THE LAW ON NEGOTIABLE INSTRUMENTS:

Introduction: Function and Importance of Negotiable Instruments: a. b. c. Used as substitute for money Constitutes the media of exchange for most transactions Medium of credit transaction 7. The drawee must be named (applies to bills and checks)

Section 126

Characteristics or features of negotiable instruments: a. b. Forms: 1. Common Forms a. Promissory Note b. Bill of Exchange 2. Special Types Instruments with limited negotiability: a. b. c. d. e. f. Letter of Credit Treasury warrant Postal money order Bill of Lading Certificate of stock Warehouse receipt Negotiability Accumulation of secondary contracts

BILL OF EXCHANGE - unconditional order in writing addressed by one person to another signed by the person giving it, requiring the person addressed to pay on demand or at fixed or determinable future time a sum certain in money to order or bearer DRAWER - person who issues and draws the order bill DRAWEE - party whom the bill is drawn PAYEE - party whose favor the bill is originally issued or is payable Other classes of bill of exchange: a. a. b. c. Foreign bill of exchange - drawn in one state or country payable to another state or country Inland bill of exchange - within same state Draft - payable on demand or at sight Trade Acceptance - drawn by the seller on the purchaser of goods & accepted by latter by signing as drawee

Section 184 PROMISSORY NOTE - unconditional promise in writing made by one person to another, signed by maker, engaging to pay on demand or at fixed determinable future time, a sum certain in money to order or bearer. MAKER - one who makes the promise and signs the instrument PAYEE - party to whom the promise is made Special types: 1. 2. Certificate of deposits Bond

Section 1 Requirements for an instrument to be negotiable: 1. 2. 3. 4. 5. 6. It must be in writing It must be signed by the maker or drawer It must contain an unconditional promise or order to pay It must be payable in sum certain in money It must be payable at a fixed or determinable future time or on demand It must be payable to order or bearer

3. 4. 5. 6. 7. 8. 9.

Bank note Due Bill Mortgage note Title-retaining note Collateral note Judgment note Installment note

DISTINCTION OF CHECK & ORDINARY BILL OF EXCHANGE: CHECK

Always drawn on bank or banker Always payable on demand Supposed to be drawn against previous deposits of funds Need not be presented for acceptance Intended for immediate payment Death of drawer with knowledge of bank revokes the authority of bank to pay Must be presented in reasonable time after issue Drawer is discharged if not presented on reasonable time to the extent of loss caused by delay If accepted and certified, drawer and indorsers are discharged from liability

BILL
May not be drawn on bank Either payable on demand or fixed determinable future time Need not be drawn against a deposit Required to be presented for some cases For circulation as an instrument of credit Death of drawer does not revoke the authority of drawer to pay Presented within reasonable time after last negotiation Drawer totally discharged of liability if not presented on reasonable time Remain liable in spite of acceptance

DISTINCTION OF A BILL & NOTE: BILL Unconditional order 3 parties: drawer, drawee, payee Drawer is secondarily liable If drawn payable to drawers own order: complete without indorsement if accepted by drawee Must be presented for acceptance in some cases If payable on demand: must be presented for payment within reasonable time from last negotiation NOTE Unconditional promise 2 parties: maker and payee Maker is primarily liable If drawn payable tomakers own order: not complete until indorsed by him

No need of presentment for acceptance If payable on demand: must be presented for payment within reasonable time from its issue

Section 2 What constitutes certainty as to sum:

Section 185 CHECK - bill of exchange drawn on a bank payable on demand. Special type of checks: a. b. c. d. e. f. Memorandum Check Cashiers Check Managers Check Travelers Check Certified Check Crossed Check

1. 2.

3.

4. 5. 6.

Certain Sum (fixed amount of money) Sum to be paid with interest a. Interest at fixed rate b. Interest at increased or reduced rate Sum to be paid by stated installments a. interest of each installment b. due date of each installment must be fixed Sum to be paid by stated installments with acceleration clause Sum to be paid with exchange Sum to be paid with costs of collection or an attorneys fee

Stale Check - one which has not been presented for payment within reasonable time after its issue. Its valueless and should not be paid.

