NEGOTIABLE INSTRUMENTS 1

AN ACT ENTITLED "THE NEGOTIABLE INSTRUMENTS LAW."

By authority of the United States, be it enacted by the Philippine Legislature, that:

TITLE I.

NEGOTIABLE INSTRUMENTS IN GENERAL.

CHAPTER I.

FORM AND INTERPRETATION.

SECTION 1. Form of negotiable instrument.—An instrument to be negotiable

must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.

SEC. 2. Certainly as to sum ; what constitutes.—The sum payable sum 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 of 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.

SEC. 3. When promise 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.

SEC. 4. Determinable future time; what constitutes.—An instrument is payable at

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a 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 or 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. 5. Additional provisions not affecting negotiability.—An instrument which

contains an order or promise to do any act in f 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 judgment 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 to 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.

SEC. 7. When payable on demand.—An instrument is payable on demand—

(a) Where it is expressed to be payable on demand, or at sight, or on presentation;
or
(b) In which no time for payment is expressed.
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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.

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
(e) 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.

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 fictitious or 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, sufficient terms.

SEC. 10. Terms, when sufficient.—The instrument need not follow the language of
this Act, but any terms are sufficient which clearly indicate an intention to conform
to the requirements hereof.

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. 12. Antedated and postdated.—The instrument is not invalid for the reason
only that it is antedated or postdated, provided this is not done for an illegal or
fraudulent purpose. The person to whom an instrument so dated is delivered
acquires the title thereto as of the date of delivery.

SEC. 13. When date may be inserted.—Where an instrument expressed to be

payable at a fixed period after date is issued undated, or where the acceptance of an
instrument payable at a fixed period after sight is undated, any holder may insert
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therein the true date of issue or acceptance, and the instrument shall be payable
accordingly. The insertion of a wrong date does not avoid the instrument in the
hands of a subsequent holder in due course; but as to him, the date so inserted is to
be regarded as the true date.

SEC. 14. Blanks; when may be filled.—Where the instrument is wanting in any
material particular, the person in possession thereof has a prima facie authority to
complete it by filling up the blanks therein. And 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. In order, however, that any such instrument when
completed may be enforced against any person who became a party thereto prior to
its completion, it must be 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. 15. Incomplete instrument not delivered.—Where an incomplete instrument

has not been delivered it will not, if completed and negotiated, without authority,
be a valid contract in the hands of any holder, as against any person whose
signature was placed thereon before delivery.

SEC. 16. Delivery; when effectual: when presumed.—Every contract on a

negotiable instrument is incomplete and revocable until delivery of the instrument
for the purpose of giving effect thereto. As between immediate parties, and as
regards a remote party other than a holder in due course, the delivery, in order to
be effectual, must be made either by or under the authority of the party making,
drawing, accepting, or indorsing, as the case may be; and in such case the delivery
may be shown to have been conditional, or for a special purpose only, and not for
the purpose of transferring the property in the instrument. But where the instrument
is in the hands of a holder in due course, a valid delivery thereof by all parties prior
to him so as to make them liable to him is conclusively presumed. And where the
instrument is no longer in the possession of a party whose signature appears
thereon, a valid and intentional delivery by him is presumed until the contrary is
proved.
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SEC. 17. Construction where instrument is ambiguous.—Where construction. 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 a discrepancy between the two, the sum denoted by the words is the sum
payable; but if 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 a conflict between the written and printed provisions of the
instrument, the written provisions 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 placed 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 words "I promise to pay" is signed by
two or more persons, they are deemed to be jointly and severally liable
thereon.

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.

SEC. 20. Liability of person signing as agent, and so forth.— Where the
instrument contains or a person adds to his signature words indicating that he signs
for or on behalf of a principal, or in a representative capacity, he is not liable on the
instrument if he was duly authorized; but the mere addition of words describing
him as an agent, or as filling a representative character, without disclosing his
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"principal, does not exempt him from personal liability.

SEC. 21. Signature by procuration; effect of.—A signature by uration.

"procuration" operates as notice that the agent has but a limited authority to sign,
and the principal is bound only in ease the agent in so signing acted within the
actual limits of his authority.

SEC. 22. Effect of indorsement by infant or corporation.—The indorsement or

assignment of the instrument by a corporation or by an infant passes the property
therein, notwithstanding that from want of capacity the corporation or infant may
incur no liability thereon.

SEC. 23. Forged signature; effect of.—When a signature is forged or made without
the authority of the person whose signature it purports to be, it is wholly
inoperative, and no right to retain the instrument, or to give a discharge therefor, or
to enforce payment thereof against any party thereto, can be acquired through or
under such signature, unless the party against whom it is sought to enforce such
right is precluded from setting up the forgery or want of authority.

Consideration means an inducement to a contract, that is the cause, price or

impelling influence which induces a person to enter into a contract. Like all other
contracts, a negotiable instrument must have consideration or cause. It is not
necessary, however, that the consideration shall be expressly stated in the
instrument. The presumption is that it has been issued for a valuable consideration
and that every person whose signature appears thereon has become a party thereto
for value.

Since the presumption is prima facie, it may, therefore, be rebutted or disproved by

evidence to the contrary.

Every negotiable instrument is deemed prima facie to have been issued for a
valuable consideration; and every person whose signature appears thereon to have
become a party thereto for value.

