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Ateneo 2007 Commercial Law (Negotiable Instruments Law)
Ateneo 2007 Commercial Law (Negotiable Instruments Law)
NEGOTIABLE INSTRUMENTS
LAW
NEGOTIABLE INSTRUMENT
Written contracts for the payment of money; by its
form, intended as a substitute for money and
intended to pass from hand to hand, to give the
holder in due course the right to hold the same and
collect the sum due.
CHARACTERISTICS OF NEGOTIABLE
INSTRUMENTS:
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vs.
Non-Negotiable
Negotiable
Instruments
vs.
Documents of Title (see Annex F)
Negotiable
PROMISSORY NOTE
An unconditional promise to pay in writing made by
one person to another, signed by the maker,
engaging to pay on demand or a fixed determinable
future time a sum certain in money to order or bearer.
When the note is drawn to makers own order, it is
not complete until indorsed by him. (Sec. 184)
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 to bearer. (Sec.
126)
CHECK
A bill of exchange drawn on a bank and payable on
demand. (Sec. 185)
Bill of Exchange
Unconditional promise
Involves 2 parties
(maker, payee)
Maker primarily liable
unconditional order
involves 3 parties (drawer,
payee, drawee)
drawer only secondarily
liable
generally 2 presentments for acceptance and for
payment
BOE
- always payable on
demand
- may be payable on
demand or at a fixed or
determinable future time
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- necessary that it be
presented for
acceptance
- drawn on a deposit
CHECK
may be payable on
demand or at a fixed or
determinable future time
always payable on
demand
a promise to pay
An order to pay
TYPES OF CHECKS
1. Managers check - One drawn by the banks
manager upon the bank itself; and it is similar to a
cashiers check both as to effect and use.
[International Corporate Bank v Gueco 351 SCRA
516 (2001)
BPI Family Savings Bank v Manikan, 395 SCRA
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373 (2003)]
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By its peculiar character
and
use in
commerce, a managers check is regarded
substantially to be as good as the money it
represents
Consequently, when a bank allows the delivery
of a managers check to a person who is not directly
charged with the collection of its tax liabilities, such
bank must be deemed to have assumed the risk of a
possible misuse thereof, as it appears to have fallen
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THE
AN
(b)
4.
5.
6.
7.
IS
LIABLE
ON
THE
Page 14 of 124
Sec. 48. The holder may at any time strike out any
indorsement, which is not necessary to his title. The
indorser whose indorsement is struck out, and all
indorsers subsequent to him, are thereby relieved
from liability on the instrument.
EFFECTS
OF
A
TRANSFER
WITHOUT
ENDORSEMENT:
Sec. 49. Where the holder of an instrument payable
to his order transfers it for value without indorsing it,
the transfer vests in the transferee such title as the
transferor had therein, and the transferee acquires, in
addition, the right to have the indorsement of the
transferor. But for the purpose of determining
whether the transferee is a holder in due course, the
negotiation takes effect as of the time when the
indorsement is actually made.
RIGHTS OF A HOLDER
Sec. 51. The holder of a negotiable instrument may
sue thereon in his own name; and payment to him in
due course discharges the instrument.
REQUISITES FOR A HOLDER IN DUE COURSE
(HDC)
Sec. 52. A holder in due course is a holder who has
taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was
overdue, and without notice that it had been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had
no notice of any infirmity in the instrument or defect in
the title of the person negotiating it.
Notes:
1. Every holder is presumed to be a HDC (Sec.
59)
2. The person who questions such has the
burden of proof to prove otherwise if one of
the requisites are lacking, the holder is not
HDC
3. An instrument is considered complete and
regular on its face if: a) the omission is
immaterial; b) the alteration on the instrument
was not apparent on its face
4. An instrument is overdue after the date of
maturity.
