Quelton Rey C.

Amba
Negotiable Instruments Law I Final Requirement

Globalization: The Importance of Negotiable Instruments

In the aged of globalization and industrial evolution, where commercial systems and the
complexity of doing business had progressed, the negotiability, acceptability of the negotiable
instruments in the society must also improve. Many other commercial papers, negotiable or not, had
evolved and are circulating in the business arena. Being known as a medium used for different
commercial transactions and serving as a substitute for money, does all commercial papers circulating
can be considered negotiable instruments if it is valid in its form and in its content?

Before the lockdown, due to the COVID 19 pandemic scare, Philippines was the 13th largest
economy in Asia by nominal GDP according to the 2019 estimate of the International Monetary Fund’s
statistics.1 The country’s GDP growth rate had increased from July 2019 to January of this year to 2.2%
which only shows that the country is performing well, economically. We possibly balanced imports and
exports, performs well in international and domestic trade, and have a good democratic relationship
with other nations. Negotiable instruments, along with other commercial papers, plays a vital role in
simplifying our economic activities, specifically in facilitating ease and convenient trade.

Negotiable instruments as defined is a contractual obligation to pay money 2 . These are one of
the most important commercial instruments used as a substitute for money, a medium of exchange for
most commercial and credit transactions, and as means, in the case of check, of making immediate
payment. It is because of its principal features which are the negotiability and the accumulation of
secondary contracts that makes this instrument special among others. In Philippines, the used of these
instruments was regulated through the Negotiable Instruments Law and was enacted as Act No. 2031 on
February 3, 1911 and took effect on June 2, 1911. It seeks also to provide rules and regulations regarding
payments and performance of monetary obligations using money substitute media. 3 It has been around
centuries and still used even today in domestic or international trade not only here in Philippines but
also in abroad.

1
https://data.imf.org/?sk=388DFA60-1D26-4ADE-B505-A05A558D9A42
2
Hector S. De Leon (2010)
3
Jose Marlon P. Pabiton, Utilizing an Integrative Analytical Framework to Extract
Negotiable Instruments Law Principles, 48 ATENEO L.J. 248, 205 (2003)
 The negotiability of the instrument used for different commercial transactions is one of the most
common issues questioning its validity and/or of its negotiability. Section 1 of the Negotiable
Instruments Law (NIL) provides for an instrument to be negotiable all of the following requirements
should be conform and must be present on its form and/or its content, to wit:

1. It must be in writing and signed by the maker or drawer;

2. Must contain an unconditional promise or order to pay a sum certain in money;
3. Must be payable on demand, or at a fixed, or determinable future time;
4. Must be payable to order or to bearer; and
5. Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.

It is elementary that all valid instruments are not necessarily be negotiable. And that non-
negotiable instrument could be an instrument which does not meet the requirements laid down to
qualify an instrument as negotiable or that in its inception it was negotiable but has lost its quality or
negotiability. The common forms of negotiable instruments in the Philippines are the following 4;

1. Promissory notes
2. Bills of exchange
3. Checks, which are also bills of exchange, but of a special kind.

In the case of the Hongkong and Shanghai Banking Corporation Limited-Philippine Branches v.
Commissioner of Internal Revenue 5, the Supreme Court held on the issue whether or not emails are
negotiable instruments, states that under the Section 1 of the Negotiable Instruments law, emails fail to
conform to all the requirements listed in the said section, thus, are not negotiable instruments. Though
emails are written and signed by the maker or drawer, they do not contain unconditional order to pay a
sum certain in money as the payment is supposed to come from a specific fund or account of the
investor-client and they are not payable to order or bearer but to a specifically designated third party.
The Supreme Court further provides that the electronic messages are not bills of exchange and that
there was no bill of exchange or order for the payment drawn abroad and made payable here in the
Philippines.

