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REVIEW NOTES
NEGOTIABLE INSTRUMENTS LAW
Atty. Jonathan B. Tambol
(BLT, SLU-SABM)
Features of a NI:
1.
-
I. CONCEPTS
NEGOTIABLE INSTRUMENTS (NI)
- A written contract for the payment of money which complies
with the requirements of Sec. 1 of the Negotiable Instruments
Law (NIL), which by its form and on its face, is intended as a
substitute for money and passes from hand to hand as money,
so as to give the holder in due course (HDC) the right to hold
the instrument free from defences available to prior parties.
Functions:
1. Substitute for money;
2. Supplement the currency of the government;
3. Increase the purchasing medium.
2.
-
Negotiability
The essence of negotiability which characterizes a negotiable
paper as a credit instrument lies in its freedom to circulate
freely as a substitute for money.
Accumulation of Secondary Contracts
When NIs are transferred through negotiation, secondary
contracts are accumulated because the indorsers become
secondarily liable not only to their immediate transferees, but
also to an y holder.
Kinds of NI:
A. Promissory Note (PN) an unconditional promise, in writing,
made by one person to another, signed by the maker engaging
to pay, on demand or at a fixed or determinable future time, a
sum certain in money, to order or to bearer (Sec. 184)
B. Bill of Exchange (BE) an unconditional order, in writing,
addressed by one person to another, signed by the person
giving it, requiring the person to whom it is addressed to pay,
on demand or at a fixed or determinable future time, a sum
certain in money, to order or to bearer (Sec. 126)
C. Check a BE drawn on a bank payable on demand; also the
most common form of BE (Sec. 185)
A. Promissory Note
1. Maker party who executes the written promise to pay;
2. Payee party in whose favor the PN is made payable
August 30, 2015
Baguio City
I promise to pay JBT or order the amount of
Three Hundred Thousand Pesos (P300,000.00) three
months after date.
Sgd. ABC
ABC maker
JBT payee
B. Bill of Exchange
1. Drawer party who executes the written order to pay;
2. Drawee party who is commanded or ordered by the
drawer to pay a sum certain in money;
3. Payee party in whose favour the bill is drawn or is
payable
August 30, 2015
Baguio City
Pay to the order of JBT the amount of
Three Hundred Thousand Pesos (P300,000.00).
Sgd. ABC
To: MDT
Bakakeng Norte, Baguio City
ABC drawer
JBT payee
MDT drawee
Distinctions:
A. NI vs. NNI
Negotiable Instruments
Non-Negotiable Instruments
1. Applicable Law
Only NI is governed by the NIL.
Application of the NIL is only by
analogy
2. Transferability
By negotiation or by assignment
By assignment only
3. Transferee
Can be a HDC if all the
Remains to be an assignee and can
requirements are complied with
never be a HDC
4. Defenses
HDC takes the NI free from
All defenses available to prior
personal defences
parties may be raised against the
last transferee
5. Nature of Title
Requires clean title, one that is free Transferee acquires a derivative
from any infirmities in the
title only
instrument and defects of title of
prior transferors
B. NI vs. NDT
Negotiable Instrument
Negotiable Doc. of Title
1. Applicability of Sec. 1, NIL
Has all the requisites of Sec. 1, NIL Does not have these requisites
2. Nature
Is itself the property with value
Mere evidence of title
3. Subject
Money
Goods
4. Rights Acquired
If HDC, may acquire rights over
A holder can never acquire rights
the instrument better than his
to the document better than his
predecessors
predecessors
5. Liability in case of Dishonor
A holder of NI may run after the
Intermediate parties are not
secondary parties for payment if
secondarily liable if the document
dishonored by the party primarily is dishonored.
liable.
C. PN vs. BE
Promissory Note
Bill of Exchange
Nature
Unconditional promise
Unconditional order
2. Number of Parties
Two (2)
Threee (3)
3. Liability of Creator
Maker is primarily liable.
Drawer is only secondarily liable.
