Negotiable Instruments Law

Atty. Ronic Treptor

Form of Negotiable Instruments –
Requisites for Negotiability Part 1
Module 2.1
Requisites for Negotiability
• What are the essential elements of a negotiable instrument under the
NIL?
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. (Bill of Exchange)
In Writing and Signed
• It must be in writing and signed by the maker or drawer.

• If the instrument is a promissory note, then it must be signed by the

maker.

• If the instrument is a bill of exchange, then it must be signed by the

drawer.
In Writing and Signed
• Is there a required kind of signature under Sec. 1 of the NIL?
• No. Any kind of signature will do.

• Is there a required medium where the instrument should be written?

• No. Any material will do.
“Itaga mo sa bato, magbabayad ako”
Unconditional Promise or Order to Pay
• Must contain an unconditional promise or order to pay a sum certain in money.

• What does unconditional mean?

• “unconditional” simply means not subject to any condition.
• Every obligation whose performance does not depend upon a future or uncertain event, or upon a past
event unknown to the parties, is demandable at once. (Art. 1179 of the Civil Code)
• An instrument payable upon a contingency is not negotiable, and the happening of the event does not
cure the defect. (last sentence of Sec. 4 of NIL)

• sum certain in money” means the amount payable must be determinate and in
money.
• Note: Sec. 2, NIL
Unconditional Promise or Order to Pay
• If the instrument is a promissory note, then it will contain a promise
the pay.

• If the instrument is a bill of exchange, then it will contain an order to

pay.
Unconditional Promise or Order to Pay

P15,000 17 August 2021

I promise to pay to the order of Pedro
15,000 pesos.

(Sgd) Dina Leligo

Promise to pay is not subject to any condition, thus negotiable.

Unconditional Promise or Order to Pay
P15,000 17 August 2021
Pay to Pedro or bearer, 15,000 pesos on
December 15, 2018.

To: Facundo May-as

(Sgd) Dina Leligo

Order to pay is not subject to any condition, thus negotiable.

Unconditional Promise or Order to Pay

P15,000 17 August 2021

I promise to pay to the order of Pedro
15,000 pesos if it rains today.

(Sgd) Dina Leligo

In this case, the promise to pay is subject to a condition (if it rains

today), thus not negotiable, because it does not comply with Sec. 1 of
the NIL.
Unconditional Promise or Order to Pay

P15,000 17 August 2021

I promise to pay unconditionally to the
order of Pedro 15,000 pesos if it rains today.

(Sgd) Dina Leligo

In this case, the promise to pay is still subject to the same condition
even if it contains the word “unconditionally”, thus not negotiable.
Unconditional Promise or Order to Pay

P15,000 17 August 2021

I promise to pay unconditionally to the
order of Pedro 15,000 pesos if it rains today.

(Sgd) Dina Leligo

What happens if it rains? Will it now be negotiable?

Unconditional Promise or Order to Pay
• What happens if it rains? Will it now be negotiable?
• No the instrument is still not negotiable.

• Under the Negotiable Instruments Law an instrument payable upon a

contingency is not negotiable, and the happening of the event does not cure
the defect. (last sentence of Sec. 4 of NIL)

• In this case, the promise to pay is subject to the condition that it will rain,
making it not negotiable, and the happening of the event will not make the
instrument negotiable.
Unconditional Promise or Order to Pay
P15,000 17 August 2021
I promise to pay to the order of Pedro
15,000 pesos if my cow dies.

(Sgd) Dina Leligo

Is the promise to pay subject to a condition?

No, the promise to pay is not subject to any condition. Death is not
an uncertain event.
Unconditional Promise or Order to Pay
P15,000 17 August 2021
I promise to pay to the order of Pedro
15,000 pesos if my cow dies today.

(Sgd) Dina Leligo

Is the promise to pay subject to a condition?

Yes, the promise to pay is subject to a condition, thus this instrument

is not negotiable. Although death is certain, it is not certain if the cow
dies today.
Unconditional Promise or Order to Pay
• Note:
• Promise or order to pay remains unconditional although coupled
with:
(a) An indication of a particular fund out of which reimbursement is to be made
or a particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument.

