CHAPTER I – FORM & INTERPRETATION
which possess a characteristic of negotiability
SECTION 1. Form of negotiable instruments - 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.
 Commercial Paper – written promises or obligations from
commercial transactions with the use of promissory notes and
bills of exchange.
*either negotiable or non-negotiable and should arise from
commercial transactions
 Negotiable Instrument – Section 1 give the definition of a
negotiable instrument. It is also a contractual obligation to pay
money.
Formal Requirements of Negotiability in General
*WON an instrument is negotiable or non-negotiable heavily depends
on its forms and content.
To determine the negotiability of the instrument:
1. The whole of the instrument
2. Only what appears on the face of the instrument
3. The provisions of the NIL especially Section I
Applicability of Formal Requirements
*All kinds of NI are either promises to pay or order to pay money
1. In order for a PROMISSORY NOTE to be negotiable, the
requirements in subsections: A, B, C, and D must be present.
For a BILL OF EXCHANGE, requirements in subsections: A,
B, C, D, and E must be present.
2. Subsection A: Maker – person issuing the promissory note.
Drawer- person issuing a bill of exchange.
3. Subsection B: Promissory Note = “unconditional promise”. Bill
of exchange = “unconditional order.”
4. Subsections C & D is applicable to both while E is only for
BOE.
Formal Requirements Explained.
1. The instrument must be in writing – reduced to a tangible
form so that it can be passed from hand to hand.
- Written with a pen/pencil or printed
- NO SUCH THING AS AN ORAL NEGOTIABLE
INSTRUMENT. Makes it difficult to determine
liability.
2. The instrument must be signed by the maker or drawer –
signature may appear anywhere on the paper even though
the gen. rule states that it should be place at the lower right
hand corner. A signature will be the binding force of the
instrument.
- Signature is prima facie evidence (intention to be
bound/not) HOWEVER, if the signatory’s capacity
is not clear, he will be deemed as an INDORSER &
not the maker or the drawer.
- Signature of the maker/drawer is usually
WRITTEN. Preferably the full name but initials or
any mark will suffice as long as SIGNATURE BE
USED AS A SUBSTITUTE and the maker/drawer
intend to be bound by it.
- Signatures are always presumed valid but if it is
questioned, the party questioning it must provide
evidence/s to prove the invalidity of the signature.
Likewise, the party accused must prove its validity.
 3. The instrument must contain an unconditional
promise/order to pay – NI can either be classified as
promises or orders to pay.
4. The instrument must be payable in a sum certain in
money – must call for the payment of a sum certain in
money.
- Money is the one standard of value in actual
business. “a particular kind of current money in
which payment is to be made”
- Money = cash. Medium of exchange authorized by
domestic and foreign government as part of its
currency. Includes all legal tender – “that currency
which a debtor can legally compel a creditor to
accept in payment of a debt in money when
tendered by the debtor in the right amount.”
5. The instrument must be payable at a fixed or
determinable future time or in demand.
6. The instrument must be payable at a fixed or
determinable future time/on demand.
7. The instrument must be payable to order.
8. The instrument must be payable to bearer.
9. The drawer must be named.
- Cannot be a bill if not addressed to anyone but
acceptable without name as long as the drawee
indicated therein with reasonable certainty. (e.g.
treasurer of a named corporation)
- For the payee or holder to know to whom he will
accept payment
- Promissory note has NO DRAWEE. But the payee
must also be named with reasonable certainty
Non-negotiable Instruments defined.
*Not negotiable – instrument that does not meet the requirements for
it to be negotiable or was negotiable until it lost its quality of
negotiability
a) Check Payable only to a SPECIFIED PERSON. (e.g.
“Pay to Lana del Rey”) it ceases to become negotiable if
it prohibits further transaction or negotiation of the
instrument.
b) NNI may not be negotiated but it may be assigned or
transferred, thus, leave an express prohibition against
assignment/transfer on the face of the instrument.
c) Transfers are governed by the Civil Code on assignment
on contract rights. It also governs when a NI is
improperly negotiated to a third person (transferee).
d) Persons who transfer or assigns contractual/non-
negotiable rights pass only the rights that they had.
Promissory Note defined.
*NPN is 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.
- written promise to pay a sum of money
- Referred to as “note”
- May be a demand instrument but is normally a time
instrument.
- PROMISE PAPER/two-party paper
Original Parties to a Promissory Note
1. Maker – the one who makes and signs the instrument.
Payee – to whom the promise is made/to whom the
instrument is payable to
2. Payee – may designated by name/office/tittle(e.g.
“Treasurer of X Corp)/unspecified (e.g. bearer)
3. May seek for payment or further negotiate the
instrument. The maker promises to pay to the payee
or to a holder.
4. Maker’s signature must be present for him to be liable.
After PN/BOE is issued, additional parties may become
involved as well.
Bills of Exchange defined
*NBOE is an unconditional order in writing addressed by one person
to another, signed by the person giving it, and requiring the person to
whom it is addressed to pay upon the demand or at a fixed or
determinable future time a sum certain in money to order or to
bearer.
- An order made by one person to another to pay money
to a 3rd person.
- Check – drawn on a bank and payable on demand
(most common type of order paper)
- Also known as ORDER PAPER
Original Parties to a Bill of Exchange
*3 parties: drawer, drawee, and the payee
1. Drawer – person who issues & draws the order bill. He gives
the order to pay money to a 3rd person. Pays indirectly.
2. Drawee – party upon whom the bill is drawn. The bill is
addressed to this party and is the one expected to pay the third
person in behalf of the drawer.
- Becomes an acceptor when he agrees to pay the
bill for the drawee.
- By accepting, he becomes personally liable like
the maker of the note, the drawer becoming
only a surety.
3. Payee – Whose favor of the bill is originally issued/payable
- May be specifically designated or may an
office/title, or unspecified.
Idea & Purpose of a Bill of Exchange
a) Drawer’s funds in hands of drawee – the fundamental idea of
BOE is that the drawer has funds in the custody of the drawee
in which the former wants to be paid to the payee.
b) Liability of drawee for non-payment – If the drawer has
actual funds with the drawee and the latter refuses to accept,
then, he will be liable to the drawee (for resulting damages and
harm done to his credit). If the drawer does not have funds
with the drawee, it is presumed that the former has made
arrangements with the latter. The drawee may then ask for
reimbursement.
- Drawee may be liable to drawer, if they have an
established agreement obliging the drawee to
honor the order of the drawer or a DEBTOR-
CREDITOR relationship.
SECTION 2. What constitutes certainty 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 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.
Certainty of Sum Payable
*requisite for the negotiability of the instrument to assure the clarity
