Chapter I

FORM AND INTERPRETATION

Negotiable instrument
A written instrument signed by the maker or drawer for the unconditional payment of a
fixed sum of money, at a fixed or determinable future time, or on demand, to a payee or to his
order or to bearer.

Forms of negotiable instrument:

(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.

Negotiable instrument vs. Non-negotiable instrument

a) A negotiable instrument contains all of the requisites of Sec. 1; while a non-negotiable
instrument does not have any, some or all of the requisites mentioned in the said section of the
law.
b) A negotiable instrument is transferrable by negotiation, among other forms of transfer; while
a non-negotiable instrument is transferrable by assignment, not by negotiation

Chapter II
CONSIDERATION
Consideration is the immediate, direct, or essential reason which induces a party to enter into a
contract.
Value is any consideration sufficient to support a simple contract.
A holder for value is one who has given a valuable consideration for the instrument issued or
negotiated to him.
Absence of consideration means a total lack of any valid consideration for the contract, in
consequence of which the alleged contract must fail.
Failure of consideration means the failure or refusal of one of the party to do, perform of
comply with the consideration agreed upon.

Chapter III
NEGOTIATION
is transfer of an instrument from one person to another as to constitute the transferee
the holder of the instrument.
Instrument payable to bearer, is negotiated by delivery
Instrument payable to order, is negotiated by the indorsement of the holder completed by
delivery.
Chapter IV
RIGHTS OF THE HOLDER

The holder of a negotiable instrument may sue thereon in his own name, and payment
to him in due course discharges the instrument.

Holder in due course

a) That it is complete and regular upon its face;
b) That he became the holder thereof before it was overdue and without notice that it has been
previously dishonored, if such was the fact;
c) That he took it in good faith and for value;
d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument
or defect in the title of the person negotiating it.

Rights of a holder in due course

a) He may sue on his own name;
b) He may receive payment and if the payment is in due course, the instrument is discharged;
c) He holds the instrument free from any defect of title of prior party;
d) He holds the instrument free from defenses available to prior parties among themselves;
e) He may enforce payment of the instrument for the full amount thereof against all parties
thereon.
A holder in due course is free of all personal defenses but not in real defense.

Chapter V
LIABILITIES OF PARTIES

Chapter VI
PRESENTMENT FOR PAYMENT

Presentment refers to the act of the holder of a negotiable instrument of exhibiting a note to
the maker and demanding payment, or showing a bill to the drawee and requesting its
acceptance for payment.

Requisites for a sufficient presentment for payment;

 1) Presentment for payment must be made to the primary party- to the maker in case of
promissory note, to the acceptor in case of accepted bill.
2) If the bill the bill of exchange or check is payable on demand, the presentment must be
made to the drawee although he is not liable on the bill
3) If the person primarily liable is absent or inaccessible, then presentment must be made
to any person of sufficient discretion at the proper place of presentment.

Chapter VII
NOTICE OF DISHONOR
Notice given by the holder to the party or parties secondarily liable that the instrument
was dishonored by non-acceptance or non- payment, and that the party notified is expected to
pay it.
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.
Like presentment for payment, notice of dishonor is not necessary to charge persons
primarily liable but is necessary to charge persons secondarily liable.

Chapter VIII
DISCHARGE OF NEGOTIABLE INSTRUMENT

Chapter IX
BILL OF EXCHANGE
is an unconditional order in writing by one person to another, signed by the person
giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to order or to bearer.
Chapter X
ACCEPTANCE
It is the signification by the drawee of his assent to the order of the drawer.
Formal requisites of acceptance
Actual acceptance to be valid must be in writing, signed by the drawee, and must
contain an express or implied promise to pay money.
It is necessary that the acceptance be delivered or made known to the holder.