NEGOTIABLE INSTRUMENTS LAW NEGOTIABLE INSTRUMENTS LAW
ATTY. RENE VIL
ATTY. RENE VILLARENTELARENTE BRIEF HISTORY OF THE LAW
BRIEF HISTORY OF THE LAW -- Origin: Law on MerchantsOrigin: Law on Merchants
-- Act Act No.2031No.2031, the Negotiable Instruments Law, took effect, the Negotiable Instruments Law, took effect on
on June 2,1911June 2,1911, and is, and is patterned after the U.Spatterned after the U.S Uniform
Uniform Negotiable Negotiable Instruments Instruments LawLaw, then called US, then called US Uniform NI Act of 1896 which in turn is
Uniform NI Act of 1896 which in turn is copied from thecopied from the English Bill of Exchange Act of 1882
English Bill of Exchange Act of 1882.. — —compilation ofcompilation of law merchants
law merchants
-- Act No. 2031 Act No. 2031 enacted on Feb. 3, 1911; took enacted on Feb. 3, 1911; took effect aftereffect after 90 days of publication on march 4, 1911; after 90 days of publication on march 4, 1911; after published, full force and effect
published, full force and effect — —June 2, 1911.June 2, 1911. -- This law has never had any amendment since then.This law has never had any amendment since then.
-- Important principle: decisions of the US and Britain that hasImportant principle: decisions of the US and Britain that has something to do with NIL has persuasive effect in our law something to do with NIL has persuasive effect in our law FUNCTIONS AND IMPORTANCE OF THE NIL
FUNCTIONS AND IMPORTANCE OF THE NIL 1.
1. It is a substitute for money but it is NOT legal tenderIt is a substitute for money but it is NOT legal tender o
o Act Act No. No. 7653, 7653, CB CB Act Act Section Section 5252 —“legal —“legal tender
tender” means that amount which a debtor can” means that amount which a debtor can force the creditor to accept as payment of a debt force the creditor to accept as payment of a debt o
o They can act like money. Can you just give theThey can act like money. Can you just give the check to the clerk of court as consignation? NO. it check to the clerk of court as consignation? NO. it is not legal tender; it will not effect payment. (BPI is not legal tender; it will not effect payment. (BPI v. spouses royeca
v. spouses royeca — —whether tender of checkwhether tender of check constitutes payment)
constitutes payment) Section 52.
Section 52. Legal Tender Power.Legal Tender Power. - All notes and coins - All notes and coins issued by the Bangko Sentral shall be fully guaranteed issued by the Bangko Sentral shall be fully guaranteed by the Government of the Republic of the Philippines by the Government of the Republic of the Philippines and shall be legal tender in the Philippines for all debts, and shall be legal tender in the Philippines for all debts, both public and private: Provided, however, That, both public and private: Provided, however, That, unless otherwise fixed by the Monetary Board, coins unless otherwise fixed by the Monetary Board, coins shall be legal tender in amounts not exceeding Fifty shall be legal tender in amounts not exceeding Fifty pesos (P50.00) for denominations of Twenty-five pesos (P50.00) for denominations of Twenty-five centavos and above, and in amounts not exceeding centavos and above, and in amounts not exceeding Twenty pesos (P20.00) for denominations of Ten Twenty pesos (P20.00) for denominations of Ten centavos or less.
centavos or less. ELEMENTS: ELEMENTS: a.
a. Government is involved so all notes and coins areGovernment is involved so all notes and coins are guarantee
guarantee b.
b. It is legal tender for all debts both public andIt is legal tender for all debts both public and private
private c.
c. Provided, ..coins shall be legal tender in amountsProvided, ..coins shall be legal tender in amounts not exceeding P50 for denominations of 25 not exceeding P50 for denominations of 25 centavos and above; and in amounts not centavos and above; and in amounts not exceeding P20 for denominations of 10 centavos exceeding P20 for denominations of 10 centavos or less.
or less. d.
d. For NOTESFor NOTES — — legal tender for all debts legal tender for all debts
o
o TheThe rule under 1249 of the CCrule under 1249 of the CC: payment will: payment will have its effect only when the NI shall have been have its effect only when the NI shall have been encashed. It is only considered as consummated encashed. It is only considered as consummated payment if you have already encashed
payment if you have already encashed it.it. Myron Papa v. Valencia
Myron Papa v. Valencia
-- Encashment is the operative act whereEncashment is the operative act where payment is considered made and not payment is considered made and not the tender of the NI even if
the tender of the NI even if accepted.accepted. -- F:F: the the holder holder intentionally intentionally did did notnot
encash the check. The other guy sold encash the check. The other guy sold his land, check was made as payment. his land, check was made as payment. Then he intentionally did not encash it; Then he intentionally did not encash it; so wala daw consummated sale. If I did so wala daw consummated sale. If I did not encash it, what is the effect of not encash it, what is the effect of 1249? Will the sale be consummated in 1249? Will the sale be consummated in the light of 1249 of the CC?
the light of 1249 of the CC?
CEBU INTERNATIONAL V. CA CEBU INTERNATIONAL V. CA
-- What law governs money transaction ofWhat law governs money transaction of cebu internation with alegre? 1249 or cebu internation with alegre? 1249 or article 73 of NIL?..(see case)
article 73 of NIL?..(see case)
2.
2. It is a medium of exchange for most commercialIt is a medium of exchange for most commercial transactions
transactions PP V. TONGKO PP V. TONGKO
-- Issue of NIL as Issue of NIL as medium of commercialmedium of commercial
-- Has relation with estfa 315 (d) on postdatingHas relation with estfa 315 (d) on postdating checks
checks 3.
3. It is a It is a medium of credit transactionsmedium of credit transactions 4.
4. It enhances security ( you are not dealing with actualIt enhances security ( you are not dealing with actual legal tender)
legal tender) 5.
5. It is a specie of It is a specie of propertyproperty DBP OF RIZAL V. SIMA WEI DBP OF RIZAL V. SIMA WEI
-- A A NI NI of of which which a a check check is is not not only only a a writtenwritten evidence of contract but also a specie of property; evidence of contract but also a specie of property; it is a property in itself.
it is a property in itself.
-- It can be a subject of theft; thievery of the checkIt can be a subject of theft; thievery of the check itself.
itself. However, However,
PP. V. BERNARD MIRTO,
PP. V. BERNARD MIRTO, October 19, 2011 October 19, 2011
-- Are Are checks by checks by itself personal itself personal property? May property? May it it bebe subject to theft or qualified theft?
subject to theft or qualified theft?