and certainty in determining the value of the instrument
1. Payment of fixed amount of money. – as a substitute for
money it is essential that it represents A FIXED AMOUNT TO
BE PAID WHOLLY IN MONEY.
- The amount to be paid must be stated plainly
on the face of the instrument WITHOUT
REFERENCE TO ANY OUTSIDE SOURCE.
- “Sum Certain” = the holder can determine the
exact amount he will receive from the
instrument
Example:
a. “To pay 1,000 or what may be due on my current deposit/which
may be due to him/reasonable wage for six days work”
*Not negotiable – if it calls for an act other that the payment
of money
2. Permissible clauses or stipulations – certain if a clause in the
instrument states that it is to be paid with interest, by
 installments, with exchange, with costs of collection, or with
attorney’s fees.
- The basic test for certainty is WON the holder
can determine by calculation/computation the
amount payable
Sum to be paid with Interest
1. Interest at fixed rate – makes certain the sum payable and
therefore renders the instrument negotiable
Example:
“I promise to pay P2 or order 10,000, with interest at 15% per
annum.” *10k is specified and the interest makes it easier to
compute
2. Interest at increased or reduced rate – does not affect the
negotiability
Sum to be paid by stated installments
*does not affect the negotiability
Stated Installments – a) interest of each statement, b) the due
date of each installment must be fixed in the instrument
Sum to be paid by stated installments w/ acceleration clause
1. Acceleration dependent on maker – does not affect the
negotiability
- Acceleration clause means that a promise if any
installment/interest is not paid, the whole shall
become due.
- The payee/holder CANNOT accelerate the note
unless the maker fails to pay any installments
Sum to be paid with exchange
*Payable in foreign currency (does not destroy negotiability)
1. Meaning of exchange – the charge for the expense of
providing funds at the place where instrument is payable to
meet the instrument which is issued at another place.
- May be paid at a fixed/current rate
2. Payment in foreign currency – current rate of exchange at any
given time can easily be ascertained.
- Deemed by the law as “sum certain”
3. Payment with exchange rate – applicable only to foreign bills
4. Exchange not applicable to inland/domestic bill – no
exchange in inland/domestic
- R.A. No. 8183 = every obligation must be paid
in Philippine currency but parties may agree
that the obligation be settled in any other
currency.
Sum to be paid with costs of collection or an attorney’s fee
1. Increase in amount due effective after maturity – until the
instrument matures, the amount payable is certain.
2. Liability for attorney’s fee – may be reduced by the courts if
unconscionable/unreasonable. Also, it will be in a reasonable
amount if not specified
3. Acquisition of instrument after the maturity – would not be a
holder in due course as if it were non-negotiable
SECTION 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.
When a promissory note contains promise to pay
1. Implied promise to pay – may not necessarily use the word
“promise.” Other words may be used like: payable, to be paid, I
agree to pay, obliges to pay, good for, and due on demand etc.
on the instrument.
 2. Bare acknowledgement of indebtedness – not negotiable if
“I.O.U, due P 10000, for value received, etc.” but becomes
negotiable if words like “due P or order, due P or bearer, I.O.U.
1000 to be paid on Sept. 3.”
When bill of exchange contains an order to pay
1. Words equivalent to an order to pay – may use other words
like “let the bearer, “W will much oblige R to pay P or order.”
2. Mere request to pay – not a request and merely ask or expects
the drawee to pay but DEMANDS it.
- Order is a command/imperative direction.
Words like request, wish, hope, and authorize
will not suffice for negotiability. The use of
please does not convert the order to request.
3. Liability of drawer – negotiability depends on the terms of the
order and not whether the drawee obeys to pay or not.
When promise/order to pay unconditional
1. Instrument payable absolutely – the promise or order to pay
must not be subject to any condition/contingency
- Except provided by law like implied conditions
of presentment, protests, and notice of
dishonor.
2. Reason for requisite – enhances the ability of the instrument
to circulate freely because people will not accept an instrument
if the right to recover is not unconditional or absolute
- Non-negotiable if it contains a condition even if
the event will likely to happen or if it happened
3. Terms not affecting unconditional liability – indication of a
particular fund out of which reimbursement is to be made or
an indication of a particular account to be debited w/ the
amount does not render the promise/order conditional.
- Additional terms such as statement of purpose
does not affect negotiability as long as the duty
to pay is unaffected by such terms
Indication of a particular fund out of which reimbursement
is to be made
*Still negotiable because order to pay is conditional. The fund
indicated is not the only source of payment but only the source of
reimbursement which is a subsequent act
Indication of a particular fund out of which payment is to be
made
*An instrument payable out of a particular/specified fund is non-
negotiable because the amount to be paid is dependent on the
adequacy or existence of the designated fund.
 Reimbursement  Payable out as DIRECT SOURCE of payment
Test of Negotiability = the instrument carries the general personal
credit of the maker/drawer.
Example:
a) I promise to pay P or order the sum P10000 out of my salary in
the government or out of the proceeds of the sale of my shares
of stock.
b) Pay the bearer the sum of P10000 out of the dividends which I
may receive from X corporation.
*drawee is limited to the fund indicated.
*The intention to limit the payment to a particular fund MUST BE
MADE PLAIN. Any ambiguous or vague words will render the
instrument non-negotiable.
Indication of a particular fun to be debited with the amount
*Negotiable because it is not conditional. The payment does not
depend on the existence or adequacy of the fund because payment is
made first before the account is debited.
Statement of transaction which give rise to instrument
1. Mere recital of consideration for instrument or origin of
transaction – does not render it conditional and non-
negotiable
Example:
 I promise to pay to the order of P 400000 being the price of a car
this day sold and delivered to me or as per our contract.
*Merely identifies the source of transaction and does not qualify
the order or promise to pay conditional
2. Terms & Conditions contained in another paper – renders the
instrument non-negotiable because this will require an
examination of the said contract.
- The negotiability or non-negotiability of the
instrument must be determined immediately on
what appears on its face alone and not
elsewhere.
SECTION 4. Determinable future time; what constitutes - An
instrument is payable at 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.
Certainty of time of payment
1. Instrument payable at all events – essential requirement for
negotiability for the payment of an instrument will certainly
become due & demandable on time/other
2. When time of payment certain – if there’s a fixed term/time,
the instrument is payable upon maturity or upon the arrival of
the time for payment. If payment on demand, the holder may
