Negotiable Instruments Law Part 1

NEGOTIABLE

INSTRUMENTS LAW

PART 1

INTRODUCTION: GENERAL

CONCEPTS

COMMERCIAL LAWS: that branch of private law which regulates the juridical

relations arising from commercial acts and according to which the questions or

controversies which may arise therefrom are resolved.

Coverage of Commercial Laws:

1. Negotiable Instruments 11. Insolvency

2. Warehouse receipts 12. Securities

3. Letters of Credit 13. Intellectual properties

4. Partnership 14. Public utilities

5. Corporation 15. Bottomry

6. Single proprietorship

7. Joint accounts

8. Insurance

9. Mortgage

10.Banking regulations


CONCEPTS

COMMERCE: the mass of acts of

human life which tend to the satisfaction

of necessities by means of exchange or

of the rendition of services. Effected with

a purpose of gain and falling within the

domain of mercantile laws.


CONCEPTS

GOVERNING LAWS:

1. The NIL (Act No. 2031)

2. The Code of Commerce

3. The New Civil Code (suppletory)

4. Decisions of the courts in the US and in

England based on the American Uniform

Negotiable Instruments Law and the Bill of

Exchange Act of 1882


CONCEPTS

FUNCTIONS OF A NEGOTIABLE

INSTRUMENT:

1. It operates as a substitute for money

2. It is a means of creating and transferring

credit

3. It facilitates the sale of goods

4. It increases the purchasing medium in

circulation


CONCEPTS

NEGOTIABLE INSTRUMENTS ARE NOT LEGAL TENDER: Sec 52 of

the New Central Bank Act (NCBA), R.A. No. 7653 provides that only

notes and coins issued by the Bangko Sentral ng Pilipinas are

considered legal tender.

Sec. 60 of the NCBA provides that checks are not legal tender.

COINS AS LEGAL TENDER: Sec 52 of R.A. No. 7653 and BSP Circular

No. 537, Series of 2006, the maximum amount of coins to be considered

as legal tender is adjusted as follows:

a) P1,000.00 for denominations of 1-peso, 5-peso and 10-peso coins

b) P100.00 for denominations of 1-centavo, 5-centavo, 10-centavo, and

25-centavo coins.


CONCEPTS

IMPORTANT FEATURES OF NEGOTIABLE INSTRUMENTS:

Negotiability It is that attribute or property whereby a bill or note or check may pass from hand to hand similar to money, so as to give the holder in due course

the right to hold the instrument and to collect the sum payable for himself free

from defenses.

Accumulation of Secondary Contracts Secondary contracts are picked up and carried along with them as they are negotiated form one person to another,

or in the course of negotiation of a negotiable instrument, a series of juridical ties

between the parties thereto arise by law or by privity.


CONCEPTS

PARTIES TO THE NEGOTIABLE INSTRUMENTS

A. PROMISSORY NOTE

MAKER/PROMISSOR the party making the promise PAYEE the party to whom the promise is made

B. BILL OF EXCHANGE

DRAWER the person drawing or making the instrument or the person giving the order

DRAWEE the addressee of the order to pay or the person required to pay the instrument

PAYEE the person to whom payment is to be made


CONCEPTS

LIABILITY OF PARTIES TO THE NEGOTIABLE

INSTRUMENTS

A. PRIMARY LIABILITY

MAKER

ACCEPTOR OF A BILL

B. SECONDARY LIABILITY

DRAWER OF A BILL

INDORSERS OF A BILL OR NOTE

C. NOT LIABLE

DRAWEE , until he accepts


CONCEPTS

INCIDENTS IN THE LIFE OF A NEGOTIABLE INSTRUMENT

a. ISSUE first negotiation b. NEGOTIATION

c. PRESENTMENT FOR ACCEPTANCE

d. ACCEPTANCE

e. DISHONOR BY NON-ACCEPTANCE

f. PRESENTMENT FOR PAYMENT

g. DISHONOR BY NON-PAYMENT

h. NOTICE OF DISHONOR

i. PROTEST (for foreign bills)

j. DISCHARGE


CONCEPTS

KINDS OF NEGOTIABLE INSTRUMENTS:

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 bearer.

