1.

Definition of Negotiable Instrument:

Negotiable Instruments - a written contract for the payment of money

which complies with the requirements of Sec 1 which by its form and on its
face is intended as a substitute for money and passes from hand to hand as
money so as to give the holder in due course the right to hold the instrument
free from defenses available to prior parties.

2. Features of Negotiable Instruments:

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 defenses.

Accumulation of Secondary Contracts - secondary contracts are

picked up and carried along with Negotiable Instruments as they are negotiated
from one person to another; or in the course of negotiation of negotiable
instruments, a series of juridical ties between the parties thereto arise either by
law or by privity. The indorsers become secondarily liable to the holder.

3. Kinds of Negotiable Instruments

Promissory Note - an unconditional promise in writing 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 (Sec.
184)

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 determinable future time a sum
certain in money to order or to bearer (Sec. 126)

Check - a bill of exchange drawn on a bank payable on demand (Sec. 185)

Other Forms of Negotiable Instruments:

 Certificate of deposit

 Trade acceptance

 Bonds

 Drafts

 Debenture
4. Parties to A Negotiable Instrument

• Parties to Promissory Note

◦ Maker –one who makes a promise and signs the instrument

◦ Payee – party to whom the promise is made or the instrument is payable

• Parties to Bill of Exchange

◦ Drawer – one who gives the order to pay money to a third party

◦ Drawee – person to whom the bill is addressed and who is ordered to pay

◦ Payee – party in whose favor the bill is drawn or is payable

5. Incidents in the Life of a Negotiable Instrument

 Preparation and Signing – preparation and signing of the instrument

usually done by the maker.

EX: A borrowed money from B, as evidence of his indebtedness, he wrote

on a piece of paper and gave it to B. The said paper contained: “I promise
to pay B or payee the amount of 100 pesos one month after date.

 Issuance – first delivery of the instrument to the payee

Without Delivery: incomplete and revocable until delivery

With Delivery: transfer of possession with intent to transfer title

 Negotiation - transfer from one person to another so as to constitute the

transferee the holder.

 Presentment for Acceptance (for Bill of Exchange) – the bill of

exchange shall be presented to the drawee so that the latter will signify
his agreement of the order of the drawer to pay. exhibit the bill to the
drawee and demanding that he accept (signify his assent to the order or
command of the drawer)

Production of a BE to the drawee for his acceptance or to the drawee

or acceptor for his payment, or the production of PN to the party liable
for payment

Consists of:

-Personal demand for payment

 -Readiness to exhibit

Requisites:

-Made by the holder or any person authorize

-At a reasonable hour on a business day

-At a proper place

-To the person primarily liable, or if absent, any person found in the
place of presentment

When made
-PN on demand…within reasonable time after its issue
-BE on demand…within reasonable time after its last negotiation
Proper place of presentment
-Specified place
-Address of person
-Usual place of business or residence
-Last known address
When required
-When payable after sight, in order to fix the maturity
-Where the bill expressly stipulates that it be presented for acceptance
-Where the bill is drawn payable elsewhere than at the residence or
place of business of drawee
 Acceptance – signification by the drawee of his assent to the order of the
drawer usually by writing “accepted” followed by signature. If check
stamped with “certified”

Signification by the drawee of his assent to the order of the drawee

Kinds:
-General - without qualification to the order of the drawee
-Qualified:
a.) Partial
b.) Conditional
 Forms:
-Made by or on behalf of the holder
-At a reasonable hour on a business day
-Before the bill is overdue
-To the drawee or some person authorized to accept
 Dishonor by Non-Acceptance – when presented and acceptance is
refused by the drawee or cannot be obtained or where the presentment
from acceptance is excused and the bill is not accepted

 Presentment for Payment – consists of exhibiting the instrument to the

person primarily liable thereon and demanding payment from him on the
date of maturity

 Dishonor by Non-Payment – where the instrument is presented for

payment and payment is reused or cannot be obtained or where the
presentment for payment is excused and the instrument is overdue and
unpaid

 Notice of Dishonor – when dishonored by non-acceptance or by non-

payment, a notice of dishonor must be given to the drawer and each
indorser and any drawer or indorser to whom such notice is not given is
discharged

 Discharge – by payment in due course by or on behalf of the principal

debtor

5. Requisites of a Negotiable Instrument

 Must be in writing and signed by the maker or drawer

- The writing can be on anything that is readily transferable and that has
a degree of permanence.

- The signature can be anyplace on the instrument.

-It can be in any form (such as word, mark or rubber stamp) that
purports to be a signature and authenticates the writing.

-It can be signed in a representative capacity.