-- How case was prayed was different from sima wei.How case was prayed was different from sima wei. Sa latter, the check was taken away from sima Sa latter, the check was taken away from sima wei. Here, coca cola, distributor will give
wei. Here, coca cola, distributor will give checks inchecks in advance. Transaction is cash-based but you will advance. Transaction is cash-based but you will give checks as collateral. This distributor, wala na give checks as collateral. This distributor, wala na niya giuli ang check so wala na collateral. Coca niya giuli ang check so wala na collateral. Coca cola sued guy for theft under the sima wei cola sued guy for theft under the sima wei doctrine.
doctrine.
-- So now, can he be charged of theft? Is thereSo now, can he be charged of theft? Is there transfer ownership when check was only issued as transfer ownership when check was only issued as collateral? NO.
collateral? NO. 6.
6. It can either be a receipt proving payment orIt can either be a receipt proving payment or evidence proving
evidence proving indebtednessindebtedness CASES: CASES: PACHECO V. CA PACHECO V. CA BENNY GO V. BACARO BENNY GO V. BACARO SPOUSES TAN V. VILLAPAZ SPOUSES TAN V. VILLAPAZ CHUA GAW V. CHUA
CHUA GAW V. CHUA
LANDBANK V. MONETS EXPORT LANDBANK V. MONETS EXPORT LANDBANK V. MONETS EXPORT LANDBANK V. MONETS EXPORT
-- F:F: Case of evidence of indebtedness held by the bank on a Case of evidence of indebtedness held by the bank on a borrower who has multiple loans
borrower who has multiple loans -- WON PN is evidence of WON PN is evidence of indebtednessindebtedness
-- SC:SC: As it happened, however, in its original decision, the As it happened, however, in its original decision, the RTC held that Monet still owed Land Bank only P2.5 million RTC held that Monet still owed Land Bank only P2.5 million as reported in the bank‟s Schedule
as reported in the bank‟s Schedule of Amortization (Exhibitof Amortization (Exhibit 39). But that schedule covered only one promissory note, 39). But that schedule covered only one promissory note, Promissory Note P-981. Noting this, the Court rejected Promissory Note P-981. Noting this, the Court rejected Exhibit 39 as basis for determining Monet‟s total obligation, Exhibit 39 as basis for determining Monet‟s total obligation, given that it undeniably took out more loans as evidenced by given that it undeniably took out more loans as evidenced by the other promissory notes it executed in favor of Land the other promissory notes it executed in favor of Land Bank.
Bank.
CHARACTERISTICS AND FEATURES OF NEGOTIABLE
CHARACTERISTICS AND FEATURES OF NEGOTIABLE
INSTRUMENTS INSTRUMENTS 1.
1. NEGOTIABILITY-NEGOTIABILITY- it is that attribute or property whereby a bill it is that attribute or property whereby a bill or note or check may pass from hand to hand similar to money, 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.
CASE: NATIVIDAD GEMPESAW V. CA
2. ACCUMULATION OF SECONDARY CONTRACTS- secondary contracts are picked up and carried along with Negotiable Instruments as they are negotiated from one person to another; or in the course of negotiation of negotiable instruments, a series of juridical ties between the parties thereto arise either by law or by privity. The indorsers become secondarily liable to the holder. - This is a feature which you cannot find in legal tender. There
are as many people as liable as there are person who signed the check.
SALVADOR ECHANO V. TOLEDO
- F: this is about liability of government owned bank cashier for allowing an unauthorized person to deposit in his own savings account second-indorsed checks payable to city treasurer in manila
- What is the effect of 2nd endorsed check…but the
essence here is rediscounting.
- X, taxpayer, pays check payable to treasurer of manila. The latter, indorse p niya sa uban. I-rediscount pa niya sa third person. Iyahang ginabuhat is iya nang i-encash. What happens man gud, ngbayad na pero dili man mabalance. Ang third person ang mag-encash n hinuon sa check. Why will this person rediscount a check that was supposed to be issued to you?
- tHe transaction or withdrawal is within the NIL —valid transactions kasi lahat so admin case nalang.
- NI is valid. It has moved from 1 person to the other. So gitanggal nalang sila sa position coz they could not be held
DISTINCTIONS:
NEGOTIABLE NON-NEGOTIABLE
1. must contain all requisites of sec. 1
1. does not contain all requisites of sec.1
2. transferable by negotiation and assignment.
2. transferable by assignment not negotiation
3. HDC can have rights better than his transferor
3. a transferee acquires no better rights than his transferor
4. prior parties warrant payment (secondarily liability).
4. prior parties do not warrant payment but merely the legality of his title
CLASSES OF NI:
1. PROMISSORY NOTE (PN)- unconditional promise in writing 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. (Sec. 184, NIL)
2. BILL OF EXCHANGE (BE)- 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 to bearer (Sec. 126, NIL); and
3. CHECK- a bill of exchange drawn on a bank payable on demand (Sec. 185, NIL).
DISTINCTIONS:
PROMISSORY NOTE BILL OF EXCHANGE
1. unconditional promise 1. unconditional order 2. involves 2 parties 2. involves 3 parties
3. maker primarily liable 3. drawer is only secondarily liable 4. only one presentment: for
payment
4. two presentments: for acceptance and for payment DISTINCTIONS:
BILL OF EXCHANGE Check
1. Not necessarily drawn on a deposit. It is not necessary that a drawer of a BOE should have funds in the hands of the drawee.
1. It is necessary that a check is drawn on a deposit. Otherwise, there would be fraud.
2. Death of a drawer of a BOE with the knowledge of the bank, does not revoke the author of the banker to pay.
2. Death of the drawer of a check, with the knowledge by the bank, revokes the authority of the banker to pay.
3. May be presented for payment within a reasonable time after its last negotiation because it may be further negotiated.
3. Must be presented for payment within a reasonable time after its issue.
Section 1. Form of negotiable instruments.
An instrument to be negotiable must conform to the following 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) Mu st be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.
- Those that conform to section 1 is covered by NIL. You will use the 198 or so sections of the NIL and forget about other mercantile laws.
- Those that do not conform to section 1 are covered by some other laws.
- E.g. warehouse receipt —run it first under NIL. If it fits, concentrate sa NIL. If not, then don‟t follow NIL and follow the warehouse receipts law.
- Conclusion: section 1 is the crossroad. Run the test first under Section 1.
