Summary

TABLE OF CONTENTS
INTRODUCTION ............................................................................................................................................................................................ 1
1.
Kinds of negotiable instruments ...................................................................................................................................................... 1
2.
Parties and the nature of their liability ............................................................................................................................................. 1
3.
Functions of negotiable instruments ............................................................................................................................................... 1
4.
The concept of negotiability ............................................................................................................................................................ 1
5.
The origin of negotiable instruments .............................................................................................................................................. 2
6.
History of the Negotiable Instruments Law ..................................................................................................................................... 2
7.
Applicability of the Negotiable Instruments Law ............................................................................................................................ 2

Sec. 196, NIL. Cases not provided for in Act. ................................................................................................................................... 2
CHAPTER 1 REQUISITES OF NEGOTIABILITY ............................................................................................................................................. 2

Sec. 1. Form of Negotiable Instruments. ......................................................................................................................................... 2
Sec. 184. Promissory Note Defined. ................................................................................................................................................ 2
Sec. 126. Bill of Exchange Defined. ................................................................................................................................................. 2
1.
Written form and signature ............................................................................................................................................................ 2

Sec. 18. Liability of Person Signing in Trade or Assumed Name. ..................................................................................................... 2
Sec. 19. Signature by Agent; Authority; How Shown. ...................................................................................................................... 2
2.
Unconditional order or promise to pay............................................................................................................................................ 3

a.
When unconditional ................................................................................................................................................................... 3

Sec. 3. When Promise is Unconditional. .......................................................................................................................................... 3
Powell & Powell v Greenleaf & Currier ........................................................................................................................................ 3
Irving Trust Co. v Leff ................................................................................................................................................................. 4
3.
Sum payable must be certain ......................................................................................................................................................... 4

Sec. 2. Certainty as to Sum; What Constitutes. ............................................................................................................................... 4
4.
Payable in money ........................................................................................................................................................................... 5

Incitti v Ferrante, et al. ............................................................................................................................................................... 5
5.
Certainty of time of payment .......................................................................................................................................................... 5

a.
When payable on demand ......................................................................................................................................................... 6

Sec. 7. When Payable on Demand. ................................................................................................................................................. 6
b.
Payable at a fixed time ............................................................................................................................................................... 6
c.
Payable at a determinable future time ....................................................................................................................................... 6

Sec. 4. Determinable Future Time; What Constitutes. .................................................................................................................... 6
Sec. 11. Date, Presumption As To. ................................................................................................................................................... 6
Sec. 17. Construction Where Instrument is Ambiguous. .................................................................................................................. 6
d.
Effect of acceleration provisions ................................................................................................................................................. 6

Rehabilitation Finance Corporation v CA, Estelito Madrid and Jesus Anduiza ............................................................................ 6
Utah State National Bank v Smith et al. ......................................................................................................................................7
Puget Sound State Bank v Washington Paving Co. .....................................................................................................................7
Henry v Madison Aerie No. 623, Fraternal Order of Eagles of Madison, Wisc, et al. .....................................................................7
e.
Provisions extending the time of payment.................................................................................................................................. 8

State Bank of Halstad v Bilstad .................................................................................................................................................. 8
Security National Bank of Sioux City, Iowa v Gunderson ............................................................................................................. 8
6.
Must be payable to order or bearer ................................................................................................................................................. 9

a.
When the instrument is payable to order.................................................................................................................................... 9

Sec. 8. When Payable to Order. ...................................................................................................................................................... 9
b.
When instrument is payable to bearer........................................................................................................................................ 9

Sec. 9. When Payable to Bearer ...................................................................................................................................................... 9
Wettlaufer v Baxter .................................................................................................................................................................... 9
Ang Tek Lian v CA ...................................................................................................................................................................... 9
7.
Parties must be designated with certainty ..................................................................................................................................... 10

a.
Maker and drawer ..................................................................................................................................................................... 10
b.
Payee ........................................................................................................................................................................................ 10
Sec. 8. When Payable to order. ...................................................................................................................................................... 10
c.
Drawee ..................................................................................................................................................................................... 10
Sec. 128. Bill Addressed to More than One Drawee. ....................................................................................................................... 10
Sec. 130. When Bill May be Treated As A Promissory Note............................................................................................................. 10
8.
Provisions not affecting negotiability .............................................................................................................................................. 11

Sec. 5. Additional Provisions Not Affecting Negotiability. ............................................................................................................... 11
Philippine National Bank v Manila Oil Refining & By-Products Company, Inc. ............................................................................ 11
9.
Omissions not affecting negotiability............................................................................................................................................. 12

Sec. 6. Omissions; Seal; Particular Money. .................................................................................................................................... 12
10.
Rules of construction ................................................................................................................................................................ 12

Sec. 17. Construction Where Instrument Is Ambiguous. ................................................................................................................. 12
Continental Illinois Bank & Trust Co. v Clement ........................................................................................................................ 12
CHAPTER 2 TRANSFER ............................................................................................................................................................................ 13

1.
Delivery and issuance .................................................................................................................................................................... 13

Sec. 16. Delivery; When Effectual; When presumed. .................................................................................................................... 13
In Re Martens Estate ................................................................................................................................................................ 13
2.
Negotiation ................................................................................................................................................................................... 13
Sec. 30. What Constitutes Negotiation. ......................................................................................................................................... 13
Sec. 191. Definitions and Meanings of Terms.................................................................................................................................. 13
3.
Methods of negotiation ................................................................................................................................................................. 14
4.
How indorsement made ................................................................................................................................................................ 14

a.
By signature on instrument or on allonge.................................................................................................................................. 14

Sec. 31. Indorsement; How Made. .................................................................................................................................................. 14
Clark v Thompson, et al............................................................................................................................................................. 14
b.
In case of joint payees ............................................................................................................................................................... 15
c.
If name misspelled .................................................................................................................................................................... 15

Sec. 43. Indorsement Where Name Is Misspelled, And So Forth. ................................................................................................... 15
Young v Hembree...................................................................................................................................................................... 15
5.
Indorsement must be of entire instrument ..................................................................................................................................... 15

Sec. 32. Indorsement Must Be of Entire Instrument. ...................................................................................................................... 15
Blake v Weiden ......................................................................................................................................................................... 16
6.
Kinds of indorsements ................................................................................................................................................................... 16

Sec. 33. Kinds of indorsements.................................................................................................................................................. 16
a.
Basis of classification ................................................................................................................................................................ 16
b.
Special and blank indorsements ............................................................................................................................................... 17

Sec. 34. Special Indorsement; Indorsement in Blank. .................................................................................................................... 17
Sec. 40. Indorsement of Instrument Payable to Bearer. ................................................................................................................. 17
Sec. 35. Blank Indorsement; How Changed to Special Indorsement. ............................................................................................. 17
c.
Qualified indorsement .............................................................................................................................................................. 17
Sec. 38. Qualified Indorsement...................................................................................................................................................... 17

Fay v Witte ................................................................................................................................................................................ 17
Copeland v Burke, et al. ............................................................................................................................................................ 18
Hutson v Rankin........................................................................................................................................................................ 18
d.
Conditional indorsement........................................................................................................................................................... 18
Sec. 39. Conditional Indorsement. ................................................................................................................................................. 18
e.
Restrictive indorsement ............................................................................................................................................................ 18

Sec. 36. When Indorsement Restrictive .......................................................................................................................................... 18
Sec. 37. Effect of Restrictive Indorsement; Rights of Indorsee. ....................................................................................................... 18
White v National Bank ................................................................................................................................................................... 18
7.
Indorsement to or by collecting bank ............................................................................................................................................. 18

Leonardi v Chase National Bank of the City of New York ........................................................................................................... 19
8.
Negotiation by joint or alternative payees or indorsees .................................................................................................................. 19

Sec. 41. Indorsement Where Payable to Two or More Persons. ....................................................................................................... 19
9.
Unindorsed instruments ................................................................................................................................................................ 19

Sec. 49. Transfer Without Indorsement; Effect of........................................................................................................................... 19
Simpson v First Nat. Bank of Roseburg ..................................................................................................................................... 19
Furbee v Furbee ........................................................................................................................................................................ 19
Whistler v Forster ...................................................................................................................................................................... 19
10.
Cancellation of indorsements.................................................................................................................................................... 19
Sec. 48. Striking Out Indorsements ............................................................................................................................................... 19
11.
Indorsement by agent ............................................................................................................................................................... 19

Sec. 44. Indorsement in Representative Capacity. ......................................................................................................................... 19
12.
Presumption as to indorsements............................................................................................................................................... 19
Sec. 45. Time of Indorsement; Presumption. ................................................................................................................................. 19
Sec. 46. Place of Indorsement; Presumption. ............................................................................................................................... 20
Sec. 42. Effect of Instrument Drawn or Indorsed to A Person As Cashier ....................................................................................... 20
13.
Continuation of negotiable character ....................................................................................................................................... 20

Sec. 47. Continuation of Negotiable Character. ............................................................................................................................ 20
INTRODUCTION
1.
Instruments are negotiable when they conform to all

the requirements prescribed by the Negotiable
Instruments Law. (Act 2031, Feb. 3, 1911)
NIL divides negotiable instruments into two main
groups:
1) Promissory note evidences a promise to pay
money; Examples:
Certificate of deposit instrument issued by

a bank reciting a deposit of a certain sum of
money, payable either at a fixed time or on
demand, to the depositor named therein.
Bond evidence of indebtedness issued by a

corporation, public or private, payable at a
definite date in the future, usually for a long
term. It is in effect a written promise of the
corporation to pay a definite sum of money
on the day named.
2) Bill of exchange order made by one person to
another to pay money to a third person;
Examples:
Check one who issues it orders his bank to

pay the person named on the check.
Draft order made by one person addressed

to a person having in his possession funds of
such buyer, ordering the addressee to pay
the purchase price to the seller of the goods.
(Called a bank draft when the order is made
by one bank to another bank.)
Nature
An indorser, by indorsing the bill or note, impliedly enters into

two contracts:
1) He is selling or transferring the instrument to his indorsee,
thus assuming liabilities similar to that of a seller or
transferor of personal property; and
2) He warrants that he will pay the instrument when the two
conditions for his liability mentioned above have been
fulfilled.
3.
Bill of exchange
1) Maker promisor
2) Payee person to
whom the promise
to pay is made
1) Drawer person
who gives the order
to pay in a bill of
exchange
2) Drawee addressee
of the order
3) Payee person to
whom payment is
made
2)
3)
4.
When the payee of an instrument transfers it to

another by signing it at the back thereof, he is said
to have negotiated or indorsed the same.
No person primarily
As a substitute for money1 in payment for property or

services
As a means of creating and transferring credit
To facilitate the sale of goods
Under Art. 1249, CC, the delivery of promissory notes
payable to order or bills of exchange and other
mercantile documents shall produce the effect of
payment only when they have been cashed or when
through the fault of the creditor they have been
impaired. In the meantime the action derived from the
original obligation shall be held in abeyance.
The concept of negotiability
1) Indorser payee of an instrument who

transfers it to another
2) Indorsee person to whom the indorser
negotiates the instrument; becomes the holder
of the instrument
Maker is the person
Functions of negotiable instruments

