Commentaries and
Jurispudence on the
Commercial Laws of the
Philippines
THE NEGOTIABLE INSTRUMENTS LAW
(ACT No. 2031)
INTRODUCTION
176. Codification of the Law in England. The Negotiable Instruments Law is peculiarly
a creature of the law merchant, from which it was imported into England and crystallized in the England common law. It was codified in that country in 1882 by what is known as the Bills of Exchange Act.
177. Codification of the Law in United States. “In the United States there was, prior to
the drafting of the Negotiable Instruments Law, a codification of the law in some states but there was nothing looking toward a codification for all the states of the Union. The earliest codification for an individual state, in a strict sense, as heretofore stated, is found in the California Code of 1372.
“The history of the act looking to a uniformity of laws in all the states dated back to the year 1895. Then, at the request of the American Bar Association and through its cooperation, acts were passed in many states providing for the appointment by the governor of ‘Commissions for the Promotion of Uniformity of Legislation of the United States.’ It was provided that these should meet in joint conference, frame and adopt statutes which they would recommend to their respective legislature for all the states and thus endeavor to eliminate as much as possible the confusing conflict in the commonness principles and provisions of private law.
“At a conference of commissioners from nineteen states held in 1985, a resolution was adopted requesting the committee on commercial laws to produce a draft on a bill relating to commercial paper based on English Bills of Exchange Act and on such other sources of information as the committee might deem proper to consult and to prepare a codification of the law relating to bills and notes. The matter, as stated by John J. Crawford, was referred to a sub-committee consisting of Layman D. Brewster, of Connecticut; Henry C. Wilcox, of New York, and Frank Bergen, of New Jersey; and Mr. Crawford was employed by the sum-committee to draw the proposed law.
“In Drafting this law when to decisions of the state courts were conflicting, the rules of the Supreme Court of the United States were adopted and the decisions of that high tribunal were followed. When completed, the draft was submitted to the sub-committee who printed and sent copies each member of the conference, and also to many prominent lawyers and law professors and to several English judges and lawyers, with an invitation for suggestions and criticisms.”
“The draft was submitted to the conference which met at Saratoga in August, 1896; and the commissioners who were in attendance being twenty-seven in all and representing fourteen different states, in a session of three days by the entire conference went over it section by section
and made amendments therein. The draft, as thus amended, was adopted by the conference and recommended for general enactment by the state legislatures. It also met with the approval of the American Bar Association, and in such form was unanimously recommended by said association to the Legislatures of the several states and territories of the Union for adoption.
178. Purpose of codification. “As heretofore suggested in the preceding chapter, the law
is the result of two purposes; the first and chief purpose was to produce uniformity in the laws of the different states upon this important subject , so that the citizens of each state might know the rules which would be applied to their notes, checks, and other negotiable paper in very other state in which the law was enacted, since it was an absolute impossibility for the commercial purchaser in any state to know all the details affecting the negotiability of paper governed by the laws of all the other states. The second purpose was to preserve the law as nearly as possible as it then existed. And it may be said probably without question that, in the enactment of the statute, no essential feature of the Law of Negotiable Instruments as therefore determined has been eliminated. While it is simple and intelligible in its expression, great care was taken to preserve the use of words which had repeated legal constructions and had become recognized terms in the law merchant.”
179. Law embraces substantive and adjective law. The law of negotiable instruments
is one of the few subjects embracing both the substantive and adjective law and consequently, pleading and practice as well as the substantive law must be treated in a book on the law on negotiable instruments in order to completely and accurately cover that subject. A knowledge of both is necessary and essential.
180. Application of Law; where Exclusive. A case arising from a bank check which is
indisputably a negotiable instrument is, insofar as the indorsee is concerned vis-à-vis the indorser, governed solely by the Negotiable Instruments Law (Secs 1 and 185). Article 2071 of the New Civil Code on the rights of the guarantor is here completely irrelevant and can have no application whatsoever.
181. Some matters not covered by law. As already stated, the negotiable instruments
law was intended to govern the law on that subject upon which there was unanimity of decision. Consequently, certain matters were intentionally omitted by the author of the law arising from a diversity of decisions in a various jurisdictions on this matters and because the decisions were so evenly divided. “Among the omitted matters are those pertaining to the conflict of laws, whether or not the giving of a negotiable instrument is presumed to be given in payment, matters pertaining to negligence in the execution and circulation of negotiable instruments when fraud is also an element, the rights of remitters, and failure to stamp.”
182. Adoption of law in the Philippines. The Negotiable Instruments Law of the
Philippines was patterned after the draft approved by the Commissioners of Uniform State Laws in the United States. It was enacted as Act No. 2031 on February 3, 1911 and took effect ninety
days after the publication in the Official Gazette of the Philippine Islands was completed. This was on March 4, 1911, and therefore, the Act took effect on June 2, 1911.
183. Most common forms of negotiable instruments. The Negotiable Instruments Law
deals with three kinds of Negotiable Instruments, namely” (1) Promissory Notes, (2) Bills of Exchange, and (3) Checks, which are also bills of exchange, but of a special kind. There are other forms of negotiable instrument. An instrument which does not comply with the requirements of Negotiable Instruments Law is a simple contract in writing and is merely in evidence of such intangible rights as may have been created by the assent of the parties. If, however, it conforms to the requirements of the Negotiable Instruments Law, the instrument is itself the contract and not just a mere evidence of rights. It is a mercantile specialty.
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 determinable future time, a sum certain in money to order or bearer. Where a note is drawn to the maker’s own order, it is not completed until indorsed by him.” From the foregoing, it will be noted that a promissory note is essentially a promise to pay a sum certain in money. The promise is to pay on demand or at a fixed determinable future time. Its use must, therefore, be distinguished from the use of cash. Thus, a person who purchased a piece of land at public auction cannot be compelled to accept a promissory note which the judgment debtor is tendering under his right of redemption pursuant to Section 66 of Act 3135 as amended.
185. Illustration of promissory note. The following is an example of a promissory note:
P10,000.00 Manila, Philippines August 1, 1949 For value received, I promise to pay to the order of Pedro Reyes the sum of Ten Thousand Pesos (P10,000.00) on or before December 31,1949, at the Philippine National Bank, Manila. (Sgd.) ExequielFerrer
186. General characteristics of a promissory note. The following are the general
characteristics of a promissory note:
(1) The figures at the upper left hand corner of the instrument, “P10,000.00”. This is to indicate the amount of the note and is more quickly grasped that if the written in words.
(2) The place, “Manila, Philippines.” It shows the place where the contract to pay is executed.
