Negotiable Instruments; Definition, Purpose & Functions

Negotiable Instrument; definition.

A negotiable instrument is a special contract which on its face is signed by the maker or drawer, making an unqualified promise or order to pay on demand or at a fixed or determinable future time, a sum certain in money, to order or bearer, and when it is addressed to a drawee, the latter must be named or otherwise indicated therein with reasonable certainty.

Or simply stated:  It is a special contract which complies with the requirements laid down under Section 1 of the Negotiable Instruments Law.

 

Purpose of the enactment of the Negotiable Instruments Law

            The Negotiable Instruments Law was enacted for the purpose of facilitating, not hindering or hampering transactions in commercial paper.  Thus, the said statute should not be tampered with haphazardly or lightly.  Nor should it be brushed aside in order to meet the necessities in a single case. (Osmeña vs. Citibank, March 23, 2004)

 

Functions of a Negotiable Instrument.

1. Substitute for money—merchants often do not want to carry cash for fear of loss or theft
2. Credit device—some forms of negotiable instruments extend credit from one party to another.
3. Recordkeeping device—these records are used for financial statements, tax returns, and the like.