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Law 108 Notes CH 1
Law 108 Notes CH 1
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CHAPTER I: REQUISITES OF NEGOTIABILITY if he had signed in his own name.
Section 1. Form of negotiable instruments. – An instrument to be Sec. 19. Signature by agent; authority; how shown. – The signature
negotiable must conform to the following requirements: of any party may be made by a duly authorized agent. No particular
form of appointment is necessary for this purpose; and the authority
(a) It must be in writing and signed by the maker or drawer; of the agent may be established as in other cases of agency.
The signature is binding so long as it is intended or
(b) Must contain an unconditional promise or order to pay a sum adopted as the signature of the signer or made with
certain in money; his authority
(c) Must be payable on demand, or at a fixed or determinable future If it is not clear in what capacity the person intended to
time; sign, he is deemed an indorser, not a maker or a
drawer
(d) Must be payable to order or to bearer; and
2. Unconditional Order or Promise to Pay
(e) Where the instrument is addressed to a drawee, he must be Mere acknowledgment does not constitute a promise.
named or otherwise indicated therein with reasonable certainty.
Where a certain time of payment is stated or the
Sec. 184. Promissory note, defined. – A negotiable promissory note, words “on demand” are used, there is a promise.
within the meaning of this Act, is an unconditional promise in writing A mere request or authority to pay does not constitute
made by one person to another, signed by the maker, engaging to an order.
pay on demand, or at a fixed or determinable future time, a sum o Although the mere use of polite words like
certain in money to order or to bearer. Where a note is drawn to the “please” does not of itself deprive the
maker’s own order, it is not complete until indorsed by him. instrument of its characteristics as an order,
its language must clearly indicate a demand
Sec. 126. Bill of exchange, defined. – A bill of exchange is an
unconditional order in writing addressed by one person to another, upon the drawee to pay.
signed by the person giving it, requiring the person to whom it is
addressed to pay on demand or at a fixed or determinable future time A. When unconditional
a sum certain in money to order or to bearer.
Sec. 3. When promise is unconditional. – An unqualified order or
Rivera v. Chua (2015) – Perez, J. promise to pay is unconditional within the meaning of this Act though
Rivera (obligor) argues that even assuming the validity of the coupled with –
Promissory Note, demand was still necessary in order to charge him (a) An indication of a particular fund out of which
liable thereunder. Rivera argues that it was grave error on the part of reimbursement is to be made, or a particular account to be
the appellate court to apply Section 70 of the NIL. debited with the amount; or
(b) A statement of the transaction which gives rise to the
Held: We agree that the subject promissory note is not a negotiable instrument.
instrument and the provisions of the NIL do not apply to this case. But an order or promise to pay out of a particular fund is not
The Promissory Note in this case is made out to specific persons, unconditional.
herein respondents, the Spouses Chua, and not to order or to bearer, Q: Shouldn’t all checks be non-negotiable, since their
or to the order of the Spouses Chua as payees. However, even if payment is conditioned on the existence of funds in
Rivera’s Promissory Note is not a negotiable instrument and the account drawn from?
therefore outside the coverage of Section 70 of the NIL which
o No. The un-conditionality refers to the
provides that presentment for payment is not necessary to charge
the person liable on the instrument, Rivera is still liable under the ORDER of the drawer.
terms of the Promissory Note that he issued in accordance with NCC An order for payment out of a “particular fund” is not a
Art 1169. It is expressly stipulated therein that upon failure to pay on negotiable instrument. However, mere indication of
December 31, 1995, Rivera will pay an interest of 5% a monthly from the particular fund out of which reimbursement is to be
the date of default until the obligation is paid. made, or an indication of a particular account to be
debited with the amount will not render the amount
1. Written Form and Signature
conditional.
Sec. 18. Liability of person signing in trade or assumed name. – No Unless reference to the fund clearly indicates an
person is liable on the instrument whose signature does not appear intention that such fund alone should be the source of
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
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payment, courts usually decide in favor of By statement that note is one of a series “given in payment
negotiability. of land described in a
Neither does the identification of the transaction for contract this day executed,”
which the instrument was issued make the promise or by statement “this note is given in accordance with a land
contract of even date between B and C
order conditional (e.g. “as per contract”).