(3) The date, “August 1, 1949.” It is usually inserted either to determine when the note is due or to fix the time when the interest is to run, when the payment for interest is stipulated, or whether or not the collection of the instrument is barred by the statute of limitations.
(4) The date of maturity, “on or before December 31, 1949.” This indicates the time when the promise to pay is to be fulfilled. Where, however, the date of maturity is not stated, the instrument is payable on demand.
(5) The promise, “I promise to pay.” It consists of an absolute promise to do something, that is , to pay. It is not subject to the fulfillment of a condition.
(6) The words, “to the order of.” It means that the promise is to pay as ordered or as commanded by the payee. But an instrument may be payable to bearer.
(7) The name, “Perdo Reyes.” He is the person to whose order or command the money is promised to be paid. He is known as the payee.
(8) The signature “ExequielFerrer.” ExequielFerrer is the maker of the note. He is the one who promises to pay it at the first instance. A note may be signed by more than one person either jointly, or jointly and severally.
(9) The place of payment, “at the Philippine National Bank.” It indicates where the note is to be paid. However, that is not necessary. An instrument may be made payable at any other place agreed upon by the parties.
(10) The amount, “Ten Thousand Pesos.” It indicates, as the figures do, the sum promised to be paid. As it is written in words, it cannot easily be altered and, since it takes longer to write the words than the figures, the words are more likely to be accurate.
(11) The consideration, “for value received.” This indicates that a consideration was given for the note. The consideration may be specified. But the words “for value received” may be omitted and the consideration not specified, as consideration is presumed.
187. Origin and history of promissory note. Promissory note are said to be and to have
been in Romans; but the negotiability of these instruments was unknown among the Romans and is the development of modern times. The time of the introduction of promissory notes into the England is not absolutely known but it appears to have been thirty years before the reign of Queen Anne. They were use for a considerable time before they became the subject of the litigation and legislation. The common law judges were opposed to the negotiability of promissory note payable to order or bearer matter, the result of which was the enactment of a statute conferring upon promissory notes the same qualities of assignablity and negotiability as were opposed by the inland bills of exchange.
P10,000.00 Manila Philippines August 1, 1949 Thirty days after sight, pat to order of Juan Soriano the sum of Ten Thousand Pesos (P10,000.00), Philipiine Currency. Value received and charge the same to the account of
(Sgd.) Ernesto Reyes To Augusto Tolentino
215 Regina Bldg.
188. Special types of promissory notes, i.e. bonds, due bills, etc. See comments under
Section 184, this Volume.
189. Bill of exchange, defined. “A bill of exchange is an unconditional order of
writingaddressed by one person to another signed by the person giving it, requiring the person to whom it is addressed to pay demand or at a fixed or determinable future time of a sum certain in money to order or to bearer.” From the foregoing, it will be noted that a bill of exchange is essentially an order or a command in writing addressed to someone requiring him to pay a sum certain in money.
190. Illustration of bill of exchange. The following is an example of an ordinary bill of
exchange:
191. Nature of acceptance does not determine whether negotiable paper is bill or not. In a case, defendant, Aruego, contented that “the drafts signed by him were not really bills
of exchange but mere pieces of evidence of indebtedness because payments were not made before acceptance”. It was held that “as along as a commercial paper conforms with the definition of a bill of exchange, that paper is considered a bill of exchange. The nature of acceptance is important only in the determination of the kind of liabilities of the parties involved, but not in the determination of whether a commercial paper is a bill of exchange or not.”
192. General Characteristics of a bill of exchange.The following are the general
characteristics of a bill of exchange not found in the promissory note:
(1) The order or command to pay, “Pay to.” This is an order or command to pay. Thus, instead of a promise, the bill of exchange contains a command or order to pay money.
(2) The signature, “Ernesto Reyes.” Ernesto Reyes is the drawer. He corresponds to the maker of a promissory note,
(3) The name, “Augusto Tolentino.” Augusto Tolentino is the drawee. He is the one ordered or commanded to pay a sum certain in money.
193. Bill of exchange and promissory note distinguished. The fundamental distinction
between a bill of exchange and a promissory note is that the first is an order or a command, while the second is a promise. But that bill is an order to pay should not be confused with an instrument being payable to order. A bill may be payable to bearer and still be an order to pay money. Where a bill is payable to bearer, it is an “order to pay to bearer”. Where it is payable to order, it is an “order to pay to order.” Thus a bill of exchange is an order to pay not because it is payable to order but because, by it terms, it orders or commands the drawee to pay money to a payee or bearer.
A promissory note may be payable to bearer or to order, just as bill may be. Where a promissory note may be payable to bearer, it is a “promise to pay to order.” Where it is payable to order, it is a “promise to pay to order” But it does not become a bill by reason of the fact that it is payable to order.
194. Origin and history of bills of exchange. The bill of exchange is the earliest form of
negotiable instrument. Bills of exchange, which were first used by the bankers and merchants of Florence and Venice to facilitate the transfer of credits between distant points, came to England through France earl in fourteenth century, that is, came from the continent of Europe where they formed part of modern Roman or Civil Law. The English merchants used it as an instrument whereby he avoided either sending money out of the country or bringing money into the country. To pay a third party, he would give an order on one of the foreign debtors. Originally a bill of exchange was purely a trade transaction which was a means whereby one country avoided sending money to another.
195. Special types of bills of exchange, i.e. banker’s acceptance, money orders, etc.
See comments under Section 126, this volume.
196. Check, defined. “A check is a bill of exchange drawn on a bank payable on
demand.” Already stated, a check is a bill of exchange of a special kind.
197. Illustration of a check. The following is an example of a check:
The Philippines No. 519917B
Bank of Commerce Manila Philippines
Manila, August 20, 1956 Pay to Dionisio A. Laserna or order One Thousand Pesos.
P 1,000.00
(Sgd.) Mariano C. Verzosa To Augusto Tolentino
198. General Characteristics of a check.The general characteristics of a check are
similar to that of a bill of exchange for a reason that a check is a bill of exchange.
199. Special types of checks, i. e. certified check, cashier’s check, etc. See comments
under Section 185, this volume.
200. Distinctions between check and bill of exchange.
(1) A check is always drawn upon a bank or banker, whereas, an ordinary bill may or may not be drawn against a bank.
(2) A check is always payable on demand, whereas, an ordinary bill may be payable on demand or at a fixed or determinable future time.
(3) It is not necessary that a check be presented for acceptance as in the case of a bill of exchange. Checks are not to be accepted but presented at once for payment. However, if the holder requests, and the banker desires, he may accept.
