LAW ON NEGOTIABLE

INSTRUMENTS
MR. SAM BARBO, JR.
 LAW ON NEGOTIABLE
INSTRUMENTS

FORMS AND INTERPRETATION

 SECTION 1
Form of negotiable instruments. - An instrument to be negotiable
must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand, or at a fixed or determinable future
time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
 SECTION 1
Section 1, in effect, gives the definition of a negotiable
instrument.

The requisites enumerated in Section 1 enable one to tell at

a glance whether an instrument is negotiable or not and
accordingly, to gauge the risks involved in taking it as
security for an obligation.
 SECTION 1

Negotiable instrument is a contractual obligation to pay

money.

To determine the negotiability of an instrument,

consider the ff:
1. whole of the instrument
2. only what appears on FACE of the instrument
3. provisions of NIL esp. Section1
 SECTION 1

Negotiable instrument are either.

1. Promissory Note
2. Bill of Exchange
 SECTION 1
1. Promissory Note – is 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.

- Is a promise to pay a sum of money

Requirements as indicated in Section 1, sub sections

(paragraph) a; b; c and d.
 SECTION 1

1. Promissory Note (PN)

MAKER – person issuing PN; one who makes the PN and signs
the instruments
PAYEE – the party to whom the promise is made or the
instrument is payable

It must contain an unconditional promise.

 SECTION 1

1. Promissory Note (PN)

September 1, 2020

I promise to pay Mr. BS or order the sum of Ten Thousand

(Php 10,000.00) Pesos thirty days after date.

Signed J.
SECTION 1
 SECTION 1
The figure and place at the upper right corner
indicate the amount and place where the
contract is executed. These are not essential to
the negotiability of the instrument except in
certain cases when the date is necessary to
determine when the note is due.
 SECTION 1
The words For Value Received indicate the
consideration given for the note which may
be specified. As consideration is presumed
(Sec. 24), the words For Value Received
may be omitted
 SECTION 1
The words I Promise to Pay signify an
absolute and unconditional promise to pay.
This is essential to the negotiability of
the instrument.
 SECTION 1
Instead of promise, however you may use any other
words of equivalent meaning:
1. I agree to pay
2. I bind myself to pay
3. I will pay
4. I acknowledge to be indebted to _________ or
order; among others
 SECTION 1
The words to the order of and order of indicate a
promise to pay as ordered or commanded by the
payee.

A mere acknowledgment of debt without the use of

word order or bearer does nor satisfy the requirement
of negotiable instrument.
 SECTION 1
2. Bill of Exchange (BoI)
- is an 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.
 SECTION 1
2. Bill of Exchange (BoI)
- It is essentially an order made by one person to
another to pay money to a third person.

Requirements as indicated in Section 1, sub sections (paragraph)

a; b; c; d and e.
 SECTION 1
2. Bill of Exchange (BoI)
- Requires in its inception three parties:

DRAWER – The person who draws the bill. He gives the order to pay money to a
third party (payee).
DRAWEE – The party upon whom the bill is drawn. He is the person to whom the
bill is addressed and who is ordered to pay. He becomes an acceptor when he
indicates his willingness to pay the bill (Sec. 62)
PAYEE – the party in whom favor the bill is drawn or is payable.
 SECTION 1

September 1, 2020
Imus City

Php 10,000.00

Pay to the order of Mr. BS the sum of TEN THOUSAND (Php 10,000.00) PESOS
ONLY on October 1, 2020.

