Nego Notes 1.pdf

PART 1 INTRODUCTION

3.

Postal Money order Order for payment of money to the payee drawn by one post office upon another under authority of law.

ACT no. 2031

Subject to restrictions and regulations inconsistent with the character of negotiable instrument [only one indorsement is allowed]

Law governing N.I.

Enacted:

Feb. 3, 1911

In establishing and operating PMO system, govt is not engaging in commercial transactions but merely

Publication in Official Gazette:

March 4, 1911

exercises govtal power for public benefit

Took effect:

June 2, 1911 (90 days after publication)

4. APPLICABILITY OF act no. 2031 (Negotiable Instruments Law)

Bill of lading There’s conditional promise or order to pay sum in money

Applies only to negotiable instruments or those qualified in Section 1 CASES NOT PROVIDED FOR BY THE ACT: governed by provisions of existing legislation [default = “law merchant”]

5.

CIVIL CODE: has no effect on it aside from supplying deficiency for cases not covered by the Act

Certificate of stock No unconditional promise or order to pay a sum certain in money Proof of ownership for a designated number of shares in a corporation

CHARACTERISTICS 1. NEGOTIABILITY

6. Attribute which allows n.i. to be passed from one hand to another just like money in

Warehouse receipt No unconditional promise or order to pay sum certain in money

commercial transactions free from ALL PERSONAL DEFENSES available against original owner; in return holder of n.i will have right to collect the sum payable to him that is “free from any defect in the title of

any of the prior parties or defenses available to them among themselves”

[sec 57]

TITLE 1 NEGOTIABLE INSTRUMENTS in general

In “Personal Property”, only the true owner has right to transfer/pass the title. BUT in “negotiable instruments”, it is treated like money that whoever finds can hold it against the world even to the true owner.

CHAPTER 1

Paper is non-negotiable. When transferability is limited or restricted SM sells & delivers goods to Reynan. But Reynan didn’t pay bcos it wasn’t the one he ordered. SM sued Reynan for unpaid price. Reynan can successfully raise SM’s breach of

FORM & INTERPRETATION SECTION 1. Form of n.i To be negotiable, they must be… [formal requirements]

contract as defense.

a.

SM assigns the account to Robinsons (bought Reynan’s acct). Reynan can still raise the

In writing & signed by maker or drawer i.

same defense against Robinsons even if Robinsons have no idea of the dispute between SM &

ii.

Assume Reynan had issued to SM his promissory note for the price of the goods. If SM sues the note to Robinsons who will be the holder in due course, Reynan can no longer raise the same defense against Robinsons.

iii.

GR: signature @ “lower right hand corner”, but allowed to be anywhere

iv.

*signature = prima facie evidence of intention to be bound as maker/drawer

v.

*Bona fide holder. Can be free from “personal defenses” but can be subject to “real defenses”

ACCUMULATION of secondary contracts

Contain an unconditional promise or order to pay a sum certain in money i. ii.

not only to the maker but also to all transferors. Many will become secondarily liable as

FUNCTION & IMPORTANCE of NI 1. Substitute for money But n.i is different from money bcos n.i is either valuable/worthless depending on financial

iii.

Money = cash, includes all legal tender.

iv.

Not money = gold, silver and bank notes

c.

Payable on demand or at fixed or determinable future time

d.

Payable to order or bearer &

e.

Named if instrument is addressed to a drawee or otherwise indicated with reasonable certainty

ability of parties to them

Media of exchange for most commercial transactions (checks) Increase purchasing medium in circulation. Safe and convenient means of financial (substitute for money)

Not all people always have property to turn into cash anytime. N.i help men without cash in hand to complete business transactions thru promissory

Not a bill = if order is not addressed to someone

v.

Promissory note = has no drawee thus payee must be named

Negotiable Instrument

Intended like money to have a definite value to be taken at sight without the need of

Those documents as given under section 1.

investigating into the outside facts

Doesn’t cover other negotiable documents involving “sale or transfer of goods” Section 1 helps you whether to take the instrument as security for an oblig or not Every n.i = presumed a contract, but not all contract is a n.i. May or may not be a commercial paper n.i. = contractual oblig to pay money

FORMAL REQUIREMENTS of negotiability To determine negotiable or not = DEPENDS entirely on “form” and “content”

Bills of exchange

Consider ALL the ff to determine negotiability:

Special Types

a.

