Beruflich Dokumente
Kultur Dokumente
Parties:
1. drawer
2. payee
3. drawee/ acceptor
Notes on Section 1:
*In determining is the instrument is negotiable, only the instrument itself and
no other, must be examined and compared with the requirements stated in Sec. 1.
If it appears on the instrument that it lacks one of the requirements, it is not
negotiable and the provisions of the NIL do not govern the instrument. The
requirement lacking cannot be supplied by using a separate instrument in which
that requirement which is lacking appears.
17. General Rule: The promise or order should not depend on a contingent event.
If it is conditional, it is non-negotiable.
Exceptions:
a. Indication of particular fund from which the acceptor disburses himself
after payment
b. Statement of the transaction which gives rise to the instrument. (Sec. 3
NIL)
Notes on Section 3
The particular fund indicated should not be the direct source of payment,
else it becomes unconditional and therefore non-negotiable. The fund should
only be the source of reimbursement.
A statement of the transaction does not destroy the negotiability of the
instrument. Exception: Where the promise to pay or order is made subject to
the terms and conditions of the transaction stated.
Notes on Section 4
19. General Rule: If some other act is required other than the payment of
money, it is non-negotiable.
Exceptions:
a. sale of collateral securities
b. confession of judgment
c. waives benefit of law
d. gives option to the holder to require something to be done in lieu of money
(Sec. 5 NIL)
Notes of Section 5
Limitation on the provision, it cannot require something illegal.
There are two kinds of judgements by confession: a) cognovit actionem b)
relicta verification
Confessions of judgement in the Philippines are void as against public
policy.
If the choice lies with the debtor, the instrument is rendered non-
negotiable. Page |
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20. The validity and negotiability of an instrument is not affected by the fact
that:
1. it is not dated
2. does not specify the value given or that any had been given
3. does not specify the place where it is drawn or payable
4. bears a seal
5. designates the kind of current money in which payment is to be made (Sec. 6
NIL)
21. Instrument is payable upon demand if:
a. it is expressed to be so payable on sight or upon presentation
b. no period of payment is stipulated
c. issued, accepted, or endorsed after maturity (Sec. 7 NIL)
Notes on Section 7
if the time for payment is left blank (as opposed to being omitted), it may
properly be considered as an incomplete instrument and fall under the
provisions of Sec. 14, 15, or 16 depending on how the instrument is
delivered.
Notes on Section 8
Notes on Section 9
Effects:
25. Subsequent Holder in Due Course not affected by the following deficiencies:
GR: Where an incomplete instrument has not been delivered, it will not, if
completed and negotiated without authority, be a valid contract in the hands of
any holder against any person who signed before delivery. (Sec. 15 NIL)
Notes on Section 15
֍ it is a real defense. It can be interposed against a holder in due course.
֍ delivery is not conclusively presumed where the instrument is incomplete
֍ defense of the maker is to prove non-delivery of the incomplete instrument.
a. If between immediate parties and remote parties not holder in due course, to
be effectual there must be authorized delivery by the party making, drawing,
accepting or indorsing. Delivery may be shown to be conditional or for a
special purpose only
b. If the holder is a holder in due course, all prior deliveries conclusively
presumed valid
c. If instrument not in hands of drawer/maker, valid and intentional delivery
is presumed until the contrary is proven (Sec. 16 NIL)
30. General rule: a person whose signature does not appear on the instrument in
not liable.
Exception:
1. one who signs in a trade or assumed name (Sec. 18)
2. a duly authorized agent (Sec. 19)
3. a forger (Sec. 23)
31. General rule: an agent is not liable on the instrument if he were duly
authorized to sign for or on behalf of a principal.
Requisites:
Notes on Section 20
֍ if an agent does not disclose his principal, the agent is personally liable
on the instrument.
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32. Per Procuration – operates as notice that the agent has a limited authority
to sign. 7
Effects:
1. the principal in only bound if the agent acted within the limits of the
authority given
2. the person who takes the instrument is bound to inquire into the extent and
nature of the authority given. (Sec. 21 NIL)
Effects:
֍ no liability attached to the infant or the corporation
֍ the instrument is still valid and the indorsee acquires title
Effects:
1. no right to retain
2. no right to give a discharge
3. no right to enforce payment can be acquired. (Sec. 23 NIL)
Exception:
Notes on Section 23
35. Every negotiable instrument is deemed prima facie to have been issued for
a valuable consideration. (Sec. 24 NIL)
Effects:
every person whose signature appears thereon is a party for value
presumption is disputable
36. Where value has at any time been given for the instrument, the holder is
deemed a holder for value in respect to all parties who become such prior to that
time. (Sec. 26 NIL)
Notes on Section 28
֍ absence of consideration is where no consideration was intended to pass.
