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NEGOTIABLE INSTRUMENTS LAW

YONGCO | CABAHUG,A. |CABAHUG,D. | CANE
Atty. Amago
EH 402 // SY 2016-2017
WHERE WERE WE; JUNE 21, 2016
A - Atty. Amago
S - Student
A:

What is a negotiable instrument?

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.

A:
S1:
S2:

Based on the definition of negotiable instrument how should it look like?

I promise to pay to the order of A Php 20,000 on or before July 10, 2010.
Signed: Isaiah Calumba
I promise to pay sum of Php 50,000 to A or to bearer.

A:
S:

Which of the two are negotiable?

Only S1s example is negotiable because the other one (S2) is not signed by
maker or drawer. It must also contain an unconditional promise to pay sum of
money. And it may also payable on demand or at a fixed or determinable time.

A:
S:

Is that all?
When addressed to a drawee, it must be named or otherwise be indicated therein
with reasonable certainty.
Has it complied with all the requirements in section 1?
Yes sir.

A:
S:
A:
S:

Mr __ do you agree?
Yes sir but I have to qualify. Because we also have to consider that the
instrument must be written on a piece of paper.

A:
S:

Ms __ do you agree?
I agree that S1s example is negotiable.

A:
S:

What is the 5th requirement?

That when it is addressed to a drawee, he must be named or otherwise be
indicated therein with reasonable certainty.

A:
S:

Where is the drawee there?

There is no drawee in s1s example.

UY | DELAPENA |

A:
S:

So it did not comply with the 5th requirement?

I think we need to qualify sir because the rule says that only when it is addressed
to a drawee that is the time he will be named.

A:
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S:

Mr. __ did it comply with the 5th requirement?

There is no drawee sir. But it is still a negotiable instrument.
When is an instrument negotiable?
When it complies with all the requisites provided in Sec 1.

( Sir went on to ask students to recite sec 1)

A:

Sec 1 is clear when an instrument is negotiable. It must conform with all the
requirements provided. I told you last meeting that if there is something you need
to memorize in this subject, it is this section. You can use your own words but you
will not get a perfect score because I said memorize word per word. Now, we will
be discussing one by one these elements. Because most of our time in this
subject we will have to identify if the instrument is negotiable or not. Now, number
1 it must be in writing. Mr __ , it must be in writing where?

S:

May be written anywhere. But based on my reading, it should be typed or printed

in a durable paper.
It must?
It was suggested.
Do you ascribe in that suggestion?
I dont necessarily agree. It can be written anywhere as long as it is movable and
no where in the law that required where it will be written.

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S:

Mr __ do you agree?
The book said it could even be a leather. So it can be written anywhere as long
as it is movable.
If I write it here in the table?
Yes sir, by its nature it is movable.
How about in the board?
No sir because it is immovable by incorporation because it is attached to a room.
What is the requirement to be considered to be immovable by incorporation?
When it is put in a manner that it is fixed or permanent.
For example this table here, I will nail it to the platform. Is it immovable?
It must also be primarily needed for the area.
It must be necessary to the industry intended to be used for. You are right that
when you said that this is an immovable property after all this is a whiteboard
used for the school intended for educating students. But, if I remove it will it
comply now with the requirement?
Yes sir. It is not anymore incorporated sir.

NEGOTIABLE INSTRUMENTS LAW

YONGCO | CABAHUG,A. |CABAHUG,D. | CANE
Atty. Amago
EH 402 // SY 2016-2017
A:
Yes it is ako lang giguba. So you are saying that for as long as a particular
material to be moved from one hand to another it can comply with the
requirement?
S:
Yes sir.
A:
Thats correct class I am just messing around. I just want to know that you have
read the provision in your book. There really is no requirement to the materials
used for it to comply to the requirement that it must be in writing. For as long as
you can write on the surface of this material, and you can move that material then
it would be compliant. Its just very inconvenient to bring this entire table around.
Who would accept that? But then the law is clear it did not specify what material.
For as long as it is: in writing AND it can be moved from one hand to another.
Why? Because we are talking about negotiation. For it to be negotiable, it can be
transferred from one hand to another. You are actually right, that currently the
practice is that the paper must be durable because if it is not durable, it will be
easy to tamper, or torn or mutilated. But then again, bond paper not durable
and its what is used now. Even cardboard. But the point is it must represent in
writing.

UY | DELAPENA |

A:
S:

how does it differ from the heart?

Change my answer. It can be complied. As long as the maker or drawer intends
to be bound by what he wrote sir.

A:
S:

Ms ___ do you agree?

