NEGOTIABLE

DNA WAL SSENISUB

INSTRUMENTS
SNOITALUGER

Module 10

Ghillian Mae Guiang

Leanne Mae Antoinete Loro
AC 201
COMMERCIAL PAPER

Refers to written promises or obligations that arise out of commercial

transactions from the use of such instruments as promissory notes and
bills of exchange

Either negotiable or non-negotiable.

 NEGOTIABLE INSTRUMENT
It is an instrument which possesses all the elements of negotiability
provided in Section 1 of the Negotiable Instruments Law.

All kinds of negotiable instruments are either promises or orders to pay

money which meet the formal requirements set forth in the law.

NON-NEGOTIABLE INSTRUMENT
An instrument which is not negotiable, that is, an instrument which
does not meet the requirements laid down to qualify an instrument as
a negotiable one, or an instrument which in its inception was
negotiable but has lost its quality of negotiability.
 FUNCTIONS AND IMPORTANCE OF
NEGOTIABLE INSTRUMENTS
As a substitute for money
As a medium of exchange in most commercial transactions
As a medium of credit transactions

CHARACTERISTICS OF A NEGOTIABLE INSTRUMENT

Negotiability
Accumulation of Secondary Contracts
FORMS OF NEGOTIABLE INSTRUMENTS
Common Forms
PROMISSORY NOTE (SECTION 184)
"A negotiable promissory note within the meaning of this Act 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. Where a note is drawn to the maker's own
order, it is not complete until indorsed by him."
PARTIES INVOLVED
Maker
Payee

REQUISITES OF A PROMISSORY NOTE

It must be in writing and signed by the maker

It must contain an unconditional promise to pay a sum of a certain money
It must be payable on demand or at a fixed or determinable future time
It must be payable to order or to bearer
PROMISSORY NOTE (SECTION 184): EXAMPLE

P 10,000 Manila, Philippines

August 1, 2020

For value received, I promise to pay Pablo Partricio or

order the sum of Ten Thousand Pesos on December 1, 2020.

(Sgd.) Mario Manuel

FORMS OF NEGOTIABLE INSTRUMENTS
Common Forms

BANK CHECK (SECTION 185)

"A check is a bill of exchange drawn on a bank
payable on demand. Except as herein otherwise
provided, the provisions of this Act applicable to
a bill of exchange payable on demand apply to a
check."
PARTIES INVOLVED
Drawer Payee Drawee

REQUISITES OF A BANK CHECK

It must be in writing and signed by the drawer

It must contain an unconditional promise to pay a sum certain in money
It must be payable on demand
It must be payable to order or bearer
The drawee must be named or otherwise indicated therein with
reasonable certainty
BANK CHECK (SECTION 185): EXAMPLE

Account No. 23-1254-78 Check No. 12487

August 1, 2020
Pay to the order of Pablo Patricio (P10,000.00) Ten
Thousand Pesos.
(Sgd.) Roberto Rigor
Westex Bank
Ermita Branch
Ermita, Manila
FORMS OF NEGOTIABLE INSTRUMENTS
Common Forms
BILL OF EXCHANGE (SECTION 126)
"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."
PARTIES INVOLVED
Drawer Payee Drawee

REQUISITES OF A BILL OF EXCHANGE

It must be in writing and signed by the drawer

It must contain an unconditional promise to pay a sum certain in money
It must be payable on demand
It must be payable to order or bearer
The drawee must be named or otherwise indicated therein with
reasonable certainty
BILL OF EXCHANGE (SECTION 126): EXAMPLE

Manila, Philippines
October 1, 2021
Thirty days after the date, pay to Pablo Patricio or order the sum
of Ten Thousand Pesos (P10,000.00).
(Sgd.) Ricardo Rigor
To: Wilfredo Winceslao
202 Dona Aurora Building
Quezon City
FORMS OF NEGOTIABLE INSTRUMENTS
Special Types
Certificates of deposits Drafts
Bank notes Trades acceptances
Due bills Banker’s acceptances
Bonds
 SECTION 1
REQUISITES OF NEGOTIABLE INSTRUMENTS

