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NIL Reviewer
NIL Reviewer
APPLICABILITY OF NIL
- Act applies only to negotiable instruments and those meet requirements in Section1.
- Any case not provided in this Act, govern by existing legislation or in default – rules of law
merchant.
2. Media of exchange
3. Media of credit transaction
PURPOSE OF NEGOTIABILITY
- Allow men of UNDOUBTED credit to carry on business enterprise with the use of instruments
knowing that other businessmen will treat this promises as CASH.
*A bona fide holder, FREE from PERSONAL DEFENSES, but may be subject to REAL DEFENSES.
2. Accumulation of Secondary Contracts (as they are transferred from one person to another)
4. BILL OF LADING
- NO unconditional promise/order to pay a sum certain in money
5. CERTIFICATE OF STOCK
- written instrument signed by proper officer of corporation stating name of person (owner of
designated # of shares of its stock)
- NO unconditional promise/order to pay a sum certain in money
6. WAREHOUSE RECEIPT
- NO unconditional promise/order to pay a sum certain in money
Section 1 Memorize
*Where the meaning is doubtful, the courts adopted the policy of resolving IN FAVOR OF
NEGOTIABILITY of the instrument.
*The signature (of maker/drawer) is a prima facie evidence of his intention to be bound.
*If the signature placed in instrument, UNCLEAR what capacity person intended to sigh, he is
deemed INDORSER not maker/drawer.
*PLACE & DATE NOT ESSENTIAL to negotiability of instrument EXCEPT in cases, date IS
necessary to know the due/interest.
*MERE acknowledgment of debt w/o the word ORDER or BEARER (words of negotiability) DOES
NOT satisfy negotiability.
*The word TO THE ORDER OF and OR ORDER is a promise to pay as ordered/commanded by
PAYEE but may be payable to BEARER.
*A note may be signed by SEVERAL persons either JOINTLY or JOINTLY AND SEVERALLY.
PN – maker, payee
BofE – drawer, drawee, payee (parties need NOT ALL be distinct persons. Thus, drawer may
draw on himself payable to his own order.)
LEGEND:
B – drawer
C- drawee; not really a party to the bill, assumes liability ONLY when he accepts the bill usually
by writing the word ACCEPTED and signs his name on the face where he becomes ACCEPTOR
and NOT A DRAWEE. By being this (acceptor), he becomes primarily liable like the MAKER of a
note; DRAWER is ONLY A SURETY then.
*The words (in BofE) CHARGE THE SAME TO THE ACCOUNT OF means amount to be paid by
DRAWEE is to be charged against the funds of DRAWER. But this may be omitted.
2 IDEA & PURPOSE OF BofE
1. DRAWER’s funds in hands of DRAWEE
2. Liability of DRAWEE for non-payment
- If DRAWEE refuses to accept when he has funds for purpose, he is LIABLE TO DRAWER (not to
PAYEE) for resulting damages & harm done to his (DRAWER) credit.
-If DRAWER no funds in DRAWEE, presumed that DRAWER made arrangements with DRAWEE so
he will honor the bill. In such case, DRAWEE must look to the DRAWER for reimbursement and
NOT TO BONA FIDE HOLDER.
*If instrument calls for an ACT OTHER THAN payment of money – NOT NEGOTIABLE
*A note giving the MAKER the right to ascertain the AMOUNT payable – NON-NEGOTIABLE
*If payment not made at maturity, then there is ADDED amount due (eg. Cost of collection,
attorney’s fee) – NEGOTIABLE
*Attorney’s fee may be REDUCED by courts if found UNREASONABLE; if attorney’s fee NOT
specified, it shall be in REASONABLE SUM.
*A provision of “to pay ALL costs, charges and expenses incurred by PAYEE in ANY legal
proceedings for collection of debt” – NON-NEGOTIABLE
*The test of NEGOTIABILITY is whether the instrument carries the GENERAL PERSONAL CREDIT
of MAKER/DRAWER.
*A BARE acknowledgment of indebtedness (eg. IOU, due A P1000, for value received) ALONE –
NON-NEGOTIABLE. But if words like DUE A OR ORDER, DUE B OR BEARER – NEGOTIABLE although
NO express promissory words
*In BofE, there must be an ORDER TO PAY one party to another, OTHERWISE, it is NON-
NEGOTIABLE.
*The MERE use of POLITE words like PLEASE does NOT convert ORDER into REQUEST.
*The NOTE/BILL must be payable ABSOLUTELY.
*It is IMMATERIAL whether the DRAWEE obeys the order to pay or not. The NEGOTIABILITY of
a bill DEPENDS upon the TERMS OF ORDER. The DRAWER has his liability under the law.
*An instrument payable w/ CONTINGENCY (an uncertain future event, or an event w/c may or
may not happen) is NON-NEGOTIABLE, and the happening of the event DOES NOT cure the
defect.
