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NEGOTIABLE

INSTRUMENTS LAW

INTRODUCTION

NEGOTIABLE INSTRUMENT

Written contract for the

payment of money, by its form intended

as substitute for money and intended topass from hand to hand to give the HDC

the right to hold the same and collectthe sum due.

Instruments are negotiable when they

conform to all the requirementsprescribed by the NI !Act 2031, 03

February 1911".

#lthough considered as medium for

payment of obligations, negotiableinstruments are not legal tender !Sec.60, New Central Bank Act, R.A. 7653"$

Negotiable instruments shall produce the

effect of payment only when they havebeen encashed or when through thefault of the creditor they have beenimpaired. !Art. 1249, CC" %&' a CH(C)

which has been cleared and credited tothe account of the creditor shall beequivalent to a delivery to the creditor ofcash.

NEGOTIABLE INSTRUMENTS LAW

'he NI applies only to instruments whichconform with the requisites laid ddown by*ec+ of the law. *hould any of saidrequisites be absent, the instrument would

not be negotiable and would therefore not begoverned by the NI but by the general law

on contracts.

MICHAEL A. OSMEA v. CITIBANK (2004)The Negotiable Instruments Law was enacted forthe purpose of facilitating, not hindering orhampering transactions in commercial paper.Thus, the said statute should not be tamperedwith haphazardly or lightly. Nor should it be

brushed aside in order to meet the necessities ina single case.

Negotiable Non-negotiable

Contains all the

requisites of *ec.+ of the NI

Does not contain all

the requisites of*ec. + of the NI

'ransferred bynegotiation

'ransferred byassignment

HDC may havebetter rights than

transferor

'ransferee acquiresrights only of his

transferor

rior partieswarrant payment

rior parties merelywarrant legality oftitle

'ransferee hasright of recourse

againstintermediateparties

'ransferee has noright of recourse

LIFE OF A NEGOTIABLE INSTRUMENT

+. issue-. negotiation. presentment for acceptance in certain bills

/. acceptance0. dishonor by or acceptance1. presentment for payment2. dishonor by nonpayment

3. notice of dishonor4. protest in certain cases

+5. discharge

KINDS OF NEGOTIABLE INSTRUMENTS

+. Proi!!or" note 6 a r!"#$e to paymoney

unconditional promise in writing madeby one person to another signed bythe ma7er

engaging to pay on demand, or at a

fi8ed or determinable future time asum certain in money to order or tobearer

where a note is drawn to the ma7er9s

own order, not complete until indorsed

by him !Sec. 1%4, N&'".

-. Bill o# e$%&ange6 an !r(ermade by oneperson to another to pay money to a third

person.

unconditional order in writing

addressed by one person to anothersigned by the person giving it

requiring the person to whom it is

addressed to pay on demand or at afi8ed or determinable future time asum certain in money to order or to

bearer !Sec. 126, N&'".

:orybeth;%aldrias.&ea'< :Nayna;=alayang.'e()t"< :Dionne;*anche>.a%a'!< :?am;?acob.'e!igna. labor*la+< :=iguel;De?esus.legal*et&i%!< :ianne;ervasio.%o*la+.a%a'!< :?am;?acob.'e!igna. labor*la+< :=iguel;De?esus.legal*et&i%!< :ianne;ervasio.%o*la+.a%a'!< :?am;?acob.'e!ign.a%a'!< :?am;?acob.'e!ign.a%a'!< :?am;?acob.'e!igna. labor*la+< :=iguel;De?esus.legal*et&i%!< :ianne;ervasio.%o*la+ , it was meant to pro'ide that the contractof indorsement is not 'oid , and that his indorsee

has the right to enforce payment from all partiesprior to the INF"NT indorser .The incapacity of the minor cannot be a'ailed byprior parties.The said section was not intended to pro'ide thatthe indorsee shall become the owner of theinstrument by title indefeasible as against the

:orybeth;%aldrias.&ea'< :Nayna;=alayang.'e()t"< :Dionne;*anche>.a%a'!< :?am;?acob.'e!igna. labor*la+< :=iguel;De?esus.legal*et&i%!< :ianne;ervasio.%o*la+.a%a'!< :?am;?acob.'e!ignall r!/#$#!n $uc tat 125 "ay $t#ll

a/e br!a( al#cab#l#ty.

