PAMANTASAN NG LUNGSOD NG VALENZUELA

COLLEGE OF ACCOUNTANCY
B.S. IN ACCOUNTING TECHNOLOGY
Malinta, Valenzuela City

A WRITTEN REPORT
ONFORM, INTERPRETATION,
CONSIDERATION AND NEGOTIATION
OF NEGOTIABLE INSTRUMENTS

In Partial Fulfillment of the Requirements in Law on Negotiable Instruments

Submitted By:
(John Paul D. Dela Cruz)

Submitted To:
MR. MARK CHITO D. FAJICULAY, CPA
Law on Negotiable Instruments

30 July 2014

PART 1

Section & Title

Sec. 1. Form of negotiable
instruments.

Sec. 2. What constitutes

certainty as to sum.

Sec. 3. When promise is

unconditional.

Salient Point
An instrument to be
negotiable, must conform to
the following requirements:
It must be in writing and
signed by the maker or
drawer; Must contain an
unconditional promise or
order to pay a certain sum in
money;Must be payable on
demand, or at a fixed or
determinable future time;
Must be payable to order or to
bearer; and Where the
instrument is addressed to a
drawee, he must be named or
otherwise indicated therein
with reasonable certainty.
The sum payable is a sum
certain within the meaning of
this Act, although it is to be
paid:With interest; or
By stated installments; or
By stated installments, with a
provision that, upon default in
payment of any installment or
of interest, the whole shall
become due; or
With costs of collection or an
attorney's fee, in case payment
shall not be made at maturity.
An unqualified order or
promise to pay is
unconditional within the
meaning of this Act, though
coupled with
An indication of a particular
fund out of which

Sample Problem
August 5, 2xx4
Manila
500,000 Php.
Thirty days after date, pay to
bobby M. Gorilla or order the
sum of Five Hundred
Thousand Pesos. Value
received and charge the same
to the account of
Mr. Anime
The word pay to indicate an
unconditional order to pay
instead of an unconditional
promise to pay a promissory
note.
I promise to pay nina or
order $10,000 with interest at
20% per annum, from date
until paid; 15% if pai when
due.
Here, the increase (5%) is
really a penalty, not part of
the interest. Consequently, the
note bears the same rate of
interest before as after
maturity.
pay to the order of $3,000
and reimburse yourself from
the rentals of my house.
The drawee may pay the
amount out of any fund. It is
only the reimbursement that is

Sec. 4. Determinable future

time; what constitutes.

Sec. 5. Additional provisions

not affecting negotiability.

reimbursement is to be made,
or a particular account to be
debited with the amount; or
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.
An instrument is payable at a
determinable future time,
within the meaning of this
Act, which is expressed to be
payable
At a fixed period after date or
sight; or
On or before a fixed or
determinable future time
specified therein; or
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.
negotiable character of an
instrument otherwise
negotiable is not affected by a
provision which
Authorizes the sale of
collateral securities in case the
instrument be not paid at
maturity; or
Authorizes a confession of
judgment if the instrument be
not paid at maturity; or
Waives the benefit of any law
intended for the advantage or

to come from the rentals.

I promise to pay mimi or

order the sum of $20,000 on
oct. 25, 2xx4.
Here, the future date specified
is a fixed time.

pay bearer 420,000. Notice

of dishonor waived.
Neither does waiver of protest,
presentment for payment or
demand, destroy the
negotiability of an instrument.

Sec. 6. Omissions; seal;

particular money.

Sec. 7. When payable on

demand.

Sec. 8. When payable to order.

Sec. 9. When payable to

protection of the obligor; or

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.
The validity and negotiable
character of an instrument are
not affected by the fact that :
It is not dated; or
Does not specify the value
given, or that any value has
been given therefor; or
Does not specify the place
where it is drawn or the place
where it is payable; or
Bears a seal; or
Designates particular kind of
current money in which
payment is to be made.
An instrument is payable on
demand
Where it is expressed to be
payable on demand, or at
sight, or on presentation; or
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.
Where the instrument is
payable to order the payee
must be named or otherwise
indicated therein with
reasonable certainty.
The instrument is payable to

I promise to pay p or order

$9,000 thirty days after date.
Here, the date of issue is
necessary to determine the
date from which to start
counting thirty days.
Nevertheless, the instrument is
negotiable although it is not
dated.

A note dated February 3, 2xx4

and payable thirty days after
date is issued on august 25,
2xx4.

To order of payee who is not

the drawer.
Pay to the order of
$50,000.00.
Pay to Lily Baguin or order

bearer.

Sec. 10. Terms, when

sufficient.

Sec. 11. Date, presumption as

to.

Sec. 12. Ante-dated and postdated.

bearer When it is expressed

to be so payable; or
When it is payable to a person
named therein or bearer; or
When it is payable to the
order of a fictitious or nonexisting person, and such fact
was known to the person
making it so payable; or
When the name of the payee
does not purport to be the
name of any person; or
When the only or last
indorsement is an indorsement
in blank.
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.
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.

The instrument is not invalid

for the reason only that it is
ante-dated or post-dated,
provided this is not done for
an illegal or fraudulent
purpose. The person to whom
an
instrument so dated is

$50,000.
The bill is payable to bearer
and not to order because john
boy is a fictitious person. A
name is fictitious when it is
feigned or pretended.

To order of payee who is not

the drawer.
Pay to the order of
$500,000.00.

I promise to pay Biboy or

bearer $20,000 on Sept. 14,
2xx4.
Since the instrument is
payable on Sept. 14, 2xx4, a
fixed future date, and it does
not stipulate for the payment
of interest, there is no need to
determine when the
instrument was first issued.
Pay bearer $20,000. Notice
of dishonor waived.
Neither does waiver of protest,
presentment for payment or
demand, destroy the
negotiability of an instrument.

Sec. 13. When date may be

inserted.

Sec. 14. Blanks; when may be

filled.

Sec. 15. Incomplete

instrument not delivered.

delivered acquires the title

thereto as of the date of
delivery.
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 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.
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.
Where an incomplete
instrument has not been
delivered, it will not, if
completed and negotiated
without authority, be a valid

I promise to pay toto (no

date) or order $30,000 thirty
days after the date.
In this case, the date of
maturity cannot be determined
unless we know the true date
of issue of th note.

Suppose Ferb issues a note to

Finian with the space for the
date left blank in payment for
goods purchased by Ferb from
Finian. This gives Finian
Prima Facie authority to fill up
the blank.

Suppose Bentong makes a

note for $50,000 with the
name of the payee in blank
and keeps it in his drawer.
Bibi steals the note and inserts

Sec. 16. Delivery; when

effectual; when presumed.

Sec. 17. Construction where

instrument is ambiguous.

Sec. 18. Liability of person

signing in trade or assumed
name.

contract in the hands of any

holder, as against any person
whose signature was placed
thereon before delivery.
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.
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
A person whose signature
does not appear on the
instrument is not liable.

his name as payee and then

indorses the note to A.

Lyka makes a note payable to

the order of Darren and keeps
it in his drawer.
In the absence of delivery, the
instrument though cpmplete in
all its particulars, there is no
contract. Lyka does not
assume any liability. Darren
does not acquire any right
against Lyka who may revoke,
cancel or tear it up with or
without any reason.

A promissory note reading

one hundred pesos in its
body and $1,000 in the margin
is good only for $100.

I promise to pay Chitae (no

date) or order $30,000 thirty
days after the date.
In this case, the date of
maturity cannot be determined
unless we know the true date

Sec. 19. Signature by agent;

authority; how shown.

Sec. 20. Liability of person

signing as agent, and so forth.

Sec. 21. Signature by

procuration; effect of.

Sec. 22. Effect of indorsement

by infant or corporation.

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.

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 principal, does not exempt
him from personal liability.
The person who takes the
instrument is bound to inquire
into the extent and nature of
the authority given.

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

of issue of the note.

I promise to pay p or order
$10,000 thirty days after
date.
Here, the date of issue is
necessary to determine the
date from which to start
counting thirty days.
Nevertheless, the instrument is
negotiable although it is not
dated.
Dante Q. Pan, Principal
(Sgd.) Catalino R. Casta, Jr.
Here, the instrument names
the principal but does not
show that the agent signed in a
representative capacity, by
adding the word
agent,president, or some
other title indicating an
agency status.

