Is negotiable instrument a legal tender?

NEGOTIABLE INSTRUMENTS LAW (NIL) Negotiable instruments are neither money nor legal tender;
they are mere substitutes for money [Sec. 60, NCBA).
Negotiable Instruments Law Reviewer The delivery of a negotiable instrument does not by itself
A compendium from the Books of: Aquino 2018, de Leon produce the effect of payment [Roman Catholic Bishop of
2016, UP Law Complex 2017 and UST GN 2018 Malolos vs. IAC, G.R. No. 72110, November 16, 1990).

When can negotiable instruments produce the effect of

DISCLAIMER:
payment?
THE USE OF THIS MATERIAL SHALL BE BORNE BY THE USER
1. When they have been cashed (Art. 1249, NCC);
When did NIL took effect? 2. When Through the fault of the creditor they have been
Act 2031 which took effect on June 2, 1911, and is patterned impaired (ibid); or
after the US Uniform Nego. Inst. Law, which in turn is copied 3. When a check representing demand deposit has been
from the English Bill of Exchange Act of 1882. [Miravite, Bar cleared and credited to the account of the creditor (Sec. 60,
Review Materials in Comm. Law, 12th Ed., (2002) NCBA).
When is NIL applicable? Is the delivery of checks considered as payment?
The Act applies only to negotiable instruments (Arnold v. While delivery of checks may not be considered payment
Jordan, 215 Ala. 693, 112 So. 305.) or to those instruments under the Civil Code, delivery of checks may be sufficient in
which meet the requirements laid down in Section 1 of the the exercise of certain rights or privileges. Thus, the Supreme
law. It is designed to describe fully the law of negotiable Court ruled in a number of cases that delivery of checks is
instruments. It "covers the entire subject of negotiable sufficient in the exercise of the right of redemption. The right
instruments and must be treated as a complete body of law of redemption is a privilege and is not an ordinary obligation.
upon the subject and controlling in all cases to which it is Hence, Article 1249 does not apply. (Biana v. Gimenez, G.R.
applicable." (Bank of Italy, etc. v. Symmes, 118 Cal. App. 716, No. 132768, September 9, 2005)
5 P. [2d] 956.) It is decisive as to all matters comprehended
within its terms. 2012 BAR: Negotiable instruments are used as substitutes
for money, which means-?
When Is NIL not applicable?
The provisions of the NIL are not applicable if the instrument 1. When negotiated, negotiable instruments can be used to
involved is not negotiable. Before the provisions of the NIL pay indebtedness.
can come into operation, there must be a document in a. The word "promise" need not be used. Any expression
existence of the character described in Section 1 of that law. equivalent to a promise is sufficient.
(Metrobank v. CA G.R. No. 88866, February 18, 1991) b. Mere acknowledgment of a debt is not a promissory note.
c. Language used must indicate a written undertaking to pay.
When should NIL be applied only by analogy?
If at all, the NIL can be applied only by analogy. For instance, 2. As to bill of exchange
the SC applied Section 14 of the NIL by analogy in a case a. It must contain an order for payment as distinguished from
involving a Deed of Assignment of shares of stocks which was a mere request.
signed in blank to facilitate future assignment of the same b. The order is not invalidated because it contains words of
shares. The Court observed that the situation is similar to civility. Thus, insertion of polite words like "please” does not
Section 14 where the blanks in an instrument may be filled
alter the character of the instrument; as long as the language
out by the holder, the signing in blank being with the
expresses the drawer’s will that the money be paid.
assumed authority to do so. (Borromeo, et al v. Sun, G.R. No.
75908, October 22, 1999)
May NIL be used as evidence?
Who are the parties involved in NIL? Yes. Negotiable instruments like checks are not only
Persons who may become parties after the issuance of the instruments of credit. They also serve as receipt or evidence
instrument are the indorsers and the holders. “Indorsers” are for the debtor. For example, possession of a check by the
persons who transfer or negotiate an instrument by drawee gives rise to presumption of payment. In one case, it
indorsement completed by delivery. “Holder” means “the was explained that a check may be evidence of indebtedness;
