ABALOS, Ruth Anne

BSA 4-12

NEGOTIABLE INSTRUMENTS (SEC. 1 to SEC. 100)

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.
Sec. 2. Certainty as to sum; what constitutes. – 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.
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 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 provision 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.
Sec. 6. Omission; 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 (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) When it
is expressed to be so 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.
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 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.
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. Ante-dated and post-dated. – 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 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 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.
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.
Sec. 17. Construction where instrument is ambiguous. – Where the language of the
instrument is ambiguous or there are omissions therein, the following rules of
construction apply: (a) Where the sum payable is expressed in words and also in figures
and there is 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.
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 principal, does not exempt
him from personal liability.
Sec. 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.
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 for 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.

Every negotiable instrument is deemed prima facie to have been issued for a valuable
consideration. (Sec. 24 NIL)
Effects:

– every person whose signature appears thereon is a party for value

– presumption is disputable

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. (Sec. 26
NIL)

An accommodation party is one who signs the instrument as maker, drawer, acceptor, or
indorser without receiving value therefor and for the purpose of lending his name to
some other person.

Effects:

– an accommodation party is liable to the holder for value notwithstanding that such
holder knew that of the accommodation. (Sec. 28 NIL)

For a bearer instrument – by delivery

For payable to order – by indorsement and delivery (Sec. 30 NIL)

Indorsement to be must be:

1. written
2. on the instrument itself or upon a piece of paper attached (Sec. 31 NIL)

Kinds of Indorsements:
1. Special (Sec. 34)
2. Blank (Sec. 35)
3. Restrictive (Sec. 36)
4. Qualified (Sec. 38)
5. Conditional (Sec. 39 NIL)

Effects of indorsing an instrument originally payable to bearer:

– it may further be negotiated by delivery

– the person indorsing is liable as indorser to such persons as to make title

through his indorsement (Sec. 40 NIL)

Effects of a transfer without endorsement:

– the transferee acquires such title as the transferor had

– the transferee acquires the right to have the indorsement of the transferor

– negotiation takes effect as of the time the indorsement is actually made (Sec. 49
NIL)

Requisites for a Holder in Due Course (HDC):

a. receives the instrument complete and regular on its face

b. became a holder before it was overdue and had no notice that it had been
previously dishonored if such was the fact

c. takes the instrument for value and in good faith

d. at time he took the instrument, no notice of infirmity in instrument or defect in

the title of the person negotiating it (Sec. 52 NIL)

A holder is not a HDC where an instrument payable on demand is negotiated at an

unreasonable length of time after its issue (Sec. 53 NIL)

Personal or equitable defenses are those which grow out of the agreement or conduct
of a particular person in regard to the instrument which renders it inequitable for him
through legal title to enforce it. Can be set up against holders not HDC

Legal or real defenses are those which attach to the instrument itself and can be set up
against the whole world, including a HDC.

A instrument not in the hands of a HDC is subject to the same defenses as if it were
non-negotiable.

Exception:

– a holder who derives his title through a HDC and is not a party to any fraud or
illegality affecting the instrument, has all the rights of such HDC in respect to all parties
prior. (Sec. 58 NIL)

If the instrument is dishonored, and the necessary proceedings on dishonor duly taken

1. the drawer will pay the amount thereof to the holder

2. will pay to any subsequent indorser who may be compelled to pay it. (Sec. 61 NIL)
Irregular Indorser – a person not otherwise a party to an instrument places his signature
in blank before delivery is liable as an indorser in the following manner:
1. if payable to order of a third person – liable to the payee and to all subsequent
parties
2. if payable to order of the maker or drawer – liable to all parties subsequent to the
maker or drawer
3. if payable to bearer – liable to all parties subsequent to the maker or drawer
4. if signs for an accommodation party – liable to all parties subsequent to the payee
(Sec. 64 NIL)

Limitations of warranties:
-if by delivery – extends only to immediate transferee

-warranty of capacity to contract does not apply to persons negotiating public or

corporate securities (Sec. 65 NIL)

Warranties of a general indorser:

1. the instrument is genuine and in all respect what it purports to be
2. the he has good title to it
3. all prior parties had the capacity to contract
4. that the instrument at the time of his indorsement was valid and subsisting (Sec.
66 NIL)

General rule: Presentment for payment is not necessary to charge persons primarily
liable on the instrument. Presentment for payment is necessary to charge the drawer
and indorsers. (Sec 70 NIL)

Proper presentment:
1. by the holder or an authorized person
2. at a reasonable hour on a business day
3. at a proper place
4. to the person primarily liable or if absent to any person found at the place where
presentment is made (sec. 72 NIL)

Summary of rules as to presentment for payment:

1. presentment not necessary to charge persons primarily liable

2. necessary to charge persons secondarily liable except:
– the drawer under Sec. 79

– the indorser under Sec. 80

– when excused under Sec. 82

– when the instrument has been dishonored by non-acceptance under Sec. 83

Requisites for payment in due course:

1. made at or after the maturity of the instrument
2. to the holder
3. in good faith
4. without notice of any defect in the holder’s title (sec. 88 NIL)
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Notice of Dishonor may be given:

1. by or on behalf or the holder
2. by or on behalf of any party who:
– is a party to the instrument and might be compelled to pay the instrument

– to a holder who having taken it up would have a right of reimbursement from

the party to whom notice is given. (Sec. 90 NIL)

Notice:
1. may be written or oral (Sec. 96)
2. written notice need not be signed or may be supplemented by verbal
communication (Sec. 95)
3. may be by personal delivery or by mail (Sec. 96)