4. Presentment
Only one presentment for
Two: a.) for acceptance; b.) for
payment
payment
5. Right to Limit Liability
Maker of note may not insert an
Drawer may insert in the
express stipulation limiting or
instrument an express stipulation
negating his own liability to the
limiting or negating his own
holder.
liability to the holder (Sec. 61)
1.
D. BE vs. C
Bill of Exchange
Check
1. To whom instrument Drawn
May or may not be drawn on the
Always drawn on a bank or
bank
banker
2. Drawn on Deposit
Need not be drawn on a deposit,
Drawn on deposit, otherwise, if it
hence it is not necessary that the
is not drawn on deposit, there
drawer of a BE should have funds
would be fraud.
in the hands of the drawee
3. When Payable
On demand, or at a fixed or
Always payable on demand
determinable future time
4. Presentment
Must be presented for acceptance
Need not be presented for
acceptance, however, if the holder
requests and the banker desires,
he may accept
5. When Presentment made
May be presented for payment
Must be presented for payment
within reasonable time after its
within a reasonable time after its
last negotiation
issue
6. Effect of Acceptance/Certification
If accepted drawer/indorser
If certified drawer/indorsers are
remains liable
discharged
7. Effect of Drawers Death
Death of a drawer of a BE, with
Death of the drawer of a check,
the knowledge of the bank, does
with the knowledge of the bank,
not revoke the authority of the
revokes the authority of the
drawee to pay.
banker to pay.
II. NEGOTIABILITY
REQUISITES OF NI: (SUDOR)
1.
2.
3.
4.
5.
Modes of Transfer
1.
2.
3.
Issuance
It is the first delivery of the instrument, complete in form, to a
person who takes it as a holder. (Sec. 191)
Steps:
a.) Mechanical act of writing the instrument completely and in
accordance with the requirements of Sec. 1; and
b.) Delivery of the complete instrument by the maker or
drawer to the payee or holder with the intention of giving
effect to it.
Delivery transfer of possession with intent to transfer title
(Sec. 16)
4.
-
2.
3.
Indorsement as a Contract
- Unless the indorsement is qualified (Sec. 65), every indorser is a
new obligor and the terms are found on the face of the bill or
note, with the additional obligation that if the instrument is
dishonoured by non-payment or non-acceptance, and notice is
given to the indorser, the latter will pay for it.
But a qualified indorser is liable in case of breach of warranties.
(Sec. 65)
General Rule: Indorsement must be of the entire instrument.
4.
Kinds of Indorsement:
1.
2.
5.
7.
8.
10
3.
Failure of Consideration
Definition
It is the total lack of any valid
It is the neglect or failure of one of
consideration.
the parties to give, to do or to
perform the consideration agreed
upon
Type of Transactions Involved
Embraces transactions where no
Implies that the giving of valuable
consideration was intended to
consideration was contemplated
pass
but that it failed to pass
Both are valid defenses against a person not a holder in due
course. These defenses are therefore only personal or equitable.
- Partial failure of consideration is merely a defense pro tanto
(only to that extent), whether the failure is an ascertained or
liquidated amount or otherwise. (Sec. 28)
Note: The drawee, by accepting unconditionally the bill, becomes liable
to the holder, and therefore cannot allege want of consideration
between him and the drawer.
Reason: The holder is a stranger as regards the transaction
between the drawer and the drawee, and if the holder has given value
to the drawer and has no knowledge of any equity between the drawer
and the drawee, he is in the same situation as an indorsee in good faith.
-
V. HOLDERS
Classes of Holders:
1. Simple Holders (Sec. 51) the instrument is subject to the same
defenses as if it were non-negotiable; he may enforce the
instrument and receive payment therefore
2. Holders for Value (Sec. 26) a holder is a HFV if the
instrument was indorsed to him by his immediate transferor to
pay for the obligation that was extended to the latter.
3. Holders in Due Course (Sec. 52 & 57)
11
12
13
3.
Must sign for the purpose of lending his name or credit. (Sec.
29)
Without receiving value therefor means without receiving any value
by virtue of the instrument. Thus, the person to whom the instrument
thus executed is subsequently negotiated has a right of recourse against
the accommodation party in spite of the formers knowledge that no
consideration passed between the accommodation and accommodated
parties. (Sec. 29)