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NEGOTIABLE INSTRUMENTS – Session 2

II. FORM AND INTERPRETATION

REQUISITES OF NEGOTIABILITY - WUsPOAddName


a. Must be in writing signed by the maker or the 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. Must 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

HOW TO DETERMINE NEGOTIABILITY OF AN INSTRUMENT

 Negotiability of an instrument is determined by ascertaining if all the requirements of


Section 1 of the NIL appear on the face of the instrument as described in Caltex vs
CA et al.

Factors that Affect the Negotiability of an Instrument


1. The whole of the instrument shall be considered
2. Only what appears on the face of the instrument shall be considered
3. The provisions of the NIL especially Section 1 thereof shall be applied

WHAT CONSTITUTES CERTAINTY AS TO SUM; STATED


INSTALLMENTS AND ACCELERATION CLAUSES
(PROVISIONS THAT DO NOT AFFECT THE NEGOTIABILITY OF INSTRUMENTS)
Sec. 2 The sum payable is a sum certain within the meaning of this act, although it is to be
paid:
1. With interest
2. By stated installments; or
3. By stated installments with a provision that upon default in payment of any installment or
of interest, the whole shall become due or
4. With exchange, whether at a fixed rate or at a current rate or
5. With costs of collection or an attorney’s fee, in case payment shall not be made at maturity

CERTAINTY AS TO SUM

 If the amount that is to be unconditionally paid by the maker or drawee can be


determined on the face of the instrument; even for quantity per unit of the goods
purchased as well as the price per unit. All that is required is the mechanical
computation to arrive at the exact amount

 The principal amount to be paid by the maker or the drawee is unaffected. There is
an absolute obligation to pay a certain sum in money although certain amounts may
be added, as in the case where interest or attorney’s fees will be paid.

 The promise to do an act or to pay another item in addition to the payment of money
that will render the note not negotiable must be a promised that conflicts with some or
one of the essential characteristics of a negotiable instrument

STATED INSTALLMENTS
 Means that the dates of each installment must be fixed or at least determinable as well
as the amount to be paid for each installment
 There is NO certainty / Negotiability SHALL BE AFFECTED, if the instrument merely
states that the total amount shall be paid in 5 installments without stating when each
installment should be aid
ACCELERATION CLAUSES
 “Upon default in the payment of any installment or of interest, the whole shall become
due.”
 The non-payment of any installment or of interest is the circumstance that triggers the
acceleration of the maturity date of the entire balance. The act or omission of the maker
makes the acceleration clause operate – non-payment of any installment

WHEN IS PROMISED UNCONDITIONAL

 When a promise or order to pay is unconditional, it means that it must not be subject
to any condition or contingency. It must be payable absolutely.

CONDITION – is a future and uncertain event, or a past event unknown to the parties, the
happening or non-happening which may either give rise to an obligation or may extinguish existing
ones.

Suspensive Condition – if the happening or non-happening of the event will give rise to an
obligation
Resolutory Condition – if the happening or non-happening of the event will extinguish existing
obligation

 A statement of transaction that gave rise to the obligation covered by the note or the bill
does not destroy the negotiability of the instrument. However, reference to another
transaction must be descriptive rather than restrictive

 The instrument must only give information that it was issues in connection with a particular
transaction or document. It must not make the order or promise dependent or burdened
by another transaction.

 If instrument is restricted by the terms and conditions of another transaction, contract or


agreement, by incorporating the agreement or a portion thereof as a part of the other, the
said instrument IS NON NEGOTIABLE

WHY SHOULD IT BE UNCONDITIONAL?

 It shall enhance the ability of the instrument to circulate freely from one person to another,
as no one would accept a paper for debt if the right to recover were not absolute.

 If there is condition, it will constitute a simple contract rather than a negotiable paper

 THE INSTRUMENT CAN STILL BE NEGOTIABLE IF THE TERMS APPEARING


THEREON DO NOT AFFECT THE DUTY TO PAY such as to what fund will the
reimbursement be made, or statement for which the instrument is issued, or the collateral
securing it

 If the DUTY TO PAY IS NOT AFFECTED BY SUCH TERMS, then the promise or order is
UNCONDITIONAL

WHEN IS IT PAYABLE ON DEMAND


 When an instrument is payable on demand, the PERSONS LIABLE may be required to
pay at anytime that the holder may request. The instrument should be paid the moment it
is presented for payment.

