Emem’s Quick Notes!

- when indorsement prevents further negotiation of the

instrument only

WHAT IS NEGOTIABLE INSTRUMENT?

FUNCTIONS OF NEGOTIABLE INSTRUMENTS
- it is a written contract fir the payment of money
1. Substitute for money
- and passes from one person to another as money
2. Means of creating and transferring credit
- in such manner it gives the HOLDER IN DUE COURSE
3. Facilitates the sale of goods
- the right to hold the instrument free from defenses
available to prior parties 4. Increases the purchasing medium in circulation

NOTE: NI is not a LEGAL TENDER

WHO IS A HOLDER IN DUE COURSE?

KINDS OF NI

1. Bill of Exchange

REQUISITES FOR NEGOTIABILITY - unconditional order in writing

1. It must be in WRITING and SIGNED by the maker - adressed by one person to another

2. Contain an unconditional promise or order to pay a - signed by the person giving it

sum certain in money
- requiring the person to whom it is addressed to
3. Must be payable pay on demand , or at a fixed or determinable future
time
a) on demand, or

b) at a fixed, or

c) determinable future time

2. Promissory Note
4. Payable to order or bearer
- an unconditional promise in writing
5. If instrument is addressed to a drawee,
- made by one person to another
a) He must be named or
- signed by one person to another
b) Otherwise indicated therein with reasonable
certainty - signed by the maker

- engaging to pay

MEANING OF NEGOTIATION (A) on demand, or

- the transfer of instrument from one person to another (B) a fixed or

- in such a manner as to constitute the transferee a (C) determinable future time ,

holder thereof
-a sum of money to order or bearer

WHEN DOES NEGOTIABILITY END?

Note: Where a note is drawn to the maker’s own order
1. When restrictively indorsed or
- it is not complete until indorsed by him
2. Discharged by payment or otherwise

WHEN IS AN INSTRUMENT RESTRICTIVELY

INDORSED? SAMPLE BILL OF EXCHANGE
 5. Acceptor- the drawee who accepts the order to pay
made by the drawer

Note: it is only when a drawee becomes an acceptor that

he is primarily liable

6. Holder- the person who is in possession of a bearer

instrument or an indorsee of an order instrument who is
in possession thereof.

- he is an Obligee

WHEN CAN A BE TREATED AS PN BY THE HOLDER? - he can enforce payment of the instrument

1. Drawer and drawee are the same person

2. Drawee is a Fictitiouos person

3. Drawee was no capacity to contract
4. Instrument is so ambiguous that there is doubt
whether it is a bill or a note
7. Referee in case of need- designated person to whom
the parties may ask for hep in case of dispute
Negotiable Non- negotiable

PN BE Governed by NIL NIL application is only by

Unconditional promise
Involves 2 parties only
Maker is primarily liable
Only one presentment for
payment is required
PARTIES
1. Maker- person who makes the PN
analogy
Unconditional Order
Can be transferred by Only by assignment
3 parties negotiation and
assignment
Drawer secondarily liable
Transferee can be a holder Transferee can never be a
GR: 2 presentments
in due course if all the holder in due course,
1. Acceptance requisites of Art. 52 are
present He remains as an assignee
2. For Payment
CONTRARY All the defenses available
to prior parties may be
raised against the last
transferee

- and promises to pay the amount stated

therein
UNCONDITIONAL PROMISE OR ORDER TO PAY A
SUM CERTAIN IN MONEY
2. Payee- or the obligee. He is the person who, by the
terms of the note or bill, is to receive payment
- The promise in a promissory note is the undertaking
made by the maker to pay aa sum certain in money
3. Drawer- person who draws/issued the BE and

- orders the drawee to pay a sum certain in

- to the PAYEE or the holder
Money

WHAT IS THE ORDER IN A BILL?

4. Drawee- the person to whom the order to pay is
- a command made by the drawer addressed to the
addressed in a bill of exchange
drawee ordering the latter pay the payee or the holder
a sum certain in money

- the words “promise” or “order” need not appear in the
instrument to satisfy the requirements of the NIL
WHEN IS A PROMISE OR ORDER UNCONDITIONAL?
The promise or order is unconditional even if it is couple
with-
1. An indication of a particular fund out of which
reimbursement is to be made or
- a particular account to be debited with the amount
2. Statement of transaction which gives rise to the
instrument
WHEN IS IT CONDITIONAL
1. An order or promise to pay out of a particular fund;
2. An instrument payable upon a contingency (note: the
happening of the event does not cure the defect)
Example:
“Promise to pay when his means permit him to do so”
- this is not negotiable
- this is a conditional promise
Example for “Out of a particular fund”
“Payable from the appropriation for Food Administration”
PAYABLE IN A SUM CERTAIN IN MONEY
- The instrument is still negotiable although the amoun to
be paid is expressed in currency that is not a legal tender
- so long as it is expressed in money
- not negotiable if MAKER has the option to deliver
something else aside from money
- negotiable if the HOLDER is given the option to require
something to be done in lieu of payment of money
STILL CONSIDERED SUM CERTAIN EVEN IF:
1. The amount is determinable from the face of the
instrument even if mathematical computation is still
required
2. It is with interest,
3. By stated installments (the dates and amount must be
specific)
4. By stated installments, with a provision that, upon
default in payment of any installment or of interedt, the
whole shall become due, or
5. With exchange, whether at a fixed rate ot at the
current rate; or
6. With cost of collection or an attorney’s fee, in case
payment will not be made at maturity date
PAYABLE ON DEMAND/ AT A FIXED/
DETERMINABLE FUTURE TIME
I. On Demand
- the instrument should be paid the moment it is
presented for payment
- when it is expressed to be so on demand, or at sight, or
presentation; or
- when no time for payment is expressed, and
- when instrument is issued, accepted, or indorsed when
overdue, it is, as regards the person issuing, accepting or
indorsing it, payable on demand.
II. Determinable future time
1. At a fixed period after date or sight
Ex. “twenty days after date”
2. Payable on or before a specified date
3. On or at a fixed period after the occurrence of a
specified event which is CERTAIN TO HAPPEN
Ex. “ 5 days from the death of R”
 Presence of Acceleration Clause : still negotiable

 Insecurity Clause: Non Nego

 Extension Clause: negotiable

III. PAYABLE TO ORDER OR BEARER

- It must not be payable to a SPECIFIC person

WHEN IS AN INSTRUMENT PAYABLE TO BEARER?

1. When expressed to be so or

2. Payable to a person named therein or bearer, or

3. Payable to the order of a

FICTICIOUS/NON-EXISTING person

4. Name of the person does not purport to be a name of

a person (e.g. “pay to cash”)

5. When the only/last indorsement is INDORSEMENT IN

BLANK

Note: Bearer instrument need not be INDORSED

ORDER INSTRUMENTS

1. Payable to the order of a specified person (pay to the

order of Juan de la Cruz), or

2. To a specified person or his order (pay to Juan ot

order)

To WHOM MAY THE ORDER INSTRUMENT BE MADE

PAYABLE?

1. A payee who is not the maker, drawer or drawee, or

2. Drawer/maker

3. Drawee

4. Two or more payees jointly, or

5. The holder of an office for the time being