Yes sir. A symbol woulD comply if the intention is to be bound by the instrument.
So the heart would comply. Brad pitt will also comply.
Again class, the law is clear. There is no requirement on how you would make
your signature. In fact, there is no requirement that it has to indicate your name,
initials. For as long as you intend to be bound by such signature. Even if it is
heart star cross or hashtag. It would already comply. Just remember that the
person INTENDS to be bound by the symbol or signature. So it doesnt matter
what I put there. Nobody can demand whatever signature I would want. The law
did not specify. Lets not make any distinction. So, no requirement on the material
where to put the written word nor as to what form of signature what you will place
in the instrument. That ends our discussion on the first requirement.

A:

(Sir went on to ask to recite section 1 again. )

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Second, it must be signed by the maker or drawer. What do you mean by that?
Maker is the one who makes the PN; while a drawer is the one that issues a Bill
of Exchange.
Where does the maker or drawer have to sign?
Anywhere On the paper sir. I would like to correct my answer earlier that S2s
example is also correct because even though there is no signature, since it is
handwritten and the letter I represents the maker or drawer so it is considered
signed.
So it is enough to be in handwriting? That automatically make it negotiable?
Yes sir.
so example you will be the one who will compose and I will be the one to be
writing it, will it not comply?
No sir. Because you are the one writing. It must be personally hand written.
Ms. __ do you agree?
No sir. I think it should be if handwritten the signature should still appear in the
PN or BE so that it would be easier to ascertain who the maker or drawer is and
he intends to be bound to what he wrote.
So what is the requirement then?
that he places his full name or surname or initials sir.
If I put heart there? Shaded? Star?
No sir because you will not be able to ascertain who the maker or drawer is if you
put that.
What would then qualify as a signature of the maker?
His name or surname or initial.
So what if you know my name and I write Brad Pitt?
If you intend to be bound by what u wrote in the note.

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What do you imply by a promise or an order?

A promise or an order is a pledge or an oath that you do something or give
something.
How do you make that oath or pledge unconditional?
It must be absolute or unqualified. Such that it does not there is no need for a
condition to happen.
What is a condition?
Is an event which may or may not happen. A condition is a situation wherein the
happening of an event lies.

A:
S:

Give me an example of a condition

I will give you 50k if you dance on the hall for 30 mins.

A:
S:

What would make the order or promise there unconditional?

The statements provide I promise to pay therefore it is unconditional

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S:

How do you convert it to order?

I, X order Y to pay to the order of Z

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S:

Does the use of the word promise should be stated in the promissory note?
Not necessarily sir.

A:

How do you distinguish a promise and an order in relation to the requirement

under sec. 2? So if its a promise the person/maker himself is obliging himself to
make the payments. Whereas if its an order the maker is commanding someone
to make the payments. There is an order to a third person making the payments if

NEGOTIABLE INSTRUMENTS LAW

YONGCO | CABAHUG,A. |CABAHUG,D. | CANE
Atty. Amago
EH 402 // SY 2016-2017
its an order. If its a promise it is the the maker obligating himself to pay. So that is
why a promise would refer to a promissory note while an order would refer to a
bill of exchange. But dont get confused class there is a 4th req under sec 1 that it
must be to order or bearer. Does it mean then that a promissory note cannot be
an order instrument? The answer is no class. The order promise under sec 1(B)
is different from the order refered to in letter D in Sec 1. When youre talking about
order. Order In the sense that you are requiring a third person to make or settle
the obligation.
A:
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S:

When do you have a unconditional promise or order?

There must be no condition.
If I put there I, X order Y to pay the sum of 50k to A or bearer. Is this an
unconditional order?
No there is no condition for Y to pay A.

(Sir writes another example on the board cannot be determined through voice)
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A:

The example is about the payment out of the monthly salary whether it is a
condition?
It is a condition because it is derived from a particular fund.
Is there a legal basis?
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.
If the sum of your monthly salary is 1k and there is a lack of funds of 500 so it
would be conditioned then from the sufficiency of that particular fund. If it from a
particular fund then it would render it conditional.

UY | DELAPENA |

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In simple terms, there is an unconditional promise to pay when there is no

condition set on the promise. Section 3 provides that even if you indicate there a
source of fund for reimbursement or statement of the transaction or source of
obligation will not make it conditional. (Refer to sec 3 sub par 1 and 2) However,
the last par is also specific if you indicate which account of fund which you will
make payment then it will be condition because it will be made to depend on: 1.
The existence of the account 2. The sufficiency of the account to be able to make
payment.

