NEGOTIABLE INSTRUMENTS

LAW (PART 1)
Reporting of group 5 1

Concept and Classes of Negotiable Instruments Understanding Negotiable Instruments

 Negotiable instruments are transferable

It's characterized by being transferable; ownership of the instrument can be handed
over simply by delivery or by a valid endorsement. The most common types of
negotiable instruments are personal, cashier's, traveler's checks, money orders,
promissory notes, and CDs.
so the holder can take the funds as cash or use them for a
transaction or other way as they wish. The fund amount listed on the document includes the
specific amount promised, and must be paid in full either on-demand or at a specified time.
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.
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LAW (PART 1)
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Other common types of negotiable instruments include:  It is a written legal document.

 bills of exchange  There must be a clear, point to point and unconditional promise of paying a certain
 promissory notes amount to a specified person.
 drafts  It should be drawn and signed by the maker.
 CDs.  It should be stamped properly.
 It specifically identifies the name of the maker and payee.
Use of Negotiable Instrument  The amount that is to be paid should be certain, written in both figures and words.
A negotiable instrument promises a payment to a specified person or assignee. It is  Payment is to be made in the country’s legal currency.
transferable, so it allows the holder to take the funds as cash, then use the money as they see
fit. Other characteristics of a Promissory Note
 Literality
Benefit of a Negotiable Instrument The payment requirement will be limited to what is stipulated in the document.
A negotiable instrument is easily transferable. There are no formalities and limited
paperwork involved in making such a transfer. The instrument's ownership can be shifted  Autonomy
simply by delivery or by a valid endorsement. The promissory note can change the beneficiary if the beneficiary so wishes.

Two Kinds of Negotiable Instruments  Circulation or translation

1. An order to pay - this covers drafts and checks. This right refers to the fact that a document can circulate freely and change ownership.
2. A promise to pay - promissory notes and CDs.
 Abstraction
The Bottom Line A negotiable instrument The promissory note will persist and be enforceable independently of the cause that
like as a personal or cashier's check, is a document that promises an amount of money to a originated it.
particular person or entity. It's characterized by being transferable; ownership of the
instrument can be handed over simply by delivery or by a valid endorsement.  Incorporation
To exercise and claim the rights and obligations associated with the promissory note
The most common types of negotiable instruments are:
 personal General Characteristics of a Bill Exchange
 cashier's
 traveler's checks
 money orders A bill of exchange, a type of negotiable instrument, possesses several general characteristics
 promissory notes
 CDs.
1. Parties Involved:
General Characteristics of a Promissory Note  Drawer - The person who creates and issues the bill.
 Drawee - The party upon whom the bill is drawn, usually the debtor.
is a written and signed promise to repay a sum of money in exchange for a loan or other  Payee - The individual or entity to whom payment is to be made.
financing. A promissory note typically contains all the terms involved, such as the principal
debt amount, interest rate, maturity date, payment schedule, the date and place of issuance,
and the issuer's signature.
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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:

3. Payment in Money: 13. Consideration

The payment specified must be in a monetary form and is not contingent on any other factor.
4. Specific Amount
The bill must state a fixed amount of money and must be expressed in the currency of the
country.
Like any contract, a bill of exchange requires consideration, meaning there must be
something of value exchanged between the parties.
14. Date
The bill should have a date of issuance, providing clarity on when it was created.

5. Time of Payment 15. Place of Payment

The bill must indicate a definite time for payment, whether on demand or at a future date. The location where payment is to be made should be clearly mentioned in the bill.

6. Signature 16. Notation of Without Recourse

It requires the signature of the drawer, which is essential for validity. If the drawer wants to disclaim liability in case of non-payment, they can add the words
'without recourse' when endorsing the bill.
7. Stamp Duty
Depending on the jurisdiction, a bill of exchange may need to be stamped to be legally 17. Renewal and Extension
enforceable. The terms of renewal or extension, if applicable, should be clearly stated.

8. Negotiability 18. Interest

Bills of exchange are negotiable instruments, allowing for their transfer by endorsement. If the bill carries an interest rate, it should be explicitly mentioned.

9. Acceptance 19. Drawee's Capacity

The drawee may formally accept the bill, committing to pay on the specified date.
10. Noting and Protest
In case of dishonor (non-payment), noting and protest may be required to preserve the rights
of the holder.
If the drawee is acting in a representative capacity, such as an agent, it should be clearly
stated.
20. Lost or Stolen Bills
Procedures for handling lost or stolen bills and the issuance of duplicates can be outlined.

11. Holder in Due Course 21. Dispute Resolution

A holder who acquires the bill in good faith, for value, and without notice of any defects, Consider including a clause specifying the jurisdiction for dispute resolution in case conflicts
becomes a holder in due course with certain legal advantages. arise.

12. Crossing 22. Electronic Bills

Crossing involves adding two parallel lines across the face of the instrument, indicating that In modern contexts, the legality and procedures for electronic bills of exchange may also be
payment should be made only through a bank. addressed.
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LAW (PART 1)
Reporting of group 5
Functions and Characteristics
The negotiable instrument law governs the use and transfer of negotiable instruments, which
are written promises or orders to pay a specified sum of money.
The key functions and characteristics of negotiable instrument law include:
1. Transferability
Negotiable instruments are easily transferable from one party to another by endorsement or
delivery. This allows for the efficient and quick transfer of funds.
2. Payment in Due Course
A negotiable instrument can be enforced against the party liable for payment only if it is
presented for payment in due course. This protects the rights of the parties involved and
ensures that payment is made according to the specified terms of the instrument.
3. Holder in Due Course
A holder in due course is a person who takes a negotiable instrument for value, in good faith,
without notice of any defects or claims against it. Holders in due course have certain legal
rights and protections, such as the ability to enforce payment against the parties liable.
4. Negotiability
Negotiable instruments must meet certain criteria to be considered negotiable, including
being in writing, signed by the maker or drawer, containing an unconditional promise or
order to pay, and being payable on demand or at a definite time.
5. Prima Facie Evidence
A negotiable instrument is considered to be prima facie evidence of the underlying debt or
obligation. This means that if a negotiable instrument is properly executed, it provides strong
evidence of the existence of a legally enforceable debt.
6. Warranties
Negotiable instrument law provides warranties for the parties involved. For example, the
person transferring a negotiable instrument warrants that he/she has the right to transfer it,
and the person receiving the instrument warrants that he/she will pay it according to the
terms.
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7. Discharge and Defenses
Negotiable instrument law provides rules for discharge of liability and defenses that can be
raised against a claim on the instrument. For example, if a negotiable instrument is paid or
discharged, the party who paid it cannot be held liable again for the same debt.
Overall, the negotiable instrument law provides a legal framework for the use, transfer, and
enforcement of negotiable instruments, ensuring security, transferability, and enforceability
of financial transactions.
Other kinds of Stocks/Shares
In the context of stocks and shares, they are not considered negotiable instruments. But they
are financial assets that represent ownership (stocks) or a debt that will provide future cash
flows (bonds). They can be bought or sold in the stock market or in other secondary markets.
Two types of stocks of negotiable instruments.
1. Common stock
is a type of stock which gives the owners the right to vote in corporations and to apportion
their profits.
2. Preferred Stock
is a type of stock that gives shareholders additional rights over common stock. It also a type
of investment security that has the characteristics of both Debt and Equity.
In it's dept, ( Preferred Shares )
usually provides a fixed regular income called " Dividends ".
In Equity, the investor is given the right to be part owner of the company.
The Dividends on preferred shares are usually fixed percentages of par or issuance value of
stock.
Various types of preferred stocks
1. Cumulative Preferred Stock
is a type of preferred stock that provides additional benefits to shareholders compared to
other types of preferred stock.
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 Cumulative Preferred Shares Examples of negotiable instruments:

this too affords additional protection to shareholders. If dividends are not paid in a year, they  Checks
will not be forfeited and accrual until paid.  Promissory notes
 Bills of exchange
2. Non-cumulative Preferred Stock  Money orders
is a type of preferred stock that does not provide additional benefits to shareholders  Certificates of deposit (CDs)
compared to other types of preferred stock.  Traveler's checks

 Non-cumulative Preferred Shares Non-negotiable instruments

this affords no further protection to shareholders. If the dividend is not paid in a year, it will are written contracts that cannot be transferred freely from one person to another without the
not accrue and it will not be paid any further. consent of the original maker or drawer.