Whole of the instrument

b.

Only what in face of instrument & [not elsewhere]

c.

Provisions of NIL esp. Section 1

APPLICABILITY of formal requirements

*other instruments held negotiable under n.i Law (first 4 are special types of promissory notes.

subsection

Remaining are special types of BoE)

PROMISSORY NOTE a-d needed to be negotiable

Certificates of deposits Bank notes

BILL OF EXCHANGE a-e needed to be negotiable

a

Maker = issuer of promissory note

Drawer = issuer of BOE

b

Unconditional promise = contained in PN

Unconditional order = in BOE

Due bills Bonds Drafts

Non-negotiable Instrument

Trade acceptances

Not negotiable. Documents didn’t meet requirements

Banker’s acceptances

eg. Check which says “Pay to Reynan Cagas” – no longer negotiable if indorsement prohibits further negotiation of the

*in case of doubts of negotiability.

Can no longer be negotiated but may be assigned or transferred in the absence of prohibition written on face of instrument

Courts have adopted policy to favor negotiability bcos of the significance of n.i in todays society

Instruments with LIMITED NEGOTIABILITY Widely used in commercial transactions but non-negotiable bcos no essential requisites under N.I Law. Governed by other laws

Letter of credit I will write a letter to Walmart (addressee) to pay Apple (third party) in money or deliver goods but in turn I will provide money or repay walmart. *addressee should be in another place or country.

2.

iv.

of exchange. Either negotiable/non-negotiable. NOT COMMERCIAL PAPER if not arising from commercial transactions

Checks. Special form or kind of BoE

1.

In order that payee/holder will know whom he is to call for acceptance

Written promises/ obligations arising from commercial transactions from use of instruments like promissory notes and bills

Those which issuer has ordered third person to pay

• • • • • • •

Applies only to bills and checks

iii.

Commercial Paper

Those which issuer has promised to pay

2.

Drawee should be named

note, bills of exchange and checks

FORMS of n.i. 1. Common Forms a. Promissory notes b.

i. ii.

or payment

transactions. Eliminate risk of dealing in cash. Check used for immediate payment

Promissory notes – intended for circulation of credits; “credit instrument”

BUT ofcourse the promise/order may designate “particular kind of current money”

instrument is passed.

Medium of credit transaction

Bcos money is the standard of value in actual business unlike other commodities where value may rise and fall

(more involved parties) which means more chances of collection bcos you can proceed

3.

Signature is in the instrument BUT intention in signing is NOT CLEAR = deemed “indorser” not maker/drawer

b.

Passing of instrument from one person to another would spring secondary contracts

2.

No “oral negotiable instrument” – difficult determine liability, vulnerable to fraud

Reynan on the note, Reynan can still raise defense of breach of contract. BUT if SM negotiates

2.

*instrument = means writing (incl. printed/typed) or reduced to tangible form otherwise nothing can be passed

Reynan.

Treasury warrant Government warrant for payment of money like that issued in favor of public officer or employee covering

instrument TRANSFERS OF NON-NEGOTIABLE INSTR. – governed by Civil Code on assignment of contract rights Person who transfer/assign contractual/non-negotiable rights pass only the rights NON-negotiable = if instr payable upon contingency

Promissory Note Negotiable PN = unconditional promise in writing made by one to another, signed by maker, engaging to pay on demand or at a fixed or determinable future time, a sum certain in money to order or to bearer NON-Negotiable PN = if it gives maker the right to ascertain amount rightly payable Written promise to pay sum of money. Also called note. May be “demand instrument” BUT is “time instrument”

ORIGINAL PARTIES to PN This class of NI is a promise paper or two-party paper a.

payment or replenishment of cash advances for official expenditures. It’s payable out of specific fund or appropriation

Maker – one who makes promise and signs instrument. Promises to pay the payee or holder (if payee further negotiate the instrument). Signature should be on face of instrument.

b.

Payee – to whom instrument is payable. May be specified or not (name, office title).

