Negotiable Instrument

MakerPy
Negotiable Instruments Law

Fiscal R.S. Aquino-Tambasacan
I.
Introduction
A. What is a Negotiable Instrument? 2005, 1946, 1946, Bar
A written contract for the payment of money intended as a
substitute for money and it passes or may pass from one hand to
another in such a manner as to give the holder in due course, the
right to enforce payment against all parties liable to him. While it is
intended as a substitute for money you must have learned in your
Banking Laws that it is not legal tender.
B. Functions of Negotiable Instrument 2012, 1951, Bar
(SMC-PP)
1. It operates as a Substitute for money.
2. It is a Medium of exchange.
3. It is a Credit instrument that increases credit circulation.
4. It increases the Purchasing power in circulation.
5. It is a Proof of transaction (AQUINO, Negotiable Instruments, p.
7)
-they may state the transaction that give rise to the issuance of
the instrument.
C. Principal features of Negotiable instrument 1967 Bar

1. Negotiability it is that attribute or property whereby a bill or
note or check 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 to collect the sum payable for himself free from
personal defenses.
X NY I
...
2. Accumulation of Secondary Contracts When negotiable

instruments are transferred through negotiation, secondary
contracts are accumulated because the indorsers become
secondarily liable not only to their immediate transferees, but
also to any holder or any party. These indorsers are liable to said
holder or whoever may be compelled to pay instruments
(AQUINO, Negotiable Instruments, pp. 11-12)
ILLUSTRATION:
NOTE. If not negotiated, M is primarily
liable. If the payee does not negotiate the note on the maturity
date he presents it for payment to the maker and the maker
does not pay he dishonors the note there is no other party
1|MVILLA
MakerPABC
from whom he can demand payment. (SUNDIANG, Pre-Bar

Lecture)
NOTE: C presents it for
payment to maker. If the maker dishonors or does not pay,

provided the holder takes proceedings on dishonors, that means
he must give notices to P, A, and B, then became liable to C. In
other words, every negotiation is a contract in itself. (SUNDIANG,
Pre-Bar Lecture)
D. Differences between negotiable document from negotiable

instrument 2005 Bar
Negotiable Document
Governed by the
Negotiable Instrument
Law
Subject Matter a sum
certain in money
Capable of accumulating
secondary contracts
resulting from
indorsements at the back
thereof.
Negotiable Instrument
Governed by the Civil Code
Subject Matter things or

goods
Not capable, especially
considering that
indorsement of the latter
does not result in liability of
the indorser when the
depositary, like the
warehouseman, fails to
comply with his duty to
deliver the things or goods
deposited and covered by
the warehouse receipt by
the depositary
E. Difference between a promissory note and a bill of exchange/check

(Secs. 184 and 185) 2002, 1947 Bar
Promissory Note v. Bill of Exchange
Promissory Note
Bill of Exchange
Nature
Unconditional Promise
Unconditional Order
Number of parties
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Involves two (2) parties
Involves three (3) parties.

However, a drawee is not a
party until he accepts the
bill.
Liability
Maker is primarily liable
Drawee-acceptor is primarily
liable. Drawer is only
secondarily liable.
Presentment
Only one (1) presentment;
May involve two (2)
for payment
presentment;
1. For acceptance (in
cases provided in Sec.
143) and
2. For payment
Right to limit liability
Maker of note may not
Drawer may insert in the
insert an express
instrument an express
stipulation limiting or
stipulation limiting or
negating his own liability negating his own liability to
to the holder (NIL, Sec.
the holder (NIL, Sec. 61)
61)
Bill of Exchange v. Check
Bill of Exchange
Check
When payable
May be payable on demand Always payable on demand.
or at a fixed or determinable
future time.
Presentment
Must be presented for
Need not be presented for
acceptance. (NI, Sec 143)
acceptance. However, if the
holder request and the
banker desires, banker may
accept.
Drawn on deposit
Need NOT be drawn on a Drawn in deposit, otherwise,
deposit, hence it is not
there would be fraud
necessary that the
(SUNDIANG & AQUINO,
drawer of a bill of
Reviewer, p 11)
3|MVILLA