The fact that the condition appearing on the Here, the instruments contains 2 references to extrinsic contracts
instrument has been fulfilled will not convert it into a (1) “For and in consideration of a contract and agreement
negotiable one. entered into this day with us by Arthur A. Bishop & Co. of
Boston, Mass., whereby we are entitled to the use of said
Powell & Powell v. Greenleaf v. Currier (1930) – Slack, J. company's system of collection and we hereby, for value
FACTS: received,” etc.,
The action is to recover the balance due on two instruments. The This is merely a recital of the consideration. This
instruments are of the following tenor: does not affect negotiability
For and in consideration of a contract and agreement entered Neither are instruments affected by the fact that
into this day with us by Arthur A. Bishop & Co. of Boston, Mass., it appears therefrom that they were given for or
whereby we are entitled to the use of said company's system of in consideration of service to be performed
collections we hereby, for value received, promise to pay to said It cannot affect the negotiability of a note that its
Arthur A. Bishop & Co., or order, at their office in Boston, Mass., consideration is to be hereafter realized, or that
the sum of one hundred fifty dollars, in twelve equal monthly from some contingency it may never be
payments of $12.50 each, the first monthly payment to be made enjoyed.”
upon the signing of this contract note, and the remaining eleven
payments of $12.50 each to be made upon the same date of (2) “we hereby acknowledge the receipt of a true copy of this
each succeeding month; provided, however, that upon the entire agreement.”
default on any one payment, the whole amount remaining then This is a mere acknowledgement of the receipt of
unpaid shall at once become due and payable, and we hereby a true copy of the entire agreement, nothing
acknowledge the receipt of a true copy of this entire agreement. more
ISSUE/HELD: It is argued that the instruments provide that first payment be made
Are these instruments negotiable, so that plaintiffs can maintain the upon the signing, hence not negotiable because the instrument must
suit in their own names? YES be payable on demand or at a fixed or determinable future time
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Held: No. The notes were due as a matter of law at the time the 6. Must be Payable to Order or Bearer
summons were served, so the bank had the right to apply the These words serve as an expression of consent that
deposits as part payment thereon. the instrument may be transferred.
There was no extension or waiver of the unpaid installment. The
Bearer instrument – may be negotiated by mere
acceleration clause operated and the entire amount was due. To hold
otherwise would be to compel the parties to enter into a contract they delivery
did not intend rather than to uphold the clauses of the contract which Order instrument – requires not only a delivery but
they intended to enter. also the indorsement of the transferor to be negotiated
Held: The Petitioners were solidarily liable. The first promissory note,
and the notes subsequently executed by the petitioners, show that
the petitioners bound themselves to be “jointly and severally liable” to
pay Mercator Finance P844,625.78. There was no ambiguity in the
note; hence, an interpretation by the court is unnecessary. Courts
can interpret a contract only if there is doubt in its letter. Section
17(g) of NIL states: “Where an instrument containing the word ‘I
promise to pay’ is signed by 2 or more persons, they are deemed to
be jointly and severally liable thereon.” Even if they did intend only to
sign as officers of Embassy Farms, still this does not erase the fact
that they subsequently entered into a continuing surety agreement.
Sec. 16. Delivery; when effectual; when presumed. – Every contract xxx
on a negotiable instrument is incomplete and revocable until delivery
of the instrument for the purpose of giving effect thereto. As between “Bearer” means the person in possession of a bill or note which is
immediate parties, and as regards a remote party other than a holder payable to bearer;
in due course, the delivery, in order to be effectual, must be made
either by or under the authority of the party making, drawing, xxx
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 “Holder” means the payee or indorsee of a bill or note who is in
purpose only, and not for the purpose of transferring the property in possession of it, or the bearer thereof;
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 xxx
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 3. Methods of Negotiation
until the contrary is proved. 4. How Indorsement Made
A. By signature on instrument or on allonge
SMC v. Puzon (2010)
Sec. 31. Indorsement; how made. – The indorsement must be written
F: Puzon, owner of Bartenmyk Enterprises, was a dealer of beer
on the instrument itself or upon a paper attached thereto. The
products of petitioner. To ensure payment and as a business
signature of the indorser, without additional words, is a sufficient
practice, SMC required him to issue postdated checks equivalent to
indorsement.
the value of the products purchased on credit before the same were
released to him. Said checks were returned to Puzon when the
transactions covered by these checks were paid or settled in full.
Clark v. Thompson (1915)
SMC filed a complaint for theft against Puzon, for having allegedly
stolen the postdated check Puzon issued to SMC. Issue arose as to
whether ownership transferred to SMC already.
B. In case of joint payees
H: Court held that although Sec. 12 of the NIL provides that the
person to whom an instrument so dated is delivered acquires the title
thereto as of the date of delivery, it noted that delivery as the term is
used in Sec. 12 of the NIL means that the party delivering did so for C. If name misspelled
the purpose of giving effect thereto. Court found that the check was
accepted, not as payment, but in accordance with the longstanding Sec. 43. Indorsement where name is misspelled, and so forth. –
policy of SMC to require its dealers to issue postdated checks to Where the name of a payee or indorsee is wrongly designated or
cover its receivables. Since Puzon gave the check as security for the misspelled, he may indorse the instrument as therein described
payment of his obligation, and NOT as payment for the same, there adding, if he thinks fit, his proper signature.
was no delivery as contemplated by the provision.
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Blake v. Weiden (1943)
6. Kinds of Indorsements
A. Basis of Classification
B. Special & Blank Indorsements
C. Qualified Indorsement
D. Conditional Indorsement
E. Restrictive Indorsement
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CHAPTER III: HOLDER IN DUE COURSE
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