NEGOTIABLE INSTRUMENTS LAW PART 1
INTRODUCTION: GENERAL CONCEPTS COMMERCIAL LAWS: LAWS: that branch of private law which which regulates the juridical relations arising from commercial acts and according to which the questions or controversies which may arise therefrom are resolved.
Coverage of Commercial Laws: 1. Negoti Negotiabl able e Instru Instrumen ments ts 2. Wareho arehouse use receip receipts ts 3. Letter Letters s of Credit Credit 4. Partne Partnersh rship ip 5. Corp Corpor orat atio ion n 6. Sing Single le prop propri riet etor orsh ship ip 7. Join Jointt acc accou oun nts 8. Insurance 9. Mortgage 10.Banking regulations
11. 12. 13. 14. 15. 15.
Insolve Insolvency ncy Securit Securities ies Intelle Intellectu ctual al prope properti rties es Public Public utilit utilities ies Bott Bottom omry ry
INTRODUCTION: GENERAL CONCEPTS COMMERCIAL LAWS: LAWS: that branch of private law which which regulates the juridical relations arising from commercial acts and according to which the questions or controversies which may arise therefrom are resolved.
Coverage of Commercial Laws: 1. Negoti Negotiabl able e Instru Instrumen ments ts 2. Wareho arehouse use receip receipts ts 3. Letter Letters s of Credit Credit 4. Partne Partnersh rship ip 5. Corp Corpor orat atio ion n 6. Sing Single le prop propri riet etor orsh ship ip 7. Join Jointt acc accou oun nts 8. Insurance 9. Mortgage 10.Banking regulations
11. 12. 13. 14. 15. 15.
Insolve Insolvency ncy Securit Securities ies Intelle Intellectu ctual al prope properti rties es Public Public utilit utilities ies Bott Bottom omry ry
INTRODUCTION: GENERAL CONCEPTS COMMERCE: the mass of acts of human life which tend to the satisfaction of necessities by means of exchange or of the rendition of services. Effected with a purpose of gain and falling within the domain of mercantile laws.
INTRODUCTION: GENERAL CONCEPTS GOVERNING LAWS: 1. The The NIL NIL (Act (Act No. No. 203 2031) 1) 2. The The Cod Code e of of Com Comme merc rce e 3. The The New New Civi Civill Code Code (su (supp pple leto tory ry)) 4. Decisi Decisions ons of the the cour courts ts in the the US US and and in in England based on the American Uniform Negotiable Instruments Law and the Bill of Exchange Act of 1882
INTRODUCTION: GENERAL CONCEPTS FUNCTIONS OF A NEGOTIABLE INSTRUMENT: 1. It operates as a substitute for money 2. It is a means of creating and transferring credit 3. It facilitates the sale of goods 4. It increases the purchasing medium in circulation
INTRODUCTION: GENERAL CONCEPTS NEGOTIABLE INSTRUMENTS ARE NOT LEGAL TENDER: Sec 52 of the New Central Bank Act (NCBA), R.A. No. 7653 provides that only notes and coins issued by the B a n g k o S en t r a l n g P i l i p i n a s are considered legal tender. Sec. 60 of the NCBA provides that checks are not legal tender. COINS AS LEGAL TENDER: Sec 52 of R.A. No. 7653 and BSP Circular No. 537, Series of 2006, the maximum amount of coins to be considered as legal tender is adjusted as follows: a) P1,000.00 for denominations of 1-peso, 5-peso and 10-peso coins b) P100.00 for denominations of 1-centavo, 5-centavo, 10-centavo, and 25-centavo coins.
INTRODUCTION: GENERAL CONCEPTS IMPORTANT FEATURES OF NEGOTIABLE INSTRUMENTS: 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 the holder in due course the right to hold the instrument and to collect the sum payable for himself free from defenses. Accumulation of Secondary Contracts – Secondary contracts are picked up and carried along with them as they are negotiated form one person to another, or in the course of negotiation of a negotiable instrument, a series of juridical ties between the parties thereto arise by law or by privity.
