Negotiable Instruments: creditor of cash in an amount equal to the amount credited to his In negotiation, the transfer of negotiable instrument,

In negotiation, the transfer of negotiable instrument, entitles

A negotiable instrument is a written contract for the payment of
money, by its form intended as substitute for money and 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.
account. the transferor, the right of a holder in due course. On the other
extreme, in the assignment the title of the assignee, is a bit
Functions: defective one, as it is subject to the title of assignor of the right.
1 Negotiable Instrument operates as a substitute for money; Incidents in the life of a nego instrurments:

Origin of NIL 2. as a means of creating and transferring credit; Payable on demand or payable not on demand

> The law on negotiable instruments was then embedded in the 3. facilitates the sale of goods. 1. Issuance
English common law and was codified in England in 1882 where it
was known as the Bills of Exchange Act. It may also serve as a written evidence of the rights and 2. Negotiation
undertakings of the parties thereto. 3. Presentment for acceptance
> In the United States, the codification of the Negotiable 4. Acceptance
Instruments Law is found in the California Code of 1372. It was Negotiability v. Assignability 5. Dishonor by non-acceptance
only in 1895 that the uniformity of these laws in the US was 6. Presentment for payment
promoted at the request of the American bar Association. 7. Dishonor by non-payment
The primary differences between negotiation and assignment 8. Notice of dishonor
presented in the points below: 9. Discharge
Effectivity of NIL

> Negotiable Instruments Law of the Philippines was patterned
after the draft approved by the Commissioners on Uniform State
Laws in the United States.
> It was enacted as Act No. 2031 on February 3, 1911 and took
effect ninety days after its publication in the Official Gazette of the
Philippine Islands. Which was on March 4, 1911, and therefore, the
Act took effect on June 2, 1911.
Kinds:
1. 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.
2. bill of exchange – 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.
c. check – a bill of exchange drawn on a bank payable on demand.
e.g. Personal check, manager’s/cashier’s check, memorandum
check, crossed check
Is a NI a legal tender?
A legal tender is that which a debtor may compel a
creditor to accept in payment of a debt.
Only notes and coins issued by the Banko Sentral ng
Pilipinas are considered legal tender. Checks are not considered
legal tender, but a check that has been cleared and credited to the
account of the creditor shall be equivalent to delivery to the
1. The transfer of the negotiable instrument, by a person to
Distinctive Features:
another to make that person the holder of it, is known as
negotiation. The transfer of rights, by a person to another,
for the purpose of receiving the debt payment, is known 1. NEGOTIABILITY –
as assignment. it is that attribute or property whereby a bill or note or
check may pass from hand to hand similar to money, so as to give
2. When it comes to regulation of negotiable instrument, the holder in due course the right to hold the instrument and to
negotiation governs the Negotiable Instrument, 1881, collect the sum payable for himself free from defenses.
while the assignment is regulated by Transfer of Property
Act, 1882. 2. ACCUMULATION OF SECONDARY CONTRACTS –
secondary contracts are picked up and carried along
3. Negotiation can be effected by mere delivery in case of with Negotiable Instruments as they are negotiated from one
bearer instrument and, endorsement and delivery in case person to another; or in the course of negotiation of negotiable
of order instrument. instruments, a series of juridical ties between the parties thereto
arise either by law or by privity. The indorsers become secondarily
4. In the case of bearer instrument, the negotiation is done liable to the holder.
by mere delivery of the instrument, but in the case of
bearer instrument, endorsement and delivery of the
instrument must be effected. Conversely, the assignment
Who are the parties?
is effected by written agreement to be signed by the
transferor, both in the case of order and bearer instrument.
Primarily Liable-
5. In negotiation, the consideration is presumed, whereas, in
the case of assignment, the consideration is proved. Secondarily Liable –
6. There is no requirement of transfer notice, in negotiation.
Is Pawn Ticket, Money Order, Warehouse receipt, bills of lading
On the contrary, notice of assignment is compulsory, so
as to bind the debtor.
7. In negotiation, the transferee has the right to sue the third
party in his/her own name. As against, in the assignment,
the assignee does not have any right to sue the third party,
in his/her own name.
8. In negotiation, there is no requirement of payment of
stamp duty. Unlike, in the assignment, stamp duty must
be paid

