JAELEIN NICEY A.

MONTECLARO
BUTUAN CITY

NEGOTIABLE INSTRUMENTS LAW (ACT

2031)
FATHER SATURNINO URIOS UNIVERSITY COLLEGE OF LAW

DEFINITION
Negotiable Instrument
a written & unconditional promise or order to
pay a sum certain in money, and meets the
requirements of Section 1 of the NIL, namely, it
must be signed by the maker or drawer; it must be
payable on demand or at a fixed or determinable
future time; it must be a payable to order or
bearer; and where it is a bill of exchange, the
drawee must be named or otherwise indicated with
reasonable certainty.
Withdrawal slips signed by bank depositor authorizing
another to withdraw funds from the account of the
depositor are NOT negotiable instruments, nor are they
checks, and the bank is under no obligation to give
notice of dishonor of withdrawal slips for lack of
arrangement or for insufficient funds, the slips not being
negotiable, and lacking their characteristics of freedom
to circulate.

RA 7653, New Central Bank Act, Sec. 60

SECTION 60. Legal Character. Checks
representing demand deposits do not have legal
tender power and their acceptance in the payment
of debts, both public and private, is at the option of
the creditor: Provided, however, that a check which
has been cleared and credited to the account of
the creditor shall be equivalent to a delivery to the
creditor of cash in an amount equal to the amount
credited to his account.

Differentiate Negotiable Instrument vs

Non-negotiable Instrument
Negotiable

Nonnegotiable

Contains all Sec 1

requisites

Does not contain all Sec 1

requisites

Transferred by
negotiation

Transferred by assignment

HIDC may have better

rights than transferor

Transferee acquires only

rights of his transferor

Prior parties warrant

payment

Prior parties merely

warrant legality of title

Transferee has right of

recourse against
intermediate parties

Transferee has no right of

recourse

Negotiable Instruments Law, its

applicability
Michael A. Osmea v. Citibank (2004)
The NIL was enacted for the purpose of
facilitating, not hindering or hampering
transactions in commercial paper. Thus, the said
statute should not be tampered with haphazardly
or lightly. Nor should it be brushed aside in order
to meet the necessities in a single case.

Life of a Negotiable Instrument

A) Issuance - 1st delivery of the instrument to
the payee (maker/drawer to payee/bearer)
B) Negotiation - transfer from 1 person to
another so as to constitute the transferee a
holder.
C) Presentment for acceptance - for certain
kinds of BOE, it shall be presented to the drawee
so that the latter will signify his agreement to the
order of the drawer to pay.
D) Acceptance - written assent of the drawee to
the order.
E) Dishonor by non-acceptance - refusal to
accept by the drawee
F) Presentment for payment - the instrument is
shown to the maker or drawee/acceptor so that
the said maker or drawee/acceptor will pay.
G) Dishonor by non-payment - refusal to pay by
the maker or drawee/acceptor.
H) Notice of dishonor - notice to the persons
secondarily liable that the maker or the
drawee/acceptor refused to pay or to accept the
instrument
I) Protest (in some cases)
J) Discharge

Kinds of Negotiable Instruments

4.1) Promissory Note
an unconditional promise in writing made
by 1 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. (Sec 184)
promise to pay a sum of money.
It may be a demand instrument but is
normally a time instrument.
4.2) Bill of Exchange
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. (Sec 126)
order made by 1 person to another to pay
money to a third person (BILL)
4.3) Check
drawn on a bank AND payable on demand
most common form of order paper (3 party
paper)

Differentiate Promissory Note vs Bill of

Exchange
Promissory Note

Bill of Exchange

Unconditional promise

Unconditional order

2 parties on its face

3 parties on its face

Signed by maker

Signed by drawer

Maker is primarily
liable

Drawer is secondarily liable

Primarily liable maker

Primarily liable - draweeacceptor

1 presentment: for
payment

2 presentments: for
acceptance & for payment

Parties to:
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 Exchange

 drawer - person who draws the bill and

orders the drawee to pay the payee a sum certain
in money
drawee - one being commanded to pay the
instrument
In reality, the drawee is not a party
unless he accepts the bill. If he accepts, the
drawee, now called the acceptor, assents to the
order made by the drawer.
payee - person who is to receive payment
from the drawee-acceptor
Check
drawer (depositor)
drawee (bank)
payee

