Negotiable Instruments

What are the liabilities of an acceptor?

1. Engages to pay according to the tenor of his acceptance; 2. Admits the existence of the drawer, the genuineness of his signature and his capacity to indorse and authority to draw the instrument; and 3. Admits the existence of the payee and his then capacity to indorse. (Sec. 62)

What are the liabilities of a Maker?

1. Engages to pay according to the tenor of the instrument; and 2. admits the existence of the payee and his then capacity to indorse. (Sec. 60)

Promissory Note

A promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed, or determinable future time, a sum certain in money to order or bearer. (Sec. 184, NIL)

What is indorsement?

Indorsement is the writing of the name of the indorser on the instrument with the intent to transfer title to the same.

Shelter Rule

Under the shelter rule, a person who does not qualify as a holder in due course can, nonetheless, acquire the rights and privileges or a holder in due course if he derives his title to the instrument through a holder in due course.

Value

Value is a consideration sufficient to support a simple contract. (Sec. 25, NIL)

Distinguish a negotiable document from a negotiable instrument.

A negotiable document is governed by the Civil Code and is not capable of accumulating secondary contract A negotiable instrument is governed by the Negotiable Instrument Law and is capable of accumulating secondary contracts resulting from indorsement at the back thereof

2. Delivery

Delivery means transfer of possession, actual or constructive, from one person to another. (Sec. 191, NIL)

4. Material Particular

Material Particular - material details that will change the tenor of the instrument (Atty. Marga's definition) Material particular - any particular proper to be inserted in a negotiable instrument to make it complete. (Sec. 14, NIL)

X draws a check against his current account with Bonifacio Bank in favor of B. Although X does not have sufficient funds, the bank hoors the check when it is presented for payment. Apparently, X has conspired with the bank's bookkeeper so that his ledger would show that he still has sufficient funds. The bank filees an action for recovery of the amount paid to B because the check presented had no sufficient funds. Decide on the case.

The bank cannot recover the amount paid to B for the check. When the bank honored the check, it became an acceptor. As acceptor, the bank became primarily and directly liable to the payee/holder B. The recourse of the bank should be against X and its bookkeeper who conspired to make X's ledger show that he has sufficient fund.

Who has the authority to fill up the blanks in an incomplete but delivered instrument

The holder has a prima facie authority to complete it. 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. (Sec. 14, NIL)

Liability

obligation to pay

Indorser

A person placing his signature upon an instrument otherwise than as a maker or acceptor, is deemed to be an indorser, unless he clearly indicates by appropriate words his intention to be bound in some other capacity

Can a HDIC hold a maker for instruments which are incomplete and undelivered supposing that the note was stolen, filled-up, and was subsequently negotiated?

No. The law is specific that the instrument is not a valid contract in the hands of any holder. The phrase "any holder" includes a HDIC

On the right bottom margin of a PN appeared the signature of the corporation's president and treasurer above their printed names with the phrase "and in his personal capacity". The corporation failed to pay its obligation. Are the officers liable?

Yes, persons who write their names on the face of the PN are makers and liable as such. The officers are co-makers and as such, they cannot escape liability arising therefrom. (Republic Planters Bank v. CA)

Who is a holder for value?

one who has given a valuable consideration for the instrument issued or negotiated to him. (Sec. 26, NIL)

Distinguish an irregular indorser from a general indorser.

An irregular indorser, not otherwise a party to the instrument, places his signature thereon in blank before delivery to add credit thereto. A general indorser is a regular party to the instrument like a maker, drawer or acceptor and he signs upon delivery of the instrument. While an irregular indorser signs for accomodation, a regular indorser signs for valauble consideration. (Sec. 64 (2))

What are the requisites for one to be considered as a holder in due course

He must comply with Section 52, NIL thus: 1. the instrument must be complete and regular upon its face 2. He became a holder before it was overdue and without notice of previous dishonor, if such was the fact 3. He took the instrument in good faith and for value 4. At the time the instrument was negotiated to him, he had no notice of any infirmity of the instrument or defect in the title of the person negotiating it

Legal Tender

Legal Tender - Money that is lawfully accepted for payment

Is manager's check as good as cash? Why or why not?

