NEGOTIABLE INSTRUMENTS

Sec. 1 Form of negotiable instruments

An instrument to be negotiable must conform to the following requirements:
(Formal Requirements)
a. It must be in writing and signed by the maker or drawer

b. Must contain an unconditional promise or order to pay a sum certain in money

c. Must be payable on demand or at a fixed or determinable future time

d. Must be payable to order or bearer;

e. Drawee must be named or indicated with reasonable certainty

Negotiable Instrument defined: is a contractual obligation to pay money

Formal requirements explained

1. The instrument must be in writing
- Includes print or has been typed, pen or pencil on paper

2. The instrument must be signed by the maker or drawer

- His signature is prima facie evidence of his intention to be bound as either maker or drawer.
- What is important here is that the signer has intended to adopt the signature on the instrument
as his own and to obligate himself for its payment.

3. The instrument must contain an unconditional promise or order to pay

- Comments under sec. 3

4. The instrument must be payable in a sum certain in money

- The promise or order must call for the payment of money

5. The instrument must be payable at a fixed or determinable future time or on demand

- Comments under sec. 4 and 7

6. The instrument must be payable to order

- Comments under sec. 8
 7. The instrument must be payable to bearer
- Comments under se. 9

8. The drawee must be named

- To enable the payee or holder to know upon whom he is to call for acceptance or payment

Nature of non negotiable instrument

- It is merely a simple contract in writing, covered by the general provisions of the civil code
and not by the negotiable instruments law
Promisory note defined (2 party paper)
- A negotiable promissory note 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 of money to order or bearer.
- A written promise to pay a sum of money
Original parties to a promissory note
Maker – the one who makes the promise and signs the instrument
Payee – party to whom the promise is made or the instrument is payable

Bill of Exchange defined (3 party paper)

- An order made by one person to another to pay money to a third person
- If drawn on a bank and payable on demand, the order bill is called a check (the check is the
most common type of order paper)
Original parties to a bill of exchange
Drawer – the person who issues and draws the order bill. He gives the order to pay money to a third party.
He does not pay directly
Drawee – the party upon whom the bill is drawn. he is the person to whom the bill is addressed and who
is ordered or expected to pay (the drawee is a bank in case of a check)
Payee – the party in whose favor the bill is originally issued or is payable
Example:

Aug 5 2016

Manila

P10,000

30 days after date, pay to Alfredo Almeda or order the sum of 10k. value received
and charged the same to the account of

(Sgd) Jovencio Cinco

To Domingo lantican

College, Los banos

lagub
Idea and purpose of a bill of exchange

- (Drawers funds in the hands of the drawee)

The drawer has funds in the hands of the drawee which the former desires to be paid by the
payee. He therefore draws the bill of exchange ordering the drawee to pay the amount
mentioned in the bill of exchange to the payee.

(Liability of drawee for non-payment)

If the drawee refuses to accept when he has funds for the purpose, he becomes liable to the
drawer for the resulting damages and the harm done to his credit

If the drawer has no funds in the hands of the drawee it is at least presumed that the former
must have made arrangements with the latter so that he will honor the bill. In such a case, the
drawee must look to the drawer for reimbursement and not to the bonafide holder.

Sec. 2 Certainty as to sum; what constitutes

The sum payable is a sum certain within the meaning of this act, although it is to be paid –
(permissible clauses or stipulations)
a. With interest
b. Stated installments
c. Stated installments w/ provision that upon default of any installment or interest the whole
shall become due. (acceleration clause)
d. With exchange, whether fixed or current rate
e. With cost of collection or attorneys fee in case payment shall not be made at maturity

Certainty of sum payable

- It meets the “sum certain” requirement if the holder can determine from the instrument itself
the amount he is entitled to receive at maturity.

Sec. 3 When promise is unconditional.

An unqualified order or promise to pay is unconditional within the meaning of this Act though
coupled with –
a. An indication of a particular fund out of which reimbursement is to be made or a particular
account to be debited with the amount; or

b. A statement of the transaction which gives rise to the instrument

But an order or promise to pay out of a particular fund is not unconditional.

When promissory note contains a promise to pay.
1. Implied promise to pay
- In order that a promissory note may be negotiable, it must contain an unconditional promise
to pay. It is not essential, however, that the word promise should be used. Any words
equivalent to a promise or assumption of responsibility for the payment of the note like:

Ex. “payable” “to be paid” “I agree to pay” “I guaranty to pay” “M obliges himself to pay”
“good for” “due on demand”

On the face of an instrument are sufficient to constitute a “promise to pay”

When bill of exchange contains an order to pay.
1. Words equivalent to an order to pay – Any other words which are equivalent to an order or
which show the drawers will that the money should be paid (“let the bearer” or “A will much
oblige B to pay C”
2. Mere request to pay is not sufficient
When promise or order to pay unconditional
- It must not be subject to any condition or contingency except implied conditions of
presentment, protests and notice of dishonor as provided in law. In other words, the note or
bill must be payable absolutely.
- Reason: greatly enhances the ability of the instrument to circulate freely from one person to
another.

