1.

Negotiable Instruments written contracts for the payment of money; by its

form, intended as a 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.
2. Characteristics of Negotiable Instruments:

a. negotiability right of transferee to hold the instrument and collect the sum due

b. accumulation of secondary contracts instrument is negotiated from person to

person

3. Difference between Negotiable Instruments from Non-Negotiable

Instruments:
Negotiable Instruments Non-negotiable Instruments

Contains all the requisites of Sec. 1 of does not contain all the requisites of
the NIL Sec. 1 of the NIL

Transferred by negotiation transferred by assignment

Holder in due course may have better transferee acquires rights only of his
rights than transferor transferor

prior parties merely warrant legality of

Prior parties warrant payment title

Transferee has right of recourse against

intermediate parties transferee has no right of recourse

4. Difference between Negotiable Instruments and Negotiable Documents

of Title
Negotiable Instruments Negotiable Documents of Title

Have requisites of Sec. 1 of the NIL does not contain requisites of Sec. 1 of NIL

Have right of recourse against intermediate no secondary liability of intermediate

parties who are secondarily liable parties

Holder in due course may have rights transferee merely steps into the shoes of
better than transferor the transferor

Subject is money subject is goods

instrument is merely evidence of title;

thing of value are the goods mentioned in
Instrument itself is property of value the document

5. Promissory Note unconditional promise to pay in writing made by one person to

anther, signed by the maker, engaging to pay on demand or a fixed determinable future
time a sum certain in money to order or bearer. When the note is drawn to makers own
order, it is not complete until indorse by him. (Sec. 184 NIL)
Parties:

1. maker
2. payee
6. Bill of Exchange 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. (Sec. 126 NIL)

Parties:

1. drawer
2. payee
3. drawee/ acceptor
7. Check bill of exchange drawn on a bank and payable on demand. (Sec. 185 NIL)
8. Difference between Promissory Note and Bill of Exchange
Promissory Note Bill of Exchange

Unconditional promise unconditional order

Involves 2 parties involves 3 parties

Maker primarily liable drawer only secondarily liable

generally 2 presentments for acceptance

only 1 presentment for payment and for payment

9. Distinctions between a Check and Bill of Exchange

CHECK BOE

may or may not be drawn against a

always drawn upon a bank or banker bank

may be payable on demand or at a

always payable on demand fixed or determinable future time

not necessary that it be presented for necessary that it be presented for

acceptance acceptance

drawn on a deposit not drawn on a deposit

the death of a drawer of a check, with

knowledge by the banks, revokes the the death of the drawer of the
authority of the banker pay ordinary bill of exchange does not

must be presented for payment within may be presented for payment within
a reasonable time after its issue (6 a reasonable time after its last
months) negotiation.

10. Distinctions between a Promissory Note and Check

PN CHECK
 there are two (2) parties, the maker there are three (3) parties, the
and the payee drawer, the drawee bank and the payee

may be drawn against any person, not

necessarily a bank always drawn against a bank

may be payable on demand or at a

fixed or determinable future time -always payable on demand

a promise to pay an order to pay

11. Other Forms of Negotiable Instruments:

a. certificates of deposits

b. trade acceptances

c. bonds in the nature of promissory notes

d. drafts which are bills of exchange drawn by 1 bank to another

e. letters of credit

12. Trust Receipt a security transaction intended to aid in the financing of importers
and retailers who do not have sufficient funds to finance their transaction and acquire
credit except to use as collateral the merchandise imported
13. Requisites of a Negotiable Note (PN): (SUDO)

It must:

a. be in writing signed by the drawer

b. contains an unconditional promise or order to pay a sum certain in money
c. be payable on demand or at a fixed determinable future time
d. be payable to order or to bearer (Sec. 1 NIL)
14. Requisites of a Negotiable Bill (BOE): (SUDOC)

It must:

1. be in writing signed by the drawer

2. contains an unconditional promise or order to pay a sum certain in money
3. be payable on demand or at a fixed determinable future time
4. be payable to order or to bearer
5. the drawee must be named or otherwise indicated with reasonable certainty (Sec. 1
NIL)
Notes on Section 1:
 In order to be negotiable, there must be a writing of some kind, else there would
be nothing to be negotiated or passed from hand to hand. The writing may be in ink,
print or pencil. It may be upon parchment, cloth, leather or any other substitute of
paper.

It must be signed by the maker or drawer. It may consist of mere initials or even
numbers, but the holder must prove that what is written is intended as a signature of
the person sought to be charged.

The Bill must contain an order, something more than the mere asking of a favor.

Sum payable must be in money only. It cannot be made payable in goods, wares,
or merchandise or in property.

