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The document defines and discusses negotiable instruments. It begins by defining a negotiable instrument as a written contractual obligation containing an unconditional promise to pay a sum certain in money, on demand or at a fixed time, to order or bearer and signed by the issuer. Second, it notes that negotiable instrument law has not been updated since 1911. Finally, it explains that a negotiable instrument accumulates secondary contracts as it is transferred, allowing the holder to proceed against not just the maker but all transferors of the instrument.

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Michelle Ann Asuncion
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42 views

NIL Notes Reviewer

The document defines and discusses negotiable instruments. It begins by defining a negotiable instrument as a written contractual obligation containing an unconditional promise to pay a sum certain in money, on demand or at a fixed time, to order or bearer and signed by the issuer. Second, it notes that negotiable instrument law has not been updated since 1911. Finally, it explains that a negotiable instrument accumulates secondary contracts as it is transferred, allowing the holder to proceed against not just the maker but all transferors of the instrument.

Uploaded by

Michelle Ann Asuncion
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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NEGOTIABLE INSTRUMENTS

Definition

Negotiable Instrument is a written contractual obligation which contains an unconditional promise or


order to pay a sum certain in money, payable on demand or at a fixed or determinable future time,
payable to order or to bearer, signed by the person issuing it.

History

Negotiable Instruments Law has not yet been amended since 1911. Thus many provisions are no longer
applicable due to the technology advances.

Negotiable Instrument as a contract

An instrument when negotiated, it must be accepted. Once it is accepted, it is already a meeting of


minds. If he do not want to accept, no one can compel him to do so.

Requisites of a Promissory Note to be Negotiable:

(a) It must be in writing and signed by the maker;


(b) Must contain an unconditional promise to pay a sum certain in money;
(c) Must be payable on demand or at a fixed or determinable future time;
(d) Must be payable to order or to bearer;

Distinction of Negotiable Instruments from Non-Negotiable Instruments

 As to governing law: if it is negotiable – NIL; but if not negotiable – law on Obligations and
Contracts in the Civil Code
 Rights of the parties differ if the instrument is negotiable or not (will be discussed in topic re
holder in due course). That is why it is important to determine if the instrument is negotiable or
not.

Purposes of Negotiable Instruments

(a) As substitute for money –But it is not money, not considered.


(b) Increases purchasing power in circulation
(c) For convenience
(d) Evidence of transactions – ex: when check is encashed, check is returned to drawer – it became
an evidence of transaction)
(e) Proof of Debt – ex: If the check is dishonored, the check is returned – became a proof of debt.

3 Types of Negotiable Instruments (as the NIL identifies)

1. Bill of Exchange (Sec 126)


2. Promissory Note (Sec 184)
3. Check (Sec 185)
Negotiable Instruments don’t have a legal tender

Art 1249 par 2 NCC: “The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.”

Since Negotiable instruments enumerated promissory note, bills or exchange or check are NOT LEGAL
TENDER, they can be legally refused to accept.

Par 1 “The payment of debts in money shall be made in the currency stipulated, and if it is not possible to
deliver such currency, then in the currency which is legal tender in the Philippines.”

Currency in the country have legal tender and it cannot be refused to accept.

A negotiable instrument is a substitute for money but is not money. Thus it doesn’t extinguish an
obligation upon delivery until the negotiable instrument is paid or cashed. (PAL vs CA)

Distinction of Promissory Note, Bill of Exchange, and Check

Characteristics of Negotiable Instruments

1. Negotiability - This is that quality or attribute of a bill or note whereby it 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 any infirmity in the instrument or defect in the title of
any of the prior parties, or defenses available to them among themselves, (see Sees. 52,57.)

In other words, the rule that one can pass no better title to personal property thanhe himself has,
does not apply to negotiable instruments, (see Sec. 30, re-distinctions between negotiation and
assignment) A negotiable instrument is analogous to money, for one who honestly takes coin or
currency from a thief or finder without knowledge of loss or theft, giving value for it, can hold it
against the world, including the true owner. Without this rule, negotiable instruments could not
perform their peculiar functions. When transferability is limited or restricted, the paper may be said
to be non-negotiable.
EXAMPLE:
Suppose S sells and delivers goods to B who later refuses to pay for them as they, in fact, are not
as ordered. In a suit by S against B for the price, B can successfully raise breach of contract by S
as a defense. If S assigns the account to X, B can interpose the same defense against X
notwithstanding the fact that X did not know of any dispute between S and B when X bought B's
account. As assignee X stands in the shoes of S, his assignor.
Assume now that B had issued to S his promissory note for the price of the goods. If S sues B on
the note, the defense of breach of contract is available to B. But if S negotiates the note to Y
who takes the note under such circumstances as to make him a holder in due course (see Sec.
52.), B can no longer interpose such defense against Y.
A bona fide holder, however, while free from personal defenses available to prior parties among
themselves, is subject to real defenses that might have obtained between them, (see Sec. 58.)
2. Accumulation of secondary contracts - The most important feature of negotiable instruments is the
accumulation of secondary contracts as they are transferred from one person to another. Once an
instrument is issued (see Sec. 191.), additional parties can become involved.

EXAMPLE:
Suppose A issues a promissory note payable to the order of B for the sum stated therein. Here,
the contract is only between A and B. A is primarily liable. If B transfers his right to the
instrument to C, B thereby enters into a new contract with C whereby B binds himself to pay in C
in case A, the maker, does not pay the note. Here, B is secondarily liable^ The primary contract
is that between A and B. The transfer of the note to C makes a secondary contract between B
and C.
If D buys or discounts the note from C, a similar contract is entered into and so on as it passes
from hand to hand. It is obvious that the more debts are added, the more advantageous it will
be to the holder as he can pr6teed not only against the " maker but also against all transferors.

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