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It must specify how many installments A provision that in case of non-
and how much is to be paid for each payment at maturity, there shall be added to
installments. the amount due on the note costs of
collection or an attorney’s fee does not
III. SUM TO BE PAID IN affect the certainty of the amount payable at
INSTALLMENTS BUT WITH AN maturity.
ACCELERATION CLAUSE OR
EXTENTION CLAUSE. *Anything which only renders
the sum payable uncertain after
The sum is still certain although the instrument has ceased to be
there is an acceleration clause, a clause a substitute for money cannot
which requires full payment of an impair its negotiability.
instrument immediately upon default. It
does not affect the negotiability of an Section 3. When promise is unconditional –
instrument because the acceleration clause an unqualified order or promise to pay is
merely triggers the payment of all unconditional, though coupled with:
installments upon default. Hence it can still
be ascertained the value of the instrument. i) an indication of a particular fund out
of which reimbursement is to be
Extension clauses are the opposite of made, or a particular account to be
acceleration clause. debited with the amount; or
ii) a statement of transaction which
IV. SUM TO BE PAID WITH gives rise to the instrument.
EXCHANGE.
An order or promise to pay out of a
A provision for payment of a sum particular fund is not unconditional.
of money in a foreign currency does not
impair negotiability because the current rate When promissory note contains a
of exchange may easily be ascertained by promise to pay?
inquiry from banks dealing on exchange or
foreign currencies.
Legendary Notes on Negotiable Instruments Law
i) When the words “ I promise to pay”, Reason – No one would accept a paper for
“I agree to pay”, “I obliges myself to debt if the right to recover were not
pay”, “good for” or any other words absolute or unconditional in nature.
equivalent to a promise or
assumption of full responsibility for I. INDICATION OF A PARTICULAR
the payment of the note on the face FUND OUT OF WHICH
of the instrument are sufficient to REIMBURSEMENT IS TO BE MADE.
constitute a “promise to pay.”; An instrument which mentions a
ii) When words of negotiability are used particular fund out of which reimbursement
such as “due to bearer or to order”. is to be made is not conditional. The drawee
Although the instrument contains no is not limited to the money in his hands
express promissory words, the
belonging to the drawer.
instrument is negotiable.
*Here, the fund indicated is
Is bare acknowledgement of not the direct source of payment
indebtedness equivalent to a promise to but only the source of
pay? reimbursement which is an act
No. A bare acknowledgement of subsequent to payment.
indebtedness alone does not import an Example:
express promise to pay or show that the
parties intend the debt to be paid. Pay to the order of Bilbo P1, 000
and reimburse yourself from the rentals of
*An acknowledgement of debt my house.
evidences an old obligation
only. II. INDICATION OF A PARTICULAR
ACCOUNT TO BE DEBITED WITH
When bill of exchange contains an order THE AMOUNT.
to pay?
An instrument which contains a
When the words “order” or “pay
direction to debit a particular account is
to” or any other words which are equivalent
negotiable because the payment does not
to an order or which shows the drawer’s depend upon the existence or adequacy of
will that the money be paid are sufficient the particular account to be debited.
Is a mere request equivalent to order? *Here, the instrument is to be
No. The drawer does not merely paid first after which the
ask or expects the drawee to pay. He particular account indicated will be
demands that the drawee make payment. debited.
I promise to pay Bilbo or order Here, the legal right of the payee
P1, 000 for being the price of the house he is clear and certain. He can demand
sold to me. payment on at the time fixed and not
before.
The statement merely identifies the
transaction which gives rise to the II. PAYABLE ON OR BEFORE A
instrument. The instrument is to be paid FIXED OR DETERMINABLE FUTURE
whether or not the contract is performed. TIME.
Is the indication of a particular fund out The payee can demand payment
of which payment is to be made on or before fixed or determinable future
negotiable? time.
What is the reason why the time of No. The happening of the event
payment must be certain? does not cure the defect of the instrument.
Legendary Notes on Negotiable Instruments Law
Example: It merely aids the holder to secure
payment.
I promise to pay Frodo or order
the sum of P500 if he passed the Bar Example:
Exams.
I promise to pay Merry or order
*Here, the specified event is the sum of P1M on January 1, 2018 secured
not certain because Frodo may not by a car and which Merry could sell in case
pass the Bar Exams. of non-payment at maturity.
I order to pay Boromir or bearer iv) when the name of the payee does
P1, 000. not purport to be the name of any
person; OR
When an instrument is issued, accepted v) when the only or last indorsement
or indorsed when overdue, it is payable on is an indorsement in blank.
demand as regards to the person issuing,
accepting, or indorsing the instrument. Who is a bearer?
