NEGOTIABLE

INSTRUMENTS
By : Ray Allen Dela Pena
Neil Emerson Fadri
NEGOTIABLE INSTRUMENTS
  Document of title or evidence of indebtedness
  are unconditional orders or promise to pay,
and include checks, drafts, bearer bonds, some
certificates of deposit, promissory notes, and
bank notes (currency).
FUNCTION & IMPORTANCE
OF NEGOTIABLE
INSTRUMENTS
 Although they do not constitute legal
tender, they are used as a substitute
for money.
Negotiable papers, particularly
checks, constitute, at present, the
media of exchange for most
commercial transactions.
FUNCTION & IMPORTANCE
OF NEGOTIABLE
INSTRUMENTS
Negotiable instruments also serve as
a medium of credit transactions.
 Negotiable instruments shall
produce the effect of payment only
when they have been encashed or
when through the fault of the creditor
they have been impaired.
CHARACTERISTICS OF
NEGOTIABLE INSTRUMENTS 

Negotiability: That quality or
 

attribute whereby a bill, note or

check passes or may pass from hand
to hand, similar to money, so as to
give the holder in due course the
right to hold the instrument and
collect the sum payable for himself
free from defenses.
CHARACTERISTICS OF
NEGOTIABLE INSTRUMENTS 
The most important feature of
negotiable instruments is the
accumulation of secondary contracts
as they are transferred from one
person to another.
FORMS OF
NEGOTIABLE
INSTRUMENTS
BILL OF EXCHANGE
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.
KINDS OF BILL OF
EXCHANGE
 Draft
Trade acceptance
 Check
 INLAND AND FOREIGN BILL
OF EXCHANGE
An inland bill of exchange is one
which, on its face, purports to be
both drawn and payable in the
Philippines. Any other bill is a foreign
bill.
PROMISSORY NOTE
A negotiable promissory note 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.
KINDS OF PROMISSORY
NOTES
Certificate of deposit
Bond
Bank note
Due bill
Mortgage note
Title-retaining note
 Judgment note
BILL OF EXCHANGE V.S
PROMISSORY NOTE
Unconditional order
 unconditional promise.
 Three (3) parties in bill while only
two (2) in note.
BILL OF EXCHANGE V.S
PROMISSORY NOTE
Drawer in a bill is only secondarily liable
while maker in a promissory is primarily
liable.
A bill drawn payable to drawer's own order
is complete without endorsement while a
note drawn payable to maker's own order
is not complete until indorsed by him
BILL OF EXCHANGE V. S
PROMISSORY NOTE
A bill must be presented for
acceptance in some cases while there
is no need of presentment for note
 Reasonable time from last
negotiation v. reasonable time from
issue
FORM AND
INTERPRETATIO
N
FORM OF NEGOTIABLE
INSTRUMENTS 
It must be in writing and signed by the
maker or drawer.
 It must contain an unconditional
promise or order to pay a sum certain in
money.
 It must be payable on demand, or at a
fixed or determinable future time.
FORM OF NEGOTIABLE
INSTRUMENTS (SEC.1)
 It must be in writing and signed by the
maker or drawer.
It must contain an unconditional
promise or order to pay a sum certain in
money.
It must be payable on demand, or at a
fixed or determinable future time.
FORM OF NEGOTIABLE
INSTRUMENTS (SEC.1)
 It must be payable to order or to
bearer.
Where the instrument is addressed to
a drawee, he must be named or
otherwise indicated therein with
reasonable certainty.
WHAT CONSTITUTES
CERTAINTY AS TO SUM
(SEC.2)
The sum payable is a sum certain within the
meaning of this act, although it is to be paid:
›With interest; or
›By stated installments; or
›By stated installments, with a provision that,
upon default in payment of any installment or
of interest, the whole shall become due; or
WHAT CONSTITUTES
CERTAINTY AS TO SUM
(SEC.2)
› With exchange, whether at a fixed rate or at
the current rate; or
›With costs of collection or an attorney's fee, in
case payment shall not be made at maturity.
WHEN PROMISE IS
UNCONDITIONAL (SEC.3)
 An unqualified order or promise to pay is
unconditional.
 It is still unconditional though coupled with:
››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
››A statement of the transaction which gives rise
to the instrument.
WHEN PAYABLE ON DEMAND
(SEC. 7)
When it is so expressed to be payable on
demand, or at sight, or on presentation
 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
DETERMINABLE FUTURE
TIME; WHAT CONSTITUTES
(SEC.4)
At a fixed period after date or sight; or ▪
On or before a fixed or determinable
future time specified therein; or
 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.
NEGOTIATION
THREE TYPES OF
TRANSFERS
1. By assignment – Generally for non-
negotiable instruments. In
assignment, the assignee is merely
placed in the position of the
assignors and acquires the
instrument subject to all the defenses
that might have been set up against
the original payee.
THREE TYPES OF
TRANSFERS
2. By operation of law – Such as by
succession or insolvency.
3. By negotiation
WHAT CONSTITUTES
NEGOTIATION
An instrument is negotiated when it is
transferred from one person to another
in such manner as to constitute the
transferee the holder thereof.
 A holder means the payee or endorsee
of a bill or note who is in possession of
it or the bearer thereof
WHAT CONSTITUTES
NEGOTIATION
If payable to bearer, it is negotiated
by delivery; if payable to order, it is
negotiated by the endorsement of
the holder completed by delivery.
CONTINUING NEGOTIABILITY
General rule : An instrument which is
negotiable in origin continues to be
negotiable until it has been:
>restrictively indorsed; or
>paid at or after maturity.
KINDS OF ENDORSEMENT
Special or in blank
Restrictive or qualified or conditional