—
(a) At a fixed period after date or sight; or
(b) On or before a fixed or determinable future time specified therein; or -
(e) 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.
347. At a fixed period after date or sight; illustration. —“An instrument is payable at a determinable future time, within the meaning of this Act, which is expressed to be payable at a fixed period after date or sight.” The following is an illustration:
60 days after sight, pay to the order of Jose Soriano the sum of P1.000.00.
(Sgd.) To C
"After sight” means after the drawee has seen the instrument upon presentment for acceptance.
Hence, the date of maturity of the instrument is determined by counting 60days from the date it is presented to the drawee for acceptance. If the instrument is a promissory note, the date of maturity is determined by counting the period from the date of issuance.
348. On or before a fixed or determinable time. “An instrument is payable at a determinable future time, within the meaning of this Act, which is expressed to be payable x xx on or before a fixed or determinable time specified therein.”
Thus:
On or before December 31, 1950 I promise to pay A or order P1,000.00.
(Sgd.) Y
December 31, 1950 is the future time specified in the instrument. The maker has the option to pay on December 31,1950 or before said date.
349. Acceleration notes. ‘There are certain notes containing acceleration provisions which, for convenience, we may call acceleration notes. These provisions make it possible for the maker to pay the instrument at an earlier date or make it possible for the holder to require payment of the instrument at an earlier date. An illustration of the first class is the so-called—
‘payable on or before a certain date’ note. Illustrations of the latter class are those instruments:
(1) that contain acceleration clauses on the maker’s default in payment of installments or of interest, or on the happening of n extrinsic event; (2) or contain, in notes secured by collateral, a provision that the maker shall supply additional collateral in case of depreciation in the value of the original deposit, with the holder’s right to declare the note due immediately on failure to make good the depreciation; or (3) contain provisions for acceleration where holder deems himself insecure.” The first is covered by paragraph (b) of Section 2.
350. Conflict of opinion as to the second. As to notes providing as to attached collateral that if it depreciates in value, the maker must, on demand, deliver additional security or else the note shall mature at once, there is a conflict of authority.
Thus:
(1) Those who maintain that such a stipulation renders the instrument non-negotiable argue that the time for payment becomes uncertain and indefinite. “If the maker fails when demanded to furnish additional security to the satisfaction of the holder, the note matures at once. It is argued that the maturity of the note is to be accelerated by the failure of the maker to do something in addition to the payment of money and both contingencies are made to depend upon something over which he has not the absolute control. It is within the power of the holder by refusing assent to what the maker has done to make the note due at any time. If the holder is not satisfied with
the additional security, the note matures at once, and thus, the time at which it may mature would depend upon the time at which the holder declared himself dissatisfied with the security delivered by the maker. The effect of such stipulation, therefore, is to leave the time when payable uncertain and indefinite.”
(2) Those who maintain that the stipulation in question does not render the instrument containing it non-negotiable argue “that from the standpoint of expediency as encouraging circulation and of business custom on account of their common acceptance by the commercial world, such clauses should be ‘interpreted as not affecting negotiability.” This appears to be the better view.
351. Conflict of opinion also as to third. As to notes containing provisions for acceleration where the holder deems himself insecure, there is a conflict of authority. Thus:
(1) It has been held that a note is rendered non-negotiable where it is payable at a fixed future time, but with an option on the part of the holder to declare it due and payable before maturity, whenever he deems it insecure.
(2) However, Brannan, in commenting on this, states: “It is submitted that these cases holding an instrument payable a fixed time, but accelerable at the option of the payee or holder non-negotiable are directly contrary to the plain meaning of this section. Such instruments are certainly payable ‘onor before a fixed x xx time specified therein’, and to hold them non-negotiable is certainly a spurious construction of the Act. Under a proper interpretation, these cases should be over ruled.” This appears to be the better view.
352.On the occurrence of a specified event. “An instrument is payable at a determinable future time, within the meaning of this Act, which is expressed to be payable x xx on- -- x xx the occurrence of a specified event which is certain to happen though the time of happening be uncertain.” It is essential that the specified event must be certain to happen although the time of happening is uncertain, such as, death. If the event specified is not certain to happen, then it is a condition, and the instrument would be rendered non-negotiable.
On the death of X, I promise to pay B ororder the sum of P1,000.00.
(Sgd.) A
The payment is on the occurrence of a specific event, the death of X, which is certain to happen although when it will happen is not certain. Hence, the instrument is negotiable.
353. After the occurrence of a specified event. “An instrument is payable at a determinable future time, within the meaning of this Act, which is expressed to be payable x xx at a fixed period after the occurrence of a specified event which is certain to happen though the time of happening be uncertain."
Thus, suppose A draws the following bill:
10 days after the death of X, pay to the order of B, P1,000.00.