Sum to be paid with INTEREST “I promise to pay” = absolute and unconditional promise to pay payee or holder. Means he must pay not that he might

INTEREST @ FIXED RATE

pay. Other substitute phrases:

INTEREST @ INCREASED or REDUCED RATE

“I agree to pay” “payable” “to be paid” “I guaranty to pay” “Maker obliges himself to pay”

(increased rate if note not paid at maturity and reduced if made on or before)

“I bind myself to pay” “Good for” “due on demand”

Sum to be paid by STATED INSTALLMENTS

“I will pay” “good to payee name or order”

“STATED INSTALLMENTS”

“due to payee name or order”

Means interest & due date of each instalment must be fixed in the instrument

“I acknowledge to be indebted to payee name or order” and the like NOT USING “words of negotiability” (order or bearer) & mere acknowledgement of debt, OR bare acknowledgement of indebtedness = don’t satisfy requirement, doesn’t imply unconditional promise to pay. NOT NEGOTIABLE

Sum to be paid by stated installments with ACCELERATION CLAUSE acceleration dependent ON MAKER

s.i with acceleration clause – full payment upon default of installment or interest. Wont make instr payable

= “due to payee name P10,000” “will agree to pay” “I.O.U.” “for value received”

upon contingency bcos time of payment will surely come

= Add WoN: “Due to payee or order” “Due payee or bearer” “IOU P10,000 to be paid on Sept. 30” = NEGOTIABLE. we can fairly infer written promise to pay

acceleration at HOLDER’S OPTION non-negotiable!

“to the order of” & “or order” = promise to pay as ordered or commanded by payee/bearer No time for payment is expressed

Sum to be paid with EXCHANGE Refers/applicable to instr payable in foreign currency

= payable on demand

EXCHANGE – the charge for the expense of providing funds at the place where instrument is payable to meet the instrument

“on or before” = date of maturity, or time when promise to pay is to be fulfilled Not necessary to specify payee

issued at another place. Either at “fixed” or “current” rate STILL NEGOTIABLE – even if theres provision for payment in foreign currency whether payable at fixed or current exchange rate. Bcos “current exchange rate” can be easily ascertained, such rate is a matter of “common commercial knowledge”

= if promise is made to bearer

CURRENT RATE – going rate or market rate

Figures next to the amount in words

Don’t apply to domestic bill

= not essential

RA 8183 – every monetary oblig must be paid in PH currency (legal tender in PH), but parties may agree to settle transaction

Place of payment = not essential, can pay any other place agreed by partners Can be signed by several persons

in any other currency at time of payment

Sum to be paid with COSTS OF COLLECTION or an ATTORNEY’S FEE

= either jointly or jointly and severally

STILL NEGOTIABLE – even if there’s added “costs of collection” or an “attorney’s fee” after default on maturity of note DON’T AFFECT CERTAINTY OF AMOUNT PAYABLE – even if uncertain the increase in amount due takes place after maturity

Bill of Exchange Negotiable BoE = unconditional order in writing addressed by one to another, signed by giver, and require addressee to

(when instr ceases to be negotiable in full commercial sense) “…with 15% attorney’s fee and costs of collection if not paid on maturity” = NEGOTIABLE

pay upon demand or at fixed determinable future time a sum certain in money to order or to bearer.

“…to pay all costs, charge and expenses incl attorney’s fee incurred by payee in any legal

Order made by one to another to pay money to third person

proceedings for the collection of debt” = NON-NEGOTIABLE we cant ascertain exact value of each from

Negotiability = depends on terms of the order. Immaterial whether drawee obeys order to pay or not. Drawer has his liability under the law [sec 61] Check – an order bill that is drawn on bank and payable on demand. Most common type of “order paper”

This class of NI is an order paper or three-party paper *all 3 need not to be different persons. 2 parties to the bill can be same person (drawer-drawee or drawerpayee) Drawer – issues and draws the order bill. Gives order to pay money to third party. Don’t pay directly. Signs BOE. Maker if in PN b.