exchange should have

funds in the hands of the
drawee. (SUNDIANG &
AQUINO, Reviewer, p 11)
When presentment made
May be presented for
Must be presented for
payment within
payment within a reasonable
reasonable time after its time after its issuance (NIL,
last negotiation (NIL,
186)
sec. 71)
Effect of acceptance/certification
If accepted
If certified drawer/indorsers
drawer/indorser remains
are discharged.
liable.
Effect of drawers death
Death of a drawer of a
Death of the drawer of a
BOE, with the knowledge check, with the knowledge of
of the bank, does not
the bank, revokes the
revoke, the authority of
authority of the banker to
the drawee to pay.
pay. (SUNDIANG & AQUINO,
(SUNDIANG & AQUINO,
Reviewer, p 11)
Reviewer, p 11)
F. Parties to a promissory note and a bill of exchange (Secs. 184 and
185).
Promissory Note
Maker person who promises to pay according to the tenor of
the note
Payee person who is to receive payment from the maker.
Bill of Exhange
Drawer
Drawee
Payee
G. Life stages of a promissory note and a bill of exchange.
Promissory Note
Issue
Negotiation
Presentment for payment
Dishonor by non-payment
4|MVILLA

Notice of dishonor
Discharge
Bill of Exhange
Issue
Negotiation
Presentment for acceptance (only those cases falling under
Sec. 143 NIL)
Dishonor by non-acceptance
Presentment for payment
Dishonor by non-payment
Notice of dishonor
Discharge
II.
Form and Interpretation

A. Elements/Requisites of Negotiability (Sec. 1 correlate with Secs. 2,
3, 4, 6, 8 and 9) 2013, 1996, 1992, 1968, 1964, 1954, 1953
Bar
Unconditional ( Correlate with Sec. 3 of the NIL and Art. 1179
of the Civil Code)
Postal money order, treasury warrants not negotiable
2005, 980, 1975 Bar
Case: Metrobank vs. CA, Feb. 18, 1981, 194 SCRA 169
treasury warrants not negotiable.
Certificate of time deposit, letter of credit negotiable
1970, 1966, 1959 Bar
Sum certain (Correlate with Sec. 2)
If sum is capable of mathematical computation, still
negotiable 2012, 2002 Bar
In money (correlate with Art. 1249 of the Civil Code)
Foreign currency valid 2014, 2012 Bar
Warehouse receipt not negotiable 2005, 1948 Bar
Payable on demand or at a fixed or determinable future time
(Correlate with Secs. 4 and 7) 2009 Bar
Omission of date not fatal 2012, 2000, 11997, 1957,
Bar
Error in date not fatal 2002, 1959 Bar
Omission of year when the month and day is sated fatal
1997 Bar
Not negotiable if debtor is granted the option to pay in either
of two dates 1970 Bar
Payable to order or bearer (Correlate with Secs. 8 and 9)
2012 Bar
5|MVILLA

Person must not be specified; it must be order or bearer

2000, 1989, 1988, 1966, 1959 Bar
Payable to Case is bearer instrument 1997, 1960 Bar
6|MVILLA

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MakerPy

Negotiable Instruments Law

C. Principal features of Negotiable instrument 1967 Bar

2. Accumulation of Secondary Contracts When negotiable

from whom he can demand payment. (SUNDIANG, Pre-Bar

payment to maker. If the maker dishonors or does not pay,

D. Differences between negotiable document from negotiable

Subject Matter things or

E. Difference between a promissory note and a bill of exchange/check

Negotiable Instruments Law

Involves two (2) parties

Involves three (3) parties.

Negotiable Instruments Law

exchange should have

Negotiable Instruments Law

Form and Interpretation

Negotiable Instruments Law

Person must not be specified; it must be order or bearer

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