NEGOTIABLE
INSTRUMENTS LAW
PART 1
INTRODUCTION: GENERAL
CONCEPTS
COMMERCIAL LAWS: that branch of private law which regulates the juridical
relations arising from commercial acts and according to which the questions or
controversies which may arise therefrom are resolved.
Coverage of Commercial Laws:
1. Negotiable Instruments 11. Insolvency
2. Warehouse receipts 12. Securities
3. Letters of Credit 13. Intellectual properties
4. Partnership 14. Public utilities
5. Corporation 15. Bottomry
6. Single proprietorship
7. Joint accounts
8. Insurance
9. Mortgage
10.Banking regulations
INTRODUCTION: GENERAL
CONCEPTS
COMMERCE: the mass of acts of
human life which tend to the satisfaction
of necessities by means of exchange or
of the rendition of services. Effected with
a purpose of gain and falling within the
domain of mercantile laws.
INTRODUCTION: GENERAL
CONCEPTS
GOVERNING LAWS:
1. The NIL (Act No. 2031)
2. The Code of Commerce
3. The New Civil Code (suppletory)
4. Decisions of the courts in the US and in
England based on the American Uniform
Negotiable Instruments Law and the Bill of
Exchange Act of 1882
INTRODUCTION: GENERAL
CONCEPTS
FUNCTIONS OF A NEGOTIABLE
INSTRUMENT:
1. It operates as a substitute for money
2. It is a means of creating and transferring
credit
3. It facilitates the sale of goods
4. It increases the purchasing medium in
circulation
INTRODUCTION: GENERAL
CONCEPTS
NEGOTIABLE INSTRUMENTS ARE NOT LEGAL TENDER: Sec 52 of
the New Central Bank Act (NCBA), R.A. No. 7653 provides that only
notes and coins issued by the Bangko Sentral ng Pilipinas are
considered legal tender.
Sec. 60 of the NCBA provides that checks are not legal tender.
COINS AS LEGAL TENDER: Sec 52 of R.A. No. 7653 and BSP Circular
No. 537, Series of 2006, the maximum amount of coins to be considered
as legal tender is adjusted as follows:
a) P1,000.00 for denominations of 1-peso, 5-peso and 10-peso coins
b) P100.00 for denominations of 1-centavo, 5-centavo, 10-centavo, and
25-centavo coins.
INTRODUCTION: GENERAL
CONCEPTS
IMPORTANT FEATURES OF NEGOTIABLE INSTRUMENTS:
Negotiability It is that attribute or property whereby a bill or note or check 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 to collect the sum payable for himself free
from defenses.
Accumulation of Secondary Contracts Secondary contracts are picked up and carried along with them as they are negotiated form one person to another,
or in the course of negotiation of a negotiable instrument, a series of juridical ties
between the parties thereto arise by law or by privity.
INTRODUCTION: GENERAL
CONCEPTS
PARTIES TO THE NEGOTIABLE INSTRUMENTS
A. PROMISSORY NOTE
MAKER/PROMISSOR the party making the promise PAYEE the party to whom the promise is made
B. BILL OF EXCHANGE
DRAWER the person drawing or making the instrument or the person giving the order
DRAWEE the addressee of the order to pay or the person required to pay the instrument
PAYEE the person to whom payment is to be made
INTRODUCTION: GENERAL
CONCEPTS
LIABILITY OF PARTIES TO THE NEGOTIABLE
INSTRUMENTS
A. PRIMARY LIABILITY
MAKER
ACCEPTOR OF A BILL
B. SECONDARY LIABILITY
DRAWER OF A BILL
INDORSERS OF A BILL OR NOTE
C. NOT LIABLE
DRAWEE , until he accepts
INTRODUCTION: GENERAL
CONCEPTS
INCIDENTS IN THE LIFE OF A NEGOTIABLE INSTRUMENT
a. ISSUE first negotiation b. NEGOTIATION
c. PRESENTMENT FOR ACCEPTANCE
d. ACCEPTANCE
e. DISHONOR BY NON-ACCEPTANCE
f. PRESENTMENT FOR PAYMENT
g. DISHONOR BY NON-PAYMENT
h. NOTICE OF DISHONOR
i. PROTEST (for foreign bills)
j. DISCHARGE
INTRODUCTION: GENERAL
CONCEPTS
KINDS OF NEGOTIABLE INSTRUMENTS:
BILL OF EXCHANGE an 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 bearer.