INTRODUCTION: GENERAL CONCEPTS PARTIES TO THE NEGOTIABLE INSTRUMENTS A. PROMISSORY NOTE MAKER/PROMISSOR – the party making the promise PAYEE – the party to whom the promise is made B. BILL OF EXCHANGE DRAWER – the person drawing or making the instrument or the person giving the order DRAWEE – the addressee of the order to pay or the person required to pay the instrument PAYEE – the person to whom payment is to be made
INTRODUCTION: GENERAL CONCEPTS LIABILITY OF PARTIES TO THE NEGOTIABLE INSTRUMENTS A. PRIMARY LIABILITY MAKER ACCEPTOR OF A BILL B. SECONDARY LIABILITY DRAWER OF A BILL INDORSERS OF A BILL OR NOTE C. NOT LIABLE DRAWEE , until he accepts
INTRODUCTION: GENERAL CONCEPTS INCIDENTS IN THE LIFE OF A NEGOTIABLE INSTRUMENT a. ISSUE – first negotiation b. NEGOTIATION c. PRESENTMENT FOR ACCEPTANCE d. ACCEPTANCE e. DISHONOR BY NON-ACCEPTANCE f. PRESENTMENT FOR PAYMENT g. DISHONOR BY NON-PAYMENT h. NOTICE OF DISHONOR i. PROTEST (for foreign bills) j. DISCHARGE
INTRODUCTION: GENERAL CONCEPTS KINDS OF NEGOTIABLE INSTRUMENTS: BILL OF EXCHANGE – 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 bearer. (Sec . 126 NIL ) PROMISSORY NOTE – a negotiable promissory note is 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 sm certain in money or to bearer. Where a note is drawn to the maker’s own order, it is not complete until indorsed by him. ( Sec. 184, NIL ).
INTRODUCTION: GENERAL CONCEPTS KINDS OF BILL OF EXCHANGE: 1. DRAFT – used synonymously with bill of exchange although it normally refers to a bill of exchange used in documentary exchange like letters of credit transactions. 2. INLAND AND FOREIGN BILL – an inland bill is a bill which is, or on its face purports to be, both drawn and payable within the Philippines. Any other bill is a foreign bill. 3. TIME DRAFT – draft that is payable at a fixed date. 4. SIGHT OR DEMAND DRAFT – draft that is payable when the holder presents it for payment. 5. TRADE ACCEPTANCE – bill that is used in contracts of sale where the seller as drawer orders the buyer (as drawee) to pay a sum certain to the same seller (payee). 6. BANKER’S ACCEPTANCE – a time draft across the face of which the drawee has written the cord accepted. 7. CHECK – a bill of exchange drawn on a bank payable on demand.
INTRODUCTION: GENERAL CONCEPTS KINDS OF PROMISSORY NOTE: CERTIFICATE OF DEPOSIT – a form of promissory note which is a written acknowledgment of a bank or its receipt of a certain sum with a promise to pay the same. BONDS – a certificate or evidence of a debt on which the issuing company or governmental body promises to pay the bondholders a specified amount of interest for a specified length of time and to repay the loan on the expiration date.
DEBENTURE – a promissory note or bond backed by the general credit of a corporation and usually not secured by a mortgage or lien on any s pecific property.
INTRODUCTION: GENERAL CONCEPTS WHEN CAN A BILL OF EXCHANGE BE TREATED AS A PROMISSORY NOTE? (Sec 17 [e] and 130, NIL) 1. When the drawer and the drawee are the same person 2. The drawee is a fictitious person 3. The drawee has no capacity to contract 4. The instrument is so ambiguous that there is doubt whether it is a bill of a note
INTRODUCTION: GENERAL CONCEPTS NEGOTIABILITY OF THE FOLLOWING COMMERCIAL PAPERS: 1. CROSSED CHECK – usually negotiable as it normally complies with the requirements of Sec 1, NIL but issued for special purpose and can be negotiated only once. 2. TRADE ACCEPTANCE – negotiable, it is a bill of exchange addressed by the seller of the goods to the buyer subject to compliance with Sec 1, NIL.
INTRODUCTION: GENERAL CONCEPTS 3. MONEY ORDER – non-negotiable as it is governed by postal rules and regulations which may be inconsistent with the NIL and can only be negotiated once. 4. WAREHOUSE RECEIPT and BILL OF LADING – non negotiable as it represents goods and not money
INTRODUCTION: GENERAL CONCEPTS 5. PAWN TICKET – non – negotiable as it does not represent money but the pawned articles. 6. TREASURY WARRANT – non-negotiable being payable out of a particular fund. 7. TRUST RECEIPT – non-negotiable under the NIL as it is an evidence of goods and not of money
NEGOTIABLE INSTRUMENTS
• Stale Check – one which has not been presented for payment within a reasonable time after its issue; becomes valueless; 6 months
NEGOTIABLE INSTRUMENTS • CROSSED CHECK – One which bears across its face two parallel lines drawn diagonally, usually on the upper left side • a. General – name of intermediary may be included • b. Special – payment must only be made to the entity/person indicated
Pay to the order of Mary Montes the sum of ONE THOUSAND PESOS (P1,000.00) only. Rudy Martin RCBC- Baguio
NEGOTIABLE INSTRUMENTS • • • • • • • • • • • • • •
Based on Sec. 1, are the following documents negotiable or non-negotiable? 1. Letter of Credit 2. Treasury Warrant 3. Postal Money Order 4. Bill of Lading 5. Certificate of Stock 6. Warehouse Receipt 7. Dock Warrant 8. Memorandum Check 9. Cashier’s Check 10. Manager’s Check 11. Traveler’s Check 12. Certified Check 13. Crossed Check
BILLS OF EXCHANGE BILL OF EXCHANGE – 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 bearer. (Sec. 126 NIL) PARTIES: DRAWER – the person drawing or making the instrument or the person giving the order DRAWEE – the addressee of the order to pay or the person required to pay the instrument PAYEE – the person to whom payment is to be made
BILLS OF EXCHANGE B/E
P.N
Contains an unconditional order by one to another to pay the instrument
Contains an unconditional promise made by one to another
There are 3 parties
There are 2 parties
The drawer who issues the bill is secondarily liable
The maker who issues the note is primarily liable
A bill drawn payable to the drawer’s own order is complete without indorsement as long as accepted by the drawee
A note payable to the maker’s own order is not complete until indorsed by him
Must be present for acceptance to the Need not be presented for acceptance drawee If payable on demand, the bill must be presented for payment within a reasonable time from last negotiation
If payable on demand, the note must be presented for payment within a reasonable time from its issue
BILL OF EXCHANGE When is a PN like a B/E? After a note is indorsed by the payee, it becomes just like a bill. The maker corresponds to the acceptor, the indorser as the drawer and the indorsee as the payee. When is a B/E like a PN? Once accepted, a bill becomes similar to a PN. The acceptance is the promise to pay and the acceptor becomes the promissor/principal debtor/maker while the drawer becomes like the first indorser or surety of the acceptor.