(4) A check is drawn on a deposit while the ordinary bill of exchange is not. In other words, it is not necessary that a drawer of a bill of exchange should have funds in the hands of the drawee, but in the case of the check, it would be fraud.
(5) The death of the drawer of a check, with the knowledge of the banks, revokes the authority of the banker to pay, while the death of the drawer of the ordinary bill of exchange does not. But there are some decisions to the contrary.
(6) An ordinary bill of exchange may be presented for payment within a reasonale time after its last negotiation. But a check must be presented for payment for payment within a reasonable time after its issue.
201. To whom instruments may be payable. As ready intimated, an instrument may be
made or drawn payable to: (1) bearer, or (2) order. It may also be payable to, (3) a specified person.
202. When payable to a bearer. In general, an instrument is payable to bearer: (1) when
it is expressed to be payable, or (2) when it is payable to a person named therein or bearer.
203. Illustration of payable to bearer. The following instrument is payable to bearer.
Pay to B or bearer P1,000.00
(Sgd.) A To X
204. When payable to order. An instrument is payable to order when it is expressed to
be payable (1) to the order of a specified person, or (2) to a specified person or his order.
205. Illustrations. (1) The following illustrates an instrument payable to the order of a
specified person.
I promise to pat to the order of B P1,000.00 (Sgd.) A
(2) The following illustrates an instrument payable to a specified person or his order. I promise to pay to B or his order P 1,000.00
(Sgd.) A
The first payable to the order of B (the specified person) and the second is payable to B (the specified person) or his order.
206. When the instrument payable to a specified person. An instrument is payable to
specified person when the instrument is payable to a person named in the instrument and no other. When an instrument is payable to a specified person, it is not negotiable because it is neither payable to bearer nor payable to order.
207. Illustration. The following instrument is payable to a specified person.
I promise to pay to B P1,000.00 (Sgd.) A
208. Parties to a promissory note. The following are the original parties to a promissory
note: (1) the maker, and the (2) the payee, if the instrument is payable to order, or (3) bearer, if the instrument is payable to bearer.
209. Maker. The person who executes the written promise to pay. In the illustration in
paragraph 201 of the text, A is the maker.
210. Payee. The person in whose favor the promissory note is made payable. In the
illustration, B is the payee. If the note is made payable to bearer, no patee is designated and it is payable to the person in possession thereof.
211. Parties to a bill of exchange. The following are the original parties to a bill of
exchange. (1) the drawer, (2) the payee, if the instrument is payable to order, and the bearer if the instrument is payable to bearer, and (3) the acceptor.
212. Drawer. The person who executes the written order to pay. In the illustration given
of a bill of exchange in the paragraph 197 of the text, A is the drawer.
213. Payee. The person in whose favor a bill of exchange is drawn payable. In the
illustration, B is the payee. If the bill of exchange is payable to bearer, no payee is designated and the bill is payable to the person in possession thereof. The bearer is the person in possession of a bill or note which is payable to bearer.
214. Acceptor. The drawee who signifies his assent to the order of the drawer. The
addressee of a bill of exchange, that is, the person who is commanded or orders by the drawer to pay a sum certain money, is called the drawee. When he signifies his assent to the order of the drawer, he is called acceptor and by thus accepting the bill, he becomes a party thereto. Before the acceptance, however, he is not a party to the instrument and is therefore not liable thereon. It is only when he accepts the bill that he becomes a party thereto and liable thereon. Acceptance is usually signified by writing across the bill the word “accepted,” with the signature of the drawee.
215. Parties to a check. As the check is a bill of exchange, although special kind, it had
the same parties as the ordinary bill of exchange. The only difference is that a check is usually certified to, not accepted by, the drawee bank. But certification is equivalent to acceptance,
216. Other parties to negotiated instruments, The following are the other parties
added to negotiable instruments when they are negotiated: (1) “indorser” and (2) “indorsee,” in the case of instruments payable to order and (3) “persons negotiating by mere delivery” and (4) “persons to whom the instrument is negotiated by delivery.” in the case of instruments payable to bearer.
217. Indorser and indorsee, explained. When an instrument is negotiated, other parties
are added to the instrument. Where the negotiation is by the indorsement completed by delivery, the parties added are the indorser and the indorsee. The Indorser is the one who negotiates by the indorsement and the indorsee is the one to whom the instrument is negotiated by the indorsement. When the payee indores a bill or a note, he becomes also an indorser. When the indorsee further indorses the instrument, he likewise becomes an indorser, and the person to whom he indorses it is another indorsee.
218. Where the instrument is payable to bearer. Where the instrument is payable to
bearer, it can be negotiated by mere delivery without necessity of indorsement. He, therefore, is also a part added to the instrument upon negotiation. For lack of a better term, he may be designated as “person negotiating by delivery” The person to whom the instrument payable to bearer is egotiated acquires certain rights as a holder. He is, therefore, also an additional party to the instrument. For lack of better name, he may be designated as “person to whom an instrument is negotiated by delivery.”
219. Holder. Section 190 defines “holder” as “the payee or indorsee of a bill or note,
who is in possession of it, or the bearer thereof.” And the “bearer” is therein defined as the “person in possession of a bill or note which is payable to a bearer.” Hence, the meaning of “holder” depends upon the kind of instrument involved. If payable to order, “holder” means the person (1) who is the payee or indorsee therein, and (2) who is in possession thereof. If the payable to bearer, “holder” means the person (1) who is in possession thereof.
220. Holder explained. Suppose A makes the following instrument: “I promise to pay B
or order P1,000.00 (Sgd.) A” (1) keeps it in his drawer and does not deliver it to B. Is B a holder? No because B is the payee, he is not in possession of the note.
(2) Suppose that A delivers the note to B and B indorses it to C, but delivers it to Y. Who is the holder, C or Y? Neither is the holder. Y is not the holder because while he is in possession of the note, he is no the indorsee. C is not the holder because while he is in the indorsee, he is not in possession of the note.
(3) Suppose that the note is payable to B or bearer and A keeps the note in his drawer. Is B the bearer? No, because he is not in possession of the note.
(4) But suppose that A delivers the note to Y but not to B. Is Y the holder? Yes, because Y is in possession of the note which is payable to bearer.
221. Incidents in “life” of negotiable instrument. The following are the incidents in
the “life” so as to speak of a negotiable instrument: (1) Issue (2) negotiation (3) presentment for the acceptance, in certain kinds of bills f exchange (4) acceptance (5) dishonor by non acceptance (6) presentment for payment (7) dishonor by non payment (8) notice of dishonor and (9) discharge.
