NEGOTIABLE INSTRUMENTS LAW

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. 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.
What does payable to order mean?

In the BOE, it means that the drawee directs the drawee to pay the payee specified,
or, if he does not specify a payee, to pay whoever he specifies. Such a designation is
made through the payee's signature on the check. A promissory note (PN) is a written
promise made by the maker to pay the payee specified, or, if not him, to anyone else
designated by him through (also) endorsement. Because a bill contains an unconditional
order to pay, this does not imply that the bill is necessarily payable to the order of the
court. A BOE may be payable to order or to bearer, depending on the circumstances. A
PN may also be payable to an order or to the bearer in the same way.

What is the rule on naming the payee?

The law requires that the payee must be named or otherwise indicated with
reasonable certainty. The payee of an instrument payable to order must be a person in
being, natural or legal, and ascertained at the time of issue. If there is no payee indicated,
no one could indorse the instrument. Consequently, it is useless to consider it as
negotiable.

NOTES: 1) Where the instrument is payable to the order of the drawer and it is acceptable
by the drawee, the instrument is equivalent to a promissory note by the acceptor in favor
if the drawer.
2) Being joint payees is indicated by the conjunction “and”.
E.g., “I promise to pay A and B or order P100. sgd. V.”
3) Being solidary payees is indicated by the conjunction “or”.
E.g., “I promise to pay to the order of A or B P100. sgd. V.”
 4) Example of par. f – “Pay to the order of Cashier of U.P. P10.”

Is the following instrument payable to order: “Pay to the order of Ms. Laya P100?
sgd. Coach.”?

It is true, because the instrument is payable to the order of a specific person or to him or
his order, or to both.

When can an instrument originally payable to order become one payable to bearer?

When the only or last indorsement is an indorsement in blank, this is considered a

violation of Section 98.

What is the rule re: the conversion of order noted to bearer notes?

Once a bearer instrument, always a bearer instrument is the rule in this case. This
rule only applies to instruments that were originally payable to the bearer. Order
instruments can be converted to bearer instruments, however, by the blank endorsement
of the payee or last endorsee on the order instrument. A contract that is not inconsistent
with the character of the endorsement may be written over the signature in blank to
convert it back into an order instrument in accordance with Section 35 of the Code of
Civil Procedure.

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.

What is the rule re: fictitious or non-existing persons?

There are two requirements for this provision: (1) the payee named must be fictitious or
non-existent, and (2) the person who makes the instrument payable must be aware that
the payee named is fictitious or non-existent. It is necessary to qualify the first
requirement. The phrase "fictitious person" does not refer only to individuals who do not
exist in the real world. If the intent of the person who creates or draws the instrument is
to create or draw a fake payee, an existing person may be considered a fictitious payee.
"Fictitious person" refers to someone who was never intended to receive the instrument
and thus has no legal claim to it because the drawer or maker never intended for it to be
payable to the individual in question. When determining whether an instrument is payable
to bearer as opposed to payable to a fictitious person, the lack of interest in the payee is
not the most important factor to be considered. Instead, it is the maker's or drawer's intent
not to make the person who made the payment the payee. As a result, it makes no
difference whether the drawer or maker uses the name of a living or deceased payee, or
whether the payee never existed in the first place. In this context, fictitious names are
those that are feigned or pretended, and a nonexistent person is someone who does not
exist in the sense that he was not intended to be the payee by the drawer. The makers
believe that such a person exists and has an interest in the transaction and intend for him
to receive the instrument, and the instrument is not payable to either a fictitious or a
bearer, as a result of which the instrument is not payable to either. The instrument can
only be payable to a fictitious person or to a bearer if the maker of the instrument, knowing
that the designated person does not exist, never intended for it to be paid to the
designated person.

NOTES: 1) Under the 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 drawer’s endorsement.
2) In sec.9e, the instrument contemplated is one originally payable to order.
It becomes payable to bearer where: (a) there is only one endorsement and such
is in blank: or (b) there are several endorsements but the last one is in blank. But
a blank endorsement cannot make a non-negotiable instrument (because payable
to a specified person) negotiable. The word “indorsement refers only to negotiable
instruments.

Sec. 10. Terms, when sufficient. - The instrument need not follow the language of
this Act, but any terms are sufficient which clearly indicate an intention to conform
to the requirements hereof.

NOTES: It is advisable to use the words of the law in order to avoid uncertainty. However,
under Sec. 10, it is not necessary to use the exact words of the law. The substance of the
transaction rather than the form is the criterion for the negotiability.
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.

NOTES: Sec, 11 applies to 3 cases: (1) the instrument contains the date of issue, in which
case it is presumed to be the true date of making or drawing; (2) in an accepted bill of
exchange, the acceptance is dated; in which case it is presumed to be the true date of
acceptance; (3) an instrument is indorsed and the indorsement is dated, in which case it
is presumed to be the true date of endorsement. But all such presumptions may be
rebutted by competent proof to the contrary. The burden of proving belongs to the persons
who disputes the veracity of the dates indicated.

Sec. 12. Ante-dated and post-dated. - The instrument is not invalid for the reason
only that it is ante-dated or postdated, provided this is not done for an illegal or
fraudulent purpose. The person to whom an instrument so dated is delivered
acquires the title thereto as of the date of delivery.

What is the rule on ante-dating and post-dating?

The parties must have mutually agreed to such dating in order for it to be
permissible under Section 12. When the date written on an instrument is later than the
true date of issuance or delivery, the instrument is said to be post-dated. When the date
written on an instrument is earlier than the true date of issuance or delivery, the instrument
is referred to as ante-dated. The general rule regarding such instruments is that the mere
fact that they are dated either antecedently or postdated does not render them invalid or
non-negotiable. It may be negotiated before or after the specified date, as long as it is not
negotiated after the date of maturity is specified. The only restriction is that the ante-
dating or post-dating cannot be used for illegal or fraudulent purposes, which is not the
case in most cases. Furthermore, title to the instrument is not acquired as of the date
written on the instrument, but rather as of the date of delivery on which the instrument is
actually received.

Sec. 13. When date may be inserted. - Where an instrument expressed to be

payable at a fixed period after date is issued undated, or where the acceptance of
an instrument payable at a fixed period after sight is undated, any holder may insert
therein the true date of issue or acceptance, and the instrument shall be payable
accordingly. The insertion of a wrong date does not avoid the instrument in the
hands of a subsequent holder in due course; but as to him, the date so inserted is
to be regarded as the true date.
Is the date necessary to an instrument?
 Under Sec. 6, the date is not necessary for the negotiability of the instrument.
However, the date may be necessary; (1) where an instrument is payable at a fixed period
after date but is issued updated; and (2) where an instrument is payable at a fixed period
after sight but the acceptance is updated. In these 2 cases, any holder may insert the true
date of issue or acceptance.

Carla issues an undated instrument to Susan, does the fact that is undated affect is
negotiability?

No. Susan can just fill in the true date of issues in order to determine the date of maturity.
But the instrument’s negotiability is not affected in accordance with sec. 6.

In the same example, suppose Susan puts a false date on the instrument and negotiates
it to Lyn, an innocent party. What are the effects?

The date Susan inserted is void, but as to Lyn, she can enforce it against Carla as the
performer is a subsequent holder in due course. Remember the rule is that between 2
innocents, the one who made possible the commission of the wrong bears the loss. Also,
as to Susan, the instrument becomes void. This being in accordance with this section as
well as with sec. 12, that ante or postdating (which ever case) for fraudulent purposes
renders the instrument void.