payee or indorsee of a bill or note who is in possession of it or a check, the entries of which are in writing, could prove a
the bearer thereof.” A “bearer” means “the person in loan transaction. Hence, even if the drawer is not liable under
possession of a bill or note which is payable to bearer.” Batas Pambansa Big. 22, the check may be used as proof of
the existence of a contract of loan and the accused may be
How should NIL be construed? made to pay the same despite his acquittal.
Where the meaning is doubtful, the courts have thus adopted (Lim v. Mindanao Wines, G.R. No. 175851, July 4, 2012)
the policy of resolving in favor of the negotiability of the
instrument. The purpose obviously is to encourage the free Distinguish between negotiable instruments and non-
circulation of the negotiable papers because of the negotiable instruments?
admittedly indispensable function they perform in mercantile (1) Only negotiable instruments are governed by the NIL. If an
business transactions in any given country and the world at instrument is not negotiable, the NIL does not apply.
large. Application of the NIL to non-negotiable instruments is only
by analogy.
What are the functions of NIL? (2) Negotiable instruments can be transferred by negotiation
The two main functions of negotiable instruments are: or by assignment. Non-negotiable instruments can be
(1) They serve as substitute for money; and transferred only by assignment.
(2) They serve as credit instruments. (3) The transferee of a non-negotiable instrument can never
However, they can also be considered proof of the existence be a holder in due course but remains to be an assignee. A
of a transaction because they may state the transaction that transferee of a negotiable instrument can be a holder in due
gave rise to the issuance of the instrument. course if all the requirements under Section 52 of the NIL are
In particular, the functions of a negotiable instrument may be complied with.
enumerated as follows: (4) Since the transferee of a non-negotiable instrument
(1) It is a substitute for money. cannot be a holder in due course, all defenses available to
(2) It is a medium of exchange. prior parties may be raised against the last transferee.
(3) It is a credit instrument which increases credit circulation.
(4) It increases purchasing power in circulation. Distinguish between negotiability of instrument and validity
(5) It is proof of transactions. of instrument?
The requirements of negotiability are not concerned with the
validity of the instrument. Validity is an issue independent of damages and the harm done to his credit. It the drawer has
the issue of negotiability. Verily, the contract represented by no funds in the hands of the drawee, it is at least presumed
or out of which the negotiable instrument arose may be that the former must have made arrangements with the
invalid, voidable or rescissible or unenforceable but the latter so that he will honor the bill. In such a case, the drawee
instrument may remain negotiable. must look to the drawer for reimbursement and not to a
In the same manner, a non-negotiable instrument may bona fide holder.
represent a valid obligation. It may be an instrument that In short, in order for the drawee to be liable to the drawer,
represents a personal property under Article 417 of the New there must be some kind of agreement obligating the drawee
Civil Code, that is, an obligation or action for a demandable to honor the order of the drawer or an existing debtor-
sum. Such non-negotiable instrument may be freely creditor relationship between them, that is, the drawee must
transferred and such transfer is governed by Articles 1624 to owe the drawer a debt, in which case the drawer simply
1635 of the New Civil Code on assignment of credit. If there orders the drawee to pay the debt or a portion of it to a third
are no defenses available to any party, there is no use to party.
distinguish a negotiable instrument from a non-negotiable A drawee-bank is not liable for its refusal to pay a check on
one. account of insufficient funds notwithstanding the fact that a
deposit may be made later in the day. Where the deposit is
Distinguish between bill and bill of exchange? sufficient, the failure of a bank to pay the check of the drawer
A bill is an order. But the bill would be sufficient if the drawee entitles the drawer to substantial damages without any proof