Example:
Legendary Notes on Negotiable Instruments Law
I order to pay Saruman or bearer Pay to sundries.
the sum of P100.
Pay to payroll.
III. PAYABLE TO THE ORDER OF A
FICTITIOUS PERSON. VII. INDORSEMENT IN BLANK
Pay to money.
Legendary Notes on Negotiable Instruments Law
Any holder may insert the true authority to complete the instrument
date of issue or acceptance and the by filling up the blanks;
instrument shall be payable accordingly:
*Material particular is
i) where the instrument is payable at a something important or
fixed period after date but the necessary to make the
instrument is issued undated; AND instrument negotiable.
ii) where an instrument is payable at a
fixed period after sight but the The authority to complete is not an
acceptance is undated. authority to alter.
What is the effect of the insertion of the ii) authority to put any amount – a
wrong date? signature on a blank paper delivered
by the person making the signature in
It does not avoid the instrument in order that the paper may be
the hands of a holder in due course. Even if converted into a negotiable
the inserted date is wrong, it is to be instrument operates as a prima facie
regarded as the true date. authority to fill it up for any amount.
Example: Example:
They are the parties who are not ii) if payment for interest is provided
in direct contractual relation to each other. but the date from which the interest is
to run is not specified, the interest
iii) conditional delivery or for a special runs from the date of the instrument.
purpose.
*If the instrument is undated,
General rule: from the issue thereof.
When delivery is made, it is iii) if the instrument is undated, it will be
presumed to be made with the intention to considered to be dated from the time
transfer ownership of the instrument to the it was issued.
payee.
Legendary Notes on Negotiable Instruments Law
iv) in case of conflict between the Section 20. Liability of person signing as
written and printed provisions, the agent.
written prevails.
v) in case of doubt whether the When agent may escape personal
instrument is a bill or note, the holder liability?
may choose either. The following requisites must be
vi) in case the person signing the present:
instrument is not clear in what
capacity he is signing, he is to be an i) he is duly authorized;
indorser. ii) he adds words to his signature
vii) where an instrument containing the indicating that he signs as an agent;
words “I promise to pay” is signed by AND
2 or more persons, they are deemed
to be jointly and severally liable *That is for or on behalf of the
thereon. principal, or in a representative
capacity.
Section 18. Liability of person signing in
trade or assumed name. iii) he discloses his principal.
The maker or drawer may sign the The act by which a principal gives
instrument personally or by his agent duly power to another to act in his place as he
authorized by him. could himself.
How authority of the agent may be When the principal may be held liable by
shown? the acts of an agent?
*Minority is a real and absolute It does not purport to declare the
defense. Hence, it can be interposed instrument totally void. It is only the forged
even against a holder in due course. signature that is declared to be inoperative.
Example: Example:
Rules: No.
Example: Exception:
Section 41. Indorsement where instrument Section 48. Striking out of indorsement –
is payable to two or more persons. the holder may strike out any indorsement
which is not necessary to his title.
General rule:
What is the effect if the indorsement is
Where the instrument is payable to struck out?
two or more indorsees or payees who are
The indorser whose indorsement is
cancelled and all indorsers subsequent to
Legendary Notes on Negotiable Instruments Law
him are thereby discharged from their enforce the instrument against C and D
liability on the instrument. because they are intervening parties.
Can the indorser strike out the What are the limitations on
indorsement of the payee? renogatiation:
*However, he is not entitled allowed Section 52. Who is a holder in due course
to enforce payment thereof against (HIDC) – a holder in due course is a holder
any intervening party to whom he who has taken the instrument under the
was personally liable. following conditions:
i) if the instrument is payable to the *Hence, it does not apply in case the
order of a 3rd person, he is liable to instrument is negotiated with a blank
the payee and to all subsequent indorsement.
parties.
ii) if the instrument is payable to the To whom these warranties extend?
order of the maker or drawer, or is
i) negotiation by delivery – warranties
payable to bearer, he is liable to all
extend to only to the immediate
parties subsequent to the maker or
transferee.
drawer.
ii) qualified indorser – warranties
iii) if he signs for accommodation of the
extend to all subsequent holders who
payee, he is liable to all parties
make title through his indorsement.
subsequent to the payee.