call for payment at any time. Checks must be payable on
demand.
3. Reasons why time must be certain – so that the holder may
know the when he can ENFORCE the instrument or when will
the person liable be required to pay or when will the obligation
of the secondary parties arise.
When instrument payable at determinable future time
*Instrument only payable upon contingency is not negotiable because
it does not appear on its face WON it will be paid.
Examples:
1. Payable at fixed time – the future date is specified
2. At a fixed period after date - “sixty days after date” maturity
may be determined beforehand by counting 60 days from the
date of issuance
3. At a fixed period after sight – means after the instrument is
seen by the drawee after acceptance
4. On/before a fixed time – “on or before September 19, 2015”
has an option to pay on the day or before. The year must be
stated in order for it to be determinable.
5. On/before a determinable fixed time – “on or before the school
starts”
6. On the occurrence of a specified event – “upon the death of his
uncle”
7. After the occurrence of a specified event – “3 days after the
death…”
8. Upon Contingency – “pay upon his reaching the age of
majority”
- Non-negotiable because the order is
CONDITIONAL. The person may die before
reaching the age of majority.
- Contingency = uncertain future event or an
even which may not happen (e.g. will pay if his
cat dies within 3 months)
SECTION 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 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.
Acts in addition to payment of money
*Must be payable in “sum certain in money”
1. General Rule – the instrument is non-negotiable if it
orders/promises to do an act aside to the payment of money.
Based on the fact that once could be indorsed, the other will
have to be assigned.
2. Exceptions
a) Sale of collateral securities – example: “I promise to
pay P or order the sum of 10,000 on Sept. 19, 2015
secured by a ring I delivered to him by way of pledge
and which he could sell should I fail to pay him at
maturity.”
- The additional act is to be done after the
maturity when the instrument becomes private
and non-negotiable. Until the maturity,
payment of money is assured.
- Adds to the marketability. NOTE: the additional
statement does not subject the promise/order
to the terms & conditions of the pledge because
it is done after.
b) Confession of judgment – written acknowledgement by
the defendant of his liability to the plaintiff.
- Example see page 39
- Invalidity of the provision as to the confession
does not render the instrument non-negotiable
- Confession after the action is brought to save
expenses in VALID.
c) Waiver of benefit granted by law – example: “pay
bearer 10,000. Notice of dishonor waived.”
- Waiver of protest, presentment for payment, or
demand does not destroy negotiability
d) Election of holder to require some other act – example:
“I promise to pay 10,100 or an air conditioner at the
option of the holder”
- Giving the holder an option does not affect
negotiability but if it is stated w/o the option
then it becomes non-negotiable
SECTION 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 had 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.
Effect of omission of date
1. Date generally not necessary – will not affect the negotiability
because a date in a bill or note is not necessary. The
instrument will be considered to be dated as of the time of
issuance.
2. Date stated not in calendar – the law will consider the nearest
date of the month the date intended. (e.g. September 31 will be
September 30)
3. When date necessary – cases where date is necessary to
determine the date of maturity:
a) Date is tied to the date of issue (e.g. payable thirty days
after date)
 b) Where interest is stipulated, a date must be present for
computation
c) PN – date of issue, BOE – the date of the last
negotiation
- May be ante-dated/post-dated
Effect of omission of value
*Does not affect negotiability because consideration is presumed
Effect of omission of place
*Does not affect because it is presumed to be payable at the place of
residence/business of the maker or drawer
Effect of presence of seal
*Prohibited in American law & will be governed by contracts under
seal but not in the Philippines. It does not destroy negotiability
- It is advisable to have a bill or note appear in a
public instrument so that it will be included
among the preferred credits
Effect of designation of particular kind of current money
payable
*does not require payment should be made in legal tender. Can either
be domestic/foreign money which has FIXED VALUE in relation to
our money.
SECTION 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, accepted, or indorsed when overdue, it
is, as regards the person so issuing, accepting, or indorsing it, payable
on demand.
When instrument payable on demand
*Instrument is payable in demand among secondary & immediate
parties. No difference between holder in due course and a person not a
holder in due course in immediate parties.
 Instruments payable on demand is due and payable
immediately after delivery. It’s a present debt due at once.
 Time Instruments – payable at a definite time
1. Expressed to be payable on demand
- On demand, at sight, on presentation, on call,
or anytime called for may be used
- PN = on demand, BOE = at sight
- Overdue instrument is automatically a demand
paper.
Example:
“Pay to P or order 10,100” – payable on demand because it
does not express the time for payment
2. Payable on demand as regards the maker
Example:
A noted date July, 2, 2013 and payable “30 days after the date”
is issued on August 4, 2013 (when it is already due).
3. Payable on demand as regards the acceptor
Example:
A bill payable on Aug. 20, 2013 is accepted by the drawee on
Aug. 21, 2013.
4. Payable on demand as regards
Example:
A note payable “3o days after” after Aug. 1, 2013 is indorsed on
September 2013.
SECTION 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.
When instrument payable to order
*Standardized words of negotiability – to the order of, or order, or
bearer, and to bearer. Conveys the consent that the instrument may be
transferred and thus, allowing further negotiation.
Instrument is payable to order where it is drawn payable:
1. To the order of a specified person; or
2. To him or his order
*Therefore, an instrument payable to a specified person (e.g. Pay to
Lana) is not an order instrument and is not negotiable because it is
only limited to one person.
Examples:
1. Pay to the order of 10,000
2. Pay to P or order 10,000
*other words may be used like “to P and assigns” will do aside
from “to the order of” or “or order.”
See page 47 for persons to whose order an instrument may be
made payable by the maker/drawer
Effect where payee not named or described
*A name or description with certainty is a must for the instrument
to be negotiable otherwise there will be no payee and nobody to
give the order to/collect in authority
SECTION 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 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.
When instrument is payable to bearer
Bearer – person in possession of the bill/note which is payable to
bearer/legally qualifies as a bearer instrument.
*Instrument is discharge when an instrument is payable to bearer
at/after maturity.
*For added security, the holder may require indorsement of the
instrument.
*An instrument fails to qualify as an order instrument is negotiable if
it is payable to bearer.
NOTE: Subsections A&B – bearer of instruments o the face.
