Law on Negotiable

Instruments
Atty. Desiree Von Enriquez
OBJECTIVES:
To be able to determine whether an
instrument is negotiable or non-
negotiable; and
To be able to apply the provision
(Sec 1 of the NIL) in certain problems.
 Sec. 1 Form of Negotiable Instruments
(a)It must be in writing and signed by the maker or drawer;
(b)Must contain an unconditional promise to pay a sum
certain in money;
(c)Must be payable in demand or at a fixed or
determinable future time;
(d)Must be payable to order or bearer; and
(e)Where the instrument is addressed to a drawee, he must
be names or otherwise indicated therein with
reasonable certainty.
 Entertain all
possible sections
APPLY or provisions under
Consider: YES NIL the NIL relative to
Determine the problem
whether the • Whole
Instrument is instrument
Negotiable or • Face of the
Non- Instrument;
negotiable and Considered as an
• Sec 1 of NIL NO DO NOT Assignment of Rights,
APPLY therefore, provisions of
NIL the Civil Law, Code of
Commerce, other
existing laws shall
apply
(a) Must be in writing and signed by the maker or
drawer (Sec. 17, 18, 19, 20, 21,13)
 NOTE:
 Paper and in pen or pencil, or print to make it
movable
 Oral negotiable makes it harder to determine who
may be held liable
 Decreases the risk of the commission of fraud
 The maker or drawer intended that the same be
treated as a negotiable instrument and binds
himself to such instrument
 Signature of the maker or drawer is a prima facie
evidence that he or she is the maker or drawer of a
PN or BOE
 NOTE:
 In case of doubt as to the capacity of the person
signing the PN or BOE, he is deemed to be an indorser
(Sec. 17)
 Signature also signifies LIABILITY
 RULE: only a person whose signature appears on the
instrument is liable.
XPN:
Sec. 18 – use of trade name
Sec. 19 vis-à-vis Sec. 20 vis-à-vis Sec. 21- signature
as an agent
Sec. 23- Forgery
PROCURATION (Sec. 21- limited liability
Signature or Minors and
Corporation (Sec 22)
(b) Must contain an unconditional promise
to pay a sum certain in money (Sec. 3, 2);
 “promise” should not necessarily be shown or written in
the instrument.
 Any words equivalent to a promise of assumption of full
responsibility for the payment is allowed.
 Payable
 To be paid
 I agree to pay
 I guarantee to pay
 M obligates himself to pay
 Good for
 NOTE:
 It must be payable in money and not commodities
 Money includes all Legal Tender
 Legal Tender- is the money that the creditor is
compelled to accept as payment
 Gold and Silver or Bank notes are not money.
 The promise to pay is certain.
 In Re: Sec. 3 of NIL –UNCONDITIONAL PROMISE
(a)Reimbursement
(b)Particular account to be debited with the amount
(c) Statement of the transaction which gives rise to the
instrument
 XPN: order or promise to pay out of a particular fund=
CONDITIONAL =NON-NEGOTIABLE
 PROBLEM:

1) Is this negotiable?
2) Is this negotiable?

Indication of a
particular fund out
of which
reimbursement is to
be made

It is only after payment has

been made that the
sufficiency of the fund for
reimbursement becomes
material, reimbursement
being done subsequent to
payment.
 3) Is this negotiable?

CONDITIONAL= NON-
NEGOTIABLE
The specific fund is the
source of payment.
The payment, therefore
is conditioned upon the
sufficiency of the fund.
This is not a condition
rather it was simply a
reason why the maker is
paying the payee
NOTE: In Re: Payable in sum certain in
money
 Sec. 2 of NIL
 It must payable in money ONLY since it is a substitute
for money, otherwise, non-negotiable (Sec. 5)
 (a) with interest
(b) my instalments
(c) by stated instalments, with a provision that, upon
default in payment of any instalment, the whole shall
become due- ACCELERATION CLAUSE
(d) with exchange, whether at a fixed rate at the
current rate
→ NEGOTIABLE
NOTE:
Amount must be plainly stated in the face of the
instrument
Sec 2. (a) With Interest
Sec 2. (b) By stated installments
Sec 2. (c) Acceleration Clause
Sec 2. (d) With exchange, whether at a
fixed rate or at the current rate
Sec 2. (e) With costs of collection or
attorney’s fees, in case payment shall not
be made at maturity
Q: Is this
negotiable?
Q: Is this negotiable?
(c)Must be payable in demand or at a fixed
or determinable future time (Sec. 7, 4)
PAYABLE ON DEMAND: Sec. 7
When payable on demand.- An instrument is
payable on demand:
a)When it is so expressed to be payable on
demand, or at sight, or on presentation; or
b)In which no time for payment is expressed.
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.
NOTE:
It gives the holder the right to ask for payment
without waiting for a specific date or time.
Similar words may be used to have the same
tenor as that to demand: insist, ask, require,
order, request, exact, aim
Use of word ‘on demand’
Use of similar words
Does not express the time for payment
FIXED OR DETERMINABLE FUTURE TIME
(Sec 4)
Sec. 4. Determinable future time; what constitutes.-
An instrument is payable at a determinable future time, within
the meaning of this Act, which is expressed to be payable-
a) At a fixed period after date or sight; or
b) On or before a fixed or determinable future time specified
therein; or
c) 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.
(a) Payable at a fixed period after date

(Sgd.) Xander
(b) Payable at a fixed period after sight
(c) Payable on or before a fixed date
(d) Payable on or before a determinable
future time
(e) Payable 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
(d) Must be payable to Order or to
Bearer (Section 8, 9)
 If it lacks the requisites of negotiability, payee may not
negotiate it or indorse it to another. However, he may assign
his/her rights to another.

Order Instrument:
Bearer Instrument:
Instrument payable to order (Sec. 8)
 Drawn payable to the order of a specified person or to
him or his order
 Payable to the order of:
a)Payee who is not maker, drawer, or drawee; or
b)Drawer or maker; or
c) Drawee; or
d)Two or more payees jointly; or
e) One or some of several payees; or
f) Holder of an office for the time being
 Payee must be named or otherwise indicated therein
with reasonable certainty for the drawee or maker to
know upon whose order he/she should pay.
Instrument payable to bearer (Sec. 9)
 Bearer Instrument- is one where any person who is in
possession of the instrument is the one entitled to payment.
 Bearer Instrument:
a)Expressed payable to bearer;
b)Payable to a person named therein or bearer;
c) Payable to the order of a fictitious or non-exsisting person,
and such fact was known to the person making it so
payable;
d)Name of the payee does not purport to be the name of
any person; or
e) Blank indorsement.
(e) Where the instrument is addressed to a
drawee, he must be named or otherwise
indicated therein with reasonable certainty
(Sec 1, 128)
 A bill may be addressed to one or more drawees, thus:
“To A and B” or “To A, B, and C” whether they are
partners or not (sec 145)
 It cannot be addressed to tow or more drawees in the
althernative (‘or’) nor to two or more drawees in
succession (‘in the absence’)
SUMMARY: SECTION 1
(a) Must be in writing and
signed by the maker or • Sections: 17, 18, 19, 20, 21, 22, 23
drawer

•Section 3, 2
(b) Must contain an unconditional
promise to pay a sum certain in
money

•Section 7, 4
(c) Must be payable on
demand or at a fixed
determinable future time

(d) Payable to order or

bearer •Section 8, 9
(e) Where the instrument is
addressed to a drawee, he must
be named or indicated therein
with reasonable certainty
•Section 128