Summary
Highlights
This episode is part two on the law of negotiable instruments, focusing on the requisites of negotiability as outlined in Section 1 of the Negotiable Instruments Law. The five main requirements are: must be in writing and signed by the maker/drawer; must contain an unconditional promise or order to pay a sum certain in money; must be payable on demand or at a fixed/determinable future time; must be payable to order or to bearer; and, if addressed to a drawee, the drawee must be named or indicated with reasonable certainty.
Certain provisions and omissions do not affect an instrument's negotiability. These include authorization to sell collateral securities upon non-payment at maturity, authorization of a confession of judgment (though void in the Philippines), waiver of legal benefits for the debtor (like presentment for payment), and allowing the holder an option to perform an act instead of money payment. Omissions like an undated instrument, not specifying value given, not specifying the place of drawing or payment, bearing a seal, or specifying a particular currency also do not affect negotiability.
An instrument must be in writing, using any material and manner (e.g., pencil on cloth, leather, or paper). It must also be signed by the maker or drawer, with the signature implying an intent to be bound, regardless of the form (print, electronic). If the capacity of the signer is unclear, they are deemed an endorser. Signing with a trade or assumed name carries the same liability as signing one's own name.
The promise or order must be unconditional; any condition makes the instrument non-negotiable. Phrases like 'I have a debt' or 'request to pay' are not sufficient. The unconditional nature is not affected by indicating a particular fund for reimbursement (not direct payment) or stating the transaction that gives rise to the instrument, provided it's for identification and not subject to contractual terms. The sum must be certain and in money, determinable from the face of the instrument, even if requiring mathematical computation (e.g., installments, exchange rates, collection costs).
An instrument is 'payable on demand' if expressed as such, payable 'at sight,' or 'on presentation.' It's also on demand if no time for payment is expressed or if issued when overdue. 'Fixed or determinable future time' includes payment at a fixed period after date/sight, on or before a fixed/determinable future time, or on/after a specified event certain to happen (e.g., death). The year must be specified for certainty; if not, the instrument is non-negotiable.
An instrument is 'payable to order' if drawn to the order of a specified person or 'to him or his order.' The payee (who can be the maker, drawer, or drawee) must be named with reasonable certainty. A promissory note payable to the maker's order requires the maker's endorsement to be negotiable. An instrument is 'payable to bearer' if expressed as such, payable to a named person or bearer, payable to a fictitious/non-existent person known to the maker/drawer, where the payee's name is not a person's name (e.g., 'cash'), or when the only/last endorsement is in blank.
Instruments payable to order require the payee to be named and are negotiated by endorsement and delivery. Bearer instruments do not require a named payee and are negotiated by mere delivery. An order instrument can become a bearer instrument through a blank endorsement. However, under Section 40, 'once a bearer instrument, always a bearer instrument' means a originally bearer instrument remains so, even with special endorsements, and can always be negotiated by delivery. An originally order instrument converted to bearer via blank endorsement, if subsequently specially endorsed, can only be negotiated by the endorsee's endorsement.
This requisite applies only to bills of exchange, which have a drawee. The drawee must be named or indicated with reasonable certainty. A bill can be addressed to two or more drawees jointly, but not in the alternative (e.g., X or Y) or in succession, as this complicates determining dishonor.
Certain instruments, despite their transferability, are not negotiable under this law. These include Treasury Warrants (payable from a particular fund), Postal Money Orders (conditional, limited endorsement, public service based), Letters of Credit (addressed to a specific person), Trust Receipts (to a specific person, subject to conditions), Negotiable Documents of Title (payable in goods, not money), and Certificates of Stock (lack unconditional money payment promise/order).