5. On the date of maturity, the instrument is not
overdue and the holder is a HDC
6. Acquisition of the transferee or indorsee must
be in good faith
7. Good faith means the lack of knowledge or
notice of defect or infirmity
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of faith
10. negotiation under
circumstances
amounting to fraud
11. Mistake
12. intoxication
13. ultra vires acts of
corporations
14. want of authority of
the agent where he has
apparent authority
15. illegality of contract
where form or
consideration is illegal
16. insanity where there
is no notice of insanity
Execution of instrument
between public enemies
Illegality of contract made
by statue
Forgery
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Notes:
1. A makers liability is primarily and
unconditional
2. One who has signed as such is presumed to
have acted with care and to have signed with
full knowledge of its contents, unless fraud is
proved
3. The payees interest is only to see to it that
the note is paid according to its terms
4. When two or more makers sign jointly, each
is individually liable for the full amount even if
one did not receive the value given
5. The maker is precluded from setting up the
defense that a) the payee is fictional, b) that
the payee was insane, a minor or a
corporation acting ultra vires.
LIABILITY OF A DRAWER
A drawer is secondarily liable. By drawing the
instrument, the drawer:
1. Admits the existence of the payee,
2. The capacity of such payee to indorse
3. Engages that on due presentment, the
instrument will be accepted or paid or both
according to its tenor.
Notes:
1. If the instrument is dishonored, and the
necessary proceedings on dishonor duly
taken
a. The drawer will pay the amount thereof
to the holder
b. Will pay to any subsequent indorser who
may be compelled to pay it. (Sec. 61)
2. A drawer may insert an express stipulation to
negative or limit his liability
ACCEPTOR - By accepting the instrument, an
acceptor:
1. Engages that he will pay according to the
tenor of his acceptance
2. Admits the existence of the drawer, the
genuineness of his signature and his
capacity and authority to draw the instrument
3. The existence of the payee and his then
capacity indorse
IRREGULAR INDORSER - a person not otherwise
a party to an instrument places his signature in blank
before delivery is liable as an indorser in the following
manner:
1. If payable to order of a third person liable to
the payee and to all subsequent parties
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c.
2.
3.
4.
5.
6.
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FORM OF A NOTICE
Sec. 95. A written notice need not be signed, and an
insufficient written notice may be supplemented and
validated by verbal communication. A misdescription
of the instrument does not vitiate the notice unless
the party to whom the notice is given is in fact misled
thereby.
Sec. 96. The notice may be in writing or merely oral
and may be given in any terms which sufficiently
identify the instrument and indicate that it has been
dishonored by non-acceptance or non-payment. It
may in all cases be given by delivering it personally
or through the mails
WHEN NOTICE CAN BE WAIVED
Sec. 109. Notice of dishonor may be waived, either
before the time of giving notice has arrived or after
the omission to give due notice, and the waiver may
be express or implied.
Notes:
1. Protest may be waived. It is also deemed a
waiver of presentment and notice of dishonor
(Sec. 111)
2. Where notice is waived, presentment is not
waived
3. Where presentment is waived, notice is also
waived
4. Where protest is waived, notice and
presentment is waived
Notice of Dishonor - given by the holder to the
parties secondarily liable, drawer and each indorser,
that the instrument was dishonored by nonacceptance or non-payment by the drawee/maker
General rule: Any drawer or indorser to whom such
notice is not given is discharged.
Exceptions:
1. Waiver (Sec. 109)
2. Notice is dispensed
(Sec.
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3. Not necessary
to Drawer
(Sec. 114)
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4. Not necessary to Indorser (Sec. 115)
WHEN NOTICE OF DISHONOR IS NOT
NECESSARY TO A DRAWER
Sec. 114. Notice of dishonor is not required to be
given to the drawer in either of the following cases:
(a) Where the drawer and drawee are the same
person.
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SUMMARY
ON
PRESENTMENT
FOR
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ACCEPTANCE OF BILLS OF EXCHANGE:
1. To make the drawee primarily liable and for
the accrual of secondary liability (Sec. 144)
2. Necessary to fix maturity date, where bill
expressly stipulates presentment, bill payable
other than place of drawee (Sec. 143)
3. When presentment is excused:
a. drawee is dead, hides, is fictitious,
incapacitated person,
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