A signature by procuration
may be made as follows:
Rafael A. Arnaldo
Per Procuration: Vicente Y.
Chua
Instead of pre procuration, it
may also expressed, thus: per
proc, P.P or pp.
M issues a negotiable
instrument payable to the
order of P, a minor. P indorses
the instruments to A. M
becomes liable to A because
the indorsement by P passes

Sec. 23. Forged signature;

effect of.

Sec. 24. Presumption of

consideration.

Sec. 25. Value, what

constitutes.

Sec. 26. What constitutes

holder for value.

Sec. 27. When lien on

corporation or infant may

incur no liability thereon.
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
soughtto enforce such right is
precluded from setting up the
forgery or want of authority.
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.
Value is any consideration
sufficient to support a simple
contract. An antecedent or preexisting debt constitutes value;
and is deemed such whether
the instrument is payable on
demand or at a future time.
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 became such prior
to that time.

Where the holder has a lien on

title to A.
X issues a promissory notes
payable to the order of P. X
signs Ms name indicating that
he signs for and on the behalf
of M. However, X has no
authority to bind M.

M issued in favor of P a
promissory notes which
recites:
thirty days after date, I
promise to pay P or order the
amount of $10,000 M
M owes $10,000 payable
today. M fails to pay in cash.
He issues a check for that
amount to P who accepts the
check. Here, the consideration
for the check is the preexisting debt of X.
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. Under
sec. 26, B is deemed a holder
for value not only as regards A
but also as regards M and P.
M makes a Promissory notes

instrument constitutes holder

for value.

Sec. 28. Effect of want of

consideration.

Sec. 29. Liability of

accommodation party.

Sec. 30. What constitutes

negotiation.

Sec. 31. Indorsement; how

the instrument arising either

from contract or by
implication of law, he is
deemed a holder for value to
the extent of his lien.
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.
To be entitled to recover from
an accommodation party, the
holder of a negotiable
instrument must be a holder in
due course except for the
notice of want of
consideration.

for $10,000 to the order of P

who pledges it to S to secure
the payment of Ps debt of
$8,000. The note is indorsed
and delivered by P to A.
M makes a promissory note to
P in payment for a parcel of
land which does not exist.

P in immediate need of
$30,000 but he cannot find
anybody to lend him the sum
he needs. No one trusts him
because he has no credit. He
goes to M, rich relative, who
is willing to accommodate
him by letting him borrow on
his credit. So, M signs a
promissory note payable to P,
receiving no consideration
there for. P then indorses the
note to the ANB which
discounts the note because of
Ms credit.
An instrument is negotiated
D issues a note payable to
when it is transferred from one bearer. The note was stolen
person to another in such
from Ms home by a thief, T
manner as to constitute the
who delivered the note to P.
transferee the holder thereof.
If payable to bearer, it is
negotiated by delivery; if
payable to order, it is
negotiated by the indorsement
of the holder completed by
delivery.
The indorsement must be
Coco owes $10,000 payable

made.

written on the instrument itself

or upon a paper attached
thereto. The signature of the
indorser, without additional
words, is a sufficient
indorsement.
Sec. 32. Indorsement must be The indorsement must be an
of entire instrument.
indorsement of the entire
instrument. An indorsement
which purports to transfer to
the indorsee a part only of the
amountpayable, or which
purports to transfer the
instrument to two or more
indorsees severally, does not
operate as a negotiation of the
instrument. But where the
instrument has been paid in
part, it may beindorsed as to
the residue.
Sec. 33. Kinds of indorsement. An indorsement may be either
special or in blank; and it may
also be either restrictive or
qualified or
conditional.

Sec. 34. Special indorsement;

indorsement in blank.

Sec. 35. Blank indorsement;

how changed to special
indorsement.