222. Issue, defined. The “first delivery of the instrument, complete in form to a person
who takes it as a holder.” Thus, where A makes a note payable to the oerder of B who takes it as a holder, the delivery is called “issue”
223. Delivery, defined. Transfer of possession with intent to transfer title. It consist
principally of placing the transferee in possession of instrument, but it must be accompanied by an intent to transfer title. Delivery is essential as “every contract on negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto.
224. Negotiation, defined and explained. Negotiation is such transfer of an instrument
from one person to another as to constitute the transferee the holder of the instrument, In other words, negotiation is a mode od transferring an instrument. It is distinguished form other modes of transfer in that its effect is to make the transferee the holder of the instrument. Specifically, In the case of an instrument which is payable to order, any series to stes which make the transferee both the indorsee of the instrument and the possessor thereof constitute negotiation; and in the
case of an instrument which is payable to bearer, any step which makes the transferee of the instrument one in possession thereof constitute negotiation.
225. How is instrument payable to bearer negotiated. It is clear from the foregoing
that how an instrument is to be negotiateddepends upon whether it is payable to bearer or to order. If it is payable to bearer, it may be negotiated by mere delivery, although the law does not prohibit negotiation. By indorsement completed by delivery, Delivery is sufficient because by delivery, the transferee is placed in possession of the instrument, and the moment the transferee is in possession, he constitutes the holder thereof since the holder of an instrument is payable to bearer is one on possession of it.
226. How instrument payable to order negotiated. If the instrument is payable to order, it must be negotiated by indorsement completed by delivery. Indorsement is necessary to make the transferee the indorsee, and delivery is also necessary ti place the transferee in possession of the instrument. If there is indorsement only but no delivery, the transferee would be in possession, but not the indorsee. In either case, the transferee, would not be contributed the holder. Hence, there would be no negotiation. But there is indorsement completed by delivery, the transferee would be constituted the holder of the instrument since the holder of an instrument payable to order is the payee or indorsee thereof who is in possession of it.
227. Indorsement, defined and explained. Indorsement is a legal transaction, effected
by writing of one's own name on the back of the instrument or upon a paper attached thereto, with or without additional words specifying the person to whom or to whose order the instrument is to be payable whereby one not only transfers one's full legal title to the paper transferred but likewise enters into an implied guaranty that the instrument will be duly paid. It will be clearly see that, essentially, an instrument consists of the signature of the one indorsing and that an indorsement is usually written at the back of the instrument. There are two principal kinds of indorsement, (1) special, and (2) blank indorsement.
228. Special indorsement, defined and explained. A special indorsement is one that
specifies the person to whom or to whose order the instrument is to be payable. The following written at the back of the instrument is a special indorsement:
"Pay to Pedro Reyes. (Sgd.) Ernesto Rodriguez."
Ernesto Rodriguez is the indorser. He must either have been the payee or the indorsee. Pedro Reyes is the indorsee in this instrument.
229. Blank indorsement, defined and explained.An indorsement in blank is one that
merely of the signature of the indorser. The following written at the back of the indorsement is an illustration of a blank indorsement:
(Sgd.) Ernesto Rodriguez
Ernesto Rodriguez is the indorser. He must either have been the payee or an indorsee.
230. Negotiation, indorsement, delivery, compared. From the foregoing, the following
will be noted:
(1) Strictly speaking, indorsement is not equivalent to negotiation. Indorsement is merely the first step in the process of negotiating an instrument which is payable to order. The second step in the process is delivery. However, section 191 defines indorsement as "an indorsement completed by delivery." In this sense, indorsement is equivalent to negotiation.
(2) Where the instrument is payable to order, neither is delivery equipment to negotiation. The mere delivery of such instrument, without indorsement, is merely equivalent to an assignment thereof.
(3) But where the instrument is payable to bearer, delivery is equivalent to negotiation.
It should also be clearly understood that since the adoption of the Negotiable Instrument Law, "the terms 'indorsement,' ‘indorser,’ and ‘indorsee’ should be applied only to negotiable instruments and the words ‘assignment,’ ‘assignor,’ and ‘assignee’ to non-negotiable xxx instrument, that is, to all other instruments except negotiable instruments,
231. Presented for acceptance, explained. Presented for acceptance consists of
exhibiting the bill to the drawee and demanding that he accept it, that is signify his assent to the order or command of the drawer. It is required only in certain kinds of bills of exchange.
232. Meaning of “after sight.” Sometimes, a bill is drawn payable “thirty days after
sight.” This means that the bill is payable thirty days after has been resented for acceptance, whether it has been accepted or not. The period thirty days starts from the time the drawee “sees” the bill at the time it is exhibited to him for acceptance.
233. Acceptance, defined and explained. Acceptance is the signification by the drawee
of his assent to the order of the drawer. As already stated, this is usually done by writing across the face of the bill the word “accepted,” followed by the signature of the drawee. The term acceptance has, therefore, a technical meaning under Negotiable Instruments Law. It should not be used as the equivalent of “receive.” As to checks they generally certified instead of being accepted. The certification of a check is usually done by stamping on the check the word “certified” and underneath it is written the signature of the proper officer of the bank. “Certification is equivalent to acceptance.”
234. Dishonor by non-acceptance. Where the bill is presented for acceptance, and
acceptance is refused by the drawee, or cannot be obtained, or where presented for acceptance is excused, and the bill is not accepted, it is said to be “dishonored by non-acceptance”
235. Presented for payment, explained. Presented for payment consist of exhibiting the
instrument to the person primarily liable thereon and demanding payment from him on the date of maturity. This is required for all kinds of negotiable instruments.
236. Dishonor by non-payment. Where the instrument is presented for payment, and
payment is refused or cannot be obtained, or where presentment for payment is excused and the instrument is overdue and unpaid, it is said to be “dishonored by non-payment”
237. Notice of dishonor, explained. “When a negotiable Instrument has been dishonored
by non-acceptance or non-payment, a notice of dishonor must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is not given discharged.” The purpose is to notify the drawer and the indorsers that the instrument has not been accepted by the drawee, or that it has not been paid by the acceptor, in the case of bills, or by the maker, in the case of notes.
238. Discharge, explained. A negotiable instrument is usually discharged “by payment
in due course by or on behalf of the principal debtor. But where the one paying is a party secondarily liable on the instrument, it is not discharged.” Thus, suppose that A is the maker of a note and B is the payee. He indorses to C, C to D, D to E and E to F. If A pays the instrument, it is discharged. If C pays, the instrument is not discharged.