1)
Promissory note
liable to pay until

and unless the
drawee accepts the
order of the drawer
to pay; when the
drawee accepts, he
becomes
the
acceptor
Drawer
is
secondarily liable
Indorsers are secondarily liable.
Secondary liability of drawers and indorsers is conditioned on two

factors:
1) That a demand or presentment be duly made on the
primary party; and
2) Should the said party dishonor (i.e. fail to pay or accept)
such instrument, that a notice of such dishonor be given to
the secondary party sought to be charged.
Parties and the nature of their liability
Parties
Bill of exchange
primarily liable
Kinds of negotiable instruments
2.
Promissory note
Significant distinction between a negotiable instrument

and a non-negotiable one: A person who takes a
negotiable instrument (holder in due course) can rely
on its face and need not inquire into past events which
gave rise to its execution.
Any inquiry would entail delay in commercial

transactions where profitability depends largely
Note, however, that negotiable instruments do not constitute

legal tender.
Mitch De Ocampo | B2017
5.
The origin of negotiable instruments
6.
Florentine and Venetian merchants along the Adriatic

Sea during the Middle Ages.
The bill of exchange was devised to facilitate the
contract of cambium2 and to avoid the risks of
transporting money.
History of the Negotiable Instruments Law
7.
on the briskness with which they are

consummated.
NIL aims to encourage facility, convenience and

efficiency in commercial transactions.
There are usually two contracts involved whenever a
negotiable instrument is issued. (See the car purchase
example on pp. 6-7.)
Verbatim reproduction of the Uniform Negotiable

3
Instruments Law of the US , approved by the National
Conference of Commissioners on Uniform States Laws
in 1896.
Applicability of the Negotiable Instruments Law
The NIL applies only to negotiable instruments, i.e., to

those instruments which conform with the requisites
laid down by section one of the law.
Absent any of the requisites, the instrument

would not be negotiable and would therefore not
be governed by the NIL but by the general law on
contracts.
Sec. 196, NIL. Cases not provided for in Act. Any case not
provided for in this Act shall be governed by the provisions of
existing legislation, or in default thereof, by the rules of the Law
Merchant.
Law merchant system of law which does not rest

exclusively on the positive institutions and local
customs of any particular country but consists of
certain principles of equity and usages of trade which
general convenience and a common sense of justice
have established, to regulate the dealings of
merchants and mariners in all the commercial
4
countries of the civilized world.
CHAPTER 1 REQUISITES OF
NEGOTIABILITY
Sec. 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.
Sec. 184. Promissory Note Defined. A negotiable promissory
note within the meaning of this Act is an unconditional promise
in writing made by one person to another, signed by the maker,
engaging to pay on demand, or at a fixed or determinable future
time, a sum certain in money to order or to bearer. Where a note
is drawn to the makers own order, it is not complete until
indorsed by him.
Sec. 126. Bill of Exchange Defined. A bill of exchange is an
unconditional order in writing addressed by one person to
another, signed by the person giving it, requiring the person to
whom it is addressed to pay on demand or a t a fixed or
determinable future time a sum certain in money to order or to
bearer.
Note: the fact that an instrument does not meet the foregoing
requisites will not affect its validity.
1.
Written form and signature
Sec. 18. Liability of Person Signing in Trade or Assumed Name.

No person is liable on the instrument whose signature does not
appear thereon, except as herein otherwise provided. But one
who signs in a trade or assumed name will be liable to the same
extent as if he had signed in his own name.
Sec. 19. Signature by Agent; Authority; How Shown. The
signature of any party may be made by a duly authorized agent.
No particular form of appointment is necessary for this purpose;
and the authority of the agent may be established as in other
cases of agency.
Latin term meaning exchange. Cambium locale is a contract of

exchange in which a person agrees to pay a sum of money at
one location in consideration of money received at another
location. It is also termed cambium mercantile, or cambium
trajectitium.
3
Patterned after the English Bill of Exchange Act passed by
Parliament in 1882, the first codification of the law on
negotiable paper.
4
Ogden, The Law of Negotiable Instruments (1947).
In writing includes print. [Sec. 191, NIL]

The signature is binding whether it is in ones
handwriting, or printed, engraved, lithographed or
photographed, so long as it is intended or adopted as
the signature of the signer or made with his authority.
The signature may appear on any part of the
instrument. It will be valid and binding as long as the
intention to make the instrument the makers or
drawers is shown.
2.
If the signature is so placed upon the instrument

that it is not clear in what capacity the person
intended to sign, he is deemed an indorser, and
not a maker or drawer.
Unconditional order or promise to pay
a.
The instrument must contain a promise or an order to

pay.
Promissory note:
Mere acknowledgment of a debt does not

constitute a promise. However, the word
promise is not absolutely necessary.
Where a certain time for payment is stated or the

words on demand are used, there is a promise.
Bill of exchange:
Words which are equivalent to an order are

sufficient.
Order a command or imperative direction.
Mere request or authority to pay does not

constitute an order.
When unconditional
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.
The fact that the right is absolute and cannot be

defeated by a contingency greatly enhances its ability
to pass freely from one person to another.
Sec 3(a) pertains to bills of exchange only since
reimbursement and debiting presuppose that an order
to pay has been made. Reimbursement also
presupposes a previous disbursement.
If no statement of where the disbursement is to

be taken from appears, then the order to pay is
unconditional although the drawee is authorized
to reimburse himself from a particular fund, or is
ordered to debit the disbursement to a particular
account.
Powell & Powell v Greenleaf & Currier (1932) Slack, J.

p. 15
Facts:
Suit to recover the balance due on two instruments in writing
dated July 6, 1922 and June 7, 1923. Instruments are alike in
all aspects except the date.
For and in consideration of a contract and agreement entered

into this day with us by Arthur A. Bishop & Co. of Boston, Mass.,
whereby we are entitled to the use of said companys system of
collections we hereby, for value received, promise to pay said
Arthur A. Bishop & Co., or order, at their office in Boston, Mass.,
the sum of one hundred fifty dollars, in twelve equal monthly
payments of $12.50 each, the first monthly payment to be made
upon the signing of this contract note, and the remaining eleven
payments of $12.50 each to be made upon the same date of
each succeeding month; provided, however, that upon the
default on any one payment, the whole amount remaining then
unpaid shall at once become due and payable, and we hereby
acknowledge the receipt of a true copy of this entire agreement.
Issue: Whether said instruments are negotiable, so that
plaintiffs can maintain this suit in their own names [YES]
Ratio:
An instrument to be negotiable must contain, among other
things, an unconditional promise or order to pay a sum
certain in money. An unqualified order or promise to pay is
unconditional within the meaning of the statute, though
coupled witha statement of the transaction which gives rise
to the instrument.
Whether these instruments are negotiable must be
determined from the language of the instruments
themselves, unaided by an inspection of the extrinsic
agreements to which they refer.
GR: whenever a bill of exchange or promissory note
contains a reference to some extrinsic contract in such a
way as to make it subject to the terms of that contract, as
distinguished from a reference importing merely that the
extrinsic agreement was the origin of the transaction, or
constitutes the consideration of the bill or note, the
negotiability of the paper is destroyed.
BUT the negotiability of a bill or note is not affected by a
reference which is simply a (1) recital of the consideration
for which the paper was given, or a (2) statement of the
origin of the transaction, or by a (3) statement that is given
in accordance with the terms of a contract of even date
between the same parties.
In short, to destroy negotiability the reference to a
collateral contract must show that the obligation to pay is
burdened with the conditions of that contract.
The instruments contain two references to the extrinsic
agreements: (1) For and in consideration of a contract and
agreement entered into this day with us by Arthur A. Bishop &
Co. of Boston, Mass., whereby we are entitled to the use of
said companys system of collection and we hereby, for value
received, and (2) we hereby acknowledge the receipt of a
true copy of this entire agreement.
Not apparent how the negotiability of these instruments is
affected by either of these references.
The promise to pay is not subject to the extrinsic
agreement, or according to such agreement, or subject to
any contingency, but is absolute and unconditional.
The first reference is nothing more than a recital of the
consideration, which does not affect the negotiability. Also,
the negotiability of the instruments is not affected by the fact

that it appears therefrom that they were given for or in
consideration of service to be thereafter performed by the
payee.
The mere fact that the consideration for which a note is
given is recited in it will not destroy its negotiability, unless
it appears through the recital that it qualifies the time of
payment or the sum to be paid. [Siegel v Chicago Trust &
Savings Bank]
Neither is the second reference such as to burden the
instruments before us with the terms of the extrinsic
agreements. It is a mere acknowledgment by the signers of
the instruments of the receipt of a true copy of the entire
agreement; nothing more.
Re defendants assertion that the instruments are bilateral
contracts rather than promissory notes and, thus, the
provisions of the extrinsic agreements should be considered:
SC: Since the instruments are not subject to such
agreement, the terms thereof are immaterial.
Re defendants claim that the instruments are not negotiable
because they provide that the first payment is to be made
upon the signing of the instruments and under GL 2671, an
instrument to be negotiable must be payable on demand or
at a fixed or determinable future time:
SC: The first payment is payable at a determinate future
time within the meaning of the statute. It is payable upon
the signing of the instrument, which is immediately
thereafter.
Irving Trust Co. v Leff (1930) Pound, J.
p. 19
Facts:
Irving Trust Company sued Leff for the balance of $4,933 on a
promissory note for $10,000 executed by Leff to his own order
(payable to himself) and indorsed to the plaintiff.
Leff alleges by way of counterclaim that
he was a depositor in the plaintiff's bank and had a
checking account with it;
the he delivered to one Bragin a so-called check in the sum
of $1,000, drawn on plaintiff and having on its face the
following words: "Void unless and until title to premises
502-14 Liberty Street, Camden, New Jersey is taken by Joe
Leff";
Bragin stole the conditional check from the possession of
Leff's attorney and the plaintiff thereafter cashed the same
without making any inquiry as to whether the conditions on
the face of the check had been met; wherefore defendant
demands judgment for $1,000 against plaintiff.
The Appellate Division, reversing the Special Term, granted
plaintiffs motion to strike out the counterclaim
Issue: Whether Leffs counterclaim is sufficient in law [YES]
Ratio:
This order on the bank (check) was a non-negotiable