 Must contain an unconditional promise (PN) or order to pay (BOE) a

sum certain in money
 -Payment cannot be expressly conditional upon the occurrence of an
event.

-Payment cannot be made subject to or governed by another agreement.

-Payment cannot be paid out of a particular fund (except for a

government issued instrument).

-An instrument may state a sum certain even if payable in installments,

with interest, at a stated discount or at an exchange rate.

-Inclusion of cost of collection and attorney’s fees does not disqualify the
statement of a sum certain.

 Must be payable on demand or at a fixed or determinable future time

-Any instrument payable on sight, presentation or issue is a demand

instrument.

-An instrument is payable at a definite time even though it is payable on

a stated date, or within a fixed period after sight, or the drawer or maker
has an option to extend time for a definite period.

-Acceleration clauses, even if unenforceable, do not affect the

negotiability of the instrument.

 Must be payable to order to bearer

-An order instrument must name the payee with reasonable certainty.

-An instrument whose terms intend payment to no particular person is

payable to bearer.

 When the instrument is addressed to a drawee, he must be named

otherwise indicated therein with reasonable certainty (BE)

6. Definition of a “Check” and its Kinds

Check - a bill of exchange drawn on a bank payable on demand

◦ Cashier’s check – one drawn by the cashier of a bank itself payable to

a third person. It is primary obligation of the issuing bank and accepted in
advance upon issuance.

◦ Manager’s check – a check drawn by the manager of a bank in the

name of the bank itself payable to a third person. It is similar to the cashier’s
check as to the effect and use.
 ◦ Memorandum check – a check given by a borrower to a lender for the
amount of a short loan, with the understanding that it is not to be presented at
the bank, but will be redeemed by the maker himself when the loan falls due
and which understanding is evidenced by writing the word “memorandum”,
“memo”, or “mem’ on the check.

◦ Certified check – an agreement whereby the bank against whom a

check is drawn undertakes to pay it at any future time when presented for
payment

◦ Traveler’s check – it is one upon which the holder’s signature must

appear twice, one to be affixed by him at the time it is issued and the second
for counter-signature, to be affixed by him in the presence of the payee, before
it is paid, otherwise it is incomplete.

8. Checks without insufficient funds

BP 22, commonly referred to as “Bouncing Checks Law”, punishes any

person who makes or draws and issues any checks to apply on account or for
value, knowing at the time of issue that he does not have sufficient funds in or
credit with the drawee bank for the payment of such check upon its
presentment. 

Any person who makes or draws and issues any check to apply on
account or for value, knowing at the time of issue that he does not have
sufficient funds in or credit with the drawee bank for the payment of such
check in full upon its presentment, which check is subsequently dishonored by
the drawee bank for insufficiency of funds or credit or would have been
dishonored for the same reason had not the drawer, without any valid reason,
ordered the bank to stop payment, shall be punished by imprisonment of not
less than thirty days but not more than one (1) year or by a fine of not less
than but not more than double the amount of the check which fine shall in no
case exceed Two Hundred Thousand Pesos, or both such fine and
imprisonment at the discretion of the court.
The same penalty shall be imposed upon any person who, having
sufficient funds in or credit with the drawee bank when he makes or draws and
issues a check, shall fail to keep sufficient funds or to maintain a credit to
cover the full amount of the check if presented within a period of ninety (90)
days from the date appearing thereon, for which reason it is dishonored by the
drawee bank.
 Where the check is drawn by a corporation, company or entity, the
person or persons who actually signed the check in behalf of such drawer shall
be liable under this Act.
9. Duty of Drawee
It shall be the duty of the drawee of any check, when refusing to pay the same
to the holder thereof upon presentment, to cause to be written, printed, or stamped in
plain language thereon, or attached thereto, the reason for drawee's dishonor or
refusal to pay the same: Provided, That where there are no sufficient funds in or credit
with such drawee bank, such fact shall always be explicitly stated in the notice of
dishonor or refusal. In all prosecutions under this Act, the introduction in evidence of
any unpaid and dishonored check, having the drawee's refusal to pay stamped or
written thereon or attached thereto, with the reason therefor as aforesaid, shall be
prima facie evidence of the making or issuance of said check, and the due
presentment to the drawee for payment and the dishonor thereof, and that the same
was properly dishonored for the reason written, stamped or attached by the drawee on
such dishonored check.

Not with standing receipt of an order to stop payment, the drawee shall state in
the notice that there were no sufficient funds in or credit with such bank for the
payment in full of such check, if such be the fact.

Debtor – nagpautang

Creditor- inutangan

Collecting bank -account of the payee

Paying bank – account nung nagbayad

Bp 22 in writing

Estafa verbal notice is fine