Negotiable Instruments Notes: Form and Interpretation (Sec. 1

THE NEGOTIABLE INSTRUMENTS LAW

I. FORM AND INTERPRETATION

*Section 1. Form of negotiable instruments. - An instrument to be negotiable must conform to the following requirements: (Always step 1 because it determines what law is applicable) (WUPPA)

(a) It must be in writing and signed by the maker or drawer;

at least the surname should appear and generally the signature (It may consist of mere initials or even numbers)

where the name is NOT signed, the HOLDER must prove that what is written is intended as a signature of the person sought to be charged

how signature may be written: (must be shown to have been adopted & used by the party as his signature)

printed

typewritten

stamped

engraved

photographed

lithographed

Location of signature: NOT material; usually written at the bottom right hand corner

(b) Must contain an unconditional promise or order to pay a sum certain in money;

Bill

Order (NOT mere authority to pay nor request)

may be equivalent

mere words of civility (i.e. will oblige, by paying) - negotiable

Note

Promise

may be

equivalent (i.e. agree,shall pay,will pay); or

implied (i.e. good to, payable on demand)

BUT may not be implied from the mere existence of a debt

sum certain - ascertainable by mere mathematical computation

money - NOT bonds, corp. stock, state paper, scrip, checks, foreign bills, treasury certs.

Legal Tender in the Philippines (compels creditor to accept)

However: certified checks such as managers check may be similarly situated

Redemption by manager's check were accepted or NOT accepted to on that ground = VALID

may be in foreign money BUT must specify denomination (NOT an invariable rule)

rate prevailing at the time of payment (RA 529)

only agreement and NOT the claim can be void

(d) Must be payable to order or to bearer; and

order - equivalent

assigns

assignees

holder

on return of this certificate properly indorsed (implies indorsement)

bearer

equivalent: possesor

bearer + specified person - NOT negotiable because modifier only

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. - additional req. for bill

may be filled under iimplied authority

Importance of formalities: to distinguish from non-negotiable insturments

Negotiable - apply negotiable instruments law

Determination o negotiability:

apply provisions especially Sec. 1 above

consider instrument as a whole

what appear on the face and NOT elsewhere

*Sec. 2. What constitutes certainty as to sum. - The sum payable is a sum certain within the meaning of this Act, although it is to be paid:

(a) with interest; or

silent: legal rate from time of judicial or extrajudicial demand

Escalation clause is valid if there is deescalation clause

Escalation clause - stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increase by law or by the Monetary Board

Deescalation clause - stipulate that the rate of interest agreed upon may be reduced in the event that the applicable maximum rate of interest is decreased by law or by the Monetary Board

(b) by stated installments; or

each installment maturity should be known

(c) by stated installments, with a provision that, upon default in payment of any installment or of interest, the whole shall become due; or (w/ acceleration clause) (d) with exchange, whether at a fixed rate or at the current rate; or

exchange - difference in value of the same amount of money in diff. countries (only for foreign bills)

may be at

2. current rate

3. fixed rate

(e) with costs of collection or an attorney's fee, in case payment shall not be made at maturity.

Attorney's fee

need NOT be a sum certain

must be reasonable

if silent: NOT recoverable

Overdue instrument - NOT fully negotiable - holder NOT holder in due course

*Sec. 3. When promise is unconditional. - An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with:

(a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or

Fund for reimbursement (absolutely payable and should NOT be from a restricted fund)

drawee pays the payee from his own funds

afterwards, drawee pays himself from the particular fund indicated

Payment -direct source

drawee pays directly from the particular fund indicated - NOT negotiable - conditional upon the sufficiency of the funds

(b) A statement of the transaction which gives rise to the instrument.

Example:

as per contract notes

chattel notes

conditional sales agreement

reference to mortgages

EX: in the note itself or part of the note - non-negotiable bec. uncertainty of amount

Subject to terms and conditions of the transaction stated = non- negotiable

But an order or promise to pay out of a particular fund is not unconditional.

as long as absolutely requires to pay

*Sec. 4. Determinable future time; what constitutes. - An instrument is payable at a determinable future time, within the meaning of this Act, which is expressed to be payable:

(a) At a fixed period after date or sight; or (b) On or before a fixed or determinable future time specified therein; or (c) On or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of happening be uncertain.

An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure the defect.

*Sec. 5. Additional provisions not affecting negotiability. - An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable. But the negotiable character of an instrument otherwise negotiable is not affected by a provision which:

GR: Order or promise to any act in addition to the payment of money = non-negotiable

EX: (CCWH)

(a) authorizes the sale of collateral securities in case the instrument be not paid at maturity; or (merely accelerable = negotiable)

GR: promise of the maker to furnish additional security (additional act to the promise to pay in money) = non-negotiable

(b) authorizes a confession of judgment if the instrument be not paid at maturity; or

2 kinds of confession:

Cognovit actionem (NOTE: differs from warrant of attorney)

written confession of an action by a defendant, subscribed, but not sealed, and irrevocably authorizing any attorney of any court of record to confess judgment and issue execution usually for a sum named

given in order to save expense

2. Confesion relicta verificatione

confession of judgment made after plea is pleaded, such as cognovit actionem, accompanied by a withdrawal of a plea

*Warrant of attorney

instrument in writting addressed to 1 or more attorneys named therein, authorizing them, generally, to appear in any court, or in some specified court on behalf of the person giving it, and to confess judgment in favor of some particular person therein named in an action of debt

Effect of confession of judgment in the Phils. = VOID as against public policy - because:

they enlarged the field for fraud

under this instrument, the promissor bargains away his right to a day in court

the effect of the instrument is to strike down the right of appeal accorded by statute

benefits or protection of the obligor that may be waived:

presentment of payment

notice of dishonor

protest

(d) gives the holder an election to require something to be done in lieu of payment of money.

it has to be the holder's option and not the drawee

Example: pay to A or order money or property at the option of the holder (negotiable) vs. I promise to pay A or order money or property (non-negotiable)

But nothing in this section shall validate any provision or stipulation otherwise illegal.

NOTE: (b) is still void bec. of this

Test of negotiability: If the promise would give rise to a cause of action for breach of contract if the additional act is NOT done = non-negotiable

*Sec. 6. Omissions; seal; particular money. - The validity and negotiable character of an instrument are not affected by the fact that: (DVPSC)

If payment on demand, statute of limitations begin immediately

(a) it is not dated; or

However, there are cases where the date is necessary to fix the maturity date

(b) does not specify the value given, or that any value had been given therefor; or

consideration is presumed

(d) bears a seal; or

(e) designates a particular kind of current money in which payment is to be made.

contract that foreign currency has fixed value in relation to the money of the country in w/c the instrument is payable but no such contract exists in the Phils.

But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the consideration to be stated in the instrument.

*Sec. 7. When payable on demand. - An instrument is payable on demand:

(a) When it is so expressed to be payable on demand, or at sight, or on presentation; or

at sight - not ordinarily used in promissory note since for presentment

(b) In which no time for payment is expressed. (payable in demand)

when blank for time for payment unfilled- may be filled under incomplete intruments Sec 14,15 or 16

Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so issuing, accepting, or indorsing it, payable on demand.