BILL OF EXCHANGE DRAFT- used synonymously with bill of exchange although it normally refers to a bill of exchange used in documentary exchange like letters of credit transactions.
BILL OF EXCHANGE INLAND AND FOREIGN BILL – an inland bill is a bill which is, or on its face purports to be, both drawn and payable within the Philippines. Any other bill is a foreign bill
BILL OF EXCHANGE IMPORTANCE OF THE DISTINCTION BETWEEN INLAND AND FOREIGN BILL 1. To determine when protest will apply 2. To determine the law that will govern the validity, interpretation and effect of the bill **For this purpose, the different states of the USA are deemed foreign to each other **A bill drawn in the Philippines and payable in California or drawn in New York and payable in Arizona are foreign bills as they are not both drawn and payable in the Philippines.
BILL OF EXCHANGE TIME DRAFT – draft that is payable at a fixed date.
BILL OF EXCHANGE SIGHT OR DEMAND DRAFT – draft that is payable when the holder presents it for payment.
BILL OF EXCHANGE TRADE ACCEPTANCE – bill that is used in contracts of sale where the seller as drawer orders the buyer (as drawee) to pay a sum certain to the same seller (payee).
BILL OF EXCHANGE BANKER’S ACCEPTANCE – a time draft across the face of which the drawee has written the word accepted.
BILL OF EXCHANGE CHECK – a bill of exchange drawn on a bank payable on demand.
BILL OF EXCHANGE CHECK v ORDINARY B/E CHECK – a bill of exchange drawn on a bank payable on demand.It is usually drawn against previous deposit of funds for it is ordinarily intended for immediate payment. It is not usually required to be presented for acceptance but for payment. However, there is no prohibition from presenting it for acceptance. Sec 187 provides that “Where a check is certified by a bank on which it is drawn, the certification is equivalent to an acceptance.” Certification implies that the check is drawn upon sufficient funds in the hands of the drawee, that they have been set apart for its satisfaction, and that they shall be so applied whenever the check is presented for payment.
BILL OF EXCHANGE Sec. 127. Bill not an assignment of funds in hands of drawee. A bill of itself does not operate as an assignment of the funds in the hands of the drawee available for the payment thereof, and the drawee is not liable on the bill unless and until he accepts the same. Sec. 128. Bill addressed to more than one drawee. - A bill may be addressed to two or more drawees jointly, whether they are partners or not; but not to two or more drawees in the alternative or in succession. Ex. “Pay to the order of A,B and C P10K”. Payment to any one of them is valid.
BILL OF EXCHANGE EXAMPLE FOR SEC 128 Ex. TO: X and Y Pay to the order of A and B P10K”. SGD ***Payment by any one of them is valid and discharges the instrument. But the following is not allowed: Ex. TO: X or Y
= alternative
“Pay to the order of A or B P10K. SGD Ex
TO: X, and in his absence, B
= successive
“Pay to A, B and/or C P10K.” SGD ***Com pare w ith Sec 8 (pay ees) and Sec 68 (join t indorsees=solidary)
BILL OF EXCHANGE Sec. 129. Inland and foreign bills of exchange. - An inland bill of exchange is a bill which is, or on its face purports to be, both drawn and payable within the Philippines. Any other bill is a foreign bill. Unless the contrary appears on the face of the bill, the holder may treat it as an inland bill.