Requisites of negotiability:
(1)Form and content
(2)Matters to be considered
(3)Negotiability different from validity
MONEY - IT IS A MEDIUM OF EXCHNGE AUTHORIZED OR
ADOPTED BY A GOVERNMENT AS PART OF ITS
CURRENCY
How to determine the negotiability of an instrument
What constitutes certainty as to sum; stated installments;
acceleration clause
It is to be paid -
(a) With interest; or
(b) By stated installments; or
(c ) By stated installments, with a provision that upon default
in payment of any installment or of interest the whole shall
become due; or
(d) With exchange, whether at a fixed rate or at the current
rate; or
(e) With costs of collection or an attorney’s fee, in case
payment shall not be made at maturity
Stated installments -
(1) The interest of each installment
(2) The due date of each installment must be fixed in
the instrument
With an acceleration Clause-
Such clause requires full payment of an instrument
immediately upon default on any installment.
An acceleration clause is a contract
provision that allows a lender to require a borrower
to repay all of an outstanding loan if certain
requirements are not met
When promise is unconditional
(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.
When is it payable on demand
(a) Where it is expressed to be payable on demand,
or at sight, or on presentation; or
(b) In which no time for payment is expressed
Fixed or determinable future time
At a fixed period after date or sight
On or before a fixed or determinable future time
specified therein;
On or at a fixed period after occurrence of a
specified event, which is certain to happen, though the time of
happening be uncertain
When is it payable to order; to bearer
When it is drawn payable to the order of a specified
person or to him or his order.
(a) A payee who is not maker, drawer, or
drawee; or
(b) The drawer or maker; or
© The drawee; or
(d) Two or more payees jointly; or
(e) One or more several payees; or
(f) The holder of an office for the time
being.
Bearer -
Means the person in possession of a bill or
note which is payable to bearer
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or
bearer; or
© Where 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
(d) When the name of the payee does not purport to
be the name of any person;
(e) When the only or last indorsement is an
indorsement in blank
Additional provisions not affecting negotiability
Section 5 -
GR: An instrument which contains an order or
promise to do any act in addition to the payment of money is
not negotiable.
XPN: The negotiable character of an instrument
otherwise negotiable is not affected by a provision which
(a) Authorize the sale of collateral
securities in case the instrument be not paid at
maturity
(b) Authorizes a confession of judgment if
the instrument be not paid at maturity;
© Waives the benefit of any law intended
for the advantage or protection of the obligor;
(d) Gives the holder an election to require
something to be done in lieu of payment of money
Omissions that do not affect negotiability
Section 6 –
The validity and negotiable character of an
instrument are not affected by the fact that
(a) It is not dated
 (b) Does not specify the value given, or
that any value, has been given therefore;

© Does not specify the place where it is

drawn or the place where it is payable

(d) Bears a seal

(e) Designates a particular kind of current

money in which payment is to be made.

Presumption as to date

Where the instrument or an acceptance or any

indorsement thereon is dated, such date is deemed prima facie
to be the true date of making, drawing, acceptance or
indorsement, as the case may be

Other construction and interpretation

(1) Sum expressed in words and in figures different

= Words > Figures

(2) Words ambiguous or uncertain = GR: Words >

Figures XPN: When words are ambiguous

(3) Date when stipulated interest to run not specified

= Date of the issuance of the instrument

(4) Instrument undated = Issuance

(5) Written and printed provisions in conflict =

Written > Printed

(6) Holder

(7) Solidary

Trade or assumed name as signature

GR: Only persons whose signatures appears on an

instrument are liable thereon.

Signature by agent; its authority

Signature by procuration