Introduction

Thursday, 8 August 2019 5:47 PM

Introduction

Forms of Negotiable Instruments

1. Common Forms
○ Promissory Note, Bill of Exchange, Checks
○ Negotiable Instruments Law only deals with two kinds
§ Promissory Notes (issuer has promised to pay)
§ Bills of Exchange (issuer has ordered a third person to pay)
2. Special Types
○ Promissory Notes
§ Certificates of deposit, bank notes, due bills, bonds and drafts
○ Bills of Exchange
§ Trade acceptances and banker's acceptances

Theory of Negotiable Instruments

- Rests upon the proposition that they appear to belong to the person
having them in possession and to no one else
- Holder, though without title, has capacity to give a title because he is
the apparent owner

Functions of Negotiable Instruments

1. Substitute for money
○ Do not constitute legal tender (not money)
§ Used as substitute for money
○ Negotiability
§ Allows to pass freely from hand to hand
§ Take the place of money (free from all personal defenses: 57-58)
○ Valuable or worthless depending upon the financial ability of the
parties
○ Purpose: place negotiable instruments on such footing that it would
be freely accepted without question
2. Medium of exchange for most commercial transactions
○ Checks at present constitute most commercial transactions
○ Increase the purchasing medium in circulation
○ Without them, more money (coins and bills) will be needed in
circulation
§ Very difficult for the economy to prosper
3. Medium of credit transactions
Article 1249
- The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in
the currency to which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange
or other mercantile documents shall produce the effect of payment
only when they have been cashed, or when through the fault of the
creditor they have been impaired.

Legal Tender
- Currency that may be used for payment of debts and the creditor
cannot refuse to accept

Payment in Negotiable Instruments

- Not considered legal tender
○ Creditor has the right to refuse acceptance of the documents as
payment

Rule on Payment in Check

 ○ Checks at present constitute most commercial transactions
○ Increase the purchasing medium in circulation
○ Without them, more money (coins and bills) will be needed in
circulation
§ Very difficult for the economy to prosper
3. Medium of credit transactions
○ Avails himself of his credit by executing his note to his creditor who
indorses this to a third person
○ Allow men of undoubted credit to carry on a business enterprise
upon their promissory notes, bills, and checks
○ Checks = Immediate Payment; Bill of Exchange and Promissory Note
= circulation of credit

History
1. U.S. Uniform Negotiable Instruments Act of the United States of 1896
○ Patterned with slight modifications (PH Law)
○ Revise and codify the law merchant in the U.S. as there was much
confusion and lack of uniformity
○ Copied from the English Bill of Exchange Act of 1882
2. U.S. Uniform Commercial Code
○ Simplify and modernize the law of commercial transactions
3. Act No. 2031
○ Enacted as Act No. 2031 on February 3, 1911
○ Took 90 days - took effect on June 2, 1911
○ Facilitate transactions in commercial paper and to promote free
flow of credit
4. Code of Commerce

Application and Purpose of Negotiable Instruments Law

1. Applies only to negotiable instruments
○ Or to those instruments which meet the requirements in Sec. 1
○ Designed to describe fully the law of negotiable instruments
2. Any case not provided for by the Act shall be governed by the provisions of exis
legislation or in default thereof, by the rules of the law merchant
3. Law was enacted for the purpose of facilitating, not hindering or hampering tra

Characteristics or Features of Negotiable Instruments

1. Negotiability
○ Quality or attribute of a bill whereby it may pass from hand to hand simila
money, so as to give the holder in due course the right to hold the instrum
collect the sum payable for himself free from any infirmity in the instrume
defect in the title
○ The rule that one can pass no better title to personal property than he him
does not apply to negotiable instruments
○ When transferability is limited or restricted, the paper may be said to be n
negotiable
 Payment in Negotiable Instruments
- Not considered legal tender
○ Creditor has the right to refuse acceptance of the documents as
payment

Rule on Payment in Check

- Check is not a legal tender
○ Whether ordinary or manager's
○ Exception

sting

ansactions

ar to
ment and
ent or

mself has,

non-
 money, so as to give the holder in due course the right to hold the instrum
collect the sum payable for himself free from any infirmity in the instrume
defect in the title
○ The rule that one can pass no better title to personal property than he him
does not apply to negotiable instruments
○ When transferability is limited or restricted, the paper may be said to be n
negotiable
○ A bona fide holder, however free from personal defenses available to prio
among themselves, is subject to real defenses that might have obtained b
them
2. Accumulation of secondary contracts
○ Transferred from one person to another
○ Once an instrument is used, additional parties can become involved
○ Can proceed not only against the maker but also against all transferors

Theory of Negotiable Instruments

- They appear to belong to the person having them in possession
- By sending a negotiable instrument to the world, the maker is estopped from u
against a bona fide holder who has received it from anyone in possession, a defe
title
- Holder, though without title, has capacity to give a title because he is the appar
owner of the instrument

Doubt resolved in favor of negotiability

- Encourage the free circulation of the negotiable papers
ment and
ent or

mself has,

non-

or parties
between

urging, as
ect of

rent