(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 certain in money;
“Due to P or order P5K payable on demand”
“I acknowledge my debt to P for P5K”
“I acknowledge my debt to P or order for P5K payable on Oct 30, 2020”
“I authorize you to…”
“Please let the bearer have P1K”
“Pay to P or order P5M if he passes the CPA Board Exam”
“I promise to pay P or bearer P1K more or less”
“Pay to the order of P the sum of P25 in 5 units of typewriter”
 SECTION 1
REQUISITES OF NEGOTIABLE INSTRUMENTS

(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 certain in money;
✓ “Due to P or order P5K payable on demand”
x “I acknowledge my debt to P for P5K” (Mere acknowledgement)
✓ “I acknowledge my debt to P or order for P5K payable on Oct 30, 2020”
x “I authorize you to…” (Mere authorization)
x “Please let the bearer have “1K” (Mere request)
x “Pay to P or order P5M if he passes the CPA Board Exam” (Conditional)
x “I promise to pay P or bearer P1K more or less” (Not certain in money)
x “Pay to the order of P the sum of P25 in 5 units of typewriter” (Not money)
(c) Must be payable on demand, or at a fixed or determinable future
time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be

named or otherwise indicated therein with reasonable certainty.
SUBSECTION (A)
the maker refers to the person issuing a promissory note
the drawer refers to the person issuing a bill of exchange.

SUBSECTION (B)
the instrument must contain an "unconditional promise" if it is a
promissory note
the instrument must contain an "unconditional order" if it is a bill of
exchange.

Subsections (c) and (d) are both applicable to each of the two kinds of
instruments, but subsection (e) is applicable only to bills of exchange.
 SECTION 2
WHAT CONSTITUTES CERTAINTY AS TO SUM

CERTAINTY OF SUM PAYABLE

The promise or order must call for the payment of a sum certain in
money
The “sum certain” is met if the holder can determine from the
instrument itself the amount he is bound to receive at maturity
If the instrument calls for another act rather than the payment of
money, it is negotiable
AS TO INTEREST
Interest at fixed rate
Interest at increased or decreased rate
Rate of interest not specified
Interest usurious

AS TO INSTALLMENT
With an acceleration clause
Acceleration dependent on maker
Acceleration at option of holder
EXTENSION CLAUSES
Opposite of acceleration clauses.
They appear on instruments with fixed maturity dates and provide that the date
can be further extended under certain circumstances.
If the right is given to the holder, the time of payment need not contain a new
fixed maturity date or the length of extension does not need to be specified.
If the obligor is given the right to extend the payment, the interest of the
extension must be specified to keep the instrument negotiable.
SUM TO BE PAID WITH EXCHANGE
Payment in foreign currency
Payment with exchange rate
Exchange not applicable to inland or domestic bills

SUM TO BE PAID WITH COST OF COLLECTION AND / OR

ATTORNEYS FEES
Increased in amount due effective after maturity
Uncertainty of sum payable after maturity
Liability for attorney's fees
 SECTION 3
WHEN PROMISE IS UNCONDITIONAL

WHEN PROMISSORY NOTE CONTAINS A PROMISE TO PAY

In order that a promissory note be negotiable, it must contain an

unconditional promise or order to pay. A prospective holder may not
be eager to accept an instrument unless its payments can be
reasonably expected under every circumstance.
 WHEN BILL OF EXCHANGE
CONTAINS A PROMISE TO PAY

In cases of bill of exchange, an unconditional order to pay by one party or

another must be present, otherwise, it is non-negotiable.
Words equivalent to an order to pay like "order" is possible to use in a bill of
exchange
Mere request to pay
It is immaterial whether the drawee obeys the order to pay or not
WHEN A PROMISE OR ORDER TO PAY IS UNCONDITIONAL

The instrument is payable absolutely.

