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80 Cards in this Set
- Front
- Back
- 3rd side (hint)
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Features of negotiable instruments |
1. Negotiability 2. Accumulation of secondary contracts |
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Functions of Negotiable Instruments |
1. Acts as substitute for money 2. Increases the purchasing medium in circulation (spending) 3. Intended, like money, to have a definite value 4. Serve as an equivalent of money 5. Not legal tender |
AISN |
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Credit card |
Is not a negotiable instrument |
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Two kinds/types of negotiatiable instruments |
1. Promissory note 2. Bill of exchange |
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Promissory note |
Involves 2 parties (issuer and payee) |
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Bill of exchange |
3 parties (drawer/issuer, drawee, and payee) |
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Requisite to be negotiable |
1. Written and signed by the maker/drawer 2. Contain an unconditional promise/pay a sum certain in money 3. Payable on demand or at a fixed or determinable future time 4. Payable to order or to bearer 5. If instrument is addressed to drawee, he must be named or otherwise indicated with reasonable certainty |
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Maker |
Negotiable note (isuuer of promissory note) |
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Drawer |
Negotiable bill (issuer of bill of exchange) |
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Commercial paper |
Written promises or obligations that arise out of commercial transactions from the use of such instruments as promissory notes and bills of exchange |
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Non-negotiable instrument |
1. Instrument which is not negotiable 2. Instruments which does not meet the requirements laid down to qualify an instrument as a negotiable one 3. Instrument which in its inception was negotiable but lost its quality of negotiability |
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Negotiable instrument |
Ceases to be negotiable if the indorsement prohibits the further negotiation of the instrument |
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Money(CMI) |
1. Coined or stamped by public authority and has its value fixed by public authority 2. Medium of exchange authorized or adopted by a government as part of its currency 3. Includes all legal tender |
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Promissory note |
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 bearer |
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Original parties to a promissory note |
Maker/drawer/issuer Payee |
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Maker |
One who makes the promise and signs the instrument |
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Payee |
Party to whom the promise is made or the instrument is payable |
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Bill of change |
Unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer |
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Original parties to a bill of exchange |
1. Drawer/maker/issuer 2. Drawee 3. Payee |
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Drawer |
Person who issues and draws the order bill |
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Drawee |
Party upon whom the bill is drawn |
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Payee |
Party in whose favor the bill is originally drawn or payable |
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Sum payable is certain in money even if to be paid:(IIIEC) |
1. With interest 2. By stated installment 3. By stated installment with provision that, upon default in payment of any installment or interest, the whole shall become due (accelaration clause) 4. With exchange, whether with fixed rate or at the current rate 5. With cost of collection or attorney's fee, in case payment shall not be made at maturity |
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Sum certain |
When the holder can determine from the instrument itself the amount he is entitled to receive at maturity |
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Example |
30 days from this date, i promise to pay B or order the sum of 1000 with interest, or at a monthly installment plus 25% attorney's fee, or in case of default of any of yhe installment due, the whole accoung becomes automatically dues and payable |
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The word order is important |
To make the instrument negotiable |
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Instrument is still unconditional although coupled with: |
1. An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount 2. A statement of a transaction which gives rise to the instrument |
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An order or promise to pay out of a particular fund is not unconditional |
Example I promise to pay B order 1,000 in payment for a horse I bought from him the other day. Signed (B) |
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If the promise is subject to the terms of the transactions stated, then, |
The note is non-negotiable |
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Determinable future time (FOO) |
1. Fixed period after date or sight Example 60 days after sight or after date 2. On or before a fixes determinable future time specified 3. On or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of happening is uncertain Example on the death of A or 10 days after the death of A |
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An instrument payable upon a contingency |
Is not negotiable. Happening of the event does not cure the defect |
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Example |
I promise to pay B or oder 1000 after B passes the Bar examination |
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General rule |
An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable |
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Negotiable character is not affected by a provision which (AAWG) |
1. Authorizes a sale of collateral securities in case the instrumeng be not paid at maturity 2. Authorizes a confession of judgement if the instrument be not paid at maturity 3. Waives the benefit of any law intended for thr advantage or protection of the obligor 4. Gives the holder an election to require something to be done in lieu of the payment of money |
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The test of negotiability is |
Whether or not the promise would give rise to a cause of action for the breach of contract if the additional act is not done |
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Check |
Is a special kind of bill of exchange |
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Validity and negotiable character of the instrument are not affected by the fact that: (IDDBD) |
1. It is not dated 2. Does not specify the value given, or that any value had been given thereof (always presumed) 3. Does not specify the place where it is drawn or the place where ot is payable 4. Bears a seal 5. Designates a particular kind of current money in which payment is to be made |
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Where date is necessary |
1. Where said date is tied to the data of issue 2. Where interest is stipulated for the purpose of the dwtermining when the interest is to run 3. In ghe case of promissory note, tge data of issue, and in the case of bill of exchange, tge date of last negotiation, for the purpose of determining whether a party acted witgin a reasonable time in making presentment for payment |
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When instrument is payable in demand |
1. When it is expressed to be payable on demand, of at sight, or on presentation 2. In which no time for payment is expressed |
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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 |
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When instrument is payable to order |
1 where it is payable to tge order of a specified person or to him or his order 2. It may be payable to the order of: A. Two or more payees jointly B. Holder of an office for the time being C. Some of several payees D. A payee who is not the maker, drawer or drawee E. Drawer or maker F. Drawee |