is indicated therein with reasonable certainty though he is of actual damages. (Moran vs. Court of Appeals, 230 SCRA
not named, nor is it necessary that the drawee be addressed 799 [1994].)
by his correct name. Thus, where a bill is addressed to the
"treasurer" of a corporation, the drawee is sufficiently What is an “order” under the concept of NIL?
indicated, (see Secs. 128, 129, 17[e].) An order is a command or imperative direction and,
While bill of exchange is an unconditional order in writing therefore, a mere request which merely asks a favor (like "I
addressed by one person to another, signed by the person request you to pay," or "I wish you would pay," or "I
giving it, requiring the person to whom it is addressed to pay authorize you to pay," or "I hope you will pay", or "Will you
on demand or at a fixed or determinable future time a sum pay P or order PI0,000"), supplication, or authority does not
certain in money to order or to bearer. (Sec. 126.) constitute an order for it does not import a right to ask and a
From the foregoing, it will be seen that a bill of exchange is duty to obey. However, the mere use of polite words like
essentially a written order made by one person to another to "please" does not convert an order into a request where the
pay money to a third person or his order or to bearer. For language used connotes a demand (like "Please pay P PI0,000
brevity, a bill of exchange is usually called a "bill." and charge to my account"). In such case, the request is really
in the nature of a polite command.
Who are the parties in bill of exchange and what are their As long as the language used expresses the drawer's will that
roles? money be paid, the bill of exchange is good.
(1) A bill of exchange requires in its inception at least three
parties — the drawer, the drawee, and the payee — to fill the What is a promissory note?
legal roles involved. The holder of the instrument may be the A negotiable promissory note is an unconditional promise in
payee or, when there has been a negotiation thereof, a party writing made by one person to another, signed by the maker,
subsequent to the payee, (supra.) engaging to pay on demand, or at a fixed or determinable
(a) The person who issues and draws the order bill is called future time, a sum certain in money to another or his order or
the drawer. He gives the order to pay money to a third party. to bearer, (see Sec. 184.)
He does not pay directly. A promissory note, briefly stated, is a written promise to pay
(b) The party upon whom the bill is drawn is called the a definite sum of money to another at a definite time. It is
drawee. He is the person to whom the bill is addressed and commonly referred to as note. It may be a demand
who is ordered to pay. He becomes an acceptor when he instrument (Sec. 7.) but is normally a time instrument. (Sec.
indicates a willingness to accept responsibility for the 4.). A mere contract to pay money which is not a promissory
payment of the bill. (Sec. 62.) The acceptor has the same legal note is a mere chose in action. (Steward v. McIntosh, 9 NE 2d
liability as the maker of a note. The drawee is a bank in the 407.)
case of a check.
(c) The party in whose favor the bill is originally drawn or is Sec 1. Form of Negotiable Instrument
payable is called the payee. Up to the time of acceptance by
the drawee, the payee looks exclusively to the drawer. Again,
What is a negotiable instrument?
the payee, as in a promissory note, may be specifically
A negotiable instrument is an instrument, which can be
designated, or may be an office or title, or unspecified.
transferred by negotiation. The term negotiable represents
Does a bill of exchange with only one party valid? the mode by which an instrument is transferred. If the
The parties need not all be distinct persons. Indeed, a bill will instrument has the characteristics of negotiability imposed by
be valid where there is only one party to it, for one may draw law, that instrument is thus negotiable, meaning it is
on himself payable to his own order (see Sec. 8.), that is, the transferable by negotiation. Not every instrument is
two parties to the bill can be the same person (drawer- transferable by negotiation because not every instrument
drawee or drawer-payee). possesses the characteristics of negotiability.