239. Parties primarily and secondarily liable, explained. Under the Negotiable
Instruments Law “the person ‘primarily’ liable on an instrument is the person who by terms of the instrument is absolutely required to pay the same. All other parties are secondarily liable.” When one speaks of primary and secondary liability, at least two debtors or obligors are contemplated. For instance, A and B are indebted to C in the sum of P10,000.00, A being primarily liable, B secondarily liable. This means that A, the person primarily liable, must in the first instance be made to pay obligation, and that it is only when he fails to pay, that the person secondarily liable, B in this case, must be made to pay.
240. In bills of exchange. In a bill of exchange, the acceptor is primarily liable. He is the
primarily liable because under Section 62, he is absolutely required to pay the instrument as he engages that he will pay it according to the tenor of his acceptance. He does not say that he will pay it if someone does not pay. In the bill of exchange, the drawer, the qualified or general indorser, and the person negotiating by mere delivery, are secondarily liable.
241. Secondarily liability of drawer. By the mere drawing of a bill, without saying
more, the drawer assumes the liability stated in Section 61. Under the said section, the general tenor of the liability of the drawer is that he will pay the bill if the drawee does not accept or pay
the bill. In other words, he is not absolutely required to pay the bill. If the drawee pays, then he is not required to pay. It is only when the drawee does not pay that he will be required to pay.
242. Secondary liability of indorser. By indorsing an instrument, without saying more,
an indorser assumes all the liability stated in Section 65 or 66, Under the said sections, the general tenor of the liability of the indorser is that he will pay the instrument if the person primarily liable will not pay. He is, therefore, not absolutely required to pay the instrument. If the person primarily liable pays, the indorser will not be required to pay. It is only when the person primarily liable fails to pay that he may be required to pay.
Thus a check while not regarded as legal tender is normally, under commercial usage, a substitute for cash. The credit represented by it in stated monetary value is properly capable of appropriation, as by the accused depositing check in his personal account.
243. Secondarily liability of one negotiating by delivery, By merely delivering an
instrument payable to bearer, without saying more, a person negotiating by mere delivery assumes the liability stated in the Section 65. Under the said section, the general tenor of the liability of a person negotiating by delivery is similar to that of an indorser.
244. In promissory notes. In the promissory note, the marker is primarily liable. The
qualified or general indorser and person negotiating by mere delivery are secondarily liable. Under Section 60, the agreement of the maker is that he will pay the instrument in according to its tenor. He does not say that he will pay it if somebody does not pay. Hence, he is primarily liable.
245. Function of negotiable instruments. They are a substitute for money and increase
the purchasing medium in circulation. Otherwise, mere specie or paper money would be needed in circulation to take care of everyday business transactions. Many customers of merchants pay their monthly bills by check and manufacturers when unable to obtain cash from their customers, take promissory notes, accepted bills, trade acceptances, or some form of commercial paper which their banks will discount and turn into money for their payrolls. Thus, negotiable instruments operate to supplement the currency of the government. The check is used for immediate payment while the ordinary bill of exchange and the promissory note are intended for circulation of credits.
246. Payment by negotiable instruments. Since a negotiable instrument is a substitute
for money, the question arises as to whether or not the giving and taking of a promissory note or bill of exchange is a prima facie absolute payment as in the case of money or merely a prima
facie conditional payment. In the Philippines, there is no conflict of opinions. The rule is that,
“the delivery of promissory notes payable to order, or bills of exchange or other merchantile 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.
247. Where there is no showing when check given in payment was encashed, filing of action to collect not clearly unfounded.
In the case, the debtors (Panginibans) sent a check to the creditor to to his check to his debt. It is shown when the check was cashed by the creditor (Inhelder) who later February 19, 1975, acknowledged having received the check. Meanwhile, February 12, 1975, the attorney of the creditor filed a collection case against the debtor which was dismissed. Later the debtor filed a case against the debtor which was dismissed. Later the debtor filed a case against the creditor for actual compensatory, moral and exemplary damages on the ground, among others, that the collection case was clearly unjustified. Is the debtor entitled to damages?
Held: It is not clear that the account of the Panganibans had already been paid as of February 12, 1975. Under the Article 1249 of the Civil Code, payment should be held effective only when PNB Check No. 32058 was actually cashed by, or credited o the account of Inhelder. If that did not eventuate on or the account would still be unpaid, and the complaint in the Collection Case, technically, could not be considered as substantially unfounded.
It is true that when the check of the Panginibans was received on February 5, 1975, the better procedure would have been to withhold a complaint pending determination whether or not the check was good. If dishonored, that would be the time to file the complaint. That procedure was not followed because of the failure of the corresponding advice which could have been given to Atty. Fajardo by the Inhelder Credit and Collection Manager. But the lack of that advice should not justify qualifying the Collection Case as clearly unfounded. If the check had bounced, the Collection Case would have been tried and acted upon by the Mandaluyong Court on merits.
248. Principal features of negotiable instruments. Negotiable Instruments have two
important features, namely: (1) negotiability, and (2) accumulations of secondary contracts as they are transferred from one person to another.
249. Negotiability, explained. It is that attribute or property “whereas a bill, note or
check passes or may pass from the hand to hand similar to money, so as to give the holder in due course the right to hold the instrument and collect the sum payable for himself free from defense.” “Thus, men in this way without cash in hand are enabled by means of credit to conduct and carry to completion business enterprises upon their promissory notes, bill of exchange and checks, knowing that other businessmen will treat these promises as cash. Furthermore, the purpose of negotiability is to allow the bills and notes to go from hand to hand in the commercial markets and to take the part of money in commercial transactions.” The defenses from which the holder in due course is free are personal defenses but not his free from real defenses.
250. Purpose of Negotiability. The primary purpose of negotiability of negotiable
instrument is to allow bills and notes the effect which money, in the form of government bills or notes, supplies in the commercial world.
251. Illustration of Negotiability. (1) A induces B by fraud to make a promissory note
payable to the order of A in the sum of P1,000.00 payable on demand. This is fraud in inducement which is a personal defense. If A files action against the maker B, for the aount, B can interpose the defense that he was induced to make a note by fraud and that he did not receive any valuable consideration for it.