(Sec. 126 NIL)

PROMISSORY NOTE a negotiable promissory note is an unconditional promise in writing made by one person to another, signed

by the maker, engaging to pay on demand, or at a fixed or determinable

future time, a sm certain in money or to bearer. Where a note is drawn

to the makers own order, it is not complete until indorsed by him. (Sec. 184, NIL).


CONCEPTS

KINDS OF BILL OF EXCHANGE:

1. DRAFT used synonymously with bill of exchange although it normally refers to a bill of exchange used in documentary exchange like letters of credit transactions.

2. INLAND AND FOREIGN BILL an inland bill is a bill which is, or on its face purports to be, both drawn and payable within the Philippines. Any other bill is a

foreign bill.

3. TIME DRAFT draft that is payable at a fixed date. 4. SIGHT OR DEMAND DRAFT draft that is payable when the holder presents it for

payment.

5. TRADE ACCEPTANCE bill that is used in contracts of sale where the seller as drawer orders the buyer (as drawee) to pay a sum certain to the same seller

(payee).

6. BANKERS ACCEPTANCE a time draft across the face of which the drawee has written the cord accepted.

7. CHECK a bill of exchange drawn on a bank payable on demand.


CONCEPTS

KINDS OF PROMISSORY NOTE:

CERTIFICATE OF DEPOSIT a form of promissory note which is a written acknowledgment of a bank or its receipt of a certain sum with a promise to pay

the same.

BONDS a certificate or evidence of a debt on which the issuing company or governmental body promises to pay the bondholders a specified amount of

interest for a specified length of time and to repay the loan on the expiration date.

DEBENTURE a promissory note or bond backed by the general credit of a corporation and usually not secured by a mortgage or lien on any specific

property.


CONCEPTS

WHEN CAN A BILL OF EXCHANGE BE TREATED

AS A PROMISSORY NOTE?

(Sec 17 [e] and 130, NIL)

1.When the drawer and the drawee are the same

person

2.The drawee is a fictitious person

3.The drawee has no capacity to contract

4.The instrument is so ambiguous that there is

doubt whether it is a bill of a note


CONCEPTS

NEGOTIABILITY OF THE FOLLOWING

COMMERCIAL PAPERS:

1. CROSSED CHECK usually negotiable as it normally complies with the requirements of Sec

1, NIL but issued for special purpose and can be

negotiated only once.

2. TRADE ACCEPTANCE negotiable, it is a bill of exchange addressed by the seller of the goods

to the buyer subject to compliance with Sec 1,

NIL.


CONCEPTS

3. MONEY ORDER non-negotiable as it is governed by postal rules and regulations which

may be inconsistent with the NIL and can only be

negotiated once.

4. WAREHOUSE RECEIPT and BILL OF LADING non negotiable as it represents goods and not

money


CONCEPTS

5. PAWN TICKET non negotiable as it does not represent money but the pawned articles.

6. TREASURY WARRANT non-negotiable being payable out of a particular fund.

7. TRUST RECEIPT non-negotiable under the NIL as it is an evidence of goods and not of money

NEGOTIABLE INSTRUMENTS

Stale Check one which has not been presented for payment within a

reasonable time after its issue;

becomes valueless; 6 months


CROSSED CHECK One which bears across its face two parallel lines drawn diagonally, usually on

the upper left side

a. General name of intermediary may be included

b. Special payment must only be made to the entity/person indicated

Pay to the order of Mary Montes the sum of ONE

THOUSAND PESOS (P1,000.00) only.

Rudy Martin

RCBC- Baguio


Based on Sec. 1, are the following documents negotiable or non-negotiable? 1. Letter of Credit 2. Treasury Warrant 3. Postal Money Order 4. Bill of Lading 5. Certificate of Stock 6. Warehouse Receipt 7. Dock Warrant 8. Memorandum Check 9. Cashiers Check 10. Managers Check 11. Travelers Check 12. Certified Check 13. Crossed Check

BILLS OF EXCHANGE

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 bearer. (Sec. 126 NIL)

PARTIES:

DRAWER the person drawing or making the instrument or the person giving the order

DRAWEE the addressee of the order to pay or the person required to pay the instrument

PAYEE the person to whom payment is to be made

BILLS OF EXCHANGE B/E P.N

Contains an unconditional order by

one to another to pay the instrument

Contains an unconditional promise

made by one to another

There are 3 parties There are 2 parties

The drawer who issues the bill is

secondarily liable

The maker who issues the note is

primarily liable

A bill drawn payable to the drawers own order is complete without

indorsement as long as accepted by

the drawee

A note payable to the makers own order is not complete until indorsed by

him

Must be present for acceptance to the

drawee

Need not be presented for acceptance

If payable on demand, the bill must

be presented for payment within a

reasonable time from last negotiation

If payable on demand, the note must be

presented for payment within a

reasonable time from its issue

BILL OF EXCHANGE

When is a PN like a B/E?