What is the purpose of bill of exchange? What are the factors in determining negotiability?
The original and fundamental idea and purpose of a bill of The factors that affect the determination of negotiability of
exchange is that the drawer has funds in the hands of the instruments are:
drawee of which the drawer wishes to avail himself. (1) The whole of the instrument shall be considered;
(2) Only what appears on the face of the instrument shall be
The drawer is the party primarily interested in, and benefited considered; and
by, the transaction. By this instrument, the drawer, (3) The provisions of the NIL, especially Section 1 thereof,
appropriates the fund, actual or anticipated, in the drawee's shall be applied. (Simeon M. Gopenco, Commerial Law Bar
hands and receives the consideration for the appropriation Reviewer, 1959)
from the payee to whom the instrument is delivered. The
office of the instrument is to collect for the drawer from the What are the requisites for an instrument to be negotiable?
drawee money to which the former may be entitled, (see 11 The requisites of negotiability are provided for under Section
Am. Jur. 2d 42.) 1 of the NIL. It is the most important provision of the NIL
If the drawee refuses to accept when he has funds for the because the law does not apply if the instrument does not
purpose, he becomes liable to the drawer for the resulting meet the requisites of negotiability as provided therein.
Section 1 of the NIL provides: (WUD-BORR) Is paper money a negotiable instrument?
Sec. 1. Form of negotiable instruments. — An instrument Paper money is, of course, a negotiable instrument, but the
to be negotiable must conform to the following Negotiable Instruments Law has no application to money as
such.
requirements:
While negotiable instruments approach money in character
(a) It must be in writing and signed by the maker or
and use, and are a temporary substitute therefor, the
drawer; question whether for any particular purpose such an
(b) Must contain an unconditional promise or order to pay instrument constitutes money, payment, or proper tender, is
a sum certain in money; not governed by the Act.1 (see 11 Am. Jur. 2d 40.)
(c) Must be payable on demand, or at a fixed or
determinable future time; 1980 BAR: A bookstore received five postal money
(d) Must be payable to order or to bearer; and orders totaling P1, 000.00 as part of sales receipts, and
(e) Where the instrument is addressed to a drawee, he deposited the same with a bank. A day after, the bank
must be named or otherwise indicated therein with tried to clear them with the Bureau of Posts. It turned
reasonable certainty. out, however, that the postal money orders were
irregularly issued thereby prompting the Bureau of Posts
(a) An instrument needs to be in writing to be negotiable. to serve notice upon all banks not to pay orders if
Why? Is there any particular form of writing or materials presented for payment. The Bureau of Posts further
required? informed the bank that the amount of P1, 000.00 had
The instrument must be in writing or intentionally reduced in been deducted from the hank’s clearing account for the
tangible form; otherwise, nothing could be negotiated or same amount. A complaint was filed by the bookstore
passed from hand to hand. No particular form of intentionally
against the Bureau of Posts and the bank for the
writing is required.
recovery of the sum of P1, 000.00 which however, was
Writing includes not only that which has been written on
paper and with a pen or pencil but also that which is in print dismissed by the trial court. The bookstore appealed
(Sec. 191.) or has been typed. The writing may be made upon contending that postal money orders are negotiable
leather, cloth or any other substitute for paper as long as it is instruments and that their nature could not have been
movable in nature. Such materials, however, are no longer affected by the notice sent by the Bureau of Posts to the
used in the usual exercise of business. The usual way is to banks. How would you resolve the controversy?
have the instrument written or printed in durable paper, but The bookstore’s contention is untenable. A postal money
this is not required. It would seem that negotiable order is not negotiable. It does not contain an
instruments must be prepared on a material capable of unconditional promise or order to pay required in Section
preserving the writing if they are to be capable of circulating 1(b) of the NIL. Regulations or restrictions are imposed on
for a period of time to serve their credit and currency postal money orders which are inconsistent with the
function. character of negotiable instruments. For instance, the
(b) For an instrument to be negotiable, it must contain an rules and regulations on postal money orders usually
unconditional promise or order to pay a sum certain in provide for not more than one indorsement. They also
money. Why? provide that payment may be withheld under a variety of
This requirement is based on the nature of the negotiable circumstances. (Philippine Education Company, Inc. v.
instrument as an absolute undertaking to pay rather than a Mauricio A. Soriano, et al, G.R. No. L-22405, June 1971).
mere acknowledgment of an obligation.
The reason for the requirement that negotiable instruments If an instrument does not contain all the requisites of
must be payable in money is that money is the one standard negotiability specified in Section 1 of the NIL, can the
of value in actual business. All other commodities may rise instrument still be considered negotiable as between the
and fall in value but in theory, at least, money always parties on the basis of estoppel?
measures this rise and fall, and remains the same. The chattel The Supreme Court took the affirmative stance in BDO v.
which is used as means of payment may fluctuate in value. Equitable Banking Corporation, et al., G.R. NO. L-74917,
(Norton on Bills and Notes, 4th Ed., p. 66.) But the promise or January 20, 1988. In the said case. The Supreme Court ruled:
order may designate "a particular kind of current money in “Moreover, petitioner is estopped from raising the defense of
which payment is to be made." (Sec. 6[e].) non-negotiability of the checks in question. It stamped its
guarantee on the back of the checks and subsequently
(e) Why does a drawee needs to be named or otherwise
presented these checks for clearing and it was on the basis of
indicated therein with reasonable certainty?
these endorsements by the petitioner that the proceeds were
