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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 the drawer
b) must contain an unconditional promise or order to pay 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) if the instrument is addressed to a drawee, he must be named or otherwise indicated
therein
with reasonable certainty
SEC. 126 BILL OF EXCHANGE, DEFINED 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 sum certain
in money to order or to bearer.
Sec. 184 Promissory Note defined- 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 sum certain in money to
order or to bearer. Where a note is drawn to the makers own order, it is not complete until
indorsed by him
Sec. 185 Check defined 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 bill exchange
payable on demand apply to a check.

II. Define
1. Negotiable Instruments - a written contract for the payment of money which complies
with the requirements of Sec. 1 of the NIL, 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 (HDC) the right to hold the instrument free from defenses available
to prior parties.
TWO DISTINCT FEATURES OF NEGOTIABLE INSTRUMENTS
2. 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.
Requisites of Negotiability:
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 certainty.
3. 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.
4. Negotiation - transfer of a negotiable instrument from one person to another made in
such a manner as to constitute the transferee the holder thereof
5. Indorsement is the writing of the name of the payee on the instrument with intent either
to transfer the title to the same, or to strengthen the security of the holder by assuming a
contingent liability for its future payment, or both
6. Holder every person to whom an instrument is delivered is a holder. Such holder may
be payee or any subsequent person receiving the promissory note or bill of exchange by
delivery and indorsement.
III. Are the following negotiable within the meaning of NIL
Commercial papers with limited negotiability.
There are certain instruments with limited negotiability which are also widely used in
commercial transactions but they have been held to be non-negotiable in the technical sense
because they do not have the requisites that are essential under the Negotiable Instruments Law.
They are beyond the scope of the Law and are, therefore, governed by other laws.1
Negotiable document - it has limited negotiability. It does not have the requisites of sec. 1 of
NIL, it does not have an unconditional promise or order to pay sum certain in money. Although it
is termed negotiable when the goods are deliverable to the bearer or order. Intermediate parties
are not secondarily liable if the document is dishonored. A holder can never acquire rights to the
document better than his predecessors.
Money order - (2) Postal money order. It is an order for the payment of money to the payee
named therein drawn by one post office upon another under authority of law. (see 11 Am. Jur. 2d
55.) It is subject to restrictions and limitations under postal laws and regulations (only one
indorsement is allowed) inconsistent with the character of negotiable instrument. (7 Am. Jur.

921.) Moreover, in establishing and operating a postal money order system, the government is
not engaged in commercial transactions but merely exercises a governmental power for the
public benefit.
Certificate of stock. It is a muniment of title to a given share in the assets of a corporation. It
is also without an unconditional promise or order to pay a sum certain in money.
Treasury warrant. It is a government warrant for the payment of money such as that issued in
favor of a public officer or employee covering payment or replenishment of cash advances for
official expenditures. It is payable out of a specific fund or appropriation.
IV. DISTINCTION BET. PROMISSORY NOTE AND BILL OF EXCHANGE
Promissory note

Bill of exchange

Unconditional promise

Unconditional order

Involves 2 parties

Involves 3 parties

Maker is primarily liable

Drawer is only secondarily liable

note drawn payable to the maker's own order is not


complete until indorsed by him

bill drawn payable to the drawer's own order is


complete without indorsement, provided, it has
been accepted by the drawee

a note, there is no need of presentment for


acceptance; one presentment for payment

bill must be presented for acceptance in


certain cases (Sec. 143.) and the drawee
is not liable unless and until he accepts
the same,
Two presentments: for acceptance and for payment

note payable on demand must be


presented for payment within a
reasonable time from its issue

bill payable on demand must be


presented for payment within a
reasonable time from its last negotiation