Subsections C, D, &E – order of instruments on the face. Both are
bearer instruments.
1. Expressed to be payable to bearer – I promise to pay to bearer
10,000. <- negotiable. “Payable to bearer, P” <- non-negotiable
because it only describes “P.”
2. Payable to person named therein or bearer – Pay to P or
bearer 10,000
 3. Payable to order of a fictitious person – Pay to John Doe or
order 10,000. <- payable to order and not to order.
- Fictitious person is meant to be one who has
not right to it because the maker/drawer
intended it no matter if the name used is
true/not.
- Payable to bearer because the drawer knows the
payee is not capable of indorsing thus he
intended the same to be transferred by mere
delivery.
4. Payable to order of a non-existing person – Payable to the
order of the King of Planet Jupiter. <- manifest intention of the
drawer is to make the instrument a bearer paper negotiable by
delivery.
5. Name of payee not name of person – Pay to cash, Pay to
money… <- does not purport to designate a specific payee thus
a payable to bearer.
6. Only indorsement in blank – see page 52
7. Last indorsement in blank – see page 52
*Blank indorsement does not render non-negotiability. It becomes
negotiable as a bearer instrument.
SECTION 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.
Criterion of Negotiability
*Advisable to use the words prescribed by law but any words will
suffice.
1. Clear intention of the parties – substance of the transaction
over its form is the criterion.
- As long as the intention to make the instrument
negotiable can be determined, it will be
enforceable.
2. Mere defect in language or grammatical error – does not
affect the negotiability. (e.g. from “himself order” be change to
“himself or order.”)
SECTION 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.
*An instrument with a date is presumed that the said date is the date
when it was made by the maker, drawn by the drawer, accepted by the
drawee, or indorsed by the payee/holder.
- If another person claims otherwise, he shall
have the burden to establish such claim.
Date in instrument payable at a fixed future date.
*Date is not required for an instrument to be negotiable.
No need for date if instrument is payable at a: 1) Fixed Future Date
w/o stipulation of interest. E.g. “I promise to pay P or bearer P10, 000
on August 10, 2013” **without the interest, there is no need to
determine the date of issuance.
Date is necessary to determine MATURITY BUT NOT
NEGOTIABILITY.
Examples:
1. Instrument payable at a fixed period after date. (e.g.) “30
days after date, I promise to pay P or order P10, 000.”
2. Instrument payable at a fixed period after sight or
presentment. (e.g.) “Pay P or order P10, 000 thirty days after
sight.”
Date in instrument payable on demand.
*instrument payable on demand does not need any date since it is
demandable any time.
However, it is required under Sec. 71 that a PM must be present for
payment WITHIN A REASONABLE TIME AFTER ISSUE and in case
of BOE, WITHIN A REASONABLE TIME AFTER LAST
NEGOTIATION thereof. Otherwise, persons secondarily liable may be
released from their liability.
Thus, THE DATE OF ISSUE IS REQUIRED IN THIS CASE to
determine WON a party has acted within the reasonable amount of
time but not to make the instrument negotiable.
SECTION 12. Ante-dated and post-dated. – The instrument is not
invalid for the reason only that it is ante-date or post-dated, 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.
Ante-dated – date is EARLIER than the true date of issuance.
Post-dated – date is LATER than the true date of issuance.
Effect of ante-dating and post-dating.
1. Generally – ante-dating and post-dating an instrument does
not render it invalid or non-negotiable.
- CAN BE NEGOTIATED BUT NOT AFTER
MATURITY.
- The person, who received such instrument,
acquires the title thereto as the DATE OF
DELIVERY.
2. If done for an illegal or fraudulent purpose – The instrument
becomes invalid.
Example: 1.) ante-dating to conceal the charge of usurious
interest; 2.) post-dated check in payment of an obligation
because of insufficiency of funds w/o bona fide intention to
cover the amount of the check (unless the payee is informed).
SECTION 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 therein the true date of
issue/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 is
so inserted is to be regarded as the true date.
When date may be inserted.
*this provision authorizes two cases in which insertion of date is
allowed.
a) Where an instrument is payable at a fixed period after date but
is issued undated
b) Where an instrument is payable at a fixed period after sight
but the acceptance is undated
*any holder in this case may insert the true date of issue or acceptance
and the instrument shall be payable accordingly. As aforementioned,
date is necessary to determine the maturity because one will never
know when an instrument may be due or be deemed demandable.
Effect of insertion of wrong date.
1. As to holder with knowledge (holder not in due course) –
insertion of wrong date by a person with knowledge acting in
bad faith makes the instrument invalid but not to a
subsequent holder in due course who may enforce the same
notwithstanding the improper date.
2. Subsequent holder in due course – a person without
knowledge acting in good faith. The instrument is valid in this
case and the wrong date inserted is to be regarded as the true
date.
SECTION14. 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 amount. In order, however, that nay 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
of 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.
INCOMPLETE DELIVERED. *personal defense meaning the
invalidity of instrument varies. It depends if the holder is in due
course. Ergo, a HIDC can raise this rule as personal defense but a
NHIDC cannot use this as a defense because he caused the invalidity
of the instrument.
Steps in issuance of negotiable instrument.
1. The mechanical writing of the instrument in accordance to the
provisions of NIL.
2. The delivery of the instrument with the intention of giving
effect to it.
Rules where instrument incomplete but delivered.
1. Authority to fill up the blanks – the holder has the prima facie
authority to COMPLETE AN INCOMPLETE INSTRUMENT by
filling up the blanks.
- Material Particular: any particular proper that
may be inserted in a negotiable instrument to
make it complete, and the power to fill in the
blanks extends, therefore, to every complete
feature of the instrument.
2. Authority to put any amount – a signature on a blank
instrument serves as a prima facie authority to fill it up as such
for any amount of money.
- the signee must have the intention to convert
the signed paper to a negotiable instrument
3. Right against party prior to completion – the instrument may
be enforced only against a party prior to the completion (so
long the instrument is filled in strict accordance w/ the
authority & w/in a reasonable amount of time.
4. Right of holder in due course – the defense that the
instrument had not been filled up accordingly and within
reasonable time is not available as against a holder in due
course.
*The rule in section 14 simply states that if one or more persons
suffer due to the bad faith of another, the one who caused it must
hold the liability. Ergo, the rule protects persons who acted in
good faith.
SECTION 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.
INCOMPLETE UNDELIVERED. *real defense meaning
