NEGOTIABLE INSTRUMENTS LAW

BLAW III
 GOVERNING LAW
• NEGOTIABLE INSTRUMENTS LAW
• CODE OF COMMERCE
• CIVIL CODE
 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 the order or bearer; and
e) Where the instrument is addressed to a drawee, he
must be named or otherwise indicated therein with
reasonable certainty.
 What is a negotiable Instrument?
It is a written contract for payment of money
which is intended as a substitute for money
and passes from one hand to another as money
in such a manner as to give a holder in due
course the right to hold the instrument free
from defenses available to prior parties.
 What does negotiation mean?
• The transfer of an instrument form one person
to another in such a manner as to constitute
the transferee a holder thereif
• A holder is the payee or indorsee of a bill or
note who is in the possession of it or the
bearer thereof
 Definition of Terms
• PROMISSORY NOTE
• BILL OF EXCHANGE
• PAYOR
• PAYEE
• DRAWER
• DRAWEE
• INDORSER
 Exercises
• Groupings (max of 5 each group)
• Identify whether the document assigned is
Negotiable Instruments or Non-Negotiable
• Identify if the document assigned is PN or BE
• Explain the findings
 Negotiable Instruments
• The NIL cannot come into operation unless
the document in existence is of the character
described in Section 1 of the Law.
• It does not cover other types of negotiable
instruments involving the sale or transfer of
goods.
• The requisites enumerated in Sec 1 enable
one to tell in a glance whether the instrument
is negotiable or not.
 Formal Requisites of Negotiability
• A Negotiable Instrument is a contractual
obligation to pay money.
• However, whether or not an instrument is
negotiable or non-negotiable depends entirely
on its form and content.
• A valid instrument is not necessarily
negotiable
 Formal Requisites of Negotiability
• Cont
• In determining the negotiability of an instrument,
the following must be considered:
1. The whole of the instrument;
2. Only what appears on the face of the
instrument; and
3. The provisions of NIL especially Sec 1 thereof
which fully define the requirements an
instrument must meet in order to be negotiable
 Applicability of the Formal Requisites
• All kinds of negotiable instruments are either
PROMISES or ORDERS to pay money which meet
the formal requirements or elements set forth in
law, all of which must be present for negotiability;
• The requirements indicated in a,b,c and d are
necessary in order that a promissory note may be
negotiable
• While all requirements from a to e are necessary
in order that a bill of exchange may be
negotiable.
 Definition
• Under subsection a, the MAKER refers to the
person issuing the promissory note, while the
drawer refers to the person issuing a bill of
exchange;
• In subsection b, the instrument must contain
an “UNCONDITIONAL PROMISE” if it is
promissory note and “UNCONDITIONAL
ORDER” if it is a bill of exchange.
 Formal Requirements explained
a. The instrument must be in writing
• The term instrument indicates a writing. The
instrument must be in writing or reduced to a
tangible form, otherwise, nothing could be
negotiated or passed from hand to hand.
• Writing includes not only which has been
written on paper and with pen or pencil but
also that which is in print or has been typed.
 Formal Requirements explained
• Cont.
• There is no such thing as an oral negotiable
instrument. (as opposed to an oral contract
which is allowed under Civil Code.) An oral
promise can make it difficult to determine
liability and create danger of fraud.
 Formal Requirements explained
B. The instrument must be signed by the maker
or drawer
• Although the signature of the maker or drawer
as a general rule, is places at the lower right
hand corner of the instrument, it may appear
in any part thereof. It will be valid and binding
as long as it appears that a person intended to
make the instrument his own
 Formal Requirements explained
• Cont.
• His signature is a prima facie evidence if his
intention to be bound either as a maker or a
drawer
• The signature of the maker or drawer is usually
written. It is preferable that the full name or at
least the surname should appear but initials or
any mark will be sufficient provided that such
signature be used as substitute and the maker or
drawer intends to be bound.
 Formal Requirements explained
• Cont
• If the genuineness of the signature of the
maker or drawer is denied, the party against
whom it operates must provide some
evidence of its invalidity bec. The signature is
presumed as valid.
 Formal Requirements explained
C. The instrument must contain an
unconditional promise or order to pay
• A commercial paper or instrument involving
the payment of money must contain either a
promise to pay or order to pay; Thus, NI may
be classifies as promises or orders to pay
 Formal Requirements explained
D. The instrument must be payable in sum certain
in money
• The promise or order must call for the payment
of the sum certain in money.
• The reason for this requirement is that money is
one standard of value in actual business.
• Money is a medium of exchange authorized or
adopted by a domestic or foreign government as
part of its currency
 Formal Requirements explained
• Legal Tender
-That currency which a debtor can legally
compel a creditor to accept in payment of a
debt in money which is tendered by the debtor
in the right amount.
- Thus, gold, silver and bank notes are not
money (but does it have a value in money?)
 Formal Requirements explained
E. The instrument must be payable on demand
or at a fixed or determinable future time
• What is payable on demand?
• What is fixed period?
• What is a determinable future time?
 Formal Requirements explained
F. The Instrument must be payable to order or
bearer

• What is the definition of order?

• What is the definition of bearer?
 Formal Requirements explained
G. The drawee must be named
• An order which is not addressed to any person
cannot be a BILL
• BUT the bill will be sufficient if the drawee is
indicated therein with reasonable certainty,
though he is not named.
• Ex. Treasurer of Co. X or President of Co. Y
 Formal Requirements explained
• Cont.
• This is to enable the payee or holder to know
upon whom he is to call for acceptance or
payment.