Drawee – whom the bill is drawn/addressed. He is ordered and expected to pay. Becomes acceptor when he indicates willingness to pay the bill (primarily liable and drawee become only a surety guarantee). Drawee is the bank in the case of check. Not really party to the bill. Assumes liability only when he accepts usually by writing word “accepted” and signing his name on the face

c.

be in reasonable sum TRASFEREE ACQUIRED INSTR AFTER MATURITY – not a holder in due course, he can hold the instr subject to defenses as if it’s NON-NEGOTIABLE

ORIGINAL PARTIES to BOE

a.

the face ATTORNEY’S FEES – courts can reduce the fee if found “unconscionable” or unreasonable. If AF is not specified, it should

Requires 3 parties in its inception

Payee – reason why bill is originally issued or is payable

*other words aside from “order” to satisfy requirement:

SECTION 3. When promissory or order to pay UNCONDITIONAL Note or Bill must be payable absolutely. Not enough there’s promise or order. Should not be subject to any condition/contingency except implied conditions of presentments, protests and notice of dishonor as law provides

Why it should be unconditional? Bcos if its CONDITIONAL = it’s a simple contract rather than n.i. Remains non-negotiable even if condition really did happen subsequently and ofcourse would be payable at that time. No one would accept conditional paper for debt, bcos unclear when & how much to receive at maturity Being UNCONDITIONAL = enhances ability of instr to circulate freely from one person to another

Terms not affecting unconditional Liability

“Let the bearer”

Additional terms appearing on instr – don’t affect if duty to pay is unaffected by such terms (statement of purpose for

“Drawee will much oblige Drawer to pay Payee or order”

which the instrument is issued, the collateral securing it, consideration received in exchange of the instrument like goods purchased)

ORDER

Mere indication from what fund the reimbursement will be taken •

Not a request, demands drawee to make payment

•

NOT AN ORDER:

•

Statement of the transaction which gives rise thereto •

Instrument mentioning which fund to use for reimbursement

mere request or authority “I request you to pay” “I wish you would pay” “I hope you will pay” “I authorize

NEGOTIABLE. cos order to pay is not rendered conditional. Drawee is not limited to the

you to pay”

money in his hands which belongs to Drawer

DOESN’T CONVERT ORDER INTO REQUEST:

Fund indicated is not the direct source of payment BUT source of reimbursement (which

Mere use of polite words like “please”

is an act after payment)

*BOE characteristics not in PN

•

Instrument mentioning usage of particular fund for payment

•

“pay to” – unconditional order to pay (instead of to pay in the case of PN)

NON-Negotiable. bcos amount to be paid depends on existence of that fund. Immaterial

•

“Jovencio Cinco” – drawer “Domingo Lantican” – drawee

whether fund exists or is to yet to be made. Remains non-negotiable even if fund was

• •

“charge the same amount to the account of” – amount to be paid by drawee is to be

found sufficient on maturity. But nonnegotiability don’t make the note uncollectible TEST OF NEGOTIABILITY. Whether instrument carries the maker or drawer’s general

charged against funds of drawer. But this can be omitted

personal credit

Intention to limit payment to particular fund must be made plain.

IDEAS & PURPOSE of BOE a.

IF LANGUAGE IS AMBIGUOUS or OBSCURE =courts usually decide in favor of negotiability

Drawer’s funds in hands of drawee – drawer has funds in the hands of drawee. Drawer wants the money to be paid to payee. That’s why drawer draws BOE to order drawee

b.

•

Instrument containing direction to debit a particular account

Liability of drawee for nonpayment – if drawee refuse to accept even if he has the money of

NEGOTIABLE. promise/order is not conditional. Payment don’t depend on adequacy or

drawer, then he becomes liable to drawer (not to payee)

existence of the account to be debited. Payable absolutely and not out of particular fund.

-

if drawer has no funds in the hands of drawee, presumption is

Instr is paid first then the acct will be debited

that drawer made arrangement to drawee to honor the bill. Thus, drawee must ask drawer for reimbursement and NOT to a bona

•

Statement of transaction which gives rise to instrument

fide holder. For drawee to be liable there must agreement for

NEGOTIABLE. Mere recital of transaction/consideration why instr was issued doesn’t make

drawee to honor order like “debtor-creditor relationship”

it conditional. The instr is to be paid whether the reason really occur NON-negotiable. if promise/order or oblig to pay is burdened with terms and conditions of another contract. Nonego regardless of what those terms are

SECTION 2. Certainty of sum payable

SECTION 4. Certainty of time of payment

Requisite for negotiability to assure clarity and certainty in valuing instrument PAYMENT OF FIXED AMOUNT OF MONEY

TO BE NEGOTIABLE – should be payable on demand (at all events) or at fixed or determinable future

Impt it represents fixed amount to be paid wholly in money since it intends to take place

NON-negotiable – if payable upon contingency “condition or event uncertain if will happen or not”

of money

Demand (sight) instrument – holder can call for payment anytime

AMT TO BE PAID – state plainly on face of instr. and determinable from face w/o need to

Term (time) instrument – payable only when time to pay arrives or at definite time

refer outside source

Checks – should be payable on demand

“SUM CERTAIN” REQUIREMENT IS MET – if holder can determine from instr. amt to be received at maturity

Why time should be certain?

