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6
MEMORY AID IN COMMERCIAL LAW
NEGOTIABLE INSTRUMENTS LAW (NIL)
(Act No. 2031, effective June 2, 1911)
RECEIPT
If originally payable If payable to
to bearer, it will bearer, it will be
always remain so converted into a
payable regardless of receipt deliverable
NEGOTIABLE NEGOTIABLE manner of to order, if
INSTRUMENT DOCUMENT OF indorsement. indorsed specially.
TITLE A holder in due The indorsee, even
course may obtain if holder in due
Subject is money Subject is goods
title better than that course, obtains
Is itself the The document is a
of the one who only such title as
property with mere evidence of
negotiated the the person who
value title – the things of
instrument to him. caused the deposit
value being the
had over the goods.
goods mentioned in
the document
ASSIGNMENT NEGOTIATION
Has all the Does not have these Pertains to contracts Pertains to NI
requisites of Sec. 1 requisites in general
of NIL
Holder takes the Holder in due
A holder of NI may Intermediate parties instrument subject course takes it free
run after the are not secondarily to the defenses from personal
secondary parties liable if the obtaining among the defenses available
for payment if document is original parties among the parties
dishonored by the dishonored.
Governed by the Governed by the
party primarily
Civil Code NIL
liable.
A holder, if a A holder can never
holder in due acquire rights to the II. NEGOTIABILITY
course, may document better Form of NI: (Sec. 1) Key: WUPOA
acquire rights over than his 1. Must be in Writing and signed by the
the instrument predecessors. maker or drawer;
better than his 2. Must contain an Unconditional
predecessors. promise or order to pay a sum
certain in money;
BILLOF EXCHANGE CHECK 3. Must be Payable on demand, or at a
Not necessarily It is necessary that fixed or determinable future time;
drawn on a deposit. a check be drawn 4. Must be payable to Order or to
The drawee need not on a bank deposit.
bearer; and
be a bank Otherwise, there
would be fraud.
5. When the instrument is addressed to
a drawee, he must be named or
Death of a drawer of Death of the otherwise indicated therein with
a BOE, with the drawer of a check, reasonable certainty.
knowledge of the with the
bank, does not knowledge of the
Determination of negotiability:
revoke the authority bank, revokes the
of the drawee to authority of the
a. Whole instrument
pay. banker to pay. b. What appears on the face of the
May be presented for Must be presented instrument
payment within for payment within c. Requisites enumerated in Sec.1 of the
reasonable time a reasonable time NIL
after its last after its issue. d. Should contain words or terms of
negotiation. negotiability. (Gopenco, Commercial
Law Bar Reviewer, cited in Aquino, p.
May be payable on Always payable on 23)
demand or at a fixed demand
or determinable
future time In determining the negotiability of an
instrument, the instrument in its
entirety and by what appears on its face
NEGOTIABLE NEGOTIABLE
must be considered. It must comply
INSTRUMENT WAREHOUSE
San Beda College of Law
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MEMORY AID IN COMMERCIAL LAW
with the requirements of Sec. 1 of the himself from the indicated. Payment
NIL. (Caltex Phils. v. CA, 212 SCRA 448) particular fund is subject to the
indicated. condition that the
fund is sufficient.
The acceptance of a bill of exchange Particular fund Particular fund
is not important in the determination of indicated is NOT the indicated is the
its negotiability. The nature of direct source of direct source of
acceptance is important only on the payment but only the payment.
determination of the kind of liabilities of source of
the parties involved (PBCOM vs. Aruego, reimbursement.
102 SCRA 530)
Postal money orders are not negotiable
REQUISITES OF NEGOTIABILITY instruments. Some of the restrictions
a. It must be writing and signed by the imposed by postal laws and regulations
maker or drawer are inconsistent with the character of
Any kind of material that substitutes negotiable instruments. (Phil. Education
paper is sufficient. Co. vs. Soriano, 39 SCRA 587)
With respect to the signature, it is
enough that what the maker or drawer Treasury warrants are non-negotiable
affixed shows his intent to authenticate because there is an indication of the
the writing. (Notes and Cases on Banks, fund as the source of payment of the
Negotiable Instruments and other disbursement. (Metrobank vs. CA, 194
Commercial Documents, Timoteo B. SCRA 169)
Aquino)
b. Unconditional Promise or Order to Payable in sum certain in money
pay a sum certain in money An instrument is still negotiable
Unconditional promise or order although the amount to be paid is
Where the promise or order is made expressed in currency that is not legal
to depend on a contingent event, it is tender so long as it is expressed in
conditional, and the instrument involved money. (PNB vs. Zulueta, 101 Phil 1071,
is non-negotiable. The happening of the Sec.6 (e)).
event does not cure the defect. The certainty is however not affected
The unconditional nature of the although to be paid:
promise or order is not affected by: a. With interest; or
a) An indication of a particular fund out b. By stated installments; or
of which reimbursement is to be c. By stated installments with an
made, or a particular account to be acceleration clause;
debited with the amount; or d. With exchange; or
b) A statement of the transaction which e. With cost of collection or
gives rise to the instrument attorney’s fees. (Sec. 2)
Where the promise or order is subject
to the terms and conditions of the The dates of each installment must be
transaction stated, the instrument is fixed or at least determinable and the
rendered non-negotiable. The NI must be amount to be paid for each installment.
