Nego & BP22 Flashcards
Negotiable Instruments
- written contracts for the payment of money
- by its form, intended as a substitute for money and intended to pass from hand to hand (but do not constitute legal tender)
- to give the holder in due course the right to hold the same and collect the sum due
Characteristics of negotiable instruments
- Negotiability - right of transferee to hold the instrument and collect the amount due
- Accumulation of secondary contracts - instrument is negotiated from one person to another
Kinds of negotiable instruments
- Promissory note
- Bill of exchange
- Check
Promissory note
unconditional promise to pay in writing made by one person to another, signed by the maker, engaging to pay on demand or a fixed determinable future time a sum certain in money to order or bearer. When the note is drawn to maker’s own order, it is not completer until indorse by him.
Bill of exchange
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 determinable future time a sum certain in money to order or to bearer
Check
bill of exchange drawn on a bank and payable on demand
Difference between promissory note and bill of echange
Promissory note - unconditional promise, involves 2 parties, maker primarily liable, only 1 presentment (for payment)
Bill of exchange - unconditional order, involves 3 parties, drawer only secondarily liable, generally 2 presentments (for acceptance and for payment)
Parties involved
Maker - issuer of promissory note
Drawer - issuer of bill of exchange
Acceptor - third party in the bill of exchange
Indorser - person who transfers the instrument to any other person
Holder - person who is legally entitled to the possession of it and to receive or recover the amount due
What are the essential elements/requisites of a negotiable instrument?
- Must be in writing signed by the maker
- Contains an unconditional promise or order to pay a sum certain in money
- Payable on demand or at a fixed or determinable future time
- Payable to order or to bearer
- Payee must be named or indicated with reasonable certainty
What are the factors in determining the negotiability of the instrument?
- by the provisions of the negotiable instruments law, particularly sec 1
- by considering the whole instrument
- by what appears on the face of the instrument and not elsewhere
*if it lacks one requirement, it is not negotiable and the provisions of the NIL do not govern the instrument. The requirement lacking cannot be supplied by using a separate instrument in which that requirement which is lacking appears
- It must be in writing signed by the maker or drawer
No person is liable on the instrument whose signature does not appear thereon.
EXC:
- 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
- the principal is bound by the signature of his duly authorized agent
- Forgery
- Acceptance by the acceptor in a separate paper
- Written promise by a person to accept the bill before it is drawn
- It must be in writing signed by the maker or drawer
No person is liable on the instrument whose signature does not appear thereon.
EXC:
- 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
- the principal is bound by the signature of his duly authorized agent
- Forgery
- Acceptance by the acceptor in a separate paper
- Written promise by a person to accept the bill before it is drawn
Nota bene
a. Where a signature is so placed upon the instrument that is not clear in what capacity the person making the same intended to sign, he is deemed to be an indorser.
b. A person placing his signature upon an instrument, otherwise than as maker, drawer or acceptor, is deemed to be indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity
- It must contain an unconditional promise or order to pay a sum certain in money
a. Unconditional promise to pay is unconditional though coupled with:
1. an indication of a particular fund out of which reimbursement is to be made
2. A statement of the transaction which gives rise to the instrument
b) Sum certain in money:
1. with interest or;
2. by stated installments
3. by stated installments, with a provision that upon default in payment of any installments or of instruments, the whole shall become due or;
4. With exchange, whether at a fixed rate or at the current rate; or
5. With costs of collection, or an attorney’s fees, in case payment shall not be made at maturity
- It must be payable on demand or at a fixed or determinable future time
Payable on demand:
a. when it is so expressed, or at a sight, or on a presentation
b. in which no time for payment is expressed
Determinable future time:
a. Payable at a fixed period after date or sight;
2. On or before a fixed determinable future time specified therein
3. On or at a fixed period after the occurrence of a specified event which is certain to happen through the time of happening be uncertain
- It must be payable to order or to a bearer
Payable to order:
a. Where it drawn payable to the order of a specified person or to him or his order
b. Where the instrument is payable to the order, the payee must be named or otherwise indicated with reasonable certainty
Payable to bearer:
a. ) Where it is expressed to be so payable; or
b. when it is payable to a person named therein or bearer;
c. When it payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable
d. when the name of the payee does not purport to be the name of any person;
d. when the only or last indorsement is an indorsement in blank
General rule as to act other than money is required (additional provision on negotiability, Sec 5)
If some other act is required other than the payment of money, it is non-negotiable.
Exception to sec 5
- Sale of collateral securities
- Confession of judgement
- Waives benefit of law
- Gives option to the holder to require something to be done in lieu of money
Sec 6 The validity and negotiability of an instrument is not affected by the fact that:
- It is nod dated
- Does not specify the value given or that any had been given
- Does not specify the place where it is drawn or payable
- Bears a seal
- Designates the kind of current money in which payment is to be made