Sec 1. Form of negotiable instruments An instrument to be negotiable must

conform to the following requirements:
(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;
(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

Must be in writing
& signed by the
maker
Sec.18 Liability of
person signing in
trade or assumed
name. No person is
liable on the
instrument whose
signature does not
appear thereon,
except as herein
otherwise expressly
provided. But one
who signs in a trade
or assumed name
will be liable to the
same extent as if he
Se.19 Signature by
agent; authority;
how shown. The
signature of any
party may be made
by a duly authorized
agent. No particular
form of appointment
is necessary for this
purpose; and the
authority of the
agent may be
established as in

Unconditional
Order/ Promise to
Pay
Sec.3 When promise is
unconditional An
unqualified order or
promise to pay is
unconditional within the
meaning of this Act
though coupled with:
(a) 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
(b) A statement of the
transaction which
gives rise to the
instrument.

Sum Payable
must be CERTAIN

Sec.2 What
constitutes certainty
as to sum. The sum
payable is a sum
certain within the
meaning of this Act,
although it is to be
paid:
(a) With interest; or
(b) By state
installments; or
(c) By stated
installments, with a
provision that, upon
default in payment
of any installment or
of interest, the
whole shall become
due; or
(d) With exchange,
whether at a fixed
rate or at the

Must be payable
in MONEY

Sec.5 Additional
provisions not affecting
negotiability. An
instrument which
contains an order or prose
to do any act in addition
to the payment of money
is not negotiable. But the
negotiable character of
an instrument otherwise
negotiable is not affected
by a provision which:
(a) Authorizes the sale of
collateral securities in
case instrument be not
paid at maturity; or
(b) Authorizes a confession
of judgment if the
instrument be not paid
at maturity; or
(c) Waives the benefit of
any law intended for
the advantage or
protection of the
obligor; or
(d) Gives the holder an
election to require
something to be done
in lieu of payment of
money.

TIME of payment
must be CERTAIN

Sec.7 When payable on

demand. An instrument is
payable on demand:
(a) When it is so expressed to
be payable on demand, or
at sight, or on
presentation; or
(b) 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
Sec.4 Determinable future
time; what constitutes. An
instrument is payable at a
determinable future time,
within the meaning of this Act,
which is expressed to be
payable:
(a) At a fixed period after
date or sight; or
(b) On or before a fixed or
determinable future time
specified therein; or
(c) 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.
An instrument payable upon
a contingency is not

Must be payable
to ORDER or to
BEARER
Sec.9 When payable to
bearer. The instrument is
payable to bearer:
(a) When it is expressed to be
so payable; or
(b) When it is payable to a
person named therein or
bearer;
(c) When it is payable to the
order of a fictitious or nonexisting person, and such
fact was known to the
person making is so
payable; or
(d) When the name of the
payee does not purport to
be the name of any
Sec.8 When payable to
order. The instrument is
payable to order where it is
drawn payable to the order of
a specified person or to him
or his order. It may be drawn
payable to the order of:
(a) A payee who is not maker,
drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly;
or
(e) One or some of several
payees; or

(f)

The holder of an office for

Parties
designated with
CERTAINTY

Sec.6 Omissions; seal;

particular money. The
validity and negotiable
character of an instrument
are not affected by the fact
that:
(a) It is not dated; or
(b) Does not specify the value
given, or that any value
had been given therefor;
or
(c) Does not specify the place
where it is drawn or the
place where it is payable;
or
(d) Bears a seal; or
(e) Designates a particular
kind of current money in
which payment is to be
made.
But nothing in this section