(Sgd.) B To X
This is payable at a fixed period after the occurrence of a specified event, the death of X. This event is certain to happen although the time when is not certain.
354. Word used is “after.” It is to be noted that the wordused ¡n the law is “after” not
“before.” Is the following negotiable?
10 days before the death of X, I promise topay to bearer P1,000.00.
(Sgd.) B
This is not negotiable because the word used is “before” and the date of the maturity of the instrument can be determined only after the note has become overdue. Consequently, the time for payment is uncertain.
355. Last sentence. This refers to a condition such as, marriage, the election of a candidate, the graduation of a student, or the passing by a student of the bar examinations. Thus:
I promise to pay to X or bearer P1,000.0010 days after B passes the bar examinations.
(Sgd.) A
This is payable at a fixed period after a specified event but the event is not certain to happen.
Hence, the promise is conditional. But suppose B passes the bar, will that make the instrument negotiable? It will not because, according to the law, the happening of the contingency or condition does not cure the defect.
SECTION 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 obligor; or (d) Gives the holder an election to require something to be done in lieu of payment of money.
But nothing in this section shall validate any provision orstipulation otherwise illegal.
356. General rule as to additional act. As stated in the first sentence of this section, the general rule is that an instrument must not contain an order or promise to do any act in addition to the payment of money. Otherwise, the instrument would be rendered non-negotiable, for then the instrument would be payable not in money only but in money and the additional act promised or ordered to’ be performed. Thus, suppose A makes the following note:
I promise to pay to bearer Pl,000.00 and to deliver to him two carabaos.
(Sgd.) A
This note is non-negotiable because it contains an additional act to be performed.
357. Illustrations of additional acts. The following clauses have been held to render the instruments in which they arestipulated non-negotiable:
(1) “and to pay taxes assessed upon the note or its mortgage security.”
(2) “and to keep free from incumbrance property on which pledged for security, of the instrument depends.”
(3) “and to keep the machine, in payment for which it is given in repair.”
The test of negotiability is whether or not the promise would give rise to a cause of action for breach of contract if the additional act is not done. If it does, the instrument is rendered non-negotiable.
358. Premise to furnish additional security. A promise of the maker to furnish additional- will render the note non-negotiable, as that would be an additional act to the promise to pay money. However, they are to be distinguished from those instruments in which the holder may demand collateral and, failure to furnish it accelerates the instrument which are clearly negotiable, being merely accelerable on the non-performance of an optional act.
359. Sale of collateral securities. The law gives four exceptions to the general rule that
“an instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable.” The first is that “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.”
360. Sale of collateral securities, explained. Sometimes the obligation arising from the transaction which gives rise to the instrument is secured by a mortgage or pledge. Suppose A borrows from B P1,000.00. A’ may deliver by way of pledge to B his ring to secure the payment of the money he borrowed. He may also issue a promissory note in the following terms:
I promise to pay to B or order P1,000.00 on December 31. 1950, provided however, that if this note is not paid at the date of maturity, the ring which I deliver to B by way of pledge to secure the payment of my indebtedness to him may be sold by R and the proceeds thereof applied to the value of this note.
(Sgd.)A
As will be seen, the note contains an act ‘to ‘be performed in addition to the payment of money.
Nevertheless, according to the law, the instrument is still negotiable. And with reason, as the additional act to be performed is to be executed after the date of maturity, when the instrument ceases to be negotiable in the full commercial sense. Before the date of maturity, no additional act is performed except the payment of money. Hence, before and until the date of maturity, the promise to pay is to pay money only.
361. Sale of collateral securities before maturity. But a stipulation authorizing sale of collateral securities even before the date of maturity would render the instrument non-negotiable.
Thus, a note reciting that the title to property for which it is given shall remain in the payee, and
that he shall have the right to declare the money due and take possession of the property whenever he may deem himself insecure, “even before the maturity of the note,” is not negotiable.
362. Confession of judgment. The second exception to the general rule is that “the negotiable character of an instrument otherwise negotiable is not affected by a provision which x xx authorizes a confession of judgment if the instrument be not paid at maturity.” The following is the form of a cognovit or confession of judgment note:
………..195...
S………..
……….after date, for value received …………..promise to pay to the order of …………..dollars, at …………
with interest at . . . . % per annum.
And to secure the payment of said sum I authorize, irrevocably, any attorney of any court of record to appear for me in saidcourt, in term time or in vacation, at any time hereafter, and confess a judgment without process in favor of the holder of this note, for such amount as may appear to be unpaid thereon, with costs and . . . % attorney’s fees, and to waive all errors in any such proceeding and consent to immediate execution upon such judgment, hereby ratifying and confirming all that said attorney may do by virtuehereof.