(Sec. 126 NIL)
PROMISSORY NOTE 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 sm certain in money or to bearer. Where a note is drawn
to the makers own order, it is not complete until indorsed by him. (Sec. 184, NIL).
INTRODUCTION: GENERAL
CONCEPTS
KINDS OF BILL OF EXCHANGE:
1. DRAFT used synonymously with bill of exchange although it normally refers to a bill of exchange used in documentary exchange like letters of credit transactions.
2. INLAND AND FOREIGN BILL an inland bill is a bill which is, or on its face purports to be, both drawn and payable within the Philippines. Any other bill is a
foreign bill.
3. TIME DRAFT draft that is payable at a fixed date. 4. SIGHT OR DEMAND DRAFT draft that is payable when the holder presents it for
payment.
5. TRADE ACCEPTANCE bill that is used in contracts of sale where the seller as drawer orders the buyer (as drawee) to pay a sum certain to the same seller
(payee).
6. BANKERS ACCEPTANCE a time draft across the face of which the drawee has written the cord accepted.
7. CHECK a bill of exchange drawn on a bank payable on demand.
INTRODUCTION: GENERAL
CONCEPTS
KINDS OF PROMISSORY NOTE:
CERTIFICATE OF DEPOSIT a form of promissory note which is a written acknowledgment of a bank or its receipt of a certain sum with a promise to pay
the same.
BONDS a certificate or evidence of a debt on which the issuing company or governmental body promises to pay the bondholders a specified amount of
interest for a specified length of time and to repay the loan on the expiration date.
DEBENTURE a promissory note or bond backed by the general credit of a corporation and usually not secured by a mortgage or lien on any specific
property.
INTRODUCTION: GENERAL
CONCEPTS
WHEN CAN A BILL OF EXCHANGE BE TREATED
AS A PROMISSORY NOTE?
(Sec 17 [e] and 130, NIL)
1.When the drawer and the drawee are the same
person
2.The drawee is a fictitious person
3.The drawee has no capacity to contract
4.The instrument is so ambiguous that there is
doubt whether it is a bill of a note
INTRODUCTION: GENERAL
CONCEPTS
NEGOTIABILITY OF THE FOLLOWING
COMMERCIAL PAPERS:
1. CROSSED CHECK usually negotiable as it normally complies with the requirements of Sec
1, NIL but issued for special purpose and can be
negotiated only once.
2. TRADE ACCEPTANCE negotiable, it is a bill of exchange addressed by the seller of the goods
to the buyer subject to compliance with Sec 1,
NIL.
INTRODUCTION: GENERAL
CONCEPTS
3. MONEY ORDER non-negotiable as it is governed by postal rules and regulations which
may be inconsistent with the NIL and can only be
negotiated once.
4. WAREHOUSE RECEIPT and BILL OF LADING non negotiable as it represents goods and not
money
INTRODUCTION: GENERAL
CONCEPTS
5. PAWN TICKET non negotiable as it does not represent money but the pawned articles.
6. TREASURY WARRANT non-negotiable being payable out of a particular fund.
7. TRUST RECEIPT non-negotiable under the NIL as it is an evidence of goods and not of money
NEGOTIABLE INSTRUMENTS
Stale Check one which has not been presented for payment within a
reasonable time after its issue;
becomes valueless; 6 months
NEGOTIABLE INSTRUMENTS
CROSSED CHECK One which bears across its face two parallel lines drawn diagonally, usually on
the upper left side
a. General name of intermediary may be included
b. Special payment must only be made to the entity/person indicated
Pay to the order of Mary Montes the sum of ONE
THOUSAND PESOS (P1,000.00) only.
Rudy Martin
RCBC- Baguio
NEGOTIABLE INSTRUMENTS
Based on Sec. 1, are the following documents negotiable or non-negotiable? 1. Letter of Credit 2. Treasury Warrant 3. Postal Money Order 4. Bill of Lading 5. Certificate of Stock 6. Warehouse Receipt 7. Dock Warrant 8. Memorandum Check 9. Cashiers Check 10. Managers Check 11. Travelers Check 12. Certified Check 13. Crossed Check
BILLS OF EXCHANGE
BILL OF EXCHANGE an 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 bearer. (Sec. 126 NIL)
PARTIES:
DRAWER the person drawing or making the instrument or the person giving the order
DRAWEE the addressee of the order to pay or the person required to pay the instrument
PAYEE the person to whom payment is to be made
BILLS OF EXCHANGE B/E P.N
Contains an unconditional order by
one to another to pay the instrument
Contains an unconditional promise
made by one to another
There are 3 parties There are 2 parties
The drawer who issues the bill is
secondarily liable
The maker who issues the note is
primarily liable
A bill drawn payable to the drawers own order is complete without
indorsement as long as accepted by
the drawee
A note payable to the makers own order is not complete until indorsed by
him
Must be present for acceptance to the
drawee
Need not be presented for acceptance
If payable on demand, the bill must
be presented for payment within a
reasonable time from last negotiation
If payable on demand, the note must be
presented for payment within a
reasonable time from its issue
BILL OF EXCHANGE
When is a PN like a B/E?