BILL OF EXCHANGE Sec. 130. When bill may be treated as promissory note. - Where in a bill the drawer and drawee are the same person or where the drawee is a fictitious person or a person not having capacity to contract, the holder may treat the instrument at his option either as a bill of exchange or as a promissory note.
BILL OF EXCHANGE Sec. 131. Referee in case of need*. - The drawer of a bill and any indorser may insert thereon the name of a person to whom the holder may resort in case of need; that is to say, in case the bill is dishonored by non-acceptance or non-payment. Such person is called a referee in case of need. It is in the option of the holder to resort to the referee in case of need or not as he may see fit. *umpire, arbiter, mediator, go-between
BILL IN SET Sec 178-183 Sec. 178. Bills in set constitute one bill. - Where a bill is drawn in a set, each part of the set being numbered and containing a reference to the other parts, the whole of the parts constitutes one bill. *** A “bill in a set” is one composed of several p a r t s , ea c h p a r t b e in g n u m b e r ed a n d c o n t a i n i n g a r e f er e n c e to t h e o t h e r p a r t s , t h e w h o l e o f t h e p a r ts c o n s t i t u t in g b u t o n e b i l l
BILL IN SET Sec 178-183 t 1 Jan 2013 r Thirty days after a sight of this First P
t s
of Exchange (Second and Third 1 Unpaid), pay to the order of Jay Criz P5K. • SGD. Alph • TO: Mu Moy • Baguio City
t 2 Feb 2013 r Thirty days after a sight of this P
t 3 March 2013 r Thirty days after a sight of this Third P
d n
d r
Second Exchange (First and Third 2 Unpaid), pay to the order of Jay Criz P5K • SGD. Alph • TO: Mu Moy • Baguio City
Exchange(First and Second 3 Unpaid), pay to the order of Jay Criz P5K.
SGD. Alph TO; Mu Moy Baguio City
BILL IN SET Sec 178-183 Sec. 179. Right of holders where different parts are negotiated. - Where two or more parts of a set are negotiated to different holders in due course, the holder whose title first accrues is, as between such holders, the true owner of the bill. But nothing in this section affects the right of a person who, in due course, accepts or pays the parts first presented to him. **E ac h p a r t m a y b e n e g o t i a t ed b u t t h e p a y e e is N O T s u p p o s e d to nego tiate all the parts since the only reason fo r drawin g th e b i l l i n p a r t s i s t o o b t a i n g r e a t er a s s u r a n c e t h a t at l e as t o n e p a r t w i l l r ea c h t h e p a y e e s a f el y . A s b e t w e en h o l d e r s i n d u e c o u r s e , the hold er who se title first accru es is the own er of the bill. Payee w ill be liable to all if he negotiates all parts .
BILL IN SET Sec 178-183 Sec. 180. Liability of holder who indorses two or more parts of a set to different persons. - Where the holder of a set indorses two or more parts to different persons he is liable on every such part, and every indorser subsequent to him is liable on the part he has himself indorsed, as if such parts were separate bills. **Drawee is liable on ly for on e part (Sec 183)
BILL IN SET Sec 178-183 Sec. 181. Acceptance of bill drawn in sets. - The acceptance may be written on any part and it must be written on one part only. If the drawee accepts more than one part and such accepted parts negotiated to different holders in due course, he is liable on every such part as if it were a separate bill.
BILL IN SET Sec 178-183 Sec. 182. Payment by acceptor of bills drawn in sets. - When the acceptor of a bill drawn in a set pays it without requiring the part bearing his acceptance to be delivered up to him, and the part at maturity is outstanding in the hands of a holder in due course, he is liable to the holder thereon. ** Th e d r a w e e o n l y w ar r a n t s t h e p a r t h e accepts
BILL IN SET Sec 178-183 Sec. 183. Effect of discharging one of a set. Except as herein otherwise provided, where any one part of a bill drawn in a set is discharged by payment or otherwise, the whole bill is discharged. **A s f a r as t h e d r a w e r i s c o n c e r n e d , t h e en t i r e b i l l i s d i s c h a r g ed i f an y o n e p ar t i s d i s c h a r g ed .
REFERENCES
•
Abad, Antonio H Jr.(2006), Negotiable Instruments Law, Quezon City, Central Book Supply Inc
•
Agpalo, Rube E. (2005), The Negotiable Instrument Law, Manila Rex
•
De Leon, H.S. (2010), T h e N eg o t i a b l e In s t r u m e n t s L a w , Q u e zo n : REX Printing Company, Inc. City
•
Black's law dictionary (8th ed) (2007). St. Paul, MN. : West Pub.
•
De Leon, Hector S. (2010). (2010 ed.).The Philippine negotiable instruments law and allied laws annotated Manila: Rex,
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Commercial laws of the Philippines. (2009). Manila: Rex.
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Salao, Ernesto C. Law Dictionary. (2009). Manila: Rex