An instrument is not negotiable if it implies conditions such as
“when I am still alive after 5 years” or “if I am able to collect
the rent”. The promise or order to pay is conditional in nature.
The mere indication of the particular fund out of which
reimbursement is to be made to be debited with the amount
does not render a promise or order conditional.
INDICATION OF A PARTICULAR FUND OUT OF WHICH REIMBURSEMENT
IS TO BE MADE

An instrument that has an indication of a particular fund in which reimbursement is

to be made is negotiable because the order to pay is not rendered conditional.
The fund indicated is not the direct source of payment but only the source of
reimbursement which is an act equivalent to payment.

INDICATION OF A PARTICULAR FUND OUT OF WHICH PAYMENT HAS

BEEN MADE
An instrument that is payable out of a particular fund is non-negotiable as it is not
payable upon any event because the amount to be paid is made upon the existence
of the fund designated.
The test of negotiability in whether each instrument carries the general personal
credit of the maker or the drawer. If it does, the instrument is therefore negotiable.
INDICATION OF A PARTICULAR AMOUNT TO BE DEBITED WITH
THE AMOUNT

An instrument which contains a direction to debit a particular account is

negotiable because the promise or the order is not also made conditional. The
payment does not depend upon the existence of the particular account to be
debited.
The mere recital of the consideration for which the instrument was issued or
mere reference to a separate agreement out of which the instrument has arisen
does not make it conditional.
INDICATION OF A PARTICULAR AMOUNT TO BE DEBITED WITH
THE AMOUNT

The phrases “per contract”, “in accordance with the contract”, or “per
memorandum of agreement” on the face of the instrument does not affect the
negotiability of the instrument.
To destroy negotiability, the reference to a collateral contract must show that
the obligation to pay is burdened with the conditions of that contract.
 SECTION 4
WHEN INSTRUMENT IS PAYABLE AT A FIXED OR
DETERMINABLE FUTURE
1. At a fixed period after date or sight
At a fixed period after date
“Pay to P or order 30 days after date”

At a fixed period after sight

After sight - after the instrument is seen by the drawee upon
presentment for acceptance or accepted by the drawee.
"Sixty (60) days after sight, pay to the order of P the sum of
P10,000.00."
2. On or before a fixed or determinable future time specified therein
Payable on or before a fixed time
(a) "On or before September 10,2010, I promise to pay P or order P10,000.00."
(b) "On demand or at the end of the year, I promise to pay P or order P10,000.00."
(c) "I promise to pay P P10,000.00 on September 30, 2010 but if I fail to collect from
on or before said date, this note shall be extended to November 30,2010."

Payable on or before a determinable future time.

"On or before the start of the next school semester, I promised to pay P or order
P10,000.00."
2. On or before a fixed or determinable future time specified therein
Payable on or before a fixed time
✓ (a) "On or before September 10,2010, I promise to pay P or order P10,000.00."
x (b) "On demand or at the end of the year, I promise to pay P or order P10,000.00."
✓ (c) "I promise to pay P P10,000.00 on September 30, 2010 but if I fail to collect from
on or before said date, this note shall be extended to November 30,2010."

Payable on or before a determinable future time.

✓ "On or before the start of the next school semester, I promised to pay P or order
P10,000.00."
3. 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.
Payable on the occurence of a specified event.
"I promised to pay P or order the sum of P10,000.00 upon the death of his father."

Payable after the occurrence of a specified event.

"Thirty (30) days after the death of his father, I promise to pay P or order the sum of
P10,000.00'

*An instrument payable upon a contingency is not negotiable, and the happening of the
event does not cure the defect.
(a) "Pay to the order of P the sum of P10,000.00 upon his reaching the age of majority."
(b) "I promise to pay P or order the sum of P10,000.00 if his father should die within five years."
(c) Payable "when able," etc.; within reasonable time.
3. 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.
Payable on the occurence of a specified event.
"I promised to pay P or order the sum of P10,000.00 upon the death of his father."

Payable after the occurrence of a specified event.

