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NEGOTIABLE
INSTRUMENTS LAW
INTRODUCTION
NEGOTIABLE INSTRUMENT
Written contract for the
payment of money, by its form intended
as substitute for money and intended topass from hand to hand to give the HDC
the right to hold the same and collectthe sum due.
Instruments are negotiable when they
conform to all the requirementsprescribed by the NI !Act 2031, 03
February 1911".
#lthough considered as medium for
payment of obligations, negotiableinstruments are not legal tender !Sec.60, New Central Bank Act, R.A. 7653"$
Negotiable instruments shall produce the
effect of payment only when they havebeen encashed or when through thefault of the creditor they have beenimpaired. !Art. 1249, CC" %&' a CH(C)
which has been cleared and credited tothe account of the creditor shall beequivalent to a delivery to the creditor ofcash.
NEGOTIABLE INSTRUMENTS LAW
'he NI applies only to instruments whichconform with the requisites laid ddown by*ec+ of the law. *hould any of saidrequisites be absent, the instrument would
not be negotiable and would therefore not begoverned by the NI but by the general law
on contracts.
MICHAEL A. OSMEA v. CITIBANK (2004)The Negotiable Instruments Law was enacted forthe purpose of facilitating, not hindering orhampering transactions in commercial paper.Thus, the said statute should not be tamperedwith haphazardly or lightly. Nor should it be
brushed aside in order to meet the necessities ina single case.
Negotiable Non-negotiable
Contains all the
requisites of *ec.+ of the NI
Does not contain all
the requisites of*ec. + of the NI
'ransferred bynegotiation
'ransferred byassignment
HDC may havebetter rights than
transferor
'ransferee acquiresrights only of his
transferor
rior partieswarrant payment
rior parties merelywarrant legality oftitle
'ransferee hasright of recourse
againstintermediateparties
'ransferee has noright of recourse
LIFE OF A NEGOTIABLE INSTRUMENT
+. issue-. negotiation. presentment for acceptance in certain bills
/. acceptance0. dishonor by or acceptance1. presentment for payment2. dishonor by nonpayment
3. notice of dishonor4. protest in certain cases
+5. discharge
KINDS OF NEGOTIABLE INSTRUMENTS
+. Proi!!or" note 6 a r!"#$e to paymoney
unconditional promise in writing madeby one person to another signed bythe ma7er
engaging to pay on demand, or at a
fi8ed or determinable future time asum certain in money to order or tobearer
where a note is drawn to the ma7er9s
own order, not complete until indorsed
by him !Sec. 1%4, N&'".
-. Bill o# e$%&ange6 an !r(ermade by oneperson to another to pay money to a third
person.
unconditional order in writing
addressed by one person to anothersigned by the person giving it
requiring the person to whom it is
addressed to pay on demand or at afi8ed or determinable future time asum certain in money to order or to
bearer !Sec. 126, N&'".
:orybeth;%aldrias.&ea'< :Nayna;=alayang.'e()t"< :Dionne;*anche>.a%a'!< :?am;?acob.'e!igna. labor*la+< :=iguel;De?esus.legal*et&i%!< :ianne;ervasio.%o*la+.a%a'!< :?am;?acob.'e!igna. labor*la+< :=iguel;De?esus.legal*et&i%!< :ianne;ervasio.%o*la+.a%a'!< :?am;?acob.'e!ign.a%a'!< :?am;?acob.'e!ign.a%a'!< :?am;?acob.'e!igna. labor*la+< :=iguel;De?esus.legal*et&i%!< :ianne;ervasio.%o*la+ , it was meant to pro'ide that the contractof indorsement is not 'oid , and that his indorsee
has the right to enforce payment from all partiesprior to the INF"NT indorser .The incapacity of the minor cannot be a'ailed byprior parties.The said section was not intended to pro'ide thatthe indorsee shall become the owner of theinstrument by title indefeasible as against the
:orybeth;%aldrias.&ea'< :Nayna;=alayang.'e()t"< :Dionne;*anche>.a%a'!< :?am;?acob.'e!igna. labor*la+< :=iguel;De?esus.legal*et&i%!< :ianne;ervasio.%o*la+.a%a'!< :?am;?acob.'e!ignall r!/#$#!n $uc tat 125 "ay $t#ll
a/e br!a( al#cab#l#ty.