General R)leE Where NI materially alteredwAo the assent of all parties liable thereon it is

#FID(DE$%e(tionE Not avoided as against

+. party who has himself made,authori>ed or assented to alteration

-. subsequent indorser because byindorsement he warrants that the

instrument is in all respects what itpurports to be and that it was validand subsisting at the time of hisindorsement !Se%!6 @7 an' @@4 NIL"

When an instrument that has been

materially altered is in the hands of a HDCnot a party to the alteration, HDC mayenforce payment thereof according to

orig. tenor

#lteration must NF' be apparent on the

face of the instrument for the holder then

would not be a holder in due course

When alteration is of the amount or the

interest rate is altered, the holder canrecover the ORIGINAL AMOUNTAinterestrate.

DRAWERS NEGLIGENCE, before or

after the alteration, may estop him fromsetting up alteration as a defense. !e8.

drawer leaves spaces ma7ing it possible toinsert figures" %&' the drawer is not

bound to so prepare the chec7 thatnobody else can successfully tamper withit !e8. a drawer cannot be e8pected toforesee that his cler7 will use acid to alter

his chec7s, Critten ,6 C&ei%al NatlBan"

o e eneral rule #$ tat te (rawee

cann!t care aa#n$t te (rawer@$acc!unt te a"!unt !* an altere(

ceck.o But te (rawer@$ nel#ence , be*!re

!r a*ter te alterat#!n , "ay e$t!#" *r!" $ett#n u alterat#!n a$ a

(e*en$e.o ere te nel#ence !* te (rawer

c!n$#$t$ #n *a#l#n t! (#$c!/eralterat#!n$ re/#!u$ly "a(e w#c e

c!ul( a/e (#$c!/ere( by ac!"ar#$!n !* te cancelle( ceck$

an( ceck $tub$ !r by (#l#ent

:orybeth;%aldrias.&ea'< :Nayna;=alayang.'e()t"< :Dionne;*anche>.a%a'!< :?am;?acob.'e!ign regardis to be had to the nature of theinstrument, the usage of trade orbusiness with respect to suchinstruments, and the facts of theparticular case. The test iswhether the payee employed suchdiligence as a prudent mane(ercises in his own affairs. This isbecause the nature and theorybehind the use of a chec$ points toits immediate use and payability.In the case at bar, howe'er, thechec$ in'ol'ed is not an ordinarybill of e(change but a manager

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" certified personal chec$ is notlegal tender nor is it the currencystipulated, and therefore cannotconstitute 'alid tender of payment.

o 'he !)rren'erof the chec7

by the holder to the drawee

ban7 upon its payment isnot negotiation. %ypaying the chec7, thedrawee ban7 e8tinguishes it

as a negotiable instrumentand converts it into a merevoucher.

o Di!tin%tion bet+een

!)rren'er o# %&e% )(on

(a"ent t&ereo# an'negotiationa. 'he delivery of the

chec7 by the holder to

the drawee ban7 uponits payment is notnegotiation. %y payingthe chec7, the drawee

ban7 e8tinguishes it asa negotiable instrumentand converts it into amere voucher.

b. In the case of a depositof a chec7 by the holderthereof in a ban7 otherthan the drawee ban7,

the signature at thebac7 of the chec7 would

constitute anindorsement, unless

otherwise indicated.'he holder in

negotiating the chec7 to

the depositary ban7,which in turn will collecton the chec7 from the

drawee ban7, throughthe clearinghouse.

o Clearing o# %&e%!

