Negotiable Instruments Law

Atty. Ronic Treptor

Form of Negotiable Instruments –
Additional Provisions Not
Affecting Negotiability
Module 2.4
Additional Provisions Not Affecting
Negotiability
• What are additional provisions in an instrument that will not affect
negotiability?
• 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
• Sale of collateral securities in case the instrument be not paid at maturity:
P15,000 20 August 2021

I promise to pay Pedro Dela Cruz, or bearer the sum of P15,000 on December 15,
2021. This obligation is secured by a mortgage involving my Toyota Vios with plate number XXX
111 which may be sold by the holder in a public auction sale and the proceeds thereof may be
applied to satisfy the aforesaid obligation in the event this note is not paid at maturity.

(Sgd) Dina Leligo

• Will the provision for the sale of the collateral affect the negotiability of the
instrument?
• No. The negotiable character of the instrument is not affected by a provision which )
authorizes the sale of collateral securities in case the instrument be not paid at
maturity.
Sale of Collateral Securities
• Is the phrase “in the event that not is not paid at maturity” a
condition?
• Yes. The payment of the instrument upon maturity is a future and uncertain
event. However, this event will not make the instrument payable but will give
the bearer the option to sell the car if the note is not paid.

• The condition is attached to the possibility of non-payment, and not on the

promise to pay, thus it will not affect the negotiability of the instrument.
Confession of Judgment
• What is confession of judgment?
• A confession of judgment in relation to negotiable instruments is a provision
in the instrument where the maker or the drawer authorizes a confession on
his or her liability.

• What are the three kinds of confession of judgment?

• Warrant of Attorney
• Cognovit Actionem
• Relita Verificatione
Confession of Judgment
• What is a warrant of attorney?
• A warrant of attorney is a confession of judgment made before an action is
filed in court.

• This provision is void because it enlarges the field of fraud. It denies a party
his day in court, and deprives a party his statutory right to appeal. If a warrant
of attorney is contained in a note, just disregard the stipulation because it is
void. It will not affect the negotiability of the instrument because negotiability
does not depend on the validity of the instrument or its stipulations.
Confession of Judgment
• Confession of Judgment; Warrant of Attorney:
P15,000 20 August 2021

I promise to pay Pedro Dela Cruz, or bearer the sum of P15,000 on December 15,
2021. In the event I cannot pay at maturity, I authorize my attorney-in-fact to confess judgment
in my behalf to admit any liability I will incur by reason of the issuance and negotiation of this
instrument.

(Sgd) Dina Leligo

• Is this instrument negotiable?

• Yes. The provision that authorizes confession of judgment will not affect the
negotiability of the instrument, even if such provision is void.
Confession of Judgment
• What is a Cognovit Actionem?
• It is a confession made when there is a case filed or is pending in court. This
confession is valid. If the confession is unreasonable, the court will decide if it
is reasonable or not.

• What is a Relicta Verificatione?

• It is a confession made when the party will deny liability by setting up a
defense in his answer but later on, he will abandon such defense. When a
party abandons his answer or defense, in effect he is confessing judgment.
This is also valid.
Waiver
• How will a waiver contained in an instrument affect the negotiability
of such instrument?
• A waiver will not affect the negotiability of the instrument.

• Example:
• Under Sec. 89 of NIL, when a negotiable instrument has been dishonored by
non-acceptance or non-payment, notice of dishonor must be given to the
drawer and to each indorser, and any drawer or indorser to whom such notice
is not given is discharged.
• This is a benefit given to drawer or indorser. If no notice of dishonor is given
to the drawer or indorser, he is discharged from liability.
Waiver
P15,000 15 September 2021
Pay to Pedro or bearer, 15,000 pesos on
December 15, 2021.

To: Facundo May-As

(Sgd) Dina Leligo
On December 15, 2021 Pedro went to Facundo May-As to present the instrument
for acceptance (See Sec. 62). If Rando accepts, he becomes an acceptor and thus he
will be liable to pay the instrument.
Waiver
P15,000 15 September 2021
Pay to Pedro or bearer, 15,000 pesos on
December 15, 2021.