instrument is really defective and deemed invalid in all
circumstances. It is totally ineffective like there is no contract at all.
Rules:
1. The instrument will not be valid in the hands of any holder.
2. The holder, however, can go after the party who caused the
invalid delivery and the parties after.
SECTION 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.
COMPLETE UNDELIVERED. *personal defense
Rules:
1. Complete instrument but not delivered is still considered
REVOCABLE.
- Delivery means transfer of possession, actual
or constructive, from one person to another.
- Issue meaning the first delivery of the
instrument, complete in form, to a person who
takes it as holder.
- Holder means the payee or indorsee of a
bill/note who possesses it or the bearer.
2. As to immediate parties and remote parties, who are holders in
due course, for delivery to be effectual it must be in accordance
 to the authority given. *there is a prima facie presumption of
delivery but subject to rebuttal
- Undelivered instrument is inoperative
because delivery is prerequisite to liability.
- However, if it is no longer in the possession of
the person who signed it and it is complete in
terms, it is assumed that there was a valid and
intentional delivery.
a) Immediate parties – parties having the knowledge
of the conditions/limitation placed upon the delivery of
the instrument.
b) Remote parties – parties who are not in direct
contractual relation to each other. No knowledge or
notice of any defect in the instrument.
*When delivery is made, it is presumed to be made with the
intention to transfer ownership of the instrument to the payee.
3. Instrument if in the hands of HIDC, delivery is conclusively
presumed.
*HIDC – instrument is valid and he can collect
*NHIDC – instrument is invalid and he cannot
collect/demand.
SECTION 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 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 word "I promise to pay" is
signed by two or more persons, they are deemed to be jointly and
severally liable thereon.
Rules of construction in case of ambiguity or omission.
*The rules only apply if there is ambiguity or omission. If the
instrument is clear, it must be enforced as it reads.
1. Sums expressed in words and in figures different – Words
control over figures. Reason: it is easy to change the figures/to
commit mistakes on them.
2. Words ambiguous or uncertain – Words outweigh figures.
When words are unclear, reference may be made to the figures.
Reference should be made ONLY when the words are unclear.
Otherwise, words should always be followed.
3. Date when stipulated interest to run not specified – the
interest will run from the DATE OF ISSUANCE.
4. Instrument undated – considered to be dated as of the date of
issuance.
5. Written and printed words in conflict – Written words prevail
over printed ones. Reason: written words are deemed to
express the TRUE INTENTION of the maker or drawer
because he placed them there by himself.
6. Whether instrument bill/note in doubt – the holder of the
instrument may decide whether it is a bill or note
7. Capacity in which person signed in doubt – the person who
signed with doubt as to capacity becomes an indorser.
(because it assumes least liability)
- the placement of signature in the instrument is
not in accordance to the norm or the law
8. Instrument signed by two/more persons – liability may either
be solidary/joint.
 - “I promise to pay” and signed by two or more
persons gives rise to solidary liability.
Meaning, the parties involved will pay the
WHOLE AMOUNT. If the amount is 5k, each
will pay 5k to the payee.
- “We promise to pay” and signed by two or more
persons gives rise to joint liability. Meaning,
the parties involved will pay the amount
EQUALLY. If the amount is 5k, it will be
divided among the parties.
SECTION 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.
Persons liable on an instrument.
1. General rule – only persons whose signatures appear on an
instrument are liable.
2. Exceptions:
a) Person signs in a trade or assumed name
b) Principal is liable if the duly authorized agent signs on
his own behalf
c) In case of forgery, the forger is liable even if his
signature does not appear on the instrument
d) When acceptor makes his acceptance of a bill on a
separate paper
e) When a person makes a written promise to accept a bill
before it is drawn
Signing in trade or assumed name.
*One who signs in a trade/assumed name is liable AS IF HE SIGNED
HIS OWN NAME.
SECTION 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.
Signature by an authorized agent.
*Giving authority to an agent may be given orally or in writing subject
to the provisions of the Statute of Frauds. It will suffice, however, if
the agent signs along with the name of the principal. Then, it will
clearly show that the agent the authority to sign in the principal’s
behalf.
SECTION 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
principal, does not exempt him from personal liability.
When agent may escape personal liability.
1. He is duly authorized
2. He adds words to this signature indicating that he is an agent,
signing in behalf of a principal
3. He discloses his principal
Use of descriptive words w/o disclosure of principal.
*Descriptive words are not sufficient to relieve the agent from
personal liability. There is a need to disclose the principal in order for
the agent to be free from any liabilities. Words like “agent”, “trustee”,
or “guardian”, etc. are but descriptive personae (i.e. describing the
person who signed the instrument.) As between immediate parties,
evidence may be presented to show that the signer acted as mere
agent to a principal and the payee knew this fact. (In case the agent is
being sued by the payee)
SECTION 21. Signature by procuration; effect of. - A signature by
"procuration" operates as notice that the agent has but a limited
authority to sign, and the principal is bound only in case the agent in
so signing acted within the actual limits of his authority.
Procuration – act by which a principal gives power to another to act
in his place as he could himself (i.e. proxy)
*Procuration gives a warning that the agent has limited authority.
Ergo, the person dealing with him must know the agent’s limitations.
The agent will be liable if he exceeds his actualy limits of authority.
SECTION 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.
Effect of indorsement by incapacitated persons.
1. Minors – contracts entered into a minor are voidable at his
instance or his guardian.
- Minors are NOT BOUND by his indorsement
but it does not mean that the transfer is invalid.
INDORSEMENT BY MINORS IS VALID.
Minority is a real defense.
- However, a minor may be held liable if he is
guilty of fraud. (e.g. pretending to be of age
even if he is not)
2. Other incapacitated persons – their capacity is a real defense.
alteration of an instrument in the name, amount, description of
the person and the like, with the intent to defraud.
Application of Section 23.
Two cases:
1. Signature on the instrument affixed by one who is not an
agent/has no authority to bind the person whose signature he
has forged
2. Signature affixed by one who pretends to be an agents but has
actually no authority to bind the alleged principal
*Effect: signature will be wholly inoperative and no right can be
acquired through the forged signature. Forgery is a REAL DEFENSE
even against a holder in due course.
*Forgery is not presumed. It must be proven with clear and
convincing evidence.
Rules on forgery.