After a note is indorsed by the payee, it becomes
just like a bill. The maker corresponds to the
acceptor, the indorser as the drawer and the indorsee
as the payee.
When is a B/E like a PN?
Once accepted, a bill becomes similar to a PN. The
acceptance is the promise to pay and the acceptor
becomes the promissor/principal debtor/maker while
the drawer becomes like the first indorser or surety of
the acceptor.
BILL OF EXCHANGE DRAFT- used synonymously with bill of exchange although it normally
refers to a bill of exchange used in documentary exchange like letters of
credit transactions.
BILL OF EXCHANGE
INLAND AND FOREIGN BILL an inland bill is a bill which is, or on its face purports to be, both drawn and payable within the Philippines. Any other
bill is a foreign bill
BILL OF EXCHANGE
IMPORTANCE OF THE DISTINCTION BETWEEN
INLAND AND FOREIGN BILL
1. To determine when protest will apply
2. To determine the law that will govern the validity,
interpretation and effect of the bill
**For this purpose, the different states of the USA are deemed
foreign to each other
**A bill drawn in the Philippines and payable in California or
drawn in New York and payable in Arizona are foreign bills as
they are not both drawn and payable in the Philippines.
BILL OF EXCHANGE
TIME DRAFT draft that is payable at a fixed date.
BILL OF EXCHANGE
SIGHT OR DEMAND DRAFT draft that is payable when the holder presents it for payment.
BILL OF EXCHANGE
TRADE ACCEPTANCE bill that is used in contracts of sale where the seller as drawer orders the buyer (as drawee) to pay a sum certain to the
same seller (payee).
BILL OF EXCHANGE
BANKERS ACCEPTANCE a time draft across the face of which the drawee has written the word accepted.
BILL OF EXCHANGE
CHECK a bill of exchange drawn on a bank payable on demand.
BILL OF EXCHANGE
CHECK v ORDINARY B/E
CHECK a bill of exchange drawn on a bank payable on demand.It is usually drawn against previous deposit of funds for it
is ordinarily intended for immediate payment. It is not usually
required to be presented for acceptance but for payment.
However, there is no prohibition from presenting it for acceptance.
Sec 187 provides that Where a check is certified by a bank on which it is drawn, the certification is equivalent to an
acceptance. Certification implies that the check is drawn upon sufficient funds in the hands of the drawee, that they have been
set apart for its satisfaction, and that they shall be so applied
whenever the check is presented for payment.
BILL OF EXCHANGE
Sec. 127. Bill not an assignment of funds in hands of drawee. -
A bill of itself does not operate as an assignment of the funds
in the hands of the drawee available for the payment thereof,
and the drawee is not liable on the bill unless and until he
accepts the same.
Sec. 128. Bill addressed to more than one drawee. - A bill may
be addressed to two or more drawees jointly, whether they are
partners or not; but not to two or more drawees in the
alternative or in succession.
Ex. Pay to the order of A,B and C P10K. Payment to any one of them is valid.
BILL OF EXCHANGE
EXAMPLE FOR SEC 128
Ex. TO: X and Y
Pay to the order of A and B P10K. SGD
***Payment by any one of them is valid and discharges the
instrument. But the following is not allowed:
Ex. TO: X or Y = alternative
Pay to the order of A or B P10K. SGD
Ex TO: X, and in his absence, B = successive
Pay to A, B and/or C P10K. SGD
***Compare with Sec 8 (payees) and Sec 68 (joint
indorsees=solidary)
BILL OF EXCHANGE
Sec. 129. Inland and foreign bills of exchange.
- An inland bill of exchange is a bill which is, or
on its face purports to be, both drawn and
payable within the Philippines. Any other bill is
a foreign bill. Unless the contrary appears on
the face of the bill, the holder may treat it as an
inland bill.
