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Negotiable Instruments: WSPH

Negotiable Instruments: WSPH

i. WRITTEN contracts for the payment of money;

ii. by its form, intended as a SUBSTITUTE for money

iii. intended to PASS from hand to hand,

iv. to give the holder in due course the right to HOLD the same and collect the sum due.

Functions and importance of Negotiable Instrument: SEC

Functions and importance of Negotiable Instrument: SEC

1. operates as a SUBSTITUTE for money - allows it to go from hand to hand in the commercial markets and to take the part of money in commercial transactions.

2. the media of EXCHANGE for most commercial transactions (Checks) - they are a safe and convenient means of doing business that eliminate the risk of dealing in cash.

3. serves as a medium for CREDIT transaction - men without cash in hand are enabled by means of credit to conduct and carry to completion business and commercial enterprises.

Note: Checks are primarily used for immediate payment such as a substitute for money, while the ordinary bill of exchange and the promissory note are intended for the circulation of credits such as a credit instrument.

Characteristics/Features of Negotiable Instrument: NA

Characteristics/Features of Negotiable Instrument: NA

1. Negotiability - it may pass from one person to another similar to money.

2. Accumulation of secondary contracts - negotiated from one person to another, hence, additional parties can become involved. Every negotiation is a contract in itself, there will be more parties to whom the holder can demand payment.

Note: If it cannot be transferred, then it is nonnegotiable.

Promissory Note: (Sec. 184 NIL) PSM

Promissory Note: (Sec. 184 NIL) PSM

i. unconditional PROMISE to pay in writing made by one person to another,

ii. SIGNED by the maker, engaging to pay on demand or a fixed determinable future time

iii. a sum certain in MONEY to order or bearer.

When the note is drawn to maker's own order, it is not complete until indorse by him.

Bill of Exchange: (Sec. 126 NIL) OSRM

Bill of Exchange: (Sec. 126 NIL) OSRM

i. unconditional ORDER in writing addressed by one person to another,

ii. SIGNED by the person giving it,

iii. REQUIRING the person to whom it is addressed to pay on demand or at a fixed or determinable future time

iv. a sum certain in MONEY to order or to bearer.

Check: (Sec. 185 NIL)

Check (Sec. 185 NIL)

It is bill of exchange drawn on a bank and payable on demand.

• special kind of a bill of exchange.

Other examples of NI: CBDB/DTB

Other examples of NI: CBDB/DTB

1. Certificate of deposit;
2. Bank Notes;
3. Due Bills;
4. Bonds;
5. Drafts;
6. Trade Acceptances; and
7. Banker's Acceptances.

Non-negotiable Instruments: WTPC/LBD

Non-negotiable Instruments: WTPC/LBD

1. Warehouse Receipts;
2. Treasury Warrants;
3. Postal Money Order;
4. Certificate of Stocks;
5. Letter of Credits;
6. Bill of Lading; and
7. Dock Warrants.

Note: it cannot be negotiated but can be transferred by
assignment.

Life cycle of NI: INPAD/PDNPD

Life cycle of NI: INPAD/PDNPD

1. Issuance
2. Negotiation
3. Presentment for acceptance in some NI
4. Acceptance itself
5. Dishonored by non-acceptance
6. Presentment for payment
7. Dishonored by non-payment
8. Notice of dishonor
9. Protest in some cases
10. Discharge

Promissory Note vs. Bill of Exchange:

Promissory Note vs. Bill of Exchange:

Promissory Note: "Promise Paper"
i. unconditional promise;
ii. involves 2 parties;
iii. Maker is primarily liable; and
iv. only 1 presentment - for payment.

Bill of Exchange: "Order Paper"
i. unconditional order;
ii. involves 3 parties;
iii. Drawer is only secondarily liable; and
iv. generally 2 presentments - for acceptance and
for payment.

Form of NI: An instrument to be negotiable must
conform to the ff. requirements: (Sec. 1 NIL)
PN: SUDO / BofE: SUDOC

Form of NI: An instrument to be negotiable must
conform to the ff. requirements: (Sec. 1 NIL)

PN: SUDO / BofE: SUDOC

1. IT MUST BE IN WRITING AND SIGNED BY THE MAKER OR DRAWER.

2. IT MUST CONTAIN AN UNCONDITIONAL PROMISE OR ORDER TO PAY A SUM CERTAIN IN MONEY.

3. IT MUST BE PAYABLE ON DEMAND, OR AT A FIXED OR DETERMINABLE FUTURE TIME.

4. IT MUST BE PAYABLE TO ORDER OR TO BEARER.

5. WHERE THE INSTRUMENT IS ADDRESSED TO A DRAWEE, HE MUST BE NAMED OR OTHERWISE INDICATED THEREIN WITH REASONABLE CERTAINTY.

Sum is certain even if it is to be paid with:
(Sec. 2 NIL)

Sum is certain even if it is to be paid with: (Sec. 2 NIL)

a. Interest - at fixed rate, or at increased/reduced rate.

b. In installments - must be stated in the instrument:
i. interest of each installment; and
ii. due date of each installment.

c. In installments with acceleration clause - a promise that if any installment or interest is not paid as agreed, the whole shall become due.

d. With exchange - refers to instruments that are payable in foreign currency.

e. Costs of collection or attorney's fees - in case payment shall not be made at maturity, there shall be added to the amount due on the note costs of collection or an attorney's fee.

