ACTIVITY 1

DIRECTION: EXPLAUN THE FOLLOWING. 

1. What are the features of a negotiable instrument? Explain (5 POINTS)

 Negotiability - It is that value or property that allows a bill, note, or check to
circulate from person to person similarly to money, granting the bearer the right
to retain possession of the instrument and to recover the amount due for himself
free from legal challenges.
 Accumulation of Secondary Contracts - Secondary contracts are added to
and carried with Negotiable Instruments when they are negotiated from one party
to another. Alternatively, as Negotiable Instruments are being negotiated, a
number of legal relationships between the parties to them develop, either legally
or privately. Secondarily accountable to the possessor is the endorsers.
2. Negotiable instruments are legal tender. (True or false. Justify your answer (5
POINTS)
FALSE, as the definition of "legal tender" refers to the type of money that, when
presented by the debtor in the appropriate amount, a creditor is legally required to
accept in settlement of a debt. While a negotiable instrument is a written agreement
for the payment of money, it serves as a cash replacement when a promissory note is
being made by the debtor. Consequently, the negotiable instrument is not a valid form
of payment.
3.  What are the functions of negotiable instrument? Explain each. (5 POINTS)
 Substitute for money - You can use it in instead of cash to make credit-based
purchases of goods or services.
 Medium of exchange - An intermediary tool called a medium of exchange is
used to make it easier for parties to exchange items for sale, purchase, or trade.
An instrument must represent a standard of value that is acknowledged by all
parties in order to serve as a medium of exchange. Currency serves as the
primary means of exchange in modern economies.
 Credit instrument which increases credit circulation
 Increase purchasing medium in circulation
 Evidence of transaction - Typical documents used to support business
transactions include a cash memo, invoice, sales bill, pay-in slip, check, salary
slip, etc. Source Document or Voucher refers to a document that serves as proof
of the transactions.
4. What is a negotiable instrument? (5 POINTS)
 A written agreement for the exchange of money that meets the criteria of Section
1 of the NIL, which by its form and on its face is intended as a substitute for
money and flows from hand to hand as money, giving the holder in due course
(HDC) the right to hold the instrument free from defenses accessible to preceding
parties.
 Additionally, a negotiable instrument is a document that guarantees the payment
of a certain sum of money, either immediately upon demand or at a
predetermined time. The payer is typically identified on the paper or document.