De Leon, The Law on Negotiable Instruments

Applicability of the Negotiable Instruments Law

Applies to Negotiable Instruments or those under Section 1 of the
law
Any case not provided by the Act shall be governed by the
provisions of existing legislation or in default, the rules of the law
merchant (Sec. 196)
CIVIL CODE HAS NOT EFFECT on its provisions except to supply
any deficiency in cases not covered by the Act (Art. 18, NCC)
Function and Importance of Negotiable Instruments
They do not constitute legal tender (1249), but are used for
substitute for money. One characteristic is that it is negotiable
and allows it to go from hand to hand in the commercial markets
free from all personal defenses available against the original
owner.
Negotiable papers, particularly checks, constitute, at present, the
media of exchange for most commercial transactions.
Negotiable instruments also serve as a medium of credit
transaction. Checks are primarily used for immediate payment
while ordinary bill of exchange and the promissory note are
intended for the circulation of credits.
Characteristics of Negotiable Instruments

TWO IMPORTANT FEATURES

Negotiability the quality/attribute of a bill or note whereby it may
pass from one person to another similar to money, so as to give the
holder in due course the right to collect on the instrument the sum
payable for himself free from any defect in the title of any of the
prior parties or defenses available to them among themselves (sec.
52, 57)
Accumulation of Secondary Contracts when an instrument is
transferred from one person to another, a new contract is formed.

Once an instrument is issued, (191) additional parties can become

involved.

Forms of Negotiable Instruments

In General, these are the only two kinds of instruments:
(a) Promissory notes or those in which the issuer has promised to pay;
and
(b)Bills of exchange or those in which the issuer has ordered a third
person to pay.
1. Common Forms The most common forms of negotiable
instruments in commercial transactions are the promissory note
(Sec. 184), bill of exchange (Sec. 126), and bank check (Sec. 185)
2. Special Types There are, to be sure, many various forms of
negotiable instruments. But these variations, however, belong to
one or the other of the types mentioned.
Other instruments:
1.
2.
3.
4.
5.
6.
7.

Certificates of deposits (Special types of promissory notes, sec. 184)

Bank notes (Special types of promissory notes, sec. 184)
Due bills (Special types of promissory notes, sec. 184)
Bonds (Special types of promissory notes, sec. 184)
Drafts (Bills of Exchanges, 126)
Trade Acceptances (Bills of Exchanges, 126)
Bankers acceptances (Bills of Exchanges, 126)

Lanzarrote, Padilla Reviewer