When promise is unconditional: (Sec. 3NIL)

When promise is unconditional: (Sec. 3NIL)

a. Indication of particular fund from which the acceptor disburses himself after payment.

• The particular fund indicated fund should only be the source of reimbursement and should not be the direct source of payment; else it becomes conditional and therefore non-negotiable.

• An instrument which contains a direction to debit a particular account is negotiable.

b. Statement of the transaction which gives rise to the instrument.

• The statement of the consideration for which the instrument has been issued does not make it conditional; thus, it has no adverse legal effect on the negotiability of the instrument.

Instrument is payable upon a DETERMINABLE
FUTURE TIME if: (Sec. 4 NIL)

Instrument is payable upon a DETERMINABLE
FUTURE TIME if: (Sec. 4 NIL)

a. There is a fixed period after sight/date.

• Fixed period/time:
"I promise to pay P or order the sum of P10,000 on October 29, 2009."

• Fixed period after sight:
"Sixty days after sight, pay to the order of P the sum of P10,000."

• Fixed period after date:
"Sixty days after date, I promise to pay P or order the sum of P10,000."

b. On or before a specified date/fixed determinable future time.

• On or before a fixed time:
"On or before October 10, 2009, I promise to pay P or order P10,000."

The maker has the option to pay in advance or on the fixed date.

• On or before a fixed determinable time:
"On or before the start of the next school semester, I promise to pay P or order P10,000."

Determinable future time means a time that can be determined with certainty after the execution of the instrument.

c. On or at a fixed date after the occurrence of an event certain to happen though the exact date is not certain.

• On the occurrence of a specified event:
"I promise to pay P or order the sum of P10,000 upon the death of his father."

• After the occurrence of a specified event:
"Thirty days after the death of his father, I promise to pay P or order the sum of P10,000."

If the instrument is payable upon a contingency, the happening of the event does not cure the defect (still non-negotiable).

Contingency - an uncertain future event or an event which may or may not happen.

If the instrument calls for an act, other than the
payment of money, it is not negotiable.
Exceptions: (Sec. 5 NIL)

If the instrument calls for an act, other than the payment of money, it is not negotiable.
Exceptions: (Sec. 5 NIL)

i. Sale of collateral securities;
ii. Confession of judgment;
iii. Waives benefit of law;
iv. Gives option to the holder to require something to be done in lieu of money.

The validity and negotiability of an instrument is not
affected by the fact that: (Sec. 6 NIL)

The validity and negotiability of an instrument is not
affected by the fact that: (Sec. 6 NIL)

a. It is not dated; or

b. does not specify the value given or that any had been given; or

c. does not specify the place where it is drawn or payable; or

d. bears a seal; or

e. designates the kind of current money in which payment is to be made.

The date may be inserted in an instrument when:
(Sec. 13 NIL)

The date may be inserted in an instrument when:
(Sec. 13 NIL)

a. an instrument expressed to be payable at a fixed period AFTER DATE is issued undated.

b. where acceptance of an instrument payable at a fixed period AFTER SIGHT is undated.

Steps in issuance of Negotiable Instrument:

Steps in issuance of Negotiable Instrument:

1. The mechanical act of writing the instrument completely and in accordance with the requirements of Sec.1 NIL.

2. The delivery of the complete instrument by the maker or drawer to the payee or holder with the intention of giving effects to it.

Rules of construction in case of ambiguity or omission: (Sec. 17 NIL)

Rules of construction in case of ambiguity or omission:
(Sec. 17 NIL)

1. Sums expressed in words and in figures are different.
• When there is a discrepancy between the sum expressed in words and the sum expressed in figures, the words control.

• However, when the words are ambiguous, reference may be had to the figures to determine the true amount.

2. Date when stipulated interest to run not specified - if the date when the stipulated interest is to run is not specified, the interest runs from the date of the instrument or if undated from the date of its issue.

3. An undated instrument is considered dated as of the date of its issue.

4. Written and printed words in conflict - in case of conflict between the written and printed provisions, the written provisions prevail. Written words are deemed to express the true intention of the maker or drawer because they are placed there by him.

5. Whether instrument bill or note in doubt - in case of doubt as to whether the instrument is a bill or note, the holder may treat either at his election.

6. Capacity in which the person signed in doubt - in case of doubt due to the ambiguous location of the signature, the party who signed is deemed to be an indorser, who assumes the least liability, and not as a maker or drawer.

7. Instrument signed by two or more persons - their liability may either be solidary or joint.
• "I promise to pay" signed by two or more persons gives rise to solidary liability.

• "We promise to pay" signed by two or more persons gives rise to joint liability.

Liability of a person signing as agent: (Sec. 20 NIL)
General rule:

Liability of a person signing as agent: (Sec. 20 NIL)

General rule: An agent is not liable on the instrument if he were duly authorized to sign for or on behalf of a principal.

Requisites:

a. He must be duly authorized;

b. He must add words to his signature indicating that he signs as an agent; and

c. He must disclose his principal.

• If an agent does not disclose his principal, the agent is personally liable on the instrument.

Per Procuration: (Sec. 21 NIL)

Per Procuration: (Sec. 21 NIL)

It operates as notice that the agent has a LIMITED AUTHORITY TO SIGN.

Effects:

• The principal is only bound if the agent acted within the limits of the authority given.

• The person who takes the instrument is bound to inquire into the extent and nature of the authority given.

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