A drawees name may be filled in under Section 14 of the NIL

15. Determination of negotiability

1. by the provisions of the Negotiable Instrument Law, particularly Section 1 thereof
2. by considering the whole instrument
3. by what appears on the face of the instrument and not elsewhere

*In determining is the instrument is negotiable, only the instrument itself and no other,
must be examined and compared with the requirements stated in Sec. 1. If it appears
on the instrument that it lacks one of the requirements, it is not negotiable and the
provisions of the NIL do not govern the instrument. The requirement lacking cannot be
supplied by using a separate instrument in which that requirement which is lacking
appears.

16. Sum is certain even if it is to be paid with:

a. interest

b. in installments

c. in installments with acceleration clause

d. with exchange

e. costs of collection or attorneys fees (Sec. 2 NIL)

17. General Rule: The promise or order should not depend on a contingent event. If it
is conditional, it is non-negotiable.

Exceptions:
a. indication of particular fund from which the acceptor disburses himself after
payment

b. statement of the transaction which gives rise to the instrument. (Sec. 3 NIL)

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

Notes on Section 3

The particular fund indicated should not be the direct source of payment, else it
becomes unconditional and therefore non-negotiable. The fund should only be the
source of reimbursement.

A statement of the transaction does not destroy the negotiability of the

instrument. Exception: Where the promise to pay or order is made subject to the terms
and conditions of the transaction stated.

18. Instrument is payable upon a determinable future time if:

a. there is a fixed period after sight/date

b. on or before a specified date/fixed determinable future time

c. on or at a fixed date after the occurrence of an event certain to happen though

the exact date is not certain (Sec. 4 NIL)

Notes on Section 4

If the instrument is payable upon a contingency, the happening of the event

does not cure the defect (still non-negotiable)

19. General Rule: If some other act is required other than the payment of
money, it is non-negotiable.

Exceptions:

a. sale of collateral securities

b. confession of judgment

c. waives benefit of law

d. gives option to the holder to require something to be done in lieu of money (Sec.
5 NIL)
 Notes of Section 5

Limitation on the provision, it cannot require something illegal.

There are two kinds of judgements by confession: a) cognovit actionem b) relicta

verificatione

Confessions of judgement in the Philippines are void as against public policy.

If the choice lies with the debtor, the instrument is rendered non-negotiable.

20. The validity and negotiability of an instrument is not affected by the fact
that:
1. it is not dated
2. does not specify the value given or that any had been given
3. does not specify the place where it is drawn or payable
4. bears a seal
5. designates the kind of current money in which payment is to be made (Sec. 6 NIL)
21. Instrument is payable upon demand if:

a. it is expressed to be so payable on sight or upon presentation

b. no period of payment is stipulated

c. issued, accepted, or endorsed after maturity (Sec. 7 NIL)

Where an instrument is issued, accepted or indorsed when overdue, it is, as regards to

the person so issuing, accepting, or indorsing it, payable on demand.

Notes on Section 7

if the time for payment is left blank (as opposed to being omitted), it may properly be
considered as an incomplete instrument and fall under the provisions of Sec. 14, 15, or
16 depending on how the instrument is delivered.

22. Instrument is payable to order:

where it is drawn payable to the order of a specified person or

to a specified person or his order

It may be drawn payable to the order of:

1. a payee who is not a maker, drawer, or drawee

2. the drawer or maker
 3. the drawee
4. two or more payees jointly
5. one or some of several payees
6. the holder of an office for the time being (Sec. 8 NIL)
Notes on Section 8

The payee must be named or otherwise indicated therein with reasonable

certainty.

If there is no payee, there would be no one to indorse the instrument payable to

order. Therefore useless to be considered negotiable.

Joint payees in indicated by the conjunction and. To negotiate, all must

indorse.

Being several payees is indicated by the conjunction or.

23. Instrument is payable to bearer :

a. when it is expressed to be so payable

b. when payable to the person named or bearer

c. payable to order of fictitious or non-existent person and this fact was known to
drawer

d. name of payee not name of any person

e. only and last indorsement is an indorsement in blank (Sec. 9 NIL)

Notes on Section 9

fictitious person is not limited to persons having no legal existence. An existing

person may be considered fictitious depending on the intention of the maker or the
drawer.

fictitious person means a person who has no right to the instrument because
the maker or drawer of it so intended. He was not intended to be the payee.

where the instrument is drawn, made or prepared by an agent, the knowledge or

intent of the signer of the instrument is controlling.

