NEGOTIABLE INSTRUMENT LAW

1. Distinguish negotiability from assignability.

 Negotiability refers to the transferability of all the rights and titles on an
instrument by delivery or by endorsement and delivery, vesting with the bonafide
transferee for value even better title that what the transferor had. In short,
transferability of negotiable instruments is called negotiability while Assignability
refers to the transferability of personal properties and rights from one person to
another as gift or sale or as security. The transferee gets the same as much title as
the transferor has. In short, transferability of ownership of any goods other than
negotiable instruments is called Assignability.

2. What are the requisites for negotiability?

Requisites of Negotiability
 An instrument to be negotiable must conform to the following requirements:
(WU-POA)
 It must be in Writing and signed by the maker or drawer;
 Must contain an Unconditional promise or order to pay a sum certain in money;
 Must be Payable on demand, or at a fixed or determinable future time;
 Must be payable to Order or to bearer; and
 Where the instrument is Addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty (NIL, Sec.1).

3. What are the kinds of indorsement as far as Negotiable instrument law is concern?
Kinds of indorsement
1. Special (NIL, Sec. 34) – Specifies the person to whom or to whose order the
instrument is to be payable. It is also known as specific indorsement, or
indorsement in full.
 An instrument payable to bearer indorsed specially may nevertheless be
negotiated by delivery (once a bearer always a bearer) (NIL, Sec. 40).
2. Blank (NIL, Sec. 34) -Specifies no indorsee.
 Instrument is payable to bearer and may be negotiated by delivery;
 May be converted to special indorsement by writing over the signature of the
indorser in blank any contract consistent with the character of indorsement (NIL,
Sec. 35).
3. Restrictive (NIL, Sec. 36)-When the instrument:
 A. Prohibits further negotiation of the instrument (it destroys the negotiability of
the instrument);
 B. Constitutes the indorsee the agent of the indorser;
  C. Vests the title in the indorsee in trust for or to the use of some persons.
But mere absence of words implying power to negotiate does not make an
instrument restrictive.
4. Qualified (NIL, Sec. 38) – Constitutes the indorser a mere assignor of the title
to the instrument made by adding to the indorser’s signature words like, without
recourse, sans recourse or at the indorsee’s own risk (this serves as an ordinary
equitable assignment).
5. Absolute – The indorser binds himself to pay:
 Upon no other condition than failure of prior parties to do so;
 Upon due notice to him of such failure
6. Conditional (NIL, Sec. 39)-Right of the indorsee is made to depend on the
happening of a contingent event. The party required to pay may disregard the
conditions.
 NOTE: The condition refers to the indorsement not on the instrument itself.
7. Joint (NIL, Sec. 41) – Indorsement made payable to 2 or more persons who are
not partners.
 All of them must indorse unless the one indorsing has authority to indorse for the
others.
8. Irregular (NIL, Sec. 64) – A person who, not otherwise a party to an
instrument, places thereon his signature in blank before delivery.
9. Facultative -Indorser waives presentment and notice of dishonor, enlarging his
liability and his indorsement.
10. Successive – Indorsement to two persons or more in succession.
 Any of them can indorse to effect negotiation of the instrument.

4. What are the requisites of a holder in due course?

Requisites of payment in due course
 Payment is made in due course when:
 It is made at or after the date of Maturity;
 To the Holder thereof;
 In Good faith and without notice that holder’s title is defective.
The term “in good faith” refers to the maker or acceptor and not to the holder.

5. Juan Cruz borrowed P1,000.00 from Pedro Santos as evidence by a promissory note
executed by X as maker. All other requisites of negotiability are present in the note
except that Juan Cruz did not affix his usual signature thereon. As Juan was ailing
at that time, he was only able to put “X” in the blank space meant for the signature
of the maker. Is the requisite that “the instrument must be signed by the maker”
complied with?
 Yes, because X is enough to comply with the requirement. As long as the letter or
the promissory note was adopted by John with the intent of proving the
instrument.