “print” and it includes not only what is written with pen or pencil. But also what has
been typed.

The signature is binding whether it is in one’s handwriting, or printed, engraved, lithographed or

photographed, so long as it is intended or adopted as the signature of the signer or made with his
authority. The signature may appear on any part of the instrument.

It will be valid and binding as long as the intention to make the instrument the maker’s or drawer’s is
shown.

However, if the signature is so placed upon the instrument that is not clear in what capacity the person
intended to sign, he is deemed an endorser, and not a maker or drawer.

2. Unconditional order or promise to pay

Sec. 3 – When promise to pay 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 instrument must contain a promise or an order to pay. Mere acknowledgement of a debt does not
constitute a promise. There should be an express promise on the face of the instrument to pay the
money.

The word ‘promise’ is not absolutely necessary. Any expression equivalent to a promise is sufficient.

In a bill of exchange, words which are equivalent to an order are sufficient. An order is a command or
imperative direction. A mere request r authority to pay does not constitute an order. The instrument is
by its nature demanding a right.
The promise or order to pay to be unconditional must be unqualified. The fact that the right is absolute
and cannot be defeated by a contingency greatly enhances its ability to pass freely from one person to
another.

3. Sum payable must be certain

Sec. 2 – What constitutes as to sum. – The sum payable is a sum certain within the
meaning of this Act, although it is to be paid:
(a) With interest; or
(b) By stated installments; or
(c) By stated installments, with a provision that, upon default in payment of any
installment or interest, the whole shall become due; or
(d) With exchange, whether at a fixed rate or at the current rate; or
(e) With costs of collection or an attorney’s fee, in case payment shall not be made at
maturity.

The amount payable must be certain. An instrument cannot function properly as a substitute for money
unless the amount for which it stands for is specified and definite.

A stipulation to pay a higher rate of interest if the note is not paid at maturity or a lower rate if it is paid
before maturity does not render the instrument non-negotiable, since it is entirely without force until
either the maturity thereof or its payment before maturity.

The sum is certain although it is payable in installments as long as the latter are ‘stated’ i.e. the amount
of each installment and its due date are fixed in the instrument.

An instrument expressed in a foreign currency may contain a provision that the same is payable in
Philippine currency at a fixed rate of exchange or at the rate current at the time payment is made. This
provision does not affect the negotiability of the instrument.

A provision in an instrument for attorney’s fees, but leaving the amount thereof blank, amounts to a
promise to pay a reasonable attorney’s fees, and does not make the instrument non-negotiable. Such
amount may be fixed by the court.

4. Sum must be payable in money

In order to be negotiable, an instrument must be payable in money. Since negotiable instruments are
intended to be substitutes for money, to properly perform such function, the must necessarily be
capable of being transformed into money if the holder so wishes. Thus, an instrument is not negotiable
if payable in personal property like merchandise, or shares of stock, or even gold.

If a contract contains a stipulation that payment is to be made in a currency other than Philippine Peso
currency, such stipulation will be ineffective and the obligation of the instrument will not be affected by
the stipulation.
An instrument which contains an order or promise to do an act in addition to the payment of money is
not negotiable. This rule helps to retain simplicity of form which is absolutely necessary to the free use
of negotiable instruments in the place of money.

5. Certainty of time of payment

Under Section 1, the third prerequisite of negotiability is that the instrument must be payable (1) on
demand, or (2) at a fixed time, or (3) at a determinable future time. This requirement as to certainty of
time of payment is for the purpose of informing the holder of the instrument of the date when he may
enforce payment thereof. Before such time, he cannot compel the maker of the note or the acceptor
of the bill to pay, unless there is a valid acceleration provision.

(a) Payable on demand –

Sec. 7 – When payable on demand. – An instrument is payable on demand:
(a) When it is so expressed to be payable on demand, or at sight, or on
presentation; or
(b) In which no time for payment is expressed.
Where an instrument is issued, or indorsed when overdue, it is, as regards the person so
issuing, accepting, or indorsing it, payable on demand.

In the case of a demand instrument, the holder may call for payment at any time.

It has been held that in a demand note, the maker likewise has an option to pay at any time, and the
refusal of the holder to accept payment will terminate the running of interest, if any is provided for in
the note. However, the obligation to pay the note remains.

(b) Payable at fixed time

Only on said date, and not before, may the holder demand its payment.

(c) Payable at a determinable future times

Sec. 4. – Determinable future time; what constitutes. – An instrument is payable at ad
determinable future time, within the meaning of this Act, which is expressed to be
payable:
(a) At a fixed period after date or sight; or
(b) On or before a fixed determinable future time specified therein; or
(c) 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.
An instrument payable upon a contingency is not negotiable, and the happening of the
event does not cure the defect.

Sec.11. – Date, presumption as to. – Where the instrument or an acceptance or any

indorsement thereon is dated, such date is deemed prima facie to be the true date of the
making, drawing, acceptance, or indorsement, as the case may be.