The reason for this last element of negotiability is to enable
credited in its clearing account.
the payee or holder to know upon whom he is to call for
The petitioner by its own acts and representation cannot now
acceptance or payment. A promissory note has no drawee.
deny liability because it assumed the liabilities of an endorser
Like the drawee, the payee must be named with reasonable
by stamping its guarantee at the back of the checks.
certainty, (see Sec. 8, par. 2.)
A promissory note states as follows: “I, Cecilia W. Donohue
Juan Cruz borrowed P1, 000.00 from Pedro Santos as
after date August 10, 2002 promises to pay to the order of
evidenced by a promissory note executed by X as maker. All
Richard Donohue thirteen thousand and seventy pesos for
other requisites of negotiability are present in the note
value received with interest at 6% per annum.” The note
except that Juan Cruz did not affix his usual signature
was on a printed form, and the words underscored above
thereon. As Juan was ailing at that time, he was only able to
were in the handwriting of Mrs. Donohue. No signature
put “X” in the blank space meant for the signature of the
appears at any other place on the note. Is the note signed by
maker. Is the requisite that the instrument must be signed
the maker?
by the maker complied with?
Yes, the fact that Mrs. Donohue’s signature appears in the
Yes. The letter “X’ is sufficient to comply with the
body of the note and not at the end is unimportant, so long
requirement that the instrument must be signed by the
as she intended thereby to obligate herself for its payment. It
maker. It appears from the problem that such letter was
is not necessary in a negotiable instrument that the signature
adopted by Juan Cruz with the intent to authenticate the
of the maker or the drawer should appear at the end thereof.
instrument. It is not necessary that the signature is the usual
If his name is written by him in any part of the contract, or at
signature of the maker.
the top or the right or left hand, with the intention to sign or
for the purpose of authenticating the instrument, it is
sufficient to bind him. (In Re Donohue’s Estate, 271 Pa. 554, 1993 BAR: Discuss the negotiability or non-negotiability:
115 A. 878, 1922)
Manila, June 3, 1993
A treasury warrant was issued by Mr. PA in his capacity as
P10,000.00
disbursing officer of the Food Administration, a government
instrumentality. The warrant states that it is “payable for For value received, I promise to pay Sergio Dee or order the
additional cash advances for the Food Program Campaign in sum of P10,000.00 in five (5) installments, with the first
La Union” and the amount stated therein is “payable from installment payable on October 5, 1993 and the other
the appropriation for food administration.” The warrant is installments on or before the fifth day of the succeeding
now in the hands of Mr. BA who claims to be a holder in due month or thereafter.
course. Can BA be considered a holder in due course of a
negotiable instrument? (Sgd.) Lito Villa
Mr. BA cannot be considered a holder in due course because
Suggested answer:
he is not even a holder of the warrant. He cannot be a holder
because the warrant is not negotiable. The promise to pay is The instrument is negotiable because it complied with the
conditional because the sum is payable out of a particular requirements provided by Section 1 of the NIL. The fact that
fund, that is, the appropriation for food administration. it is payable in installments does not make the instrument
(Abubakar v. The Auditor General, G.R. No. L-1405) non- negotiable as long as the dates of each installment is
fixed or at least determinable and the amount to be paid
for each installment is stated (NIL, Sec. 2b)
Sec 2. Certainty to Sum
How would you know if “certainty to sum” was satisfied? (c) What is the purpose of an acceleration clause?
The "sum certain" requirement is met if the holder can Acceleration clause requires full payment of an instrument
determine from the instrument itself the amount he is immediately upon default on any installment. It does not
entitled to receive at maturity. If the instrument calls for an make an instrument payable upon contingency (and so non-
act other than the payment of money, it is not negotiable negotiable) since the time of payment will surely come and
because a negotiable instrument is intended as a substitute the exact value of the instrument can be ascertained.
tor money. How will it affect the negotiability of the instrument?
Is an instrument payable in money or in goods or services Negotiability of an instrument with an acceleration clause,
negotiable? depends on who has the option to exercise the same.
If the option is up to the maker or drawer the instrument 1. If the option to accelerate the maturity is on the maker,
would not be considered negotiable. Since a negotiable whether such option is absolute or conditional – NEGOTIABLE
instrument is a device intended as a substitute for money, it 2. Where acceleration is at the option of the holder and can
is, therefore, essential that it represents a fixed amount to be only be exercised upon the happening of the specified event -
paid wholly in money ascertainable from the instrument NEGOTIABLE
itself. The amount to be paid must be stated plainly on the 3. Where the holder's right to accelerate is unconditional, the
face of the instrument or at least, may be ascertained by the time of payment is rendered uncertain - NON-NEGOTIABLE
holder upon its face by computation, independent of any How about an extension clause? How will it affect the
extrinsic evidence. negotiability of an instrument?
However, an instrument payable in money or in goods or Extension Clauses are provisions extending the time of
services at the option of the holder is negotiable. payment.
What is the basic test in determining “sum certainty”? As a general rule, an extension clause does not affect the
The basic test is whether the holder can determine by negotiability of the instrument.
calculation or computation from the terms of the instrument Except when there is a note with a fixed maturity provides
the amount payable when the instrument is due. But a that the maker has the option to extend time of payment
promissory note giving the maker or drawer the right to until the happening of a contingency, the date is uncertain
ascertain the amount rightly payable thereunder is non- and the instrument is non- negotiable. The time for payment
negotiable. may never come at all.

