Negotiable Instruments Notes: Introduction

Most common forms of negotiable instruments

Promissory notes (there are also special type i.e. bonds, due bills etc.)

Sec. 184. Promissory note, defined. – A negotiable promissory note within the meaning of this Act 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.

Where a note is drawn to the maker’s own order, it is not complete until indorsed by him

x Figure - more easy to grasp than words
Place executed
Date executed
To the order of - may be this or to bearer to make it negotiable
Payee
Signature of maker
x Place of payment
Amount in words and x figure
x Consideration

2. Bills of exchange (there are also special types i.e. banker's acceptance, money orders, etc.)

Sec. 126. Bill of exchange, defined. – A bill of exchange is an

unconditional order
in writing
addressed by one person to another,
signed by the person giving it, (drawer)
requiring the person to whom it is addressed (drawee)
to pay

on demand or
at a fixed or determinable future time

a sum certain in money

to order or
to bearer.

Order or command to pay
Signature of Drawer
Drawee
Payee

3. Checks (special form of bill of exchange)

Sec. 185. Check, defined. – A check is a

bill of exchange
drawn on a bank
payable on demand.
Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a check.

Distinctions bet. check v. bill of exchange

Check

always drawn upon a bank or banker
always payable on demand
NOT necessary to be presented for acceptance

since checks are not to be accepted but presented at once for payment

HOWEVER: if the holder requests, and the banker desires, he may accept

drawn on deposit OTHERWISE fraud (B.P. 22)
death of a drawer of a check w/ knowledge by the banks, revokes the authority of the banker to pay
may be presented for payment w/in a reasonable time after its issue

Ordinary Bill of Exchange

may or may not be drawn against a bank
may be payable on demand or at a fixed or determinable future time
necessary to be presented for acceptance (drawee turns into acceptor)
NOT necessary that a drawer of a bill of exchange should have funds in the hands of the drawee
death of a drawer of an ordinary bill of exchange does NOT revoke authority

BUT there are some decisions to the contrary

may be presented for payment w/in a reasonable time after its last negotiation

To whom instruments may be payable

bearer

when it is expressed to be so payable; or (payable to bearer)
when it is payable to a person named therein or bearer (payable to person named or bearer)

order

to the order of a specified person
to a specified person or his order

Parties

Promissory note

Maker - person who executes the written promise to pay
Payee (if payable to order) or Bearer (if payable to bearer) - in whose favor it is made payable

Bill of exchange

Drawer - person who executes the written order to pay
Payee (if payable to order) or Bearer (if payable to bearer) - in whose favor it is made payable
Acceptor - drawee who signifies his assent (usually by signature) to the order of the drawer

drawee (NOTE: before assent; NOT a party)

addressee
person who is commanded or ordered by the drawer to pay a sum certain in money

Check - same as bill of exchange EX

certification - instead of acceptance
Drawee bank

Other parties

By indorsement + delivery

indorser - payee who negotiates by indorsement
indorsee (in case payable to order) - to whom the instrument is negotiated by indorsement

By delivery (w/o indorsement)

persons negotiating by mere delivery
person to whom the instrument is negotiated by delivery (in case payable to bearer)

Holder

Sec. 191 Holder - the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof;

payable to order

payee or indorsee
who is in possession

bearer

who is in possession

Incidents in the "life" of negotiable instrument

issue - 1st delivery complete in form to a holder

delivery - transfer of possession w/ intent to transfer title

w/o delivery = incomplete and revocable until delivery

2. negotiation - mode of transferring

bearer - delivery (here delivery = negotiation)
to order - indorsement + delivery

indorsement (transfer + implied warranty) - legal transaction, effected by the writing of one's own on the back or upon paper attached (allonged) w/ or w/o addt'l words

special indorsement - specifies a person to whom it is payable
blank indorsement - does NOT specificy to whom payable

3. presentment for acceptance (in certain kinds of bill of exchange) - exhibit the bill to the drawee and demanding that he accept (signify his assent to the order or command of the drawer)
4.

a. acceptance -signification by the drawee of his assent to the order of the drawer

usually by writing "accepted" followed by signature
If check stamped with "certified"

b. dishonor by non-acceptance -

when presented and acceptance is refused by the drawee or CANNOT be obtained or
where the presentment for acceptance is excused and the bill is NOT accepted

a. presentment for payment (req. for all kinds of negotiable instruments) - consists of exhibiting the instrument to the person primarily liable thereon and demanding payment from him on the date of maturity

b. dishonor by non-payment

where the instrument is presented for payment and payment is reused or CANNOT be obtained or
where presentment for payment is excused and the instrument is overdue and unpaid

6. notice of dishonor

when dishonored by non-acceptance or by non-payment, a notice of dishonor must be given to the drawer and each indorser and any drawer or indorser to whom such notice is NOT given is discharged
prupose: notify that NOT paid

7. discharge - by payment in due course by or on behalf of the principal debtor

Parties liable:

Primarily liable - absolutely required to pay

Bills of exchange: acceptor

Secondarily liable - others

Bills of exchange: drawer, general and qualified indorsers (Secs. 65 & 66), person negotiating by mere delivery (Sec. 65)

Negotiable instruments are distinguish from cash

CANNOT be compelled to accept it in transaction
Purpose: supplement currency of gov't

check - immediate payment
ordinary bill of exchange and promissory note - circulation of credits

Delivery is NOT payment, payment only when encashed
Principal features

negotiability - passes or 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 collect the sum payable for himself free from personal defense
accumulation of secondary contracts as they are transferred from 1 person to another

Negotiability v. Assignability

Assignability

more comprehensive since contracts in general
subject to defenses among orig. parties
necessary to allege and prove consideration
assignor in GF does NOT warrant solvency of the debtor UNLESS

expressly stated
insolvency was prior to the assign. and of common knowledge

Negotiability

special class of contracts: negotiable instruments
free from personal defenses avail. among parties
consideration is presumed
indorser is not liable on his indorsement UNLESS presented for payment and prompt notice of dishonor (in case of dishonor)

general indorser is secondarily liable for any cause for w/c the party primarily liable on a negotiable instrument does NOT or CANNOT pay
qualified indorser and the person negotiatin by mere delivery have a limited secondary liability

In non-negotiable: