Question & AnswerQ&A (Act No. 2031)
A negotiable instrument is a written and signed document containing an unconditional promise or order to pay a sum certain in money, payable on demand or at a fixed or determinable future time, to order or bearer, and meets the specified requirements under the law.
It must be in writing and signed by the maker or drawer; contain an unconditional promise or order to pay a sum certain in money; payable on demand or at a fixed or determinable future time; payable to order or to bearer; and if addressed to a drawee, the drawee must be named or indicated with reasonable certainty.
A sum payable is considered a sum certain even if it includes interest, stated installments, default provisions accelerating full payment, exchange at fixed or current rates, or costs of collection and attorney's fees.
An unqualified order or promise to pay is unconditional even if coupled with an indication of a particular fund or account for reimbursement or a statement of the transaction giving rise to the instrument. However, an order to pay out of a particular fund is conditional and thus not unconditional.
An instrument is payable on demand if it is expressed to be payable on demand, at sight, or on presentation, or if no time for payment is expressed. If issued, accepted, or endorsed when overdue, it is payable on demand as regards the person doing so.
The person who is absolutely required by the terms of the instrument to pay it is primarily liable, such as the maker of a promissory note or the acceptor of a bill of exchange.
An accommodation party signs the instrument without receiving value to lend their name to another. They are liable on the instrument to a holder for value, even if the holder knew them to be an accommodation party at the time of taking the instrument.
Negotiation of an instrument payable to order requires indorsement by the holder completed by delivery to the transferee.
A holder in due course is a holder who takes the instrument complete and regular on its face, before it is overdue, without notice of prior dishonor or defect, in good faith, and for value.
Material alteration without assent of all liable parties voids the instrument except against parties who made, authorized, or assented to the alteration and subsequent indorsers. However, a holder in due course not party to alteration may enforce payment according to the original tenor.