Effect of indorsement by a corporation. 1. In case of forgery, the instrument is not totally void. Only the
forged signature/indorsement is inoperative.
*Section 22 applies only when a corporation commits ultra vires 2. General Rule: no right can be acquired through forged
acts or acts beyond its power. signature or indorsement.
3. Exceptions:
*Corporation is not liable in suit thereon by an indorsee, where a) Preclusion
the corporation is w/o capacity to make the contract in fulfillment - Estoppel: persons who act in silence or
of which they were executed. negligence will be estopped from waving the
defense of forgery
SECTION 23. Forged signature; effect of. - When a signature is - Those who warrant the genuineness of the
forged or made without the authority of the person whose instrument
signature it purports to be, it is wholly inoperative, and no right to b) Forged signature is not necessary to acquire title
retain the instrument, or to give a discharge therefor, or to enforce c) Four possible situation
payment thereof against any party thereto, can be acquired - PN payable to order
through or under such signature, unless the party against whom it - PN payable to bearer
is sought to enforce such right is precluded from setting up the - BOE payable to order
forgery or want of authority. - BOE payable to bearer

Forgery – counterfeit-making or fraudulent alteration of any Promissory Note

writing, and may consist in the signing of another’s name or the
Payable to order Payable to bearer
 1. Parties prior to forgery are
not liable even to holder in
due course
2. Subsequent parties are
liable
Bill of Exchange
Payable to order
1. The drawee may not debit
the drawer’s account in
case of forged instrument.
If he debits, he is liable.
Remedy: go after the one
who indorsed
2. Prior parties are not
liable.
1. Prior parties may be held
liable but only to a HIDC.
(Because it is already
negotiated when it is
delivered. Mere delivery can
pass on title, indorsement is
not required.) Remedy of
prior parties: go after the
forger
Payable to bearer
1. The drawee may debit the
drawer’s account in spite the
forged signature (Indorsement is
not necessary to vest title.
Delivery is sufficient.) Remedy of
the drawer: go after the forger.