What constitutes certainty to sum? What if the obligor is the one given the right to extend
(Wee!? SISIW, WE WelCome Atty’s Fee) payment, is the instrument still negotiable?
No. The interest of the extension must be specified to keep
) Sec. 2. The sum payable is a sum certain within the the instrument negotiable, for if the right to extend is without
meaning of this Act, although it is to be paid — limit, it cannot be determined with absolute certainty when
(a) With interest; or the holder will have the absolute right to be paid. Thus,
(b) By stated installments; or where the maker of the note is given the right to extend the
(c) By stated installments, with a provision that upon time of payment for no longer than a reasonable time" after
default in payment of any installment or of interest the maturity date, the note is non-negotiable because the
whole shall become due; or definite time requirement is not met.
(d) With exchange, whether at a fixed rate or at the current Does the instrument need to contain a new fixed maturity
rate; or date to keep its negotiability?
(e) With costs of collection or an attorney’s fee, in case If the right is given to the holder, the time of payment need
payment shall not be made at maturity. not contain a new fixed maturity date or the length of
extension does not have to be specified.
(a) Will the accumulation of interest affects the “certainty to (d) What if the instrument is payable in foreign currency,
sum”? will it affect the negotiability of the instrument?
No. A provision for the payment of interest is a mere incident; A provision for payment of a sum in a foreign currency does
it does not render the instrument non-negotiable because it not impair negotiability because the current rate of exchange
does not make uncertain the sum payable. at any given time may easily be ascertained by inquiry from
the banks dealing on exchange or foreign currencies and such
Is the instrument still negotiable if the interest stipulated is
rate is a matter of common commercial knowledge.
usurious?
An instrument whether payable "at a fixed exchange rate or
Yes. The instrument is still negotiable because the contract
at the current rate" is deemed by the law to meet the "sum
remains valid as to the principal. (Sec. 7, Act No. 2655 [Usury
certain" requirement.
Law].)
Can there be an exchange if the instrument is both drawn (a) Is an instrument negotiable if it mention a particular
and payable in the same place? fund out of which reimbursement is to be made?
No. There can be no exchange so that a stipulation for Yes. The order to pay is not rendered conditional. The drawee
payment in exchange may be disregarded. (Studebaker Bros. is not limited to the money in his hands belonging to the
Rfg. Co. v. Davis, 119 S.W. 532.) drawer.
Under R. A. No. 8183,5 every monetary obligation must be In other words, the fund indicated is not the direct source of
paid in Philippine currency which is legal tender in the payment but only the source of reimbursement which is an
Philippines. However, the parties may agree that the act subsequent to the payment.
obligation or transaction shall be settled in any other
currency at the time of payment. Is an instrument negotiable if there is an indication of a
particular fund out of which payment is to be made?
(e) Is negotiability affected by a provision that in case An instrument payable out of a particular fund is non-
payment shall not be made at maturity, there shall be negotiable (Sec. 3, par. 2.) as it is not payable "in any event"
added to the amount due on the note costs of collection or because the amount to be paid is made to depend upon the
an attorney's fee? adequacy or existence of the fund designated.
No. Such a stipulation does not affect the certainty of the It is to be distinguished from an instrument, merely
amount payable at maturity since the increase in the amount containing reference to funds from which reimbursement is
due even if uncertain takes place after maturity when the to be made. Here, the fund specified is the direct source of
instrument ceases to be negotiable in the full commercial payment and the measure of liability. It is immaterial whether
sense. or not the fund is in actual existence or is yet to be created.