Clearing 6 chec7

collection process

Clearing &o)!e 6

where representativesof different ban7s meet

every afternoon ofevery business day to

receive the envelopescontaining chec7s

drawn against the ban7he represents fore8amination andclearance.

%. SECONDAR/ PARTIES

+. Liabilit" o# DRAWER !Sec. 1, NIL"

a. #dmits e8istence of payee and his

then capacity to endorseb. (ngages that on due presentment

instrument will be accepted, or

paid, or both, according to itstenorc. 'hat if it be dishonored O

necessary proceedings ondishonor duly ta7en, will pay the

amount thereof to the holder orto a subsequent indorser whomay be compelled to pay it

drawer may insert in the

instrument an e8press stipulation

negativing A limiting his ownliability to holder

PNB v. PICORNELL (1922). ;icornellobtained money from ;N: /ebu to purchase

tobacco to be shipped to &anila. ;icornellthen drew a bill of e(change drawn against hisprincipal, yndman, Ta'era 4entura *T4,in fa'or of ;N: or his order. Aponpresentation of the bill, T4 accepted it.owe'er, T4 subsequently refused to paythe bill because some of the tobacco shippedwere damaged.9L-+". Liability of "cceptor *T4

;N: is a holder in due course and

the partial want of considerationdoes not e(ist with respect to theban$ who paid full 'alue for the billof e(change.

The want of consideration between

the acceptor and drawer does notaffect the rights of the payee who isa remote party. The payee or holdergi'es 'alue to the drawer, and if heis ignorant of the equities betweenthe drawer and acceptor, his is in theposition of a bona fide indorsee.

:. Liability of -rawer *;icornell "s drawer of the bill, he warranted

that it would be accepted uponproper presentment paid in duecourse. "s it was not paid, hebecame liable to the payment of its'alue to ;N:.

The fact that ;icornell was an agent

of T4 in the purchase of thetobacco does not necessarily ma$ehim an agent of T4 in drawing thebill of e(change. These are different contracts. e cannot claime(emption from liability by in'o$ingthe e(istence of agency.

:orybeth;%aldrias.&ea'< :Nayna;=alayang.'e()t"< :Dionne;*anche>.a%a'!< :?am;?acob.'e!igna. labor*la+< :=iguel;De?esus.legal*et&i%!< :ianne;ervasio.%o*la+a. labor*la+< :=iguel;De?esus.legal*et&i%!< :ianne;ervasio.%o*la+ed to acceptor refuse acceptance on hisbehalf$ and

bill addressed to

drawees not partners,=&*' be made to themall unless one hasauthority to accept or

refuse acceptance forall$

drawee is dead, =#@ be

made to his personal

representative$

drawee has been

adKudged a ban7rupt oran insolvent or has

made an assignment forthe benefit of creditors,=#@ be made !+" tohim or !-" to his trustee

or assignee.

W&en a'e !Sec. 1&, NIL"

on any day on which NIs may bepresented for payment underE

o Sec. 2$, NIL J at a

reasonable hour on abusiness day

o Sec. 8%, NILJ

- at the time fi8ed thereinwithout grace.

- Instruments falling due orbecoming payable on*aturday 6 ne8t

succeeding business day- (RC(' instruments

payable on demand :atthe option of the holder.a%a'!< :?am;?acob.'e!ign.a%a'!< :?am;?acob.'e!ign.a%a'!< :?am;?acob.'e!igna. labor*la+< :=iguel;De?esus.legal*et&i%!< :ianne;ervasio.%o*la+a. labor*la+< :=iguel;De?esus.legal*et&i%!< :ianne;ervasio.%o*la+.a%a'!< :?am;?acob.'e!ign.a%a'!< :?am;?acob.'e!ign.a%a'!< :?am;?acob.'e!igna. labor*la+< :=iguel;De?esus.legal*et&i%!< :ianne;ervasio.%o*la+.a%a'!< :?am;?acob.'e!ign.a%a'!< :?am;?acob.'e!ign