֍ failure of consideration implies that consideration was intended by that it
failed to pass
֍ the defense of want of consideration is ineffective against a holder in due
course
֍ a drawee who accepts the bill cannot allege want of consideration against
the drawer
38. An accommodation party is one who signs the instrument as maker, drawer,
acceptor, or indorser without receiving value therefor and for the purpose of
lending his name to some other person.
Effects:
an accommodation party is liable to the holder for value notwithstanding
that such holder knew that of the accommodation. (Sec. 28 NIL)
Notes on Section 29
1. written
2. on the instrument itself or upon a piece of paper attached (Sec. 31 NIL)
Notes on Section 31
Notes on Section 40
Effects:
֍ An indorser whose indorsement is struck out is discharged
֍ All indorsers subsequent to such indorser who has been discharged are
likewise relieved. (Sec. 48 NIL)
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44. Effects of a transfer without endorsement:
֍ the transferee acquires such title as the transferor had 10
֍ The transferee acquires the right to have the indorsement of the transferor
֍ negotiation takes effect as of the time the indorsement is actually made
(Sec. 49 NIL)
Effects:
Notes on Section 57
– Legal or real defenses are those which attach to the instrument itself
and can be set up against the whole world, including a HDC.
49. A instrument not in the hands of a HDC is subject to the same defenses as
if it were non-negotiable.
Exception:
֍ A holder who derives his title through a HDC and is not a party to any fraud
or illegality affecting the instrument, has all the rights of such HDC in
respect to all parties prior. (Sec. 58 NIL)
50. General rule: every holder is deemed prima facie to be a holder in due
course.
Exception:
֍ where it is shown that the title of any person who has negotiated the
instrument is defective, the burden is on the holder to prove that he is a
HDC or that a person under whom he claims is a HDC (Sec. 59 NIL)
DEFINITIONS
NEGOTIABLE INSTRUMENT
Written contract for the payment of money, by its form intended as substitute
for money and intended to pass from hand to hand to give the holder in due
course the right to hold the same and collect the sum due
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PROMISSORY NOTE
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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
BILL OF EXCHANGE
unconditional order in writing addressed by one person to another signed by
the person giving it
requiring the person to whom it’s addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to order or to bearer
check: bill of exchange drawn on a bank payable on demand. Kinds of checks:
1. personal check
2. manager’s/cashier’s check – drawn by a bank on itself. Issuance has
the effect of acceptance
3. memorandum check – “memo” is written across its face, signifying that
drawer will pay holder absolutely without need of presentment
4. crossed check –
effects:
1. check may not be encashed but only deposited in bank
2. may be negotiated only once, to one who has an acct. with a bank
3. warning to holder that check has been issued for a definite purpose so
that he must inquire if he received check pursuant to such purpose,
otherwise not HDC
kinds:
1. general (no word between lines, or “co” between lines)
2. special (name of bank appearing between parallel lines)
BEARER
Person in possession of a bill/note payable to bearer
HOLDER
Payee or indorsee of a bill or note who is in possession of it, or the
bearer thereof.
1. issue
2. negotiation
3. presentment for acceptance in certain bills
4. acceptance
5. dishonor by on acceptance
6. presentment for payment
7. dishonor by nonpayment
8. notice of dishonor
9. protest in certain cases
10. discharge
NEGOTIABILITY
REQUISITES
1. in writing and signed by maker or drawer
no person liable on the instrument whose signature does not appear thereon (
subject to exceptions)
one who signs in a trade or assumed name liable to the same extent as if he
had signed in his own name
signature of any party may be made by a duly authorized agent, no particular
form of appt. necessary
2. unconditional promise or order to pay
unqualified order or promise to pay is unconditional though coupled with
1. an indication of a particular fund out of which reimbursement to be made, or
a particular account to be debited with amount, or
1. a statement of the transaction which gives rise to the instrument
an order or promise to pay out of a particular fund is not unconditional
a sum certain in money Page |
even if stipulated to be paid— 13
1. with interest, or
2. by stated installments, or
3. by stated installments with a provision that upon default in payment of any
installment/interest, the whole shall become due, or
4. with exchange, whether at a fixed rate or at the current rate, or
5. with costs of collection or an attorney’s fee, in case payment not made at
maturity
1. 3. payable on demand,
when expressed to be payable on demand, or at sight, or on presentation;
when no time for payment expressed, or
where an instrument is issued, accepted or indorsed when overdue, it is, as
regards the person so issuing, accepting, or indorsing it, payable on demand
1. 4. payable to order
where it is drawn payable to the order of a specified person or to him or his
order. May be drawn payable to order of —
when the instrument is payable to order the payee must be named or otherwise
indicated therein with reasonable certainty
1. a payee not the maker/drawer/drawee, or
2. drawer or maker, or
3. drawee, or
4. two or more payees jointly, or
5. holder of an office for time being
or bearer,
when expressed to be so payable
when payable to person named therein or bearer
when payable to order or fictitious/non-existent person, and such fact known
to the person making it so payable, or
when name of payee doesn’t purport to be the name of any person, or
when the only/last indorsement is in blank
1. 5. where addressed to drawee: such drawee named/ indicated therein with
reasonable certainty
bill may be addressed to two or more drawees jointly, whether partners or
not, but not to two or more drawees in the alternative or in succession
bill may be treated as a PN, at option of holder, where
1. drawer and drawee are same person
2. drawee is fictitious/incapacitated
INDORSEMENT
Indorser generally enters into two contracts:
1. sale or assignment of instrument
2. to pay instrument in case of default of maker
Sec. 31 (how indorsement made)
The indorsement must be written on the instrument itself or upon a
paper attached thereto. The signature of the indorser, without
additional words, is a sufficient indorsement.
