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Negotiable Instruments Review Notes Group 5
Negotiable Instruments Review Notes Group 5
Negotiable Instruments Review Notes Group 5
LAW (PART 1)
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It's characterized by being transferable; ownership of the instrument can be handed so the holder can take the funds as cash or use them for a
over simply by delivery or by a valid endorsement. The most common types of transaction or other way as they wish. The fund amount listed on the document includes the
negotiable instruments are personal, cashier's, traveler's checks, money orders, specific amount promised, and must be paid in full either on-demand or at a specified time.
promissory notes, and CDs. A negotiable instrument can be transferred from one person to another. Once the instrument
is transferred, the holder gains full legal title to the instrument.
These documents provide no other promise on the part of the entity issuing the instrument. In
Negotiable Instrument
addition, no other instructions or conditions can be made for the bearer to receive the amount
A negotiable instrument is a signed document that promises a payment to a specified listed on the negotiable instrument.
person or assignee.
For an instrument to be negotiable it must be signed, with a mark or signature, by the
In other words, it is a formalized type of IOU: A transferable, signed document that maker of the instrument the one issuing the draft.
promises to pay the bearer a sum of money at a future date or on-demand.
This entity or person is known as the drawer of funds.
Common examples of negotiable instruments
personal checks Examples of Negotiable Instruments
cashier's checks 1. Personal Check.
one of the more well-known negotiable instruments. It serves as a draft, payable by the
money orders
payer’s financial institution once it's received, in the exact amount specified.
certificates of deposit (CDs)
promissory notes 2. Cashier’s Check
traveler's checks. serves the same function but it requires the funds to be allocated, or set aside, for the payee
prior to the check being issued.
The person receiving the payment, known as the payee, must be named or otherwise
indicated on the instrument. Because they are transferable and assignable, some negotiable 3. Traveler’s Checks
instruments may trade on a secondary market. they require two signatures to complete a transaction. At the time of issue, the holder must
sign the document to provide a specimen signature. Once the payer determines to whom the
KEY TAKEAWAYS payment will be issued, a countersignature must be provided for payment.
Are generally used when someone is traveling to a foreign country and is looking for a
A negotiable instrument is a signed document that promises a payment to a specified
payment method that provides an additional level of security against theft or fraud while
person or assignee.
traveling.
Negotiable instruments are transferable, which allows the recipient to take the funds as
cash, then use them as preferred. Examples of negotiable instruments include checks,
money orders, and promissory notes.
NEGOTIABLE INSTRUMENTS
LAW (PART 1)
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2. Unconditional Order for Payment Understanding these characteristics is crucial for parties involved in bill exchanges to ensure
The instrument contains an unequivocal directive from the drawer to the drawee to pay a compliance with negotiable instruments law. Certainly, here are a few additional points that
specific sum of money. may be relevant:
Negotiable Instruments Law (NIL) Compared with Other Papers Non-negotiable instruments are typically used for more specific purposes, such as
documenting a contract for goods or services or securing a loan. They are not as liquid
as negotiable instruments, but they can still be useful in certain situations.
Form and Interpretation
Negotiable instrument
is a written contract that promises to pay a certain sum of money to a specific person or the Here is a brief example of the difference between a negotiable instrument and a non-
bearer of the instrument on demand or at a specified future date. It can be transferred freely negotiable instrument:
from one person to another without the consent of the original maker or drawer.
Negotiable instrument: You write a check to your friend celynah for 2000pesos. Celynah
can then endorse the check and give it to someone else, such as angel. Angel can then deposit
the check into her bank account and receive the 2000 pesos.
NEGOTIABLE INSTRUMENTS
LAW (PART 1)
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Non-negotiable instrument: You sign a contract to buy a car from a dealership. The negotiable instrument has certain rights, such as the right to demand payment from the maker
contract states that you will pay the dealership Php 50,000 for the car. You cannot transfer or drawer, and the right to sue on the instrument if payment is not made.
the contract to someone else without the dealership's consent.