CHAPTER II – CONSIDERATION
SECTION 24. Presumption of consideration. - 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. 
Consideration/Cause – immediate, direct, or essential
reason which induces a party to enter into a contract.
Contract of Sale (Consideration)
Buyer
Object Sold
Seller
Price
*Negotiable Instrument must have a consideration/cause. There is
presumption that an instrument is issued for a valuable consideration.
Thus, it is not necessary that the cause be expressly stated in the
instrument. Presumption is only prima facie and is still
revocable.
1. Distinguished from Motive which is personal or private reason
of a party which is usually unknown and does not affect the
validity of the contract.
SECTION 25. Value, what constitutes. — Value is any consideration
sufficient to support a simple contract. An antecedent or pre-existing
debt constitutes value; and is deemed such whether the instrument is
payable on demand or at a future time.  1. Amount of instrument more than debt secured – the payment
Adequacy of consideration.
Need not to be adequate as long as it is a valuable one.
Antecedent/pre-existing debt.
It is a valuable consideration. May be that of a 3rd person and the
payment of such debt is a valuable consideration for an instrument.
*basically the reason for the issuance of a negotiable instrument is to
pay off an existing debt.
SECTION 26. 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. 
What constitutes a holder for value.
Holder for value – one who has given a valuable
consideration for the instrument issued/negotiated to him.
1. The holder is deemed as such not only by immediate parties
but as well as parties prior to the time when value was given.
2. Holder of a negotiable instrument = holder for value. Unless
otherwise proven.
3.
SECTION 27. 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. 
Where a holder has lien on instrument.
*one who has taken a negotiable instrument as COLLATERAL
SECURITY FOR A DEBT.
Lien - a right to keep possession of property belonging to another
person until a debt owed by that person is discharged.
for an instrument is more than the actual debt, the one who
pledge the instrument becomes a holder for value to the extent
of his lien. Pledgee can collect the full value of instrument and
deliver the surplus to the pledgor.
 - A pledge is a bailment that conveys possessory
title to property owned by a debtor (the
pledgor) to a creditor (the pledgee) to secure
repayment for some debt or obligation and to
the mutual benefit of both parties. A pledge is
type of security interest. (is a property interest
created by agreement or by operation of law
over assets to secure the performance of an
obligation, usually the payment of a debt.)
2. Amount of instrument less than/the same as the debt secured
– Pledgee becomes holder for value for the full payment and
recover all.
3. Party Liable has defenses –
Party Liable
Personal Defense
Real Defense (forgery)
Pledgee can collect only to the
extent of the amount of the Pledgee cannot recover
debt. anything.
SECTION. 28. 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.
Meaning of absence or want of consideration. - a total lack of
any valid consideration for the contract, in consequence the alleged
contract must fail. *PERSONAL DEFENSE
Against holder in due
As between parties
course
No recovery from the note HIDC can recover from
the maker of the note.
Example: A issued a note to B in payment of a parcel of land but it is
non-existent. Ergo, between A and B, there will be no recovery
because of absence of consideration. But it the note is indorsed to a
HIDC, then, the HIDC can recover from A.
Meaning of failure of consideration. - failure/refusal of one of
the parties to do, perform or comply with the consideration agreed
upon. *DEFENSE PRO TANTO. (I.e. liable only to that extent***)
Example: The land of B is existent but failed to deliver it to A because
B sold it to a HIDC who, in return, registered the sale. There is now a
failure of consideration. But if only half of the land was delivered to
the other party, B can recover the half of it only because A is not liable
for the other half.
SECTION. 29. 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. 
a) Accommodation note/bill – loan of one’s credit.
Accommodation party puts his name without consideration for
the purpose of accommodating other party who will use and
pay for it.
b) Accommodation party – one who signed the instrument as
maker, drawer, acceptor, or indorser who does not receive
anything but only to lend his name to another party.
- Expects that the accommodated party will pay
and not him. ONLY LENDS HIS CREDIT.
- Classified according to the accommodated
party’s status. If the accommodated party is the
maker he will be liable to subsequent parties as
the maker and not just the accommodated
party.
 c) Accommodated party – the party lending the credit of the
accommodation party. He will raise money upon the
instrument using the other party’s credit.
Liability of accommodation party to a holder.
1. Absence of a consideration is not a defense –
accommodation party is liable to a holder even if the holder
knows he is just an accommodation party or not.
2. Accommodation party, in effect, a surety –
accommodation party will go after the accommodated party for
reimbursement. (surety - one who provides a warrant or
guarantee to another)
Meaning of “without receiving value therefor.”
Accommodation Party Receiving Value
In consideration for
Valid
lending his name
From the
Invalid
instrument
Kinds of accommodation party.
a) Accommodation Maker – M, as accom party, issues a PM
payable to P who may then negotiate it to A.
b) Accommodation Drawer –M, as accom party, signs a BOE
with P as payee, and P may indorse the same to A.
c) Accommodation Indorser – M, as accom party, signs as an
indorser in blank, the bill/note made by P in favor of A, before
it is delivered to A.
absence/failure of consideration
nHIDC
against a nHIDC
May sue for reimbursement after May not sue any subsequent party
paying the holder for reimbursement
CHAPTER III - NEGOTIATION
SECTION 30. What constitutes negotiation. - An instrument is
negotiated when it is transferred from one person to another in such
manner as to constitute the 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 and completed by delivery. 
Negotiation – transfer of negotiable instrument from one person to
another so as to make the transferee the holder of the instrument
- No negotiation if the transfer does not make the
transferee the holder
Methods of transfer of a negotiable instrument.
1. Issue – Where the legal life of an instrument begins. The first
transfer of an instrument to a payee.
2. Negotiation – involves indorsement. It operates to make the
transferee the holder.
3. Assignment –It is the transfer of the title to an instrument
with the assignee taking only such title or right as his assignor
has.
- Involves a transfer of rights under contract.
Does not involve indorsement.
- Transfer for non-negotiable instrument
is always an assignment.
Methods of Negotiation.

Accommodation Party versus Regular Party Payable to Order Payable to Bearer

Signs w/o receiving value therefor Sign for value
Signs for the purpose of lending
Does not sign for that purpose 1. Indorsement by the 1. Negotiated by mere delivery
his credit
payee/presentment
May always show by parol Cannot disclaim or limit his
holder
evidence that he is only such personal liability
Cannot avail the defense of May avail the defense against
 2. Delivery to the next HIDC is subject to real Assignee is subject to both real
holder defenses and personal defenses

Payment of instrument by drawee not negotiation. HIDC may acquire better

title/greater rights under the
Assignee merely steps into the
*payment of a check or other bill by the drawee is not a negotiation instrument than those
shoes of the assignor
and does not make the bank a holder. possessed by the transferor or
a prior party
1. Bank – neither payee nor indorsee. Check cannot be circulated
because it is already extinguished upon payment.
2. Writing the name of the holder on the back of the check before Assignor does not warrant the
payment does not constitute indorsement. General indorser warrants the solvency of prior parties unless
solvency of prior parties expressly stipulated or the
Effect of delivery of order instrument w/o indorsement. insolvency is known to him