AFTER SIGHT – means AFTER the instrument is SEEN by the DRAWEE upon presentment of
acceptance
DETERMINABLE FUTURE TIME – means a time that can be DETERMINED W/ CERTAINTY AFTER
execution of instrument
- gives HOLDER the election to require something to be done in lieu of payment of money
(eg. I promise to pay P1000 to A or order or an air conditioner at the option of the holder –
NEGOTIABLE;
I promise to pay P1000 to A or order or air conditioner – NON-NEGOTIABLE because HOLDER
cannot COMPEL him to make payment in MONEY)
- NO VALUE given
(eg. NO written “for value received”)
- WITH SEAL
*PAYABLE ON DEMAND as regards the MAKER (late issuance), the ACCEPTOR (late received),
the INDORSER (late indorsed)
- drawer
(eg. Pay to the order of myself P1000)
or maker
(eg. I promise to pay to the order of myself P1000)
*”to the order of”, “or order”, “to A and his assigns” can be used.
*NO PAYEE, not named, not described – NON-NEGOTIABLE because there would be nobody who
could indorse the instrument and nobody who could give the order or authority to collect.
- Payable to order of FICTITIOUS PERSON and such fact was KNOWN to person making it so
payable.
(eg. Pay to King Kong or order P1000)
* The bill is PAYABLE TO BEARER and NOT TO ORDER because King Kong is
a fictitious (feigned/pretended) person.
ANY HOLDER may insert therein the true date of issue/acceptance and the instrument shall be
payable accordingly.
The insertion of a WRONG DATE DOES NOT avoid the instrument in the hands of the SUBSEQUENT
HDC; but as to him the date so inserted is to be regarded as the TRUE DATE.
*The authority to complete is not an authority to alter. So, the HOLDER has NO AUTHORITY to
change the amount after it has been filled in, or to insert the words OR ORDER or OR BEARER
after the name of the PAYEE.
4. RIGHT OF HDC
- not enforceable; personal defenses
- The rule is founded upon the principle that where one of 2 persons must suffer by the bad
faith of another, the loss must fall upon the one who FIRST REPOSED confidence and made it
possible for the loss to occur.
In the absence of any delivery, the instrument though complete in all particulars, there is NO
CONTRACT.
(2) RULES
1. DEFENSE EVEN AGAINST HDC
- Law is specific that instrument is NOT a VALID CONTRACT in the hands of any HOLDER even
HDC.
b. ISSUE – FIRST delivery of the instrument, complete in form, to a person who takes it as
HOLDER.
b. Instrument w/ interest but NO DATE specifies, interest runs from the date of instrument; if
instrument is UNDATED, from issue thereof.
e. Instrument is AMBIGUOUS whether note or bill, the HOLDER may treat it as EITHER at HIS
ELECTION.
f. Signature placed in instrument UNCLEAR what capacity person making the same intended to
sign, he is deemed INDORSER.
*Signature of: (usually)
MAKER – lower right-hand corner
DRAWEE – lower left-hand corner
HOLDER - back
g. Instrument contain words “I promise to pay” signed by TWO OR MORE PERSONS, they are
deemed to be JOINTLY AND SEVERALLY LIABLE thereon.
*”I promise to pay” signed by 2 or more persons – SOLIDARY LIABILITY (anyone of the signers
may be held liable for the whole amount of instrument)
*”We promise to pay” signed by 2 or more persons – JOINT LIABILITY (there are as many debts
are there are debtors, each debt being considered distinct and separate from each other)
Section 18 Liability of person signing in trade or assumed name
GENERAL RULE: Only persons whose signatures appear on an instrument ARE LIABLE thereon.
EXCEPTIONS:
a. Where a person signs in a trade or assumed name.
b. The PRINCIPAL is liable if a duly authorized agent signs on his own behalf.
c. In case of forgery, the FORGER is LIABLE even if his signature does not appear on the
instrument.
d. When the ACCEPTOR makes his acceptance of a bill on a SEPARATE paper.
e. Where a person makes a WRITTEN promise to ACCEPT a BILL BEFORE it is drawn.
- The authority of the AGENT may be shown, as in other cases of agency, to have been given
ORALLY or in WRITING subject to the provisions of the STATUTE OF FRAUDS. It has been held
competent for the AGENT to sign simply the PRINCIPAL’S NAME and to show his authority to do
so by other evidence.
*The MERE addition of DESCRIPTIVE WORDS w/o DISCLOSING the PRINCIPAL will not relieve
signer from personal liability, although he add to his signature the word AGENT, TRUSTEE,
ADMINISTRATOR, GUARDIAN, or DIRECTOR (words added are but description personae –
describing the person who signed the instrument)
Section 21 Effect of signature by PROCURATION
PROCURATION – act by w/c a PRINCIPAL gives power to another to act in HIS PLACE as he could
himself.
- has special and technical meaning; gives a WARNING that the AGENT has but a LIMITED
AUTHORITY so that IT IS the duty of the person dealing w/ him to INQUIRE into the extent of
his (AGENT) authority.
*The PRINCIPAL is NOT BOUND if the agent has exceeded the ACTUAL LIMITS of his authority,
although he may acted w/in the general scope of the agency.