The instrument remains non-negotiable even if the fund is
Sec. 3 When promise is unconditional found to be sufficient at maturity. But an instrument which is
simply chargeable to a particular account (infra.) is
negotiable.
Is it essential that the word "promise" be used for an
instrument to be negotiable? Is an instrument negotiable if there are terms and
No. Any words equivalent to a promise or assumption of full conditions contained in another paper?
responsibility for the payment of the note (like "payable," "to The obligation to pay is burdened with the terms and
be paid," "I agree to pay," "I guaranty to pay," "M obliges conditions of another contract, subjecting recovery on the
himself to pay," "Good for," "due on demand," etc.) on the instrument to defenses available under the contract.
face of an instrument are sufficient to constitute a "promise Furthermore, this will require an examination of said contract
to pay." to determine the rights and obligations under the instrument.
Such instrument is non-negotiable regardless of what the
Is an instrument negotiable although it contains no express
terms of the contract actually are. The negotiability of the
promissory words?
instrument must be determinable from what appears on its
Yes. The language used must be such that the written
face alone and not elsewhere, (see Sec. 1.)
undertaking to pay may fairly be deduced therefrom. Thus, if
words of negotiability or payment are added to an
acknowledgment of a debt with words indicating that the Sec. 4 What constitutes determinable future
debt is to be paid or as indicating a promise to pay (like "due time
P or order" or "due P or bearer," or "due P or demand," or Is an instrument negotiable if it is only payable upon
"I.O.U. P10,000 to be paid on June 1."). contingency?
It is an essential requisite of a negotiable instrument that it
How does an unconditional promise affects the negotiability must be payable at all events. Hence, an instrument which is
of instrument? only payable upon a contingency is not negotiable because it
The fact that the liability is unconditional greatly enhances does not appear on its face whether or not it will ever be
the ability of the instrument to circulate freely from one paid. A note containing a provision that it may be renewed at
person to another. No one would accept a paper for debt if maturity is non-negotiable because there is no unconditional
the right to recover were not absolute or unconditional in promise to pay at maturity.
nature.
Instruments which are not to be paid until a condition has What if the contingency happened, will it make the
happened or been fulfilled would be of little practical value in instrument negotiable?
business. No. In order that an instrument may be negotiable, there
must be certainty as to the time of payment, i.e., the
What if the conditional promise is likely to occur, will this payment will certainly become due and demandable one time
make the instrument negotiable? or other, though it may be uncertain when that time will
No. Even if the condition or event is very likely to occur, or come.
indeed, even if, in fact, did occur subsequently, the Sec 4 of NIL provides that
instruments remains non-negotiable, although it would, of
course, become payable at that time. Sec. 4 — An instrument is payable at a determinable
future time, within the meaning of this Act, which is
When is promise a promise unconditiona? expressed to be payable:
(UOPPU AI APO ST w. GRiT BAO PTP) (a) At a fixed period after date or sight; or
(b) On or before a fixed or determinable future time
Sec. 3. An unqualified order or promise to pay is
specified therein; or
unconditional within the meaning of this Act, though
(c)On or at a fixed period after the occurrence of a
coupled with —
specified event, which is certain to happen, though the
(a) An indication of a particular fund out of which
time of happening be uncertain.
reimbursement is to be made, or a particular account to be
debited with the amount; or An instrument payable upon a contingency is not
(b) A statement of the transaction which gives rise to the negotiable, and the happening of the event does not cure
instrument. the defect.