A:

What is the corollary requirement on the unconditional promise or order to pay?

a sum certain in money. What do you mean by that?
Cash sir or it has to be in legal tender.
It has to be cash?
It needs to be legal tender to be considered sum in money. (What about sum
CERTAIN in money?) in the instrument sir it must be able clear or at least able to
be computed the amount to be paid.
How would you know that it is a sum certain in money in the example (50,000
php)?
Because it is specified sir. It is based on a standard currency which is in peso.
Would it make a difference if I dont put currency there?
Yes it would be contrary to the rule that it must be certain.
But we are in the Philippines. Would it be safe to presume that it is in peso?
We would already be referring to extrinsic evidence in that case sir. Which is
contrary to the purpose of Negotiable instrument.
So if it doesnt indicate the currency it is not a sum certain in money?
A sum certain in money what is important there is that it must be calculable and
ascertainable. It is not required that the currency there is expressed.
So 50 k there can be referred to carabaos?

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(further board writings)

A:

What do you mean by debit? It just means to charge my account. In banks when
they debit they charge your account.

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S:

Is it condition then, on the fact that there is an account?

The promise or order to pay is not conditioned on the order. It is though condition
on debiting on the account. It does not stop Y from making payment from debiting
an account.
How about if it is to be charged from my account?
It is still unconditional because the condition in this case refers to the
reimbursement. It is not conditioned on the payment. So clearly it is still a
negotiable instrument because payment still has to be made.

A:
S:

What if instead of saying on or before July 15, 2016 I would say __ does it make
the promise unconditional?
It is still unconditional because the death of the person is still certain although we
do not know when it happens.
That is right because death is not a condition. It is only a period. It will not make
an instrument unconditional. If I say I promise to pay A or bearer because I owe
him a lot. wil it still be unconditional?
Still unconditional.
Yes it is besides the point diba? Whether how the transaction came about or
whether why I will pay does not make it unconditional. For as long as I am
promising myself to pay you the sum of money. The indication of any source of
the obligation will not make the instrument conditional. It is not setting a condition
on the payment. Still unconditional. There is no really condition imposed there.

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NEGOTIABLE INSTRUMENTS LAW

YONGCO | CABAHUG,A. |CABAHUG,D. | CANE
Atty. Amago
EH 402 // SY 2016-2017
S:
The bill of exchange sir it is only required there that the amount must be
calculable and determinable. It did not specifically require that currency should be
indicated.
A:
So how will you calculate this? How will you know what 50k is? What money is it?
S:
like what you said it is in the PH then it is peso.
A:
S:

Do u agree?
No it is not a sum certain in money because it may be understood in other
currencies. A sum certain in money means that a holder must know what he will
be receiving upon maturity.

A:

Okay, you are actually right. That a sum certain in money has to be a calculable
and has to be determinable. But in this type of example you dont know what kind
of currency is used. How can you determine that? The 50k must be in anything. It
is now permissive to use any currency even if the instrument is made here in the
PH. So this is not a sum certain in money. Because you cannot calculate by just
looking at the face of the instrument.

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Now If I put there :_________

The holder of the instrument will know that he will be receiving upon maturity 50k
pesos plus 15% interest per annum.
So what should be the basis?
IF there is interest sir, the Sum certain in money can still be computed.
Sec 2 provides that even if the sum includes payment of interest it would not
render the sum uncertain. You can always compute the interest by looking on the
amount of principal and date and rate of interest. (Interest= principal x rate x
time). Now how about if there is a stated installment?
It is still sum certain in money. Example:
(wa nako na kita example ni nikah! But same same ra to sa book )

A:
S:

Do you agree?
It is correct sir because in stated installments: 2 elements must be there:
1) interest of each installment 2) the due date when each installment is due.

A:

It is actually correct. This is a sum certain in money even if there are stated
installments. So when you say stated installment there has to be indication of the
interest or amount of installment and second the period the installment are due.
For as long as these 2 are present, it would suffice. But if I state it this way :
I promise to pay A or order the amount of php 20,000 in two equal monthly
installments starting July 1, 2016
(Sgd) Isaiah Calumba

UY | DELAPENA |

A:

Is this still a sum certain in money? Answer is no because the 2 elements must
be strictly be complied with. The 2nd element (due date of each installment) is not
present.

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S:

What about if there are liability for attorneys fees indicated?

Still negotiable because it doesn't make the amount of ten thousand uncertain
because the payment of interest and the payment of attorneys fees, even if you
dont know how much the amount is, are only due if the instrument may probably
be considered unpaid. So, up to the point where the instrument remains
outstanding, you can ascertain how much the amount to be paid then. The sum is
still certain. So it is already beside the point that you added this provisions on
interests and attorneys fees because that could only be due and payable if there
is default which then the instrument clearly ceases to be negotiable already. So
its no longer necessary.