Example: If you are given a check from a friend, you can negotiate the check by endorsing it
The key difference between negotiable and non-negotiable instruments (signing your name on the back of the check) and giving it to someone else. The person to
negotiable instruments can be transferred freely from one person to another without the whom you give the check is now the holder of the check, and they have the right to demand
consent of the original maker or drawer. This makes them more liquid and more convenient payment from the drawer of the check.
to use for commercial transactions.
Other papers: Other papers may or may not be negotiable. If a paper is negotiable, the
Form in negotiable law refers to the specific requirements that a document must meet holder of the paper has certain rights, such as the right to demand performance from the other
in order to be considered a negotiable instrument parties involved. However, the rights of the holder of a non-negotiable paper may be more
limited.
Example: A check is a negotiable instrument because it is in writing, signed by the
drawer (the person who writes the check), and contains an unconditional order to pay a Another example of a non-negotiable paper is a contract for services. For example, if you
sum certain in money (the amount of the check) to a specific person or to bearer. sign a contract with a contractor to renovate your kitchen, the contract is not negotiable. This
means that you cannot transfer the contract to someone else without the contractor's consent.
Other papers: Other papers, such as contracts, letters of credit, and warehouse receipts, may
or may not be in writing, and may or may not be signed by the parties involved. They may If you try to transfer a non-negotiable paper to someone else without the consent of the
also contain conditions or other terms that affect their negotiability. original maker or drawer, the transfer may be invalid. This means that the new holder of the
Example: A contract for the sale of goods is not a negotiable instrument because it typically paper may not have any rights against the original maker or drawer.
contains conditions, such as the buyer's obligation to pay for the goods and the seller's
obligation to deliver the goods. Liability of Parties, Defenses and Enforcement
The topic of liability of parties, defenses, and enforcement pertains to legal concepts related
Interpretation in negotiable law involves understanding the terms and intent of a negotiable to accountability in various scenarios, such as contracts, torts, or criminal activities. In
instrument, ensuring consistency and clarity in legal transactions. reporting on this topic, we'll discuss these concepts and provide situational examples to
illustrate their applications.
For example, a promissory note that states "I promise to pay 50,000 to celynah on October
15, 2023" is clearly a negotiable instrument. The form requirements are all met, and the Liability of Parties
interpretation of the note is straightforward. Liability in legal terms refers to the responsibility a party holds for their actions, often
leading to legal obligations. In the context of contracts, when a party fails to fulfill their
However, what if the promissory note stated "I promise to pay 20,000 to John when he contractual obligations, they can be held liable for breach of contract. For example, if
finishes painting my house"? This note would still be a negotiable instrument, but the Company A fails to deliver goods to Company B as specified in their contract, Company A is
interpretation would be a bit more complex. The court would need to determine when John liable for the breach.
Doe finishes painting the house, which may or may not be a fixed or determinable future
time. Defenses
Defenses are legal strategies or arguments used by parties to counter or mitigate liability. In a
Negotiation and Holders negligence case, a common defense is contributory negligence, where the injured party's
NIL: Negotiable instruments can be negotiated, meaning that they can be transferred from actions also played a role in the incident. For instance, in a car accident case, the defendant
one person to another without the consent of the original maker or drawer. The holder of a might argue that the plaintiff was also negligent, reducing their own liability.
NEGOTIABLE INSTRUMENTS
LAW (PART 1)
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Enforcement involves ensuring compliance with legal obligations or penalties for non-
compliance.
Example: A company issues a promissory note to a bank, promising to pay back a loan
within a certain period of time. If the company fails to pay back the loan, the bank can file a
lawsuit to enforce the promissory note. If the bank is successful, the court will enter a
judgment against the company, ordering the company to pay the bank the amount due on the
note.The bank can then use the judgment to collect the debt from the company. For example,
the bank can garnish the company's bank accounts or levy on the company's property.