Sec. 41 (where payable to two or more)
Where an instrument is payable to the order of two or more payees or
indorsees who are not partners, all must indorse unless the one
indorsing has authority to indorse for the others.
Sec. 43 (indorsement where name misspelled)
Where the name of a payee or indorsee is wrongly designated or
misspelled, he may indorse the instrument as therein described adding,
if he thinks fit, his proper signature.
Sec. 48 (cancellation of indorsement)
The holder may at any time strike out any indorsement which is not
necessary to his title. The indorser whose indorsement is struck out,
and all indorsers subsequent to him, are thereby relieved from Page |
liability on the instrument. 15
Sec. 45, 46 (presumptions)
Except where an indorsement bears date after the maturity of the
instrument, every negotiation is deemed prima facie to have been
effected before the instrument was overdue. (Sec 45)
Except where the contrary appears, every indorsement is presumed prima
facie to have been made at the place where the instrument is dated
Indorsement must be of entire instrument. (can’t be indorsement of only part
of amount payable, nor can it be to two or more indorsees severally. But
okay to indorse residue of partially paid instrument)
Sec. 67 (liability of indorser where paper negotiable by delivery)
Where a person places his indorsement on an instrument negotiable by
delivery, he incurs all the liability of an indorser.
Sec. 63 (when person deemed indorser)
A person placing his signature upon an instrument otherwise than as
maker, drawer, or acceptor, is deemed to be indorser unless he clearly
indicates by appropriate words his intention to be bound in some other
capacity
KINDS OF INDORSEMENT
1. as to manner of future method of negotiation
2. special – specifies the person to whom/to whose order the instrument is to
be payable; indorsement of such indorsee is necessary to further
negotiation.
3. Blank – specifies no indorsee, instrument so indorsed is payable to bearer,
and may be negotiated by delivery
the holder may convert a blank indorsement into a special indorsement by
writing over the signature of the indorser in blank any contract consistent
with the character of the indorsement
2. holder became such before it was overdue, without notice of any previous
dishonor
sec. 53 (demand inst. nego after unreasonable length of time: not HDC)
Where an instrument payable on demand is negotiated on an Page |
unreasonable length of time after its issue, the holder is not 17
deemed a holder in due course
sec. 12 (effect antedating/postdating)
The instrument is not invalid for the reason only that it is ante-
dated or post-dated, provided this is not done for an illegal or
fraudulent purpose. The person to whom an instrument so dated is
delivered acquires the title thereto as of the date of delivery.
3. taken in good faith and for value
sec. 24 (presumption of consideration)
very negotiable instrument is deemed prima facie to have been issued
for a valuable consideration; and every person whose signature
appears thereon to have become a party thereto for value
sec 25 (definition. of value)
Value is any consideration sufficient to support a simple contract.
An antecedent or pre-existing debt constitutes value; and is deemed
such whether the instrument is payable on demand or at a future time
sec. 26 (definition. holder for value)
Where value has at any time been given for the instrument, the
holder is deemed a holder for value in respect to all parties who
become such prior to that time.
sec. 27 (lien as value)
Where the holder has a lien on the instrument arising either from
contract or by implication of law, he is deemed a holder for value
to the extent of his lien.
4. at time negotiated to him, he had no notice (sec. 56-def; 54-notice before
full amt. paid) of —
1. infirmity in instrument
2. defect in title of person negotiating
1. instrument/signature obtained through fraud, etc., illegal
consideration/means, or
2. instrument negotiated in breach of faith, or fraudulent
circumstances
* if in the hand of any holder (note definition of holder) other than a HDC,
vulnerable to same defenses as if non-negotiable
RIGHTS OF PURCHASER FROM HOLDER IN DUE COURSE:
General Rule: in the hands of any holder other than a HDC, NI is subject to same
defenses as if it were non-negotiable.
Exception: holder who derives title through HDC and who is not himself a party to
any fraud or illegality has all rights of such former holder in respect to all
parties prior to the latter.
WHO DEEMED HDC
prima facie presumption in favor of holder
but when shown that title of any person who has negotiated instrument was
defective (sec. 55—when title defective): burden reversed (now with holder)
but no reversal if party being made liable became bound prior to acquisition
of defective title (i.e., where defense is not his own) Page |
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