BUSINESS LAW BL1803A
NEGOTIABLE INSTRUMENTS NEGOTIABLE INSTRUMENTS – INSTRUMENTS – a a written contract for the payment of money which complies with t he requirements of Sec. 1 of the 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 r ight to hold the instrument free from defenses available to prior parties.
Form of Negotiable Instruments To determine whether the instrument is negotiable o r not, the following must be considered: c onsidered: 1.
The whole of the instrument
2.
Those only appear on the face of the instrument
3.
Compliance with the requirement under Section 1 of the Act.
The instrument need not follow the language of t his Act, but any terms are sufficient which clearly indicate an intention to conform to the requirements hereof. (Sec 10)
Two Distinctive Features of Negotiable Instruments: 1. NEGOTIABILITY - it is that attribute or property whereby a bill or note or check may pass from hand to hand similar to money, so as to give t he holder in due course the right to hold the instrument and to collect t he sum payable for himself free from defenses. 2.
ACCUMULATION OF THE SECONDARY CONTRACTS – CONTRACTS – secondary secondary contracts are picked up and carried along with Negotiable Instruments as they are negotiated from one person to another; or in the course of negotiation of negotiable instruments, a series of juridical ties between the parties thereto arise e ither by law or by privity. The indorsers become secondarily liable to the holder.
Instrument with the limited negotiability 1. Letter of credit – credit – Payable Payable to specified person 2. Treasury warrant – warrant – Payable Payable out of specific fund or appropriation, hence conditional 3. Postal money order – order – Subject Subject to restriction and limitation under postal laws and regulation. (1 indorsement is allowed) 4. Bill of lading – lading – Not Not contain an unconditional promise or order to pay a some certain in money 5. Certificate of stock – stock – Not Not contain an unconditional promise or order to pay a some certain in money 6.
Warehouse receipt - Not contain an unconditional promise promise or order to pay a some certain in money
7.
Quedan - Not contain an unconditional promise or order to pay a some certain in money
8. Now account – account – Not Not payable to order or bearer
Distinction between negotiable and non negotiable instruments NEGOTIABLE INSTRUMENTS Must contain all requisites of Sec. 1 of the NIL Transferable by negotiation and assignment Holder in due course can acquire better rights than his transferor Prior parties warrant payment (secondary liability) Governed by Negotiable Instrument Law Transferee is a holder in due course Defenses generally not available
NON NEGOTIABLE INSTRUMENTS Does not contain all requisites of the NIL Transferable by assignment only A transferee acquires no better right than his transferor Prior parties do not warrant payment but merely the legality of his title Negotiable Instrument Law only applies by analogy Transferee is assignee only All defenses available against last transferee
Special form of Promissory note 1. Certificate of deposit – deposit – It It is written acknowledgement by a bank of the receipt of money mo ney on deposit which the bank promises to pay the depositors. 2.
Bond – Bond – It It is an evidence of indebtedness issued by a public or private corporation, promising to pay a sum of money on a day certain in the future. a) Registered bond – bond – or or one payable only to the person whose name appears on the face of the certificate and in the books of the company. – company. – Non Non negotiable b) Coupon bond – bond – or or one to which are attached coupon which entitle the holder to interest when due. The interest coupon may be detached and negotiated just like promissory notes independent of the main instrument.
3. Bank note – note – It It is an instrument issued by a bank for circulation as money payable to bearer on demand.
4.
Due bill – It is a promissory note which shows on its face an acknowledgement by a person of his indebtedness to another.
5.
Chattel mortgage note – Note secured by personal property
6.
Real estate mortgage payable – Note secured by real property
7.
Title retaining note – Secured by conditional sales contract which ordinarily provides that the title to the goods shall remain in the payee’s name until the note is paid in full.
8.
Collateral note – It is used when the maker pledge securities to the payee to secure the payment of the amount of the note.
9.
Judgment note – Note to which is added a power of attorney enabling the payee to t ake judgment against the maker without the formality of a tr ial if the note is not paid on its due date.
Other classes of bill of exchange 1.
Bank draft – a bill of exchange drawn by a bank against its branch or another bank.
2.
Trade acceptance – a draft or bill of exchange drawn by a seller on the purchaser of goods and accepted by the latter by signing it as drawee. If the instrument is drawn against a bank instead of the purchaser, it is called banker’s acceptance.
Special type of checks 1.