"Thirty (30) days after the death of his father, I promise to pay P or order the sum of
P10,000.00'

*An instrument payable upon a contingency is not negotiable, and the happening of the
event does not cure the defect.
x (a) "Pay to the order of P the sum of P10,000.00 upon his reaching the age of majority."
x (b) "I promise to pay P or order the sum of P10,000.00 if his father should die within five years."
x (c) Payable "when able," etc.; within reasonable time.
 SECTION 5
ADDITIONAL PROVISIONS NOT AFFECTING
NEGOTIABILITY
GENERAL RULE
The instrument is non-negotiable if it contains a promise or order to do any
act in addition to the payment of money.
"I promise to pay P or order P10,000.00 and (or) to deliver a horse."
(a) "and to pay for taxes assessed upon the note or its mortgage
security."
(b) "and to keep free from encumbrance property on which the value
of collateral pledged for security of the instrument depends."
(c) "and a promise to insure the property pledged as security."
 SECTION 5
ADDITIONAL PROVISIONS NOT AFFECTING
NEGOTIABILITY
GENERAL RULE
The instrument is non-negotiable if it contains a promise or order to do any
act in addition to the payment of money.
x "I promise to pay P or order P10,000.00 and (or) to deliver a horse."
x (a) "and to pay for taxes assessed upon the note or its mortgage
security."
x (b) "and to keep free from encumbrance property on which the value

of collateral pledged for security of the instrument depends."
x (c) "and a promise to insure the property pledged as security."
EXCEPTIONS
A. SALE OF COLLATERAL SECURITIES

"I promise to pay P or order the sum of P30,000.00 on November 25,2010

secured by a ring I delivered to him by way of pledge and which he could
sell should I fail to pay him at maturity."
EXCEPTIONS
A. SALE OF COLLATERAL SECURITIES

✓ "I promise to pay P or order the sum of P30,000.00 on November 25,2010

secured by a ring I delivered to him by way of pledge and which he could
sell should I fail to pay him at maturity."
B. CONFESSION OF JUDGMENT
It is a written statement signed by the defendant, setting forth the basis of liability
and authorizing the entry of judgment thereon

"For value received, I promise to pay P or order the sum of P10,000.00 with
interest at 15% per annum and I hereby authorize my attorney-at-law to appear in
any court of record after the obligation becomes due and waive the issuing and
service of process and confess a judgment against me in favor of the holder of the
note for such amount as may appear to be unpaid thereon, together with costs of
suit and 12% attorney's fees, and thereupon to waive all errors in any such
proceedings and waive all rights of appeal."

B. CONFESSION OF JUDGMENT
It is a written statement signed by the defendant, setting forth the basis of liability
and authorizing the entry of judgment thereon

✓ "For value received, I promise to pay P or order the sum of P10,000.00 with
interest at 15% per annum and I hereby authorize my attorney-at-law to appear in
any court of record after the obligation becomes due and waive the issuing and
service of process and confess a judgment against me in favor of the holder of the
note for such amount as may appear to be unpaid thereon, together with costs of
suit and 12% attorney's fees, and thereupon to waive all errors in any such
proceedings and waive all rights of appeal."

C. WAIVER OF BENEFIT GRANTED BY LAW

"Pay bearer P10,000.00. Notice of dishonor waived."

"Three months, after date, I promise to pay to the order of P

P10,000.00, waiving the benefit of the homestead and all other
statutory exemptions as to the debt evidenced by this note."

D. ELECTION OF HOLDER TO REQUIRE SOME OTHER ACT

"I promise to pay P or order P15,000.00 or an air conditioner at the
option of the holder."

"I promise to pay P or order P12,000.00 or a brand new air

conditioner."
C. WAIVER OF BENEFIT GRANTED BY LAW

✓ "Pay bearer P10,000.00. Notice of dishonor waived."

✓ "Three months, after date, I promise to pay to the order of P

P10,000.00, waiving the benefit of the homestead and all other
statutory exemptions as to the debt evidenced by this note."

