NEGOTIABLE INSTRUMENTS LAW

INTRODUCTION
-

Instruments
are
negotiable
when they conform to ALL the
requirements prescribed by NIL.

2 main Groups:

certificate

of

Certificate of deposit- issued by

a bank reciting a deposit of a
certain sum of money payable
either at a fixed time or on
demand.
Bond- evidence of indebtedness
issued by a corporation (usually
for a long term)
It is in EFFECT a written
promise of the corporation to
pay a definite sum or money on
the day named
DRAFT form of bill of
exchange
used
mainly
in
transactions between persons
physically remote from each
other.

PARTIES AND THE

THEIR LIABILITY

NATURE

OF

PN

MAKER promissory
PAYEE promise made

BOE

AS TO LIABILITY
PRIMARY

absolutely
and
unconditionally required to pay the
instrument when it falls due
In PN: maker

1. PROMISSORY NOTE
2. BILL OF EXCHANGE
Others include the
deposit and bond

PAYEE person the payment is

to be paid

DRAWER gives the order to

pay in a bill of exchange
DRAWEE addressee of the
order

In BOE: no person until and

unless he negotiates tl holder to
accept to pay it
SECONDARY : drawer and the indorsers of
either bill or note are parties
-

They can be held responsible

should the primary parties fail
to pay
Liability is conditioned on two
factors (1) that a demand or
presentment be duly made on
primary party; (2) should the
party
dishonour
such
instrument a notice of such
dishonour be given to the
secondary party

An indorser by indorsing the bill

or note impliedly enters into two
contracts:
1. He is elling or transferring
the
instrument
to
his
indorsee (like a seller or
transferor
of
personal
property.
2. He warrants that he will pay
the instrument when the tow
conditions for his liability
have been fulfilled.

FUNCTIONS
INSTRUMENTs

OF

NEGOTIABLE

(ayaw to ni sir!)
1. As a substitute for money
2. Transferring credit
3. Facilitate the sale of goods
***does not constitute as legal
tender

THE CONCEPT OF NEGOTIABILITY

NB. There are usually two contracts
involved
whenever
a
negotiable
instrument is issued.1, is the contract
of sale of the car, and the other is the
promise to pay, so that the promise to
pay is dependent on the validity of the
contract
of
sale,
it
becomes
completely INDEPENDENT of the sale
which gave rise to it

ORIGIN
From merchants and traders of
Middle Ages
Facilitate cambium and to avoid
the risks of transporting money
HISTORY
Verbatim!
(gosh)
haha.
Reproduction of the uniform
negotiable instruments law of
the US
Enactd in 1911 , not a single
amendment to it has been
made. (siguro, dahil magulo at
mahirap. Wahaha)
APPLICABILITY

Applies only to negotiable

instruments
Should
any
requisites
be
absent, the instrument would
not be negotiable and would
therefore not be governed by
NIL, but the general law on
contracts
S. 196 CASES NOT PROVIDED
FOR IN ACT. Any cases not
provided for in this act shall be
governed by the provisions of
existing legislation, or in default
thereof,m by the rules of the
Law Merchant.
**law merchant is a system of
law which does not rest
exclusively on the positive
institutions and local customs of
any particular country

REQUISITES
NEGOTIABILITY

OF

S.
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 and determinable future time
(d) must be payable to order or to
bearer; and
(e) where the instrument is payable to
order or to bearer; and drawee, he

must be named or otherwise indicated

therein with reasonable certainty.

S. 184 PROMISSORY NOTE DEFINED

A negotiable promissory note within
the meaning of theis Act is an
unconditional promise in writing made
by one person to another, signed by
the maker, engaging to pay on
demand, or at a fixed or determinable
future time, a sum certain in money to
order or to bearer. Where a note is
drawn to the makers own order, it is
not complete until indorsed by him.

S. 126 BILL OF EXCHANGE DEFINED

A bill of exchange is an 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.
N.B. the fact that an instrument does
not meet the foregoing requisites will
not affect its validity, the only
consequence being that it will be
governed not by the NIL but by the
general law on contracts

1. Written form and signature

s. 18. LIABILITY OF
PERSON SIGNING IN
TRADE OR ASSUMED
NAME. No person is
liable
on
the
instrument
whose
signature
does
not

appear
thereon,
except
as
herein
otherwise
provided.
But one who signs in
trade
or
assumed
name will be liable to
the same extent as if
he had signed in his
own name.
S. 19. SIGNATURE BY
AGENT;
AUTHORITY;
HOW SHOWN. The
signature of any pary
may be made by a duly
authorized agent. No
particular
form
of
appointment
is
necessary
for
this
purpose,
and
the
authority of the agent
may be established as
in
other
cases
of
agency.
Must be in writing and signed by
the maker or drawer
In writing includes print ,
pen or pencil, also be typed
Signature is binding whether it
is ones handwriting, or printed,
engraved,
lithographed
or
photographed. = intented or
adopted as the signature of the
signer or made with his
authority
It does not matter where the
signature is placed, as long as
the intention to make the
instrument the makers or
drawers is shown