Memorandum check – check with the word “memorandum” “mem” or “memo” is written upon t he face of the check, signifying that the drawer e ngages to pay the bona fide holder absolutely, and not upon a condition to pay upon presentment at maturity and if due notice of the presentment and non payment should be given.
2.
Cashier’s check – Drawn by the cahier of a bank upon the bank itself and deemed accepted by the act of issuance.
3.
Manager’s check – one drawn by the bank’s manager upon the bank itself.
4.
Traveler’s check – It is one upon which the holder’s signature must appear twice, one to be affixe d by him at the time it is issued and the second o r countersignature, to be affixed by him in the presence of the payee before it I paid, otherwise, it is incomplete.
5.
Certified check – one which bears upon its face an agreement by the drawee bank that the check will be paid on presentment.
6.
Crossed check – one which bears across its face two parallel lines drawn diagonally, usually on the upper left side.
7.
Stale check - one which has not been , presented for payment within reasonable time after its issue. It is valueless and, therefore, should not be paid.
Effectivity of Act 2031 – Sec 198 Sec. 1 Form of negotiable instruments. – An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer; “Written” includes printed, and “writing” includes print. (Sec 191)
Signature No person is liable on the instrument whose signature does not appear thereon (Sec. 18) Exception: 1.
One who signs in a trade or assumed name will be liable to the same e xtent as if he had signed in his own name. (Sec. 18, (2))
2.
The principal is bound by the signature of his duly authorized agent. (Sec 19)
3.
Forgery (Sec 23)
4.
Acceptance by the acceptor in a separate paper (Sec 134)
5.
Written promise by a person to accept the bill before it is drawn. (Sec 135)
Nota bene: a.
Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign, he is to be deemed an indorser; (Sec17, f)
b. A person placing his signature upon the instrument otherwise t han as maker, drawer, or acceptor, is deemed to be indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity. (Sec 63)
(b) Must contain an unconditional promise or order to pay a sum certain in money; Unconditional promise (Sec 3) Unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with: (a) An indication of a particular fund out of which reimbursement is to be made or a particular
Certainty as to sum (Sec 2) The sum payable is a sum certain within the m eaning of this act, although it is to be paid – (a) With interest; or (b) By stated installments; or
account to be debited with the amount; or (b) A statement of the transaction which gives rise to the instrument. But an order or promise to pay out of a particular fund is not unconditional.
(c) By stated installments, with a provision that, upon default in payment of any installment or of interest, the whole shall become due; or (d) With exchange, whether at a fixed rate or at the current rate; or (e) With costs of collection or an attorney’s fee, in case payment shall not be made at mat urity (c) Must be payable on demand, or at fixed or determinable future time;
Demand (Sec 7) An instrument is payable on demand – (a) When it is so expressed to be payable on demand, or at sight, or on prese ntation; or (b) Ir. Which no time for payment is expressed. Where an instrument is issued, accepted, or indorsed when overdue, it is; as regards the person so issuing, accepting or indorsing it, payable on demand.
Determinable (Sec 4) an instrument is payable at a determinable future time, within the meaning of this Act, which is expressed to be payable – (a) At a fixed period after date or sight; or (b) On or before a fixed or determinable future time specified therein; or (c) On or at a fixed period after the occurrence of specified event which is certain to happen, though the tome of happening be uncertain.
(d) Must be payable to order or to bearer; and Payable to order (Sec 8) The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. It may be drawn payable to the order of – (a) A payee who is not maker, drawer, or drawee; pr (b) The drawer or maker; or (c) The drawee; or (d) Two or more payees jointly; or (e) One or some of several payees; or (f) The holder of an office for the t ime being. Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable certainty.
Payable to bearer (Sec 9) The instrument is payable to bearer – a. When it is expressed to be so payable; or b. When it is payable to a person named therein or bearer; or c. When it is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it s payable; or d. When the name of the payee does not purport to be the name of any person; or e. When the only or last indorsement is an indorsement in blank.
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicate therein with reasonable certainty. A bill may be addressed to two or more drawees, whether they are partners or not; but not to two or more drawees in the alternative or in succession. (Sec 128)
Distinction of requisites of promissory note, bill of exchange and a check: Promissory note (Sec. 184)
Bill of exchange (Sec . 126) It must be in writing and signed by the drawer Must contain an unconditional order to pay a um certain in money Must be payable on demand, or at a fixed or determinable future time Must be payable to order or to bearer Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty
Checked (Sec 185)
Where the instrument is addressed