instrument. It did not contain an unconditional promise or
order to pay. [NIL, Sec 20, par 2]
The bank, of course, took the chance in paying that the
condition expressed on its face had been performed. It might
have obtained this knowledge from Bragin or from any other
available source.
No duty rests on a bank to call up its depositor when a
genuine check comes in to inquire whether it should be paid.
Leffs signature was genuine.
The instrument was complete in form.
The condition precedent to payment had been fulfilled.
To sustain plaintiffs recovery herein, the non-negotiable
check must have had a valid inception. A check has no valid
inception until delivery. [Cowling v Altman]
Delivery transfer of possession, actual or constructive
from one person to another [NIL, Sec 2]
Delivery is sometimes presumed, conclusively or subject to
rebuttal, for the protection of negotiable paper.
Where the (negotiable) instrument is in the hands of a
holder in due course, a valid delivery thereof by all parties
prior to him so as 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 until the
contrary is proved. [NIL, Sec 35]
But this provision is peculiar to negotiable instruments.
In the case of non-negotiable instruments, the thief has
no title and can give none.
An allegation of theft puts in issue the delivery of the
check. In cases where the law does not protect holders in
due course, inquiry by the bank of the maker is a
necessary precaution for protection against imposition by
a thief.
Judgment should be reversed; order of Special Term denying
the motion to strike out counterclaim affirmed.
3.
Sum payable must be certain
Sec. 2. Certainty as to Sum; What Constitutes. The sum

payable is a sum certain within the meaning of this Act,
although it is to be paid
(a) With interest; or
(b) By stated installments; or
(c) By stated installments with a provision that upon default in
payment of any installment or of interest, the whole shall
become due; or
(d) With exchange, whether at a fixed rate or at the current
rate; or
(e) With costs of collection or an attorneys fee, in case
payment shall not be made at maturity.
The amount payable must be certain.

An agreement to pay interest does not render the sum
uncertain.
A stipulation to pay a higher rate of interest if the note

is paid at maturity or a lower rate if it is paid on or
before maturity does not render the instrument nonMitch De Ocampo | B2017
negotiable, since it is entirely without force until either

the maturity thereof or its payment before maturity.
The sum is certain although it is payable in installments as
long as the latter are stated, i.e., the amount of each
installment and its due date are fixed in the instrument.
Neither will an acceleration provision based on default
render the sum uncertain.
An instrument expressed in a foreign currency may contain
a provision that the same is payable in Philippine currency
at a fixed rate of exchange or at the rate current at the time
payment is made. This provision does not affect the
negotiability of the instrument.
A provision in an instrument for attorneys fees, but leaving
the amount thereof blank, amounts to a promise to pay a
reasonable sum as attorneys fees, and does not make the
instrument non-negotiable. Such amount may be fixed by
the court.
4.
Payable in money
Since negotiable instruments are intended to be

substitutes for money, to properly perform such
function they must necessarily be capable of being
transformed into money if the holder so wishes.
Money as used in the NIL is not necessarily limited to
5
legal tender ; includes any particular kind of money.
However, of a contract contains a stipulation that

payment is to be made in a currency other than
Philippine currency, such stipulation will be
ineffective and the obligation can be discharged
only in legal tender.
But the negotiability of the instrument will not be

affected by said stipulation.
An instrument which contains an order or promise to
do an act in addition to the payment of money is not
negotiable.
But if the order or promise gives the holder an

election to require something to be done in lieu of
payment of money, an instrument otherwise
negotiable would not be affected thereby.
Incitti v Ferrante, et al. (1933) Del Mar, J.
p.23
Facts:
Action was brought by the plaintiff against the defendants
upon a promissory note alleged to have been made by the
defendant for the sum of 15,400 Italian lires.
Defendant moved to strike out the complaint on the ground
that the same does not set forth a cause of action.
The note in question is not negotiable. The complaint,
therefore, must allege a consideration which it does not do.
The note was not made for money, but for a commodity and
that, therefore, there is no presumption that it was made
upon a legal consideration.
Issue: Whether the note in question is negotiable [YES]

Ratio:
The note in question is negotiable in form unless the provision
for the payment of the sum named in Italian lire makes it nonnegotiable.
The Uniform NIL of this state provides in
Title 1, Art 1, Sec 1, subd. 2 that an instrument to be
negotiable must contain an unconditional promise or
order to pay a sum certain in money
Sec 6, subd. 5 that the negotiable character of an
instrument is not affected by the fact that it designates a
particular kind of current money in which payment is to be
made
Art 2, Sec 24 that every negotiable instrument is deemed
prima facie to have been issued for a valuable
consideration
Title 4, Art 1, Sec 196 that in any case not provided for in
this act the rules of the law merchant shall govern
If it had been the intention of the Legislature to provide that a
note in order to be negotiable must be payable in lawful
money of the US, or in legal tender, it would have been a
simple matter to have used language appropriate for that
purpose. The use of the words, money and current money
indicates that such was not the purpose.
What is money? Money is purely a legal institution; it is
impossible without law. Money is what the law or custom
makes receivable for payments of taxes and debts. Money by
itself is but a mere device. It has value only by law and not by
nature. So that a change of convention between those that
use it is sufficient to deprive it of its value and of its power to
purchase our requirements.
It is well established that an instrument payable in the money
of any country, that is to say in its coins or in the known
currency of a country, is negotiable for in all these cases the
sum of money is fixed by the par of exchange on the known
denomination of the currency with reference to the par.
The law merchant is international in its character and was
developed for the purpose of facilitating trade in commerce
between different countries. Where a note is made payable in
a country in the money or coins of another country, which
money or coins have a value fixed by the law or under the
authority of the law of the country where the note is payable,
and which value can by a simple mathematical calculation be
expressed in the value of the lawful money of the latter
country, such a note by the rules of the law merchant and
under the Uniform NIL is negotiable.
This contract is a contract for the payment of money and not a
commodity. This note was made for a sum certain, because a
note for any number of Italian lire is only another form of
expression for the equivalent in dollars, which equivalent is
now established under the authority of the legislation
previously referred to.
5.
Certainty of time of payment
Sec 6(e), NIL.
For the purpose of informing the holder of the

instrument of the date when he may enforce payment
thereof. Before such time, he cannot compel the maker

of the note or the acceptor of the bill to pay, unless
there is a valid acceleration provision.
a.
When payable on demand
Sec. 7. When Payable on Demand. An instrument is payable on

demand
(a) Where it is expressed to be payable on demand, or at sight,
or on presentation; or
(b) In which no time for payment is expressed.
Where an instrument is issued, accepted or indorsed when
overdue, it is, as regards, the person so issuing, accepting, or
indorsing it, payable on demand.
b.
Payable at a fixed time
Holder may demand payment only on, and not before,

the date indicated. Should he fail to demand payment,
the instrument becomes overdue but remains valid
and negotiable. It is merely converted to a demand
instrument.
c.
Payable at a determinable future time
Sec. 4. Determinable Future Time; What Constitutes. An

instrument is payable at a determinable future time, within the
meaning of this Act, which is expressed to be payable
(a) At a fixed period after date or sight; or
(b) On or before a fixed or determinable future time specified
therein; or
(c) On or at a fixed period after the occurrence of a specified
event which is certain to happen, though the time of
happening be uncertain.
An instrument payable upon a contingency is not negotiable,
and the happening of the event does not cure the defect.
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. 17. Construction Where Instrument is Ambiguous. Where
the language of the instrument is ambiguous, or there are
omissions therein, the following rules of construction apply:
xxx
(c) Where the instrument is not dated, it will be considered to
be dated as of the time it was issued.
d.
Effect of acceleration provisions
Where the option to accelerate the maturity of the

instrument is on the maker, the negotiability of the
instrument is not affected, whether such option is
absolute or conditional.6
This is the situation covered by Sec 4(b)
Where the acceleration is at the option of the holder,

whether such acceleration provision renders the
instrument non-negotiable depends on the nature of
the provision.
If the option can be exercised by the holder only

upon the happening of a specified event or act
over which he has no control, then the negotiable
character of the instrument is not affected by the
option to accelerate.
Where the holders right to exercise the option is

unconditional, the time of payment is rendered
uncertain and the instrument would not be
negotiable.
The option given to the holder to accelerate the

maturity of an installment note upon failure of the
maker to pay any installment when due does not
7
affect the negotiability of the instrument. Same
rule where acceleration is automatic upon
default.
Where the acceleration takes place upon the

failure of the maker to deposit additional
collateral security to make good a depreciation in
value of the original security, the majority view is
that such a provision does not destroy
negotiability.
Acceleration of the maturity of the instrument by
operation of law (e.g., maker dies before maturity,
maker is declared an insolvent) does not affect its
negotiability.
Rehabilitation Finance Corporation v CA, Estelito Madrid and

Jesus Anduiza (1954) Concepcion, J.
p. 32
Facts:
Jesus de Anduiza borrowed money from the Agricultural and
Industrial Bank (RFCs predecessor) on Oct. 31, 1941.
Obligation was evidenced by a negotiable promissory note
(P13,800) payable in 10 equal installments over a period of
10 years.
Anduiza failed to pay the yearly amortizations that fell due on
Oct. 31, 1942 and 1943. Learning of this, Madrid paid the AIB
on Oct. 31, 1944 the full amount of the obligation.
In 1948, Madrid instituted an action against RFC after the
latter had refused to cancel the mortgage of Anduizas
properties which were given as security for the loan.
TC rendered judgment against Madrid.
CA reversed TC.
RFC now claims that the payment made by Madrid on Oct. 4,
1944 was not valid due to the fact that the obligation was not
yet due and demandable at that time. The promissory note
provides that the amount is to be paid on or before Oct. 31,
1951.
Issue: Whether payment made by Madrid was valid [YES]
Expressly allowed by Sec 2(c)

Ratio:
Although the full amount of the obligation was not
demandable prior to Oct. 31, 1951, in view of the provision of
the note relative to the payment in 10 installments, it is clear
that the makers or debtors were entitled to make a complete
settlement of the obligation at any time before said date.
Utah State National Bank v Smith et al. (1919) Wilbur, J.
p. 33
Facts:
USNB, claiming to be bona fide purchasers for value of a
negotiable promissory note, brought an action against the
makers (Smith et al.) thereof to enforce its payment.
Smith et al. asserted that the note was non-negotiable (in
light of the provision for accelerating the due date for default
in the payment of interest) and interposed a defense valid
against the payee therein.
If the interest is not paid when due, then both principal and
interest shall become due at the option of the holder of the note.
Verdict was rendered favorable to Smith et al. USNB
appealed.
Issue: Whether the note is negotiable [YES]
Ratio:
A note is negotiable if payable at a determinable future
time. A future determinable time could be one determinable
at some time in the future, as well as one determinable at
present, or in advance.
Determinable future time [Sec 1556, 3085 of our Code]
An instrument payable at a fixed period after sight is
payable at a determinable future time, the exact date of
payment being ascertainable at the date of presentation,
but not before.
A note payable on or before a fixed date is payable at a
determinable future time.
If the instrument expressly states that it is payable on or
before a fixed date, it is payable at the date in question
or, at the option of the payor, at any earlier date selected
by him for payment. The exact due date is thus left to be
determined at a future date by the option of the payor, if
exercised before the fixed due date.
The due date is no less determinable when the option
lies with the payee instead of the payor. If the option of
the payee is limited to the case of a default in the
payment of an installment of interest, the date of
maturity is not less determinable in the future for it may
be fixed by the payee at any reasonable time after such
default.
Puget Sound State Bank v Washington Paving Co. (1917)

