Negotiable Instruments Lecture

NEGOTIABLE INSTRUMENTS LAW

DEFINITIONS:

1. PROMISORY NOTE – It 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 sum certain in money, to order or to bearer. (Sec. 184, NIL)
2. BILL OF EXCHANGE – It is 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 a fixed or determinable future time a sum certain in money, to order or to bearer. (Sec. 126, NIL)
3. CHECK – a form of a Bill of Exchange drawn on a bank and always payable on demand. (Sec. 185, NIL)

REQUISITES OF A NEGOTIABLE INSTRUMENT – (Sec. 1)

1. It must be in writing and signed by the maker or drawer.
2. Must contain an unconditional promise or order to pay a sum certain in money.
3. Must be payable on demand or at a fixed or determinable future time.
4. Must be payable to order or to bearer.
5. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

DIFFERENT KINDS OF BILL OF EXCHANGE:

1. TRADE ACCEPTANCE – a bill of exchange drawn by the seller of goods on the buyer for the purchase price and accepted by the buyer.
2. BANK ACCEPTANCE – a draft drawn on and accepted by a bank.
3. DRAFT – a bill of exchange payable on demand, an order for payment of money drawn by one individual on another.
4. INLAND BILL OF EXCHANGE – a bill which is, or on its face purports to be, both drawn and payable within the Philippines.
5. FOREIGN BILL OF EXCHANGE – a bill of which is

1. Drawn and payable within one foreign country; or
2. Drawn in one country and payable in another; or
3. Drawn in a foreign country and payable in the Philippines; or
4. Drawn in the Philippines and payable in a foreign country.

1. CLEAN BILL OF EXCHANGE – a bill of exchange to which no document is attached when presentment for acceptance or payment is made.
2. DOCUMENTARY BILL OF EXCHANGE – a bill of exchange to which supporting documents like invoices or shipping documents are attached when presentment for acceptance or payment is made.

DIFFERENT KINDS OF CHECKS:

1. CASHIER’S CHECK – a check drawn by bank upon itself and payable to a third person. Person with or without bank account may obtain a Cashier’s check by paying the bank equivalent amount to be covered by the check plus a nominal service fee.
2. CERTIFIED CHECK – a personal check made by the drawer and duly certified by drawee bank to the effect that the bank has sufficient funds of the drawer to cover the payment of the check when presented for payment.
3. MANAGER’S CHECK – a check drawn by the manager of the bank against the bank itself, payable to a third person.
4. TRAVELLER’S CHECK – issued by a bank to a holder who must place his signature upon the instrument at the time it is issued and countersigned by the holder again before it is paid.
5. MEMORANDUM CHECK – an ordinary check with the word “Memorandum” or “Memo” written across its face. The drawer engages to pay the bonafide holder absolutely on maturity date, without any condition re the presentment.
6. CROSSED CHECK – a check across the face of which is stamped the name of a certain bank through whom it must be presented. A cross check cannot be cashed immediately – it must be deposited first and after clearance, it may be withdrawn.
7. STALE CHECK – a check considered “stale” when it is not presented for payment within a reasonable time after issue. Sec. 186 provides that a check must be presented for payment within a reasonable time after issue.

INCIDENTS IN THE LIFE OF A NEGOTIABLE INSTRUMENT:

        The following are the different stages which a negotiable instrument undergoes from the time of its preparation up to the time of its discharge.

1. ISSUE – covers the period from preparation of the instrument, either by the maker of the Promissory Note, or the drawer who draws the Bill of Exchange or Check, up to the issue or delivery of the instrument to the Payee.
2. NEGOTIATION – the stage starts from the Payee when he transfer the negotiable instrument to another person by way of negotiation through indorsement, as to constitute the transferee the holder of the instrument. The payee is the is the indorser and the person to whom he negotiates the instrument becomes the Indorsee/Holder.

The following rules apply to the negotiation of the instrument: if the instrument is payable to:

1. Bearer – it may be negotiated by

1. Mere delivery or
2. Blank indorsement plus delivery of an original order instrument

1. Order – it may be negotiated by proper indorsement plus delivery

1. PRESENTMENT FOR ACCEPTANCE – this step applies only to a Bill of Exchange when it is payable: (Sec. 143, NIL)

1. At a fixed period after sight or
2. At a place different from the domicile of the drawee or
3. When the bill of exchange expressly requires that Presentment for Acceptance is required

In all other Bills of Exchange, presentment for acceptance is not required.