Negotiable Instruments Law Q: What What come comes s instruments?
to
mind mind when when we talk talk
abou aboutt
nego negoti tiab able le
A: When we talk about negotiable instrument what usually comes to mind would be your checks, your promissory notes and your bills of exchange.
This law is a ery old law. That!s why you might be wondering why " hae included included old cases. " still included included old cases because because the principles in those cases would still be applicable today because the law has not changed since it was enacted. The law remains the same and there!s there!s no amendment. amendment. #ut you might notice notice when you read the cases that most of these cases inoled checks because that is what is being used today. $o in our transactions it is usually checks. A check is a special kind of bill of exchange. "n the old times when the law was enacted and until the %&'(!s we had the bills of exchange and then came the checks which is actually a special kind of bill of exchange.
A: *egotiability means passing the instrument from one person to another.
Q: 0oes the definition of negotiability stop there? 1an an ordinary instrument which is non2negotiable be passed on from one person to another also? +et!s say for example you hae 3 and you hae 4 here. "f 3 and 4 agreed that 3 will buy from 4 %( sacks of class A rice and 3 since he has no money yet at the moment he will issue a promi promisso ssory ry note note promis promising ing to pay 4. $o he promis promise e to pay 5(,(((.
" promise to pay 4 5(,((( on *oember 56, 5(%%
$gd. 3 Q: Why do we say that it "s a special kind of bill of exchange? A: #ecause there are certain rules that are applicable to checks only. only. #ut of course course the rules rules on bills bills of excha exchange nge will also be applicable to checks because it is still bills of exchange.
)our checks, your promissory notes, your bills of exchange these things are what we!re gonna talk about the entire semester, your negotiable instruments. instruments. That is coered by your *"+.
This promissory note is not negotiable. #ut this is an instrument. $o we follow the rules of obligations and contracts. And then we will will see the differ differen ence ce on the the effect effect if the instrum instrumen entt is non2 non2 negot negotiab iable le and and if the the instru instrumen mentt is negoti negotiabl able. e. This This is a non2 non2 negotiable promissory note. $o 3 ae that promissory note to 4. #efore the deliery of the %( sacks of class A rice 4 was also indebt indebted ed to A for 5(,(((. 5(,(((. A alread already y demand demanded ed from 4 for the amount of 5(,((( but 4 yet has no money because he relied on the payment of 3.
*egotiab *egotiable le instrume instruments nts this is actually actually not a ery alien topic to what you learned in your preious semesters. )ou hae already known what instruments are.
Q: 7nder your /blicon can 4 here assign his right in collecting from 3 to A? 1an he assign it to A? 1an 4 gie this promissory note to A? A: )es, he can. A is now the possessor of the promissory note.
Q: what are instruments instruments under your obligations and contracts? A: "t could be in writing stipulating the agreement agreement of the parties. "t is an instrument. "f we talk about instrument in a legal parlance and that is what we are referring to. #ut an instrument in writing showing agreement between two or more parties.
ere ere we are still still talkin talking g about about these these instru instrume ments nts but these these instruments being negotiable.
Q: *ow what do mean then by negotiable? "f we now take the word negotiable negotiable plus instruments instruments what are then the essential essential features of your promissory notes, your bills of exchange and your checks? A: The first essential features of course looking at this word alone is *-/T"A#"+"T). *-/T"A#"+"T).
Q: What do we mean by *egotiability?
Q:$o what is the effect? A: The effect is A could no longer collect from 4 but will now collect from 3.
Then there was the deliery of the %( sacks not of class A rice but class # rice before *oember 56, 5(%%. $o it was not accepted by 3 because that is not what they agreed upon. #ut who is now the holder of the promissory note? 2222 "t is already A. $o on *oember 56, 5(%% A collected from 3.
Q: 1an 3 refuse to pay? A: )es, he can because of breach of contract between between 3 and 4. And A as you hae learned in your /bligations and 1ontracts is a mere assignee and he mere steps in to the shoes of 4 meaning if were 4 collec collectin ting g from from 3, 3 will will still still hae hae the the defen defense se of breac breach h of contract. And 3 is not compelled to pay. "n fact, he can een sue for damages. $o A cannot compel 3 to pay because the promissory note is not negotiable. A is a mere assignee, that!s your /bli1on. This is a mere instrument.
