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Bills - Week 2 - Chapter I. Requisites of Negotiability - Coggle Diagram
Bills - Week 2 - Chapter I. Requisites of Negotiability
A. Requisites of Negotiability (NIL 1, 184, 126)
B. Written Form & Signature (Sec. 18-19)
C. Unconditional Order or Promise To pay
D. Sum Payable Must be Certain (S.2)
E. Payable In Money (S.6e)
F. Certainty of Time of Payment (NIL S. 7)
G. Must be payable to Order or Bearer
- Words of negotiability i.e., instrument must say payable to order or to bearer. These words signify consent that the instrument may be transferred.
H. Parties Must be Designated with Certainty
I. Provisions Not Affecting Negotiability (NIL 5)
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H1. Maker & Drawer
- Must sign the instrument. Usually, signature lower right. Drawee's name at lower left. But, in checks, the bank's name is at the top.
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G1. Payable to Order (S.8)
- Indorsement + Delivery. This is significant, as drawee banks don't need any indorsement and may pay immediately.
G2. Payable to bearer (S.9)
- Negotiated by mere delivery.
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Requirement of Specification (184)
- There MUST be a specified person named in the instrument OR, to his order (to any person to whom the person has indorsed and delivered the instrument)
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"payable to the order of the maker/my order" - *Where a note is drawn to the maker's own order, it is not complete until indorsed by him. - NIL S. 184
Presumed that person in possession of an incomplete instrument has authority. Thus, negotiable.
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Words of Negotiability
- Does not necessarily have to be to bearer or to order. So long as intent to make it to order/bearer, sufficient.
Purpose
- to inform the holder of the instrument of the date when they may enforce payment. Prior to such time, they may not compel the maker of the note/acceptor of the bill to pay unless there is an acceleration provision.
F1. Payable on Demand (S. 7)
- An instrument is payable on demand-
Where it is expressed to be payable on demand, or at sight, or on presentation; or
In which no time for payment is expressed.
F2. Payable at a Fixed Time
- This has the effect of fixing the date when the holder may demand payment. Failure to demand at such a time renders the instrument overdue and it becomes a demand instrument. Still negotiable.
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New Bill Doctrine/Overdue Instruments
- Where an instrument is issued, accepted or indorsed when overdue, it is, as regards, the per son so issuing, accepting, or indorsing it, payable on demand.
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Demand Instrument/Note (Gerald v. Bank of NY)
- In a demand instrument, the holder may call for payment at any time. In a demand note, the maker has an option to pay at anytime and the refusal of the holder to accept payment will terminate the running of interest. This does not affect the obligation to pay, which persists.
Kind of Money (NIL S. 6e)
- An instrument must be capable of being transformed into money if the holder wishes. This is the essence of negotiability, as such instruments are intended to be money substitutes. Thus, if an instrument is payable in anything other than money, even gold, then it is non-negotiable.
Legal Tender
- It is not necessary however, that it be payable in legal tender. It is sufficient that it is convertible into any kind of money. However, a stipulation requiring the payment of legal tender does not affect the negotiability of the instrument.
Option
-
Maker
- If the maker has the option to choose medium of payment, non-negotiable
Holder/Payee
- If the payee is given the option to choose payment in money or otherwise, negotiable
Gold
- No longer a currency, gold-standard was abolished in 1973.
Circulating Medium (Klaubber v. Biggerstaff)
- For currency to be considered as money , it only needs to be part of the circulating medium. It is not necessary for currency to be legal tender against whom it is tendered. Paper currency, bank notes which are current de jure et de facto, are legal tender unless specially objected to at the time of tender, for the reason that they are money, though not absolutely legal tender.
Q. If Bitcoin? - Arguably, but unclear.
Definition (S.2) -
The sum payable is a sum certain within the meaning of this Act, although it is to be paid
INTEREST
- With interest; - This is because the exact amount may be computed without looking beyond the instrument.
INSTALLMENTS
- By stated installments; or
ACCELERATION CLAUSE
- By stated installments with a provision that upon default in payment of any installment or of interest, the whole shall become due; or
EXCHANGE
- With exchange, whether at a fixed rate or at the current rate;
COSTS/FEES (Hawley v. Isaacson)
- With costs of collection or an attorney's fee, IN CASE payment shall not be made at maturity. - This applies even if the amount is in blank as the amount may be fixed by the court.
Certainty (Nat Savings Bk. v. Cable)
- A clause such as P500 or what may be due renders the sum uncertain. The certainty of the sum is what allows the instrument to be a substitute for money.
Penalty Clauses (Citizens Savings Bk v. Landis)
- Does not affect negotiability, as the certainty of the sum is relevant only at the time of maturity. In contrast, penalty clauses affect sum after or before maturity.
Promise to Do (Phil Bank v. Zulueta)
- Even if an instrument is equivalent to money, if it contains a promise to act in addition to the money, it is not negotiable.
Ratification (Parsons v. Jackson)
- An imperfect instrument may be subsequently cured/ratified to convert it into a negotiable instrument. But, this is obiter dictum.
"Pay with Attorney's Fees" - Doesn't matter, Sec. 2 expressly exempts this.
Phrase, With Interest
- Sir says conflicting, here if there is with interest then legal interest applies. In the US, with interest renders it non-negotiable.
Test
- So long as it can be determined mathematically at the time of the inception of the instrument.
Holder in Due Course
- cannot be HID if you know there is an irregularity.