General R)leE Where NI materially alteredwAo the assent of all parties liable thereon it is
#FID(DE$%e(tionE Not avoided as against
+. party who has himself made,authori>ed or assented to alteration
-. subsequent indorser because byindorsement he warrants that the
instrument is in all respects what itpurports to be and that it was validand subsisting at the time of hisindorsement !Se%!6 @7 an' @@4 NIL"
When an instrument that has been
materially altered is in the hands of a HDCnot a party to the alteration, HDC mayenforce payment thereof according to
orig. tenor
#lteration must NF' be apparent on the
face of the instrument for the holder then
would not be a holder in due course
When alteration is of the amount or the
interest rate is altered, the holder canrecover the ORIGINAL AMOUNTAinterestrate.
DRAWERS NEGLIGENCE, before or
after the alteration, may estop him fromsetting up alteration as a defense. !e8.
drawer leaves spaces ma7ing it possible toinsert figures" %&' the drawer is not
bound to so prepare the chec7 thatnobody else can successfully tamper withit !e8. a drawer cannot be e8pected toforesee that his cler7 will use acid to alter
his chec7s, Critten ,6 C&ei%al NatlBan"
o e eneral rule #$ tat te (rawee
cann!t care aa#n$t te (rawer@$acc!unt te a"!unt !* an altere(
ceck.o But te (rawer@$ nel#ence , be*!re
!r a*ter te alterat#!n , "ay e$t!#" *r!" $ett#n u alterat#!n a$ a
(e*en$e.o ere te nel#ence !* te (rawer
c!n$#$t$ #n *a#l#n t! (#$c!/eralterat#!n$ re/#!u$ly "a(e w#c e
c!ul( a/e (#$c!/ere( by ac!"ar#$!n !* te cancelle( ceck$
an( ceck $tub$ !r by (#l#ent
:orybeth;%aldrias.&ea'< :Nayna;=alayang.'e()t"< :Dionne;*anche>.a%a'!< :?am;?acob.'e!ign regardis to be had to the nature of theinstrument, the usage of trade orbusiness with respect to suchinstruments, and the facts of theparticular case. The test iswhether the payee employed suchdiligence as a prudent mane(ercises in his own affairs. This isbecause the nature and theorybehind the use of a chec$ points toits immediate use and payability.In the case at bar, howe'er, thechec$ in'ol'ed is not an ordinarybill of e(change but a manager
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" certified personal chec$ is notlegal tender nor is it the currencystipulated, and therefore cannotconstitute 'alid tender of payment.
o 'he !)rren'erof the chec7
by the holder to the drawee
ban7 upon its payment isnot negotiation. %ypaying the chec7, thedrawee ban7 e8tinguishes it
as a negotiable instrumentand converts it into a merevoucher.
o Di!tin%tion bet+een
!)rren'er o# %&e% )(on
(a"ent t&ereo# an'negotiationa. 'he delivery of the
chec7 by the holder to
the drawee ban7 uponits payment is notnegotiation. %y payingthe chec7, the drawee
ban7 e8tinguishes it asa negotiable instrumentand converts it into amere voucher.
b. In the case of a depositof a chec7 by the holderthereof in a ban7 otherthan the drawee ban7,
the signature at thebac7 of the chec7 would
constitute anindorsement, unless
otherwise indicated.'he holder in
negotiating the chec7 to
the depositary ban7,which in turn will collecton the chec7 from the
drawee ban7, throughthe clearinghouse.
o Clearing o# %&e%!