But an order or promise to pay out of a particular fund is (a) What is the significance of certainty of a fix period or
not unconditional. determinable future time?
The time must be certain so that the holder will know when
he may enforce the instrument; when statute of limitation
will arise; the person liable, when he may be required to pay;
or the secondary parties — the drawer, indorser, or Here, the additional act is to be performed after the date of
accommodation party — when his obligation will arise. It is maturity when the instrument is no longer negotiable in the
obvious that if a negotiable instrument is to take the place of full commercial sense, (see Sec. 2[e].) Until the date of
money, it would have but little value if the holder were maturity, the promise is to pay money only. A statement that
unable to determine the time of payment. Unless the time of an instru¬ment is secured by a collateral, in fact, adds to the
payment is fixed, the present value of the instrument cannot marketabil¬ity of the instrument in commerce as a substitute
be determined. for money or as a credit instrument. Note that the statement
does not subject the promise or order to the terms and
What does after sight means? conditions of the pledge.
It means after the instrument is seen by the drawee upon
presentment for acceptance (see Sec. 143[a].), or accepted by
the drawee. Hence, the date of maturity may be determined
beforehand by counting 60 days from the date it is presented
to the drawee.

Is an instrument still negotiable if it has the month and date

but not the year of maturity?
No. It is necessary that the year of maturity be stated,
otherwise, the time of payment of the instrument, although
payable at a certain time, is not determinable. (United Ry., et
al. v. Liberian Commercial Co., 19 A.L.R. 506.)

What if the instrument is payable at the end of the year, is

this negotiable?
No. It is a contingency over which the maker has no control.
This uncontrollable option of the payee, it has been held,
renders the note non-negotiable because it renders the time
of payment uncertain.

Is an instrument negotiable if it is payable several days

before the occurrence of the specified event?
The date of maturity of the instrument can only be
ascertained after it has become overdue and, therefore, the
time for payment is uncertain. Moreover, the law says "on or
at a fixed period after" and not "before."

Sec. 5 Provisions not affecting negotiability

time
What is the effect if a bill or note is payable other than in
money?
As a general rule the note or bill must be payable in money. If
payable in goods, wares, or merchandise, or in property, the
same is not negotiable.
However, negotiability is not affected if the note contains an
additional provisions in sec 5: (ASK AKO Ben HATER )

Sec. 5. An instrument which contains an order or promise

to do any act in addition to the payment of money is not
negotiable. But the negotiable character of an instrument
otherwise negotiable is not affected by a provision which

(a) Authorizes the sale of collateral securities in case the

instrument be not paid at maturity; or
(b) Authorizes a confession of judgment if the instrument
be not paid at maturity; or
(c) Waives the benefit of any law intended for the
advantage or protection of the obligor; or
(d) Gives the holder an election to require something to be
done in lieu of payment of money.

But nothing in this section shall validate any provi-sion or

stipulation otherwise illegal.

What is a confession of judgment? What are its

consequences?
A confession of judgment is an acknowledgment by the
debtor at his debt to another is justly due. It enables the
holder to obtain a judgment without the delay usually
incident to a lawsuit, as it cuts off all defenses, eliminates the
necessity of a trial, and right of appeal. It is a written
statement signed by the defendant, setting forth the basis of
liability and authorizing the entry of judgment thereon.

I promise to pay P or order the sum of P30,000 on

November 25,2013 secured by a ring I delivered to him by
way of pledge and which he could sell should I fail to pay
him at maturity.