4
https://batasnatin.com/law-library/mercantile-law/negotiable-instruments/876-negotiable-instruments-general-
principles.html
5
G.R. No. 166018, June 04, 2014
 The Supreme Court ruled in the case of Republic v. Sandiganbayan6 that blank shares of stocks
are not negotiable instruments. Stock certificate may sometimes be regarded as quasi-negotiable, in the
sense that it may be transferred by delivery, it is well settled that the instrument is non-negotiable,
because the holder thereof takes it without prejudice to such rights or defenses as the registered owner
or creditor may have under the law, except insofar as such rights or defenses are subject to the
limitations imposed by the principles governing estoppel.

In the Metropolitan Bank & Trust Company v. Court of Appeals 7 case it is held that treasury
warrants are not negotiable instruments. It is clearly stamped on the face of the treasury warrants the
word “non-negotiable” and with equal significance, it is also indicated that they are payable from a
particular fund, to wit, the Fund 501. It is clearly provided under the Negotiable Instruments Law that an
order or promise out of a particular fund is not conditional 8, therefore, the indication of Fund 501 as the
source of the payment to be made on the treasury warrants makes the order or promise to pay “not
unconditional” and the warrants themselves non-negotiable.

In Philippine Education Co. Inc. v. Soriano 9, the Supreme Court ruled that postal money order are
not negotiable instrument. The reason behind this ruling was because in postal money order system the
government is not engaging in commercial transactions but merely exercises a governmental power to
the public benefit and that some of the restrictions imposed upon money orders by postal laws and
regulations are inconsistent with the character of negotiable instruments.

In the case of Caltex (Philippines) v. Court of Appeals10 on the issue questioning whether or not
certificates of time deposits are negotiable instruments, the Supreme court held that they are not
because the accepted rule is that negotiability or non-negotiability of an instrument is determined from
the writing, that is, from the face of the instrument itself. They further discussed that while the writing
may be read in the light of surrounding circumstances in order to more perfectly understand the intent
and the meaning of the parties, yet as they have constituted the writing to be the only outward and
visible expression of their meaning, no other words are to be added to it or substituted in it instead.

Having all the preceding jurisprudence discussed, it is common that Section 1 of Negotiable
Instruments Law must be present in the form and content of the commercial paper to be negotiable. In

6
402 SCRA 84 (2003)
7
G.R. No. 88866, February 18, 1991
8
Section 3, par. 1 of Act 2031
9
G.R. No. L-22405, June 30, 1971
10
212 SCRA 448 (1992)
addition, to determine the negotiability and non-negotiability of an instrument is determined from the
faced of the instrument itself and that it is the duty of the court to ascertain, not what the parties may
have secretly intended but what is the meaning of the words they have used. 11

It is undeniable that negotiable instruments would provide convenience to any commercial

transactions. In a more competitive and globalized world, negotiable instruments are more convenient
compared to other commercial papers. To ensure negotiability of the instruments, the Negotiable
Instruments Law provides also for the rights and defenses of the holder of the instruments against
forgery, material alteration, and other possible infirmities. Under the Negotiable Instruments Law, we
have different types of holder which are the following, to wit;

1. Holder in Due Course (Sec. 52)

2. Holder Not in Due Course (Sec. 53)
3. A holder subsequent to a holder in due course. (Sec.59)
4. A holder of the instrument without proper negotiation. (Sec. 30)

This assurance established the concept of negotiability and transferability that make it as a substitute for
money. However, being only a substitute for money and not money, the delivery of such instrument
does not, by itself, operate as payment. 12 Also, in the case of Philippine National Bank v. The National
City Bank Of New York, And Motor Service Company, Inc. 13, the appellant says that when payment is
made, such payment amounts to an acceptance, because he who pays accepts. The court ruled in this
case and states that this may be true in common parlance, but it is not "acceptance" in legal
contemplation. The word "acceptance" has a peculiar meaning in the Negotiable Instruments Law, and
in the instant case there was payment but no acceptance, or what is equivalent to acceptance.

11
Id.
12
BPI v. Spouses Royeca, G.R. No. 176664, 21 July 2008
13
G.R. No. 43596. October 31, 1936