WHAT'S a negotiable instrument? By law this is defined as a written contract for the payment of money which is intended as a substitute for money and passes from one person to another as money in such a manner as to give the holder in due course the right to hold the instrument free from defense available to prior parties. (See Sec. 1, Negotiable Instruments Law).
What are the requisites of a negotiable instrument? First, it must be in writing; second, it must contain an unconditional promise to pay a sum certain in money; third, it must be payable on demand or at a fixed and determinable future time; fourth, it must be payable to order or bearer; fifth, when the instrument is named, it must be addressed to a drawer or otherwise indicated therein with reasonable certainty. (See Caltex Phils. V. Court of Appeals, 212 SCRA 448).
To clarify, negotiation doesn't meant negotiate in layman's terms wherein you talk/negotiate until both parties come to an agreement. Rather, when one speaks of a negotiable instrument and negotiation, negotiation means the transfer of an instrument from one person to another in such a manner as to constitute the transferee the holder thereof.
What are examples of a negotiable instrument? There's the bill of exchange, which is defined as an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or bearer. (Sec. 126, Negotiable Instruments Law). A check is actually a form of a bill of exchange.
Then there is the promissory note. This is defined as an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand or at a fixed and determinable future time a sum certain in money to order or to bearer. (Sec. 184, Negotiable Instruments Law).
Admittedly this legal definitions sound overly complicated. One wonders then what is the point of having negotiable instruments which seem so complicated? Well, even though they seem complicated from a legal point of view, they are actually very useful and simplify our lives on a day to day basis. Negotiable instruments typically operate as a substitute of money, and they are considered a means of creating and transferring credit. They thus facilitate the sale of goods and increase the purchasing power/medium in circulation. (Sundiang, Commercial Law, p. 82). In short, they make our everyday commercial transactions easier and more convenient.
One good example of this is the check. The check, which is a form of a bill of exchange, makes it easier for us to purchase items which are of higher value. Certainly paying by check makes it unnecessary to carry around millions and millions of pesos when one buys a car or a house. Typically, in such a scenario, a check would suffice.
So if you are using a check to pay for something, it's the negotiable instruments law at play right there.
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Atty. Kelvin Lee is a Partner of the Teves Cabiten Polinar Lee & Partners Law Firm. The opinions expressed herein are solely of Atty. Lee. This column does not constitute legal advice nor does it create a lawyer-client relationship with any party. You can reach Kelvin through his office at tcplawfirm.staff@gmail.com.