(2) Suppose that instead of trying to collect from B, A transfers the note to C, who pays P1,000.00 and acquires the note under circumstances that make him a holder in due course. And then he, C, files an action against B, the maker of the note for P1,000.00. If the note were not negotiable, B can still interpose the same defense that he could interpose against A, with whom he is an original party. But if the note is negotiable, B cannot interpose the defense that he was induced by fraud to make the note that he did not receive any valuable consideration for it because, by virtue of its attribute negotiability, C, the holder in due course, has “the right to hold the instrument and collect the sum payable regardless of defenses which might obtain between the original parties.”
252. Accumulation of secondary contracts, explained.Next to negotiability, the most
important characteristics of negotiable instrument is the accumulation of secondary contracts which they pick up and carry along with them as they are negotiated from one person to another. This attribute of negotiated instruments is just as essential as negotiability, if they are serve as substitute of money. The party to whom it is offered may not know anything about the original parties on their solvency and can afford to take paper only if the party with whom he is dealing with adds his credit.
253. Illustration of accumulation of secondary contracts. Negotiation not only
operates to transfer negotiable instruments but also makes a contract for one negotiating it. Thus suppose A makes a notes payable to the order of B. The primary contract is the one contained in the promissory note proper whereby the maker promises to pay the payee or bearer, as the case may be, the sum certain stated therein. If B indorses the note to C, by merely indorsing without saying more, he thereby enters into a contract whereby he binds himself to pay the note, if A maker does not pay. This is already a secondary contract. If C further negotiates the note to S. he enters into a similar contract. This is another secondary contract. And so on, as the instrument is transferred from one person to another.
254. Advantage of accumulation secondary contracts. Thus negotiable instruments
improve as they pass from hand to hand, as more debtors are added. There are many secondary contracts and debtors as the indorsements. Hence, the more indorsements, the more debtors there will be, the more debtors there are, ther greater the chances that the holder has to collect the amounts payable on the instrument.
255. Negotiability distinguished from assignability. The following are the distinction
(1) Assignability is a more comprehensive term than negotiability and pertains to contracts in general. On the other hand, negotiability pertains only to special class of contracts, namely, to negotiable instruments.
(2) A person who takes an instrument by assignment takes the instrument subject to defenses obtaining among the other original parties, whereas, a person who takes an instrument by negotiation takes it free from personal defenses available among the parties.
(3) At a common law, to maintain an action on a common law instrument, it was necessary to allege and prove consideration. But in action on negotiable instrument, consideration is presumed and need not be alleged and proved. This distinction does not, however exist in the Philippines, as in every contarct, whether negotiable or not, “although the cause is not stated in the contract, it is presumed that it exists, and is lawful unless the debtor proves the contrary.
(4) The indorser is not liable on his indorsement unless there be presentment for payment at maturity and prompt notice of dishonor in case of dishonor. When these steps are taken, he becomes immediately liable on the instrument.
(5) The general indorser is secondarily liable for any cause for which the party primarily liable on negotiable instrument does not pay. He warrants the solvency of the party primarily liable. The qualified indorser and the person negotiating by mere delivery have limited secondary liability.
The assignor in good faith, however, does not warrant the solvency of the debtor unless it has been expressly stipulated or unless the solvency was prior to the assignment and of common knowledge. He merely warrants the existence and legality of the credit assigned at the time of the assignment.
I – FORMS AND INTERPRETATION
Section 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.
256. Requisites as to negotiable note. A promissory note, to be negotiable, must
conform to the following requirements: (1) It must be in writing and signed by the marker; (2) it must contain an unconditional promise to pay a sum certain in money; (3) it must be payable on demand, or at a fixed or determinable future time; and (4) it must be payable to order or to bearer.
257. Requisites as to negotiable bill. A bill of exchange, to be negotiable, must conform
to the following requirements. (1) It must be in writing and signed by the drawer; (2) it must contain an unconditional promise to pay a sum certain in money; (3) it must be payable on demand, or at a fixed or determinable future time; and (4) it must be payable to order or to bearer; and (5) the drawee must be named or otherwise indicated therein with reasonable certainty.
258. The instrument must be in writing. The word in “instruments” implies that which
has been put into writing. In order to negotiate, there must be in writing of some kind, for, if the instrument were not in writing, there would be nothing to be negotiated or passed from hand to hand. The writing may be in ink, print, or pencil. It may be upon parchment, cloth, leather, or any other substitute of paper.
259. The instrument must be signed by the maker or drawer. The full name may be
written. At least, the surname should appear and, generally, the signature usually is by writing the signer’s name. But it consist of mere initials or even numbers such as 1, 2, 8. But, where name is not signed, the holder must prove that what is written is intented as a signature of the person sought to be charged.
260. How signature written. The name may be printed, tyoewritten, stamped, engraved,
photographed or lithographed. But in such case, it must me shown to have ben adopted and used by the party as his signature.
261. Location of Signature. The signature of the maker or drawer is usually written at
the middle, or at the bottom. What is important is that it appears there from that the person intended to make it his own.
262. Illustration of location of signature. Suppose the promissory note reads as follows.
P3,000.00
Manila, P.I. January 1, 1950
I, ORLANDO FERRER, after date of promise to pay to X or his order the sum of P3,000.00.
This is held sufficient, as the signature appears in the body or the note.
263. If a bill, it must be contain an “Order to pay”. A bill is something more than the
mere asking of a favor. It is an instrument demanding right. It is, however, not necessary that the word “order” be used. Any words which are equivalent to an order or which show the drawer’s will that the money should be paid are sufficient to make the instrument a bill of exchange.
264. Effect of mere authority to pay. Suppose the bill of exchange reads as follows:
I hereby authorize you to pay P1000.00, on our account, to the order to Pedro Cruz.
(Sgd.) Jose Reyes To X
Is this instrument negotiable? It is not negotiable because not is not an order to pay. It is mere authorization to pay. By the terms, the bill gives a discretion to the drawee to pay or not to pay,
265. Effect or mere request to pay. Suppose the bill of exchange reads as follows.
Please to let the bearer have P70.00 and place to my account and you will oblige. (Sgd.) Ernesto Cruz
To Reynaldo Reyes 207 LUZCo Bldg.
This bill is not negotiable because it does not contain an order to oay. It is nothing but mere request to pay.
266. Effect of mere words of civility. Suppose the instrument reads as follows.
Mr. X will oblige X by paying Z or order P1,000.00 on his account. (Sgd.) Y To X
This instrument is negotiable. The mere fact that it contains word of civility or courtesy does not make it non negotiable. In spite these words of courtesy or civility, the bill still contains an order to pay. The word “by paying” are held sufficient to import an order to pay.