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An instrument payable to order where there is no blank space for the name of the payee indicating authority to insert the payee's name |
Is not negotiable because the payee is not named, or otherwise indicated there in with reasonable certainty |
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When instrument is payable to bearer |
1. When it is expressed to be payable 2. When it is payable to the person named therein or bearer 3. When it is payable to a fictitious person or non-existing person and such fact is known to the person making it so payable 4. When the name of the payee does not purport to be named of any person 5. When the only or last endorsement is in blank |
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Fictitious person |
Mean to be a person who has no right to the instrument |
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Bearer |
Person in possession of a bill or note which is payable to bearer |
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Incidents in the life of negotiable instrument (INPAPND) |
1. Issue 2. Negotiation 3. Presentment for acceptance in certain kinds of bill of exchange 4. Acceptance/dishonor by non-acceptance 5. Presentment for payment/dishonor by non-payment 6. Notice of dishonour/protest in certain cases 7. Discharge |
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Term |
Substance over form |
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Substance |
True intentions Criterion of negotiability |
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May be transferred by delivery |
Without indorsement and payment to any person in possession thereof |
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Incidents in the life of negotiable instrument (INPAPND) |
1. Issue 2. Negotiation 3. Presentment for acceptance in certain kinds of bill of exchange 4. Acceptance/dishonour by non-acceptance 5. Presentment for payment/dishonour by non-payment 6. Notice of dishonour/protest in certain cases 7. Discharge |
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When term is sufficient |
1.The instrument need not to follow the language of the law, but any terms are sufficient which clearly indicate an intention to conform to the requirements thereof 2. Clear intention of the parties: the substance of the transactions rather than its form is the criterion of negotiability 3. Use of foreign language: an instrument may be negotiable thougg writtenin foreign language 4. Mere defect in language of grammatical error: does not destro negotiability |
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Presumption as to date |
Where the instrument or Cceptance is dated, It is deemed to be prima facie to be true date of the making, drawing, acceptance or indorsement as the case may be |
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When date is material |
1. At a fixed period after date 2. At a fixed period after sight or presentment |
Where instrument is payable |
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Ante-dated instrument |
Contains a date earlier than the true date of its issuance |
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Post-dated instrument |
Contains a date later than the true date of its issuance |
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Effects of ante-dating and post-dating |
1. It does not render the instrument invalid or non-negotiable by the fact alone 2. It may be negotiated before or after tgmhe date given as long as it is not negotiated after its maturity 3. If the ante-dating or post-dating is done for an illegal or fraudulent purpose, the instrument is rendered invalid |
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When date may be inserted |
1. At a fixed period after sight but is issued undated 2. At a fixed period after sighg but acceptance is undated |
Where an instrument is payable |
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Effects of insertion of a wrong date |
1. If wrong insertion was done by one having knowledge of the true date of issue or acceptance will avoid the instrument as to him ar by anyone claiming under him 2. Will not avoid the instrument as to a subsequent holder in due course who may enforce the same notwithstanding the improper date 3. In the hands of a holder in due course, the date inserted, even if wrong, is to be regarded as the true date 4. Reason: one who signs such instrument furnishes the means of fraud and is estopped to deny his liability thereon |
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Section 11 General rule |
Date will not affect negotiability |
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Section 11 exception |
Fixed period after date or after sight Determine if presentment is made within reasonable period |
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Section 12 Gr |
Will not affect negotiability---valid |
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Section 12 exception |
Purpose is illegal/fraudulent---invalid instrument |
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Section 13 |
Undated--insert date--true date |
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Section 14 (AD) |
Act of writing Delivery |
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Section 15 Incomplete but delivered |
Lacking material particular Blank instrument Prima facie authority to complete/fill up (in accordance with authority ) Within a reasonable time |
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If there's ambiguity |
1. Words vs figure==words 2. Percent--run from the date, if undated from date of issue 3. Undated-date of issue 4. Printed vs written ---written 5. Bill or note--holder can choose 6. Unclear signature ---indorser 7. I promise to pay---solidary obligation |
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Rules where instrument mechanically complete 1. Undelivered |
Every contract on negotiable instrument even if it is completely written is incomplete and revocable until its delivery for the purpose of giving it effect |
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Delivery |
Transfer of possession, actual or constructive from one person to another |
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Issue |
First delivery of the instrument, complete in form, to a person who takes it as holder |
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Holder |
Payee or indorsee of a bill or note who is in possession of it, or the bearer thereof |
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Delivered |
Place where the instrument was written, signed, or dated does not necessarily fix or determine the place where it was executed |
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3. Holder in due course |
1. Complete and regular2. Holder before overdue3. In good faith and for value4. No notice of any infirmity |
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Section 18 General rule |
Only a person whose signatures appear on an instrument are liable thereon |
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Exception |
A. Where a person signs in a trade or assumed name B. The principal is liable if a duly authorized agent signs on his own behalf C. In case of forgery, the forger is liable even if his signaturedoes not appear on the instrument D. Where the acceptor makes his acceptance of a bill on a separate paper E. Where a person makes a written promise to accept a bill before it is drawn |
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Authorize |
Agent |
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Principal |
One who gives the agent an authority |
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When agent may escape personal liability |
1. He is duly authorized 2. He adds words to his signature indicating that he signs as an agent, that is, for or on behalf of a principal, or in a representative capacity 3. He discloses his principal |
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Procuration |
The act by which a principal gives power to another to act in his place as he could himself |
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Effect of signature by procuration |
It gives warning that the agent has but a limited authority, so thatit is the duty of the person dealing with him to inquire into the extent of his authority |
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Forgery |
Counterfeit-making or fraudulent alteration of any writing and may consist in the signing of another's name |
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