But an order or promise to pay out of a particular fund is not unconditional.

(Sec. 3, NIL)
Unconditional Promise or Order to Pay
• Under the NIL, the promise or order to pay is still unconditional,
meaning it is still compliant with the requirement of Sec. 1, even if
coupled with:
• Indication of a particular fund for reimbursement
• Statement of transaction
Unconditional Promise or Order to Pay
• Fund for reimbursement:

P15,000 17 August 2021

Pay to the order of Pedro Dela Cruz, 15,000 pesos and

reimburse yourself from my money in your custody.

To: Facundo May-as

(Sgd) Dina Leligo

In this case, the order to pay is coupled with an indication of a particular

fund for reimbursement. This will not make the order conditional.
Unconditional Promise or Order to Pay
• What happens if the fund for reimbursement is not sufficient, or if it
does not exist?
• It will not affect the promise or order to pay. The promise or order to pay is
still considered unconditional.

• It is the reimbursement that is conditioned upon its existence and sufficiency,

thus will not affect the negotiability of the instrument.
Unconditional Promise or Order to Pay
• Fund for payment

P15,000 17 August 2021

Pay to the order of Pedro Dela Cruz, 15,000 pesos out of my

money inside a chest in my room.

To: Facundo May-as

(Sgd) Dina Leligo

In this case, the order to pay is an order to pay out of a particular fund.
This is not unconditional. (Sec. 3, NIL)
Unconditional Promise or Order to Pay
• What is the reason why a promise or order to pay out of a particular
fund is considered conditional?
• The promise or order to pay out of a particular fund is considered conditional
because it is conditioned upon the existence and sufficiency of the fund.

• What happens if the particular fund exists, or if it is sufficient?

• The promise or order to pay remains conditional and not compliant with Sec.
1 of the NIL.

• Under the Negotiable Instruments Law an instrument payable upon a

contingency is not negotiable, and the happening of the event does not cure
the defect. (last sentence of Sec. 4 of NIL)
Unconditional Promise or Order to Pay
• Statement of the transaction

P15,000 17 August 2021

I promise to pay to the order of Pedro 15,000
pesos. This promissory note was executed between us
because I bought Pedro’s car on credit.
(Sgd) Dina Leligo

The statement of the transaction (sale of the car) will not affect the
promise to pay.
Unconditional Promise or Order to Pay
• Statement of the transaction

P15,000 17 August 2021

I promise to pay to the order of Pedro 15,000
pesos after Pedro’s car is sold to me on credit.

(Sgd) Dina Leligo

Is this negotiable?
Sum Certain in Money
• Must contain an unconditional promise or order to pay a sum certain
in money.

• What does “sum certain in money” mean?

• “sum certain in money” means the amount payable must be determinate and
in money.
• Note: Sec. 2, NIL
Sum Certain in Money

P15,000 17 August 2021

I promise to pay to the order of Pedro
15,000 pesos.

(Sgd) Dina Leligo

The amount P15,000 is a sum certain in money.

Sum Certain in Money
• Note:
• The sum payable is a sum certain within the meaning of this Act,
although it is to be paid:
• With interest
• By stated installments
• By stated installments, with a provision that, upon default in payment of any
installment or of interest, the whole shall become due
• With exchange, whether at a fixed rate or at the current rate
• With costs of collection or an attorney’s fee, in case payment shall not be
made at maturity. (Sec. 2, NIL)
Sum Certain in Money
• With interest

P15,000 17 August 2021

I promise to pay to the order of Pedro 15,000
pesos, with interest of 10% per annum, on
September 1, 2022.
(Sgd) Dina Leligo
P15,000 remains certain even if with interest.
Sum Certain in Money
• With interest

P15,000 17 August 2021

I promise to pay to the order of Pedro 15,000
pesos, with interest, on September 1, 2022.
(Sgd) Dina Leligo

Is this negotiable?
Sum Certain in Money
• What happens if there is an interest, but the rate of the interest is not
stated?
• The amount remains certain. If the rate of the interest is not indicated in the
instrument, then the legal interest of 6% per annum shall be applied.