Yes, the Supreme Court held in various decisions that a manager's check is good as cash. A manager's check is a check drawn by the bank against itself. It is deemed pre-accepted by the bank from the moment of issuance. The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay. By issuing it, the bank in effect commits its total resources, integrity and honor behind the check. (Tan v. CA, International Corporate Bank v. Gueco, Metrobank and Trust Company v. Chiok)

What are the elements of a negotiable instrument

1. In writing and signed by the maker or drawer 2. Contains an unconditional promise or order to pay a sum certain in money 3. Payable on demand, or at a fixed, or determinable future time 4. Payable to order or to bearer 5. If addressed to a drawee, he must be named or otherwise indicated therein, with reasonable certainty

What are the different types of Indorsement?

1. Special (Sec. 34) - specifies the person to whom ot to whose order the instrument is to be payable. 2. Blank (Sec. 34) specifies no indorsee. a) instrument is payable to bearer and may be negotiated by delivery b) May be converted to special indorsement by writing over the signature of the indorser in blank any contract consistent with the character of indorsement (Sec. 35) 3. Absolute - the indorser binds himself to pay upon: a. upon no other condition than failure of prior parties to do so. b. upon due notice to him of such failure. 4. Conditional - right of the indorsee is made to depend on the happening of a contingent event. Party required to pay may disregard the conditions. (Sec. 39) 5. Restrictive - (sec. 36) 6. Qualified - constitutes the indorser a mere assignor of the title to the instrument. It is made by adding to the indorser's signature words like, without recourse. (sec. 38) 7. Joint - indorsement made payable to 2 or more persons who are not partners. (Sec. 41) 8. Irregular - A person who, not otherwise a party to an instrument, places thereon his signature in blank before delivery.

What are the warranties porvided by the person negotiating an instrument?

1. That the instrument is genuine and in all respects what it purports to be 2. That he has good title to it 3. That all prior parties had capacity to contract 4. That he has no knowledge of any fact which would impair the validity of the instrument or renders it useless

Define the following: 1. Bill of Exchange

A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed, or determinable future time, a sum certain in money to order or bearer. (Sec. 126, NIL)

When can you treat a bill of exchange as a promissory note?

A bill of exchange may be treated as promissory note in the following instances: 1. The drawee is a fictitious person or a person not having the capacity to contract; 2. the drawer and the drawee are one and the same person; 3. Where the instrument is so ambiguous that there is a doubt as to whether the instrument is a bill or a note, the holder may treat it either as a bill or a note, at the option of the holder. (Secs. 130 & 17, NIL)

A promissory note read as follows: "I promise to pay Gabriela Silang P100.00 three years after the unconditional withdrawal of the U.S. of its military bases in the Philippines". A. Discuss the negotiability or non-negotiability of the above note. B. Discuss the effect of each of the following upon the note's negotiability: 1. No date is given 2. The places where drawn and where payable are not stated.

A. The promissory note is not a negotiable instrument. Sec. 1 of the NIL, requires among others, that an instrument to be negotiable must be payable to the order or to bearer. Without being so payable, the note is not a negotiable instrument. B.1 The negotiability of an instrument is not adversely affected by its being undated. Even if it is needed to determine the maturity of the instrument, the holder is implicitly authorized to place the date thereof or to consider it dated as of its issue. (Sec. 6 (a), NIL) B.2. For the negotiability of a PN, it is not necessary that it must express the place where it is made or where it is payable. All that is required under the NIL is compliance with Section 1 thereof. (Sec. 6 (c), NIL)

3. Restrictive Indorsement

An indorsement is restrictive which either - (a) Prohibits the further negotiation of the instrument; or (b) constitutes the indorsee, the agent of the indorser; (c) vests the title in the indorsee in trust for or to the use of some other person. (Sec. 36, NIL)

What is the rule when an instrument is incomplete and undelivered?

It is not valid against the party whose signature was placed before delivery, whether the holder is a HDIC or not. With respect, however, to a HDIC, non-delivery must be proved because as to him, there is a prima facie presumption of delivery. Reason: Delivery is essential to validity. (Sec. 15, NIL)

Negotiation

Negotiation is when an instrument is transferred from one person to another in such a manner as to constitute the transferee the holder thereof. It covers issuance and indorsement of the negotiable instrument. (Sec. 30, NIL)

Marco owes Ryan P20K. In view of such debts, Marco obtained a Manager's check from its bank in the same amount and delivered it to Ryan as payment for his debt. However, Ryan refused to accept the manager's check, but Marco insists that the manager's check is good as cash. Can Marco compel Ryan to accept his manager's check as payment? Explain.