REQUISITES AS TO A NEGOTIABLE NOTE
1. It must be in writing and signed by the maker
2. It must contain an unconditional promise to pay a sum certain in money
3. It must be payable on demand, or at a fixed or determinable future time
4. It must be payable to order or to bearer REQUISITES AS TO A NEGOTIABLE BILL
1. It must be in writing and signed by the maker
2. It must contain an unconditional order to pay a sum certain in money
3. It must be payable on demand, or at a fixed or determinable future time
4. It must be payable to order or to bearer
5. The drawee must be named or otherwise indicated therein with reasonable certainty
THE INSTRUMENT MUST BE IN WRITING
- There must be a writing of some kind, for if the instrument were not in writing, there would be nothing to be negotiated
or passed from hand to hand
THE INSTRUMENT MUST BE SIGNED BY THE MAKER OR DRAWER - Full name must be written
- At least the surname should appear and generally, the signature usually is by writing the signer ‟ s name
- But, where the name is not signed, the holder must prove that what is written is intended as a signature of the person sought to be charged
- Commonly, it is found in the lower part of the instrument. It could also be signed anywhere as long as the maker or drawer acknowledges the signature to be his own.
IF A BILL, IT MUST C ONTAIN AN ORDER TO PAY - It is an instrument demanding right
- Any words which are equivalent to order or which show the drawer‟ s will that the money should be paid, are sufficient to make the instrument a bill of exchange
AN INSTRUMENT WITH AN EFFECT OF MERE AUTHORITY TO PAY - It is not negotiable because it is not an order to pay - “I hereby authorize you to pay P1000 to Pedro Cruz” EFFECT OF MERE REQUEST TO PAY
- The instrument is not negotiable as it is not an order to pay but a mere request to pay
- “Please to let the bearer have P70 and place to my account and youwill oblige”
EFFECT OF MERE WORDS OF CIVILITY
- The mere fact that it contains words of civility or courtesy doesn‟ t make it non-negotiable
WHERE INSTRUMENT IS A NOTE, IT MUST CONTAIN A PROMISE TO PAY
1. It is enough that words of equivalent meaning are used 2. The promise is implied from promissory words
contained in the instrument
THE PROMISE OR ORDER TO PAY MUST BE UNCONDITIONAL - It must not be subject to a condition
- It must be unconditional and absolute SUM PAYABLE MUST BE DEFINITE AND CERTAIN
- The amount of money to be paid must be determinable by inspection and must be stated plainly on the face of the instrument, and like the denomination of money, must be started in the body of the instrument
SUM MUST BE PAYABLE IN MONEY ONLY
- Money is the one standard of value in actual business or more stable standard of value
- Legal tender —that kind of money which the law compels the creditor to accept in payment of his debt when tendered by the debtor in the right amount
- But if authorized by law or consent of creditor, cash may be substituted by other means, or may be check
- Instrument need not be payable in legal tender INSTRUMENT MUST SPECIFY DENOMINATION
- Instruments should express the specific denomination of money when it is payable in the money of a foreign country in order that the courts may be able to ascertain its equivalent value; otherwise, it is non-negotiable
PAYABLE ON DEMAND OR ON A FIXED OR DETERMINABLE FUTURE TIME
- On demand
- At a fixed or determinable future time WHERE NO YEAR IS SPECIFIED
- Neither payable on demand or on a fixed or determinable
future time
- Time of payment is not determinable as the year is not stated
THE INSTRUMENT MUST BE PAYABLE TO ORDER OR TO BEARER - An instrument is not negotiable unless made payable to
a person or his order or bearer or unless words of the similar or equivalent import are used such as assigns or assignees or holder
WHERE PAYABLE TO THE ORDER OF BEARER - Also negotiable
- This was held to be payable to order
- The payee of such an instrument is the bearer and it can only be negotiated by his indorsement
ORDER SECTION 1 (B)
(applies only to BE)
SECTION 1 (D) (applies to both PN and BE) Who gave the order DRAWER Payee/holder Who was ordered
DRAWEE Person primarily liable
PN maker
BE acceptor/drawee bank What is
the order
To pay to the payee or holder a sum certain in money
To pay a sum certain in money to a person other than himself
Section 1(b) —applies only to bill of exchange
- order of the drawer to the drawee to pay the payee or hoder a sum certain in money
Section 1(d) —applicable to both PN and BE
- order of the payee or holder to the person primarily liable (for PN: maker, for BE: acceptor/drawee) to pay the holder or person other than him
NOTA BENE: ORDER AND BEARER —TWO words of NEGOTIABILITY
WHERE PAYABLE TO A CERTAIN PERSON
- Where the instrument is payable to a specified person, it ‟ s not payable to order
- Payable to a certain person or his agent - Where payable to “bearer B”
THE DRAWEE MUST BE NAMED
- Requirement that refers only to bills of exchange
- Drawee‟ s name may be omitted and be filled in under implied authority like any other blank
- An acceptance may supply the omission of the designation IMPORTANCE OF FORMALITIES
- Essential for the security of the mercantile transa ctions - Distinguish the negotiable instrument from the
ordinary non- transferrable written contract NECESSITY OF COMPLIANCE WITH PROVISIONS
- Where the instrument doesn‟ t conform with the requirements laid down in Section 1, then it is not governed by NIL
DETERMINATION OF NEGOTIABILITY
- By the provisions of the NIL, particularly Section 1 thereof - By considering the whole of the instrument
- By what appears on the face of the instrument and not elsewhere
Sec. 2. What constitutes certainty as to sum.
The sum payable is a sum certain within the meaning of this Act, although it is to be paid:
(a) with interest; or
(c) by stated installments, with a provision that, upon default in payment of any installment or of interest, the whole shall become
due; or
(d) with exchange, whether at a fixed rate or at the current rate; or
(e) with costs of collection or an attorney's fee, in case payment shall not be made at maturity.
SUM CERTAIN IN MONEY
- Fixed amount of money that is legal tender
- Sum payable must be definite and certain. The amount of money to be paid must be determinable by inspection and must be stated plainly on the face of the instrument. and like the denomination in money, must be stated in the body of the instrument.
- The sum payable must be in money only. A bill or note if it is to be negotiable cannot be made payable in goods or services. (to drawee: pay to P or order 100 chickens in bucket..NO! i.e. to drawee: dance the tango to P..no!) - The sum payable is also NOT negotiable if it made to be
payable on stocks, bonds, corporate papers, checks and foreign bills.