Clearing 6 chec7
collection process
Clearing &o)!e 6
where representativesof different ban7s meet
every afternoon ofevery business day to
receive the envelopescontaining chec7s
drawn against the ban7he represents fore8amination andclearance.
%. SECONDAR/ PARTIES
+. Liabilit" o# DRAWER !Sec. 1, NIL"
a. #dmits e8istence of payee and his
then capacity to endorseb. (ngages that on due presentment
instrument will be accepted, or
paid, or both, according to itstenorc. 'hat if it be dishonored O
necessary proceedings ondishonor duly ta7en, will pay the
amount thereof to the holder orto a subsequent indorser whomay be compelled to pay it
drawer may insert in the
instrument an e8press stipulation
negativing A limiting his ownliability to holder
PNB v. PICORNELL (1922). ;icornellobtained money from ;N: /ebu to purchase
tobacco to be shipped to &anila. ;icornellthen drew a bill of e(change drawn against hisprincipal, yndman, Ta'era 4entura *T4,in fa'or of ;N: or his order. Aponpresentation of the bill, T4 accepted it.owe'er, T4 subsequently refused to paythe bill because some of the tobacco shippedwere damaged.9L-+". Liability of "cceptor *T4
;N: is a holder in due course and
the partial want of considerationdoes not e(ist with respect to theban$ who paid full 'alue for the billof e(change.
The want of consideration between
the acceptor and drawer does notaffect the rights of the payee who isa remote party. The payee or holdergi'es 'alue to the drawer, and if heis ignorant of the equities betweenthe drawer and acceptor, his is in theposition of a bona fide indorsee.
:. Liability of -rawer *;icornell "s drawer of the bill, he warranted
that it would be accepted uponproper presentment paid in duecourse. "s it was not paid, hebecame liable to the payment of its'alue to ;N:.
The fact that ;icornell was an agent
of T4 in the purchase of thetobacco does not necessarily ma$ehim an agent of T4 in drawing thebill of e(change. These are different contracts. e cannot claime(emption from liability by in'o$ingthe e(istence of agency.
:orybeth;%aldrias.&ea'< :Nayna;=alayang.'e()t"< :Dionne;*anche>.a%a'!< :?am;?acob.'e!igna. labor*la+< :=iguel;De?esus.legal*et&i%!< :ianne;ervasio.%o*la+a. labor*la+< :=iguel;De?esus.legal*et&i%!< :ianne;ervasio.%o*la+ed to acceptor refuse acceptance on hisbehalf$ and
bill addressed to
drawees not partners,=&*' be made to themall unless one hasauthority to accept or
refuse acceptance forall$
drawee is dead, =#@ be
made to his personal
representative$
drawee has been
adKudged a ban7rupt oran insolvent or has
made an assignment forthe benefit of creditors,=#@ be made !+" tohim or !-" to his trustee
or assignee.
W&en a'e !Sec. 1&, NIL"
on any day on which NIs may bepresented for payment underE
o Sec. 2$, NIL J at a
reasonable hour on abusiness day
o Sec. 8%, NILJ
- at the time fi8ed thereinwithout grace.
- Instruments falling due orbecoming payable on*aturday 6 ne8t
succeeding business day- (RC(' instruments
payable on demand :atthe option of the holder.a%a'!< :?am;?acob.'e!ign.a%a'!< :?am;?acob.'e!ign.a%a'!< :?am;?acob.'e!igna. labor*la+< :=iguel;De?esus.legal*et&i%!< :ianne;ervasio.%o*la+a. labor*la+< :=iguel;De?esus.legal*et&i%!< :ianne;ervasio.%o*la+.a%a'!< :?am;?acob.'e!ign.a%a'!< :?am;?acob.'e!ign.a%a'!< :?am;?acob.'e!igna. labor*la+< :=iguel;De?esus.legal*et&i%!< :ianne;ervasio.%o*la+.a%a'!< :?am;?acob.'e!ign.a%a'!< :?am;?acob.'e!ign
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