267. Where instrument is a note, it must contain promise to pay. The promise to pay
must be on the instrument itself, although it is not necessary to use the word “promise”. It is enough (1) that words of equivalent meaning are used, or (2) that the promise is implied from the promissory words contained in the instrument. But the promise to pay cannot be implied from the mere existence of a debt.
268. Words of equivalent meaning. Instead of the promise, the following words may be
used: “agree”, “will pay” “shall pay” and the like. Thus, the following will be deemed to contain a promise:
I agree to pay to the order of B, P1,000.00 (Sgd.) Z
The foregoing is the promissory note because, although it does not use the word “promise,” still the word “agree” means a promise to pay.
269. Promissory word implying a promsise; illustrations.
As already stated, instead of the word “promise,” any word s fairly importing a promise to pay may suffice. The following may be given as illustrations:
(1)The following contains a promise to pay because the word “good” implies a promise to pay. Good to X or order P1,000.00
(Sgd.) Y
(2)When it is alleged that the defendant company “se obligo a pagar” it may, perhaps, be considered as equivalent to an allegation that the company “promised” or “agreed” to pay.
(3) The following also contains a promise to pay because the words “payable on demand” necessarily imply a promise to pay.
Due X or order P1,000.00 payable on demand. (Sgd.) Y
270. Effect of mere acknowledgement of debt. A mere admission that the debt is due is
not sufficient. Thus:
Due x P1,000.00 (Sgd.) Y
The foregoing is not a promissory note because nothing but an acknowledgement of a debt. As such, it evidences only the existence of a debt. As already stated before, a promise to pay cannot implied from the mere existence of a debt.
271. When the acknowledgement of a debt is a promise; Illustration. In addition to
the acknowledgement of the indebtedness, there must be other words expressing the intention to pay, such as:
(1) In the following, the words, “to be paid” imply a promise to pay.
I do acknowledge myself to be indebted to X or order in the sum of P1,000.00, to be paid on demand.
(Sgd.) Y
(2) The following may be held promise because the sense requires the words “to be paid” to be supplied before the words “on demand.”
Due X or order on demand P1,000.00
(Sgd.) Y
(3)In the following, the fact that the note contains on express promise to pay a specified amount is no moment because an acknowledgement may become a romise in addition words by which a promise of payment is naturally implied, such as, “payable on demand: “paid when called for”
Received from A P10,000.00 payable six months after the war, without interest. (Sgd.) Y
272.Effect of words of negotiability; illustrtations. The words “order” and “bearer” are
usually referred to as words of negotiability. Will the insertion of words of negotiability to be construed to import promise. Thus;
Due X or order value received.
(2) In the following, the word “bearer” has been held to imply a promise to pay. Due X or bearer P100, for value with interest.
273. The promise or order ro pay must be unconditional. It is not enough that there be
a promise or order. The promise or order must also be unconditional or absolute. This means that it must not be subject to condition. Based on Article 1179 of New Civil Code, a condition is: (1) a future event that may or may not happen, or (2) a past event which is unknown to the parties. It is distinguished from an event that is certain to happen, even though the time of its happening is not known.
274. Illustration of condition; effect. An example of a condition is marriage. In the
following, the order to pay is subject to a condition.
Pay to X or bearer P1,000.00 if he marries Z. (Sgd.) Y
To A
The foregoing is not negotiable instrument because the order “to pay” is subject to the condition that X marries Z. It is a condition because X may or may not marry Z. In other words, the marriage is uncertain.
275. Illustration of event certain to happen; effect. An example of an event that is
certain to happen, even though the happening thereof is uncertain is death. In the following, the promise to pay is subject to the happening of such an event:
I promise to pay B or order P1,000.00, ten (10) days after death of x. (Sgd.) A
The Instrument is not rendered non-negotiable.
276. Sum payable must be definite and certain. The amount of money to be paid must
be determinable by inspection and must be stated plainly on the face of the instrument, and, like the denomination of money, must be stated in the body of the instrument. Suppose that A makes the following note:
I promise to pay X or order P1,000.00 thirty (30) days from this date, at 6% interest.
Will the addition of interest make sum uncertain? No. The sum is certain because by mere mathematical computation, the amount to be paid on the maturity is ascertainable, namely, P1,000.00 plus 6% interest for 30 days. All that is required, however, is that the principal shall be certain.
277. Where the sum is not certain; illustration. But suppose the instrument reads as
follows.
I promise to pay to B or order P1,000.00 together with all sums that may be due to him on December 31, 1950.
(Sgd.) A
The sum is not certain, P1,000.00 is not only the principal amount due. It also includes all sums which may be due to B on December 31, 1950. How much those sums are is not stated and are unknown until December 31, 1950. Consequently, this instrument is not negotiable as the sums to be paid are not sums certain.
278. Sum payable must be in money only. Accordingly, a bill or note, if it is to be
negotiable, cannot be made payable in goods, wares, or merchandise, or in property, or in labor or services. So also, an instrument is not negotiable if it is made payable in bonds, corporate stocks, state paper, scrip, checks, foreign bills. Thus, the following instrument is not negotiable because it is not payable in money but in carabaos.
I promise to pay to B or his order P1,000.00 in carabaos.
279. Reasons for requirement that instrument be paid in money. The real reason for
the requirement that negotiable instrument must be payable in money obviously is that money is the one standard of value but in theory, at least, money always measures this rise and fall and remains the same. The chattel which is used as means of payment may fluctuate in value.
280. Legal tender, defined. The kind of money which the law compels a creditor to
accept in payment of his debt when tendered by the debtor in the right amount.
281. Legal tender in the Philippines. The following are legal tender in the Philippines:
(1) “The Philippine peso and half-peso, including the Philippine treasury certificates of any denomination, shall be legal tender at the rate of one dollar for two pesos for all debts, public and private. Philippine Subsidiary Coins of twenty centavos shall be legal amounts not exceeding twenty pesos. Philippine minor coins of nickel and copper shall be legal tender in amounts not exceeding two pesos.”
(2) “All notes and coins issued by the Central Bank shall be fully guaranteed by the Government of the Republic of the Philippines for all debts, both public and private.”
(3) The new victory series of the Philippine Treasury Certificate and Philippine coins identical to pre-war issue now in circulation.
282. Check not legal tender. A creditor is not bound to accept a check, in satisfaction of
his demand because a check even in good when offered, does not meet yhe requirements of a legal tender. This is true even as to manager check or whether the check is certified or not. Accordingly, a consignation by check is not binding upon the creditor unless accepted by him. And, it has further been held that, where a person entitled to make a repurchase of some property, deposits with the court by way of consignation a check for the repurchase price, the vendee is not under duty to accept the check and may refuse the consignation which cannot produce the effect of payment.