A Mercado
Per Procuration: B San Miguel
(2) Cases where SIGNATURE is wholly INOPERATIVE and NO RIGHT can be acquired through
the FORGED SIGNATURE:
1. Where signature on instrument is affixed by one who DOES NOT claim to act as an agent and
who has NO AUTHORITY to bind the person whose signature he has forged; and
2. Where signature is affixed by one who purports to be an AGENT BUT NO AUTHORITY to bind
the ALLEGED principal.
*Section 23 DOES NOT purport to declare the instrument TOTALLY VOID nor the GENUINE
signatures thereon INOPERATIVE. IT IS ONLY THE FORGED/UNAUTHORIZED SIGANTURE that is
declared to be INOPERATIVE.
In other words, RIGHTS MAY STILL EXIST and be enforced by virtue of such instrument as to
those whose signature thereto are found to be genuine.
C cannot enforce the instrument against M and P because C’s rights against them are CUT
OFF by the FORGED SIGNATURE of A w/c is WHOLLY INOPERATIVE.
Neither can C enforce the note against A because A’s signature is wholly inoperative. C has
NO RIGHT to retain, discharge, or ENFORCE PAYMENT OF, the note UNDER the forged
signature of A.
A can recover from M and P because his rights against them WERE NOT affected by forgery.
The signature of M and P are genuine and they are liable to A on their contract.
READ pp.76-77
2 METHODS OF NEGOTIATION
1. BEARER – delivery
2. ORDER – indorsement then delivery
*ANY person in possession of BEARER instrument is ALWAYS the bearer thereof, although he
may have NO legal RIGHT thereto. Meaning, if instrument is negotiated to HDC, the latter may
acquire BETTER RIGHT than transferor.
*NO NEGOTIATION if the transfer does NOT make the transferee the HOLDER of instrument.
(eg. If M makes a note payable to P or order, then P delivers w/o indorsement to A, negotiation
is NOT affected because A, by such transfer, DOES NOT become the HOLDER.) – just an ordinary
ASSIGNMENT because it is ORDER instrument but NOT indorsed.
*PAYMENT of check (or other bill) by drawee-bank is NOT NEGOTIATION and does NOT make
bank the HOLDER; BANK is not the payee or indorsee; check is EXTINGUISHED and CANNOT be
put in circulation again to bind the drawer or indorser.
* The writing of HOLDER’s name on the back of the check before surrendering for PAYMENT to
drawee-bank is NOT INDORSEMENT. Signature merely serves as RECEIPT OF MONEY. Upon
payment, the CHECK becomes merely a VOUCHER, NOT a transfer of TITLE thereto.
NEGOTIATION ASSIGNMENT
*If negotiation refers to instrument already completely executed/ISSUED, then ONLY HOLDERS
SUBSEQUENT TO PAYEE can acquire title by NEGOTIATION.
*There is NEGOTIATION also to PAYEE when instrument delivered BACK to him by LAST HOLDER.
(In such case, indorsement of LAST HOLDER not necessary because PAYEE is remitted to his
FORMER RIGHTS, and all intervening parties are DISCHARGED from LIABILITY.)
INDORSEMENT (from Latin in dorsa – writing on the back) – writing of indorser’s name on the
instrument w/ the intent EITHER 1.) to transfer TITLE to the same, or 2.) to STRENGTHEN
security of HOLDER by assuming contingent liability for its future payment, OR BOTH.
FORM OF INDORSEMENT
Law does NOT require EXCLUSIVE FORM by w/c indorsement be accomplished but it must be IN
WRITING.
Just like signature of maker/drawer, INDORSEMENT may be written in INK, PRINTED, (RUBBER)
STAMPED, TYPEWRITTEN, or any means that will create a mark.
LOCATION OF INSTRUMENT
1. On instrument itself
*As a matter of practice, indorsement is WRITTEN AT THE BACK of instrument (referred to as
dorsal portion of instrument) but it may be written on the face (although it would entail risk
of being held liable as co-maker [PN] or co-drawer [BofE].
2. Upon paper attached thereto (allonge)
*A paper that is merely clipped/pinned to an instrument is NOT an ALLONGE, and anything
written on it CANNOT be considered as INDORSEMENT. Accordingly, person in possession of
instrument is NOT the HOLDER.
*If there is still space for indorsements, the use of ALLONGE should be avoided so as not to
cause CONFUSION on ORDER OF LIABILITY of indorsers.
*If instrument originally payable to ORDER, INDORSEMENT NECESSARY for FURTHER negotiation
of instrument.
*If instrument is payable to ORDER on its face and the ONLY or LAST indorsement is in BLANK,
it is CONVERTED into BEARER instrument.
*If instrument is payable to BEARER on its face, ANY indorsement, whether SPECIAL or BLANK,
does NOT change as BEARER instrument. (BEARER ALWAYS A BEARER.)
Pay to A
(Sgd.) P
Pay to B
(sgd.) A
Section 36 Restrictive indorsement:
RESTRICTIVE INDORSEMENT – RESTRAINS the negotia-bility of instrument for purpose or to the
person stated therein.
Mere absence of words of negotiability does NOT make the indorsement restrictive.
*BUT if there are restrictive words stated like “only”, it prevents further negotiation,
become restrictive indorsement, and NON-NEGOTIABLE.