INTRODUCTION

Negotiable Instruments Law

February 3, 1911
Functions:
As a substitute for money
As a medium of exchange for commercial
transactions
As a medium of credit transactions
Characteristics/features:
* Negotiability
* Accumulation of secondary contracts
REQUISITES OF NEGOTIABILITY
Section 1
1. 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 a
Drawee, he must be named or otherwise
indicated therein with reasonable certainty.
PROMISSORY NOTES
1. In writing and signed by the Maker
2. Must contain an unconditional PROMISE
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
Parties in a Promissory Note:
Maker – the one who makes the promise
Payee – the one to whom the promise is
made
BILL OF EXCHANGE
1. In writing and signed by the Drawer
2. Must contain an unconditional 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 a
Drawee, he must be named or otherwise
indicated therein with reasonable certainty.
Parties in a Bill of Exchange
Drawer – the one who gives the order to pay
money
Drawee – the party to whom the bill is
addressed and is ordered to pay
Payee – the party in whose favor the bill is
drawn
Purpose: Drawer has funds in the hands of the
drawee of which the drawer wants to avail
himself
THE INSTRUMENT MUST BE IN WRITING
 Must be in writing so that it can be
negotiated or passed on from hand to
hand
 Negotiability must be determined from
instrument itself

THE INSTRUMENT MUST BE SIGNED
BY THE MAKER OR DRAWER
Signature is valid and binding as long as
there is intent to make instrument as his
own
No particular form as long as he/she
obligates himself/herself to pay the
instrument
Signature is prima facie evidence that
maker/ drawer intends to bind himself
THE INSTRUMENT MUST CONTAIN
UNCONDITIONAL PROMISE OR ORDER TO
PAY (refer to Sec. 3)
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.
UNCONDITIONAL ORDER OR PROMISE
Words equivalent to a promise or
assumption of full responsibility for
payment e.g. I agree, I guaranty
Order is a command or imperative
It is payable absolutely – not subject to any
condition or contingency
Why? It enhances its negotiability
INDICATION OF A PARTICULAR FUND
FOR REIMBURSEMENT
Fund indicated is not the direct source of
payment but a source of reimbursement
Order to pay is unconditional
E.g.
Pay to the order of A Php 1,000 and reimburse
yourself from the rentals of my house.
If payment out of a particular fund – non
negotiable because payment is not certain if
fund is insufficient.
STATEMENT OF TRANSACTION WHICH
GIVES RISE TO THE INSTRUMENT
Instruments which indicate the
transaction on which it is based is
unconditional

Unconditional = negotiable
Conditional = non-negotiable
Sec. 5: ADDITIONAL PROVISIONS THAT
AFFECT NEGOTIABILITY
Not negotiable if it contains a promise or order
to do any act in addition to the payment of
money
e.g. I promise to pay P or order PHP 1,000 and
to deliver five sacks of rice.
Except: gives the holder the option to require
something to be done in lieu of money
e.g. I promise to pay P or order PHP 1,000 or an
air conditioner at the option of the holder
Sec. 5
(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.
INSTRUMENT IS PAYABLE IN A SUM
CERTAIN IN MONEY
Why? Nego Instrument is substitute for money
(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.
INSTRUMENT PAYABLE AT A FIXED OR
DETERMINABLE FUTURE TIME OR ON
DEMAND
Sec. 4. Determinable future time; what constitutes:
(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.
Must be payable at all events
There must be certainty as to time of
payment
e.g. I promise to pay P or order the sum of
PHP 1,000 on September 10, 2015
Fixed period after date – count from the
date of issuance
Fixed period after sight – count from the
date it is seen by drawee
Payable on or before a fixed time
e.g. On or before September 15, 2015, I
promise to pay P or order PHP 1,000
Payable on or before a determinable future
time (time can be determined with
certainty)
e.g. On or before the start of the next
school semester, I promise to pay P or
order PHP 1,000
Payable on or after the occurrence of a
specified date – event must be certain to
happen (though the time of happening is not
know)
e.g. promise to pay on the death
Not negotiable if payable upon a contingency –
uncertain future event which may or may
not happen
e.g. promise to pay if “ Ang Probinsiyano” ends
Payable on Demand Sec. 7
(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.

Implication: it is due and payable immediately

after delivery
Payable to order: (Sec. 8) must be
payable to the order of the following:
(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
- Someone must give order to collect
Payable to Bearer: Sec. 9
(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.
* If payable to a particular person – not negotiable
Sec. 17. Construction where instrument is
ambiguous. -
Where the language of the instrument is
ambiguous or there are omissions therein,
the following rules of construction apply: (a)
Where the sum payable is expressed in
words and also in figures and there is a
discrepancy between the two, the sum
denoted by the words is the sum payable; but
if the words are ambiguous or uncertain,
reference may be had to the figures to fix the
amount;
(b) Where the instrument provides for the
payment of interest, without specifying
the date from which interest is to run, the
interest runs from the date of the
instrument, and if the instrument is
undated, from the issue thereof;
(c) Where the instrument is not dated, it
will be considered to be dated as of the
time it was issued;
(d) Where there is a conflict between the
written and printed provisions of the
instrument, the written provisions prevail;
(e) Where the instrument is so ambiguous
that there is doubt whether it is a bill or
note, the holder may treat it as either at
his election;
(f) Where a signature is so placed upon the
instrument that it is not clear in what
capacity the person making the same
intended to sign, he is to be deemed an
indorser;
(g) Where an instrument containing the
word "I promise to pay" is signed by two or
more persons, they are deemed to be
jointly and severally liable thereon.
Sec. 20. Liability of person signing as
agent, and so forth.
Where the instrument contains or a person
adds to his signature words indicating that
he signs for or on behalf of a principal or in a
representative capacity, he is not liable on
the instrument if he was duly authorized;
but the mere addition of words describing
him as an agent, or as filling a representative
character, without disclosing his principal,
does not exempt him from personal liability.
GROUP EXERCISE:
Determine if the following are negotiable or not:

October 30, 2014

I promise to pay to the order of Janet
Napoles P1,000 or the value of our rice
harvest at the end of the year or if Janet
Napoles is convicted for plunder.
(sgd.) Juan Ponce Enrile
I promise to pay to bearer the sum of P 900,000, Philippine
Currency, payable, without interest, on or before January
30, 2014.
If not paid at maturity, it shall draw interest at 12% per
annum, without demand;
that should it be necessary to bring suit to enforce payment
of the note, the debtors shall pay a sum equivalent to 10% of
the total amount due for attorney’s fees;
and, in the event of failure to pay the indebtedness plus
interest in accordance with its terms, I shall execute a first
mortgage in favor of the creditor over my property located
in Cavite.
(sgd.) Ramon Revilla Jr.
.. for value received, we the undersigned ...
JOINTLY, SEVERALLY and SOLIDARILY,
promise to pay the SOCIAL SECURITY
SYSTEM the sum of . . . (P 30,000)
Philippine Currency on Sept. 30, 2015,
with interest at the rate of six (6%) per
centum compounded monthly payable in
. . . (120)equal monthly installments.
(sgd.) Juan Santos
To the Secretary of the Dept. of Finance:

Pay to Eduardo Gomez the amount of

P100,000 out of my Priority Development
Assistance Fund
(sgd.)Sen. Jinggoy Estrada.