There is no question that the rule applies to ordinary checks. However as to certified checks and probably similarly situated checks such as manager’s check, as will be seen it has been held in a 1980 case, that a creditor cannot refuse to receive as payment a certified check, it being equivalent to cash.
However, in a recent case, it was held that a negotiable instrument is only substitute for money and not money, the delivery of such instrument does not by itself, operate as payment. A check whether a manager’s check or ordinary check, is not legal tender and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the oblige or creditor. Mere delivery of checks does not discharge the obligation under a judgement. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized. (Art. 1249, Civil Code, par. 3)
283. But if authorized by law or consent of creditor, cash may be substituted by other means, or may be check. In the absence of an agreement, either express or implied,
payment means the discharge of a debt or obligation in money (US v. Robertson, 5 Pet. (US) 641, 8 L. ed. 257) and unless the parties so agree, a debtor has no rights, except is ownperil, to substitute something in lieu of cash as medium ofpayment of his debt. Consequently, unless authorized to do so by law or consent of the obligee a public officer has no authority to accept anything other than money in payment ofan obligation under a judgment being executed. Strictly speaking, the acceptance by, the sheriff of the petitioner’s checks, in the case at bar, does not per se, operate as a discharge of the judgement.
284. Redemption by manager’s check where accepted, or not objected to on that ground, is valid. Redemption ‘of fore closed property by tender of payment accompanied by a
manager’s check is valid and efficacious where the purchaser rejected the tender on sole ground that it was insufficient, and not that it was not efficacious because it was made by check. That was accordingly waived. This Court has already sanctioned redemption by check where it was accepted.
285. Creditor cannot refuse payment of his credit by it being equivalent to cash. Illustrative case.
Facts. Creditor private respondent in the petition for certiorari refused used to accept the
payment of debtor petitioner herein, in the amount of P63,130, consisting of a certified, check for P50,000 and P13,130 in cash. Thereafter, creditor caused certain property of debtor to be sold at public auction.
The lower court sustained the refusal of the creditor on the basis of Section 63 of the Central Bank Law Articles1249 and 1248 of the New Civil Code.
Held: “The check deposited by the petitioner in the amount of P50,000.00 is not an ordinary check but a Cashier’s Check of the Equitable Banking Corporation, a bank of good. Standing and reputation. As testified to by the Ex-Officio Sheriff with whom it has been deposited, it is a certified crossed check. It is a well-known and accepted practice in the business sector that a Cashier’s Check is deemed as cash. Moreover, since the said check had been certified by the dráwee bank, by the certification, the funds represented by the check are transferred from the credit of the maker to that of the payee or holder; and for all intents and purposes, the latter becomes the depositor of the drawee bank, with rights and duties of one in such situation.” “Hence, the exception to the rule enunciated under Section 63 of the Central Bank Act to the effect “that a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor in cash in an amount credited to his account shall apply in this case. Considering that the whole amount, deposited by the petitioner consisting of Cashier’s Check of P50,000.00 and P13,130.00 in cash covers the judgment obligation of P63,000.00 as mentioned in the writ of execution. Then see no valid reason for the private respondent to have refused acceptance of the payment if the obligation in his favor. The auction sale therefore, was uncalled for."
286. In recent cases, Supreme Court has apparently made a contrary ruling. In two
recent cases, the Supreme court has ruled that since a negotiable instrument is only a substitute for money and not money, the de1ivy of such an instrument does not, by itself, operate as payment. A check whether a manager’s check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not valid tender of payment and may be refused receipt by the obligee or creditor.
Hence, the tender of payment made by the debtor was not valid for failure to comply with the requisite payment in legal tender or currency stipulated, the refusal to receive the tender of payment by the creditor is valid, and the subsequent consignation did not operate to discharge— the former-from its obligation to the latter.
287. Treasury certificates not legal tender for all purposes. “Even treasury certificates
are not legal tender except for the payment of taxes and public debts under Section 1626 of Act No. 2711 as amended by Act No. 3058.”
288. Instrument need not be payable in legal tender. It has been held that an
instrument need not be payable in lawful money of the United States. This is with reference to the pro vision of the Negotiable Instrument Law that the validity and negotiable character of an instrument are not affected by the fact that it designates a particular kind of current money in
which payment is to be made. But where the instrument is made payable in the paper or currency of a particular bank, specifically and absolutely, and without reference to the currency or value of the paper, it is held not to be for the payment of money and is not negotiable.
289. Instrument payable in foreign money. A bill or note may be made payable in
denominations of foreign money, currency, or coins, such as pounds or lire. Thus, 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 lawor 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 note is negotiable.
290. Illustration: Suppose the promissory note reads as follows:
I promise to pay to B or his order P1,000.00 (Sgd.) A
This instrument is negotiable, although payable in foreign money because dollars have a fixed value under our law in relation to our peso and the value of dollars can, by simple mathematical calculation, be expressed in the value of our pesos. But at present, this is subject to the provision of Republic Act No. 529.
291. Instrument must specify denomination. But the courts have held that the
instrument should express the specific denomination of money when it is payable in the money of a foreign country in order that the courts may be able to ascertain its equivalent value; otherwise, it is not negotiable.
And, under a leading New York case, where an instrument is made payable generally in the money of a foreign country without specifying the kind or denomination of the coin or money, so that payment may be made in our own coin or equivalent value as determined by the par of exchange, it is not negotiable. The foregoing, however, is not the invariable rule. In a case, a note payable in “Canada currency” was held negotiable.”
292. Republic Act 529. Section 1 of Republic Act No. 529 provides that “every
provision contained in, or made with respect to, any obligation which provision purports to give the oblige the right to require payment n gold in a particular kind of coin or currency other than Philippine currency or in an amount of money of the Philippines measured thereby, be as it is hereby declared against public policy, and gp1, void and of no effect, and no such provision shall be contained in, or made with respect to, any obligation hereafter incurred in every other domestic obligation heretofore or hereafter incurred, whether or not any such provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts. Provided that, if the obligation was incurred prior to the enactment of this Act and required payment in a particular kind of coin or currency measured, it shall be discharged in Philippine currency measured at the prevailing rate of exchange at the time the obligation was incurred except in case of a loan made in foreign currency stipulated to be payable in the same currency in which case, the rate of exchange prevailing at the time of the stipulated date of payment shall prevail. All coin and currency, including Central Bank notes, heretofore or hereafter issued and