WITH INTEREST
- The fact that the sum payable is to be paid with interest doesn‟ t render the sum uncertain
- Amount can easily be computed
- When interest is stipulated but not specified, the legal interest shall be used
- Where there is no stipulation, the legal rate shall be paid when the debtor incurs delay
- Interest due shall earn legal interest from the time it is judicially demaned, although the instrument may be silent upon this point
ESCALATION AND DE ESCALATION CLAUSE- FORMER VALID IF ACCOMPANIED BY THE LATTER
- May stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased by law or by the MB
- Deescalation clause —stipulation in the agreement that the rate of interest agreed upon shall be reduced if the maximum rate of interest is decreased by law or by the MB BY STATED INSTALLMENTS
1. Must be stated
2. The maturity of each installment must be fixed or determinable —required in order to comply with the requisite that the instrument, if not payable on demand, must be payable on a fixed or determinable future time BY STATED INSTALLMENTS, WITH ACCELERATION CLAUSE
- Acceleration clause —“upon default in the payment of any installment, the whole sum payable shall become due ” - It hastens the payment of the whole note
WITH EXCHANGE
- While the rate of exchange is not always the same and while it is technically true that the resort must be had to extrinsic evidence to ascertain what it is, yet the current rate of exchange between two places at a particular date is a matter of common commercial knowledge, or at least easily ascertained by anyone so that the parties can always, without difficulty, ascertain the exact amount necessary to discharge the paper
- Applies only to instruments drawn in one country and payable in another
EXCHANGE
- Difference in value of the same amount of money in different countries
- Current rate or fixed rate WITH COSTS AND ATTORNEY ‟ S FEES
- An instrument may thus stipulate that costs of collection and attorney‟ s fees shall be paid by the debtor in addition to the principal in case the instrument shall not be paid in maturity
- Although the stipulation will make the sum after maturity uncertain, it will no t a ffect the certainty of the sum payable at maturity and therefore, will not affect the negotiability of the instrument in which it is stipulated NEW SAMPAGUITA vs. PNB GR No. 148753 July 30, 2004
DOCTRINE: While there is section 2 that sum payable is sum certain ..although paid with intrest. Ingat ka din coz banks cannot unilaterally increase the interest rate.
While there is already repeal of the Usury law, that parties can agree on the interst rate, the truth in lending act requires disclosure of the interest rate.
ON ATTY‟S FEES: it can be reduced. On quantum meruit. BPI V. SPOUSES NORMAN AND ANGELITA YU UNION BANK V. SPOUSES TIU
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.
Atty. Villarente: this section must refer to both PN and BE! Section 3 must be titled: SECTION 3: WHEN PROMISE OR ORDER IS UNCONDITIONAL.
To drawer:
Pay to P or order the sum of 1K if she passes the 2014 bar exam. (conditional)
“condition”—future or uncertain event “unconditional”
- the promise or order is the obligation or juridical necessity to pay; this is not defined in section 3
“Unqualified order or promise”
- is an order or promise that is not subject to a future, uncertain event. If the obligation is nto subject to a condition, it is demandable at once and you call it a PURE obligation.
APPLICATION OF SECTION
- Whether or not the indication of a particular fund or particular account, or the statement of the transaction which gives rise to the instrument, would make the promise or order conditional
It is still a pure order to pay or pure promise to pay though coupled with the following:
- First case, the particular fund is not the direct source of the payment, only the source of reimbursement
- Unconditional —drawee pays the payee from his own funds and afterwards, the drawee pays himself from the particular fund indicated
- But an order or promise to pay out of a particular fund is not unconditional —particular fund is the direct source of payment
- Conditional —where the payment to the payee is directly from the funds indicated, the payment is the subject to the condition that the funds indicated are sufficient
To drawee:
Pay to P or order 1,000 then reimburse yourself with my account with you. (reimbursement is not a condition. It is only between the drawer money. It has nothing to do with the money to be paid to the payee)
PARTICULAR ACCOUNT TO BE DEBITED
- The instrument is to be paid first and afterwards, the particular account indicated will be debited
- The payment is not subject to the sufficiency or adequacy of the particular account to be debited
STATEMENT OF TRANSACTION (kanang reason nganong bayaran ka..what gave rise to the transaction,etc..it will not affect negotiability) - Instruments are not issued without any transaction upon
which they are based
- Generally negotiable but a statement of transaction will render the instrument non-negotiable where the promise or order to pay is made subject to the conditions and terms of the transactions stated, then the instrument is rendered non-negotiable
AS PER CONTRACT NOTES
- The appearance of words “as per contract” on the face of the instruments in any position doesn‟ t affect the negotiability of the instrument
CHATTEL NOTES
- A promissory note given for a chattel and stipulating that the title to the chattel shall remain in the vendor-payee until the note is paid, is not conditional
REFERENCE TO MORTGAGES
- Provisions in the mortgage doesn‟ t affect the negotiability of the instrument it secures
- Where a note otherwise negotiable contains the words “this note is secured by a mortgage” and the mortgage contains clauses promising to do many acts other than the payment of money, it was held that the note is not rendered non-negotiable
WHEN REFERENCE TO A MORTGAGE RENDERS INSTRUMENT NON- NEGOTIABLE
- When there is uncertainty in amount or when such provisions become part of the note, even though they aren‟ t in the note itself, the instrument is also rendered non-negotiable
“But an order or promise to pay out of a particular fund is not unconditional.”
- This refers to the AVAILABILITY OF FUND. So if hindi available ang fund, then the guy ordered is not under any obligation to pay. Therefore, the payment or promise or order is subject to a future, uncertain event.
To drawee:
Pay to P or order the sum of 1000 FROM MY SAVINGS ACCOUNT. (AH! Subject to the availabity of fund)
But
To drawee:
Pay to p or order the sum of 5000. Thereafter, reimburse yourself with my savings account. (ah! Pwede na!)
Sec. 4. Determinable future time; what constitutes. - An instrument is payable at a determinable future time, within the meaning of this Act, which is e xpressed to be payable: (a) At a fixed period after date or sight; or
(b) On or before a fixed or determinable future time specified therein; or
(c) On or at a fixed period after the occurrence of a specified event, which is certain to happen, though the time of happening be uncertain. (example: pay to P or order the sum of 5000 on the day bin laden shall die)
An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure the defect.
“AFTER DATE”
- Date: November 17
Pay to P or order the sum of 5000 30 days after date
(it will become due on December 17 —this is 30 days after date which is November 17)
“ AFTER SIGHT”
- After the drawee has seen the instrument upon presentment for acceptance
- I promise to pay B or his order P100 ten days after sight. Signed A (10 days after nimu napakita sa drawee, due na
ang instrument.)