* CUT *
Even if it didnt say that incase of nonpayment on maturity date it doesnt matter
because when you say in case of nonpayment when is the instrument due for
payment? On the maturity date. So, in that sense then. The certainty of the sum
or the issue on the negotiability of the instrument only matters up to the date of
maturity. If the instrument has already matured, whatever is the sum, certain or
uncertain, it doesnt matter anymore because in the first place the instrument
cease to be nonnegotiable the moment it has already matured. Theres no
question anymore whether its negotiable or not. Automatic, its rendered
nonnegotiable by the fact that its already at its maturity date. So, whether theres
indication of collection of attorneys fees there, it doesnt matter. Yes, supposedly
it renders the amount uncertain, you cannot determine how much it IS. Whether
theres percentage or theres no percentage, supposedly you cannot determine it.
It doesnt matter because its already after the maturity of the instrument - where
the issue of negotiability or non-negotiability is irrelevant because in the first
place, in its commercial sense, the instrument is already non-negotiable. So
theres no need to burden ourselves to determine whether its negotiable or not. It
doesnt matter once the instrument has already matured. So, the cost of
collection and attorneys fees doesnt matter anymore. Because they are due for
payment only after the maturity of instrument, thats why its considered not to
affect the certainty of the sum. But if its really provided there that if the cost of
collection and attorneys fees due to me even before the maturity date of the
instrument which doesnt make sense, now thats a different story because then
it will render the sum really uncertain. Because youll still have to contend the
issue of negotiability because the amount is still payable before the maturity of
the instrument. So, it only matters then, the issue of negotiability up to the
maturity date. If its after the maturity date, it will not matter anymore. Thats why
it is still a sum certain in money because were only looking at the instrument up
to its maturity date, after that, it will not matter.

NEGOTIABLE INSTRUMENTS LAW

YONGCO | CABAHUG,A. |CABAHUG,D. | CANE
Atty. Amago
EH 402 // SY 2016-2017

Question:
S: regarding the 2 monthly equal installments, if I place there 2 consecutive monthly
equal installments will it settle whether its certain or not?
A: No, because you would still not know when the second installment will be. Even if you
stated, 2 monthly consecutive installment, starting July 1 if I pay on August 2? Will it still
not be consecutive? So, you will still not know when the 2nd installment is due for payment.
So, you should always indicate when each installment is due for payment because the
requirement for stated installment.

UY | DELAPENA |

S:
A:

(Atty asks 5 students to define when an instrument is negotiable)

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Whats the 3rd requirement?

Must be payable on demand; or at a fixed or determinable future time
When is the instrument payable on demand?
Its payable on demand when it is expressly payable on demand, on sight or on
the presentation or when no date is expressly stipulated.
calls another student
An instrument is payable on demand when its expressed that its payable on
demand, on sight, on presentation or when there is no time expressed.
Can an instrument be payable on demand even if its overdue?
Yes sir. It is based on sec 7 second paragraph. Only to the immediate parties.
Who is the immediate parties? When you say immediate parties those are the
persons who has privity on contracts. It does not necessarily mean that the
person you just directly dealt with. For as long as the party knows about the
contract you have just entered into with another party, they are considered
immediate party. So in relation to an overdue instrument, meaning an instrument
which is issued after its maturity date. So say for example this instrument says
that this is due on July 1, 2016 and if I tell the maker issued the instrument only
on august 1, 2016, and all of us here, the parties, knew about it, we are

A:

-END-

considered immediate parties. As to us in relation to the maker, this is due for

payment upon demand. But if only me knew about it, and the rest of you does not
know that the instrument has been issued only after its maturity date, is the
instrument due and demandable in relation to you?
No sir, only between you and the maker because you are the only immediate
parties.
Take note that then again, this is written on the face of the instrument. So when
you look at the instrument you would already know that it is already due for
payment. So you just have to go to the person that issued it. But how about a
party who endorses (meaning the person who writes his signature at the back
portion of the instrument) only after the instrument has been issued lets say for
example the instrument is issued to me and then I transferred it to a 3 rd person.
So between me and the 3rd person the instrument is now due and demandable.
But more so, with the person who issued it because Makita man sd nya didto on
the face of the instrument that it is already due for payment. Okay? So
endorsing, accepting (in a bill of exchange), and issuing are 3 instances (sec 7)
which is payable on demand.
Sec 7 enumerated these instances. First when it is expressly stated so. So klaro
kaayu na. if it says payable upon sight? Actually that upon sight actually means
upon acceptance; upon presentation upon the exhibition of the instrument to
persons primarily liable. So when brad pitt presents the instrument to y ( the
acceptor) , the instrument will become due and demandable. It is a requirement
that in a bill of exchange you need to present it for acceptance.