(Signature)
The confession of judgment is an additional act. But, asin the preceding paragraph, the additional act is to be performed after the date of maturity when the instrument ceases to be negotiable in the full commercial sense.
363. Classes of confession of judgment. “In common law,there were two kinds of judgments by confession; the one, a judgment by cognovitsactionem, and the other, by confessionrelictaverficatione. The term ‘cognovit’ is often used interchangeably -with the term
‘confession of judgment’ or ‘judgment notes,’ but, technically, this is incorrect since
‘cognovit’means more than a warrant of attorney, as it also covers thejudgment itseIf.”
364. Cognovitactionem, defined. A written confession ofan action by a defendant, subscribed, but not sealed and irrevocably authorizing any attorney of any court of record to confess judgment and issue execution usually for a- sum named. It is given in order to save expense and differs from a warrantof attorney which is given to an expressly designated attorneybeforethecommencement of any action and is under seal.”
365. Confession relictaverificatione, defined. A confessionof judgment made after plea is pleaded, such as cogno vitactionem, accompanied by a withdrawal of the plea.
366. Warrant of attorney, defined. An instrument in writing addressed to one or more attorneys named therein, authorizing them, generally, to appear in any court, or in some specified court on behalf of the person giving it, and to confess judgement in favor of some particular person therein named in an action of debt.
367. Confession of judgment before maturity. A note which contains a provision authorizing confession of judgment at any time thereafter, whether due or not, is not negotiable it has been held by overwhelming weight of authority that a power of attorney to confess judgment at any time before maturity renders a note non-negotiable. A provision authorizing confession of judgment “before, at or after maturity” renders the instrument non-negotiable.
368. Effect of confession of judgment in the Philippines.
In the Philippines, confessions of judgement have been declared void “as against public policy”:
(1) because they enlarge the field for fraud; (2) because under the instrument, the promissory bargains away his right to a day in court; and (3) because the effect of the instrument is to strike down the right of appeal accorded by statute. And the mere fact that under paragraph (b) of Section 5, authorization of confession of judgment is allowed, does not validate such kind of stipulation in the Philippines, as under the last paragraph of said Section 5, nothing in said section “shall validate any provision or stipulation otherwise illegal.
369. Waiver of benefit. The third exception is that “thenegotiable character of an instrument otherwise negotiable isnot affected by a provision which x xx waives the benefit ofany -law intended for the advantage or protection of the obligor.” The following is an illustration of a note containing sucha waiver.
Six months after date, I promise to payB or order P1,000.00, waiving the right to appeal. and all of valuation, appraisement, stay and exemption laws.
(Sgd.) A
370. Other illustrations of benefits that may be waived. Other benefits intended for the advantage or protection of the obligor are the rights to (1) a presentment for payment, (2) notice of dishonor, and protest. All of these may be waived. Instruments otherwise negotiable in form sometimes contain a provision:
(1) “that the maker and indorser severally waive presentment and notice of protest, and consent that time of payment may be extended without notice,” and
(2) “that no extension of time of payment with or without our knowledge by the receipts of interest or otherwise shall release us or either of us from the obligation of payment,” or
(3) “that after maturity, this note may be extended from time to time by any one or more of us without the knowledge or consent of any of the others of us and, after such extension, the liability of all parties shall remain as if no such extension had been made,” or similar provisions.
These provisions seem intended merely to prevent the discharge of secondary parties by extensions of time but not to alter the specified date of maturity, unless there is an express agreement between maker and holder for such an extension subsequent to the execution of the note. These waivers clearly fall within Section 5(c), and, in the great majority of cases since the Negotiable Instruments Law, such provisions have been held not to impair the negotiability of the instrument.
371. Election of holder to require some other act. The fourth exception to the general rule is that “the negotiable character of an instrument otherwise negotiable is not affected by a provision which gives the holder an election to require something to be done in lieu of payment of money.” Under this paragraph, even if there is an additional act, the instrument still remains negotiable provided that the right to choose between payment of money or the performance of the additional act is in the hands of the holder. Thus, suppose A draws the following bill:
Pay to B or order P1,000.00 or lo cavanes of palay, at the option of the holder.
(Sgd.) A To C
In this case, the holder, not the drawee, has the choice of demanding either money or the 1 cavanes of palay. This instrument, therefore, is not non-negotiable.
372. Illustrative cases. The following are illustrative cases of instruments in which the holder is given the election to require something to be done in lieu of money, and therefore, the instrument in question is not rendered non-negotiable:
(1) A note providing that title to the property for which it was given should remain in the payee and upon non-payment at maturity, the property was to be repossessed by the payee, did not
(1) A note providing that title to the property for which it was given should remain in the payee and upon non-payment at maturity, the property was to be repossessed by the payee, did not