 If there’s no maturity date on the instrument, it is PAYABLE ON DEMAND


WHEN IS IT PAYABLE ON A FIXED OR DETERMINABLE FUTURE

The instrument is payable at a determinable future time if it is expressed to be payable:


1. At a fixed period after date or sight (eg: twenty days after date)
2. On or before a fixed or determinable future time specified therein (eg. payable on or
before May 15, 2017)
3. On or at a fixed period after the occurrence of a specified event which is certain to
happen, thought the time of happening be uncertain (eg. payable within five days from
death of Mr. X)

WHEN IS IT PAYABLE TO ORDER OR TO BEARER

PAYABLE TO BEARER
 An instrument to be negotiable, must be payable to order or to bearer and NOT TO A
SPECIFIC PERSON OR ENTITY, as required by NIL

PAYABLE TO BEARER (BEARER INSTRUMENT)


o When it is EXPRESSED to be so payable
o When it is payable to a person therein named as bearer
o When it is payable to the order of a fictitious or non-existing person and such fact
was known to the person making it so payable
o When the name of the payee does not purport to be the name of any person
(eg. pay to the cash)
o When the only last indorsement is an indorsement in blank

PAYABLE TO ORDER (ORDER INSTRUMENT)


 It is payable:
o To the order of a specified person
o Or to a specified person or his order
o *There must always be a specified person named in the instrument and the
instrument must always be paid to the person designated in the instrument or to
any person to whom he has indorsed or delivered the same

Persons who can be designated as payees:


1. A payee who is not a maker, drawer or drawee
2. The drawer or the maker
3. The drawee
4. Two or more payees jointly
5. Or One or some of the several payees or
6. The holder of an office for the time being

ADDITIONAL PROVISIONS NOT AFFECTING NEGOTIABILITY (SEC.5)

 Any act in addition to the payment of money makes the instrument non-negotiable
 Negotiable character of an instrument is not affected by a provision which
1. Authorize the sale of collateral securities in case the instrument be not paid at
maturity
2. Authorizes a confession of judgment if the instrument be not paid at maturity; or
3. Waives the benefit of any law intended for the advantage or protection of the obligor;
or
4. Gives the holder an election to require something to be done in lieu of payment of
money
5. But nothing in this sections shall validate any provision or stipulation otherwise illegal
OMISSIONS THAT DO NOT AFFECT NEGOTIABILITY

1. It is not dated
Exception: said date is tied to the date of issue (eg payable 30 days after date)
Or Where interest is stipulated for the purpose of determining when the interest is to run
In the case of promissory note, that date of issue and in the case of the bill of exchange,
the date of the last negotiation thereof, for the purpose of determining whether a party
acted within a reasonable time in making presentment for payment
2. Does not specify the value given or that any value has been given therefor
3. Does not specify the place where it is drawn or the place where it is payable
4. Bears a seal

PRESUMPTION AS TO DATE (Sec. 11)


- Where the instrument or acceptance or any indorsement thereon is dated, such date is
deemed prima facie to be the true date of the making, drawing, acceptance, indorsement
as the case maybe

CONSTRUCTION AND INTERPRETATION

1. DISCREPANCY ON THE SUM PAYABLE (In Words and Figures) The sum in words is
the one payable unless words is ambiguous or uncertain, then it is the figures
2. PAYMENT OF INTEREST but not specifying date from which interest is to run,
INTEREST RUNS FROM THE DATE OF THE INSTRUMENT; if UNDATED, FROM THE
ISSUE THEREOF
3. INSTRUMENT NOT DATED, it will be considered to be dated as of the time it was
issued
4. CONFLICT BETWEEN THE WRITTEN AND PRINTED PROVISIONS, the WRITTEN
provision prevails
5. INSTRUMENT IS AMBIGUOUS that there is a doubt whether it Is a bill or note, the
holder may treat is as either at his election
6. SIGNATURE NOT CLEAR IN WHAT CAPACITY THE PERSON MAKING THE SAME
INTENDED TO SIGNED, he is deemed INDORSER
7. INSTRUMENT containing the word I promise to pay is signed by two or more persons,
DEEMED JOINTLY or severally liable thereon

SIGNATURE – a person whose signature DOES NOT appear on the instrument is NOT
LIABLE EXCEPT:

1. Person uses name or trade name


2. Authorized agent signs for the principal then the PRINCIPAL is liable. But if the agent
merely signs as an agent without disclosing principal, the AGENT is liable.
3. A SIGNATURE BY PROCURATION operates as notice that the agent has but a limited
authority to sign and the principal is bound only om the case the agent in so signing
acted within the limits of his authority.