Instruments are negotiable when theyconform to all the requirements prescribedby the Negotiable Instruments Law (NIL) -Act 2031 enacted February 3, 1911.
Kinds of negotiable instruments
Two main groups:
Promissory note (Sec. 184); and
Evidences a promise to paymoney
E.g. normal promissory note,certificate of deposit and thebond
Bill of Exchange (Sec. 126)
An order made by oneperson to another to paymoney to third person
E.g. checks, draft
LEGISLATIVE HISTORY OF THE NIL
Verbatim reproduction of UniformNegotiable Instruments Law of US (1896)
This statute was patterned afterEnglish Bill of Exchange Act (1882)
Since 1911, no amendment to the NIL hasbeen made
APPLICABILITY OF NIL
NIL applies only to negotiable instrumentsi.e. to those instruments which conformwith the requisites laid down in Sec. 1.
NEGOTIABLE INSTRUMENTS; DEFINITIONS
Form of negotiable instruments.
An instrument to be negotiable must conform tothe following requirements:
It must be in writing and signedby the maker or drawer;
Must contain an unconditionalpromise or order to pay a sum certain inmoney;
Must be payable on demand, orat a fixed or determinable future time;
Must be payable to order or tobearer; and
Where the instrument isaddressed to a drawee, he must benamed or otherwise indicated thereinwith reasonable certainty.
In effect gives definition of a negotiableinstrument
Any instrument which has the requisites of enumerated therein is negotiable and isgoverned by the NIL. All other instrumentsare non-negotiable.
Note that the fact that an instrument doesnot meet the requisites will not affect itsvalidity. Only consequence is that it will notbe governed by the NIL but by the generallaw on contracts (New Civil Code).
Functions of Negotiable Instruments
A negotiable instrument may serve any of the following functions:
As a substitute for money inpayment for property or services;
As a means of creating andtransferring credit; and
To facilitate sale of goods
KINDS OF NEGOTIABLE INSTRUMENTS &PARTIES
Bill of exchange, defined.
A bill of exchange is an unconditional order inwriting addressed by one person to another,signed by the person giving it, requiring theperson to whom it is addressed to pay ondemand or at a fixed or determinable futuretime a sum certain in money to order or tobearer.
Promissory note, defined.
A negotiable promissory note within themeaning of this Act is an unconditional promisein writing made by one person to another,signed by the maker, engaging to pay ondemand, or at a fixed or determinable futuretime, a sum certain in money to order or tobearer. Where a note is drawn to the maker'sown order, it is not complete until indorsed byhim.
Parties and the Nature of their Liability
Parties and the nature of their liabilities
Two parties to a promissory note:
Maker – the promissory
Payee – the person to whom thepromise to pay is made
Three parties in a bill of exchange:
Drawer – the person who gives theorder to pay in a bill of exchange
Drawee – the addressee of theorder
Payee – person to whom thepayment is to be made
Note that when the payee of an instrument transfers it to