A special
indorsement specifies the
person to whom, or to whose
order, the
instrument is to be payable,
and the indorsement of such
indorsee is
necessary to the further
negotiation of the instrument.
The holder may convert a
blank indorsement into a
special
indorsement by writing over
the signature of the indorser in

today. Coco fails to pay in

cash. He issues a check for
that amount to P who accepts
the check. Here, the
consideration for the check is
the pre-existing debt of X.
An indorsement of a note for
$10,000 which is pay to A
or pay to S $10,000 is a
good indorsement; but pay
to A $9,000, leaving the
balance without indorsement
is not valid negotiation of the
instrument.

Bibo issues a negotiable

instrument payable to the
order of Toto, a minor. Toto
indorses the instruments to A.
Bibo becomes liable to A
because the indorsement by
Toto passes title to A.
If M makes a note payable to
the order of P and the latter
wants to negotiate it to A, he
simply writes his signature on
the back of the note and
delivers the same to A. Ps
blank indorsement converts
the order note into a bearer
instrument.
Suppose P makes a note
payable to M or order. The
instrument is, therefore,
originally payable to order.

blank any contract consistent

with the character of the
indorsement.

Sec. 36. When indorsement

restrictive.

Sec. 37. Effect of restrictive

indorsement; rights of
indorsee.

Sec. 38. Qualified

indorsement.

An indorsement is restrictive
which either: Prohibits the
further negotiation of the
instrument; or Constitutes the
indorsee the agent of the
indorser; or Vests the title in
the indorsee in trust for or to
the use of some other persons.
But the mere absence of words
implying power to negotiate
does not make an indorsement
restrictive.
A restrictive indorsement
confers upon the indorsee the
right: to receive payment of
the instrument; to bring any
action thereon that the
indorser could bring; to
transfer his rights as such
indorsee, where the form of
the indorsement authorizes
him to do so.

A qualified indorsement
constitutes the indorser a mere
assignor of the title to the
instrument. It may be made by
adding to the indorser's
signature the words "without
recourse" or any words of
similar import.

If it is indorsed especially by
M to A to B in blank, the
instrument is converted into a
bearer instrument because the
last indorsement is a blank
indorsement.
Porhibits further negotiation.
Pay to A only
pay to A and to no other
person
Here, A is the only one
authorized to receive payment.

Loki draws a check and

delivers it to P who indorses
as follows: for deposit. Thor
gives the check to Loki, his
accountant, to deposit in thors
bank, E. A, instead encashes
the check . if the amount of
the check is not, in fact, turned
over or subsequently made
available to thor, E wil be
liable to thor for the resulting
loss because it failed to act
consistently with the terms of
the restrictive indorsement.
Pay to the order of A without
recourse on meP.
Pay to A, indorser not holder.
P
The word recourse means a
resort to a person who is
secondarily liable after the
default of the person who is

Sec. 39. Conditional

indorsement.

Sec. 40. Indorsement of

instrument payable to bearer.

Sec. 41. Indorsement where

payable to two or more
persons.

Sec. 42. Effect of instrument

drawn or indorsed to a person
as
cashier.

Where an indorsement is
conditional, the party required
to pay the instrument may
disregard the condition and
make payment to the indorsee
or his transferee whether the
condition has been fulfilled or
not.
Where an instrument, payable
to bearer, is indorsed specially,
it may nevertheless be further
negotiated by delivery; but the
person indorsing specially is
liable as indorser to only such
holders as make title through
his indorsement.

primarily liable.
M makes a note for $1,000
payable to P or order. ZP
indorses as follows: Pay to A
if he passes the CPA
examination. P.

Picachu issues a note to P, the

payee, without consideration.
P, also without consideration,
indorses it to A who, with
value, indorses it to B. Under
sec. 26, B is deemed a holder
for value not only as regards A
but also as regards Picachu
and P.
Where an instrument is
Goku makes a note payable to
payable to the order of two or the order of P and A. the
more payees or indorsees who indorsement of both of them,
are not partners, all must
by one without authority from
indorse unless the one
the other, does not constitute a
indorsing has authority to
negotiation of the instrument
indorse for the others.
because it would not be an
indorsement of the entire
instrument. But if P and A are
partners, or the one indorsing
has authority to indorse for the
other, the indorsement will
bind the other.
Where an instrument is drawn Lulu issues a negotiable
or indorsed to a person as
instrument payable to the
"cashier" or other fiscal officer order of P, a minor. P indorses
of a bank or corporation, it is
the instruments to A. Lulu
deemed prima facie to be
becomes liable to A because
payable to the bank or
the indorsement by P passes
corporation of which he is
title to A.
such officer, and may be
negotiated by either the
indorsement of the bank or

Sec. 43. Indorsement where

name is misspelled, and so
forth.