Section 3 When promise or order is unconditional: 1. Instrument payable absolutely 2. Indication of particular fund out of which reimbursement is to be made - NEGOTIABLE 3. Indication of a particular fund out of which payment is to be made - NON-NEGOTIABLE 4. Indication of particular account to be debited with the amount - NEGOTIABLE 5. Statement of transaction which gives rise to instrument - NEGOTIABLE Section 4 What constitutes determinable future time: 1. Payable at fixed time 2. Payable at fixed period after date 3. Payable at fixed period after sight (instrument is seen by drawee upon presentment for acceptance) 4. Payable on or before a fixed time 5. Payable on or before a determinable future time 6. Payable on occurrence of specified event 7. Payable after occurrence of specified event 8. Payable upon a contingency - NON NEGOTIABLE Section 5 Additional provisions not affecting negotiability: General rule: Instrument is non-negotiable if it contains a promise or order to do any act in addition to the payment of money Exceptions: a. b. c. d. Sale of collateral securities Confession of judgment Waiver of benefit granted by law Election of holder to require some act

Section 6 Omissions; seal; particular money Negotiability of instrument is not affected by the fact that: a. It is not dated b. Does not specify the value given, or that any value has been given thereof c. Does not specify the place where it is drawn or payable d. Bears a seal e. Particular kind of current money in which payment to be made is designated Section 7 Instrument is payable on demand when: a. Expressed to be payable on demand b. No time for payment is expressed Section 8 When instrument is payable to order, it may be drawn payable to the order of: a. b. c. d. e. f. Payee who is not maker, drawer or drawee Drawer or maker Drawee Two or more payees jointly One or more of several payees The holder of an office at the time being In an order instrument, a specified person must always be named therein, either before or after the word order

Section 9 Instrument is payable to bearer when: a. Expressed so to be payable b. Payable to a person named therein or bearer c. Payable to fictitious or non-existing person, and such fact is known to person making it payable d. Name of payee does not purport to be name of any person e. Only or last indoresment is an indorsement in blank Section 11 Presumption as to date: Where instrument or an acceptance or any indorsement thereon is dated, it is deemed prima facie to be the true date of the making, drawing, acceptance or indorsement. Section 12 Ante-dated and post-dated: Instrument not invalid if it is a. Ante-dated - it contains a date earlier than the true date of issuance b. Post-dated - it contains a date later than the true date of issuance Provided it is not done for an illegal or fraudulent purpose. Section 13 When date may be inserted: Where an instrument expressed to be payable at a fixed period after date is issued undated, or where acceptance of an instrument payable at a fixed period after sight is undated, any holder may insert the true date of issue or acceptance, and the instrument shall be payable accordingly. Insertion of wrong date does not avoid the instrument in the hands of a subsequent holder in due course.

Negotiation Section 30 NEGOTIATION - transfer of a negotiable instrument from one person to another Methods of transfer of a negotiable instrument: 1. Issue - the first delivery of the instrument complete in form, to a person who takes it as holder. 2. Negotiation - operates to make the transferee a negotiable instrument to the holder thereof 3. Assignment - transfer of the title to an instrument, with the assignee generally taking only such title or right as his assignor has Methods of Negotiation 1. Instruments payable to order a. Indorsement by payee or present holder b. Delivery to the next holder 2. Instruments payable to bearer a. Negotiated by mere delivery alone without indorsement DISINCTION OF NEGOTIATION AND ASSIGNMENT Negotiation Refers only to negotiable instruments Transferee is a holder Subject only to real defenses May acquire better title or greater rights General indorser warrants the insolvency of prior parties Governed by Negotiable Instruments Law Assignment Refers generally to an ordinary contract Transferee is an assignee Subject to both real and personal defense Merely steps to the shoes of assignor Does not do unless expressly stipulated or known by him Governed by Article 1624 to 1635 of the Civil Code

Section 31 How indorsement are made: INDORSEMENT - the writing of the name of the payee on the instrument with the intent either to transfer the title to the same, or to strengthen the security of the holder by assuming a contingent liability for its future payment, or both INDORSER - the payee who signs the instrument and deliver it to another person INDORSEE - person who receives the instrument *Necessity of Indorsement: a. b. c. Essential to the execution of an instrument payable to the order of maker or drawer Essential to negotiation of an order instrument Without indorsement of an order instrument, he cannot be a holder thereof

If part of the amount has already been paid, the unpaid balance may be indorsed as this is expressly authorized by law Section 33 Kinds of indorsement: As to methods of negotiation a. b. Special Blank

As to the kind of title transferred a. b. Restrictive Non-restrictive

As to scope of liability of indorser a. b. Qualified Unqualified or general

As to presence or absence of limitations: a. b. Conditional Unconditional

*Form of Indorsement: -must be written or in writing, includes print. Blank Indorsement - signed by indorser without additional words Special Indorsement - name of the indorsee is specified *Place of Indorsement: a. b. On the instrument itself Upon a paper attached thereto

Other kinds a. b. c. d. Joint Successive Irregular or anomalous Facultative

Section 34 Special indorsement and Indorsement in Blank SPECIAL INDORSEMENT - name of the payee is specified; specific indorsement or indorsement in full BLANK INDORSEMENT - one which specifies no particular indorsee

Section 32 Indorsement must be of entire instrument, there cannot be partial delivery of one instrument Indorsement to multiple payees or indorsees: a. b. c. Joint payees - does not operate negotiation Joint indorsees - negotiated Alternative payees - negotiation may be made by either of the payees