NOT NEGOTIABLE - if instr call for an act other than payment of money bcos n.i. is

Enforcement – so that holder will know when to enforce

intended as substitute for money

Required – so that liable person will know when he is required to pay (maker, drawee/acceptor)

PERMISSIBLE CLAUSES or STIPULATIONS SUM IS STILL CERTAIN – even if theres clause in instr that it should be paid with interest, by stated installments, with exchange, with costs of collection or with attorney’s fees, or acceleration provision in installment note BASIC TEST – whether holder can determine by computation amount payable when instr is due

Arise – so that secondary parties will know when his oblig will arise (drawer, indorser, accommodation party) Examples:

“Payable at fixed time” “Payable at fixed period after date” – date of maturity can be determined by counting ___ days from issuance “Payable at fixed period after sight” – count days from date it is presented to drawee; after instr is seen by drawee upon presentment for acceptance or accepted by the drawee

“Payable on or before a fixed time” – has option to pay on or before; Payee can demand only “on” date not “before”. Maker only has option to pay “before”

*you need to state “YEAR OF MATURITY” bcos it will otherwise not be determinable even if time of payment is certain

= BETWEEN THE PARTIES: no recovery on note bcos absence of consideration

“Payable on or before a determinable future time” – on or before start of next school semester

If Reynan indorses the note to Penshoppe (a holder in due course)

“Payable on the occurrence of specified event” – upon death of his father “Payable after occurrence of specified event” – 30 days after death of his father

= Penshoppe can recover from SM bcos “absence of consideration” is ONLY a personal defense not available to holder in due course

*NON-NEGOTIABLE = if payable days before occurrence of specified event

“Payable upon contingency” – upon reaching age of majority (order is conditional, he may die before reaching that age; happening of contingency doesn’t cure the defect)

Failure of consideration - when one of the parties refuse or fail to comply with the agreed consideration

If Reynan really has land but he failed to deliver it to SM bcos he sold it again to Bench who in good faith

SECTION 5. Acts in addition to payment of money

registered the sale = there’s failure of consideration where Reynan cannot recover from SM

NON-NEGOTIABLE = GR: if contains promise or order to do any act in addition to payment of money. BASIS. While one could be indorsed, the other would have to be assigned

EXCEPTIONS:

Partial failure of consideration (whether failure is an ascertained & liquidated amount otherwise)

SALE of COLLATERAL SECURITIES –

- can be a defense Pro tanto

If only 2/3 portion of land was delivered

he can sell the ring I pledged as security in case of failure to pay

= there’s partial failure of consideration, recovery only pro tanto. Reynan can recover only 2/3 of note and

additional is performed after maturity where it’s no longer negotiable in full commercial sense. Promise is to pay money only until maturity Doesn’t subject the promise or order to the terms or conditions of the pledge

SM not liable for 1/3

SECTION 29. Accommodation Party

CONFESSION of JUDGMENT –

…and I hereby authorize my attorney-at-law to appear at any court of record after oblig becomes due

Accommodation bill or note

COJ given after action is brought to save expenses is VALID

- One to which accommodation party has put his name, without consideration, for the purpose of accommodating some

WAIVER of BENEFIT GRANTED by law – Even if it’s waiver of protest, presentment for payment or demand

other party who is to use it, and is expected to pay it - it is a loan of one’s credit

ELECTION of holder to require some other act – Payment of another thing at the option of the holder. As good as instr payable in money

Accommodation party

NON-NEGOTIABLE = if at promissor’s option

- one who signed the instrument as maker, drawer, acceptor, or indorser without receiving value therefor and for purpose of lending his name to another party

SECTION 6. Effect of omission of DATE NOT NECESSARY - date in bill/note. Presumed to be dated at time of issuance. BUT necessary if “undated note” – eg payable 30 days after date Instruments can be: anti-dated (date earlier than actual date) or post-dated Date stated is not in calendar – deemed as nearest date of the month