D. ELECTION OF HOLDER TO REQUIRE SOME OTHER ACT

✓ "I promise to pay P or order P15,000.00 or an air conditioner at the
option of the holder."

x "I promise to pay P or order P12,000.00 or a brand new air

conditioner."
A recital in the instrument that the obligor will deliver on demand
additional security to the satisfaction of a holder deeming himself
insecure because of his opinion that the collateral has depreciated,
does not impair negotiability.
 SECTION 6
OMMISSIONS, SEAL, PARTICULAR MONEY
(a) WHEN IT IS NOT DATED

The date on the bill or the note is not necessary. Hence, the omission of
the date will not prevent the instrument to be non-negotiable. In such,
the instrument will be dated on the time it was issued.
If there is a date but there is no said date in the calendar, the law will
deem the nearest date of the month it was intended.
However, there are cases when the date of maturity is necessary.
(b) DOES NOT SPECIFY THE VALUE GIVEN
It is usual to state in the instrument that it is given for "value received"
without specifying what that value is. But it is not even necessary to
state that value has been received for the instrument because
consideration is presumed.
(c) DOES NOT SPECIFY THE PLACE WHERE IT IS DRAWN
An instrument is presumed to have been made where it is dated.
If the place of execution or payment is not stated, it is presumed to be
the maker’s place of business.
(d) BEARS A SEAL

Under our law, there is no such thing as a sealed instrument to be deemed

non-negotiable and is subject to the rules governing contracts under a seal.
It is advisable to have a bill or a note appear in a public instrument so that it
will be included in the preferred credits with respect to other property of the
debtor.
(e) DESIGNATES A PARTICULAR KIND OF CURRENT MONEY IN
WHICH PAYMENT IS TO BE MADE
“Money” as used in law is not necessarily limited to “legal tender” as defined
by law.
The instrument is still negotiable even if foreign money is used which is not
current in the Philippines if the equivalent value may be discharged in pesos.
 SECTION 7
WHEN INSTRUMENT IS PAYABLE ON DEMAND
An instrument payable on demand is due and payable immediately after
delivery.
The words "on demand" in a note do not make a demand a condition
precedent to a right of action, but import that the debt is due and
demandable, or at least, the commencement of a suit therefore is a sufficient
element.
Instruments that are not payable on demand or “time instruments” are
payable at a definite time.
A note at the maker’s convenience is payable on demand.
An instrument “payable...after date” is also payable in demand.
However, an instrument payable to bearer on demand "if presented for
payment after five months from the date of issue" is not payable on
demand since it expresses a time for payment.
A trade acceptance which states a day and month but omits the year of
its maturity is not payable on demand and is not negotiable.
 SECTION 8
WHEN PAYABLE TO ORDER

The words "to the order of/'' "or order/'' "or bearer/'' and
"to bearer" are standardized words of negotiability of an
instrument.
Not essential- that the words "to the order of" or "or order"
be used.
Consequently, an instrument payable to a specified person
(e.g., "Pay to P.") is not an order instrument
AN INSTRUMENT MAY BE DRAWN
PAYABLE TO THE ORDER OF:

1) A PAYEE WHO IS NOT THE MAKER, DRAWEE, OR DRAWER

a. Payee who is not the maker

"I promise to pay PI,000.00 to the order of P
(Sgd.) M"
b. Payee neither the drawer nor drawee
“Pay to P or order the sum of P5K
(Sgd.) R”
2) THE DRAWER OR MAKER

a. Drawer
“Pay to the order of R the sum of P5K
(Sgd.) R
To: W Manila”

b. Maker
“I promise to pay to the order of the undersigned the sum of P5K
(Sgd.) R”
3) THE DRAWEE

"Pay to the order of yourself P1,000.00.

(Sgd.) R
To: W Manila"

4) TWO OR MORE PAYEES JOINTLY

"I promise to pay to the order of P and A PI,000.00.