Example:
Section 65. Warranty of one negotiating by
delivery and of qualified indorsement – Aragorn of Gondor made a note
every person negotiating by delivery or by a payable to bearer and delivers the same to
qualified indorsement warrants: Legolas of the Woodland Real. Legolas
Section 76. Presentment where the *As far as all other parties
principal debtor is dead - if no place of secondarily liable are concerned,
payment is specified, presentment for presentment is still necessary to charge
payment must be made to principal debtor’s them.
representative if there be one and can be
found with reasonable diligence. Section 81. When delay in making of
presentment is excused – when the delay is
Section 77. Presentment to persons caused by circumstances beyond the control
primarily liable as partners – if no place of of the holder, and not imputable to his
payment is specified, presentment for default, misconduct, or negligence.
payment may be made to any one of them.
*However, when cause of the delay
*Even though there has been a ceases, presentment must be made
dissolution of the firm. with reasonable diligence.
What is payment in due course? Section 90. Who gives the notice of
dishonor – it may be given:
It is the payment in the usual course
of business. i) by the holder;
ii) any person in behalf of the holder;
Requisites:
Legendary Notes on Negotiable Instruments Law
iii) by a party to the instrument who may P
be compelled to pay the instrument to
the holder and who, upon taking it A
up, would have a right to B
reimbursement from the party to
whom the notice is given; OR C
Example: D – holder
i) all holders subsequent to the holder Section 95. When notice is sufficient – a
who has given notice; AND written notice need not be signed, and an
ii) all prior parties to the holder but insufficient written notice may be
subsequent to the party to whom supplemented and validated by verbal
notice has been given and against communication.
whom they have a right of recourse.
What is the effect of misdescription of
Example: the instrument?
*In his own right means not in The release of the debtor here must be by
a representative capacity. the act of the holder and not by operation of
law.
Legendary Notes on Negotiable Instruments Law
vi) by any agreement binding upon the i) where the instrument is payable to
holder to extend the time of payment. the order of a third person and has
been paid by the drawer; AND
*Unless: ii) where it was made or accepted for
1. the extension of time accommodation, and has been paid
is consented to by the by the party accommodated.
secondary parties; The instrument paid by the party
OR secondarily liable is not dischared.
2. the holder expressly
reserves his right of Section 122. Renunciation by holder – the
recourse against such holder may expressly renounce his rights
party. against any party to the instrument before,
at, or after its maturity.
Reason – an extention granted to the debtor
by the creditor without the consent of the What is the effect of renunciation?
guarantor extinguishes the guaranty.
i) if made in favor of a secondary
Section 121. Right of a secondary party party before, at or after maturity –
who paid the instrument. it discharges only such secondary
party and all parties subsequent to
General rule: him (secondary party).
The party so paying the instrument is *But the instrument itself
remitted to his former rights as regards all remains in force.
prior parties. Furthermore, he may strike
out his own and all subsequent ii) if made in favor of the principal
indorsements, and negotiate the instrument. debtor at or after maturity – it
discharges the instrument and all
Example: parties thereto.
Frodo (drawer) orders the Bank of *Provided the renunciation is
Erebor (drawee) to pay Sam or order made absolutely and uncon-
(payee). The bill is accepted and the bank
ditionally.
indorsed the bill to A. A to B. B to C.
Lastly, from C to D. A renunciation does not affect the rights
of a holder in due course without notice.
If A pays the bill, the bill is not
discharged. It only discharges A, the one Example:
who paid, and B and C to whom A is
personally liable. M made an instrument payable to P
or order. P indorsed it to A. A to B. B to C.
A is also remitted to his former rights Then C to D. D is the current holder.
as regards all prior parties. A may also
strike out his indorsement to B or/and C If D renounces his rights against B, B
and renegotiate the instrument. and C are discharged. If D renounces his
rights against M, the instrument is
Exception: discharged as well as all parties.
Section 138. When bill may be accepted. Can the holder be compelled to take a
qualified acceptance?
i) where the bill is still incomplete;
ii) where the bill is already overdue; OR No. The holder may refuse to take a
iii) where the bill has been dishonored. qualified acceptance.
What is the rule in case a bill payable What if the holder does not obtain a
after sight is dishonored by non- general acceptance?
acceptance and the drawee subsequently
accepts? He may treat the bill as dishonored
by non-acceptance.
Legendary Notes on Negotiable Instruments Law
What is the rule when the holder took a be proper it is necessary that it must be
qualified acceptance? made:
1. to dispute the
genuineness of the
drawer’s signature;
2. to set up the defense
that the drawer’s
fund is insufficient;
3. to allege that the
drawer is indebted to
the bank for more
than the amount of
the check.