• This means that the sum is still certain because it can still be computed.
Sum Certain in Money
• With interest

P15,000 17 August 2021

I promise to pay to the order of Pedro
15,000 pesos, with interest of 1,000,000% per
day on September 1, 2022.
(Sgd) Dina Leligo

Is this negotiable?
Sum Certain in Money
• Will an excessive amount of interest make the sum not certain?
• No. Even if the interest is considered contrary to morals the amount is still
certain. The validity of the rate of interest will not affect the certainty of the
amount.

• Note that the validity of the instrument is not related to its negotiability.
Sum Certain in Money
• By stated installments
P15,000 17 August 2021

I promise to pay to the order of Pedro 15,000 pesos by

installment as follows:
(a) P10,000 on September 1, 2022
(b) P5,000 on September 5, 2022

(Sgd) Dina Leligo

Note that if payable on installments, the instrument must include the

terms of the installments. This means that the amount and the date of
payments must be included.
Sum Certain in Money
• By stated installments
P15,000 17 August 2021

I promise to pay to the order of Pedro 15,000 pesos in three

equal installments, the first on September 1, 2022 the second on
September 5, 2018 and the last on September 10, 2022.

(Sgd) Dina Leligo

In this case, the amount is still certain even if the amount is not
specified. “Equal installments” will make the amount certain.
Sum Certain in Money
• By stated installments
P15,000 17 August 2021

I promise to pay to the order of Pedro 15,000 pesos by

installment, the first on September 1, 2022 the second on September
5, 2018 and the last on September 10, 2022.

(Sgd) Dina Leligo

Is this negotiable?
No. Under Sec. 2 of the NIL, the amount is still certain even if the
amount is to be paid by stated installments.
 Sum certain in money (Sec. 2)
• By stated installments, with an acceleration clause
P15,000 17 August 2021

I promise to pay to the order of Pedro 15,000 pesos by installment as follows:

(a) P5,000 on September 1, 2022
(b) P5,000 on September 5, 2022
(c) P5,000 on September 10, 2022
If I cannot pay any one of the foregoing installments, the whole obligation
immediately becomes due and demandable.

(Sgd) Dina Leligo

In this case, the amount is still certain. “If I cannot pay…” is not a condition,
but a stipulation to make the obligation immediately demandable. Thus, will
not affect the certainty of the amount to be paid.
Sum Certain in Money
• Exchange
• Difference in value between the same amount of money by different
countries.
• May be:
• Fixed rate of exchange; or
• Current rate of exchange.

• Note: agreeing without fixing = current rate.

• The average rate that prevails on a particular day when the transaction occurs.
 Sum Certain in Money
• Exchange (fixed rate)
$15,000 17 August 2021

I promise to pay to the order of Pedro the sum of $15,000 in

Philippine Peso at the exchange rate of P50 per $1 on September 15,
2022.

(Sgd) Dina Leligo

The sum is still certain in money. The parties just need to apply the
exchange rate.
Sum Certain in Money
• Exchange (current rate)
$15,000 17 August 2021

I promise to pay to the order of Pedro the sum of $15,000 in

Philippine Peso at the current rate of exchange on September 15,
2022.

(Sgd) Dina Leligo

Here, the parties agree on an exchange, but did not specify the rate,
thus the current rate of exchange on September 15, 2022 will apply.
Sum Certain in Money
• Exchange (current rate)
$15,000 17 August 2021

I promise to pay to the order of Pedro the sum of $15,000 in

Philippine Peso on September 15, 2022.

(Sgd) Dina Leligo

Is this negotiable?
Yes. The current rate will still apply.
 Sum Certain in Money
• Cost of collection or attorney’s fees
P15,000 17 August 2021

I promise to pay to the order of Pedro the sum of P15,000 on

September 15, 2018. If I cannot pay on due date, and a case of
collection will be filed in court, I bind myself to pay additional 20% of
the principal amount to defray collection fees (or attorney’s fees, or
both).

(Sgd) Dina Leligo

The phrase “if I cannot pay…” is not a condition. This will also not affect
the certainty of the amount to be paid.