Beruflich Dokumente
Kultur Dokumente
BASIC PRINCIPLES
1. A negotiable instrument is a written contract for the payment of money which is
intended as a substitute for money and passes from one person to another as
money, in such a manner as to give a HOLDER IN DUE COURSE the right to hold the
instrument FREE FROM DEFENSES available to prior parties.
2. The rule that one can pass no better title to personal property than he himself has
does not apply to negotiable instruments.
3. Doubts should be resolved in favor of negotiability.
4. When transferability is limited or restricted, the paper may be said to be non-
negotiable.
5. Negotiability ends when the instrument is (i) restrictively indorsed or (2)
discharged by payment or otherwise.
6. N.I.L. can be applied to non-negotiable instruments only by analogy in cases where
there is no law that can be applied.
7. Two features of a negotiable instruments –
a. Negotiability – right of the holder to hold and collect free from the following
defenses
i. Infirmity in the instrument
ii. Defect in the title of any prior parties
iii. Defenses available to prior parties among themselves
b. Accumulation of secondary contracts – creates liabilities for each indorsee
who indorses and becomes indorsers. There is a series of juridical ties
between the parties thereto that arise either by law or by privity.
NEGOTIABLE NON-NEGOTIABLE
Governed by NIL NIL applies only by analogy
Transferrable by negotiation or assignment
Only by assignment
Can be Transferee can never be a holder in due
course; assignee only
Only real defenses All defenses, real and personal, are available
against the last transferee
For an order instrument, indorsement is Assignment is made by delivery
required for negotiation
1
YASAY NOTES – NEGOTIABLE INSTRUMENTS LAW
BUT: An instrument payable upon a CONTINGENCY is NOT negotiable, and the happening
of the event does not cure the defect.
2
YASAY NOTES – NEGOTIABLE INSTRUMENTS LAW
When an instrument is issued, accepted, or indorsed when overdue, it is, as regards the
person so issuing, accepting, or indorsing it, payable on demand.
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YASAY NOTES – NEGOTIABLE INSTRUMENTS LAW
SECTION 16.
Every contract on a negotiable instrument is INCOMPLETE AND REVOCABLE until
delivery of the instrument for the purpose of giving effect thereto.
The defense of want of delivery of complete instrument is a personal defense. Where the
instrument is in the hands of a HDC, a valid delivery thereof by all parties prior to him so as
to make them liable to him is conclusively presumed.
SECTION 17 (e)
Where a signature is so ambiguous that there is doubt whether it is a bill or note, the holder
may treat it as either at his election
SECTION 18.
No person is liable on the instrument whose signature does not appear thereon.
One who signed in a trade or assumed name will be liable to the same extent as if he had
signed in his own name.
SECTION 19. An agent may sign a negotiable instrument on behalf of his principal.
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YASAY NOTES – NEGOTIABLE INSTRUMENTS LAW
But the mere addition of words describing him as an agent, or as filling a representative
character, without disclosing the principal, does not exempt him from personal liability.
Rules on forgery:
1. ONLY THE FORGED SIGNATURE IS WHOLLY INOPERATIVE, not the instrument
itself, and not the genuine signatures
2. Forgery of an indorsement of an order instrument, the following are not liable:
a. The person whose signature was forged
b. All prior to such person
i. Ratio: Payment under a forged signature is not to the drawer’s order
3. 1. In case of forgery of the indorsement of the payee of the check, the DRAWEE
BANK CANNOT DEBIT THE DRAWER’S ACCOUNT and the loss shall be borne by the
drawee bank.
2. The depositary or collecting bank is liable to the drawee in case of forged
indorsement because it guarantees all prior indorsements.
4. When the forged signature is not necessary to the holder’s title, forgery may be
disregarded.
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YASAY NOTES – NEGOTIABLE INSTRUMENTS LAW
Only when there are peculiar defects on the face of the instrument will the holder be required
to make inquiries before accepting.
Check, defined
- a bill of exchange drawn on a bank payable on demand