Parker, J.
p. 35
Facts:
WPC executed two promissory notes (each for $5K) payable to
its own order. The notes contained the provision:
This note shall become due and payable on demand at the
option of the payee when it seems itself insecure
WPC thereafter indorsed the promissory notes to the Olympia
Bank & Trust Company. It was thereafter transferred by
Olympia by delivery only, without indorsement, to PSSB.
Olympia became insolvent and PSSB sought recovery upon
the two promissory notes.
Implication: If Olympia, instead of PSSB, was still the
holder of and seeking recovery upon these notes, WPC
could offset against the debt evidenced thereby the amount
due to it upon its deposit credit in Olympia Bank, and thus
satisfy such debt if it did not exceed the amount of such
deposit credit.
LC ruled in favor of WPC upon the ground that while the notes
evidenced their legal obligations, they were entitled to set off
against the amount due thereon to PSSB a greater amount
which was owing to the WPC from Olympia upon a deposit
credit at the time of the transfer of the notes by that bank to
the plaintiff.
PSSB appealed.
Issue: Whether the notes are negotiable in the sense that their
transfer to PSSB destroyed the defense of set-off invoked by
WPC [NO]
Ratio:
The quoted provision gives Olympia, the payee, the
unrestricted power to declare the notes due at any time
before maturity. The right to exercise such power possessed
by the payee is not dependent upon nor does it grow out of
any act, promise, or agreement of WPC, the maker of the
note. In other words, it is a contingency over which the maker
of the notes has no control.
Henry v Madison Aerie No. 623, Fraternal Order of Eagles of
Madison, Wisc, et al. (1933) Fowler, J.
p. 37
Facts:
Henry sued Madison Aerie upon an express contract and in
connection garnished the First National Bank of Madison,
alleging that the bank had in its possession money belonging
to Madison Aerie.
Bank of Madison denied the allegation.
Judgment was entered against Madison Aerie in the principal
action for $1,712.50.
Court entered judgment against the bank. On trial of the
garnishment action, the court found that:
The bank had on deposit funds of Madison Aerie to the
amount of P958.02.
The bank held two notes of Madison Aerie ($3K each),

payable in installments at specified dates. The notes
contained an acceleration clause as follows:
Failure to pay any installment as the same becomes due shall
render the entire obligation then due and payable.
Madison Aerie defaulted on the payment of the notes.
Subsequent payments were made but nothing was said about
extending the time of payment of the notes or waiving the
defaults of nonpayment of the installments on the due dates.
The garnishment summons was served on Aug. 15, and the
bank thereupon applied the amount of the deposits upon the
notes.
Issue: Whether the bank had the right to apply the deposits
towards their payment [YES]
Ratio:
It was held in Hodge v Wallace, under a clause providing that
default in payment of interest when due should cause the
whole note to immediately become due and collectible, that
failure to pay interest when due rendered the note due
absolutely and not at the option of the holder.
To construe such language (that of the acceleration
clause) as merely optional or permissive would destroy the
clearly expressed contract which the parties made for
themselves and to force upon them a contract to which
neither of them ever gave their consent. The terms of the
contract are so clear as to seemingly preclude the
construction.
The notes being due immediately upon the default, they were
due when the subsequent payments were made upon them,
and acceptance of the payments thereafter tendered merely
operated to reduce the amount due thereon just as payments
made after the due date specified in a note without an
acceleration clause would so operate.
e.
Provisions extending the time of payment
An extension provision would not affect negotiability.

Similarly, where the holder is given the option to
extend the time of payment by mere inaction or
indulgence for an indefinite time depending on his
will, the instrument is still negotiable because with or
without such provision, the holder may choose to be
indulgent.
Should he not demand payment at the date of

maturity, the instrument merely becomes overdue
and thus payable on demand.
But where a note with a fixed maturity provides

that the maker has the option to extend the
payment until the happening of a contingency,
the instrument would be non-negotiable under
the second paragraph of Section 4.
State Bank of Halstad v Bilstad (1912) Sherwin, J.

p. 40
Facts:
Suit to recover on three promissory notes executed by
Bilstand and Jn. M. Hetland. Two of the notes were drawn
payable to Fred B. Lawrence and the other to the order of the
State Bank of Halstad.
No defense was interposed to the latter note, but
counterclaim were pleaded as to the other two.
The notes bore the same date, April 23, 1904, but one was
due Dec. 1, 1905 and the other Dec. 1, 1907. They both contain
the following provision:
It is agreed that if crop on Secs. 25 and 26 is below 8 bushels
per acre this note shall be extended for one year.
Issue: Whether the two notes are negotiable [YES]
Ratio:
Our negotiable instruments act says that an instrument to be
negotiable must be payable on demand or at a fixed or
determinable future time and Sec 3060-a4 undertakes to
define what is meant by a determinable future time.
The notes in suit provided for an extension of time for one
year on the condition therein named. The time at which they
must eventually become due was therefore fixed and certain.
The only uncertainty as to the time or fact of payment was
whether they should be paid at a particular time in one year,
or at the date named in the next year.
Sec 3060-a4 expressly says that a note is payable at a
determinable future time, or that is payable on or before a
fixed period after the occurrence of a specified event, which is
certain to happen is negotiable.
In this case, the extension is not determined by the makers
whims but rather by the occurrence of the harvest which is
certain to happen.
Security National Bank of Sioux City, Iowa v Gunderson (1927)
Miser, C.
p. 42
Facts:
Promissory note in suit:
The makers, indorsers, guarantors of this note, and the sureties
hereon severally waive presentment for payment, protest and
notice of dishonor, and consent that the time of its payment may
be extended without notice, all defenses on the ground of any
extension of time of payment being hereby expressly waived.
Appellant contends that the note is non-negotiable because
this clause offends against the requirement of both Secs. 1708
and 1886, Rev. Code 1919, that a note be payable at a
determinable future time.
Issue: Whether the note is negotiable despite the clause [YES]
Ratio:
This provision seems to us to have been inserted to protect
the holder against any release of indorsers, or others, by an
extension without their assent, and the word makers is
evidently included to prevent any misunderstanding or
misconstruction of the contract or failure to distinguish
between makers, indorsers, sureties, and any other parties
who might be or become liable thereon under certain
contingencies as makers.
The obvious purpose of the provision taken as a whole was
merely to relieve the holder of the paper from the burdens
made necessary by the rigid requirements of the mercantile
law in order to secure the continued liability of the indorsers
and sureties upon the paper. Therefore what was meant by
the stipulation as to the extension of time was simply that in
case the holder and the maker should agree upon an
extension, the sureties and indorsers should not be
discharged. The holder and maker of any note may at any
time agree upon an extension; therefore the fact that they
have that right does not affect the negotiability of the paper.
6.
Must be payable to order or bearer
a.
The instrument, in order to be considered negotiable,

must contain words of negotiability, i.e., must be
payable to order or bearer.
These words serve as an expression of consent that the
instrument may be transferred.
Consent is indispensable since the maker

assumes greater risks under a negotiable
instrument than under a non-negotiable one.
Under Sec 10, the instrument need not follow the

language of the law, but any term which clearly
indicates an intention to conform to the legal
requirements is sufficient.
When the instrument is payable to order
Sec. 8. When Payable to Order. The instrument is payable to

order where it is drawn payable to the order of a specified
person or to him or his order
There must always be a specified person named in the

instrument. It means that the bill or note is to be paid
to the person designated in the instrument or to any
person to whom he has indorsed and delivered the
same.
b.
When instrument is payable to bearer
Sec. 9. When Payable to Bearer. The instrument is payable to

bearer
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing
person, and such fact was known to the person making it so
payable; or
(d) When the name of the payee does not purport to be the
name of any person; or

(e) When the only or last indorsement is an indorsement in
blank.
Only instruments under paragraphs a and b of Sec 9

are expressly made payable to bearer.
Wettlaufer v Baxter (1910) Carroll, J.
p. 48
Facts:
Action by the holder against the payee-indorser of the
following note:
January 15, 1906, after date we promise to pay to Newton J.
Baster, two hundred fifty dollars at 58 Carroll St., Buffalo, N.Y.
Baxter wrote his name on the blank of the note and
discounted it with Wettlaufer.
The note was dishonored on presentment. Due note was sent
to Baxter. Wettlaufer sued Baxter.
Issues:
1) Whether the note before the indorsement by Baxter is a
negotiable instrument within the meaning of the negotiable
instrument act [NO]
2) If not, whether Baxter, by signing his name on the back of the
note and selling and delivering it before maturity to
Wettlaufer, convert it into a negotiable note [NO]
Ratio:
1) The note, which was payable to Baxter alone, and did not
contain the words to order or bearer, was not a negotiable
instrument. These words by Secs 1 and 184 are indispensable
to make the paper a negotiable instrument within the
meaning of the act.
Sec 3720B. Sec 1. An instrument to be negotiable must
conform to the following requirements: (4) must be payable
to the order of a specified person or bearer.
2) It is true that Sec 9 of the act provides that the instrument is
payable to bearerwhen the only or last indorsement is an
indorsement in blank; but this does not mean that an
indorsement in blank converts a non-negotiable note on its
face and by its terms into a negotiable note
Sec 9 was merely intended to describe or designate the
conditions under which a note negotiable on its face might
become payable to bearer, and was not intended to apply
to a note on its face or by its terms negotiable.
Baxter should be treated as merely the assignor of a nonnegotiable note.
Ang Tek Lian v CA (1950) Bengzon, J.
p. 50
Facts:
Knowing he had no funds therefor, Ang Tek Lian drew a check
upon the China Banking Corporation for the sum of P4K,
payable to the order of cash. He delivered it to Lee Hua

Hong in exchange of money which the latter handed in the
act.
The check was presented by Lee Hua Hong to the drawee
bank for payment, but it was dishonored for insufficiency of
funds. Ang Tek Lian was convicted of estafa.
Ang Tek Lian now argues that as the check had been made
payable to cash and had not been indorsed by him, he is not
guilty of the offense charged. Ang Tek Lian contends that
when Lee Hua Hong accepted the check, the latter did so with
full knowledge that it would be dishonored upon
presentment.
Issue: Whether a check payable to the order of cash is payable
to bearer
Ratio:
Under Sec 9(d), NIL, a check drawn payable to the order of
cash is a check payable to bearer, and the bank may pay it
to the person presenting it for payment without the drawers
indorsement.
Where a check is made payable to the order of cash, the
word cash does not purport to be the name of any person,
and hence the instrument is payable to bearer. The drawee
bank did not obtain any indorsement of the check, but may
pay it to the person presenting it without any indorsement.
A check payable to bearer is authority for payment to the
holder. Where a check is in the ordinary form, and is payable
to bearer, so that no indorsement is required, a bank, to which
it is presented for payment, need not have the holder
identified, and is not negligent in failing to do so.
Also, the form of the check was totally unconnected with the
dishonor. Check was returned because the drawer had
insufficient funds, not because the drawers indorsement is
lakcing.
7.
Parties must be designated with certainty

a.
Maker and drawer
Long-established customs as to the placement of

signature:
The maker of a note or the drawer of a bill must

sign the instrument; signature is usually written
at the lower right-hand corner thereof.
The drawees name is usually written on the lower

left-hand corner, although in checks the banks
name sometimes appears across the top.
The payee and the successive indorsees negotiate

the instrument by signing on the back.
Once a party to an instrument deviates from the
commercial usage with respect to the place of
signature, ambiguity arises. The law solves this by
considering such a person as an indorser, and not as a
maker or drawer.
b.
Payee
Sec. 8. When Payable to order. The instrument is payable to

order where it is drawn to the order of a specified person or to
him or his order. It may be drawn payable to the order of
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order the payee must be
named or otherwise indicated therein with reasonable certainty.
Should the name of the payee be misspelled or

wrongly designated, does the instrument lose its
negotiability as one wherein the payee is not indicated
with reasonable certainty?
NO. Sec 43 provides that where the name of the

payee is wrongly designated or misspelled, he
may indorse the instrument as therein described,
adding, if he thinks fit, his proper signature.
If he may indorse it, then that means that even if

his name is misspelled, he can still be regarded as
having been otherwise indicated with reasonable
certainty.
c.
Drawee
Sec. 128. Bill Addressed to More than One Drawee. A bill may
be addressed to two or more drawees jointly, whether they are
partners or not; but not to two or more drawees in the
alternative or in succession.
Sec. 130. When Bill May be Treated As A Promissory Note.
Where in a bill the drawer and drawee are the same person, or
where the drawee is a fictitious person, or a person not having
capacity to contract, the holder may treat the instrument, at his
option, either as a bill of exchange or a promissory note.
Where the instrument is addressed to a drawee, he

must be named or otherwise indicated therein with
reasonable certainty.
Although a bill may be addressed to two or more
drawees jointly, it may not be addressed to two or
more drawees in the alternative or in succession, for
otherwise there would be no certainty as to the person
to whom the bill should be presented for payment or
acceptance.
Where the drawer and drawee are the same person, or
where the drawee is a fictitious person, or a person
having no capacity to contract, the holder may treat
the instrument either as a bill or a note, because
otherwise, no one can ever be made primarily liable on
the bill.
10
8.
Since the drawer was responsible for naming

such a drawee, the assumption is that he
intended to be primarily liable himself.
If the bill names no drawee but is accepted by a third
party, although the issuer of the bill cannot be held as
drawer, the acceptor could be held as a maker. The
instrument is treated as a note instead of a bill.
Provisions not affecting 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 the payment of money.
But nothing in this section shall validate any provision or
stipulation otherwise illegal.
The negotiable character of an instrument otherwise

negotiable is not affected by a provision which
authorizes the sale of collateral securities in case the
instrument be not paid at maturity.
However, an authorization which empowers the holder
to sell the collateral before the maturity of the note
renders it non-negotiable, because it would in effect
grant the holder an option to accelerate the maturity
of the instrument, thus rendering the time of payment
uncertain.
A clause in the instrument waiving the rights of
secondary parties to have the instrument duly
presented for payment, and their right to due notice of
dishonor and of protest when protest is required, does
not destroy its negotiability.
The fact that an instrument bears a seal or designates
a particular kind of current money in which payment is
to be made, does not affect its negotiable character.
Philippine National Bank v Manila Oil Refining & By-Products

Company, Inc. (1922) Malcolm, J.
p. 57
Issue: Whether a provision in a promissory note providing that in
case the same is not paid at maturity, the maker authorizes any
attorney to appear and confess judgment thereon for the
principal amount, with interest, costs, and attorneys fees, and
waives all errors, rights to institution, and all property
exemptions is valid [NO]
Ratio:
Agreeing with the prominent attorneys-at-law with banking
connections whose advice the Court solicited, the Court
states that neither the Code of Civil procedure nor any other
remedial statute expressly or tacitly recognizes a confession
of judgment commonly called a judgment note.
On the contrary, the provisions of the Code of Civ Pro, in
relation to constitutional safeguards relating to the right to
take a mans property only after a day in court and after due
process of law, contemplate that all defendants shall have an
opportunity to be heard.
Further, the provisions of the Code of Civ Pro pertaining to
counterclaims argue against judgment notes, especially as
the Code provides that in case the defendant or his assignee
omits to set up a counterclaim, he cannot afterwards
maintain an action against the plaintiff therefor.
Another indication of fundamental legal purpose is Art. 1255,
CC, which provides that the validity of contracts cannot be left
to the will of one of the contracting parties.
Appellees contention: NIL expressly recognizes judgment
notes; they are enforceable under the regular procedure as
provided by Sec 5, NIL which states that the negotiable
character of an instrument otherwise negotiable is not
affected by a provision which xxx (b) authorizes a confession
of judgment if the instrument be not paid at maturity.
Court disagrees, saying that this provision cannot be taken
to sanction judgments by confession, because it is a portion
of a uniform law which merely provides that in jurisdictions
where judgment notes are recognized, such clauses shall
not affect the negotiable character of the instrument.
Moreover, the same section of NIL concludes with these
words: But nothing in this section shall validate any
provision or stipulation otherwise illegal.
While judgments by confession as appeared at common
law were considered an amicable, easy, and cheap way to
settle and secure debts, there are disadvantages to the
commercial world which outweigh these considerations.
Such warrants of attorney are void as against public policy,
because they enlarge the field for fraud, because under
these instruments the promisor bargains away his right to a
day in court, and because the effect of the instrument is to
strike down the right of appeal accorded by statute.
Given the foregoing, the Court is of the opinion that
warrants of attorney to confess judgment are not
authorized nor contemplated by our law. The Court also
went on to say that provisions in notes authorizing
attorneys to appear and confess judgments against makers
should not be recognized in this jurisdiction by implication
and should only be considered as valid when given express
legislation.
The practice of entering judgments in debt on

warrants of attorney is of ancient origin. In the course
of time, a warrant of attorney to confess judgment
became a familiar common law security.
Two kinds of judgment by confession in common law:
11
1)
9.
Judgment by cognovit actionem a defendants

written confession of action against him;
impliedly authorizes plaintiffs attorney to sign
judgment and issue execution.
2) Confession relicta verificatione a confession of
judgment made after plea pleaded; viz., a
cognovit actionem accompanied by a withdrawal
of plea.
A number of jurisdictions in the US have accepted the
common law view of judgments by confession, while
others still refuse to sanction them. The weight of
opinion is that, unless authorized by statute, warrants
of attorney to confess judgment are void, as against
public policy.
Omissions not affecting negotiability
Sec. 6. Omissions; Seal; Particular Money. The validity and

negotiable character of an instrument are not affected by the
fact that
(a) It is not dated; or
(b) Does not specify the value given, or that any value has 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.
Prior to NIL, the common law rule was that an

instrument issued under seal of the maker was nonnegotiable. The rule was changed by the statute. In
practice, corporate seal forms part of a corporations
signature.
A date in a bill or note is not essential to make it
negotiable. If it is not dated, and the date is necessary
to fix the maturity of the instrument, the law fills in the
gap and considers the date of issue as the date of the
instrument [Sec. 17(c), NIL], and allows any holder to
insert the true date [Sec. 13, NIL].
Indication that the value was received because the
instrument was presumed to have been issued for a
valuable consideration. [Sec. 24, NIL]
If no place of payment is mentioned, the law fills in the
gap by providing that presentment should be made at
the address of the person who is to pay, if such
address is stated; if not, at the place of business or
residence of the person to make payment. [Sec. 73,
NIL]
10. Rules of construction

Sec. 17. Construction Where Instrument Is Ambiguous. Where
the language of the instrument is ambiguous, or there are
omissions therein, the following rules of construction apply:

(a) Where the sum payable is expressed in words and also in
figures and there is a discrepancy between the two, the
sum denoted by the words is the sum payable; but if the
words are ambiguous or uncertain, reference may be had to
the figures to fix the amount;
(b) Where the instrument provides for the payment of interest,
without specifying the date from which interest is to run,
the interest runs from the date of the instrument, and if the
instrument is undated, from the issue thereof;
(c) Where the instrument is not dated, it will be considered to
be dated as of the time it was issued;
(d) Where there is a conflict between the written and printed
provisions of the instrument, the written provisions prevail;
(e) Where the instrument is so ambiguous that there is doubt
whether it is a bill or note, the holder may treat it as either
at his election;
(f) Where a signature is so placed upon the instrument that it
is not clear in what capacity the person making the same
intended to sign, he is to be deemed an indorser;
(g) Where an instrument containing the words I promise to
pay is signed by two or more persons, they are deemed to
be jointly and severally liable thereon.
Continental Illinois Bank & Trust Co. v Clement North, J.
p. 64
Facts:
Suit in the promissory note signed by the defendant Belle W.
Clement and Byron C. Thorpe. The defense urged that the
note is the joint obligation of the two makers, and that
plaintiff cannot recover because one of them was not made a
party defendant. Note in question:
Sixty days after date, the undersigned, for value received
promises to pay to the order of Continental Illinois Bank and
Trust Company, at its office in Chicago, Ill., Twenty-Four
Thousand Dollars.
To secure the payment of this note the undersigned has
pledged, transferred and delivered to said bank the following
property, viz: (sundry security) and further to secure said note
and liabilities the undersigned hereby pledges, assigns and
transfers any and all other property now or hereafter and
howsoever in the possession or control of the holder hereof;
(Signed) Bryon C. Thorpe
(Signed) Belle W. Clement
The jurys verdict was in favor of the plaintiff, but judgment
was entered non obstante. Plaintiff appealed.
Issue: Whether the note is the joint obligation of the two makers
[NO]
Ratio:
The note in suit is the joint and several obligation of the makers.
12
The Negotiable Instruments Law of this state provides:

Where an instrument containing words I promise to pay is
signed by two or more persons, they are deemed to be jointly
and severally liable thereon.
Dow Law Bank v Godfrey: If an instrument worded in the
singular is executed by several, the obligation is a joint and
several one.
It is quite persuasive that each of the several verbs used in
this note is in the form to agree with a subject in the singular,
not in the plural. Conforming to this construction, the note if
stated in such words as would eliminate the seeming
ambiguity would read: Each (not both) of the undersigned
promises to pay, etc. A note so drawn would clearly fall within
the above-quoted portion of the NIL and the decisions cited.
CHAPTER 2 TRANSFER
1.
Delivery and issuance
Sec. 16. Delivery; When Effectual; When presumed. Every

contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of
giving effect thereto
Delivery of the instrument transfer of possession,

actual or constructive, from one person to another.
[Sec 191, par 6, NIL]
Delivery must be intended to give effect to the
instrument. However, once the instrument is no longer
in the possession of the person who has signed it, a
valid delivery by him is presumed until the contrary is
proved. As to the holder in due course, the
presumption is conclusive, provided the instrument is
complete.
Issue or issuance of the instrument first delivery of
the instrument complete in form to a person who takes
it as a holder. [Sec 191, par 10, NIL]
In Re Martens Estate (1939) Miller, J.
p. 67
Facts:
Mabel Martens Bonk (appellant) filed a claim based on a note
for $1,500 against the administrator of Martens estate
DENIED by TC for failure to establish legal delivery of the note
Mabels testimony:
Decedent (Mabels mother) died on Jan 2, 1936.
On March 11, 1936, she discovered an envelope in her
mothers safe. In her mothers handwriting was the
notation: Please give this to S. Fisher in case of death.
Mabel Martens from Mother.
The envelope contained a handwritten note, signed by the
deceased. On the back of the note was the endorsement:
This money is coming to her for teaching $1,500, and
$500 is what the rest got also. Mother.
She had loaned her parents $1,000 out of the money

earned teaching school; her brothers and sisters had
received $500 when they were married; she married
subsequent to March 1, 1930 and did not receive her $500.
Simon Fishers testimony: In 1930, Mabel agreed to accept a
note from her mother in satisfaction of $1,500 owed by her
fathers estate but it was not paid because of insufficient
funds. He was later told by decedent that she had executed a
note in favor of Mabel, which she had placed in a safe at
home. He told the decedent to deliver the note to him and, if
she wanted to, to turn it over to Mabel.
Issue: Whether there was delivery of the note [NO]
Ratio:
NO, the note could not be made the basis of a valid claim against
the estate unless there was a legal delivery of the same during
the lifetime of the decedent.
Sec 9746 of the Code provides that every contract on a
negotiable instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving effect
thereto. This was the common law rule.
Orris v Whipple is controlling: All there is to show delivery in
the case is that the deed was prepared and executed by Miss
Aken; that she told others that she wanted the plaintiffs to
have the property and that she had prepared papers for
providing. She put the deeds in her safety deposit box and
retained the key. We do not think these admitted facts show a
legal delivery of the deed in question.
2.
Negotiation
Sec. 30. What Constitutes Negotiation. An instrument is

negotiated when it is transferred from one person to another in
such manner as to constitute the transferee the holder thereof.
If payable to bearer it is negotiated by delivery; if payable to
order it is negotiated by the indorsement of the holder
completed by delivery.
Sec. 191. Definitions and Meanings of Terms.
xxx
Bearer means the person in possession of a bill or note which
is payable to bearer;
Holder means the payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof;
xxx
Negotiation the transfer of a negotiable instrument

made in such manner that the transferee becomes a
holder and this possibly a holder in due course capable
of acquiring a better title to the instrument than that
of his transferor.
If payable to order, the payee or endorsee in

possession is the holder.
If payable to bearer, the person in possession is

the bearer as well as the holder.
13
3.
Transfer broader term than negotiation; includes

both an ordinary assignment and a negotiation.
If an instrument is transferred without

negotiation, the transfer is a mere assignment
which constitutes the transferee as a mere
assignee, not a holder, subject to all defenses
existing among prior parties.
A negotiation may be for value or by way of gift. There
will be a valid transfer in either case, but the rights
acquired by the transferee may be different.
Methods of negotiation
An instrument payable to order requires for its

negotiation, first, an indorsement by the payee or
present holder, and second, its delivery to the
transferee or indorsee, who now becomes the holder.
Indorsement consists of the signature of the

indorser usually on the back of the instrument.
[Sec 31, NIL]
An indorsement has a double significance:
1) Constitutes a transfer or sale of the instrument to
the indorsee or transferee
2) Signifies the agreement of the indorser to answer
for the amount represented by the instrument in
case of default of the maker or the party primarily
liable
An instrument payable to bearer can be negotiated by
mere delivery. It is common practice, however, to
indorse a bearer instrument whenever it is transferred.
Does not impair the negotiation but serves as an

additional security to the transferee, since he can
hold the indorser liable as such.
One who negotiates by delivery, although he

assumes the liabilities of a seller or transferor of
the note or bill, does not warrant that he will pay
in case the primary party falls to pay.
A transfer of a negotiable instrument is effected
otherwise than by a negotiation when:
1) An order instrument is delivered by the payee or
special indorsee without his indorsement; or
2) Where the indorsement is not made properly as
required by law.
4.
In these cases, the transfer is an ordinary

assignment of the transferors rights and places
the assignee in the place of the assignor, subject
to the defenses which may be existing between
the prior parties.
How indorsement made

a.
By signature on instrument or on allonge
Sec. 31. Indorsement; How Made. The indorsement must be

written on the instrument itself or upon a paper attached
thereto. The signature of the indorser, without additional words,
is a sufficient indorsement.
Allonge indorsement on a separate paper.

The question as to when an allonge may be valid has
given rise to much conflict.
The law makes no distinction, nut the prevailing

view follows the common law rule that an allonge
can be validly used only when there is no longer
any room on the instrument for further
indorsements, otherwise the transfer will not be
sufficient to constitute the transferee a holder.
The law requires the allonge to be attached to the
instrument. The Uniform Commercial Code is more
specific and requires that the paper be so firmly
attached affixed thereto as to become a part thereof.
Clark v Thompson, et al. (1915) Sommerville, J.
p. 71
Facts:
Respondent bought the note and mortgage from the payee,
W.A. Thompson; the note being payable to Thompson, or
order.
Complainant filed her bill for the cancellation of the
mortgage securing the joint negotiable note executed by her
and her husband. The bill alleges that the money for which
the note and mortgage were given was lent to the husband
and that her relation to the debt was that of a surety only.
Bill of complaint was dismissed on the theory that the
respondent was a purchaser for value in due course of the
note and mortgage, without notice of the infirmity charged.
In order to free the note of the defense available to
complainant against the payee, it was necessary for
respondent to acquire it in due course by indorsement.
Issue: Whether there was allonge in this case [NO]
Ratio:
NO, the Court is constrained to treat the transfer as a commonlaw assignment merely. As such, the respondent was not a holder
in due course.
Sec 4986 of the Code which states that the indorsement
must be written on the instrument itself or upon a paper
attached thereto, is but a statutory affirmation of the rule of
the old law merchant which allowed indorsements to be
made upon an allonge; that is, upon a slip of paper tacked
or pasted on the instrument so as to become a part of it.
However, the use of allonge was allowable only when the
back of the instrument itself was so covered with previous
indorsements that convenience or necessity required
additional space for further indorsements.
Sec 4986 was not intended to establish the loose and
undesirable practice of making regular indorsements of
commercial paper by writing on the back of any other paper
or document to which it might be temporarily attached,
especially when there is space for indorsement on the back
of the instrument itself.
In Bishop v Chase, it was held that a written transfer of a note,
made on a separate paper to which it was pinned, there
14
being room on the back of the note itself for the transfer, was
an assignment merely, and not a commercial indorsement.
In the present case, the evidence does not show that the note
was pinned to the mortgage when they were transferred to
respondent, but only when they were delivered to the payee
nearly a year before. The Court ruled that it could not
presume that such a superficial fastening, evidently for
temporary convenience only, still existed at the date of the
transfer.
b.
In case of joint payees
Where the instrument is payable or indorsed to A and

B, they are joint payees. An indorsement by either A
or B only will not constitute a valid negotiation so as to
free the instrument from defenses, unless the one
indorsing is authorized by the other.
Where the instrument is payable to A or B, the
payees are merely in the alternative. Either one may
validly negotiate the instrument.
c.
If name misspelled
Sec. 43. Indorsement Where Name Is Misspelled, And So Forth.

Where the name of a payee or indorsee is wrongly designated or
misspelled, he may indorse the instrument as therein described,
adding, if he thinks fit, his proper signature.
The indorsement should be made by the holder in the

manner he was designated, otherwise the signature
will prima facie not be a valid indorsement of the
instrument. After such indorsement, he may sign his
correct name.
Young v Hembree (1937) Hurst, J.
p. 73
Facts:
Defendant orally agreed to loan Horn and Faulkner a sum of
money to help them out in some oil drilling, and they
agreed to issue to him some trust stock that would
guarantee the repayment.
Defendant then wrote a check and designated Horn &
Faulkner Oil Trust as payee, as directed by them.
The defendant stopped payment on the check before it was
presented to the bank. The stock was never delivered.
The check, without being presented for payment, was then
indorsed Horn & Faulkner, by L.H. Horn, and delivered to
plaintiff in payment for labor and materials furnished to
Horn & Faulkner Oil Trust.
Plaintiff made no investigation regarding the check, but
there was nothing on its face to indicate that payment has
been stopped.
After two unsuccessful attempts to cash the check, the
plaintiff brought this action. Judgment was rendered in his
favor. The defendant (maker of the check) now brings this
appeal.
Issues:
1) Whether the plaintiff is a holder in due course [NO]
2) Whether the defendant is liable on the instrument itself [NO]
Ratio:
1) NO, the plaintiff is not a holder in due course.
In order to be a holder in due course, where the instrument
is payable to order, the plaintiff must plead and prove
that the check was indorsed by the payee. Where the
indorsement is not proved to be that of the payee, or where
there is no indorsement at all, plaintiff takes not as an
innocent purchaser, but subject to the defenses that might
have been interposed against the payee.
Here, the plaintiff does not question the correctness of this
rule, but rather claims that there is no absolute rule as to
what form the indorsement must take. The plaintiff also
claims that the signature Horn & Faulkner, by L.H. Horn
is a sufficient indorsement of Horn & Faulkner Oil Trust.
The Court disagrees. On its face, the indorsement is not
that of the payee. There is no evidence in the record to
show that they are one and the same firm or legal entity.
2) NO. Since the defendant stopped payment, he is not liable on
the instrument itself.
A check is merely an order to pay money, and the maker
has the right to stop payment.
The bank must respect the order stopping payment, but
that does not destroy the contractual liability that may exist
between the maker and the payee.
The only contract in this case, pursuant to which the
check was originally given, was an agreement by the
defendant to loan money to plaintiff (the indorsee). The
plaintiff does not make any claim by reason of the
transfer of the check to him.
5. Indorsement must be of entire instrument