burdened with the terms and conditions A sum is certain if the amount to be
of that agreement to destroy its unconditionally paid by the maker or
negotiability. (Cesar Villanueva, drawee can be determined on the face
Commercial Law Review, 2004 ed.) of the instrument and is not affected by
But an order or promise to pay out of the fact that the exact amount is arrived
a particular fund is NOT unconditional. at only after a mathematical
(Sec. 3) computation. (Notes and Cases on
Banks, Negotiable Instruments and other
FUND FOR PARTICULAR FUND Commercial Documents, Timoteo B.
REIMBURSEMENT FOR PAYMENT Aquino)
Drawee pays the There is only one
payee from his own act- the drawee pays ACCELERATION INSECURITY EXTENSION
funds; afterwards, directly from the CLAUSE CLAUSE CLAUSE
the drawee pays particular fund
San Beda College of Law
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MEMORY AID IN COMMERCIAL LAW
such fact was known to the person value has been payment of money,
making it so payable; or given; the instrument is
d. When the name of the payee does c. It does not not negotiable.
not purport to be the name of any specify the place (Sec. 5)
where it is drawn or EXCEPTIONS:
person; or
where it is payable; a. Authorizes the
e. When the only or last indorsement is d. It bears a seal; sale of
an indorsement in blank. (Sec. 9) e. It designates a collateral
particular kind of securities on
Note: An instrument originally payable current money in default;
to bearer can be negotiated by mere which payment is to b. Authorizes
delivery even if it is indorsed especially. be made. (Sec. 6) confession of
If it is originally a BEARER instrument, judgment on
it will always be a BEARER instrument. default;
c. Waives the
As opposed to an original order
benefit of law
instrument becoming payable to bearer, intended to
if the same is indorsed specially, it can protect the
NO LONGER be negotiated further by debtor; or
mere delivery, it has to be indorsed. d. Allows the
creditor the
A check that is payable to the order of option to
cash is payable to bearer. Reason: The require
name of the payee does not purport to something in
lieu of money.
be the name of any person. (Ang Tek
Lian vs. CA, 87 Phil. 383)
III. INTERPRETATION OF NEGOTIABLE
FICTITIOUS PAYEE RULE
INSTRUMENTS (Sec. 17)
It is not necessary that the person
referred to in the instrument is really
a. Discrepancy between the
non-existent or fictitious to make the
amount in figures and that in
instrument payable to bearer. The
words – the words prevail, but if
person to whose order the instrument is
the words are ambiguous,
made payable may in fact be existing
reference will be made to the
but he is till fictitious or non-existent
figures to fix the amount.
under Sec. 9(c) of the NIL if the person
b. Payment for interest is provided
making it so payable does not intend to
for – interest runs from the date
pay the specified persons. (Reviewer on
of the instrument, if undated,
Commercial Law, Professors Sundiang
from issue thereof.
and Aquino)
c. Instrument undated – consider
date of issue.
e. Identification of Drawee
d. Conflict between written and
Applicable only to a bill of exchange
printed provisions – written
A bill may be addressed to 2 or more
provisions prevail.
drawees jointly whether they are
e. When the instrument is so ambiguous
partners or not but not to 2 or more
that there is doubt whether it is
drawees in the alternative or in
a bill or note, the holder may
succession. (Sec. 128)
treat it as either at his election;
f. If one signs without indicating in
OMISSIONS & ADDITONAL
PROVISIONS THAT PROVISONS NOT what capacity he has affixed his
DO NOT AFFECT AFFECTING signature, he is considered an
NEGOTIABILITY NEGOTIABILITY indorser.
g. If two or more persons sign “We
a. It is not dated; GENERAL RULE: If promise to pay,” their liability is
b. It does not some other act is joint (each liable for his part)
specify the value required other than but if they sign “I promise to
given or that any or in addition to pay,” the liability is solidary
San Beda College of Law
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MEMORY AID IN COMMERCIAL LAW
I. MATERIAL ALTERATION
Any change in the instrument which
affects or changes the liability of the
parties in any way.
Comparison of sections 14, 15 and 16 of the negotiable instruments law
Completeness 1. Wanting in any material 1. Blank paper with Mechanically incomplete Mechanically complete
particular signature
Authority of person 1. Prima facie authority to 1.Signature operates as a No authority to complete and/or May negotiate if delivered to him by
in possession complete it by filling up prima facie authority to negotiate instrument or under the authority of the party
the blanks therein fill it up as such for any making, indorsing, drawing or
amount accepting, as the case may be.
When enforceable If filled up strictly in accordance with authority given Not enforceable When delivery is made by or under
and within a reasonable time authority of the party making,
indorsing, drawing or accepting, as
the case may be.
c. Memorandum Check
A check given by a borrower to a
lender for the amount of a short loan,