After a note is indorsed by the payee, it becomes

just like a bill. The maker corresponds to the

acceptor, the indorser as the drawer and the indorsee

as the payee.

When is a B/E like a PN?

Once accepted, a bill becomes similar to a PN. The

acceptance is the promise to pay and the acceptor

becomes the promissor/principal debtor/maker while

the drawer becomes like the first indorser or surety of

the acceptor.

BILL OF EXCHANGE DRAFT- used synonymously with bill of exchange although it normally

refers to a bill of exchange used in documentary exchange like letters of

credit transactions.

BILL OF EXCHANGE

INLAND AND FOREIGN BILL an inland bill is a bill which is, or on its face purports to be, both drawn and payable within the Philippines. Any other

bill is a foreign bill

BILL OF EXCHANGE

IMPORTANCE OF THE DISTINCTION BETWEEN

INLAND AND FOREIGN BILL

1. To determine when protest will apply

2. To determine the law that will govern the validity,

interpretation and effect of the bill

**For this purpose, the different states of the USA are deemed

foreign to each other

**A bill drawn in the Philippines and payable in California or

drawn in New York and payable in Arizona are foreign bills as

they are not both drawn and payable in the Philippines.

BILL OF EXCHANGE

TIME DRAFT draft that is payable at a fixed date.

BILL OF EXCHANGE

SIGHT OR DEMAND DRAFT draft that is payable when the holder presents it for payment.

BILL OF EXCHANGE

TRADE ACCEPTANCE bill that is used in contracts of sale where the seller as drawer orders the buyer (as drawee) to pay a sum certain to the

same seller (payee).

BILL OF EXCHANGE

BANKERS ACCEPTANCE a time draft across the face of which the drawee has written the word accepted.

BILL OF EXCHANGE

CHECK a bill of exchange drawn on a bank payable on demand.

BILL OF EXCHANGE

CHECK v ORDINARY B/E

CHECK a bill of exchange drawn on a bank payable on demand.It is usually drawn against previous deposit of funds for it

is ordinarily intended for immediate payment. It is not usually

required to be presented for acceptance but for payment.

However, there is no prohibition from presenting it for acceptance.

Sec 187 provides that Where a check is certified by a bank on which it is drawn, the certification is equivalent to an

acceptance. Certification implies that the check is drawn upon sufficient funds in the hands of the drawee, that they have been

set apart for its satisfaction, and that they shall be so applied

whenever the check is presented for payment.

BILL OF EXCHANGE

Sec. 127. Bill not an assignment of funds in hands of drawee. -

A bill of itself does not operate as an assignment of the funds

in the hands of the drawee available for the payment thereof,

and the drawee is not liable on the bill unless and until he

accepts the same.

Sec. 128. Bill addressed to more than one drawee. - A bill may

be addressed to two or more drawees jointly, whether they are

partners or not; but not to two or more drawees in the

alternative or in succession.

Ex. Pay to the order of A,B and C P10K. Payment to any one of them is valid.

BILL OF EXCHANGE

EXAMPLE FOR SEC 128

Ex. TO: X and Y

Pay to the order of A and B P10K. SGD

***Payment by any one of them is valid and discharges the

instrument. But the following is not allowed:

Ex. TO: X or Y = alternative

Pay to the order of A or B P10K. SGD

Ex TO: X, and in his absence, B = successive

Pay to A, B and/or C P10K. SGD

***Compare with Sec 8 (payees) and Sec 68 (joint

indorsees=solidary)

BILL OF EXCHANGE

Sec. 129. Inland and foreign bills of exchange.

- An inland bill of exchange is a bill which is, or

on its face purports to be, both drawn and

payable within the Philippines. Any other bill is

a foreign bill. Unless the contrary appears on

the face of the bill, the holder may treat it as an

inland bill.