Sec. 17. – Construction where instrument is ambiguous. – Where the language of the
instrument is ambiguous or there are omissions therein, the following rules of
construction apply:
 (a) Where the sum payable is expressed in words and also in figures and there is
discrepancy between the two, the sum denoted by the words is the sum payable; but the
words are ambiguous or uncertain, reference may be had to the figures to fix the amount;
(b) Where the instrument provides for the payment of interest, without
specifying the date from which interest is to run, the interest runs from the date of the
instrument, and if the instrument is undated, from the issue thereof;
(c) Where the instrument is not dated, it will be considered to be dated as of the
time it was issued;
(d) Where there is conflict between the written and printed provisions of the
instrument, the written provision prevail;
(e) Where the instrument is so ambiguous that there is doubt whether it is a bill
or note, the holder may treat it as either at his election;
(f) Where a signature is so place upon the instrument that it is not clear in what
capacity the person making the same intended to sign, he is to be deemed an indorser;
(g) Where an instrument containing the word “I promise to pay” I signed by two
or more person, they are deemed to be jointly and severally liable thereon.

d. Effect of acceleration provisions

Where the option to accelerate the maturity of the instrument is on the maker, the negotiability of the
instrument is not affected, whether such option is absolute or conditional.

This is covered by Section 4(b) when it allows a negotiable instrument to be payable ‘on or before’ a
fixed date. The maker may pay earlier than the date fixed but this option, if exercised, would be a
payment in advance of a legal liability to pay. It is still payable on the date fixed in the instrument, and
the holder has no right to enforce payment against the maker before such date.

Where the acceleration I at the option of the holder, whether such acceleration provision renders the
instrument non-negotiable depends on the nature of the provision. If the option can be exercised by
the holder only upon the happening of a specified event or act over which he has not control, then the
negotiable character of the instrument is not affected by the option to accelerate.

In Section 2(c), the option given to the holder to accelerate the maturity of an installment note upon
failure of the maker to pay any installment when due does not affect the negotiability of the instrument.
The rule would be the same where the acceleration is automatic upon such default.

e. Provisions extending time of payment

Instead of an acceleration provision, the instrument may contain a provision allowing extension of
payment. This is another form of an acceleration provision, as where the note due one year after the
date provides that the maker may extend it for another year.

The effect of this provision is the same as a note payable ‘on or before’ two year from date i.e. it is an
acceleration at the option of the maker.

Where the holder is given the option to extend the time of payment by mere inaction or indulgence for
an indefinite time depending on his will, the instrument is still negotiable because with or without such
provision, the holder may choose to be indulgent. Should he not demand payment at the date of
maturity, the instrument merely becomes and thus payable on demand.

Case: RFC vs CA, E. Madrid and J. Andurza, 94 Phil. 984 (1954)

Jesus de Anduiza borrowed money from the Agricultural and Industrial Bank, the petitioner’s
predecessor, on Oct. 31, 1941. The obligation was evidenced by a negotiable promissory note in the
amount of P13,800, payable in 10 equal installments over a period of 10 years. Anduiza failed to pay the
yearly amortizations that fell due on Oct. 31, 1942 and 1943. Learning of this, Madrid offered to pay and
actually paid the Agricultural and Industrial Bank on Oct. 31, 1944, not only the past due installments
but the full amount of the obligation.

In 1948, Madrid instituted an action against the petitioner’s corporation, after it had refused to cancel
the mortgage of Anduiza’s properties which were given as a security for the load. The trial court
rendered judgement against Madrid who appealed to the CA, which in turn reversed the lower court’s
decision.

Petitioner claimed that the payment made by Madrid on Oct. 4, 1944 of the full amount of the
obligation was not valid due to the fact that the same was not yet due and demandable at that time. The
promissory note provides that the amount to be paid ‘on or before’ October 31, 1951.

Ruling:

At the outset, it should be noted that the makers of the promissory note quoted above promised to pay
the obligation evidenced thereby ‘on or before October 31, 1951.’ Although the full amount of said
obligation was not demandable prior October 31, 1951, in view of the provision of the note relative to
the payment in ten (10) installments, it is clear, therefore, that the makers or debtors were entitled to
make a complete settlement of the obligation at any time before said date.

6. Sum must be payable to order or bearer

The instrument in order to be considered negotiable must contain the sso-called ‘words of negotiability’
– i.e. must be payable to ‘order’ or ‘bearer’. These words serve as an expression of consent that the
instrument may be transferred. This consent is indispensable since the maker assumes greater risks
under a negotiable instrument than under a non-negotiable one.

Under Sec. 10, however, the instrument need not follow the language of the law, but any term which
clearly indicates an intention to conform to the legal requirements is sufficient.