(b) On or before a fixed or determinable future time specified therein; or
- on or before Christmas day
(c) On or at a fixed period after the occurrence of a specified event, which is certain to happen, though the time of happening be uncertain
- e.g. death of osama bin laden
- 30 days after the death of osama bin laden
- 30 days after the building of Ateneo shall have been destroyed An instrument payable upon a contingency is not negotiable,
and the happening of the event does not cure the defect. - „CONDITION NA”—go to section 3, this will not be allowed - E.g. that you will pass the bar…even if you pass it,, it will
not cure the defect. ACCELARATION NOTES
- There are certain notes which contain acceleration provisions
- Make it possible for the maker to pay the instrument at an earlier date or make it possible for the holder to require payment of the instrument at an earlier date
I promise to pay B or order P100 on or before July 1,2007. Signed A
*Type of acceleration note wherein the option to accelerate belongs to the maker, in the above case is A.
EXAMPLES OR ILLUSTRATIONS OF ACCELARATION NOTES
1. That contain acceleration clauses on the maker‟ s default in payment of installments or of interest, or on the happening of an extrinsic event
2. Or contain, in notes secured by collateral, a provision that the maker shall supply additional collateral in case of depreciation in the value of the original deposit, with the holder‟ s right to declare the note due immediately on failure to make good the depreciation
a. Non-negotiable —time for payment becomes uncertain and indefinite
b. It doesn‟ t render it non-negotiable —that from the standpoint of expediency as encouraging circulation and of business custom on account of their common acceptance by the commercial world, such clauses should be interpreted as not affecting negotiability
3. Or contain provisions for acceleration when holder deems himself insecure
a. It is rendered non-negotiable where it is payable at a fixed and future time, but with an option on the part of the holder to declare it due and demandable before maturity whenever he deems it insecure but to hold them non-negotiable is a spurious construction of the Act b. It is rendered non-negotiable when the
whole condition is lodged to the holder —middle ground is so long as the basis is dependent on factors not within the control of the holder, then it would still be negotiable
WORD USED IS AFTER
- The word used in the law is “after” and not before
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. But the negotiable character of an instrument otherwise negotiable is not affected by a provision which: (a) authorizes the sale of collateral securities in case the instrument be not paid at maturity; or
(b) authorizes a confession of judgment if the instrument be
not paid at maturity; or
(c) waives the benefit of any law intended for the advantage or protection of the obligor; or
(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 provision or stipulation otherwise illegal.
An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable
- DO AN ACT +PAYMENT OF MONEY= NON-NEGOTIABLE Pay to P or order the sum of 1000 AND sing a song not negotiable.
GENERAL RULE AS TO THE ADDITIONAL ACT
- The general rule is that an instrument must not contain an order or promise to do any act in addition to the payment of money.
- Otherwise, the instrument wouldn‟ t be negotiable. FOUR EXCEPTIONS TO THE GENERA L RULE
1. SALE OF COLLATERAL SECURITIES if the instrument be not paid at maturity
2. Authorizes CONFESSION OF JUDGMENT if the instrument be not paid at maturity
3. WAIVER OF BENEFIT OF LAW for the protection and benefit of the obligor
4. Gives the HOLDER an election to require something to be done in lieu of payment of money
CASE: PNB V. MANILA OIL REFINING CO. 43 PR 444 1922 - Instructive on “confession of judgment”
- “cognovits actionem” - Relicta verificacionem
PROMISE TO FURNISH ADDITIONAL SECURITY
- A promise of the maker to render additional collateral will render the note non-negotiable, as that would be an additional act to the promise to pay money
- However, they are to be distinguished from those instruments in which the holder may demand collateral, and failure to furnish it accelerates the instrument which are clearly negotiable, but merely accelerable on the non-performance of an optional act
SALE OF COLLATERAL SECURITIES
- The law gives exceptions to the general rule that “an instrument which contains an order or promise to do any act in addition to the payment of money is non-negotiable ” - Sometimes, the obligation arising from the transaction which gives rise to the instrument is secured by a mortgage or pledge
- The additional act to be performed is to be executed after the date of maturity, whe n the instrument c eases to be negotiable in the full commercial sense
- Before date of maturity, however, the sale of collateral securities would render the instrument non-negotiable
CONFESSION OF JUDGMENT
- Must be after the date of maturity - Second exception to the rule
TWO CLASSES OF CONFESSION OF JU DGMENT
1. Cognovit actionem —a written confession of an action by the defendant, subscribed but not sealed, and irrevocably authorizing any attorney of any court of record to confess judgment and issueexecution usually for the sum named. It is given in ord er to save expense and differs from a warrant of attorney, which is given to an expressly designated attorney before the commencement of any action and is under seal.
2. Confession relicta verificatione —confession of judgmen t made after plea is pleaded
WARRANT OF ATTORNEY
- Instrument in writing addressed to one or more attorneys named therein, authori zing them, generally to appear in court, or in some specified court o n behalf of t he person giving it, and to confess judgment in favor of some particular person named therein in an action for debt
EFFECT OF CONFESSION OF JUDGMENT IN THE PHILIPPINES
In the Philippines, a confession of judgment is considered void as it is against public
policy--1. Because they enlarge the field for fraud
2. Because under this treatment, the promissory bargains away his right to a day in court
3. Because the effect of the instrument is to strike down the right to appeal accorded by statute
WAIVER OF BENEFIT
- Waives the benefit of any law intended for the advantage and protection of the obligor
- Examples: presentment for payment, notice of dishonor, protest
ELECTION OF HOLDER TO REQUIRE SOME OTHER ACT - Fourth exception to the rule
- Even if there is an additional act, the instrument still remains to be negotiable provided that the right to choose between payment of money or the performance of the additional act is in the hands of the holder
Order or promise to DO AN ACT OR / IN LIEU OF/ INSTEAD OF PAYMENT OF MONEY = NEGOTIABLE ; provided the option lies in the HOLDER
- if the option is in the person primarily liable? Drawee or maker? NO.
to drawee:
pay to p or order the sum of 1000 or you can dance the tango at your option. (ah! Not negotiable! It should be at the option of HOLDER)
Sec. 6. Omissions; seal; particular money. - The validity and negotiable character of an instrument are not affected by the fact that:
(a) it is not dated; or
(b) does not specify the value given, or that any value had been given therefor; or
(e) designates a particular kind of current money in which payment is to be made.
But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the consideration to be stated in the instrument.
EFFECT OF OMISSION OF DATE
- Even where the instrument is not dated, still the instrument is not rendered non-negotiable
- There are however instances, whe rein the date is needed for the instrument to become negotiable
- When are these instances?
