Republic of the Philippines

SORSOGON STATE COLLEGE

Bulan Campus
Bulan, Sorsogon

Negotiable Instruments

Schedule: N/A

Lesson No: 1

Learning Objective:

NEGOTIABLE INSTRUMENTS LAW ENACTMENT AND EFFECTIVITY DATE

 Act No. 2031 also known as the Negotiable Instruments law was enacted on February 3,
1911 and took effect ninety days after its publication in the Official Gazette on March
4, 1911.

CHARACTERISTICS OF NEGOTIABLE INSTRUMENTS

 Negotiability- this is the attribute of an instrument that allows it to be passed from one
hand to another similar to money to give the holder in due course to hold the instrument
free from any defect of the title of prior parties and free defenses available to prior parties
among themselves, and enforce payment of the instrument for the full amount thereof
against all parties liable thereon. (Sec 57)

 Accumulation of Secondary Contract- negotiable instruments, when negotiated, gives

rise to secondary contracts.

FUNCTIONS OF NEGOTIABLE INSTRUMENTS

 Substitute for Money

 Increases the purchasing medium in circulation
 Intended like money to have a definite value to be taken at sight without the need
of investigating into the outside facts.
 Serves as equivalent of money

INCIDENTS IN THE LIFE OF A NEGOTIABLE INSTRUMENTS

 ISSUANCE
 Issuance is the first delivery of the instrument, complete in form, to a person who
takes it as a holder.
 NEGOTIATION
 Negotiation is the transfer of a negotiable instrument from one person to another
in such a manner as to constitute the transferee the holder thereof. (Sec 30)

 If the instrument is payable to bearer- it may be negotiated by mere delivery

If the instrument is payable to order- it may be negotiated by indorsement
completed by delivery.

 PRESENTMENT FOR ACCEPTANCE (FOR BILL OF EXCHANGE ONLY)

 Presentment for acceptance is the act of exhibiting the bill of exchange to the
drawee for his acceptance.

 Acceptance- is the signification by the drawee of his assent to the order of the
drawer. The acceptance must be in writing signed by the drawee.

 Dishonor by non-acceptance- a bill of exchange is dishonored by non-acceptance

when:

a) it is duly presented for acceptance and such acceptance is refused or cannot be

obtained

b) presentment for acceptance is excused and is not accepted.

 PRESENTMENT FOR PAYMENT

 Presentment for payment is the production of a promissory note to the party

primarily liable for the payment of the same, or of a bill of exchange to the drawee
or acceptor for payment.

 DISHONOR BY NON-PAYMENT

 An instrument is dishonored by non-payment when:

a) it is duly presented for payment and payment is refused or cannot be obtained.

b) presentment for payment is excused and the instrument is overdue.

 Notice of Dishonor- means notifying the drawer and the indorser that the
instrument has not been accepted by the drawee or that it has not been paid by
the acceptor (for bills of exchange) or the maker (for promissory note)
  DISCHARGE

 An instrument is discharged through any of the following means:

a) by payment in due course by or on behalf of the principal debtor

b) by payment in due course by the party accommodated, where the instru,emt

was made or accepted for his accommodation.

c) by intentional cancellation of the instrument by the holder.

d) by any other act which discharges a simple contract for payment of money.

e) when the principal debtor becomes the holder of the instrument at or after
maturity in his own right. (merger)

REQUISITES OF NEGOTIABILE INSTRUMENT (Section 1) (WUPPI)

 It must be in writing and signed by the marker or drawer.

 It must contain an unconditional promise or order to pay a sum certain in money.

 It must be payable on demand or at a fixed determinable future time.

 It must be payable to order or to bearer.

 Where the instrument is addressed to a drawee, he must be named or otherwise

indicated with reasonable certainty.

COMMON FORMS OF NEGOTIABLE INSTRUMENTS

 Promissory Note

 A negotiable promissory note 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
determinable future time, a sum certain in money, to order or to bearer.

 Parties to Promissory Note

a) Maker- the person who executes the written promise to pay.

b) Payee- the person in whose favor the promissory note is made payable.
 Example of Promissory Note

Sorsogon City
September 10, 2021

I promise to pay Juan De la Cruz or order the sum of Ten

Thousand Pesos on December 31, 2015.

(signed) Cardo Dalisay

Maker- Cardo Dalisay

Payee- Juan De la Cruz

 Bill of Exchange

 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 a sum
certain in money to order or to bearer.

 Parties to Bill of Exchange

a) Drawer- the person who executes the written order to pay.

b) Payee- the person to whom the bill of exchange is drawn payable.

c) Drawee- the person is given the command by the drawer to pay the payee.

Sorsogon City
September 10, 2021

Twenty days after date, pay to Juan De la Cruz or order the

sum of Ten Thousand Pesos.

(signed) Cardo Dalisay

To: Raffy Tulfo

Piot, Sorsogon City
Prepared by

Name: Dominic Jason F. De Jesus

Position/Rank: Instructor 1
Institution: Sorsogon State College, Bulan Campus
Institution’s Address: Bulan, Sorsogon
Personal e-mail address: dejesusdj04@gmail.com
Personal mobile phone number: 0917 153 4102