THE NEGOTIABLE INSTRUMENTS one person to another signed by the

LAW maker
I. FORM AND INTERPRETATION engaging to pay on demand, or at a
fixed
Section 1. Form of negotiable or determinable future time a sum
instruments. - An instrument to be certain
negotiable must conform to the following in money to order or to bearer
requirements: where a note is drawn to the makers
(a) It must be in writing and signed by own
the maker or drawer; order, not complete until indorsed by
(b) Must contain an unconditional him
promise or order to pay a sum certain in (Sec. 184, NIL).
money; 4.2. Bill of exchange - an order made
(c) Must be payable on demand, or at a by one
fixed or determinable future time; person to another to pay money to a
(d) Must be payable to order or to third person.
bearer; and unconditional order in writing
(e) Where the instrument is addressed addressed by
to a drawee, he must be named or one person to another signed by the
otherwise indicated therein with person giving it
reasonable certainty. requiring the person to whom it is
addressed to pay on demand or at a
fixed
Sec. 52. What constitutes a holder in or determinable future time a sum
due course. - A holder in due course is certain
a holder who has taken the instrument in money to order or to bearer (Sec.
under the following conditions: 126,
(a) That it is complete and regular upon NIL).
its face; Check: bill of exchange drawn on a
(b) That he became the holder of it bank payable on demand.
before it was overdue, and without
notice that it has been previously Promissory Notes Bill of Exchange
dishonored, if such was the fact; Unconditional Unconditional
(c) That he took it in good faith and for Promise order
value; Involves 2 parties Involves 3 parties
(d) That at the time it was negotiated to Maker- primarily Drawer- only
him, he had no notice of any infirmity in liable secondarily liable
the instrument or defect in the title of the Only 1 presentment Generally 2
- for payment presentments - for
person negotiating it. acceptance and for
payment
Kinds of Negotiable Instruments
1. Promissory note - a promise to pay Parties
money As regards promissory note:
unconditional promise in writing made 1. Promissor/maker
by 2. Payee - person to whom the promise
to pay is made.
As regards bill of exchange:
1. Drawer - person who gives the order
to pay.
2. Drawee - addressee of the order.
3. Payee - person to whom the payment
is to be made.
Indorser - the payee of an instrument
who transfers it to another by signing it
at the back thereof
Indorsee - person to whom the
indorser negotiates the instrument, who,
by such negotiation, becomes the holder
of the instrument.
NEGOTIABILITY
1 Requisites of Negotiability4
1.1. Must be in Writing and Signed by
the Maker
1. No person liable on the instrument
whose signature does not appear
thereon.
2. One who signs in a trade or
assumed name liable to same extent as
if he had signed in his own name. (Sec.
18, NIL)
3. Signature of party may be made by
duly authorized agent; no particular form
of appointment necessary. (Sec. 19,
NIL)
4. "In writing" - includes print; written or
typed
5. Signature, binding so long it is
intended or adopted as the signature of
the signer or made with his authority.
1.2. Must contain an Unconditional
Order or Promise to Pay
1. ORDER OR PROMISE TO PAY
a. PROMISSORY NOTE:
i. PROMISE TO PAY: should be
express on the face of the instrument
ii. Word "promise" is not absolutely
necessary. Any expression
equivalent to a promise is sufficient.
iii. Mere acknowledgment of a debt
insufficient
b. BILLS OF EXCHANGE:
i. Order - command or imperative
direction; the instrument, by its nature,
demanding a right.
ii. Words which are equivalent to an
order are sufficient.
iii. A mere request or authority to pay
does not constitute an order.
iv. Although the mere use of polite
words like "please" does not of itself
deprive the instrument of its
characteristics as an order, its language
must clearly indicate a demand upon the
drawee to pay.
2. UNCONDITIONAL
a. The promise or order to pay, to be
unconditional, must be unqualified.
b. Sec. 3, NIL: An unqualified order or
promise to pay is unconditionalthough
coupled with:
An indication of a particular fund out of
which reimbursement is to be made, or
a particular account to be debited with
the amount
UNCONDITIONAL: Mere indication of
the particular fund out of which
reimbursement is to be made, or an
indication of a particular account to be
debited with the amount
A statement of the transaction which
gives rise to the instrument.
