NEGOTIABLE INSTRUMENTS LAW

BSAT-4C

Sec. 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.

Sale of collateral securities

I promise to pay Juan M. Cruz or order the sum of P30,000 on August 18, 2018 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.

Here, the additional act is to be performed after the date of maturity when the
instrument is no longer negotiable in the full commercial sense. Until the date of maturity, the
promise is to pay money only. A statement that an instrument is secured by a collateral adds
to the marketability of the instrument in commerce as a substitute for money or as a credit
instrument. Note that the statement does not subject the promise or order to the terms and
conditions of the pledge.

Election of holder to require some other act

I promise to pay Juan M. Cruz or order P15, 000.00 or an air conditioner at the option of the
holder.

In this case, the holder has the choice. The instrument is therefore negotiable as it is as
good as an instrument payable in money.

If the option is with the promissor, the instrument is non-negotiable because the
holder cannot compel him to make payment in money.

Sec. 6. Omissions; seal; particular money. - The validity and negotiable character of an
instrument are not affected by the fact that: chanrobles virtuallawli brary

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(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

The date in the bill or note is generally not necessary. When it is not date, the
instrument is considered to be dated as of the time it was issued. It has no inception until
delivery.

When date is necessary

1) when said date is tied to the date of issue ( payable thirty days after date); or

2) where interest is stipulated for the purpose of determining when the interest is to run;

3) in the case of the promissory note, the date of issue, and in the case of bill of exchange, the
date of the last negotiation thereof, for the purpose of determining whether the party acted
within a reasonable time in making presentment for payment.

Effect of omission of place

Section 1 does not require a negotiable instrument to specity the place where it is
made or drawn or where it is payable. However, Section 73 specifies where presentment for
payment should be made when place of payment is not specified.

1) An instrument is presumed to have been made where it is dated.

2) A note that does not specify the place of payment is presumed to be payable at the
place of residence of the maker.

3) If the place of execution or payment is not stated, it is presumed to be the maker’s

or drawer’s place of business or his home.

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.

An instrument may be negotiable though written in a language other than English.

Grammatical error does not destroy negotiability.

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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.

An instrument is ante-dated when it contains a date earlier that the true date of its
issuance, while it is post-dated when it contains a date later than the true date of its issuance.

Effect of ante-dating and post-dating

It does not render the instrument invalid or non-negotiable by that fact alone, provided
this is not done for illegal or fraudulent purpose. It may be negotiated before or after the date
given as long as it is not negotiated after its maturity.

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.

When date may be inserted

1. Where an instrument is payable at a fixed period after date but is issued undated; and

2. where an instrument is payable at a fixed period after sight but the acceptance is undated.

Any holder may insert therein the true date of issue or acceptance and the instrument
shall be payable accordingly. It is necessary that the date of issue or acceptance be specified
to determine the date of maturity. Unless the true date is inserted, one will not know when the
instrument will be due.

Effect of insertion of a wrong date

The insertion of a wrong date in an undated instrument by one having knowledge of

the true date of issue or acceptance will avoid the instrument as to him or any one claiming
under him, but not as to a subsequent holder in due course who may enforce the same
notwithstanding the improper date.

The insertion of a wrong date constitutes a material alteration.

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

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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. But if 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.

Material particular

The word “material” as used in Section 14 is not synonymous with “necessary” so as

to restrict the right of filling a blank to something essential to a complete negotiable
instrument.

Examples:

 Date
 Due date
 Name of payee
 Amount
 Rate of interest
 Name of drawer
 Place of payment

Incomplete but delivered instrument

Where the instrument is lacking any material particular, person in possession thereof
has prima facie authority to complete it by filling up the blanks therein.

In order that any such instrument when completed may be enforced to any person who
became a party thereto prior to its completion, it must be: (a) filled up strictly in accordance
to the authority given; and (b) within a reasonable time.

When such instrument, after completion, is negotiated to a holder in due course, it is

valid and effectual for all purpose 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.

Right of a holder in due course

The defense that the instrument had not been filled up in accordance with the
authority given and within a reasonable time is not available as against a holder in due
course.

Section 14 raises a personal defense.

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 Personal defenses are available only against that person or subsequent holder who
stands in privity with him. In other words, they can be used only between original parties or
immediate parties or against one who is not a holder in due course.

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.

The fact that an incomplete instrument, completed without authority, has not been
delivered is a defense even against a holder in due course.

REFERENCES:

1. The Philippine Negotiable Instruments Law, 2013 Edition, De Leon and De Leon, Jr, Rex
Bookstore, Manila, Philippines; and

2. Commercial Law Review, 2015 Edition, Villanueva, Rex Bookstore. Manila, Philippines.