NEGOTIABLE INSTRUMENTS LAW (NIL)

Negotiable Instrument (NI) – written contract for payment of money which by its form is intended
as a substitute for money and passes form hand to hand as money, so as to give holder in due
course (HDC) the right to hold instrument and collect the sum for himself.

Characteristics of NI:
• Negotiability; and 
• Accumulation of secondary contracts.

Distinctions

Negotiable Instrument Non-Negotiable Instrument

• contains all requisites of Sec. 1 of NIL
• transferred by negotiation
• HDC may have rights better than transferor
• prior parties warrant payment
• transferee has right of recourse against
intermediate parties
• does not or not all
• transferred buy assignment
• Transferee requires only rights of transferor
• prior parties merely warrant legality of his title
• no such right of recourse

Negotiable Instrument
• subject is money
• it is a property with value
• complies with requirements of
Sec. 1 of NIL
• Holder may run after secondary parties
for payment is dishonored by primary
parties
• HDC may have right better than transferor
Negotiable Documents of Title
• subject is goods
• mere evidence of title
• does not
• Intermediate parties are not
secondarily liable if dishonored
• Merely steps into the shoes of the transferor

Classes of NI:

• promissory note (PN) – unconditional promise in writing by one person to another signed by
the maker engaging to pay on demand or at a fixed or determinable future time, a sum certain in
money to order or to bearer;
• bill of exchange (BE) – unconditional order in writing addressed 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; and
• check – bill of exchange drawn on a bank payable on demand. 

Promissory Note Bill of Exchange

• unconditional promise • unconditional order
• involves 2 parties • involves 3 parties
• maker primarily liable • drawer secondarily liable
• only one presentment for payment • generally, 2 presentments acceptance and for
payment
Other Forms of NI:
• certificate of deposits;
• trade acceptance;
• bonds;
• drafts; and
• letters of credit.

Requisites of Negotiability:
1. Must be writing and signed by the maker or drawer;
2. Must contain as 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 bearer; and
5. When the instrument is addressed to a drawee, he must be named or    otherwise indicated
therein with reasonable certainty.

Unconditional Promise or Oder

General Rule: promise or order must be unconditional and must not depend on contingent
events.

Exceptions:
• indication of a particular fund from which the acceptor reimburses himself after paying the
holder;
• a statement of transaction which gives rise to the instrument.

Sum is Certain if to be Paid:

• with interest
• in installments;
• in installments with acceleration 

Ref: Pre Week Memory Aid in All Bar Subjects 2002 Edition Garcia Garcia