UNCONDITIONAL: Mere recital of
the transaction or consideration for
which the instrument was issued
However, the fact that the condition
appearing on the instrument has been
fulfilled will not convert it into a
negotiable one. But an order or promise
to pay out of a particular fund is not
unconditional
CONDITIONAL: when reference to
the fund clearly indicates an intention
that such fund alone should be the
source of payment

1.3. Sum Payable must be Certain
1. Sec. 2, NIL: The sum payable is a
sum certain, even if:
a. With interest;
b. By stated installments;
c. By stated installments with
acceleration clause;
d. With exchange, whether at a fixed
rate or at the current rate; or
e. With costs of collection or attorney's
fee.
2. A sum is certain if from the face of the
instrument it can be mathematically
computed.
3. A stipulation to pay a higher rate of
interest if the note is not paid or a lower
rate if it is paid on or before maturity
does not render the instrument non-
negotiable.
1.4. Must be Payable in Money
1. Capable of being transformed into
money.
2. NON NEGOTIABLE: an instrument
which contains an order or promise to
do an act in addition to the payment of
money
3. BUT If the order or promise gives the
holder an election to require something
to be done in lieu of payment of money,
an instrument otherwise negotiable
would not be affected thereby. (Sec. 5,
NIL)
But if the option is with the maker
or person primarily liable, instrument
is NOT negotiable.
4. Kind of current money does not affect
negotiability. Since the value of the note
can by a simple mathematical
computation be expressed in the value
of the lawful money of the latter country
5. Obligations in foreign currency may
be discharged in Philippine currency
based on the prevailing rate at the time
of payment, pursuant to RA 8183
1.5. Time of Payment must be Certain
Purpose: Informing the holder of the
instrument of the date when he may
enforce payment thereof.
An instrument may be payable:
1. on demand (Sec. 7. NIL)
1.) Expressed to be payable on demand,
or at sight, or on presentation;
2.) No time for payment is expressed;
3.) Where an instrument is issued,
accepted, or indorsed when overdue, it
is, as regards the person so issuing,
accepting, or indorsing it, payable on
demand.
Demand instruments: Holder may call
for payment any time; maker has an
option to pay at any time, and the
refusal of the holder to accept payment
will terminate the running of interest, if
any, but the obligation to pay the note
remains.
2. at a fixed time
o Only on the stipulated date, and not
before, may the holder demand its
payment.
o Should he fail to demand payment, the
instrument becomes overdue but
remains valid and negotiable. It is
merely converted to a demand
instrument.
3. at a determinable future time
o Determinable future time, if
expressed to be payable (Sec. 4, NIL):
1.) At a fixed period after date of sight;
2.) On or before a fixed or
determinable future time specified
therein;
3.) 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.
o If payable upon a contingency, both
negotiable, and the happening of the
event does not cure the defect.
4. Effect of acceleration provisions
o If option (absolute or conditional) to
accelerate maturity is on the maker, for payment may never come at all.
still NEGOTIABLE.
Maker may pay earlier than the date 1.6. Must be Payable to Order or to
fixed but this option, if exercised, would Bearer/
be a payment in advance of a legal Must contain Words of Negotiability
liability to pay. words of negotiability - serve as an
It is still payable on the date fixed, expression of consent that the
and holder has no right to instrument may be transferred.
enforce payment against the o But the instrument need not follow
maker before such date. the language of the law; any term
o If option to accelerate is on the which clearly indicates an intention
holder: to conform with the legal
If option can be exercised only requirements is sufficient.
after the happening of a specified
event/act over which he has no control
(conditional), still NEGOTIABLE.
If option is unconditional, time of
payment is rendered uncertain,
NOT negotiable.
o Other instances where instrument still
NEGOTIABLE:
When option given to the holder to
accelerate the maturity of an installment
note upon failure of the maker to pay
any installment when due.
Acceleration, automatic upon
default.
Acceleration by operation of law.
5. Provisions extending time of
payment
o General rule: Negotiability not
affected. Effect is similar with that of an
acceleration clause at the option of the
maker.
Negotiability not affected, even if
the holder is given the option to extend
time of payment by mere inaction or
indulgence for an indefinite time
depending on his will, because with or
without this provision, the holder may
always choose to be indulgent.
o Exception: Where a note with a fixed
maturity provides that the maker has the
option to extend time of payment until
the happening of contingency,
instrument NOT negotiable. The time