(Sgd.) M”
5) ONE OR SOME OF SEVERAL PAYEES

"Pay to the order of P, A, or B PI,000.00

(Sgd.) R”
"Pay to the order of P, A, and B, or any of them or any two of them."
(Sgd.) R”

6) TO THE HOLDER OF AN OFFICE FOR THE TIME BEING

"Pay to the order of the Commissioner of Internal Revenue the sum of P5K
(Sgd.) R
To: W Manila"
EFFECT WHERE PAYEE NOT NAMED OR DESCRIBED

It should be noted that in an order instrument, a specified person

must always be named therein either before or after the word
"order." with reasonable certainty.

If there is no payee, there is nobody who

could give the order or authority to collect.
In other words, there would be nobody who
could indorse the instrument and, therefore,
there is no point considering it negotiable.
 SECTION 9
WHEN PAYABLE TO BEARER

1) WHEN IT IS EXPRESSED TO BE SO PAYABLE

"I promise to pay to bearer P1,000.00."
"I promise to pay to bearer, P, P1,000.00"

2) WHEN IT IS PAYABLE TO A PERSON NAMED THEREIN OR BEARER

"I promise to pay P or bearer P10,000.00."

"I promise to pay P or holder P10,000.00."
 SECTION 9
WHEN PAYABLE TO BEARER

1) WHEN IT IS EXPRESSED TO BE SO PAYABLE

✓ "I promise to pay to bearer P1,000.00."
x "I promise to pay to bearer, P, P1,000.00"

2) WHEN IT IS PAYABLE TO A PERSON NAMED THEREIN OR BEARER

✓ "I promise to pay P or bearer P10,000.00."

✓ "I promise to pay P or holder P10,000.00."
3) WHEN IT IS PAYABLE TO THE ORDER OF A FICTITIOUS OR NON-
EXISTING PERSON, AND SUCH FACT WAS KNOWN TO THE PERSON
MAKING IT SO PAYABLE
Payable to order of a fictitious person
"Pay to the order of Sherlock Holmes the sum of PI,000.00."
“Pay to the order of President Barack Obama the sum of $5M”

Payable to order of a non-existing person

"Pay to the order of the King of the Pacific Ocean."
4) WHEN THE NAME OF THE PAYEE DOES NOT PURPORT TO BE
THE NAME OF ANY PERSON
"Pay to cash'’ "Pay to money." ."
"Pay to cash or order." "Pay to payroll."
5) WHEN THE ONLY OR LAST INDORSEMENT IS AN
INDORSEMENT IN BLANK
An indorsement in blank is one that specifies no indorsee
Indorsee- The person to whom a negotiable instrument is
assigned by indorsement.
Only indorsement in blank
FACE BACK
I promise to pay to the order of Pablo
Patricio the sum of P10,000.00 (Sgd.) Pablo Patricio

(Sgd.) Mario Manuel

To W
Manila
 Last indorsement in blank
In the same promissory note, supposing the following
indorsements appear instead at the back of the instrument

Pay to Antonio Arevalo

(Sgd.) Pablo Patricio
Pay to Benito Buena
(Sgd.) Antonio Arevalo
Pay to Carmelo Centeno
(Sgd.) Benito Buena
(Sgd.) Carmelo Centeno

 SECTION 10
TERMS WHEN SUFFICIENT
Terms, when sufficient. - The instrument need not follow the language of
this Act, but any terms are sufficient which clearly indicate an intention to
conform to the requirements hereof.
SUBSTANCE CRITERION OF NEGOTIOABILITY
Clear intention of the parties
Use of foreign language
Mere defect in language or grammatical error
SECTION 184
PROMISORRY NOTE, DEFINED

SECTION 185
CHECK, DEFINED

SECTION 126
BILL OF EXCHANGE, DEFINED
RESOURCES:
De Leon, H. (2010). Law on Negotiable Instruments.
Rex Book Store.
Soriano, F. (2016). Notes in Business Law.
GLC Enterprices & Co. Inc.
THANK YOU!