Act No. 2031 - The Negotiable Instruments Law

A comprehensive set of vocabulary flashcards based on Act No. 2031, detailing the legal definitions, requirements, and liabilities associated with negotiable instruments in the Philippine Islands.

Negotiable Instrument

An instrument that is in writing and signed by the maker or drawer, containing an unconditional promise or order to pay a sum certain in money, payable on demand or at a fixed or determinable future time, and payable to order or to bearer.

Sum Certain

A sum payable even if it includes interest, stated installments (with or without an acceleration clause), exchange at a fixed or current rate, or costs of collection and attorney's fees upon default.

Unconditional Promise

An unqualified order or promise to pay, even if coupled with an indication of a particular fund for reimbursement or a statement of the transaction; however, an order to pay out of a particular fund is not unconditional.

Determinable Future Time

A time expressed to be payable at a fixed period after date or sight, on or before a specified fixed or determinable future time, or on/at a fixed period after an event certain to happen, though the time of happening be uncertain.

Payable on Demand

An instrument expressed to be payable on demand, at sight, on presentation, or in which no time for payment is expressed.

Payable to Order

An instrument drawn payable to the order of a specified person or to him or his order.

Payable to Bearer

An instrument expressed to be so payable, payable to a person named therein or bearer, payable to a fictitious person with maker's knowledge, or when the only or last indorsement is in blank.

Antedated

An instrument dated earlier than the actual date it was made, which remains valid unless done for an illegal or fraudulent purpose.

Postdated

An instrument dated later than the actual date it was made, which remains valid unless done for an illegal or fraudulent purpose.

Delivery

The actual or constructive transfer of possession from one person to another, necessary to make a contract on a negotiable instrument complete and irrevocable.

Sum Payable Discrepancy

A rule of construction stating that if the sum is expressed in both words and figures and they disagree, the sum denoted by the words is the sum payable; if words are ambiguous, figures may be used.

Signature by Procuration

A signature operating as notice that the agent has but a limited authority to sign, binding the principal only if the agent acted within the actual limits of his authority.

Value

Any consideration sufficient to support a simple contract, including an antecedent or pre-existing debt.

Holder for Value

Where value has at any time been given for the instrument, the holder is deemed such in respect to all parties who became such prior to that time.

Accommodation Party

One who has signed the instrument as maker, drawer, acceptor, or indorser without receiving value therefor, for the purpose of lending his name to some other person.

Negotiation

The transfer of an instrument from one person to another in such manner as to constitute the transferee the holder thereof.

Special Indorsement

An indorsement that specifies the person to whom, or to whose order, the instrument is to be payable.

Indorsement in Blank

An indorsement that specifies no indorsee, making the instrument payable to bearer and negotiable by delivery.

Restrictive Indorsement

An indorsement that prohibits further negotiation, constitutes the indorsee the agent of the indorser, or vests title in the indorsee in trust for another person.

Qualified Indorsement

An indorsement constituting the indorser a mere assignor of the title, typically made by adding the words "without recourse."

Conditional Indorsement

An indorsement containing a condition that the payer may disregard, but the indorsee holds the proceeds subject to the rights of the person who indorsed conditionally.

Holder in Due Course

A holder who takes an instrument complete and regular on its face, before it was overdue, without notice of dishonor, in good faith, for value, and without notice of any infirmity or defect in title.

Defective Title

Title obtained by fraud, duress, force and fear, unlawful means, illegal consideration, or negotiation in breach of faith.

Notice of Infirmity

Actual knowledge of the infirmity or defect, or knowledge of such facts that the action in taking the instrument amounted to bad faith.

Maker

The party who engages to pay the instrument according to its tenor and admits the existence of the payee and their capacity to indorse.

Drawer

The party who admits the existence of the payee, engages that the instrument will be accepted or paid on presentment, and agrees to pay the amount if it is dishonored.

Acceptor

The party who engages to pay the instrument according to the tenor of his acceptance, admitting the genuineness of the drawer's signature and capacity.

Dishonored by Nonpayment

When an instrument is duly presented for payment and payment is refused or cannot be obtained, or when presentment is excused and the instrument is overdue and unpaid.

Payment in Due Course

Payment made at or after the maturity of the instrument to the holder in good faith and without notice that his title is defective.

Notice of Dishonor

A notice that must be given to the drawer and each indorser after an instrument has been dishonored by nonacceptance or nonpayment; failure to give this notice generally discharges the party.

Material Alteration

Any change to the date, sum payable, time/place of payment, number/relations of parties, or currency, which avoids the instrument except against the party making/assenting to it.

Bill of Exchange

An unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the addressee to pay on demand or at a fixed/determinable future time a sum certain in money to order or bearer.

Inland Bill of Exchange

A bill which is, or on its face purports to be, both drawn and payable within the Philippine Islands.

Referee in Case of Need

A person named by the drawer or an indorser to whom the holder may resort in case the bill is dishonored by nonacceptance or nonpayment.

Acceptance

The signification by the drawee of his assent to the order of the drawer, which must be in writing and signed by the drawee.

General Acceptance

An acceptance that assents without qualification to the order of the drawer.

Qualified Acceptance

An acceptance that in express terms varies the effect of the bill as drawn, such as conditional, partial, local, or qualified as to time.

Protest

A formal declaration under the hand and seal of a notary, required for foreign bills of exchange dishonored by nonacceptance or nonpayment.

Acceptance for Honor

An intervention where a person not already a party, with the holder's consent, accepts a protested bill supra protest for the honor of a liable party.

Bills in a Set

A bill drawn in numbered parts, each referencing the others, where the whole of the parts constitutes one bill.

Promissory Note

An unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand or at a fixed/determinable future time a sum certain in money to order or bearer.

Check

A bill of exchange drawn on a bank payable on demand.

Primary Liability

The liability of a person who, by the terms of the instrument, is absolutely required to pay the same.