BILL OF EXCHANGE

Sec. 130. When bill may be treated as

promissory note. - Where in a bill the drawer

and drawee are the same person or where the

drawee is a fictitious person or a person not

having capacity to contract, the holder may

treat the instrument at his option either as a bill

of exchange or as a promissory note.

BILL OF EXCHANGE

Sec. 131. Referee in case of need*. - The drawer

of a bill and any indorser may insert thereon the

name of a person to whom the holder may resort

in case of need; that is to say, in case the bill is

dishonored by non-acceptance or non-payment.

Such person is called a referee in case of need. It

is in the option of the holder to resort to the

referee in case of need or not as he may see fit.

*umpire, arbiter, mediator, go-between

BILL IN SET Sec 178-183

Sec. 178. Bills in set constitute one bill. - Where a bill

is drawn in a set, each part of the set being numbered

and containing a reference to the other parts, the

whole of the parts constitutes one bill.

*** A bill in a set is one composed of several parts, each part being numbered and containing a

reference to the other parts, the whole of the

parts constituting but one bill


1st P

art

1 Jan 2013

Thirty days after sight of this First of Exchange (Second and Third Unpaid), pay to the order of Jay Criz P5K.

SGD. Alph TO: Mu Moy Baguio City

2nd P

art

2 Feb 2013

Thirty days after sight of this Second Exchange (First and Third Unpaid), pay to the order of Jay Criz P5K

SGD. Alph TO: Mu Moy Baguio City

3rd

Part

3 March 2013

Thirty days after sight of this Third Exchange(First and Second Unpaid), pay to the order of Jay Criz P5K.

SGD. Alph

TO; Mu Moy

Baguio City


Sec. 179. Right of holders where different parts are negotiated.

- Where two or more parts of a set are negotiated to different

holders in due course, the holder whose title first accrues is, as

between such holders, the true owner of the bill. But nothing

in this section affects the right of a person who, in due course,

accepts or pays the parts first presented to him.

**Each part may be negotiated but the payee is NOT supposed

to negotiate all the parts since the only reason for drawing the

bill in parts is to obtain greater assurance that at least one part

will reach the payee safely. As between holders in due course,

the holder whose title first accrues is the owner of the bill.

Payee will be liable to all if he negotiates all parts.


Sec. 180. Liability of holder who indorses two or more parts of

a set to different persons. - Where the holder of a set indorses

two or more parts to different persons he is liable on every

such part, and every indorser subsequent to him is liable on

the part he has himself indorsed, as if such parts were

separate bills.

**Drawee is liable only for one part (Sec 183)


Sec. 181. Acceptance of bill drawn in sets. - The

acceptance may be written on any part and it

must be written on one part only. If the drawee

accepts more than one part and such accepted

parts negotiated to different holders in due course,

he is liable on every such part as if it were a

separate bill.


Sec. 182. Payment by acceptor of bills drawn in

sets. - When the acceptor of a bill drawn in a set

pays it without requiring the part bearing his

acceptance to be delivered up to him, and the part

at maturity is outstanding in the hands of a holder

in due course, he is liable to the holder thereon.

** The drawee only warrants the part he

accepts


Sec. 183. Effect of discharging one of a set. -

Except as herein otherwise provided, where any

one part of a bill drawn in a set is discharged by

payment or otherwise, the whole bill is discharged.

**As far as the drawer is concerned, the entire

bill is discharged if any one part is discharged.

REFERENCES

Abad, Antonio H Jr.(2006), Negotiable Instruments Law, Quezon City, Central Book Supply Inc

Agpalo, Rube E. (2005), The Negotiable Instrument Law, Manila Rex

De Leon, H.S. (2010), The Negotiable Instruments Law, Quezon City: REX Printing Company, Inc.

Black's law dictionary (8th ed) (2007). St. Paul, MN. : West Pub.

De Leon, Hector S. (2010). (2010 ed.).The Philippine negotiable instruments law and allied laws annotated Manila: Rex,

Commercial laws of the Philippines. (2009). Manila: Rex.

Salao, Ernesto C. Law Dictionary. (2009). Manila: Rex

IMPORTANT LINKS

notarizationattorney.com

Password: lecturenotes!!!

Negotiable Instruments Law Part 1

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