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Bills - Week 1 - Introduction - Coggle Diagram
Bills - Week 1 - Introduction
A. Kinds of Negotiable Instruments (NIL)
B. Parties and the Nature of their Liabilities
C. Functions of Negotiable Instruments
D. The concept of negotiability
E. The Origin of Negotiable Instruments
- Originated from merchants and traders of the middle ages. Originally to facilitate the contract of cambium and to avoid the risks of transporting money.
F. History of the NIL
- Verbatim reproduction of the Uniform negotiable Instruments law of the US. This was patterned after English bill of Exchange Act of 1882. Has remained unamended since.
G. Applicability of NIL
- Applies only to negotiable instruments. In the absence of requisites to be considered negotiable, general law of obligations and contracts apply.
Law Merchant (Sec. 196)
- A system of law consisting of certain principles of equity and usages of trade which general convenience and a common sense of justice have established to regulate merchant/mariners in all the commercial countries of the civilized world.
Civil Code
- Applies suppletorily.
Estoppel (BDO v. De Leon)
- Outlier case, non-negotiable instrument but applied NIL because of estoppel on the part of the bank. Sir distrusts this case
Negotiable Instrument/Negotiation
- Being able to be transferred from one person to the other. Useful because can be used as collateral or can be sold. Facilitates transaction because no need for the goods to be transferred, only the receipt/negotiable instrument. Like a check.
Advantages of Negotiability
- allows for a person to acquire a better title than the transferor/indorser so long as they are a holder in due course. A person who takes a NI can rely on its face and need not inquire into past events which gave rise to its execution.
Effect of Negotiation
- As regards the original parties, the promise to pay is dependent on the validity of the contract. However, once the instrument is negotiated to a third person, it becomes completely independent of the sale which gave rise to it.
Non-Negotiable
- Only one transfer, i.e. goods to specified person.
Functions
Substitute
- for money in payment for property/services
Credit
- as a means of creating and transferring credit
Facilitate
- the sale of goods.
Legal Tender (Belisario v. Natividad)
- Negotiable instruments are not legal tender.
Effect as Payment (NCC 1249)
- Only when they have been encashed or, through the fault of the creditor they have been impaired.
Redemption (Fortunado v. CA)
- The tender of a check is sufficient to compel redemption as redemption is a right. Tender itself however, does not have the effect of payment until NCC 1249 condition has been fulfilled.
B1. Promissory Note
Maker
- The promissor
Payee
- The person to whom the promise to pay is made.
B2. Bill of Exchange
Drawer
- the person who gives the order to pay
Drawee
- The addressee (recipient) of the order of the drawer
Payee
- the person to whom payment is made.
B3. Instrument is Transferred
Indorser
- A payee of an instrument who transfers it to another by signing at the back of the instrument (this is negotiating an instrument)
Indorsee
- The person to whom the indorser negotiates an instrument to
Holder
- Same as indorsee
Note that this can occur repeatedly i.e., an indorsee can become an indorser by subsequent negotiation.
Effect of Indorsing
- The indorser impliedly enters into two contracts.
Selling/Transferring
- the instrument to the indorsee, assuming the liabilities similar to a seller/transferor of personal property.
Warrants
- Indorser warrants that they will pay the instrument whent he two conditions for liability have been fulfilled.
Equivalence to Cash (FedEx v. Antonino)
- An order instrument has to be endorsed by the payee before it may be negotiated, thus it is not a negotiable instrument equivalent to cash. Contrasted with a bearer instrument, which does not require an indorsement to be validly negotiated.
NIL (Rivera v. Chua)
- Colloquial use of promissory note does not automatically render it negotiable. Must comply with the requisites under NIL.
Liability
- Can be either primarily or secondarily liable.
Primary
- one who is unconditionally and absolutely required to pay the instrument when it falls due.
Who are Primary Parties
Promissory Note
- The maker.
Bill of Exchange
- No one, UNLESS the drawee accepts the order of the drawer to pay. Acceptance makes him an ACCEPTOR, absolutely bound to pay on the date specified on the bill.
No need to comply with the procedural and substantial requirements under the NIL.
Secondary
- Liability is conditioned on:
Demand
- or presentment be made on the primary part
Dishonor
- the primary party dishonors or fails to pay/accept the instrument with a notice of dishonor be given to secondarily liable party.
Who are Secondary Parties
Bill of Exchange
- Drawer
Note or Bill
- Indorser
Here, liability depends on compliance with the NIL.
A1.
Promissory Note
- Evidence of a promise to pay money. (Bond or certificate of deposit)
A2.
Bill of Exchange
- An order to made by one person to another, to pay money to a third person. (Typically a Check)
Check
- An order to a bank to pay a person named on the check. Always payable on demand.
Draft
- Usually used in transactions between persons physically remote from each other. An order made by one person (buyer) addressed to a person who has the funds of the buyer, ordering the addressee to pay the purchase price tot he seller of the goods. This is the primary instrument used to facilitate international trade.
International Trade
- Done via drafts, usually covered by a letter of credit. This is because payment in cash/check impractical as both parties might not know each other.
Bond
- Evidence of debt issued by a corporation, payable at a definite date in the future.
Certificate of Deposit
- an instrument issued by a bank reciting a deposit of a certain sum of money, payable at a fixed time or on demand to the named depositor on the certificate.
Definition
- A written contract for the payment of money, by its form and on its face, intended as a substitute for money, and intended to pass from hand to hand.
When Negotiable (NIL)
- When they conform to all the requirements prescribed by the Negotiable Instruments Law.