Effect of omission of VALUE NOT NECESSARY – to state value received bcos consideration is presumed

- usually expects that accommodated party will pay the bill or note when due - he is lending his credit to party whom accommodation is made - he is classified accdg to “accommodated party’s” status (i.e if accommodated party is maker then he is liable as if he is maker) Accommodated party - the person who is the reason why accommodation party signs instrument for lending his credit and enabling him to raise money upon it. - he impliedly agrees to take up the instrument at maturity and to indemnify accommodation party against consequences of nonpayment

Reynan needs P30,000 but no one wants to lend him bcos he has no credit

Effect of omission of PLACE

He went to rich relative James. James let Reynan borrow his credit. So James signs promissory note payable

NOT NECESSARY – to specify place where it is made/drawn, or where it is payable

to P (receiving no consideration therefor)

Payment place not specified - “Presentment of payment” should be made [sec 73] ; presumed to be payable at place of

Reynan indorses the note to PNB which discounts the note bcos of James’ credit

residence or business of maker/drawee

= here the promissory note = accommodation note (or bill) James is the accommodation party

Effect of omission of SEAL

Reynan is the accommodated party

NOT NECESSARY – seal BUT advisable that bill/note appear in public instrument para included among preferred credits with respect to other property of debtor

*If Reynan pay PNB = Reynan cant enforce note against James bcos Reynan gave no consideration to James and he was merely

Effect of designation of particular kind of current money

accommodated by James

NOT NECESSARY – to be paid in legal tender, pwede current money or foreign money, pwede pud note (particular kind of money)

Accommodation Party: LIABILITY TO HOLDER

SECTION 7. When instrument payable on demand

NOT VALID DEFENSE AGAINST HOLDER FOR VALUE Absence of consideration bet “accommodation party” and “accommodated party” even though he knew

Payable on demand NOT ONLY to immediate parties but also to subsequent ones (due and payable immediately after

it before he became a holder

delivery) Overdue instr or if time not expressed – on demand

ON DEMAND

RELATION: Principal debtor and surety After paying holder he may recover from accommodated party for reimbursement

(used in PN)

The surety for accommodated party is the lending of his name of accommodation party

“at sight” (used in BOE) – payable as soon seen by party liable “on presentation” “on call” “at any time called for”

= the fact that James did not receive any consideration for note would not be a defense in an action

Payable on demand as regards the MAKER

brought against him by PNB even if PNB knew that James’ signature was made for Reynan’s

Date last month but issued now (already overdue)

accommodation (the accommodation would not serve any purpose if James will not be held liable)

Payable on demand as regards the ACCEPTOR

If after signing note, James keeps it in safe but Reynan steals it then indorses it to PNB and PNB knows

Due yesterday but accepted today pa

that Reynan stole the note = PNB is not a holder in due course bcos it knows the lack of delivery making James NOT liable (sec 16

Payable on demand as regards the INDORSER

and 58)

Due yesterday but indorsed just now

SECTION 8. When instrument payable to order

“without receiving value therefor” MEANING

“to the order of” “or order” “or bearer” “to bearer” “and assigns” – convey consent that instr can be transferred to whoever

One of the requisites to be considered Accommodation Party

payee orders

U can still be Accommodation Party even if u receive some consideration for the use of your name

Payable to order if:

Therefor - refers to instr itself and not to the use of name by way of accommodation

Drawn payable to the order of specified person OR to him OR his order To order of payee who is not the maker

Supreme Court: “only means that no value has been received for the negotiable instr and don’t mean not receiving payment for lending his name”

If James was given P10,000 as consideration of lending his name but not for promissory note he signs

To order of payee who is not the drawer

= James does not lose status as an Accommodation Party

To order of payee who is not the drawee To order of drawer To order of maker – not complete until indorsed by maker To order of drawee – if he is both drawee and payee. Drawee can pay himself on maturity from funds belonging to drawer

Kinds of Accommodation Party 1.

Accommodation maker James (as accommodation party) issues promissory note payable to Reynan who can then

in his possession

it to Nadine

To order of 2 or more payees jointly To order of one or some of several payees

2.

Accommodation Drawer James (as accommodation party) signs a BoE with Reynan as payee, and Reynan can

To order of holder of office for the time being

indorse to Nadine 3.