Indication of a particular fund out of which reimbursement is to be made.

- is negotiable because the order to pay is not rendered conditional. The drawee is not limited
to the money in his hands belonging to the drawer.
- The fund indicated is not the direct source of payment.
- Example: “pay to the order of P 1k and reimburse yourself from the rentals of my house (The
drawee may pay the amount out of any fund. It is only the reimbursement that is to come
from the rentals.

Indication of a particular fund out of which payment is to be made.

- Is non-negotiable because the amount to be paid is made to depend upon the adequacy or
existence of the fund designated.
Indication of a particular account to be debited with the amount
- Is negotiable because the promise/order is not made conditional. The payment does not
depend upon the existence or adequacy or the particular account debited.
- Examples:
- (here the instrument is to be paid first after which the particular account indicated will be
debited)

“I promise to pay P or order the sum of 10k to be debited with his current account with me.”
“Pay P or order the sum of 10k and charge the same to my account or to my share of the
profits.”
“Pay P or order 10k on account of my contract with you

Sec. 4 Determinable future time; what constitutes –

An instrument is payable at a determinable future time, within the meaning of this Act, which is
expressed to be payable –
a. At a fixed period after date or sight

b. On or before a fixed or determinable future time specified therein

c. On or at a fixed period after the concurrence of a specified event which is certain to happen,
though the time of happening be uncertain.

An instrument payable upon a contingency is not negotiable and the happening of the event does
not cure the defect.

When time of payment certain

- It is certain when it is payable on demand or at a fixed or determinable future time
- Reason: The time must be certain so that the holder will know when he may enforce the
instrument and the person liable (maker, drawee or acceptor) when he may be required to
pay, or the secondary parties (drawer, indorser, accommodation party)
When instrument payable at a certain time
- Payable at a fixed time:
I promise to pay P or order the sum of 10k on Jan. 1 2019

- Payable at a fixed period after date:

60 days after date, (issuance) I promise to pay P or order the sum of 10k
 - Payable at a fixed period after sight:
60 days after sight, pay to the order of P the sum of 10k
After sight means the instrument is seen by the drawee upon presentment for acceptance or
accepted by the drawee. Hence the date of maturity may be determined beforehand by
counting 60 days from the date it is presented to the drawee

- Payable on or before a fixed time

- Payable on or before a determinable future time: on or before the start of the next school
semester
- Payable on or after the occurrence of a specified event: upon the death of his father
Contingency: “upon his reaching the age of majority” – this bill is non negotiable because the
order is conditional. P may die before reaching the age of majority in which case the bill will
never mature. It makes no difference that P reaches the age of majority because the happening of
the contingent event does not cure the defect.
A contingency is, in law, an uncertain future event, or an event which may or may not happen.

Sec. 5 Additional provisions not affecting negotiability –

An instrument which contains an order or promise to do any act in addition to the payment of
money is not negotiable. (General Rule)
But the negotiable character of an instrument otherwise negotiable is not affected by a provision
which – (Exception)
a. Authorizes the sale of collateral securities in case the instrument be not paid at maturity
b. Authorizes a confession of judgement if the instrument be not paid at maturity
c. Waives the benefit of any law intended for the advantage or protection of the obligor
d. Gives the holder an election to require something to be done in lieu of payment of money
But nothing in this section shall validate any provison or stipulation otherwise illegal.
CREDIT TRANSACTIONS
Warehouse Receipts Law
General Bonded Warehouse Law
Letters of Credit
Trust Receipts Law

Negotiable Documents of Title

What is a negotiable document of title? 3 types?

What are the three fold purpose of a warehouse receipt?

What is a quedan?

Warehouse Recipts
What is a warehouse receipt?
Who is a warehouseman?
What is a Bill of Lading?
Are warehouse receipts negotiable?
Cases where warehouse receipts are non-negotiable?
How do you negotiate warehouse receipts?
Instances where warehouse receipts may be negotiable by delivery
Is a bearer document of title always a bearer document?
Warehouse receipt negotiated by indorsement coupled by delivery
Effects of negotiation of a warehouse receipt?
Obligation of the warehouseman?
Persons who may issue warehouse receipts?
Warehousemans defenses for undelivery or misdelivery?
Are all warehouse receipts negotiable?
Letters of Credit
What is a letter of credit?
Parties to a letter of credit?
Distinct and independent contracts of letter of credit?
Contract between the buyer and seller?
Who issues letter of credit?
Independence principle?
Doctrine of strict compliance?