What constitutes holder for value.

- Where value has at any time been given for the instrument, the holder is deemed
a holder for value in respect to all parties who become such prior to that time.
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- One who gives valuable consideration for an instrument issued or negotiated to

him is a holder for value.
- Not limited to one who is known to have given valuable consideration for the
instrument he holds—it refers to any holder of an instrument for which value has
been given at any time.
e.g. M issues a note to P, the payee without consideration. P, also without
consideration, indorses it to A who, with value indorses it to B. In this
example B is a holder for value not only as regards to A but also against M
and P.

When lien on instrument constitutes holder for value.

- Where the holder has a lien on the instrument arising either from contract or by
implication of law, he is deemed a holder for value to the extent of his lien.
e.g. M makes a promissory note for P10,000.00 to the order of P who
pledges it to A to secure payment of P’s debt of P8,000.00. The note is
indorse and delivered by P to A. In this case A is the holder for value for
P8,000.00.

Effect of want of consideration.

- Absence or failure of consideration is a matter of defense as against any person
not a holder in due course; and partial failure of consideration is a defense pro
tanto, whether the failure is an ascertained and liquidated amount or otherwise.
-Absence of consideration means a total lack of any valid consideration for a
contract, in consequence of which the alleged contract would fail.
e.g. M makes a promissory note to P in payment of a parcel of land which
does not exist.

As between the parties, there can be no recover as there is absence of

consideration.
-Failure of consideration means the failure or refusal of one of the parties to do,
perform or comply with the consideration agreed upon.
e. g. Suppose in the previous example, if there is really a land owned by P
which was sold but P failed to deliver it because it was sold again to X who
in good faith registered the sale. There is failure of consideration so that P
cannot recover from M.
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Liability of accommodation party.

- An accommodation party is 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. Such a person is liable on the instrument to
a holder for value, notwithstanding such holder, at the time of taking the
instrument, knew him to be only an accommodation party.

SEC. 52. What constitutes a holder in due course.— A holder in due course is a
holder who has taken the instrument under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it
had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in
the instrument or defect in the title of the person negotiating it.

SEC. 53. When person not deemed holder in due course.— Where course an
instrument payable on demand is negotiated an unreasonable length of time after
its issue, the holder is not deemed a holder in due course.

SEC. 60. Liability of maker.— The maker of a negotiable instrument by making it

engages that he will pay it according to its tenor, and admits the existence of the
payee and his then capacity to indorse.

SEC. 72. What constitutes a sufficient presentment.— Presentment for payment, to

be sufficient, must be made—

(a) By the holder, or by some person authorized to receive payment on his behalf;
(b) At a reasonable hour on a business day;
(c) At a proper place as herein defined;
(d) To the person primarily liable on the instrument, or if he is absent or
inaccessible, to any person found at the place where the presentment is made.
SEC. 73. Place of presentment.—Presentment for payment is made at the proper
place,—
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(a) Where a place of payment is specified in the instrument and it is there

presented;
(b) Where no place of payment is specified, but the address of the person to make
payment is given in the instrument and it is there presented;
(c) Where no place of payment is specified and no address is given and the
instrument is presented at the usual place of business or residence of the person to
make payment;
(d) In any other case if presented to the person to make payment wherever he can
be found, or if presented at his last known place of business or residence.

SEC. 74. Instrument must he exhibited.— The instrument must be exhibited to the
person from whom payment is demanded, and when it is paid must be delivered up
to the party paying it.

SEC. 75. Presentment where instrument payable at bank.— Where Payable at

bank. the instrument is payable at a bank, presentment for payment must be made
during banking hours, unless the person to make payment has no funds there to
meet it at any time during the day, in which case presentment at any hour before
the bank is closed on that day is sufficient.

SEC. 89. To whom notice of dishonor must be given.— Except as herein otherwise
provided, when a negotiable instrument has been dishonored by nonacceptance or
nonpayment, notice of dishonor must be given to the drawer and to each indorser,
and any drawer or indorser to whom such notice is not given is discharged.

SEC. 90. By whom given.—The notice may be given by or on behalf of the holder,
or by or on behalf of any party to the instrument who might be compelled to pay it
to the holder, and who, upon taking it up, would have a right to reimbursement
from the party to whom the notice is given.

SEC. 124. Alteration of instrument; effect of.— Where a instrument is materially

altered without the assent of all parties liable thereon, it is avoided, except as
against a party who has himself made, authorized, or assented to the alteration, and
subsequent indorsers.

But when an instrument has been materially altered and is in the hands of a holder
in due course, not a party to the alteration, he may enforce payment thereof
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according to its original tenor.

SEC 125. What constitutes a material alteration.— Any alteration which

changes—

(a) The date;

(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made; Or which adds a
place of payment where no place of payment is specified, or any other
change or addition which alters the effect of the instrument in any respect,
is a material alteration.

SEC. 184. Promissory note defined.— A negotiable promissory note within the
meaning of this Act is an unconditional premise 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. Where a
note is drawn to the maker's own order, it is not complete until indorsed by him.

SEC. 185. Check defined.— A check is a bill of exchange drawn on a bank payable
on demand. Except as herein otherwise provided, the provisions of this Act
applicable to a bill of exchange payable on demand apply to a check.