The Characteristics of Negotiable
Instruments are as follows:
1. Negotiability.
2. Accumulation of secondary contracts.
Section 1. Form of negotiable
instruments. – An instrument to be
negotiable must conform to the
following requirements: WUDOR
(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.
Nota Bene
-Negotiable Instruments Law will only
apply if the instrument is compliant
with Section 1 of the Negotiable
instruments Law, if it does not, then it is
not a negotiable instrument, ergo, the
rules under the Act 2031 will not apply.
Negotiation of a negotiable
instrument: (Brief background)
In an order instrument, it would be
negotiated through Indorsement and
Delivery.
I promise to pay B or order Ten
Thousand Pesos (P10,000) on June 1,
2018.
Signed A
To transfer this instrument it should
first be Indorsed (Pay to the Order of C,
signed B) and then Deliver the
instrument to C.
For Bearer Instruments, generally the
note will simply be delivered to effect a
transfer.
Two Parties in a Promissory Note
1. Maker
2. Payee
Three Parties in a Bill of Exchange
1. Drawer
2. Drawee
3. Payee
Certainty as to the sum of money
-The payment of a fixed amount of
money or a sum certain. The basic test is
whether the holder can determine by
calculation or computation the amount
payable when the instrument is due.
Payment in Installments
-The rule is that the amount to be paid
by installments and the date of each
installment shall be specifically written.
Acceleration Clause
-This is a clause that is written in NI
with stated installments which means
that should the maker fail to pay an
installment when it becomes due, the
whole sum shall become due and
demandable (Payment is no longer
through installments)
-But an Acceleration Clause at the
option of the holder of the instrument is
non-negotiable.
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
What is after sight? It means that after
the instrument is seen by the drawee
upon presentment for acceptance.
(Payee would present the note to
drawee (bank) then just count 60 days
after presentation so you can determine
the date, hence it is still negotiable.

-It is important to note that a promise or

order to pay should be unconditional.

-It should not be subject to any

condition or contingency, like I promise
to pay you P20,000.00 if B will marry C.

Indication of a particular fund out of

which reimbursement is to be made.

VS.

Indication of a particular fund out of

which payment is to be made.

-this is still negotiable because the order

to pay is not rendered conditional.

The fund that is indicated is not the

direct source of payment but only the
source of reimbursement.

Ex. Pay to the order of P P1,000 and

reimburse yourself from the rentals of
my house.

Indication of a particular fund out of

which payment is to be made.

Ex. Pay to B or order the sum of P10,000

out of the amount that may receive from
the sale of my stocks. (Amount of the
value of the stocks may not even reach 10k)

-Here, the particular fund is the direct

source of payment. The amount to be
paid is made to depend upon the
adequacy or existence of the fund
designated.