FUNCTIONS AND FEATURES OF NEGOTIABLE INSTRUMENTS

Mary Pauline Hilado2-S

FUNCTIONS Used as substitute for money Serves as a medium for credit transactions

Substitute for money Constitutes a medium of exchange for

commercial transactions Though used as a substitute of money, still not

a legal tender -All notes and coins issued by the Bangko Sentral ng Pilipinas

shall be fully guaranteed by the Government of the Republic of the Philippines and shall be legal tender in the Philippines for all debts, both public and private (Sec.52 of Republic Act No. 7653)

Substitute for money

• EXAMPLE.

X issued a check worth Php 8 million payable to the order of Y for the purchase of machineries to be used in his factory.

Medium for credit transactions Enables a person to conduct business

transactions even if he or she does not have cash at hand

Provides a receipt for payment and serves as convenient records of financial transactions

Medium for credit transactions

• EXAMPLE.

Z issued a promissory note to UVW Lending Company for a loan she obtained. In the note which she signed, she unconditionally promised in writing to pay to the order of UVW Php 500,000.00 with an interest rate of 5% per annum, by July 2, 2020

FEATURES Negotiability Accumulation of secondary contracts

Negotiability Quality or attribute 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

NegotiabilitySection 1. Form of Negotiable Instruments.- An instrument to be

negotiable must conform to the following requirements:

(a)It must be in writing and signed by the maker or drawer;

(b)Must contain an unconditional promise or order to pay a sum certain in money;

(c)Must be payable on demand or at a fixed or determinable future time;

(d)Must be payable to order or bearer; and

(e)Where the instrument must be addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

Accumulation of secondary contracts

Once an instrument is issued, additional parties may be involved

Greater 'security' since whoever takes the instrument has greater chances of recovery because more people are liable under it