NEGOTIN NOTES

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-------------------------------Chapter 1: Form and Interpretation
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 of certain money
c) Must be payable on demand or at a fixed or determinable future time
d) Must be payable to order or bearer; and
e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty
*Section 1 does not cover the other types of negotiable documents involving the sale or transfer
of goods.
**Sub-sections A - C are necessary for BILLS OF EXCHANGE (BoE) to be negotiable
***Sub-sections A - D are necessary for PROMISSORY NOTES (PN) to be negotiable
****(C) and (D) are still applicable to both BoE and PN but (E) is applicable to BoE only
(A)
Maker - person issuing the promissory note
Drawer - person issuing bill of exchange
(B)
Unconditional Promise - Promissory note
Unconditional Order - Bill of exchange

Commercial Paper - written promises or obligations that arise out of commercial

transactions. Either negotiable or not.
Whether a negotiable instrument is negotiable or not depends on its form and content. To
determine the negotiability, consider the following:
1. the whole of the instrument
2. only what appears on the face
3. the provisions of the Negotiable Instruments Law

Formal requirements
1. Must be in writing - reduced to tangible form; otherwise, nothing could be negotiated or
passed by hand. Includes typewriting. The usual way is to have the instrument written in durable
paper. THERE IS NO SUCH THING AS AN ORAL NEGOTIABLE INSTRUMENT
2. Must be signed by drawer or maker - the general rule (but not an absolute requirement) is to
have the signature at the lower right hand corner. If a signature is placed upon the instrument
that it is not clear in what capacity the person intended to sign, he is an indorser. It is preferable
that the full name or at least the surname appear; initials or any mark are sufficient, if the maker
or drawer intends to be bound by it.
If the genuineness of the signature is denied, the party against whom it operates must provide
evidence because the signature is assumed valid. The party asserting its validity must then
provide proof of its genuineness in the long hand.
3. Must contain unconditional promise or order to pay
4. Must be payable in a sum certain in money - may designate a particular kind of current
money in which payment is to be made.
Money - medium of exchange authorized or adopted by the government as part of its
currency. Literal sense: cash. Includes all legal tender (currency debtor can legally compel a
creditor to accept payment. Gold, silver, and bank notes are not money.
5. Must be payable at fixed or determinable time
6. Must be payable to order
7. Must be payable to bearer
8. Drawee must be named - applies to bills and checks. A bill however, still efficient if drawee is
indicated with reasonable certainty (like treasurer of company).

Non-negotiable instrument - does not meet the requirements laid down to qualify as a
negotiable instrument, or originally a negotiable one but lose its quality. One example is a check
that is payable to a specific person; it ceases to become negotiable if the indorsement prohibits
further negotiation. A non-negotiable instrument may still be assigned or transferred (unless
expressly prohibited).
Negotiable promissory note (promise paper or two-party paper) - unconditional promise made in
writing made by one person to another, engaging to pay on demand or at a fixed or
determinable future time a sum of certain money to the bearer. Commonly referred to as note.
Can be a demand or time instrument.

Original parties to a promissory note

1. Maker - signature must appear on the face to be liable thereon.
2. Payee - may be specifically designated by name, office, or title. May seek payment or
further negotiate the instrument.
Bill of exchange (order paper or three-party paper) - unconditional order in writing addressed by
one person to another, signed by the person giving it, and requiring the person to whom it is
addressed to pay upon demand a fixed or determinable future time a sum of certain money to
the bearer or to order. A check is a common example.
Original parties to a promissory note
1. Drawer - issues the bill, gives order to pay money to third party
2. Drawee - the one ordered and expected to pay; becomes an acceptor when indicates
he is willing to pay.
3. Payess - party in whose favor the bill is originally issued.

Section 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 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 attorneys fee, in case payment shall not be made a
maturity.
A negotiable instrument is intended to substitute money; therefore, the amount must be certain.
It must not have reference to any outside source. If it calls for an act other than money, it is not
negotiable.
Sum certain - holder can determine from the instrument itself the amount he is entitled
The sum is not rendered uncertain by a clause in the instrument that is to be paid with interest,
by stated installments, with exchange, with costs of collection, or with attorneys fees. Neither
will it be affected by an acceleration provision.