1. When it is payable in a period after d ate or after sight 2. When it is allowed to write the date… (Section 13) ATTY. MERCADO: “WHEN IS DATING REQUIRED TO
COMPLETE THE INSTRUMENT?” EFFECT OF OMISSION OF VALUE
- Usually, what is stated in the instrument is that it is being used for “value received” without specifying what that value is
- Nevertheless, the absence of value given, doesn‟ t render the instrument non-negotiable
PARTICULAR KIND OF MONEY
- Even if the money in which the instrument is to be payable is not legal tender, provided that it is current money or foreign money which has a fixed value in relation to the money in the country in which the instrument is payable, still the negotiability of the instrument is not affected, as the instrument still is considered payable in money
Sec. 7. When payable on demand. - An instrument is payable on demand:
(a) When it is so expressed to be payable on demand, or at sight, or on presentation; or
(b) In which no time for payment is expressed.
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.
EXPRESSED TO BE PAYABLE ON DEMAND
- An instrument is payable on demand where it is expressed to be payable on demand, on sight, or on presentation
- It is payable on demand also when no date of payment is specified
- It is payable on demand when the time of payment is left blank or unfilled
INSTRUMENT ON DEMAND ONLY AS BETWEEN THE PARTIES
- That after the date of maturity, the instrument can no longer be negotiated as to make the parties who acquire the instrument after the date of maturity holders in due course because they become holders thereof with notice that it is already overdue, as this can be determined from the face of the instrument itself
Sec. 8. When payable to order. - The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. It may be drawn payable to the order of:
(a) A payee who is n ot maker, drawer, or drawee; or (b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or (e) One or some of several payees; or
(f) The holder of an office fo r the time being.
Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable certainty.
WORDS OF NEGOTIABILITY
- Among others, for an instrument to be negotiable, it should contain words of negotiability
- There are only 2 ways by which an instrument and the bill or note is to be paid to the person designated in the instrument or to any person to whom he has indorsed or delivered the same
- Without the words “or order” or “to order of ” , the instrument is payable only to the person designated therein and therefore, is non- negotiable
MEANING OF THE PHRASE “TO ORDER”
- Pay the payee or the person designated by the payee NECESSITY OF NAMING THE PAYEE
- The law requires that the payee must be named or otherwise indicated with reasonable certainty
- Must be a person in being, whether natural or legal, and ascertained at the time of issue
- If there is no named payee, where the instrument is payable to order, no one could indorse the instrument. Consequently, it is useless to consider it as negotiable. WHERE THE BLANK FOR NAME OF PAYEE UNFILLED
- Not payable to order because the payee is not named neither is he designated with reasonable certainty
Pay to Y or order the amount of P100. Sgd. A
To: X
Pay to the order of the President of Ate neo de Manila University on June 20, 2010.
Sec. 9. When payable to bearer. - The instrument is payable to bearer:
(a) When it is e xpressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person, and such fact was kno wn to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of any person; or
(e) When the only or last indorsement is an indorsement in
blank.
PAYABLE TO THE ORDER OF A FICTITIOUS OR NON-EXISTENT PERSON
1. The payee named must be fictitious or non-existent
2. The one making the instrument so payable must know him to be fictitious or non-existing
FICTITIOUS PERSON
- Not limited to persons having no real existence
- To be a person who has no right to the instrument because the drawer or maker of it so intended, and therefore, it doesn‟ t matter whether the name of the payee used by the drawer or drawee be that of the living or the dead, or one who never existed
EXISTING PAYEE INTENDED TO RECEIVE PROCEEDS; NOT PAYABLE TO BEARER
- A negotiable paper made payable to the name of an existing person known or believed by the maker or drawer to be existing, with intent that he should receive it or its proceeds, or that it be paid to him or upon his indorsement, IS NOT PAYABLE TO A FICTITIOUS PAYEE OR TO BEARER, although as a matter of fact such person has no interest in the paper and it was procured by fraud of a third person or of the maker‟ s or drawer‟ s employee or agent whose knowledge or intent is not imputable to the principal or employer, and cashed by the person having possession upon the forged instrument of the payee NON-EXISTING PAYEE, OR ONE WITHOUT INTEREST, BUT BELIEVED EXISTING OR WITH INTEREST, AND INTENDED TO RECEIVE PROCEEDS; NOT PAYABLE TO BEARER
NON-EXISTING PAYEE, OR ONE WITHOUT INTEREST, KNOWN OR BELIEVED NON-EXISTING NOT INTENDED TO RECEIVE PROCEEDS; PAYABLE TO BEARER
PERSON TO WHOM THE FICTITIOUS OR NON-EXISTING CHARACTER OF PAYEE MUST BE KNOWN
- The drawer drawing a bill or the maker making a note is the person to whom the fictitious or non-existing character of the payee must be known
- Where the instrument is drawn or made by an agent or prepared by an employee with the maker or drawer signing only, the question arises as to whose intent should control
- Another difficulty: who is the person who makes the instrument payable to the payee —the clerk or the treasurer? - Agbayani‟ s view: that the signer does after all create the
instrument and should determine who owns it
WHERE AGENT HAS NO AUTHORITY TO EXECUTE INSTRUMENT - The knowledge of the principal or employer is
controlling, and if he doesn‟ t have any knowledge of the fictitious or non-existing character of the payee, the knowledge of the employee or the agent w ill not avail to call into application as to fictitious payees and the
instrument will not be considered as payable to bearer NAME OF PAYEE NOT NAME OF PERSON
- Pay to cash
- Pay to the order of money - Pay to the order of cash
WHERE PAYABLE TO THE ESTATE OF A DEAD PERSON - It has been held to be payab le to bearer
- Agbayani: estate is a juridical person in a limited way and thus it shouldn‟ t be payable to bearer
Sec. 10. Terms, when sufficient. - The instrument need not follow the language of this Act, but any terms are sufficient which clearly indicate an intention to conform to the requirements hereof.
Sec. 11. Date, presumption as to. - Where the instrument or an acceptance or any indorsement thereon is dated, such date is deemed prima facie to be the true date of the making, drawing, acceptance, or indorsement, as the case may be.
APPLICATION OF SECTION 11
1. The instrument contains the date of issue —prima facie the true date of the making or drawing of the instrument 2. In an accepted bill of exchange, the acceptance is
dated —prima facie the date of acceptance
3. An instrument is indorsed, and the indorsement is dated —prima facie date of indorsement
PRIMA FACIE
- Evidence produces for the time being a certain result but that result may be repealed by contrary evidence
- Apparent, as it first appears
Sec. 12. Ante-dated and post-dated. - 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. Sec. 13. When date may be inserted. - Where an instrument expressed to be paya ble at a fixed period after date is issued undated, or where the acceptance of an instrument payable at a fixed period after sight is undated, any holder may insert therein the true date of issue or acceptance, and the instrument shall be payable accordingly. The insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in due course; but as to him, the date so inserted is to be regarded as the true date.
