Negotiable Instruments

The lifeblood of negotiable instrument is negotiation.

A Negotiable Instrument is a WRITTEN contract as a SUBSTITUTE for money, and its delivery does NOT by itself operate as a payment. It is not a legal tender thus, may be refused by a creditor. Its commercial functions are to supplement the currency of the government and to substitute for money and increase the purchasing medium.

On the other hand, a legal tender is defined as currency that cannot legally be refused in payment of debt or is that which a debtor may compel a creditor to accept in payment of the debt. It generally refers to government-issued CASH Money such as coins and notes.

But is it not amazing that Jesus Christ's life and blood paid the ransom which is the price that must be paid to God for our debt! We accrue spiritual debt every time we fail to honor God by living in obedience to Him through sins of both omission and commission.

1 Timothy 2:5-6

⁵For there is one God and one mediator between God and men, the man Christ Jesus, ⁶who gave himself as a ransom for all men—the testimony given in its proper time.

In relation to the legal concepts, an instrument to be negotiable must contain all the requisites enumerated in Sec. 1 of the Negotiable Instruments Law (Act No. 2031):

1. It must be IN WRITING and SIGNED by the Maker or Drawer;
2. Must contain an UNCONDITIONAL promise or order to pay a sum certain
in money;
3. Must be payable on demand, or at a fixed or DETERMINABLE future time;
4. Must be payable to ORDER or to BEARER; and
5. Where the instrument is addressed to a drawee, he must NAMED or
otherwise indicated therein with reasonable certainty.

Common Forms of Negotiable Instruments:

1. Promissory Note - an unconditional promise to pay; and
2. Bill of Exchange – an unconditional order requiring a person to pay to
bearer.
3. Check – is a bill of exchange drawn on a bank payable on demand.

Other Forms:

1. Certificate of Deposit;
2. Trade Acceptance;
3. Bonds;
4. Drafts; and
5. Letter of Credit.

Similar to, but NOT, Negotiable Instruments:

1. Treasury Warrants;
2. Money Orders;
3. Warehouse Receipts;
4. Bills of Lading; and
5. Trust Receipts.

Under sec. 23, when the signature of the Maker or Drawer is forged, it is the signature that shall become wholly inoperative but the instrument is still operative. Thus, a holder in due course although cannot enforce payment thereof against the maker or drawer can still enforce the same against the indorser.

Whereas, if it is forgery in signature of Indorser, a holder in due course and any party subsequent to the forgery cannot enforce it against the parties to an instrument PRIOR to said forgery. Except, in the case of a check where the drawer is guilty of negligence which causes the bank to honor such a check.

Sec. 52 provides that a holder in due course is one who takes the instrument “in good faith and for value”; and at the time the instrument was negotiated to he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

However, sec. 59 provides that every holder is deemed prima facie (obvious) to be a holder in due course.

Related Article:

Who are the Persons Criminally Liable?