No, manager's check is not legal tender. It can only be considered legal tender if it is encashed or deposited to Ryan's account. Under the NIL, a drawer cannot compel a payee to accept a manager's check.

Who is an accomodation party?

One who has signed the instrument as maker, drawer, acceptor, or indorser, ,without receiving value therefor, and for the purpose of lending his name to some other person. (Sec. 29, NIL)

Requisites of Negotiability A bookstore received 5 postal money orders totaling P1,000.00 as part of its sales receipts, and deposited the same with a bank. A day after, the bank tried to clear them with the Bureau of Posts to serve notice upon all banks not to pay the money orders presented for payment. The Bureau of Posts further informed the bank that the amount of P1,000.00 had been deducted from the bank's clearing account. For its part, the bank debited the book store's account with the same amount. A complaint was filed by the bookstore against the Bureau of Post and the bank for the recovery of the P1,000.00, which, however, was dismissed by the trial court. The bookstore appealed contending that the postal money orders are negotiable instruments and that their nature could not have been affected by the notice sent by the Bureau of Post to the banks. How would you resolve the controversy?

The contention of the bookstore in untenable. Postal money orders, being under the restrictions and limitations of the Postal Laws, do not contain an unconditional promise or order, as required by the NIL. And the government in adopting a postal money order system is not engaged in a propriety but government function. (Phil. Education Co. Inc. v. Soriano)

How do you treat a Negotiable instruments that is so ambiguous that there is doubt whether it is a bill or a note?

Where a negotiable instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may treat it as either a bill of exchange or a promissory note at his election. (Sec. 17 (e), NIL)

Nadine has a checking account with Fair and Square Bank. One day, she lost her checkbook and the finder was able to forge her signature and encashed the forged check. Will Nadine be able to recover the amount from the bank? Justify your answer.

Yes, Nadine should be able to recover the amount debited from her checking account from Fair and Square Bank. The bank was thus negligent in not detecting the forgery of Nadine's signature and paying the check. Under the circumstances, there was no negligence on the part of Nadine which would preclude her from invoking forgery. (PNB v. Quimpo)

Lorenzo signed several black checks instructing Nicky, his secretary, to fill them up as payment for his obligations. Nicky filled one check with her name as payee, placed P30,000 thereon, endorsed and delivered it to Evelyn as payment for goods the latter delivered to the former. When Lorenzo found out about the transaction, he directed the drawee bank to dishonor the check. When Evelyn encashed the check, it was dishonored. Is Lorenzo liable to Evelyn?

Yes. This covers the delivery of an incomplete instrument under Sec. 14 of NIL, which provides that there was prima facie authority on the part of Nicky to fill-up any of the material particulars thereof. Having done so, and when it is first completed before it is negotiated to a HIDC like Evelyn, it is valid for all purposes, and she may enforce within a reasonable time, as if it had been filled up strictly in accordance with the authority given.

Ana made a promissory note but left the name of the payee and amount in blank. Ana entrusted the same to her friend Karen for safekeeping. Karen filled-up the blanks and negotiated the instrument to Liza. Liza, who did not know how Karen obtained the instrument, negotiated it to Tess. a. Can Tess enforce the promissory note against Ana? Explain b. Can Karen enforce the instrument against Ana? Explain

a. No, Tess cannot enforce the promissory note against Ana. Under Sec. 15 of the NIL, an instrument that is blank is considered as an incomplete instrument and since the purpose is only for safekeeping, it is also considered as undelivered. An incomplete and undelivered instrument is an inoperative contract and therefore, renders it void. It is unenforceable to any person, even to a person who is a holder in due course. b. No, Under Sec. 15, NIL, an incomplete and undelivered instrument is unenforceable to any person, most especially in this caser because Karen obtained and negotiate the instrument in bad faith

X issued a check in favor of his creditor, Y. It reads: "Pay to Y the amount of Seven Thousand Hundred Pesos (Php700,000.00). Signed, X" What amount should be construed as true in such case?

a. Php 700,000.00 Basis: Sec. 17 (a), NIL - Where the sum payable is expressed in words and also in figures and there is 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.

Warranties

assurance or representation with respect to the conditions of the negotiable instruments