To: Facundo May-As

(Sgd) Dina Leligo
Let us assume that Facundo does not accept the instrument on Dec. 15, 2021. The
instrument will then be dishonored by non-acceptance. In this case, Dina Leligo
(drawer) must be notified to make her liable (in accordance with Sec. 89).
Waiver
P15,000 15 September 2021
Pay to Pedro or bearer, 15,000 pesos on
December 15, 2021.

To: Facundo May-As

(Sgd) Dina Leligo
If no notice of dishonor is given to Dina Leligo, she will not be held liable to the
instrument. Thus, the provision requiring a notice of dishonor before the drawer
can be held liable is a provision that benefits the drawer. This provision may be
waived.
Waiver
P15,000 15 September 2021
Pay to Pedro or bearer, 15,000 pesos on December
15, 2021. Notice of dishonor is waived.

To: Facundo May-As

(Sgd) Dina Leligo
In this case, Dina Leligo, the drawer, is waiving her right to a notice of dishonor. If
Facundo will not accept the instrument on Dec. 15, 2021, Dina Leligo will be liable
even without a notice of dishonor given to her. This provision will not affect the
negotiability of the instrument.
Option in Lieu of Money
• What happens to the negotiability of the instrument if the holder is
given the option to require something to be done in lieu of payment
of money?
• The option will not affect the negotiability of the instrument.
Option in Lieu of Money
• Option in lieu of money:
P15,000 20 August 2021

I promise to pay Pedro Dela Cruz, or bearer the sum of P15,000 on

December 15, 2021 or deliver to him 15 horses from my stable, at the option
of the holder.

(Sgd) Dina Leligo

• Is this instrument negotiable?

• Yes. In this case, the holder may choose between payment of money OR
delivery of the horses. Note that the order to pay a sum certain in money is
still not subject to a condition.
Option in Lieu of Money
• Option in lieu of money:
P15,000 20 August 2021

I promise to pay Pedro Dela Cruz, or bearer the sum of P15,000 on

December 15, 2021 or deliver to him 15 horses from my stable, at the option
of the holder.

(Sgd) Dina Leligo

• Will the option given to the holder affect the negotiability?

• No. A provision that gives the holder the option to require something to be
done in lieu of payment of money does not affect negotiability.
Option in Lieu of Money
• Option in lieu of money:
P15,000 20 August 2021

I promise to pay Pedro Dela Cruz, or bearer the sum of P15,000 on

December 15, 2021 or deliver to him 15 horses from my stable, at my option.

(Sgd) Dina Leligo

• Will the option given to the maker affect the negotiability?

• Yes. This instrument is not negotiable.
Option in Lieu of Money
• If the option is given to the maker, then the promise to pay a sum
certain in money is no longer unconditional. The maker can decide if
he or she will pay a sum certain in money or deliver the alternative
obligation.
Option in Lieu of Money
• Option in lieu of money:
P15,000 20 August 2021

I promise to pay Pedro Dela Cruz, or bearer the sum of P15,000 on

December 15, 2021 or deliver to him 15 horses from my stable.

(Sgd) Dina Leligo

• What happens if the provision does not specify who can exercise the
option?
• The right of choice belongs to the debtor, unless it has been expressly granted
to the creditor. (Art. 1200, Civil Code)
Option in Lieu of Money
• Option in lieu of money:
P15,000 20 August 2021

I promise to pay Pedro Dela Cruz, or bearer the sum of P15,000 on

December 15, 2021 and deliver to him 15 horses from my stable.

(Sgd) Dina Leligo

• What happens if the provision requires something to be done in addition to

the payment of money?
• The instrument is not negotiable. An instrument which contains an order or promise
to do any act in addition to the payment of money is not negotiable. (Sec. 5, NIL)
Option in Lieu of Money
• Option in lieu of money:
P15,000 20 August 2021

I promise to pay Pedro Dela Cruz, or bearer the sum of P15,000 on

December 15, 2021 and deliver to him 15 horses from my stable.

(Sgd) Dina Leligo

• Note that this instrument is compliant with Sec. 1 of the NIL, but it is
still not negotiable by reason of Sec. 5 of the NIL.
In addition to payment
of money (AND) = Not
Negotiable!

In lieu of payment at the

option of holder (OR) =
Negotiable!