FUNCTIONS OF NEGOTIABLE INSTRUMENTS
a. Substituted for Money – Although they are not considered legal tender.
One of its distinct characteristics is its negotiability which allows it to go
from hand to hand in the commercial markets and to take the part of
money in commercial transactions free from all personal defenses available
against the original owner.
b. Media of Exchange – they thus increase the purchasing medium in
circulation. They are a safe and convenient means of doing business that
eliminate the risk of dealing in cash.
c. Medium of Credit Transaction – They allow men of undoubted credit (such
as those with illiquid properties) to carry on business enterprise upon their
promissory notes, bills of exchange and checks knowing that other
businessmen will treat these promises as cash
• Checks are primarily used for immediate payment (substitute for money);
while ordinary bill of exchange and the promissory note are intended for the
circulation of credits (credit instruments)
3. LEGAL TENDER – Sec. 52 of the New Central Bank Act provides that
only notes and coins issued by the BSP are considered legal tender.
Section 60 of the same law provides that checks are not legal
tender and its acceptance is at the option of the creditor.
• Under Act. 1249 of the Civil Code, they payment through a negotiable
instrument produces the effect of payment only when:
i. It is encashed; or
ii. Its value becomes impaired through the fault of the creditor.
D. CHARACTERISTICS OF NEGOTIABLE
INSTRUMENTS
1. NEGOTIABILITY – Is that quality or attributed 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.
2. ACCUMULATION OF SECONDARY CONTRACTS – As they are
transferred from one person to another. Once an instrument is
issued, additional parties can become involved.
E. INCIDENTS IN THE LIFE OF NEGOTIABLE
INSTRUMENTS
PROMISSORY NOTE BILL OF EXCHANGE
PREPARATION & SIGNING
ISSUANCE
NEGOTIATION
PRESENTMENT FOR ACCEPTANCE
ACCEPTANCE
DISHONORY BY NON-ACCEPTANCE
PRESENTMENT FOR PAYMENT
DISHONOR BY NON-PAYMENT
PAYMENT
DISCHARGE
F. KINDS OF NEGOTIABLE INSTRUMENTS
1. PROMISSORY NOTES (SEC. 184, NIL) – An unconditional
promise in writing mace by one person to another, signed
by the maker, engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money to order
or to bearer.
a. Parties to a Negotiable Promissory Note are (1) Maker and (2)
Payee;
b. Kinds of Negotiable Promissory Note include certigicates of
deposits, bank notes, due bills and bonds