FORM AND

INTERPRETATION
Negotiable Instruments
 REQUISITES OF NEGOTIABLE
PROMISSORY NOTE
• It must be in writing and signed by the MAKER.
• It must contain an unconditional PROMISE to pay a sum certain in
money.
• It must be payable on demand or on a fixed determinable future time.
• It must be payable to order or to bearer. (Sec. 1, NIL)
 REQUISITES OF NEGOTIABLE BILL
OF EXCHANGE
• It must be in writing and signed by the DRAWER.
• It must contain an unconditional ORDER to pay a sum certain in money.
• It must be payable on demand or on a fixed determinable future time.
• It must be payable to order or to bearer.
• The drawee must be named or otherwise indicated therein with
reasonable certainty. (Sec. 1, NIL)
FIRST REQUISITE - IT MUST BE IN WRITING
AND SIGNED BY THE MAKER/DRAWER
• Any form will suffice. It may be printed or in long hand. It may be in ink, print or pencil.
• It may made on paper, parchment, or any substitute of paper that may be passed from one
hand to another.
• If the instrument is a promissory note, it must be signed by the maker.
• If the instrument is a bill of exchange, it must be signed by the drawer.
• The signature does not necessarily have to be the full name of the maker or drawer. Any
mark or sign, or anything that is placed on the instrument like a thumbmark will suffice so
long as it is intended to be the signature of the party to the instrument.
 SECOND REQUISITE - IT MUST CONTAIN AN
UNCONDITIONAL PROMISE/ORDER TO PAY A SUM
CERTAIN IN MONEY
UNCONDITIONAL PROMISE OR ORDER means that the
promise or order to pay, must not be dependent upon a
contingent event that is not certain to happen.
WHEN PROMISE/ORDER IS UNCONDITIONAL
An unqualified order or promise to pay is unconditional though coupled with:
• 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
• 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)
 FUND FOR REIMBURSEMENT VS.
PARTICULAR FUND FOR PAYMENT
FUND FOR REIMBURSEMENT PARTICULAR FUND FOR PAYMENT
The drawee pays the payee from his There is only one act – the drawee
own funds; afterwards, the drawee pays directly from the particular
pays himself from the particular fund indicated.
fund indicated.
Particular fund indicated is not the Particular fund indicated is the
direct source of payment. direct source of payment.
 WHAT CONSTITUTES CERTAINTY AS TO
SUM
The sum payable is a sum certain within the meaning of this Act, although it is to be paid:
• with interest; or
• by stated installments; or
• by stated installments, with a provision that, upon default in payment of any installment or
of interest, the whole shall become due; or
• with exchange, whether at a fixed rate or at the current rate; or
• with costs of collection or an attorney's fee, in case payment shall not be made at maturity.
(Section 2, NIL)
 THIRD REQUISITE - IT MUST BE PAYABLE ON DEMAND
OR ON A FIXED DETERMINABLE FUTURE TIME
• An instrument payable on demand is due and demandable immediately
from its issue.

• The instrument may be made payable on a fixed date or at some other

future time provided the maturity of the instrument can be absolutely
determined with certainty.
 WHEN PAYABLE ON DEMAND
An instrument is payable on demand:
• When it is so expressed to be payable on demand, or at sight, or on presentation; or
• In which no time for payment is expressed.

Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person
so issuing, accepting, or indorsing it, payable on demand. (Sec. 7, NIL)
 WHAT CONSTITUTES
DETERMINABLE FUTURE TIME
An instrument is payable at a determinable future time, which is expressed to be payable:
• At a fixed period after date or sight; or
• On or before a fixed or determinable future time specified therein; or
• On or at a fixed period after the occurrence of a specified event which is certain to happen,
though the time of happening be uncertain.

An instrument payable upon a contingency is not negotiable, and the happening of the event
does not cure the defect. (Sec. 4, NIL)
 FOURTH REQUISITE - IT MUST BE
PAYABLE TO ORDER OR TO BEARER
• One of the requisites of negotiability is that the instrument must be
“payable to order” or “payable to bearer.” These are the words of
negotiability. If the instrument is not payable to “order” or “bearer” the
instrument is not negotiable.
 WHEN PAYABLE TO ORDER
The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his
order. It may be drawn payable to the order of:

• A payee who is not maker, drawer, or drawee; or

• The drawer or maker; or
• The drawee; or
• Two or more payees jointly; or
• One or some of several payees; or
• The holder of an office for the time being.

Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable
certainty. (Sec. 8, NIL)
 PAYABLE TO ORDER
• An instrument payable to order is negotiated by endorsement completed
by delivery. Hence, there must always be a payee; otherwise, there will
be nobody who will indorse the instrument.
 WHEN PAYABLE TO BEARER
The instrument is payable to bearer:
• When it is expressed to be so payable; or
• When it is payable to a person named therein or bearer; or
• When it is payable to the order of a fictitious or non-existing person, and such fact was
known to the person making it so payable; or
• When the name of the payee does not purport to be the name of any
person; or
• When the only or last indorsement is an indorsement in blank. (Sec. 9, NIL)
 PAYABLE TO BEARER
• An instrument payable to bearer is negotiated by mere delivery. There is
no need to endorse the instrument. Whoever is in possession of the
instrument is the bearer thereof; hence, he is the holder of the instrument
and the same is payable to him.
 FIFTH REQUISITE - THE DRAWEE MUST BE NAMED
OR OTHERWISE INDICATED THEREIN WITH
REASONABLE CERTAINTY
• Applicable to bill of exchange only.
• The drawee is the person to whom the bill is addressed for acceptance.
If upon presentment for acceptance, the drawee accepts, the latter is now
known as the ACCEPTOR who becomes primarily liable on the
instrument. If the drawee refuses to accept the instrument, the said
instrument is deemed dishonored; and proceedings on dishonor must be
undertaken; otherwise, parties secondarily liable on the instrument will
be discharged from liability.