Professional Documents
Culture Documents
Notes On Negotiable Instruments 01
Notes On Negotiable Instruments 01
Note that in promissory notes, the presentment for acceptance is not necessary.
This is because the drawer already knows that he is liable to pay, and his liability is
primary in character.
They are:
1. Promissory Notes;
2. Bills of Exchange;
3. Checks;
What is a check?
No, negotiable instruments are not legal tender. They are not fully guaranteed by
the government, to be used for the payment of debts. This is required by Section 52 of
the Negotiable Instruments Law.
Article 1249 of the New Civil Code, specifically states that negotiable papers, and
other mercantile documents, do not produce the effect of payment, until and unless they
are encashed, or when through the fault of the creditor, they have been impaired.
What are the distinctions between a bill of exchange, and a promissory note?
The bill of exchange requires acceptance, before presentment for payment. The
acceptance prior to presentment, for payment is not necessary, for promissory notes.
The bill of exchange may, or may not be drawn, on a bank. The check is always
drawn from a bank.
The bill of exchange may, or may not be drawn against a deposit of funds. The
check is always drawn against a deposit of funds.
The death of the drawer, does not revoke the drawees authority to pay, in a bill of
exchange. The death of the drawer, revokes the banks authority to pay.
The bill of exchange must be present for payment, within a reasonable time, after
its last negotiation. The check must be presented for payment, within a reasonable time,
after its issue. Checks expire 180 days after their issuance.
Is the phrase, sum certain in money, the same as, certain sum of money?
No, they do not mean the same thing. A sum certain in money, refers to a fixed
amount. Whereas, a certain sum of money, makes no reference to fixed amount.
Would an additional fee to the principal amount, payable and stated on the face of
the instrument affect negotiability?
No, the instrument is still negotiable, as per Section 2 of the Negotiable
Instruments Law.
The instrument says, I promise to pay Peter, the sum of 100,000 from my salary in
the San Beda College of Law. Is the instrument negotiable?
Is there a difference between the phrase, bearer, Margaret Thatcher and Margaret
Thatcher, or bearer?
Yes, the first phrase employs the bearer as an adjective. The second denotes the
bearer as a noun. Thus, the first phrase makes the instrument non-negotiable.
In negotiable instruments, only real defenses may be raised against the holder in
due course. In non-negotiable instruments, all manners of defenses real or personal
may be raised against the assignee or the transferee.
In negotiable instruments, the holder in due course acquires a clean title to the
instruments, free from the infirmities of the instruments, and defects in the title of the
prior endorsers. The shelter rule may apply. In non-negotiable instruments, the
assignee, by virtue of subrogation, merely acquires a derivative title to the instrument.
What is the effect of failure of the payee, to give notice of dishonor to an endorser?
The failure of the payee, to give notice of dishonor, discharges the endorser.
Suppose the instrument give the holder, an option to require something to done,
instead of demanding payment in money. Is the instrument still negotiable?
It depends. If the holder is given the option, then the instrument is still
negotiable. If the drawer or maker is given the option to do anything, other than the
payment of money, the instrument is not negotiable. When the maker, instead of
fulfilling his promise to pay, has the option of painting the bearers house, it no longer
becomes an unconditional promise to pay.
When can we say, that the instrument is still negotiable, even when it states a source
of funds, for the payment of the instrument?
The general test, is to ascertain whether or not the source of the funds so states,
carries the general credit of the maker or the drawer. If it refers to the general credit, it is
negotiable. If it refers to the credit of the maker, or the drawer, out of a particular fund,
the instrument is no longer negotiable. Remember, one of the essential requisites of a
negotiable instrument is the unconditional promise, or order to pay. If it is conditional,
it is a non-negotiable instrument.
No, what renders the instrument non-negotiable, is when the fund for payment is
particularly specified; not one for reimbursement. There is a difference between, funds
for payments and a funds for reimbursements.
Note here that the negotiability is not affected, because the order to pay is still
unconditional. The drawee must pay; and then later on reimburse himself. If there are
insufficient funds for reimbursements, that is an issue between the drawer and the
drawee. The important thing is that, the obligation to pay the payee or holder, has been
met unconditionally.
The sum payable is certain, when the amount that is to be paid, is sufficiently
determinable, on the face of the instrument, in accordance with Section 2, of the
Negotiable Instruments Law.
What is the effect if the last, and only indorsement is an indorsement in blank?
If you correlate Section 9 and Section 40 of the Negotiable Instruments Law, what
conclusion can be drawn?
Section 9 provides that if the last or only indorsement is in blank, the instrument
is a bearer instrument. Section 40 provides that, where an instrument, payable to bearer,
is endorsed specially, it may nevertheless be further negotiated by delivery.
This means that once an instrument, is indorsed in blank, it becomes payable to
bearer, even if a subsequent endorser, endorses it specially. The instrument is no
converted to an order instrument. It remains a bearer instrument, which can be further
negotiated by delivery.
Who is a holder?
Negotiability refers to special kinds of contracts, i.e. those that involve negotiable
instruments. Assignability refers to all manners of contracts in general.
The holder in due course is free from personal defenses. The assignee is not
immune from defenses, between and among the prior parties.
A holder may acquire a better right, than the prior endorser, as in the case of a
holder in due course, under the shelter rule. The assignee cannot acquire better rights
than his assignor, under the principle of subrogation. He merely steps into the shoes of
the assignor.
No, the sum certain in money, in Section 1 of the Negotiable Instruments Law,
does not equate money with legal tender. Thus, parties can validly agree, that the
instrument may be paid in currency, other than pesos.
Is the phrase pay to X or order, the same as, pay to the order of X?
No, because pay to X, or order means that the instrument is payable first, to X
and then, to whoever X might want to pay thus, his order.
Pay to the order of X, simply means that the instrument must be paid, to the
specified payee of X. On face value alone, it does not include X as a valid payee.
If the instrument is ambiguous on its face, or bears omissions, how is the instrument
construed?
1. Where the sum payable is expressed in words and also in figures and
there is a discrepancy between the two, the sum denoted by the words
is the sum payable; but if the words are ambiguous or uncertain,
reference may be had to the figures to fix the amount;
2. Where the instrument provides for the payment of interest, without
specifying the date from which interest is to run, the interest runs from
the date of the instrument, and if the instrument is undated, from the
issue thereof;
3. Where the instrument is not dated, it will be considered to be dated as
of the time it was issued;
4. Where there is a conflict between the written and printed provisions of
the instrument, the written provisions prevail;
5. Where the instrument is so ambiguous that there is doubt whether it is
a bill or note, the holder may treat it as either at his election;
6. 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;
7. Where an instrument containing the word "I promise to pay" is signed
by two or more persons, they are deemed to be jointly and severally
liable thereon.
The remedy of the holder is to treat the instrument as either one, or the other, at
his election.
May a holder treat a bill, as a promissory note, even when there is actually no
ambiguity on the face of the instrument?
Yes, there are three instances when, notwithstanding the lack of ambiguity, the
holder may elect to treat a bill of exchange, as promissory note. The instances are:
1. When the drawer, and the drawee are the same person. This is the case
when a bank issues a check against itself as in a managers or
cashiers check.
2. Where the drawee is a fictitious person;
3. Where the drawee does not have capacity to act, as provided in Section
130, of the Negotiable Instruments Law.