3. Participating Preferred Stock Examples of non-negotiable instruments:

is a type of preferred stock that provides additional benefits to shareholders compared to  Invoices
other type of preferred stock. This will provide additional dividends to shareholders in case  Contracts for goods or services
of the company.  Leases
 Mortgages
4. Convertible Preferred Stock  Insurance policies
is a type of preferred stock that also provides additional benefits to shareholders. It has the
characteristics of both debt, and equity.
Brief explanation and discussion
 Convertible Preferred Shares
it has a right to convert to common shares in a fixed conversion ratio after a fixed date. If the  Negotiable instruments are used in commerce to facilitate the exchange of goods and
value of common shares increases, he can convert his convertible preferred shares and save services. They are desirable because they are liquid, meaning that they can be easily
the downside risk if the value of common shares Drop. converted to cash. This makes them a convenient and efficient way to make payments.

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
bearer of the instrument on demand or at a specified future date. It can be transferred freely
from one person to another without the consent of the original maker or drawer.
Here is a brief example of the difference between a negotiable instrument and a non-
negotiable instrument:
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.
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Reporting of group 5
Non-negotiable instrument: You sign a contract to buy a car from a dealership. The
contract states that you will pay the dealership Php 50,000 for the car. You cannot transfer
the contract to someone else without the dealership's consent.
The key difference between negotiable and non-negotiable instruments
negotiable instruments can be transferred freely from one person to another without the
consent of the original maker or drawer. This makes them more liquid and more convenient
to use for commercial transactions.
 Form in negotiable law refers to the specific requirements that a document must meet
in order to be considered a negotiable instrument
 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
sum certain in money (the amount of the check) to a specific person or to bearer.
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
also contain conditions or other terms that affect their negotiability.
Example: A contract for the sale of goods is not a negotiable instrument because it typically
contains conditions, such as the buyer's obligation to pay for the goods and the seller's
obligation to deliver the goods.
Interpretation in negotiable law involves understanding the terms and intent of a negotiable
instrument, ensuring consistency and clarity in legal transactions.
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
interpretation of the note is straightforward.
However, what if the promissory note stated "I promise to pay 20,000 to John when he
finishes painting my house"? This note would still be a negotiable instrument, but the
interpretation would be a bit more complex. The court would need to determine when John
Doe finishes painting the house, which may or may not be a fixed or determinable future
time.
Negotiation and Holders
NIL: Negotiable instruments can be negotiated, meaning that they can be transferred from
one person to another without the consent of the original maker or drawer. The holder of a
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negotiable instrument has certain rights, such as the right to demand payment from the maker
or drawer, and the right to sue on the instrument if payment is not made.
Example: If you are given a check from a friend, you can negotiate the check by endorsing it
(signing your name on the back of the check) and giving it to someone else. The person to
whom you give the check is now the holder of the check, and they have the right to demand
payment from the drawer of the check.
Other papers: Other papers may or may not be negotiable. If a paper is negotiable, the
holder of the paper has certain rights, such as the right to demand performance from the other
parties involved. However, the rights of the holder of a non-negotiable paper may be more
limited.
Another example of a non-negotiable paper is a contract for services. For example, if you
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.
If you try to transfer a non-negotiable paper to someone else without the consent of the
original maker or drawer, the transfer may be invalid. This means that the new holder of the
paper may not have any rights against the original maker or drawer.
Liability of Parties, Defenses and Enforcement
The topic of liability of parties, defenses, and enforcement pertains to legal concepts related
to accountability in various scenarios, such as contracts, torts, or criminal activities. In
reporting on this topic, we'll discuss these concepts and provide situational examples to
illustrate their applications.
Liability of Parties
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
contractual obligations, they can be held liable for breach of contract. For example, if
Company A fails to deliver goods to Company B as specified in their contract, Company A is
liable for the breach.
Defenses
Defenses are legal strategies or arguments used by parties to counter or mitigate liability. In a
negligence case, a common defense is contributory negligence, where the injured party's
actions also played a role in the incident. For instance, in a car accident case, the defendant
might argue that the plaintiff was also negligent, reducing their own liability.
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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.