Sec. 44. Indorsement in

representative capacity.

Sec. 45. Time of indorsement;

presumption.

Sec. 46. Place of indorsement;

presumption.

corporation or the indorsement

of the officer.
Where the name of a payee or
indorsee is wrongly
designated or misspelled, he
may indorse the instrument as
therein described adding, if he
thinks fit, his proper signature.
Where any person is under
obligation to indorse in a
representative capacity, he
may indorse in such terms as
to negative personal liability.
robles virtual law library

Except where an indorsement

bears date after the maturity of
the instrument, every
negotiation is deemed prima
facie to have been effected
before the instrument was
overdue.

Except where the contrary

appears, every indorsement is
presumed prima facie to have
been made at the place where
the instrument is dated.

A promissory note reading

one hundred pesos in its
body and $1,000 in the margin
is good only for $100.

Freeza issues a note to P, the

payee, without consideration.
P, also without consideration,
indorses it to A who, with
value, indorses it to B. Under
sec. 26, B is deemed a holder
for value not only as regards A
but also as regards Freeza and
P.
A note payable on August 10,
2014 bears the undated
indorsement of the payee.
The presumption is that he
indorsed the note on or before
August 10, 2014, that is,
before the note was overdue.
The presumption, however, is
rebuttable. It can be shown
that the negotiation was
actually made after August 10,
2014.
Suppose a note is dated as
follows:
Manila, July 10,2014,
If it is subsequently indorsed
by the payee without
indicating the place of
indorsement, the presumption
is that the indorsement, was
made in Manila where the

Sec. 47. Continuation of

negotiable character.

An instrument negotiable in
its origin continues to be
negotiable until it has been
restrictively indorsed or
discharged by payment or
otherwise.

Sec. 48. Striking out

indorsement.

The holder may at any time

strike out any indorsement
which is not necessary to his
title. The indorser whose
indorsement is struck out, and
all indorsers subsequent to
him, are thereby relieved from
liability on the instrument.

note was dated. He who

alleges otherwise has the
burden of proof.
Vegeta makes a note payable
to the order of P and A. the
indorsement of both of them,
by one without authority from
the other, does not constitute a
negotiation of the instrument
because it would not be an
indorsement of the entire
instrument. But if P and A are
partners, or the one indorsing
has authority to indorse for the
other, the indorsement will
bind the other.
Suppose M makes a note
Payable to P or bearer. The
note is indorsed specially and
in succession as follows:
Pay to A
(Sgd.) P
Pay to B
(Sgd.) A
Pay to C
(Sgd.) B

Sec. 49. Transfer without

indorsement; effect of.

Where the holder

of an instrument payable to his
order transfers it for value
without indorsing it, the
transfer vests in the transferee
such title as the transferor had
therein, and the transferee
acquires in addition, the right
to have the indorsement of the
transferor.

M issues an instrument
payable to P or order. P
delivers it to A for value
without indorsing it.
The transfer does not
constitute negotiation but it
vests in A such title as P had
and in addition, it gives A the
right to have Ps indorsement.
Thus, such an instrument may
still be effectually be mere

Sec. 50. When prior party may

negotiate instrument.

Where an
instrument is negotiated back
to a prior party, such party
may, subject to the provisions
of this Act, reissue and further
negotiable the same. But he is
not entitled to enforce
payment thereof against any
intervening party to whom he
was personally liable.

delivery.
M makes a note payable to the
order of P. it is indorsed
successively as follows:
Pay to A
(Sgd.) P
Pay to B
(Sgd.) A
Pay to C
(Sgd.) B
Pay to D
(Sgd.) C
Pay to B
(Sgd.) D
Pay to E
(Sgd.) B

Part 2