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NEGOTIABLE INSTRUMENTS v

NON-NEGOTIABLE INSTUMENTS
Report by Jesily Darla Mae G. Gutierrez
WHAT IS A
COMMERCIAL
PAPER?
1. Written promises or
obligations

2. Arise out of
commercial
transactions

3. From use of such


instruments as a.)
promissory notes and
b.) bills of exchange.
As defined in P.D. No. 1154,.....
COMMERCIAL PAPER" - shall be defined as an instrument
evidencing indebtedness of any person or entity, including
banks and non-banks performing quasi-banking functions,
which is issued, endorsed, sold, transferred or in any
manner conveyed to another person or entity, either with or
without recourse and irrespective of maturity. Principally,
commercial papers are promissory notes and/or similar instruments
issued in the primary market and shall not include repurchase
agreements, certificates of assignments, certificates of participations,
and such other debt instruments issued in the secondary market.
DEFINITION OF
NEGOTIABLE
INSTRUMENT
Negotiable
Instruments
~ instrument which
posseses all the elements
of negotiablity.

Requisites ---- deemed


essential for the security of
commercial transactions
enable to know whether is it
negotiable or not.
REQUIREMENTS OF A NI
Section 1. Form of negotiable instruments. - An instrument to be
negotiable must conform to the following
requirements:chanroblesvirtuallawlibrary
(a) It must be in WRITING and SIGNEDby the maker or 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 BEARER; and

(e) Where the instrument is addressed to a drawee, he MUST BE


NAMED or otherwise INDICATED therein with reasonable
certainty.
Negotiable Instrument
- contractual obligation
to pay money
A NI or a Non-NI depends
on its form and content.

Considerations:

1. Whole of the instrument

2. Face of the instrument

3. Requirements of
negotiability
FORMAL REQUIREMENTS
REQUIREMENTS OF NI
MUST BE IN
WRITING

There is no such
thing as an ORAL
NI.
ACCEPTED RULE:

Negotiability/Non-
negotiability is
determined from the
face of the instrument.
MUST BE SIGNED
BY
MAKER/DRAWEE
SIGNATURE- prima
facie evidence of intention
to be bound; A
manifestation of intention

SIGNEE - obligates
himself for payment.
MAKER person
issuing PN

DRAWER person
issuing BofE
Must contain an
unconditional promise
or order
Must contain pay to the
order of.

UNCONDITIONAL
PROMISE PN

UNCONDITIONAL
ORDER BofE
ORDER TO PAY OR PROMISE TO PAY
ORDER TO PAY

- A drawers unconditional order to a drawee to pay a payer

PROMISE TO PAY

-A makers unconditional and affirmative undertaking to repay a debt to a payee


GENERAL RULE
*Where the meaning is
doubtful, the courts adopted
the policy of resolving IN
FAVOR OF
NEGOTIABILITY of the
instrument.
PAYABLE IN
SUM = MONEY

Rationale: Money is
one standard of valu in
actual business.

Money = Legal
Tender
PAYABLE ON DEMAND, FIXED OR
DETERMINATE FUTURE TIME

Payable on Demand

Holder is ENTITLED TO
PAYMENT
IMMEDIATELY UPON
DEMAND.
PAYABLE TO ORDER OR BEARER

PAYABLE TO ORDER - payable


to the order of any person of
reasonable certainty.

PAYABLE TO BEARER - states


that it is payable to:

Bearer/Order of Bearer

Specified Persons/Bearer

Cash/Order of Cash

Any other indication


10 COMMON FORMS OF
NI (bbbb dd cpt)
1. BofE
2. Bank check
3. Bank notes
4. Bankers acceptance
5. Bonds
6. Drafts
7. Due bills
8. Check
9. Promissory Notes
10. Trade acceptance
EXAMPLES of NEGOTIABLE INTRUMENTS

Bills of
Exchange
Promissory
Notes
Cheques
Treasury Bills
~ merely a simply contract in writing and evidence of
such intangible rights or may have been created by
assent of parties.
NON-NEGOTIABLE INSTRUMENT

May not be transferred or


named party to another

Not payable to irder or


bearer

Does not meet the


requirement laid down

Cannot be exhanged for


cash
EXAMPLES OF NON-NEGOTIABLE INSTRUMENTS

Money Orders
Postal Orders
Fixed Deposit
Receipts
Share Certificates
Letters of Credit
DISTINGUISHING NI WITH NON-NI
NEGOTIABLE INSTRUMENT NON-NEGOTIABLE INTRUMENT

Contains all requisites of Does not contain all the


Section No. 1 of the NIL requisites
Transferred by negotiation Transferred by assignment
(indorsenent or delivery)
Transferee acquires rights only
Holder in due course may have
of his transferor
better rights than transferor
Prior parties merely warrant
Prior parties warrany payment
legality of ttitle
Transferee has right to
RELATED CASES:
Kauffman v. PNB (Absence of Document describd in Section 1).

Garcia v. Llamas (Note not a negotiable instrument. The notes was made
payable to a specific person rather than to bearer or to order-- a requisite.)

Firestone Tire Co. v CA (Withdrawal slips lacked in the essence of negotiability


which characterizes a paper as a credit instrument.

Philippine Ed. Co. v Soriano (Postal orders are not negotiable instruments
because in establishing and operating a postal money order system, the gov't is
merely exercising a governmental power).
ORDER INSTRUMENT
vs.
BEARER INSTRUMENT
ORDER INSTRUMENT
An instrument that is payable to a specified
person or entity
The words pay to or pay to the order of
would make it order instrument but not
negotiable.
In order to be negotiable, it needs to be
endorsed because the Negotiable Instruments
Law requires that the instrument must be
payable to order or to bearer
An example of order instruments would be a check because on
its face the check states Pay to the order of and then who
ever draws the check would write in the name of the person or
entity entitled to receive payment by the presentment of this
instrument.
Order paper instrument include
registered bonds, checks, bills of
exchange (a kind of check without
interest) and promissory notes (a
written promise to pay). With a bearer
paper the name of the owner is not on
the document such as a bearer bond.
BEARER INSTRUMENT
A person who is in possession of an instrument that is payable to
bearer is the holder thereof. Hence, where the instrument is a
bearer instrument, the person in possession can demand
payment from the person who are liable thereon.
The words Pay to Bearer or Pay to the order or Bearer it is
bearer paper or a bearer instrument.
A good example of a bearer instrument is a 10 dollar
bill, because it is a negotiable instrument, but whoever has
the 10 dollar bill in his possession can present the instrument
for payment.

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