NEGOTIABLE INSTRUMENTS LAW

Prof. Ma. Ella Cecilia Dumlao-Escalante

Section 1. Form of Negotiable Instruments An instrument to be negotiable must conform to the following requirements: a. It must be in writing and signed by 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 to bearer; and e. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. Section 14. Blank, when may be filled Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And 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. In order, however, that any such instrument, when completed, may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such instrument, after completion is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforced it as if it had been filled up strictly in accordance with authority given and within a reasonable time. Section 15. Incomplete instrument not delivered Where an incomplete instrument has not been delivered it will not, if completed and negotiated without authority, be a valid contract in the hands of any holder, as against any person whose signature was placed thereon before delivery.

Section 16. Delivery, when effectual, when presumed Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and as regards a remote party other than a holder in due course, the delivery in order to be effectual, must be made either by or under the authority, drawing, accepting or indorsing, as the case may be; and in such case, the delivery may be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property in the instrument. But when the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved. Section 23. Forged signature; effect When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforced payment thereof against any party thereto, can be acquired through or under such signature unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. Section 52. What constitutes a holder in due course A holder in due course is a holder who has taken the instrument under the following conditions: a. That it is complete and regular upon its face; b. That he became the holder of it before it was overdue, and without notice that it had been previously dishonoured, if such was the fact; c. That he took it in good faith and for value; d. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

Section 124. Alteration of instrument; effect of Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided except as against a party who has himself made, authorized or assented to the alteration and subsequent indorsers. But when an instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration, he may enforce payment thereof according to its original tenor.

NEGOTIABILITY is that quality or attribute of a bill or note whereby it may pass from one person to another similar to money, so as to give the holder in due course the right to collect on the instrument the sum payable for himself free from any defect in the title of any of the prior parties or defences available to them among themselves.

FORM AND INTERPRETATION I. Requisites of Negotiability NEGOTIABLE INSTRUMENT is a contractual obligation to pay money. COMMERCIAL PAPER refers to written promises or obligations that arise out of commercial transactions from the use of such instruments as promissory notes and bills of exchange. PROMISSORY NOTE is a written promise to pay a sum of money. Special: certificates of deposits, bank notes, due bills, bonds Parties: MAKER who makes the promise and signs the instrument, PAYEE to whom promise is made or instrument is payable BILLS OF EXCHANGE is essentially an order made by one person to another to pay money to a third person. Special: rafts, trade acceptances, bankers acceptances, CHECKS (order bill drawn on a bank and payable on demand) Parties: DRAWER who issues and draws the order bill, DRAWEE to whom the bill is addressed and who is ordered and expected to pay, PAYEE is the party in whose favour the bill is payable.

II. Doctrine of Substantial Compliance When negotiability is not affected III. Construction where instrument is ambiguous