Where the agent has no authority to execute the instrument, the intent of the
principal is controlling
24. The date may be inserted in an instrument when:
1. an instrument expressed to be payable at a fixed period after date is issued undated
2. where acceptance of an instrument payable at a fixed period after sight is undated
(Sec. 13 NIL)

Effects:

any holder may insert the true date of issuance or acceptance

the insertion of a wrong date does not avoid the instrument in the hands of a
subsequent holder in due course

as to the holder in due course, the date inserted (even if it be the wrong date) is
regarded as the true date.

25. Subsequent Holder in Due Course not affected by the following

deficiencies:

a. incomplete but delivered instrument (Sec. 14 NIL)

b. complete but undelivered (Sec. 16 NIL)

c. complete and delivered issued without consideration or a consideration consisting

of a promise which was not fulfilled (Sec 28 NIL)

26. Holder in Due Course Affected by Abnormality/Deficiency:

a. incomplete and undelivered instrument (Sec. 15 NIL)

b. maker/drawers signature forged (Sec. 23 NIL)

27. Incomplete but Delivered Instrument:

1. Where an instrument is wanting in any material particular:

a. Holder has prima facie authority to fill up the blanks therein.

b. It must be filled up strictly in accordance with the authority given and within a
reasonable time.

c. If negotiated to a holder in due course, it is valid and effectual for all purpose as
though it was filled up strictly in accordance with the authority given and within
reasonable time. (Sec. 14 NIL)

2. Where only a signature on a blank paper was delivered:

 1. It was delivered by the person making it in order that it may be converted into a
negotiable instrument
2. The holder has prima facie authority to fill it up as such for any amount. (Sec. 14 NIL)

THE NEGOTIABLE INSTRUMENTS LAW

ACT NO. 2031

February 03, 1911

I. FORM 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.

Sec. 2. 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:

(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.

Sec. 3. When promise is unconditional. - An unqualified order or promise to pay is unconditional within
the meaning of this Act though 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. 4. Determinable future time; what constitutes. - An instrument is payable at a determinable future
time, within the meaning of this Act, which is expressed to be payable:

(a) At a fixed period after date or sight; or

(b) On or before a fixed or determinable future time specified therein; or

(c) 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. 5. Additional provisions not affecting negotiability. - An instrument which contains an order or
promise to do any act in addition to the payment of money is not negotiable. But the negotiable
character of an instrument otherwise negotiable is not affected by a provision which:

(a) authorizes the sale of collateral securities in case the instrument be not paid at maturity; or

(b) authorizes a confession of judgment if the instrument be not paid at maturity; or

(c) waives the benefit of any law intended for the advantage or protection of the obligor; or
(d) gives the holder an election to require something to be done in lieu of payment of money.

But nothing in this section shall validate any provision or stipulation otherwise illegal.

Sec. 6. Omissions; seal; particular money. - The validity and negotiable character of an instrument are
not affected by the fact that:

(a) it is not dated; or

(b) does not specify the value given, or that any value had been given therefor; or

(c) does not specify the place where it is drawn or the place where it is payable; or

(d) bears a seal; or

(e) designates a particular kind of current money in which payment is to be made.

But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the
consideration to be stated in the instrument.

Sec. 7. When payable on demand. - An instrument is payable on demand:

(a) When it is so expressed to be payable on demand, or at sight, or on presentation; or

(b) 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. 8. 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) A payee who is not maker, drawer, or drawee; or

(b) The drawer or maker; or

(c) The drawee; or

(d) Two or more payees jointly; or

(e) One or some of several payees; or

(f) 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. 9. When payable to bearer. - The instrument 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

(c) 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

(d) When the name of the payee does not purport to be the name of any
person; or

(e) When the only or last indorsement is an indorsement in blank.

Sec. 10. Terms, when sufficient. - The instrument need not follow the language of this Act, but any terms
are sufficient which clearly indicate an intention to conform to the requirements hereof.

Sec. 11. Date, presumption as to. - Where the instrument or an acceptance or any indorsement thereon
is dated, such date is deemed prima facie to be the true date of the making, drawing, acceptance, or
indorsement, as the case may be.

Sec. 12. Ante-dated and post-dated. - The instrument is not invalid for the reason only that it is ante-
dated or post-dated, provided this is not done for an illegal or fraudulent purpose. The person to whom
an instrument so dated is delivered acquires the title thereto as of the date of delivery.

Sec. 13. When date may be inserted. - Where an instrument expressed to be payable at a fixed period
after date is issued undated, or where the acceptance of an instrument payable at a fixed period after
sight is undated, any holder may insert therein the true date of issue or acceptance, and the instrument
shall be payable accordingly. The insertion of a wrong date does not avoid the instrument in the hands of
a subsequent holder in due course; but as to him, the date so inserted is to be regarded as the true
date.