Sec. 32. Indorsement Must Be of Entire Instrument. The
indorsement must be an indorsement of the entire instrument.
An indorsement which purports to transfer to the indorsee a part
only of the amount payable, or which purports to transfer the
instrument to two or more indorsees severally, does not operate
as a negotiation of the instrument. But where the instrument
has been paid in part, it may be indorsed as to the residue.
Purpose: protect the obligors from more than one

action on the instrument. The maker and all the prior
parties, in assuming liability, took the risk of only one
cause of action against them.
The provision does not cover a situation where part of
the amount of the instrument has been paid, in which
case, it may be negotiated for the balance.
Neither does the provision prohibit a transaction
where the indorsee pays the indorser less than the face
amount of the instrument, title transferring to the
indorsee. This is called a discount of the instrument.
In this case, there is no splitting of the cause of

action for it belongs wholly to the purchaser who
buys at a discount.
Discount is given in consideration of the period

during which the purchaser has to wait before he
15
p. 76
can cash the instrument with the maker or

acceptor, which can be done only at the maturity
of the instrument.
When an instrument does not comply with Sec 32, the
transfer is not necessarily void. It remains valid, but as
a mere assignment which subjects the holder to all
defenses on the instrument.
Blake v Weiden (1943) Desmond, J.
Facts:
John A. Blake, as trustee in bankruptcy of R. Weiden & Son,
Inc., sued Frank Weiden to recover an overdraft in defendants
salary amount in the amount of $8, 103.68. Frank was a
stockholder in the bankrupt company.
Frank held five counterclaims on negotiable note (for $5K
each) given by the bankrupt corporation to Robert Weiden,
Franks father, who died in 1937.
After Roberts death and before the corporations
bankruptcy, Charles R. Weiden and Hermann J. Weiden
(executors of Roberts estate) put on the back of each of
the notes a form of indorsement, signed by the estate, by
themselves as executors, and worded thus:
Pay to the order of Charles R. Weiden, Hermann J. Weiden and
Frank J. Weiden, Share alike, as tenants in common.
Charles and Hermann filed proofs of claims on their
purported individual shares of the five notes as indorsees.
Frank sets up in his counterclaims his purported share of the
five notes as a set-off against the debt for which the trustee is
suing.
Issues:
1) Whether Frank had legal title to, and causes of action at law
on, his share of the notes [YES]
2) Whether a set-off may be effected [YES]
Ratio:
1) YES. Reading Sec 62 and Sec 60 with the references to the
holder in other parts of the NIL, it seems that the intent of Sec
62 is only to deprive the several indorsees of the special rights
which the Acts gives to holders of properly negotiated
instruments. It does not put the purported indorsees entirely
outside the protection of the courts.
Sec 62, NIL: The indorsement must be an indorsement of
the entire instrument. An indorsement, which purports to
transfer to indorsee a part only of the amount payable, or
which purports to transfer the instrument to two or more
indorsees severally, does not operate as a negotiation of the
instrument. But where the instrument has been paid in
part, it may be indorsed as to the residue.
The Court rejected the view that Sec 62 makes an
indorsement a nullity.
The statement in Sec 62 that the indorsement does not
operate as a negotiation suggests that it is not entirely
inoperative. Also, Sec 60 says that an instrument is
negotiated when it is transferred from one person to
another in such manner as to constitute the transferee
the holder thereof.
No reason appears why the misguided use of an
indorsement form should put the purported indorsees
entirely outside the protection of the courts. In this case,
there was at least constructive delivery to the three
beneficiaries of the estate. As such, the transferees
would have taken title to the instrument or to the chose

in action without any written words of transfer at all.
In interpreting Sec 62, the Court said that the better rule is
that when there has been a purported indorsement of the
whole instrument, in separate parts to two or more
transferees, the purported indorsees take legal title to their
several shares and may sue together, or any one or more
may sue provided all the other indorsees are brought in as
parties.
The purpose of the restrictions embodied in Sec 62 was
to prevent a multiplicity of suits.
This interpretation of defendants rights leaves
undisturbed the rule of Sec 62 that the several indorsees
do not have the rights of holders of negotiable
instruments, the rule of Sec 79 that delivery of a
negotiable instrument transfers title with or without
indorsement, and the rule against splitting causes of
action.
Frank, as co-assignee of a non-negotiable chose in
action, had the right to maintain his counterclaim so
long as he brought his co-assignees into the action.
Even if the enforcement of the counterclaims involved a
splitting of the cause of action, such splitting is justified:
i. The splitting was really done by the other two assignees
who filed separate proofs as claims before this suit was
brought.
ii. The rule against splitting does not forbid the use of part
of a claim as a set-off, retaining the rest for later use.
2) YES. Having held that defendant had legal title to, and causes
of action at law on his share of the notes, the court necessarily
concluded that he brings himself well within the Bankruptcy
Act requirements as to set-offs.
Plaintiffs and defendants claim are mutual and
defendants claim is by its nature one provable in
bankruptcy.
6. Kinds of indorsements
Sec. 33. Kinds of indorsements. An indorsement may be either
special or in blank; and it may also be either restrictive or
qualified or conditional.
a.
Basis of classification
Although the signature of the indorser is sufficient to

constitute an indorsement, additional words may be
added which may modify the rights of subsequent
holders or the liabilities if the indorser.
Indorsements containing such additional words are
classified into special, restrictive, qualified and
conditional.
Blank indorsement only the signature of the indorser
appears.
Sec 33 does not mean that there is but one
classification scheme involved. All indorsements are
either special or in blank; restrictive or non-restrictive;
qualified or unqualified; and conditional or
unconditional.
Special or blank has to do with the future

method of negotiation, whether by indorsement
and delivery or delivery alone.
16
b.
Restrictive or non-restrictive has to do with the

kind of title transferred.
Qualified or unqualified lies in the scope of the
liability assumed by the indorser.
Conditional or unconditional has to do with the
presence or absence of express limitations put by
the indorser upon the primary obligors privileges
of paying the holder.
Special and blank indorsements
Sec. 34. Special Indorsement; Indorsement in Blank. A special

indorsement specifies the person to whom, or to whose order,
the instrument is to be payable; and the indorsement of such
indorsee is necessary to the further negotiation of the
instrument. An indorsement in blank specifies no indorsee, and
an instrument so indorsed is payable to bearer, and may be
negotiated by delivery.
c.
Sec. 40. Indorsement of Instrument Payable to Bearer. Where
an instrument, payable to bearer, is indorsed specially, it may
nevertheless be further negotiated by delivery; but the person
indorsing specially is liable as indorser to only such holders as
make title through indorsement.
Sec. 35. Blank Indorsement; How Changed to Special
Indorsement. The holder may convert a blank indorsement
into a special indorsement by writing over the signature of the
indorser in blank any contract consistent with the character of
the indorsement.
Two forms of special indorsement: Pay X or Pay X or

order, followed by the signature of the indorser.
An indorsement need not contain the words of

negotiability as long as these appear on the face
of the instrument.
In either case, the indorsement of the special

indorsee is necessary for the further negotiation
of the instrument.
Suppose that an instrument is on its face payable to
bearer and is specially indorsed thus: Pay to X, (sgd.)
Y, is Xs signature necessary for the further
negotiation of the instrument?
Sec 34 taken alone would seem to answer in the

affirmative. Sec 40 however offers the opposite
result.
This apparent conflict can be settled by applying

Sec 40 only to originally bearer instruments.
Rules:
A person who negotiates by mere delivery is liable

only to his immediate transferee. A special
indorser, however, is liable to subsequent holders,
unless the instrument is an originally bearer
instrument, in which case he is liable only to
those who take title through his indorsement.
Where only the signature of the indorser appears

with no indication of the person to whom it is
payable, it is a blank indorsement. The further
negotiation of such an instrument may be

effected by mere delivery regardless of whether
the instrument is on its face payable to bearer or
not.
A blank indorsement may be converted into a
special indorsement by writing over the signature
of the indorser in blank any contract consistent
with the character of the indorsement.
An instrument payable to order on its face may be
converted into a bearer instrument by means of a
blank indorsement, and may later be reconverted
into an order instrument by a subsequent special
indorsement, the last indorsement always
controlling the means of further negotiation. On
the other hand, an instrument payable to bearer
on its face always remains a bearer instrument
notwithstanding an indorsement.
Qualified indorsement
Sec. 38. Qualified Indorsement. A qualified indorsement

constitutes the indorser a mere assignor of the title to the
instrument. It may be made by adding to the indorsers
signature the words without recourse or any words of similar
import. Such an indorsement does not impair the negotiable
character of the instrument.
An indorser by his indorsement impliedly enters into

two contracts:
1) A contract of sale or assignment of the
instrument
2) A contract to pay the instrument if the maker is
unable to pay on maturity.
A qualified indorser merely assumes the first contract.
This does not mean, however, that the transferee has
merely the rights of an assignee.
The transfer would still be a negotiation and the

transferee would still be a holder capable of
acquiring a title free from defenses of prior
parties.
The only effect of the qualified indorsement is to

relieve the qualified indorser of his liability to pay
the instrument should the maker be unable to
pay at maturity.
If the indorser wants to relieve himself of either
contract, he must do so in clear and express terms. By
adding the words without recourse above his
signature, he expressly rids himself of his second
contract. Words of similar import would include sans
recourse or at indorsees own risk.
In the absence of clear and unmistakable

language qualifying liability, an indorser will be
liable on both his contracts.
Fay v Witte (1933) Crane, J.
p. 85
Facts:
17
Issue:
Ratio:
Copeland v Burke, et al. (1916) Edwards, C.
p. 88
Facts:
Sec. 37. Effect of Restrictive Indorsement; Rights of Indorsee. A

restrictive indorsement confers upon the indorsee the right:
(a) To receive payment of the instrument;
(b) To bring any action thereon that the indorser could bring;
(c) To transfer his rights as such indorsee, where the form of
the indorsement authorizes him to do so.
But all subsequent indorsees acquire only the title of the first
indorsee under the restrictive indorsement.
Issue:
Ratio:
Hutson v Rankin (1922) Budge, J.
p. 91
Facts:
Issue:
Ratio:
d.
Conditional indorsement
An indorser is liable to pay the instrument on two

