Negotiable Instrument- Written contracts for the payment of money; by its form, intended as a substitute for money and

• That kind of money that the law compels a creditor to accept payment of a debt when tendered by the debtor in the
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. right amount
• That which a debtor may compel a creditor to accept
Requisites of negotiability:

1. It must be in writing and signed by the maker and drawer (it could be any paper or substitute for paper and is NOT LEGAL TENDER—ONLY PHILIPPINE NOTES AND COINS ISSUED BY THE BANGKO SENTRAL NG PILIPINAS ARE LEGAL
inked) TENDER.
2. It must be unconditional order/promise to pay a sum certain in money (like for example bawal ang I promise to COINS – LEGAL TENDER ONLY UP TO P20.00 for P0.10 ; and up to P50.00 for P0.25 and above

neg. instruments were

pay rea 1m if she graduated cum laude) (“hope” “authorize” do not connote command “please” “kindly” does
not affect negotiability)
3. It must be payable on demand at a fixed or determinable future time
4. Payable to order/bearer
5. BOE – where it is addressed to a drawee, he must be named therein or otherwise indicated with reasonable
certainty( governed by Arts. 439-566 of
the Code of
Factors to determine the negotiability of the instrument:

 Words that appear on the face of negotiable instrument

 Requirements enumerated in Section 1 of NIL

Commerce. Implied repeal

 Intention of the parties by considering the whole of the instruments

Negotiation-is the process of transferring negotiable instruments from one person to another with the parameters said by
law.

An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the
transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the
indorsement of the holder and completed by delivery.
only hence provisions not
Governing Law

Code of Commerce. — Negotiable instruments were governed by Arts. 439-566 of Code of Commerce. Implied repeal only
inconsistent with the NIL
LAW still in
hence provisions not consistent with the NIL law still in force such as provisions on crossed checked since there is o
provision in the NIL that deals with the crossed checks.

NEW CIVIL CODE , ACT. 386 HAS SUPPLETORY EFFECT IN CASE OF DEFICIENCY IN THE PROVISIONS OF THE NIL. – in one
case the SC applied suppletorily the provisions of Article 1216of the New Civil code which provides that “ the creditor may
proceed against any one of the solidary debtors or some or all of them simultaneously” and that “ demand made against
one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt
force such as provisions on
crossed check since there is no
has not been fully collected.

Functions of Negotiable Instruments

1. Substitute for money

provision in the NIL that deals

2. Medium of exchange
3. Credit instrument which increases credit circulation
4. Increase purchasing medium in circulation
5. Evidence of transaction

What is Legal Tender? with

crossed check
neg. instruments were
governed by Arts. 439-566 of
the Code of
Commerce. Implied repeal
only hence provisions not
inconsistent with the NIL
LAW still in
force such as provisions on
crossed check since there is no
provision in the NIL that deals
with
crossed check
neg. instruments were
governed by Arts. 439-566 of
the Code of
Commerce. Implied repeal
only hence provisions not
inconsistent with the NIL
LAW still in
force such as provisions on
crossed check since there is no
provision in the NIL that deals
with
crossed check
Two Important features of negotiable instruments:
Negotiability — This is that quality or attribute of a bill or note whereby it may pass from hand to hand similar to money,
so as to give the holder in due course the right to hold the instrument and collect the sum payable for himself free from
any infirmity.
Accumulation of secondary contracts – instrument is negotiated from person to another person
Kins of Negotiable Instruments
Bill of Exchange- 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.
Promissory Note- An unconditional promise in writing made 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.
Kins of Bill of Exchange
Draft – a common term for all bills of exchange and they are used synonymous
Trade Acceptance – a bill of exchange payable to order and at a certain maturity, drawn by a seller against the purchaser of
goods as drawee, for a fixed sum of money, showing on its face the acceptance of the purchaser of the goods and that it
has arisen out of a purchase by goods by the acceptor.
Banker’s Acceptance – a draft or a bill of exchange of which the acceptor is a bank or banker engaged generally in the
business of granting banker’s acceptance credit. It is similar to a trade acceptance, the fundamental difference being that
the banker’s acceptance is drawn against a bank instead of the buyer.
Trust Receipt – the written or printed document signed by the entrustee in favor of the entruster containing terms and
conditions substantially complying with the provisions of PD 115 (Trust Receipt Law, which took effect on January 21,
1973). No further formality of execution or authentication shall be necessary to the validity of the trust receipt.
Treasury Warrants – a “treasury warrant” bearing on its face the words “payable from the appropriation for food
administration” is actually an order for payment out of a particular fund and is NOT UNCONDITIONAL, and does not fulfill
the one of the essential requirements of a negotiable instrument. (Abubakar v. Auditor General)
Money Order – a species of draft drawn by the post-office upon another for an amount of money deposited at the first
post office by the person purchasing the money order and payable at the second office to a payee named in the order.
Clean and Documentary Bills of Exchange – “Clean bill of exchange” is one to which are not attached to documents of title
to be delivered to the person against whom the bill is drawn when he either accepts or pays the bill.
D/A and D/P Bills of Exchange - “Documents Against Payment Bill” – “D/P Bill” is a sight or time bill to which are attached
documents to be delivered and surrendered to the drawee when he has paid the corresponding bill.
“Sight bills” are bills which are payable upon presentation or at sight or on demand. 10. “Time or usance bills” – are bills
which are payable at a fixed future time or at a determinable future time.
Inland Bill of Exchange – is a bill which is or on its face purports to be BOTH drawn and payable within the Philippine
Islands.
Foreign Bill of Exchange- is a bill which is, or on its face purports to be, drawn or payable outside the Philippine Islands.
a. to be drawn in the Philippines but payable outside thereof; or
b. to be payable in the Philippines but drawn outside thereof.
Kinds of promissory note
CERTIFICATE OF DEPOSIT – a form of promissory note which is a written acknowledgment of a bank or its receipt of a
certain sum with a promise to pay the same
. • BONDS – a certificate or evidence of a debt on which the issuing company or governmental body promises to pay the
bondholders a specified amount of interest for a specified length of time and to repay the loan on the expiration date.
• DEBENTURE – a promissory note or bond backed by the general credit of a corporation and usually not secured by a
mortgage or lien on any specific property.
When can a Bill of exchange be treated as promissory note?
 Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two, the
sum denoted by the words is the sum payable; but if the words are ambiguous or uncertain, reference may be
had to the figures to fix the amount;
 Where the instrument provides for the payment of interest, without specifying the date from which interest is to
run, the interest runs from the date of the instrument, and if the instrument is undated, from the issue thereof;
 Where the instrument is not dated, it will be considered to be dated as of the time it was issued;
 Where there is a conflict between the written and printed provisions of the instrument, the written provisions
prevail;
 Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may treat it as
either at his election;
 Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the
same intended to sign, he is to be deemed an endorser;
 Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed
to be jointly and severally liable thereon.
Negotiable Promissory Note vs. Negotiable Bill of Exchange
Bill of Exchange vs. Check