WHEN DATE NECESSARY
- Under Section 6, the insertion of date is unneces sary - However, it may be necessary to determine the date of
maturity
- In the following cases, the date is also necessary:
o Where interest is stipulated, to determine when interest is to run, but not to make the instrument negotiable
o To determine where a party has acted within a reasonable time, but not make the instrument negotiable
INSTRUMENT PAYABLE AT A FIXED PERIOD AFTER DATE
(UNDATED) I PROMISE TO PAY TO B OR ORDER P1000, 60 DAYS AFTER DATE.
EFFECT OF INSERTION OF WRONG DATE
- Knowingly inserting the wrong date in an undated instrument will avoid it as to the party so inserting the wrong date
- It is implied that the instrument void as to the person who knowingly inserted the wrong date
- Also, under Section 12, it is void for ante-dating an instrument for fraudulent purposes
- To a holder in due course, the instrument is not void, after the instrument is indorsed to him. The insertion of the wrong date doesn‟ t avoid the instrument in the hands of a holder in due course.
Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in an y material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time.
ILLUSTRATION
- Authority was only to fill in the blank for an amount not more thanP100; before it was complete, the instrument was given to B.
I promise to pay B or order P400 on June 20, 2010. Sgd. A
- For it to be enforceable against the next holder, the completion must be strictly in accordance with the authority given and within a reasonable time.
ILLUSTRATION #2
- One sees Manny Pacquiao in person and has a blank sheet of pap er signed by Pacquiao. He then filled it up to show the following:
I pr omise to pay Jonathan Nepomuceno or order P10,000. Sgd. Manny Pacquiao
- For the above to be a valid negotiable instrument, it should have been delivered by the person signing the instrument with the intent of converting the blank paper into a negotiable instrument.
SCOPE OF SECTION 14
- There are 2 steps in the execution of a negotiable instrument —
o The act of writing the instrument completely and in accordance with Section 1 of the NIL
o The delivery of the instrument with the intention of giving effect to it
THE MATERIAL PARTICULAR REFERRED TO IN THIS PROVISION MAY BE —
1. A particular the omission of which will render the instrument non- negotiable
2. A particular the omission of which will not render the
instrument non- negotiable
FACTS FROM WHICH PRIMA FACIE AUTHORITY PRESUMED 1. Want of a material particular in the instrument 2. Possession thereof by a person, a third fact 3. That such person had authority to fill up the b lank
THE LAW PRESUMES THE EXISTENCE OF AUTHORITY TO FILL THE INSTRUMENT UP TO ANY AMOUNT FROM THE FOLLOWING FACTS
1. A signature on blank paper
2. That the person signing in blank delivers it in order that the paper may be converted into a negotiable instrument REQUISITES TO HOLD PRIOR PARTIES LIABLE
1. The blank must be filled strictly in accordance with the authority given
2. It must be filled up within a reasonable time
RIGHT OF HOLDER OF DUE COURSE WHERE BLANK WRONGFULLY FILLED
- First view: One who is not a holder in due course cannot enforce the instrument if the same is not filled up strictly in accordance with the authority given or within reasonable time
- Second view: the holder can enforce the instrument accordance with the authorized tenor
- According to Agbayani, the better view is the first view is the better view to have. The law provides that in order be one who is not a holder in due course may enforce mechanically incomplete but delivered instrument, the two requisites must exist. The implication is that one or both are not present, the instrument may not be enforced.
REASONABLE TIME
- Regard is had to the nature of the instrument, the usage of trade or business with respect to such instrument and the facts of the particular case
- Term is very relative PERSONAL DEFENSE
- Defense available only to holders who are not holders in due course
SUMMARY OF RULES WHEN INSTRUMENT IS INCOMPLETE BUT DELIVERED
1. Where the holder is a holder in due course, he can enforce the instrument as completed against parties prior or subseque nt to the completion
2. Where the holder is not a holder in due course, he can enforce the instrument as completed as against the parties subsequent to the completion but not against those prior thereto
Sec. 15. Incomplete instrument not delivered. -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, as against any person whose signature was placed thereon before delivery.
APPLICATION OF PROVISION
- Section applies to an incomplete and undelivered instrument INSTRUMENT NOT VALID AGAINST PARTY BEFORE DELIVERY
- Situation: A signs a blank check, which was subsequently stolen by B and fills up the amount and a fictitious name as payee.
- He then indorses the same to C, C to D, D to E, and E to F. Can F enforce the instrument against A?
- The answer is NO, because against A, whose signature was placed on the check prior to delivery, the instrument is
not valid.
- The answer would still be the same in case F was a holder in due course. Why? The law doesn‟ t discriminate on what kind of holder.
- However, the invalidity of the instrument is only with reference to parties whose signature appears in the same prior to delivery. As toparties whose signature appears after delivery, it may be valid.
IT IS A REAL DEFENSE
- The possible defense of a party whose signature appears on an instrument prior to delivery is that, as against him, the instrument is not valid for having been incomplete and undelivered
- Want of delivery of a mechanically incomplete instrument —defense that cannot only be interposed against one who is not a holder in due course but also a holder in due course
DELIVERY IS NOT CONCLUSIVELY PRESUMED WHERE INSTRUMENT IS INCOMPLETE
- Section 15 and 16 read together BUT DELIVERY PRESUMED PRIMA FACIE
- But where an incomplete and undelivered instrument is in the hands of a holder in due course, there is prima facie presumption of delivery which the maker may rebut by proof of non-delivery
- Where the custody of an incomplete instrument has been entrusted to another, who wrongfully completes and negotiates it to a holder in due course, delivery to an agent or custodian is a sufficient delivery to bind the drawer or maker.
Sec. 16. Delivery; when effectual; when presumed. - Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property in the instrument. But whe re the in strument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved.
