Rhea Paz E.

Castro

BSBA IV

Law4 MODULE

1. What are the reasons why negotiable instruments play an important role in trade and commerce?

ANSWER: THE REASONS WHY NEGOTIABLE INSTRUMENT PLAY AN IMPORTANT ROLE IN THE TRADE
AND COMMERCE ATE THE FOLLOWING:

FIRST, although they do not constitute a legal tender, they are used as a substitute for money. SECOND,
negotiable papers particularly checks constitute at present the medium of exchange for commercial
transaction. THIRD, negotiable instrument also serve as a credit transaction.

2. An important feature of a negotiable instrument is the accumulation of yeh secondary contracts as it

is transferred from one person to another. Illustrate?

ANSWER: As it transferred from one person to another , once all instrument issued additional parties
can become involved.

3. Is a Postal Money Order a negotiable Instrument? Why?

ANSWER: No, Postal money order are not negotiable instrument. In establishing and operating a postal
money order system, the government is not engaged in commercial transactions but merely exercise a
government power for the public benefit. Moreover, some restrictions imposed money orders by postal
laws and regulations are inconsistent with the character of negotiable instrument.

EXERCISE ( section 2-9 )

ACTIVITY I
Give the meaning of the following and give example each.

A. Negotiable Promissory Note - is an unconditional promise in writing made by one person to another,
signed by the maker, engaging to pay a demand, or at a fixed or determinable future time, a sum certain
in money to order or to bearer.

EXAMPLE

You lend your friend $1,000 and he agrees to repay you by December 1.

B. Negotiable Bill of Exchange - is an unconditional order in writing addressed by one person to another,
signed by the person giving it, and requiring the person whom it is addressed to pay upon demand or at
a fixed or determinable future time sum certain in money to bearer.

EXAMPLE

X orders Y to pay ₹ 50,000 for 90 days after date and Y accepts this order by signing his name,

C. Legal Tender - that currency which a debtor can legally compel a creditor in payment of a debtor in
money when tendered by the debtor in the right amount.

EXAMPLE

Mr. Carl had a legal dispute with a local supermarket because of an irregular situation where the store
was selling expired canned food. The customer bought the food without noticing the date and got
poisoned by it.

D. Non - Negotiable Instrument - an instrument which is not negotiable, that is an instrument which
does not meet the requirements laid down to qualify an instrument bas negotiable one, or an
instrument which is it's inception was negotiable but has lost its quality of negotiability.

EXAMPLE

A certificate of deposit (CD) cannot be redeemed by anyone but the account holder. A person cannot
sell his or her CD to another person.

E. Fictitious Person - is meant to be one who, though not named as payeein an instrument, has no right
to it because the maker or drawer so intended and it matters not, whether the name of the payee used
by him be the one living or dead , or one who never existed.

ACTIVITY II
1. Enumerate the requirements nas to form and context of an instrument in order that will be
negotiable under the law.

* Letter of Credit

* Treasury Warrant

* Postal Money Order

* Bill of Lading

* Certificate of Stocks

* Warehouse Receipt

2. The drawer of a bill of exchange, dishonor or refuses to pay it. Will he be liable (a.) to the payee, (b.)
to the drawer. Explain.

ANSWER: The drawer is both liable to the payee and drawer, because the drawer and the payee is the
same person.

3. Who are the original parties to:

A. PROMISSORY NOTE

a. Maker - the one who makes the promise

b. Payee - the party to whom the promise

B. BILL OF EXCHANGE

a. Drawer - the person who issues and draws the order bill.

He gives the order to pay money to a third party. He does not pay directly.

b. Drawee - the party upon whom the bill is drawn.

He is the person to whom the bill is addressed and who is ordered and expected to pay.

c. Payee - the party whose favor the bill is originally issued or is payable.

ACTIVITY III
1. Walter makes of a promissory note, payable to order of Xander who indorse it to Yvez whose
signature is forged by Zoria who in turn , indorse it to Allan. State the right of Allan assuming he acted on
good faith.

ANSWER:

Under Section 3-302 of the Uniform Commercial Code (UCC), to be a holder in due course (HDC), a
transferee must fulfill the following:

1. Be a holder of a negotiable instrument;

2. Have taken it:

a) for value,

b) in good faith,

c) without notice

(1) that it is overdue or

(2) has been dishonored (not paid), or

(3) is subject to a valid claim or defense by any party, or

(4) that there is an uncured default with respect to payment of another instrument issued as part of the
same series, or

(5) that it contains an unauthorized signature or has been altered, and

Have no reason to question its authenticity on account of apparent evidence of forgery, alteration,
irregularity or incompleteness.

The point is that the HDC should honestly pay for the instrument and not know of anything wrong with
it. If that’s her status, she gets paid on it, almost no matter what.

2. I promise to Sariwa P15,000.00 if he wants a brand new six(6) cubic feet refrigerator, is the
promissory negotiable.

ANSWER: NO, because there is no fixed date that is damandable, the sentence above is only non
negotiable instrument.