Negotiable Instruments- Is a contractual obligation to pay money.

Legal Tender- -that currency which a debtor can legally compel creditor to accept in payment of a debt
in money when tendered by the debtor in the right amount.

Applicability of the Negotiable Instrument

1. Those instruments which meet the requirements laid down in Section 1 of the Law.
2. Rules of the merchant law (sec. 196), Art. 18, Civil Code.

Functions and Importance of Negotiable Instruments

1. Although they do not constitute legal tender, they are used as a substitute for money.
2. Negotiable instruments also serve as a medium of credit transaction.

Characteristics or features of negotiable instruments

1. Negotiability- is that quality of attribute of a bill or note whereby it may pass from one person
to another similar to money, so as to give the holder in due course the right to collect on the
instrument the sum payable for himself free from any defect in the title of any of the prior
parties or defenses available to them among themselves.

Determination of negotiability of an instrument

a. The whole of the instrument

b. Only what appears on the face of the instrument; and
c. The provisions of the Negotiable Instrument Law esp. Sec. 1 which fully defines the
requirements an instrument must meet in order to be negotiable

2. Accumulation of Secondary Contracts- as they are transferred from one person to another.

Forms of negotiable instruments

1. Common forms- The most common forms of negotiable instruments in commercial transactions
are the PROMISSORY NOTE (Sec. 184), BILL OF EXCHANGE (Sec. 126), and BANK CHECK (185)
Negotiable Instruments Law deals only with two or types of instruments:
a. Promissory Notes or those in which the issuer has promised to pay; and
(MAKER, PAYEE)
b. Bills of Exchange or those in which the issuer has ordered a third person to pay.
(MAKER, DRAWER, DRAWEE BANK)

Checks are also discussed in the law but they are really a special form or kind of bill of
exchange.
ACT NO. 2031
February 03, 1911
 
THE NEGOTIABLE INSTRUMENTS LAW
I. FORM AND INTERPRETATION

Section 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;
The instrument must be in writing, or reduced to tangible form, otherwise,
nothing could be negotiated or passed from hand to hand.
His signature is prima facie evidence of his intention to be bound as either
maker or drawer.
If the signature is so placed upon the instrument that it is not clear in what
capacity the person intended to sign, he is deemed an indorder.
The full name or at least the surname should appear. But initials or any
mark will be sufficient, provided that such signature be used as a substitute and
the maker or drawer intends to be bound by it.
(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.