SCOPE OF SECTION
- Applies to an instrument mechanically complete but undelivered UNDELIVERED INSTRUMENT IS INCOMPLETE
- Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto
DELIVERY AND ISSUE
- As between immediate parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting, or indorsing as the case may be
- Issue —the first delivery of the instrument, complete in form, to a person who takes it as a holder
OUTLINE OF RULES ON DELIVERY OF NEGOTIABLE INSTRUMENTS 1. Delivery is essential to the validity of any negotiable
instrument
2. As between immediate parties, or those in like cases,
delivery must have been with the intention of passing title 3. An instrument signed by the drawer/maker but not
completed by him and retained in his own custody, is invalid as to him for want of delivery, even though stolen or negotiated to a holder in due course
4. But when the instrument mentioned above is in the hands of a holder of due course, there is prima facie presumption of delivery which the maker/drawer may rebut by proof of non-delivery
5. Where the custody of the incomplete instrument has been entrusted to another, who wrongfully completes and negotiates it to a holder in due course, delivery to an agent or custodian is sufficient delivery to bind the drawer or maker
6. Where maker or drawer executes a complete instrument which is found in the possession of another other than a holder in due course, there is a prima facie presumpton of delivery —but subject to rebuttal
7. Where the instrument mentioned above is in the hands of a holder in due course, there is a conclusive presumption of delivery
8. Delivery of the instrument may be made on a parol condition or for a special purpose not inconsistent with its written terms, where the validity of the instrument is to arise out of the performance of the condition or consummation of the purpose. But such condition or specification or purpose doesn't affect the rights of a holder in due course. Such conditions is a condition precedent, and is to be sharply distinguished from a condition subsequent, the happening or non-happening of which is to defeat or qualify the instrument. Such condition subsequent contradicts the written terms and may not be set up by parol evidence. RIGHT TO REVOKE
- Before delivery, the maker or drawer can revoke, cancel, or tear up the instrument
LITERAL MEANING OF IMMEDIATE AND REMOTE PARTIES
- The drawer and payee are immediate parties to one another - Maker and payee are immediate parties to one another - Indorser and indorsee are also immediate parties to one
another
BROAD MEANING OF IMMEDIATE AND REMOTE PARTIES
- Immediate parties are confined to “those who are immediate, in the sense of knowing or being held to know the conditions or limitations placed upon the delivery of the instrument —privity and not proximity - Criterion: W/N the party in question knows of the
conditions or limitations placed upon the delivery of the fact that the instrument was not delivere d but stolen..
o If the party in question knows, he is an immediate party even if he is not physically remote
o If he doesn‟ t know, he is not an immediate party even if he is the next par ty immediately
PRESUMPTION OF VALID DELIVERY AS TO IMMEDIATE PARTY OR REMOTE PARTY NOT HOLDER IN DUE COURSE
- Where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional de livery by him is presumed until the contrary is proved
- Presumption is however rebuttable DELIVERY FOR SPECIAL PURPOSES
- For safekeeping or for collection only
PRESUMPTION OF DELIVERY AS TO HOLDER IN DUE COURSE - Conclusively presumed
- There is conclusive presumption where the contrary proof is barred
- The possible defense of a party sought to be charged is that the instrument wasn't delivere d, or if delivered, the delivery wasn't authorized or only on a condition or for a special purpose
- “Want of delivery of a mechanically complete instrumen t” defense
- It can however be interposed against an immediate party and remote parties not holders in d ue course inasmuch as the presumption of valid and intentional delivery is only rebuttable as to immediate parties and to remote parties who are not holders in due course
- Only personal defense
CONCLUSIVE PRESUMPTION NOT APPLICABLE TO
INCOMPLETE INSTRUMENTS
DEFENSES UNDER THE SECOND SENTENCE OF SECTION 16
1. It wasn‟ t delivered either by or under the authority of the party making, delivering, accepting or indorsing the instrument
2. It was for a conditional purpose 3. It was for a special purpose only
IT IS A PERSONAL DEFENSE IF IT IS AVAILABLE ONLY AGAINST A PERSON WHO IS NOT A HOLDER IN DUE
COURSE.
IT IS A REAL DEFENSE IF IT IS AVAILABLE AGAINST ANY HOLDER. Sec. 17. Construction where instrument is ambiguous. -Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply:
(a) Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two, the sum denoted by the words is the sum payable; but if the words are ambiguous or uncertain, reference may be had to the figures to fix the amount;
(b) Where the instrument provides for the payment of interest, without specifying the date from which interest is to run, the interest runs from the date of the instrument, and if the instrument is undated, from the issue thereof; (c) Where the instrument is not dated, it will be considered to be dated as of the time it was issued;
(d) Where there is a conflict between the written and printed provisions of the instrument, the written provisions prevail;
(e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may treat it as either at his election;
(f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign, he is to be deemed an indorser;
(g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon.
WHEN SECTION APPLICABLE
- Rules stated in this section shall not be availed of if the terms of the instrument in question is clear and admit of no doubt
- Applicable only when the instrument in question is ambiguous, doubtful or obscure, or when there are
omissions therein that the
I promise to pay B or order the sum of one two thre e four five (P12,345) Sgd. AA
*In this case, the sum payable is P12,345, following the rule that when the words are ambiguous or uncertain, reference may be had to the figures to fix the amount.
I promise to pay B or order the sum of one two three four five (P12,345)on June 27, 2008 with interest. Sgd. AA
*The interest should run on the date of instrument but if it is undated, then it will reckon on the date of issue.
Sec. 18. Liability of person signing in trade or assumed name. - No person is liable on the instrument whose signature does not appear thereon, except as herein otherwise expressly provided. But one who signs in a trade or assumed name will be liable to the same extent as if he had signed in his own name.
GENERAL RULE AS TO LIABILITY OF PERSON WHOSE SIGNATURE IS NOT ON INSTRUMENT
- A person whose signature doesn‟ t appear on the instrument is not liable
EXCEPTIONS TO THE GENERAL RULE
1. Where a duly authorized agent signs for a person, the person is liable
2. Where a person sought to be charged forges the signature of another person, the forger is liable even if his signature doesn‟ t appear thereon
3. Where a person sought to be charged signs on a paper separate from the instrument itself, as in an allonge, although the allonge may be considered a part of the instrument, or where an acceptance is written on a paper other than the bill itself
4. Where the person uses an assumed name or trade name —one may become a party to a neg otiable instrument by any de signation he desires
Sec. 19. Signature by agent; authority; how shown. - The signature of any party may be made by a duly authorized agent. No particular form of appointment is necessary for this purpose; and the authority of the agent may be established as in other cases of agency.
SIGNATURE THROUGH AGENT, FORM
- The party may sign personally or through an agent - Agency may be written or oral
- No particular form required by the law and the agency may be proved through oral or written evidence, unless specific provisions of the law, such as the Statute of Frauds, requires otherwise
Sec. 20. Liability of person signing as agent, and so forth. -Where the instrument contains or a pe rson adds to his signature words indicating that he signs for or on behalf of a principal or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability.
REQUISITES FOR AGENT TO ESCAPE LIABILITY 1. Be duly authorized
2. Add words to his signature indicating that he signs as an agent, that is, for or on behalf of a principal, or a representative capacity