BILL OF EXCHANGE
Sec. 130. When bill may be treated as
promissory note. - Where in a bill the drawer
and drawee are the same person or where the
drawee is a fictitious person or a person not
having capacity to contract, the holder may
treat the instrument at his option either as a bill
of exchange or as a promissory note.
BILL OF EXCHANGE
Sec. 131. Referee in case of need*. - The drawer
of a bill and any indorser may insert thereon the
name of a person to whom the holder may resort
in case of need; that is to say, in case the bill is
dishonored by non-acceptance or non-payment.
Such person is called a referee in case of need. It
is in the option of the holder to resort to the
referee in case of need or not as he may see fit.
*umpire, arbiter, mediator, go-between
BILL IN SET Sec 178-183
Sec. 178. Bills in set constitute one bill. - Where a bill
is drawn in a set, each part of the set being numbered
and containing a reference to the other parts, the
whole of the parts constitutes one bill.
*** A bill in a set is one composed of several parts, each part being numbered and containing a
reference to the other parts, the whole of the
parts constituting but one bill
BILL IN SET Sec 178-183
1st P
art
1 Jan 2013
Thirty days after sight of this First of Exchange (Second and Third Unpaid), pay to the order of Jay Criz P5K.
SGD. Alph TO: Mu Moy Baguio City
2nd P
art
2 Feb 2013
Thirty days after sight of this Second Exchange (First and Third Unpaid), pay to the order of Jay Criz P5K
SGD. Alph TO: Mu Moy Baguio City
3rd
Part
3 March 2013
Thirty days after sight of this Third Exchange(First and Second Unpaid), pay to the order of Jay Criz P5K.
SGD. Alph
TO; Mu Moy
Baguio City
BILL IN SET Sec 178-183
Sec. 179. Right of holders where different parts are negotiated.
- Where two or more parts of a set are negotiated to different
holders in due course, the holder whose title first accrues is, as
between such holders, the true owner of the bill. But nothing
in this section affects the right of a person who, in due course,
accepts or pays the parts first presented to him.
**Each part may be negotiated but the payee is NOT supposed
to negotiate all the parts since the only reason for drawing the
bill in parts is to obtain greater assurance that at least one part
will reach the payee safely. As between holders in due course,
the holder whose title first accrues is the owner of the bill.
Payee will be liable to all if he negotiates all parts.
BILL IN SET Sec 178-183
Sec. 180. Liability of holder who indorses two or more parts of
a set to different persons. - Where the holder of a set indorses
two or more parts to different persons he is liable on every
such part, and every indorser subsequent to him is liable on
the part he has himself indorsed, as if such parts were
separate bills.
**Drawee is liable only for one part (Sec 183)
BILL IN SET Sec 178-183
Sec. 181. Acceptance of bill drawn in sets. - The
acceptance may be written on any part and it
must be written on one part only. If the drawee
accepts more than one part and such accepted
parts negotiated to different holders in due course,
he is liable on every such part as if it were a
separate bill.
BILL IN SET Sec 178-183
Sec. 182. Payment by acceptor of bills drawn in
sets. - When the acceptor of a bill drawn in a set
pays it without requiring the part bearing his
acceptance to be delivered up to him, and the part
at maturity is outstanding in the hands of a holder
in due course, he is liable to the holder thereon.
** The drawee only warrants the part he
accepts
BILL IN SET Sec 178-183
Sec. 183. Effect of discharging one of a set. -
Except as herein otherwise provided, where any
one part of a bill drawn in a set is discharged by
payment or otherwise, the whole bill is discharged.
**As far as the drawer is concerned, the entire
bill is discharged if any one part is discharged.
REFERENCES
Abad, Antonio H Jr.(2006), Negotiable Instruments Law, Quezon City, Central Book Supply Inc
Agpalo, Rube E. (2005), The Negotiable Instrument Law, Manila Rex
De Leon, H.S. (2010), The Negotiable Instruments Law, Quezon City: REX Printing Company, Inc.
Black's law dictionary (8th ed) (2007). St. Paul, MN. : West Pub.
De Leon, Hector S. (2010). (2010 ed.).The Philippine negotiable instruments law and allied laws annotated Manila: Rex,
Commercial laws of the Philippines. (2009). Manila: Rex.
Salao, Ernesto C. Law Dictionary. (2009). Manila: Rex
IMPORTANT LINKS
notarizationattorney.com
Password: lecturenotes!!!