conditions:
1) That due demand or presentment be made on the
party primarily liable on the date of maturity; and
2) That should the latter fail to pay on such
presentment, a notice of dishonor be promptly
sent to the indorser.
The aforementioned conditions are implied in every
contract of indorsement and need not be expressed.
An indorsement without any other condition upon
which liability is based is referred to as an
unconditional or absolute indorsement. A conditional
indorsement is one where an additional condition is
annexed to the indorsers liability.
Such additional condition must be express.
Such an indorsement does not affect the

negotiability of the instrument because the
original promise or order remains unconditional.
Sec. 39. Conditional Indorsement. Where an indorsement is

conditional, a party required to pay the instrument may
disregard the condition, and make payment to the indorsee or
his transferee, whether the condition has been fulfilled or not.
But any person to whom an instrument so indorsed is
negotiated, will hold the same, or the proceeds thereof, subject
to the rights of the person indorsing conditionally.
e.
Restrictive indorsement
Sec. 36. When Indorsement Restrictive. An indorsement is

restrictive, which either:
(a) Prohibits the further negotiation of the instrument; or
(b) Constitutes the indorsee the agent of the indorser; or
(c) Vests the title in the indorsee in trust for or to the use of
some other person.
But the mere absence of words implying power to negotiate
does not make an indorsement restrictive.
Restrictive indorsement either restricts the right of

the indorsee to further negotiate the instrument or
reserves beneficial interest therein in the indorser or in
a third person.
In the latter case although the instrument may be

further negotiated, all subsequent indorsees take
subject to the rights of the restrictive indorser or
the third person, as the case may be.
Illustrations; three classes of restrictive indorsements:
1) Pay to X only. This prohibits entirely the further
negotiation of the instrument.
2) Pay to X for collection is a widely used form of
restrictive indorsement and constitutes the
indorsee an agent to collect in behalf of the
indorser. X may receive payment on the
instrument and may sue thereon in his own name.
however, no subsequent holder can acquire any
right in the instrument antagonistic to the right of
the first restrictive indorser.
3) Pay to X for Ys use is a restrictive indorsement
which vests the title of the indorsee in trust for or
to the use of some other person. X may receive
payment on the instrument and may sue thereon
but whatever he collects he holds in trust for Y. he
may negotiate the instrument but subsequent
holders cannot acquire rights which will defeat
the rights of Y.
White v National Bank (1880) Miller, J.
p. 97
Facts:
Issue:
Ratio:
7.
Indorsement to or by collecting bank
A holder of a check may either cash it with the drawee

bank, or may deposit it to his credit either in the
drawee bank or in another bank/
Where the holder deposits the check with a bank other
than the drawee, he would in effect be negotiating the
check to such bank, since he would have to indorse the
check before the bank will accept it for deposit.
If the indorsement is for collection restrictive

indorsement where the bank is merely an agent
for collection.
18
If the indorsement states for deposit

restrictive indorsement, as can be gleaned from
deposit slips that usually state that the bank is a
mere collecting agent.
Issue:
Ratio:
Furbee v Furbee (1936) Hatcher, Pres.
Leonardi v Chase National Bank of the City of New York (1942)

Hagarty, J.
p. 102
p. 113
Facts:
Issue:
Issue:
Ratio:
Whistler v Forster (1863) Erle, CJ
Ratio:
p. 114
8. Negotiation by joint or alternative payees or indorsees

Sec. 41. Indorsement Where Payable to Two or More Persons.
Where an instrument is payable to the order of two or more
payees or indorsees who are not partners, all must indorse,
unless the one indorsing has authority for the others.
Facts:
If the joint payees or joint indorsees are partners, then

the indorsement by one of the partners of his own
name and that of his partner, who is a co-payee or
joint indorsee with him, may constitute an
indorsement by each of them, and thus effect a valid
negotiation.
Presumes that a person signing has authority to sign
his partners name.
Facts:
Issue:
Ratio:
10. Cancellation of indorsements

Sec. 48. Striking Out Indorsements. The holder may at any
time strike out any indorsement which is not necessary to his
title. The indorser whose indorsement is struck out and all
indorsers subsequent to him are thereby relieved from liability
on the instrument.
9. Unindorsed instruments
Sec. 49. Transfer Without Indorsement; Effect of. Where the

holder of an instrument payable to his order transfers it for value
without indorsing it, the transfer vests in the transferee such
title as the transferor had therein, and the transferee acquires,
in addition, the right to have the indorsement of the transferor.
But for the purpose of determining whether the transferee is a
holder in due course, the negotiation takes effect as of the time
when the indorsement is actually made.
Applies only to an instrument payable to the order of

the transferor; cannot apply to bearer instruments.
If his predecessor had legal title, the transferee of an
unindorsed instrument acquires such, subject however
to the defenses and equities available among prior
parties. He has a right to sue in his own name, but he
cannot be considered a holder of the instrument.
The transferee however, may become a holder by
obtaining the indorsement of his transferor.
Gratuitous transferee has a right to sue on an
instrument as a legal owner thereof, but does not have
the right to compel the indorsement of his donor.
Simpson v First Nat. Bank of Roseburg (1919) Harris, J.

p. 109
Facts:
A holder must be able to trace his title to the

instrument back to the original owner, the payee.
If the instrument is payable to bearer on its face, then
whether or not there are indorsements on the back of
the instrument would be immaterial. The holder, who
is presumptively the owner by mere possession, has a
right to cancel any or all indorsements.
Where the instrument is payable to order in its face, the
situation is different. If all the indorsements appearing
on the back of the instrument are special, then all of
them would be necessary to the holders title.
11. Indorsement by agent

Sec. 44. Indorsement in Representative Capacity. Where any
person is under obligation to indorse in a representative
capacity, he may indorse in such terms as to negative personal
liability.
The authority of agent need not be in writing.

Agent should make it plain that he is merely signing in
behalf of the principal, otherwise he may be held
personally liable.
12. Presumption as to indorsements

Sec. 45. Time of Indorsement; Presumption. Except where an
indorsement bears date after the maturity of an instrument,
every negotiation is deemed prima facie to have been effected
before the instrument is overdue.
19
Sec. 46. Place of Indorsement; Presumption. Except where the

contrary appears, every indorsement is presumed prima facie to
have been made at the place where the instrument is dated.
Although indorsements after maturity are good to

transfer title, they prevent a holder from becoming a
holder in due course, thus subjecting him to defenses,
if any.
Presumption that every negotiation was effected
before the instrument was overdue is significant since
indorsements are usually not dated.
Law of the place of dating will govern any controversy
should there be a conflict of laws.
Sec. 42. Effect of Instrument Drawn or Indorsed to A Person As

Cashier. Where an instrument is drawn or indorsed to a person
as cashier or other fiscal officer of a bank or corporation, it is
deemed prima facie to be payable to the bank or corporation of
which he is such officer and may be negotiated by either the
indorsement of the bank or corporation, or the indorsement of
the officer.
The words corporation in Sec 42 does not include

cities and towns and confers no authority upon the
town treasurer to impose upon his town the liability of
an indorser.
13. Continuation of negotiable character

Sec. 47. Continuation of Negotiable Character. An instrument
negotiable in its origin continues to be negotiable until it has
been restrictively indorsed or discharged by payment or
otherwise.
The fact that the instrument is overdue does not affect

the right of the holder to further negotiate it if he
wishes to, but merely prejudices the status of
subsequent holders as they cannot be considered
holders in due course.
20

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TABLE OF CONTENTS

Kinds of negotiable instruments ...................................................................................................................................................... 1

Parties and the nature of their liability ............................................................................................................................................. 1

Functions of negotiable instruments ............................................................................................................................................... 1

The concept of negotiability ............................................................................................................................................................ 1

The origin of negotiable instruments .............................................................................................................................................. 2

History of the Negotiable Instruments Law ..................................................................................................................................... 2

Applicability of the Negotiable Instruments Law ............................................................................................................................ 2

CHAPTER 1 REQUISITES OF NEGOTIABILITY ............................................................................................................................................. 2

Written form and signature ............................................................................................................................................................ 2

Unconditional order or promise to pay............................................................................................................................................ 3

When unconditional ................................................................................................................................................................... 3

Sum payable must be certain ......................................................................................................................................................... 4

Payable in money ........................................................................................................................................................................... 5

Certainty of time of payment .......................................................................................................................................................... 5

When payable on demand ......................................................................................................................................................... 6

Payable at a fixed time ............................................................................................................................................................... 6

Payable at a determinable future time ....................................................................................................................................... 6

Effect of acceleration provisions ................................................................................................................................................. 6

Provisions extending the time of payment.................................................................................................................................. 8

Must be payable to order or bearer ................................................................................................................................................. 9

When the instrument is payable to order.................................................................................................................................... 9

When instrument is payable to bearer........................................................................................................................................ 9

Parties must be designated with certainty ..................................................................................................................................... 10

Maker and drawer ..................................................................................................................................................................... 10

Provisions not affecting negotiability .............................................................................................................................................. 11

Omissions not affecting negotiability............................................................................................................................................. 12

Rules of construction ................................................................................................................................................................ 12

CHAPTER 2 TRANSFER ............................................................................................................................................................................ 13

Delivery and issuance .................................................................................................................................................................... 13

Methods of negotiation ................................................................................................................................................................. 14

How indorsement made ................................................................................................................................................................ 14

By signature on instrument or on allonge.................................................................................................................................. 14

In case of joint payees ............................................................................................................................................................... 15

If name misspelled .................................................................................................................................................................... 15

Indorsement must be of entire instrument ..................................................................................................................................... 15

Kinds of indorsements ................................................................................................................................................................... 16

Basis of classification ................................................................................................................................................................ 16

Special and blank indorsements ............................................................................................................................................... 17

Qualified indorsement .............................................................................................................................................................. 17

Sec. 38. Qualified Indorsement...................................................................................................................................................... 17

Restrictive indorsement ............................................................................................................................................................ 18

Indorsement to or by collecting bank ............................................................................................................................................. 18

Negotiation by joint or alternative payees or indorsees .................................................................................................................. 19

Unindorsed instruments ................................................................................................................................................................ 19

Indorsement by agent ............................................................................................................................................................... 19

Continuation of negotiable character ....................................................................................................................................... 20

Instruments are negotiable when they conform to all

Certificate of deposit instrument issued by

Bond evidence of indebtedness issued by a

Check one who issues it orders his bank to

Draft order made by one person addressed

An indorser, by indorsing the bill or note, impliedly enters into

When the payee of an instrument transfers it to

As a substitute for money1 in payment for property or

The concept of negotiability

1) Indorser payee of an instrument who

Functions of negotiable instruments

liable to pay until

Secondary liability of drawers and indorsers is conditioned on two

Parties and the nature of their liability

Kinds of negotiable instruments

Significant distinction between a negotiable instrument

Any inquiry would entail delay in commercial