Acknowledgment of Debt
- The instrument must contain a promise or, an order to pay. A mere acknowledgment of debt is insufficient to render it negotiable. There should be an express promise on the face of the instrument.
C1. When Unconditional (NIL S. 3)
- An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with:
Reimbursement/Debited
- 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
Statement
- A statement of the transaction which gives rise to the instrument.
Effect of a Particular Fund
- But an order or promise to pay out of a particular fund is conditional.
Debiting
- Not considered as payment out of a particular fund as it is the payment of X and subsequent taking from Y.
Test
- Check if particular fund is the source of the money, or source of reimbursement. If reimbursement, negotiable.
Charge To
- only means reimbursement. If other words, ascertain intent via the circumstances of the case.
Effect of Qualification
- A promise or order to pay must be unqualified in order to be unconditional. This is why a promise to pay out of a particular fund is conditional, as it makes payment dependent on sufficiency of the fund.
Collateral Contract
- Reference to a collateral contract must show that the obligation to pay from the instrument is burdened with the conditions of the contract i.e., it is subject to the terms of that contract. This burden destroys negotiability. In contrast, a mere statement of the origin of the transaction or that the payment was made in accordance with the terms of a contract does not affect negotiability. Even if the earlier transaction was the consideration for the payment, still does not affect negotiability.
Examples -
"this note is given in accordance with a land contract of even date between B and C
"Pay to the order of the First National Bank of Hutchinson, Kansas, on account of con tract between you and the Snyder Planing Mill Co., $1,500" was held to be a negotiable bill of exchange, payable absolutely on demand
Delivery (Irving Trust Co v. Leff)
-
In General
- Where the [negotiable] 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.
Passed to Indorsee/3rd Party
- 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."
Bills of Exchange
- Reimbursement/Debiting refers to BoEs, as they presuppose that an order to pay has been made. Reimbursement also presupposes that there has been a previous disbursement. If no statement of where such a disbursement will be drawn from, then the instrument is unconditional.
Form of Promise
- It is not required that the word promise be present. So long as an equivalent expression is present.
Promissory Note (Daniel, Negotiable Instruments Sec. 6)
- If, in addition to the acknowledgment of debt there is a promise to pay, the instrument may be regarded as a promissory note.
Bill of Exchange (Little v. Slackford)
- In a BoE, words which are equivalent to an order is sufficient. An order being a command/imperative direction. Thus, mere request or authority to pay does not constitute an order.
Writing (Glassock v. First Nat. Bk. of San Angelo)
- Covers written or printed form. The signature is binding regardless of the form it takes, so long as it is intended or adopted as the signature of the signer and made with his authority.
Written Form (NIL S. 18)
- No person whose signature does not appear on the instrument can be made liable thereon. However, if it is signed under a trade/assumed name, the effect is as if it was signed in the original name.
Signature by Agent (S. 19)
- A duly authorized agent may sign in behalf of a party. No particular form of appointment. Authority of the agent may be established as in other cases of agency.
How ever, if the signature is so placed upon the instrument that it is not clear in what capacity the person intended to sign, he is deemed an indorser, and not a maker or drawer.
Form of the Document
- Must be written in a paper or, substitute for paper. (See, negotiable cow)
Ratification
- Pwede if gawing leather, unless you subscribe to state court cases na bawal ratification.
Location of the Signature (NIL S. 17)
- So long as the intention to make the instrument of the maker/drawer is shown, the location of the signature is irrelevant. However, if the signature's location makes it unclear as to what capacity the person intended to sign, such person is deemed an indorser and not a maker/drawer.
Form of the Signature (Brown v. Butchers & Dover's Bank) -
A person can be bound by a mark or designation that he thinks is suitable to use, as long as it was used as a substituted for his name and there is an intent to bind himself.
Requisites(NIL S. 1)
- An instrument to be negotiable must conform to the following requirements:
SIGNED WRITING
- It must be in writing and signed by the maker or drawer;
Unconditional PROMISE
- Must contain an unconditional promise or order to pay a sum certain in money;
Time PAYABLE
- Must be payable on demand, or at a fixed or determinable future time;
ORDER/BEARER
- Must be payable to order or to bearer; and
CERTAINTY
- Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. (Applies only to promissory note)
Promissory Note (NIL S. 184)
- A negotiable promissory note within the meaning of this Act is an unconditional promise in writing made by one person to another, signed"by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer.
Where a note is drawn to the maker's own order, it is not complete until indorsed by him.
Bill of Exchange (NIL S. 126)
- A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer.
Both enumerate the requisites mentioned in S. 1
Importance of Wording (Rivera v. Sps. Chua)
- If made out to specific persons, the words payable to the order of are critical. Otherwise, non-negotiable.
The Promissory Note in this case is made out to specific persons, herein respondents, the Spouses Chua, and not to order or to bearer, or to the order of the Spouses Chua as payees.
Determination of Negotiability (Powell & Powell v. Greenleaf & Currier)
- Whether instruments are negotiable must be determined from language of instruments themselves, unaided by inspection of extrinsic instruments to which they refer.
Restrictive Indorsement (Union Bank v. Mayfield)
- If negotiable when made, its negotiability remained unaffected. Until it has been restrictively indorsed or discharged by payment or otherwise.
An instrument negotiable in its origin continues to be negotiable until it has been restrictively indorsed or discharged by payment or otherwise.”
Restrictive indorsement is one that:
prohibits the further negotiation of the instrument;
constitutes the indorsee the agent of the indorser;
vests the title in the indorsee in trust for or to the use of some other perso