NEGO

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Chapter 1 IN GENERAL
Negotiable Instrument Law
foreign in nature
antique
unrealistic
Function:
substitutes for money and increases the purchasing medium in
circulation
a form of safeguard
Substitute for money = when negotiated, they can be used to pay
indebtedness
Legal tender?
No. Under Art. 1249 of CC the delivery of promissory note or bill of
exchange shall produce the effect of payment only when they have
been cashed or when thru the fault of the creditor, they have been
impaired
medium of exchange which the law compels the creditor to accept in
payment of an obligation (refers only to notes and currencies issued
by BS)

Issuance or issue: the first delivery of the instrument, complete in

form, to a person who takes it as a holder (the instrument must be
negotiable in nature)
Definition/ Elements of Negotiability:
Requirements:
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
5. where the instrument is addressed to the drawee, he must be
named or otherwise indicated therein with reasonable certainty
*sole test = whether the elements in sec. 1 are present or not
Promissory note- an unconditional promise in writing, signed by the
maker or drawer, engaging to pay a sum of money, on demand or at a
fixed or determinable future time, to order or bearer
Bill of exchange- unconditional order in writing, signed by the drawer,
requiring the person to whom it is addressed to pay a sum of money on
demand or at a fixed or determinable future time, to order or bearer

*acceptance of negotiable instrument is optional could not be

compelled to accept a check in lieu of cash

Check- it is a bill of exchange drawn on a bank payable on demand

(constitute an evidence of indebtedness and is a veritable proof of an
obligation)

Features/Characteristics:
1. Negotiability or ability to be transferred- it could be pass from hand
to hand similar to money
2. Accumulation of secondary contracts- are picked-up and carried
along by the instrument as it is negotiated from person to person

Drawer = the person who executes the written order to pay

Maker = the person who executes the written promise to pay
Payee = the person in whose favor the bill is made payable
Drawee = the person who receives the order (if he signifies his assent
to the order, he becomes an acceptor)

Chapter 2 - ISSUANCE

*in check, the drawee is always a bank

PROMISORRY NOTE
Contents
How many parties?
Liability

Presentment

BILL OF EXCHANGE

unconditional promise

unconditional order

2- maker and payee

3- drawer, drawee and

payee

Maker (original issuer)

is primarily liable under
Sec. 60

Drawer (original issuer)

is only secondarily
liable under Sec. 61

for payment only

for acceptance and also

payment in instances
under Sec. 143

CHECK

BILL OF EXCHANGE

Where drawn

always drawn on a
bank

may or may not be

drawn against a bank

When payable

always on demand

demand or on a fixed or
determinable future

Presentment for
acceptance
Drawn against what?

not necessary

necessary only for

instances under Sec.
143

deposit

not drawn

When to be presented within reasonable time

for payment
after issue (6 months
otherwise it becomes
stale)

within reasonable time

after last negotiation

Examples of Checks:
1. Crossed check- a check with two parallel lines, written diagonally
on the upper left corner
characteristics:
for deposit only and cannot be encashed
it can be indorsed but only once, to one who has an account with the
bank
it isa warning that a check is issued for a particular purpose only,
and it is incumbent upon the holder to ascertain whether the
purpose had been achieved; otherwise, he is not considered as a
holder in due course
*negotiability of a check is not affected by its being crossed
2. Cancelled check- one marked or stamped paid and/or cancelled
by or on behalf of a drawee bank to indicate payment
3. Managers check- one drawn by the banks manager upon the bank
itself
Cashiers check- check of the banks cashier on his own or another
check
*banks own check may be treated as a promissory note
4. Certified check- a check of a drawer with the word certified
stamped on it (to impart strength and credit to the paper)
*performs important functions in banking and commercial business
*an easy mode of passing money from hand to hand
(a bank is not liable to the payee unless it accepts or certifies a check)

NEGOTIABLE INSTRUMENT

NEGOTIABLE DOCUMENTS

money

goods

6. Stale check- must be presented for payment within a reasonable

time after its issue or the drawer will be discharge of liability (must be
presented within 6 months from check date)

Examples of Bills of exchange:

1. Draft- common term for bill of exchange
2. Trade acceptance- one drawn by the seller on the purchaser of
goods sold and accepted by the latter
3. Bankers acceptance- similar to trade acceptance except that a
bankers acceptance is drawn against a bank instead of the buyer
4. Trust receipt- document signed by the entrustee in favor of the
entruster where he is holding such matters in trust for the other
5. Letter of credit- to satisfy the irreconcilable interests of a seller,
who refuses to part with his goods before he is paid, and a buyer
who wants to have control of the goods before paying
6. Clean bill of exchange- one to which are not attached documents
of title to be delivered to the person against whom the bill is drawn
when he either accepts or pays the bill
7. Documentary bill of exchange- opposite of clean
8. D/A BE (Documents against acceptance bill) - one to which are
attached documents to be delivered and surrendered to the drawee
when he accepts the bill
9. D/P BE (Documents against payment bill) - same as D/A BE
except that drawee pays the bill
10. Time or usance bill- bills payable at a fixed or determinable future
time
11. Bill in set- one bill which is drawn in a set
12. Inland bill- drawn and payable within the Philippines
13. Foreign bill- drawn in the Phil. but payable outside or drawn
outside and payable within the Phil.
*issuance of a bill does not operate as an assignment of the funds in
the hands of the drawee available for the payment (drawee is not liable
on the bill unless and until he accepts the same)
Not be subject to a condition
Art. 1179 of CC a condition is:
1. a future event that may or may not happen
2. a past event unknown to the parties
*an order to pay out of a particular fund makes the instrument not
negotiable

Postal money order- the govt is not engaging in commercial

transactions but merely exercises a governmental power for the public
benefit (not negotiable)
Letter of credit- not payable to order or bearer, generally conditional
(not negotiable)
Warehouse receipts- subject matter is things or goods and not sum of
money (not negotiable)
Treasury warrants payable from a specific fund- order is conditional
(not negotiable)

payable at a fixed period after the occurrence of an event which may

not happen (not negotiable)

negotiable instrument if it names two alternative drawees (No. A bill

may not be addressed to two or more drawees in the alternative or

in succession)
payable on a fixed period after the occurrence of a specified event,
which is certain to happen, though the time of happening is
uncertain (negotiable)
date of maturity of the instrument can be determined only after the
note has become overdue
payable at a fixed period after date or sight (negotiable)
there is only an indication of a particular fund out of which
reimbursement is to be made (negotiable)
there is only a statement of the transaction giving rise to the
instrument (negotiable)
a provision authorizes the sale of collateral securities in case the
instrument be not paid at maturity does not impair negotiability
(negotiable)
a provision which waives the benefit of any law intended for the
advantage or protection of the obligor does not impair negotiability
(negotiable)
an acknowledgement may become a promise by the addition of
words by which a promise of payment is naturally implied
(negotiable)