1. Transfer operates as an ordinary assignment – assignee is

merely placed in the position of the assignor. Assignee
acquiring the instrument subject to all defenses available
against the assignor.
2. Transferee does not become holder of instrument – Transferee
would not be the holder of the instrument w/o indorsement.
3. Where indorsement subsequently obtained – transfer operates
as a negotiation only as of the time the indorsement is actually
made. However, assignee requires the right to have the
indorsement of the assignor.
Negotiation and assignment distinguished.
*Only negotiable instruments can be negotiated. Non-negotiable
instruments can only be transferred or assigned.
Negotiation Assignment
Only refers to negotiable Only refers generally to an
instruments ordinary contract
Transferee is a holder Transferee is an assignee
Indorser is not liable unless
Assignor is liable even w/o
there be presentment of
notice of dishonor
dishonor
Governed by Articles 1624 –
Negotiation is governed by NIL
1635 of the Civil Code
Can there be a negotiation to a payee?
1. 1st delivery of instrument to payee – payee, as the first holder,
acquires title through issuance not by negotiation.
2. 1st delivery of the instrument to other payee – acquires title
through negotiation if delivery is made through an agent of the
maker/drawer.
3. Delivery of the instrument by the payee by last holder – there
is negotiation. Indorsement of the last holder is not necessary
because payee is remitted to this former rights and all
intervening parties are discharged from their liability.
SECTION 31. Indorsement; how made. - The indorsement must be
written on the instrument itself or upon a paper attached thereto. The
signature of the indorser, without additional words, is a sufficient
indorsement. 
Indorsement – writing of the name of the payee on the instrument
with the intent either to transfer the title to the same or to strengthen
the security of the holder by assuming a contingent liability for its
future payment or both.
1. Indorser – payee signing the instrument and delivering it to
another person. Indorsee – the person who receives the
indorsed instrument.
2. Indorsement is completed by delivery.
Nature of Indorsement.
*Not only a mode of transfer. It involves a new contract and obligation
on the part of the indorser – an implied guaranty that the instrument
will be paid.
Necessity of indorsement.
1. Essential to the execution of an instrument payable to the
order of the maker/drawer
2. Essential to the negotiation of an order instrument (not
bearer)
3. Without indorsement, one may acquire the title of such
instrument but one cannot be a holder in due course
Form of indorsement.
*Must be written or be in writing and in print. (Rubber stamp or
typewritten on the instrument is valid)
1. Use of the word “assign” does not automatically make the
instrument and assignment.
2. Signature of the indorser w/o words will suffice and shall be
called as “blank indorsement.”
3. “Special Indorsement” is the name of the indorsee is specified.
May also add words prohibiting or limiting further negotiation
of the instrument.
Place of indorsement.
1. Indorsa, latin. – writing on the back. But the PLACE IS
NOT ESSENTIAL. May write either on the face or on the back
of the instrument. Intention over form.
2. Indorsment is on a slip paper physically attached to the
instrument is known as allonge.
SECTION 32. Indorsement must be of entire instrument. - The
indorsement must be an indorsement of the entire instrument. An
indorsement which purports to transfer to the indorsee a part only of
the amount payable, 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 be indorsed as to the residue. 
Indorsement must be of entire instrument.
- General Rule.
- Bill or note divided into different parts divides a
single cause of action, i.e., ground for complaint
Indorsement to multiple payees or indorsees.
1. Joint payees – valid because it is combined or joined together.
Indorsement of all the indorsees is required for further
negotiation.
2. Alternative payees – indorsement may be made by either of
the payees
When partial indorsement is allowed.
*Only when a part of the amount has already been paid. Ergo, the
other part will be indorsed.
SECTION 33. Kinds of indorsement. - An indorsement may be
either special or in blank; and it may also be either restrictive or
qualified or conditional. 
Classification of indorsement
1. As to the methods of negotiation:
a) Special
b) Blank
2. As to the kind of title transferred:
a) Restrictive
 b) Non-restrictive 2. If payable to bearer, mere delivery will suffice w/o need for
3. As to scope of liability of indorser: further indorsements regardless if it is originally payable to
a) Qualified bearer or not
b) Unqualified or general 3. Check payable to the order of a named person and indorsed by
4. As to presence or absence of limitations: him in blank on the back makes it a bearer instrument
a) Conditional
b) Unconditional SECTION 35. Blank indorsement; how changed to special
5. The other kinds of indorsements: indorsement. - The holder may convert a blank indorsement into a
a) Joint special indorsement by writing over the signature of the indorser in
b) Successive blank any contract consistent with the character of the indorsement.
c) Irregular/anomalous
d) Facultative Conversion of blank indorsement to special indorsement.
*if negotiable, no indorsement, even restrictive one, can negate its
negotiability. *payable to order becomes payable to bearer if indorsement is in
blank.
SECTION 34. Special indorsement; indorsement in blank. - A
special indorsement specifies the person to whom, or to whose order, Payable to bearer through blank indorsement may be converted to
the instrument is to be payable, and the indorsement of such indorsee order by writing over the signature of the indorser in blank any
is necessary to the further negotiation of the instrument. An contract consistent with the character of the indorsement. But bearer
indorsement in blank specifies no indorsee, and an instrument so instrument always remains as is negotiable by mere delivery WON last
indorsed is payable to bearer, and may be negotiated by delivery.  indorsement is a blank or special one.

Special Indorsement (specific indorsement or indorsement

in full) - where the name of the payee is specified. Unqualified
indorsements are special and blank.

1. Forms
a) Specifies the person to what the instrument is payable.
(i.e. Pay to F)
b) Specifies the person to whose order is payable. (i.e. Pay
to the order of F)
2. Negotiation of order and bearer instruments
a) PTO – negotiated by special indorsement
b) PTB – mere delivery will suffice

Blank indorsement explained.

*specifies no particular indorsee

1. Consists only with the signature