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NEGOTIABLE INSTRUMENTS • Negotiable Instruments - A Written Contract For

NEGOTIABLE INSTRUMENTS • Negotiable Instruments - A Written Contract For

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Published by: lightgail on Dec 12, 2009
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05/11/2014

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NEGOTIABLE INSTRUMENTS
Negotiable instruments
- a written contract for the paymentof money which complies with the requirements of Sec 1which by its form and on it face is intended as a substitutefor money and passes from hand to hand as money so as togive a the holder in due course the right to hold theinstrument free from defenses available to prior parties
Functions
 To supplement the currency of the government
 To substitute for money and increase the purchasing power
Legal tender- that kind of money which law compels thecreditor to accept in payment of his debt when tenderedby the debtor in the right amount
Features:
Negotiability 
- where a bill or note or check may pass fromhand to hand similar to money
Accumulation
of secondary contracts- secondary contractsare accumulated because indorsers become secondarilyliableKINDS OF NI:
Promissory note
- an unconditional promise in writing by oneperson to another signed by the maker engaging to pay ondemand or at a fixed or determinable future time a sumcertain in money to order or to bearer
Bill of exchange-
an unconditional order in writing addressedby one person to another signed by the person giving itrequiring the person to whom it is addressed to pay ondemand or at a fixed determinable future time a sum certainin money to order or to bearer
Check 
- a bill of exchange drawn on a bank payable ondemandOther forms of NI
Certificate of deposit
 Trade acceptance
Bonds
Drafts
Debenture
When BE treated as PN
Drawer and drawee are the same person
Drawer is fictitious person
Drawee does not have the capacity to contract
Where the bill is drawn on a person who is legally absent
 
Where the bill is ambiguous
Parties to promissory note
Maker –one who makes a promise and signs the instrument
Payee – party to whom the promise is made or theinstrument is payable
Parties to bill of exchange
Drawer – one who gives the order to pay money to a thirdparty
Drawee – person to whom the bill is addressed and who isordered to pay
Payee – party in whose favor the bill is drawn or is payable
Other parties to NI
Indorser
Indorsee
Persons negotiating by mere delivery
Persons to whom the instrument is negotiated by meredeliveryDistinctions:
Negotiable instruments Non-negotiable instruments
Only NI is governed by the NILApplication of the NIL is onlyby analogy Transferable by negotiation orby assignment Transferable only byassignmentA transferee can be a HDC if all the requirements arecomplied withA transferee remains to beassignee and can never by aHDCA holder in due course takethe NI free from personaldefensesAll defenses available to priorparties may be raised againstthe last transfereeRequires clean title, one thatis free from any infirmities inthe instrument and defects of title of prior transferors Transferee acquires aderivative title onlySolvency of debtor is in thesense guaranteed by theindorsers because theyengage that the instrumentwill be accepted, paid or bothand that they pay if theinstrument is dishonoredSolvency of debtor is notguaranteed under art 1628 of the NCC unless expresslystipulated
 
Promissory note Bill of exchange
Unconditional promiseUnconditional orderInvolves 2 partiesInvolves 3 partiesMaker is primarily liableDrawer is only secondarilyliableOnly one presentment forpayment Two presentments: foracceptance and for payment
 Assignment Negotiation
Pertains to contracts ingeneralPertains to NIAssignee takes theinstruments subject to thedefenses obtaining among theoriginal partiesHolder in due course takes itfree from personal defensesavailable among the partiesGoverned by the civil codeGoverned by NIL
Negotiable instrument Negotiable document of title
Subject is moneySubject is goodsIs itself the property with valueThe document is mereevidence of title – the things of value being the goodsmentioned in the documentHas all the requisites of sec 1NILDoes not have these requisitesA holder of NI may run afterthe secondary parties forpayment if dishonored by theparty primarily liableIntermediate parties are notsecondarily liable if thedocument is dishonoredA holder, if a holder in duecourse, may acquire rightsover the instruments over theinstruments better than hispredecessorsA holder can never acquirerights to the document betterthan his predecessors
Bill of exchange Chec
May or may not be drawn onthe bankIs always drawn on a bank orbankerMay be payable on demand orat a fixed or determinablefuture timeAlways payable on demandMust be presented foracceptanceNot necessary to be presentedfor acceptance, however, if theholder requests and thebanker desires, he may acceptNeed not be drawn on a Is drawn on a deposit,

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