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Negotiable Instruments Law *ow let!s infuse your negotiability. +et!s go to our sub8ect for this semester, *egotiable "nstruments.
Q: in our example which is the primary contract? A: The contract between of course 3 and 4 when 3 issued the negotiable promissory note.
Q: ow will we make this as negotiable instruments? Q: What is the secondary contract? " promise to pay 4 or bearer 5(,((( on *oember 56, 5(%%.
$gd. 3
This is now a negotiable instrument. $till the same set of facts. 3 issued this promissory note in faor of 4 or bearer because of the promise of 4 to delier %( sacks of class A rice. 4 was indebted to A, still he had no money yet so he passed on the promissory note to A. #efore the maturity date on *oember 56, 5(%% 4 deliered class # rice. A was unaware of the contract between 3 and 4 so at maturity date A collected from 3.
Q: 1an 3 now interpose the defense that he will not pay because of the breach of contract between 3 and 4? A: */9 e cannot set up that defense anymore because this is now a negotiable instrument and A is not anymore considered a mere assignee but a holder.
That is the difference between a negotiable instrument and a non2 negotiable instrument. The difference is that the holder now of the instrument is more protected unlike in the first example. "n the first example, A being a mere assignee of an instrument, a non2 negotiable instrument was not protected at all with any defect by the preious parties. e only stepped into the shoes of the preious party. #ut in a negotiable instrument the holder of the instrument is protected granting that he has no knowledge at all of any defect of the title of the preious parties. $o that is the basic difference. A holder is more protected in a negotiable instrument than in a non2negotiable instrument.
Q: $o what do we mean then by negotiability? A: *egotiability means the ability of the instrument to be passed from one person to another making the transferee the holder of the instrument not a mere assignee but a holder.
$o that is what is meant by negotiability, the first essential feature of your negotiable instrument.
$econd essential feature is accumulation of secondary contacts. "f you talked about secondary contracts then there must be a primary contract.
A: The implied contract between A and 3 because when you look at it there was really no contract between 3 and A but because of the promissory note that was passed on by 4 to A there now exist an implied contract between A and 3 where 3 will hae to pay the holder of the instrument at the time it is due. $o, if A passed it on to #, to 1, to 0 then more secondary contracts are being created because you will learn later on that if the holder is 0 and 0 will go to 3 and 3 cannot pay, there are secondary contracts that are being created because 0 can claim from 1,#,A or 4 depending on what type of negotiable instrument it is. "f it!s a bearer instrument or an order instrument you will also learn that during the semester. That is what is meant by accumulation of secondary contract.
eatures of *egotiable "nstruments: %.
*egotiability
5.
Accumulation of $econdary 1ontracts
;nowing already what the essential features of negotiable instruments are. We hae to know why these instruments exist. "n the first place why were this instrument created?
Q: What are instrument?
the
important
functions
of
your
negotiable
A: irst of course is that your negotiable instrument is a substitute for money. $o if you owe someone %3 pesos you need not bring %3 pesos in cash you 8ust hae to write a check because it is more conenient and safer. $o that is one of the purposes for haing a negotiable instrument.
$econd, it is a medium of exchange for commercial transactions . $o in corporations or partnership seldom do you see them use cash. "f they will purchase something in a corporation or a company purchases something they do not use cash they use checks because they can easily trace their expenses when they used checks and again it is safer to use checks than to bring in loads of cash.
Third, is that it is a medium for credit transactions. "f you borrow money or you apply for a loan before a bank then you cannot 8ust go inside the bank and get money from the bank. )ou hae to sign so many papers and these papers include your promissory notes because you will hae to promise to pay the loan back to the bank. $o your promissory note is also an instrument and depending on the elements of the negotiable instrument we will know whether or not the instrument is negotiable or non2 negotiable.
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Negotiable Instruments Law and be payable on demand or at a fixed or determinable future time to order. These are the three reasons or functions of your negotiable instrument.
There are 5 ma8or types of negotiable instrument: a.
4romissory notes
b.
#ill of exchange
Q: what is a promissory note and what is a bill of exchange?
