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Section 1. Form of negotiable instruments.

An instrument to be negotiable must conform:
(a) It must be in writing and signed by the
maker or drawer
(b) It must contain an unconditional promise
or order 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 bearer
(e) Where the instrument is addressed to a
drawee, he must be named or otherwise
indicated therein with reasonable
Commercial paper written promises or
obligations that arise out of commercial
Negotiable Instrument
obligation to pay money


*negotiable or non-negotiable depends

entirely on its form and content
*a valid instrument is not necessarily
In determining negotiability of an instrument, ff.
must be considered:
(1) The whole of the instrument
(2) Only what appears on the face of the
instrument; and
(3) The provisions of the NIL especially
in Section 1 must meet in order to be
Applicability of formal requirements

(1) Subsections (a) to (d) are necessary in

order that a promissory note may be
negotiable while subsections (a) to (e)
are necessary in order that a bill of
exchange may be negotiable
(2) Under (a)
Maker person issuing promissory note
Drawer person issuing bill of
(3) Under (b), instrument must contain
unconditional promise if it is a
promissory note
unconditional order if it is a bill of
(4) 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

Formal requirements explained

(1) The instrument must be in writing.
The term instrument indicates writing.
(a) Writing includes also that which is in
print or has been typed. (usual way
written or printed in durable paper)
(b) No such thing as an oral negotiable
instrument. (difficult to determine
liability & create danger of fraud)
(2) The instrument must be signed by
the maker or drawer.
General rule placed at the lower right
hand corner of the instrument
It may appear in any part thereof, it will
be valid and binding as long as it
appears that a person intended to make
the instrument his own.
(a) His signature is prima facie evidence
of his intention
(b) Signature
preferable that full name or at least
surname should appear.
(c) Genuineness of signature is denied,
the party against whom it operates

must provide evidence of its

invalidity. (so as the party asserting
its validity)

(3) The instrument must contain an

unconditional promise or order to
Must contain either a promise to pay or
an order to pay.

(4) The instrument must be payable in a

sum certain in money.
(reason) money is the one standard of
value in actual business
Money medium of exchange
authorized or adopted by a domestic or
foreign government as part of its
Legal tender that currency which a
debtor can legally compel a creditor to
(5) The instrument must be payable at a
fixed or determinable future time or
on demand. (Sec. 4&7)
(6) The instrument must be payable to
order. (Sec. 8)
(7) The instrument must be payable to
bearer. (Sec. 9)
(8) The drawee must be named.
Applies only to bills and checks.
(a) Bill would be sufficient if the drawee
is indicated therein with reasonable
certainty though he is not named.
(b) (reason) to enable the payee or
holder to know upon whom he is call
for acceptance or payment
(c) A promissory note has no drawee.
(payee must be named with
reasonable certainty)

Non-negotiable instrument

Instrument which is not negotiable

Instrument which does not meet the
requirements laid down to qualify an
instrument negotiable
Instrument which in its inception was
negotiable but has lost its quality of

(a) N.I. ceases to be negotiable if the

indorsement prohibits the further
negotiation of the instrument.
(b) Non-N.I. may be assigned or transferred
(c) Transfers of non-N.I. are governed by
the provisions of the Civil Code on
assignment of contract rights.
(d) Persons who transfer or assign
contractual or non-negotiable rights
pass only the rights that they had.

Promissory note a written promise to pay a

sum of money. It may be a demand instrument
but it is normally a time instrument.

Original parties to a promissory note

This class of N.I. is a promise paper, or twoparty paper.
(1) 2 parties in a promissory note
Maker one who makes the promise
and signs the instrument
Payee the party to whom the promise
is made or instrument is payable
(2) Payee may be specifically designated
by name, office, title, or may be
(3) He may seek payment personally or
further negotiate the instrument.
(4) Makers signature must appear on the
face of the note for him to be liable

Place and date are not essential to the

negotiability of the instrument except in certain
for value received consideration given for
the note (consideration is presumed)
I promise to pay absolute and
unconditional promise to pay the payee or to a
holder. (essential)
to the order of or order indicate a
promise to pay as ordered or commanded by
the payee
on or before September 5, 2013 indicate
the date of maturity or the time when the
promise to pay is to be fulfilled
Not all instruments are payable at a
fixed future time.
Where no time for payment is
expressed, an instrument is payable on

Bill of exchange an order made by one

person to another to pay money to a third
person (check most common type of B.O.E.)

Original parties to a bill of exchange

This class of N.I. is known as order paper, or
three-party paper.
(1) Drawer person who issues and draws
the order bill
(2) Drawee the party upon whom the bill
is drawn, the person to whom the bill is
addressed, who is ordered and
expected to pay
Becomes an acceptor when he
indicates his willingness to pay the bill.
(3) Payee the party in whose favor the bill
is originally issued or is payable

Idea and purpose of a bill of exchange

(1) Drawers funds in hands of drawee.
The drawer has funds in the hands of
the drawee which the former desires to
be paid to the payee.
(2) Liability of drawee for non-payment.
If drawee accepts primarily liable to
If drawee refuses liable to drawer