1.

Negotiable Instruments written contracts for the payment of money; by its

form, intended as a substitute for money and intended to pass from hand to hand,
to give the holder in due course the right to hold the same and collect the sum due.
2. Characteristics of Negotiable Instruments
a. negotiability right of transferee to hold the instrument and collect the sum
due
b. accumulation of secondary contracts instrument is negotiated from person
to person
!. "i#erence between Negotiable Instruments from Non$Negotiable Instruments
Negotiable Instruments Non-negotiable Instruments
Contains all the re%uisites of &ec. 1 of
the NI'
does not contain all the re%uisites of
&ec. 1 of the NI'
(ransferred by negotiation transferred by assignment
)older in due course may have better
rights than transferor
transferee ac%uires rights only of his
transferor
*rior parties warrant payment
prior parties merely warrant legality of
title
(ransferee has right of recourse against
intermediate parties
transferee has no right of recourse
+. "i#erence between Negotiable Instruments and Negotiable "ocuments of
(itle
Negotiable Instruments Negotiable Documents of Title
)ave re%uisites of &ec. 1 of the NI'
does not contain re%uisites of &ec. 1 of
NI'
)ave right of recourse against
intermediate parties who are secondarily
liable
no secondary liability of intermediate
parties
)older in due course may have rights
better than transferor
transferee merely steps into the shoes of
the transferor
&ub,ect is money sub,ect is goods
Instrument itself is property of value
instrument is merely evidence of title;
thing of value are the goods mentioned in
the document
-. *romissory Note unconditional promise to pay in writing made by one
person to anther, signed by the ma.er, engaging to pay on demand or a /0ed
determinable future time a sum certain in money to order or bearer. 1hen the note
is drawn to ma.er2s own order, it is not complete until indorse by him. 3&ec. 14+
NI'5
*arties ma.er payee
6. 7ill of 80change unconditional order in writing addressed by one person to
another, signed by the person giving it, re%uiring the person to whom it is
addressed to pay on demand or at a /0ed or determinable future time a sum certain
in money to order or to bearer. 3&ec. 126 NI'5
*arties
drawer
payee
drawee9 acceptor
:. Chec. bill of e0change drawn on a ban. and payable on demand. 3&ec. 14-
NI'5
4. "i#erence between *romissory Note and 7ill of 80change
Promissory Note Bill of Exchange
;nconditional promise unconditional order
Involves 2 parties involves ! parties
<a.er primarily liable drawer only secondarily liable
only 1 presentment for payment
generally 2 presentments for
acceptance and for payment
=. "istinctions between a Chec. and 7ill of 80change
CHECK BOE
$ always drawn upon a ban. or ban.er
$ may or may not be drawn against a
ban.
$ always payable on demand
$ may be payable on demand or at a
/0ed or determinable future time
$ not necessary that it be presented for
acceptance
$ necessary that it be presented for
acceptance
$ drawn on a deposit $ not drawn on a deposit
$ the death of a drawer of a chec., with
.nowledge by the ban.s, revo.es the
authority of the ban.er pay
$ the death of the drawer of the
ordinary bill of e0change does not
$ must be presented for payment within
a reasonable time after its issue 36
months5
$ may be presented for payment within
a reasonable time after its last
negotiation.
1>. "istinctions between a *romissory Note and Chec.
PN CHECK
$ there are two 325 parties, the ma.er
and the payee
$ there are three 3!5 parties, the drawer,
the drawee ban. and the payee
$ may be drawn against any person, not
necessarily a ban.
$ always drawn against a ban.
$ may be payable on demand or at a
/0ed or determinable future time
$always payable on demand
$ a promise to pay $ an order to pay
11. ?ther @orms of Negotiable Instruments
a. certi/cates of deposits
b. trade acceptances
c. bonds in the nature of promissory notes
d. drafts which are bills of e0change drawn by 1 ban. to another
e. letters of credit
12. (rust Aeceipt a security transaction intended to aid in the /nancing of
importers and retailers who do not have suBcient funds to /nance their transaction
and ac%uire credit e0cept to use as collateral the merchandise imported
1!. Ae%uisites of a Negotiable Note 3*N5 3&;"?5
It must
a. be in writing signed by the drawer
b. contains an unconditional promise or order to pay a sum certain in money
c. be payable on demand or at a /0ed determinable future time
d. be payable to order or to bearer 3&ec. 1 NI'5
1+. Ae%uisites of a Negotiable 7ill 37?85 3&;"?C5
It must
be in writing signed by the drawer
contains an unconditional promise or order to pay a sum certain in money
be payable on demand or at a /0ed determinable future time
be payable to order or to bearer
the drawee must be named or otherwise indicated with reasonable certainty
3&ec. 1 NI'5
Notes on &ection 1
$ In order to be negotiable, there must be a writing of some .ind, else there
would be nothing to be negotiated or passed from hand to hand. (he writing may be
in in., print or pencil. It may be upon parchment, cloth, leather or any other
substitute of paper.
$ It must be signed by the ma.er or drawer. It may consist of mere initials or
even numbers, but the holder must prove that what is written is intended as a
signature of the person sought to be charged.
$ (he 7ill must contain an order, something more than the mere as.ing of a
favor.
$ &um payable must be in money only. It cannot be made payable in goods,
wares, or merchandise or in property.
$ C drawee2s name may be /lled in under &ection 1+ of the NI'
1-. "etermination of negotiability
by the provisions of the Negotiable Instrument 'aw, particularly &ection 1 thereof
by considering the whole instrument
by what appears on the face of the instrument and not elsewhere
DIn determining is the instrument is negotiable, only the instrument itself and no
other, must be e0amined and compared with the re%uirements stated in &ec. 1. If it
appears on the instrument that it lac.s one of the re%uirements, it is not negotiable
and the provisions of the NI' do not govern the instrument. (he re%uirement lac.ing
cannot be supplied by using a separate instrument in which that re%uirement which
is lac.ing appears.
16. &um is certain even if it is to be paid with
a. interest
b. in installments
c. in installments with acceleration clause
d. with e0change
e. costs of collection or attorney2s fees 3&ec. 2 NI'5
1:. Eeneral Aule (he promise or order should not depend on a contingent event. If
it is conditional, it is non$negotiable.
80ceptions
a. indication of particular fund from which the acceptor disburses himself after
payment
b. statement of the transaction which gives rise to the instrument. 3&ec. ! NI'5
7ut an order or promise to pay out of a particular fund is not unconditional
Notes on ection !"
$ every holder is presumed to be a )"C 3&ec. -=5
$ the person who %uestions such has the burden of proof to prove otherwise
$ if one of the re%uisites are lac.ing, the holder is not )"C
$ an instrument is considered complete and regular on its face if a5 the
omission is immaterial b5 the alteration on the instrument was not apparent on its
face
$ an instrument is overdue after the date of maturity.
$ on the date of maturity, the instrument is not overdue and the holder is a
)"C
$ ac%uisition of the transferee or indorsee must be in good faith
$ good faith means lac. of .nowledge or notice of defect or in/rmity