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LAW 3
Sections 1 to 12 Section 1 2 3 4 5 6 7 8 9 10 11 12 Section 1 Commercial Paper written promises or obligations that arise out of commercial transactions Negotiable Instrument contractual obligation to pay money Requirements: Requirement a) Must be in writing and signed by the maker or drawer b) Must contain an unconditional promise or order to pay a sum certain in money c) Must be payable on demand or at a fixed o determinable future time d) Must be able to order or bearer e) Drawee must be named Yes Yes No Yes Yes Yes Yes Yes Applicability Promissory Bill of Note Exchange Yes Yes Content (FCWDAOWWWTDA) Form of Negotiable Instruments Certainty as to Sum; What Constitutes When Promise is Unconditional Determinable Future Time; What Constitutes Additional Provisions Not Affecting Negotiability Omissions; Seal; Particular Money When Payable on Demand When Payable to Order When Payable to Bearer Terms, When Sufficient Date, Presumption as to Ante-dated and Post-dated

Considerations in Determining the Negotiability of an Instrument: a) Whole of the instrument b) Only what appears on the face of the instrument c) Provisions of the Negotiable Instruments Law

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Non-negotiable Instrument instrument which in its inception was negotiable but has lost its negotiability. It may not be negotiated but it may be assigned or transferred. (e.g. check payable only to a specified person)

Promissory Note - written promise to pay a sum of money - may be a demand instrument but is normally a time instrument - class: promise paper or two-party paper - parties involved: a) maker makes the promise and signs the instrument b) payee party to whom the promise is made or the instrument is payable Bill of Exchange - an order made by one person to another to pay money to a third person - if drawn on a bank and if payable on demand, the order bill is called a check, the most common type of order paper - class: order paper or three-party paper - parties involved: a) drawer person who issues and draws the order bill b) drawee party upon whom the bill is drawn; party to whom the bill is addressed; party who is ordered and expected to pay c) payee party in whose favor the bill is originally issued or is payable - liability and purpose: a) drawers funds in hands of drawee b) liability of drawee for non-payment

Section 2 The sum payable is a sum certain within the meaning of the Act, although it is to be paid (ISSEC) a) With interest 1. At fixed rate 2. At increased or reduced rate b) By stated installments 1. Fixed interest 2. Fixed due date c) By stated installments with a provision that in case of default, the whole shall become due (with acceleration clause)

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1. Acceleration dependent on maker 2. Acceleration at option of holder d) With exchange * Exchange charge for the expense of providing funds at the place where the instrument is payable to meet the instrument which is issued at another place. It may be at a fixed rate or at a current rate. e) With costs of collection or an attorneys fee (in case payment shall not be made at maturity) Section 3 An unqualified order or promise to pay is unconditional even if coupled with: a) Indication of a particular fund out of which reimbursement is to be made or a particular account is to be debited with the amount b) Statement of the transaction which gives rise to the instrument * An order or promise to pay out of a particular fund is conditional. A promissory note contains a promise to pay when there is: (IB) a) Implied promise to pay b) Bare acknowledgment of indebtedness A bill of exchange contains an order to pay when there is/are: (WML) a) Words equivalent to an order to pay b) Mere request to pay c) Liability of drawer Statement of transaction which gives rise to instrument: a) Mere recital of consideration for instrument or origin of transaction b) Terms and conditions contained in another paper Section 4 An instrument is payable at a determinable future time, which is expressed to be payable: c) At a fixed period after date or sight d) On or before a fixed or determinable future time specified therein

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e) On or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of happening be uncertain Section 5 General Rule: An instrument containing and order or promise to do any act in addition to the payment of money is not negotiable. Exceptions: (WECS) a) Waiver of benefit granted by law b) Election of holder to require some other act c) Confession of judgment d) Sale of collateral securities Section 6 Omissions, Seal, Paricular Money (DVPSD) No effect to negotiability a) Omission of Date (In case of such, instrument will be considered dated as of the time it was issued.) No effect to negotiability (Consideration is presumed.) No effect to negotiability c) Omission of Place (In case of such, instrument is presumed payable at the place of residence or business of the maker or drawer.) No effect to negotiability (It is available, however, to have a bill or note appear in a public instrument so that it will be included among the preferred credits with respect to other property of the debtor.) No effect to negotiability. (Money is not necessarily limited to legal tender.) Effect

b) Omission of Value

d) Presence of Seal

e) Designation of a Particular Kind of Current Money Payable Section 7

An instrument is payable on demand a. Where it is expressed to be payable on demand, or at sight, or on presentation

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b. In which no time for payment is expressed c. When an instrument is issued, accepted, or indorsed when overdue Section 8 The instrument is payable to order where it is drawn payable to the order of a specified person or to him or to his order. It may be drawn payable to the order of: (PDDTOH) a. a payee who is not the maker, drawer or drawee b. the drawer or maker c. the drawee d. two or more payees jointly e. one or more of several payees f. the holder of an office for the time being Where payee is not named or described, the instrument in non-negotiable.

Section 9 Bearer person in possession of a bill or note which is payable to bearer The instrument is payable to bearer when: (EPPON) a. Expressed to be so payable b. Payable to person named therein or bearer c. Payable to order of a fictitious or non-existing person d. Name of payee not name of person e. Only or last indorsement in blank Section 10 Criterion of Negotiability: (CM) a. Clear intention of the parties b. Mere defect in language or grammatical error Section 11 If the instrument bears a date, it is presumed that it is the date when it was made by the maker, drawn by the drawer, accepted by the drawee, or indorsed by the payee or holder.

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Date is not necessary for negotiability, but it may be necessary to determine maturity when the instrument is: a. Payable at a fixed period after date b. Payable at a fixed period after sight or presentation Section 12 An instrument, whether ante-dated or post-dated is valid as long as it is not done for an illegal or fraudulent purpose. a. Ante-dated date contained is earlier than the true date of its issuance b. Post-dated date contained is later than the true date of its issuance If such dating is done for an illegal or fraudulent purpose, the instrument is rendered invalid.