Accommodation Acceptor James (as accommodation party) accepts a bill drawn on him by Reynan in favor of himself

Effect if payee is not named/described In order instrument – specific person should always be named either before/after the word “order”. If not specified nobody can give order to collect (nobody can indorse) BUT ok even if not named as long as described with reasonable certainty

and Reynan may indorse it to Nadine 4.

Accommodation Indorser James (as accommodation party) simply signs as an indorser in blank, the bill or note made by Reynan in favor of Nadine, before it is delivered to Nadine

SECTION 9. When instrument payable to bearer SECTION 10. Criterion of negotiability

Accommodation Party VS. Regular Party Signs

instr

without

receiving

value

Signs instr for value

therefor Signs instr for purpose of lending his

SECTION 28. Want of consideration Absence or Failure of consideration - can be a defense to person NOT holder in due course

name to some other person May always show by parol evidence that he is only such Cannot avail of defense of absence or

Absence of consideration - aka “want of consideration” - total lack of any valid consideration for the contract - EFFECT: no contract

SM made a promissory note to Reynan in payment for land that don’t exist

failure of consideration against holder not in due course

Does not sign for that purpose Cannot disclaim or limit his personal liability as appearing on instr by parol evidence May avail said defense against holder not in due course

After paying holder may sue for reimbursement the Accommodated party

May not sue any subsequent party for

although a subsequent party

reimbursement

CHAPTER 3. NEGOTIATION SECTION 30. Negotiation Transfer of negotin from one person to another made in manner as to constitute the transferee the holder thereof NO NEGOTIATION. If transfer don’t make transferee the holder Methods of transferring negotin 1.

Issue First delivery of instr (complete in form) to a person who takes it as a holder First transfer of instr to payee Negotin’s life start from issuance by maker/drawer to first holder

2.

Negotiation Make transferee of negotin the holder thereof Ordinarily involves indorsement so that “negotiation” and “indorsement” are used interchangeably

3.

Assignment Transfer of title to an instrument with assignee Assignee generally taking only such title or rights as his assignor has (subject to all defenses available against his assignor) Less usual method. May or may not involve indorsement in the sense of a writing on instr back Involves transfer of rights under a contract NOTE: transfer of non-negotiable instr ALWAYS constitute assignment “transfer” also used to refer to “assignment” TRANSFEREE BECOMES HOLDER. When negotiation takes place

Methods of negotiation 1.

Instrument payable to order Payable to the payee named therein or To the indorsee or Person ordered or authorized by payee to collect (order or authority made thru indorsement followed by delivery to indorsee) 1st step: indorsement by payee or present holder 2nd step: delivery to next holder

2.

Instrument payable to bearer Negotiated by mere delivery alone w/o indorsement “bearer” – person in possession of bill or note payable to bearer - any person in possession of #2 is always the bearer thereof although he may have NO legal right thereto - if instr is negotiated to a holder in due course, HIDC may acquire better title than that of transferor “Delivery” - transfer of possession (actual or constructive) from one person to another “Holder” - payee or indorsee of bill/note (who possess it) or the bearer thereof

If Daniel makes note payable to Reynan or order and Reynan delivers it w/o indorsement to Kathryn = NO negotiation. Kathryn by such transfer does not become holder of the note

If instr is a bearer instr = Reynan can negotiate it without indorsement of any kind simply by handing or mailing the note to subsequent purchaser

Daniel issues note “payable to bearer.” Note was stolen and Thief delivered note to Reynan = Thief’s acquisition of note don’t constitute delivery NO negotiation to Thief. Delivery must be voluntary. There’s Negotiation to Reynan. If acted in good faith *Thief or finder don’t acquire title of instr by virtue of theft = can only transfer title to subsequent innocent purchaser *if no negligence of Daniel – he should be relieved from liab NOT NEGOTIATION. Payment of a check (or other bill) by drawee bank. Doesn’t make bank holder Bank is neither payee nor indorsee. Check is extinguished and cant be put in circulation again so as to bind drawer/indorser NOT INDORSEMENT. Writing of name of holder on back of check before surrendering for payment to drawee-bank Signature serves only as receipt for money. UPON PAYMENT. Check becomes merely a voucher. Payment effects a discharge of the instrument not a transfer of title Delivery of order instr w/o indorsement