The =th re
A Bill of Exchange is an instrument in writing signed by the 0rawer containing an unconditional order to pay a sum certain in money on demand or at a fixed or determinable future time to order or to bearer and the drawee must be named or otherwise indicated therein with reasonable certainty.
A: you will know what a promissory note or bill of exchange by knowing what the re
$ection % gies you the re
With section % you will also know the parties with these two types of negotiable instrument. *umber = will tell you that since it is not applicable to promissory note then there is an additional party when we talk about a bill of exchange.
Q: +ook at the promissory note, who are the original parties of this instrument? >e
3ust be in writing and signed by the maker or drawer
5.
3ust contain an unconditional promise or order to pay a sum certain in money
.
3ust be payable on demand or at a fixed or determinable future time.
'.
3ust be payable to order or bearer
=.
"f the instrument is addressed to a drawee: 0rawee must be named or otherwise indicated therein with reasonable certainty.
A: you hae the 3aker and 4ayee. The 3aker makes the promissory note and the 3aker himself is promising to pay a certain 4ayee or #earer or a certain 4ayee or /rder a sum certain in money. $o, there are only 5 parties in a promissory note.
This is an example of a bill of exchange and as we said a check is a special kind of bill of exchange.
This is an ordinary bill of exchange.
" promise to pay 4 or bearer 5(,((( on *oember 56, 5(%%. *ame of the #ank: #4"
0ate:
$gd. 3 4ay to the order of @@@@@@@@@@@@@@Amount in 4eso@@@@@@@@@@@ +ook at this instrument here. " said that this is a negotiable promissory note. This is in writing. This is signed by the 3aker. The promise here is unconditional because there was no condition attached to it. There is a fixed date of maturity. This is payable to bearer. The = th re
Amount in words @@@@@@@@@@@@@@@@@@@@@
0epositor0rawer
A Promissory Note is an instrument in writing that is signed by the 3aker unconditionally promising to pay a sum certain in money
Q: This is also a bill of exchange. "f you look at this ordinary bill of exchange how may parties do you see?
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Negotiable Instruments Law A: parties. )ou hae the 0rawer, the 4ayee and the 0rawee.
Q: 0uring collection can B refuse to pay? A: *o9 because he signed and he cannot 8ust say that he is signing in behalf of his principal 3. $ince you signed there you are liable.
Q: what is the difference between a promissory note and a bill of exchange? A: "n a promissory note the one making the instrument is the one promising to pay. "n a bill of exchange or in a check the one making the instrument is not the one who is going to pay but he is ordering somebody else to pay. 0 addressing it to the 0rawee B is ordering B, B you pay to the order of 0. The 0rawer is not actually paying he is ordering somebody else to pay. That!s why there are parties.
Q: ow then can B escape liability? A: of course he would hae to sign for his principal but he must indicate that he is merely signing as an agent.
CThe last minutes of recording kay naputol because naay exchoserang frog nga nanawag namaligya ug lifetime insurance. ehehe9 D Q: What determines the negotiability of the instrument? ow do you know if the instrument is negotiable? "s it the agreement between the parties? /r is it the face of the instrument? A: "t is the face of the instrument precisely why you hae your re
We said that this is negotiable. And we said that an instrument be negotiable that means its susceptibility being passed on from one person to another making the transferee thereof a holder under the definition of your *"+.
Q: This particular promissory note written on the board can you consider this a negotiable instrument? 1an you pass this board from one person to another? A: definitely not although it is in writing but that does not mean to say that you will write it anywhere because we!re talking about negotiability. The susceptibility of being passed on from one person to another. or as long as it can be passed on there could be no problem. $o we!re talking about from passing it on from one person to another.
This 3aker here the one signing it says there it must be in writing and signed by the 3aker we!re talking about promissory notes. That means that if you sign an instrument then you are bound already by that instrument. $upposing you hae B and B is a mere agent of 3 and 3 is out of town but 3 has a transaction between 4 and 4 wants to hae this promissory note A$A4 because if he could not get the promissory note the transaction would not be pushed through. $o 3 the principal is now asking B to make a promissory note. And so B made one for his principal and B signed his name.
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