Signed J

To: Ms. Co Vida

Bacoor City
 SECTION 1

2. Bill of Exchange (BoI)

- Characteristics

The words pay to indicate an unconditional

order to pay instead of unconditional promise to
pay a promissory note.
 SECTION 1

2. Bill of Exchange (BoI)

- Characteristics

The name J indicates the drawer, the one who

signs the bill of exchange. He corresponds to the
maker is the case of the promissory note.
 SECTION 1
2. Bill of Exchange (BoI)
- Characteristics

The name Ms. Co Vida indicates the drawee, the one to whom the bill
is addressed. The drawee is not really a party to the bill. She assumes
liability only when she accepts the bill usually by writing the word
accepted and signing her name on the face of the thereof (Sec. 132 and
133), in which case she ceases to be a drawee and becomes an
acceptor.
 SECTION 1
2. Bill of Exchange (BoI)
- Idea and Purpose
1. DRAWER’s funds in hands of DRAWEE
2. Liability of DRAWEE for non-payment
- If DRAWEE refuse  to accept when he has funds for purpose, he is
s

LIABLE TO DRAWER (not to PAYEE) for resulting damages & harm done
to his (DRAWER) credit.
-If DRAWER no funds in DRAWEE, presumed that DRAWER made
arrangements with DRAWEE so he will honor the bill. In such case,
DRAWEE must look to the DRAWER for reimbursement and NOT TO BONA
FIDE HOLDER.
 SECTION 1

Negotiable Instrument
- Requirements

1. It must be in writing .

- The term instrument indicates a writing.

- Instrument must be in writing, otherwise, nothing could
be passed from hand to hand.
- Writing could mean to be handwriting and print.
 SECTION 1
Negotiable Instrument
- Requirements

2. The Instrument must be signed by the Maker or Drawer

- The instrument must be signed by the maker or drawer.
- It will be valid and binding as long as it appears that the person intended to
make the instrument his own.
- His signature is a prima facie evidence of his intention to be bound as either
or drawer.
- If the signature is so placed upon the instrument that it is not clear in what
capacity the person intended to sign, he is deemed an indorser (Sec. 17) and not
a maker or drawer.
 SECTION 1
Negotiable Instrument
- Requirements

3. Must contain an unconditional promise or order to pay a sum certain in money .

- Instrument payable absolutely.

- It is not enough that there be a promise or order.
- It must be unconditional, that is, it must not be subject to any condition or
contingency (Art. 1179 Sec 4 last par of NCC) except implied condition of
presentment (Sec. 70 & 143); protests (Sec. 152; 165; 167 and 170) and notice of
dishonor (Sec.89).
 SECTION 1
Negotiable Instrument
- Requirements

4. The instrument must be payable in sum certain in money .

- The promise or order must call for the payment of a sum certain in money.

Money is the medium of exchange authorized by a government as part of its

currency. Meaning Cash.

Legal Tender – the currency which debtor can legally compel a creditor to
accept in payment of a debt in money when tendered by the debtor in the
right amount.
 SECTION 1
Negotiable Instrument
- Requirements

5. The instrument must be payable at a fixed determinable future time or on

demand (Sec. 4 & 7)
- In order to be negotiable, the instrument must be payable on demand or at
a fixed or determinable future time.
- In case of demand instrument, the holder may call or demand for payment
at any time.
- A term instrument is payable only upon the arrival of the time for payment
 SECTION 1
Negotiable Instrument
- Requirements

6. The instrument must be payable to order (Sec. 8)

- The words to the order of; or order; or bearer and to bearer are
standardized words of negotiability and their use generally obviates any
question as to the negotiability of an instrument.
-AN instrument is payable to order where it is drawn payable:
1. to the order of a specified person; or
2. to him or his order
 SECTION 1
Negotiable Instrument
- Requirements

7. The instrument must be payable to bearer (Sec. 9)

- When the instrument is payable to the bearer, payment to
any person is possession thereof (Sec. 191) in good faith and
without notice that his title is defective, at or after maturity
(Sec. 88) discharge the instrument (Sec. 119)
 SECTION 1

Negotiable Instrument
- Requirements

8. The drawee must be named

- this is applied only to bills and checks.
- An order which is not addressed to any person cannot be
a bill (Sec. 14)
- Promissory note has no drawee
 SECTION 1

Non-Negotiable Instrument
- An instrument which does not meet the
requirements laid down to qualify an instrument
as an negotiable one,
- or an instrument which in its inception was
negotiable but has lost its quality of negotiability.