UNCONDITIONAL ORDER OR PROMISE

TO PAY

The
instrument
must
contain a promise or an
order to pay
Mere acknowledgment of
a debt doesnt doesnt
constitute a promise to
pay money
ORDER imperative or a
command and not mere
request or authority to
pay
WHEN UNCONDITIONAL
S. 3. WHEN PROMISE IS
UNCONDITIONAL. An
unqualified
order
of
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
o MUST BE UNQUALIFIED
o NOT UNCONDITIONAL
promise to pay out of a
particular fund (profits
may never be realized)
o HOWEVER,
if
mere
indication
of
the
particular fund out of
which reimbursement is
to be made, or an
indication of a particular
account to be debited

with the amout will not

render
an
order
conditional
subject to some other
contract is conditional
and
negotiability
is
destroyed

SUM PAYABLE
CERTAIN

MUST

BE

S. 2. CERTAINTY AS TO SUM;
WHAT CONSTITUTES. 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 instalments; or
(c) By stated instalments
with a provision that upon
default in payment of any
instalment 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 attorneys fee, in case
payment shall not be made
at maturity.

The amount payable must

be certain

LIABILITY OF PARTIES
Disitinctions
I.

Liability of primary parties

Primarily liable
Unconditionally liable
Duty bound to pay the
holder at the date of
maturity,
WON
holder
demands payment

S. 192. PERSON PRIMARILY

LIABILITY ON INSTRUMENT.
The person primarily liable on
an instrument is the person who
by the terms of the instrument
is absolutely required to pay the
same. All other parties are
secondarily liable.
s. 70. EFFECT OF WANT OF
DEMAND ON PRINCIPAL DEBTOR.
Presentment for payment is not
necessary in order to charge the
person primarily liable on the
instrument; but if the instrument
in, by its terms, payable at special
place, and he is able and willing to
pay it there at maturity, such
ability
and
willingness
are
equivalent to a tender of payment
upon his part. But except as herein
otherwise provided, presentment
for payment is necessary in order
to charge the drawer and indorser.
1. Primary party
a. maker (PN)
b. acceptor (BOE)
*drawee is not a party on the
instrument until and unless he
accepts
2. secondary party
a. indorsers (PN and BOE)
b. drawer (BOE)

Liability of the MAKER

S. 60

Secondarily l
Conditionally
Not bound
conditions ha
Du
the
acc
Tak
law
sec
fore
of b

PRESENTMENT
ACCEPTANCE

negotiate
it
within
a
reasonable time. If he fails
to do so, the drawer and all
indorsers are discharged.

FOR

s. 193. REASONALBE TIME,

WHAT CONSTITUTES. In
determining
what
is
reasonable time or an
unreasonable
time,
regard is to be had the
nature of instrument, the
usage of trade or business
(if any) with respect to such
instruments, and the facts
of each particular case.

a. When necessary; effect of nonpresntment

s. 143 . WHEN PRESENTMENT
FOR ACCEPTANCE MUST BE
MADE. Presentment for
acceptance must be made;
a. where the bill is payable
after sight, or in other case
where
presentment
for
acceptance is necessary in
order to fix the maturity of
the instrument; or
b. where the bill expressly
stipulates that it shall be
presented for acceptance;
or
c. when the bill is drawn
payable elsewhere than at
the residence or place of
business of the drawee.
In
no
other
cases
is
presentment for acceptance
necessary in order to render
any party to the bill liable.
s. 144. WHEN FAILURE TO
PRESENT RELEASES DRAWER
AND INDORSER. Except as
herein provided, the holder
of a bill which is required by
the next preceding section
to
be
presented
for
acceptance
must
either
present it for acceptance or

Presentment for acceptance

refers to BOE only.
Production or exhibition of the
bill --- PURPOSE: OBTAIN his
acceptance or his assent to the
order of the drawer.
S. 143 enumerates the cases
where it is necessary. (i.e. a bill
payable after sight has to be
presented for acceptance, and
non acceptance will be deemed
bills
dishonoured
by
nonacceptance
The law sets no definite time--must be negotiated within a
reasonable time.

DISCHARGE
1. DISCHARGE
INSTRUMENT

OF

THE

NOTICE OF DISHONOR

a. When necessary
S. 89 WHOM NOTICE OF
DISHONOR MUST BE GIVEN.
Except as herein otherwise
provided, when a negotiable
instrument
has
been
dishonoured
by
nonacceptance or non-payment,
notice of dishonour must be
given to the drawer and to
each
indorser,
and
any
drawer or indorser to whom
such notice is not given is
discharged.

Notice of dishonor: bringing

either verbally or in writing, to

the knowledge of the drawer or

the indorser
The fact that a nego instrument,
has not been accepted, or has
not been paid and the party
notified is expected to pay it.
PURPOSE: Notify the drawer
and/or the indorsers that the
holder is enforcing his right
against
them
under
their
contract to pay should the
instrument not be paid or
accepted at maturity
WITHOUT
NOTICE
secondary party may be held
liable, (xpt as otherwise
provided)

COMPLAINT: must allege and prove

presentment to the maker and notice
of dishonor, or that the same are
dispensed with under s. 82 and s. 118.