Negotiable Instruments LawFiscal R.S. Aquino-Tambasacan

I. IntroductionA. What is a Negotiable Instrument? 2005, 1946, 1946, BarA written contract for the payment of money intended as a substitute for money and it passes or may pass from one hand to another in such a manner as to give the holder in due course, the right to enforce payment against all parties liable to him. While it is intended as a substitute for money you must have learned in your Banking Laws that it is not legal tender.

B. Functions of Negotiable Instrument 2012, 1951, Bar(SMC-PP)1. It operates as a Substitute for money.2. It is a Medium of exchange.3. It is a Credit instrument that increases credit circulation.4. It increases the Purchasing power in circulation.5. It is a Proof of transaction (AQUINO, Negotiable Instruments, p. 7)-they may state the transaction that give rise to the issuance of the instrument.

C. Principal features of Negotiable instrument 1967 Bar1. 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 personal defenses.

2. Accumulation of Secondary Contracts When negotiable instruments are transferred through negotiation, secondary contracts are accumulated because the indorsers become secondarily liable not only to their immediate transferees, but also to any holder or any party. These indorsers are liable to said holder or whoever may be compelled to pay instruments (AQUINO, Negotiable Instruments, pp. 11-12)ILLUSTRATION:NOTE. If not negotiated, M is primarily liable. If the payee does not negotiate the note on the maturity date he presents it for payment to the maker and the maker does not pay he dishonors the note there is no other party from whom he can demand payment. (SUNDIANG, Pre-Bar Lecture)

NOTE: C presents it for payment to maker. If the maker dishonors or does not pay, provided the holder takes proceedings on dishonors, that means he must give notices to P, A, and B, then became liable to C. In other words, every negotiation is a contract in itself. (SUNDIANG, Pre-Bar Lecture)

D. Differences between negotiable document from negotiable instrument 2005 BarNegotiable DocumentNegotiable Instrument

Governed by the Negotiable Instrument LawGoverned by the Civil Code

Subject Matter a sum certain in moneySubject Matter things or goods

Capable of accumulating secondary contracts resulting from indorsements at the back thereof.Not capable, especially considering that indorsement of the latter does not result in liability of the indorser when the depositary, like the warehouseman, fails to comply with his duty to deliver the things or goods deposited and covered by the warehouse receipt by the depositary

E. Difference between a promissory note and a bill of exchange/check (Secs. 184 and 185) 2002, 1947 BarPromissory Note v. Bill of ExchangePromissory NoteBill of Exchange

Nature

Unconditional PromiseUnconditional Order

Number of parties

Involves two (2) partiesInvolves three (3) parties.However, a drawee is not a party until he accepts the bill.

Liability

Maker is primarily liableDrawee-acceptor is primarily liable. Drawer is only secondarily liable.

Presentment

Only one (1) presentment; for paymentMay involve two (2) presentment;1. For acceptance (in cases provided in Sec. 143) and2. For payment

Right to limit liability

Maker of note may not insert an express stipulation limiting or negating his own liability to the holder (NIL, Sec. 61)Drawer may insert in the instrument an express stipulation limiting or negating his own liability to the holder (NIL, Sec. 61)

Bill of Exchange v. Check

Bill of ExchangeCheck

When payable

May be payable on demand or at a fixed or determinable future time.Always payable on demand.

Presentment

Must be presented for acceptance. (NI, Sec 143)Need not be presented for acceptance. However, if the holder request and the banker desires, banker may accept.

Drawn on deposit

Need NOT be drawn on a deposit, hence it is not necessary that the drawer of a bill of exchange should have funds in the hands of the drawee. (SUNDIANG & AQUINO, Reviewer, p 11)Drawn in deposit, otherwise, there would be fraud (SUNDIANG & AQUINO, Reviewer, p 11)

When presentment made

May be presented for payment within reasonable time after its last negotiation (NIL, sec. 71)Must be presented for payment within a reasonable time after its issuance (NIL, 186)

Effect of acceptance/certification

If accepted drawer/indorser remains liable.If certified drawer/indorsers are discharged.

Effect of drawers death

Death of a drawer of a BOE, with the knowledge of the bank, does not revoke, the authority of the drawee to pay. (SUNDIANG & AQUINO, Reviewer, p 11)Death of the drawer of a check, with the knowledge of the bank, revokes the authority of the banker to pay. (SUNDIANG & AQUINO, Reviewer, p 11)

F. Parties to a promissory note and a bill of exchange (Secs. 184 and 185).Promissory Note Maker person who promises to pay according to the tenor of the note Payee person who is to receive payment from the maker.

Bill of Exhange Drawer Drawee Payee

G. Life stages of a promissory note and a bill of exchange.Promissory Note Issue Negotiation Presentment for payment Dishonor by non-payment Notice of dishonor DischargeBill of Exhange Issue Negotiation Presentment for acceptance (only those cases falling under Sec. 143 NIL) Dishonor by non-acceptance Presentment for payment Dishonor by non-payment Notice of dishonor Discharge

II. Form and InterpretationA. Elements/Requisites of Negotiability (Sec. 1 correlate with Secs. 2, 3, 4, 6, 8 and 9) 2013, 1996, 1992, 1968, 1964, 1954, 1953 Bar Unconditional ( Correlate with Sec. 3 of the NIL and Art. 1179 of the Civil Code) Postal money order, treasury warrants not negotiable 2005, 980, 1975 BarCase:Metrobank vs. CA, Feb. 18, 1981, 194 SCRA 169 treasury warrants not negotiable. Certificate of time deposit, letter of credit negotiable 1970, 1966, 1959 Bar Sum certain (Correlate with Sec. 2) If sum is capable of mathematical computation, still negotiable 2012, 2002 Bar In money (correlate with Art. 1249 of the Civil Code) Foreign currency valid 2014, 2012 Bar Warehouse receipt not negotiable 2005, 1948 Bar Payable on demand or at a fixed or determinable future time (Correlate with Secs. 4 and 7) 2009 Bar Omission of date not fatal 2012, 2000, 11997, 1957, Bar Error in date not fatal 2002, 1959 Bar Omission of year when the month and day is sated fatal 1997 Bar Not negotiable if debtor is granted the option to pay in either of two dates 1970 Bar Payable to order or bearer (Correlate with Secs. 8 and 9) 2012 Bar Person must not be specified; it must be order or bearer 2000, 1989, 1988, 1966, 1959 Bar Payable to Case is bearer instrument 1997, 1960 Bar

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