NEGOTIABLE INSTRUMENTS LAW Functions of a nego inst: (PISMC) a. Substitute for money b. Medium of exchange c. Credit inst d.

Increases purchasing power in circulation e. Proof of transactions Features: a. Negotiability can be transferred from one person to another so as to constitute a transferee a holder b. Accumulation of secondary contracts when a NI is transferred through nego, secondary contracts are accumulated bec indorsers become secondarily liable to their transferees or to any holder Types: a. Bill of Exchange (BE) 1. an unconditional order in writing 2. addressed by one person to another 3. signed by the drawer 4. requiring the adressee to pay on demand or at a fixed or determinable future time 5. a sum certain in money 6. to order or bearer Kinds: 1. a. inland bill is or in its face purports to be both drawn and payable w/in the PH b. foreign bill any other bill; it must be protested in case of dishonor 2. a. Time draft payable at a fixed date b. Sight/demand draft payable when holder presents it 3. Check BoE payable on demand 4. a. Clean BoE no doc is attached when presented for payment or acceptance b. Documentary BoE docs are attached

b. Promissory Note (PN) 1. Uncond promise in writing 2. Made by one to another 3. Signed by the maker 4. Engaging to pay on demand or at a fixed/determinable future time 5. A sum certain in money 6. To order or bearer 7. If drawn to makers order, not complete until endorsed by him BoE may be treated as a note when: (Sec. 130) 1. Dwer & Dwee are the same person 2. Dwee is a fictitious person 3. Dwee has no capacity to contract Nego Inst may be treated either as a PN/BoE at the election of the holder when: (Sec. 17e) -NI is so ambiguous that theres doubt w/n it is a PN/BoE Advantage of a NI vs NNI (non-nego inst) -A NI transfers a clean title to a holder in due course (HDC) as he will be free from personal defenses against the transferor. That is, if the transferor has a defective title, the HDCs title will not be affected. Unless, of course, when what is invoked is a real defense that can be interposed even against a HDC. A NI can also be transferred by negotiation or assignment. -In a NNI, there is no HDC. The transferees title is only as good as the transferors title. It can only be transferred by assignment. Req of a NI:

1. In writing signed by the maker/drawer 2. Containing an uncond promise or order to pay a sum certain in money 3. Must be payable on demand or at a fixed or determinable future time 4. Payable to order/bearer 5. If addressed to dwee, he must be named or otherwise indicated therein w/reasonable certainty -must be determined by the words used in the instrument Estoppel a party cannot raise the defense of non- negotiability of an instrument if he performed deliberate & positive acts of treating the inst as negotiable (It is believed, however, that this ruling is unsound because nego is determined by law, not by parties) REQ discussed: 1. In writing includes printed forms; signature may be written, printed, photographed as long as adopted as signers signature -not necessary that the signature is the usual signature of the maker or that it be written at the end of the paper. What is important is that it was written by the maker/dwer to authenticate the inst 2. Uncondl promise/order the word promise does need to appear, the word payable or some other words of similar meaning is sufficient. -Acknowledgment of a debt is insufficient -uncondl although coupled w/indication of a particular fund out of w/c reimbursement is to be made or a particular account to be debited with the amt or a statement of transaction w/c gives rise to the inst; it must not, however, make the order/promise dependent upon the transaction

-BUT an order/promise to pay out of a particular fund is NOT uncondl -Letters of Credit not NI. Payable only upon presentation of required docs. Usually payable to specified person -Cert of Stocks not NI. Not a promise/order to pay -Bill of Lading not NI. Rrepresents goods, not money. Negotiable instrument of title under NCC but not under NIL. Promise to deliver goods -WH receipt not NI. Represents goods 3. Money not equivalent to legal tender. An amount to be paid is still money although expressed in currency that is not legal tender so long as expressed in money (Yen or Dollars). Sec. 5 an inst w/promise/order to do any act in addtn to payment of money is NOT nego but the ff does not impar negotiability: (AWAO) a. authorizes sale of collateral in case the inst is not paid an maturity b. authorizes confession of judgment if unpaid at maturity c. waives benefit of law for the benefit of obligor d. gives the holder an election (option) to require something to be done in lieu of payment (option is on the holder, not the maker so the latter is still bound to pay money) 4. Sum certain amt can be determined from the face of the instrument Sec. 2. Allowable provisions (ISEPA) a. payment with interest b. payment by STATED installments (manner of payment and amount of each installment must be determinable) c. by stated installments with a prov that full amt is demandable upon default of payment of installment or interest d. w/exchange at a fixed or current rate e. w/costs of collection or attys fees in case payment be not made at maturity

5. Payable on demand Sec. 7 a. if expressed to be payable on demand, at sight or on presentation b. when no time for payment is expressed c. if instrument is issued, accepted or indorsed when overdue, PoD by the person issuing, accepting, indorsing Sec. 4 Determinable future time a. at a fixed period after date/sight b. on/before a fixed or determinable future time specified c. on or at a fixed period after the happening of event that is sure to come though the time of occurence is not certain -if upon contingency, NOT negotiable; not cured even if the event comes