It is important to distinguish a bearer instrument from an order instrument because they vary in their
effects on the rights of the parties. Furthermore, the former may be negotiated by mere delivery, while
the latter’s negotiation requires not only a delivery but also the indorsement of the transferor.

A. When payable to order

There must always be a specified person named in the instrument. It means that the bill or note is to
be paid to the person designated in the instrument or to any person to whom he has indorsed and
delivered the same. Without the words ‘to order’ or ‘to the order of,’ the instrument is payable only to
the person designated therein and is there non-negotiable.

Sec. 8. – When payable to order. - The instrument is payable to order where it is

drawn payable to the order of a specified person or to him or his order. It may be
drawn payable to the order of:
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(f) One or some of several payees; or
(f) The holder of an office for the time being.
B. When payable to bearer
Sec. 9. – When Payable to Bearer. – The instrument is payable to bearer:
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a factitious or non-existing person, and such
fact was known to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of any person;
or
(e) When the only or last indorsement is an indorsement in blank.
7. Parties must be designated with certainty
A. maker and drawer
B. Payee
Sec. 8. – When payable to order. - The instrument is payable to order where it is
drawn payable to the order of a specified person or to him or his order. It may be
drawn payable to the order of:
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(f) One or some of several payees; or
(f) The holder of an office for the time being.

Where the instrument is payable to order, the payee must be named or otherwise
indicated therein with reasonable certainty.
C. Drawee
Sec. 128. – Bill addressed to more than one drawee. – A Bill may be addressed to two or
more drawees jointly, whether they are partners or not; but not to two or more drawees
in the alternative or in succession.

Sec. 130. – When bill may be treated as promissory note. – Where in a bill the drawer
and drawee are the same person or where the drawee is a fictitious person or a person
not having capacity to contract, the holder may treat the instrument at his option either
as a bill of exchange or as a promissory note.

C. PROVISIONS/OMISSIONS NOT AFFECTING NEGOTIABILITY

Sec. 5. – Additional provisions not affecting negotiability. – An instrument which contains an order or
promise to do any act in addition to the payment of money is not negotiable. But the negotiable
character of an instrument otherwise negotiable is not affected by a provision which.
(a) Authorizes the sale of collateral securities in case the instrument be not paid at maturity; or
(b) Authorizes a confession of judgement if the instrument be not paid at maturity; or
(c) Waives the benefit of any law intended for the advantage or protection of the obligor; or
(d) Gives the holder an election tor require something to be done in lieu of payment of money.

But nothing in this section shall validate any provision or stipulation otherwise illegal.

Sec. 6. – Omissions; seal; particular money. – The validity and negotiable character of an instrument are
not affected by the fact that –
(a) It is not dated; or
(b) Does not specify the value given, or that any value has been given therefor; or
(c) Does not specify the place where it is drawn or the place where it is payable; or
(d) Bears a seal; or
(e) Designates a particular kind of current money in which payment is to be made.

But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the
consideration to be stated in the instrument.

Case: PNB vs Manila Oil Refining & By

Kinds of promissory note:

Certificate of deposit – passbook, form of promissory note. Like a certificate.
IOU – debentures – short term promissory note.
Bond.

Obligations and Liabilities of the Parties.

Primary Person Liable – Maker, the one who executes the promissory note.
Principally Liable – Maker, or the one who pays the promissory note.

Promissory Note – a relationship between two person. Maker = Payee, Debtor = Creditor

If no endorsement, only two are involved.

Bill of Exchange, medj complicated, because it involves a relationship of three parties. Drawer,
prepares the bill of exchange in favor of the other party, he is not primarily liable. Babayaran si
Payee. (Maker, Drawer, Payee)

Concept of Dishonor. Sino ang primarily liable? Maker. Why identify? Cuz when it matures, the
holder, is supposed to collect from maker. If maker cannot pay, there is now dishonor, or, the
promissory note is not honored, or it was dishonored.

Dishonor in two instances in bill of exchange.

1. There is when there is non-acceptance.
2. When the drawee accepts the Bill of Exchange, but when it matures and it was brought to the
drawer and there no payment, there is dishonor.

Magic Word – Promise to pay

Secondarily Liable – If primary party cannot pay as primary party, the one who will pay will be the
secondary liable. What are their liabilities? For Primary, liability comes when NI matures. Example,
the endorser.

In a NI, the act of endorsing, the act of endorsing by signing makes you secondarily liable

The concept of the holder is B negotiated to C, C is now in the actual possession of NI. What are
the requisites to be considered to be a holder will depend is that the NI ir an order NI. Holder and
Bearer is different.

Requisites for a contract to be a Negotiable Instrument. Otherwise not a NI. If even one is missing,
it cannot be considered as an NI. If not NI, then the provision of Civil Law on Contracts will apply.
1.
2.
3.
4.
5.
6.

Pillars of Negotiable Instrument.

1. Is the document a Negotiable Instrument?
2. Whether the person holding the NI is the holder
3.