Bar Q and A #55

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1.) Can a bill of exchange or a promissory note qualify as a negotiable instrument if— a. It is not dated; or b. The day and month, but not the year of its maturity, is given; or c. It is payable to “cash”; or d. It names two alternatives drawee

a. YES. Date is not a material particular required by Sec. 1, NIL, for the negotiability of an instrument.

b. NO. The time for payment is not determinable in this case. The year is not stated.

c. YES. Sec. 9(d), NIL, makes the instrument payable to bearer because the name of the payee does not purport to be the name of any person.

d. A bill may not be addressed to two or more drawees in the alternative or in succession, to be negotiable. To do so makes the order conditional.

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2.) What are the requisites of a negotiable instrument?

The requisites of a negotiable instrument are as follows:

1. It must be in writing and signed by the maker or drawer;
2. It must contain an unconditional promise or order to pay a sum certain in money;
3. It must be payable to order or to bearer; and
4. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

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3.) Which of the following stipulations or features of a promissory note (PN) affect or do not affect its negotiability, assuming that the PN is otherwise negotiable? Indicate your answer by writing the paragraph number of the stipulation or feature of the PN as shown below and your corresponding answer, either ―Affected or ―Not affected. Explain. a. The date of the PN is ―February 30, 2002. b. The PN bears interest payable on the last day of each calendar quarter at a rate equal to five percent (5%) above the then prevailing 91-day Treasury Bill rate as published at the beginning of such calendar quarter. c. The PN gives the maker the option to make payment either in money or in quantity of palay or equivalent value. d. The PN gives the holder the option either to require payment in money or to require the maker to serve as the bodyguard or escort of the holder for 30 days.

a. NOT AFFECTED. Date is not one of the requirements for negotiability therefore it is not essential except when the date is necessary to determine when the note is due.

b. NOT AFFECTED. An instrument payable with interest determinable at a fixed time is negotiable. The law provides under section 2a of the NIL, a sum is still considered as certain although it is to be paid with interest. It does not make the promise unconditional.

c. AFFECTED. An option given to the maker makes the promise conditional.

d. NOT AFFECTED. An option given to the holder does not make the promise conditional.

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4.) a. MP bought a used cell phone from JR. JR preferred cash but MP is a friend so JR accepted MP‘s promissory note for P10,000. JR thought of converting the note into cash by endorsing it to his brother KR. The promissory note is a piece of paper with the following hand- printed notation: ―MP WILL PAY JR TEN THOUSAND PESOS IN PAYMENT FOR HIS CELLPHONE 1 WEEK FROM TODAY. Below this notation MP‘s signature with ―8/1/00 next to it, indicating the date of the promissory note. When JR presented MP‘s note to KR, the latter said it was not a negotiable instrument under the law and so could not be a valid substitute for cash. JR took the opposite view, insisting on the note‘s negotiability. You are asked to referee. Which of the opposing views is correct? b. TH is an indorsee of a promissory note that simply states: ―PAY TO JUAN TAN OR ORDER 400 PESOS. The note has no date, no place of payment and no consideration mentioned. It was signed by MK and written under his letterhead specifying the address, which happens to be his residence. TH accepted the promissory note as payment for services rendered to SH, who in turn received the note from Juan Tan as payment for a prepaid cell phone card worth 450 pesos. The payee acknowledged having received the note on August 1, 2000. A Bar reviewee had told TH, who happens to be your friend, that TH is not a holder in due course under Article 52 of the Negotiable Instruments Law (Act 2031) and therefore does not enjoy the rights and protection under the statute. TH asks for our advice specifically in connection with the note being undated and not mentioning a place of payment and any consideration. What would your advice be?

The view of KR is correct. The note is payable to a specific person hence it is not negotiable. The law provides that for an instrument to be negotiable, it must comply with the requirements of section 1 of the NIL pertaining to the part that a note must be payable to order or bearer. In the given case, there were no words of negotiability and it is silent as to whether it is payable to order or bearer. Hence, the instrument is non-negotiable.

The place and date are not essential to the negotiability of the instrument except in certain cases when the date is necessary say to determine when the note is due or the interest is to run when the payment of interest has been stipulated or whether the holder is barred by the statute of limitations from enforcing the note. The fact that there is no mention of consideration is not essential because it is presumed.

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5.) State and explain whether the following are negotiable instruments under the Negotiable Instruments Law: a. Postal Money Order b. A certificate of time deposit which states “This is to certify that bearer has deposited in this bank the sum of FOUR THOUSAND PESOS (P4,000) only, repayable to the depositor 200 days after date.” c. Letters of Credit d. Warehouse Receipts e. Treasury warrants payable from a specific fund

a. Postal Money Order is not a negotiable instrument because, as held in Phil. Education Co. v. Soriano, there are many restrictions which make them incompatible with concepts of negotiable instruments, thereby making the order conditional, in contrast to Sec. 1 of the NIL. Furthermore, such is governed by postal rules and regulation and it may only be negotiated once.

b. The certificate of time deposit is a negotiable instrument because it is an acknowledgement in writing by the bank of the amount of deposit with a promise to repay the same to the depositor or bearer thereof at a specific time. (Caltex v. CA, 212 SCRA 448)

c. A letter of credit is not negotiable because it is generally conditional and has limited negotiability because it is issued in favor of a specific person. But the Supreme Court held, in the case of Lee v. Court of Appeals, that the drafts issued in connection with the letters of credit are negotiable instruments.

d. A warehouse receipt is not a negotiable instrument because the obligation of a warehouseman is not to pay but to deliver the goods under the warehouse receipt which fails to comply with the requirements set forth under Sec. 1 of the Negotiable Instruments Law. It is merely considered as a negotiable document that does not result in the accumulation of contracts.

e. A treasury warrant require appropriations from the national government which means that the particular fund may or may not exists which renders it conditional, thereby non-negotiable.

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6.) Lorenzo drew a bill of exchange in the amount of P100,000 payable to Barbara or order, with his wife, Diana, as drawee. At the time the bill was drawn, Diana was unaware that Barbara is Lorenzo’s paramour. Barbara then negotiated the bill to her sister, Elena, who paid for it for value, and who did not know who Lorenzo was. On due date, Elena presented the bill to Diana for payment, but the latter promptly dishonored the instrument because, by then, Diana had already learned of her husband’s dalliance. Does the illicit cause or consideration adversely affect the negotiability of the bill? Explain.

NO. The illicit cause or consideration does not adversely affect the negotiability of the bill, especially in the hands of a holder in due course. Under Sec. 1 of the NIL, the bill of exchange is a negotiable instrument. Every negotiable instrument is deemed prima facie to have been issued for valuable consideration, and every person whose signature appears thereon is deemed to have become a party thereto for value.

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7.) TRUE or FALSE. A document, dated July 15, 2009, that reads: “Pay to X or order the sum of P5,000.00 five days after his pet dog, Sparky, dies. Signed Y.” is a negotiable instrument.

True. The document is subject to a term and not a condition. The dying of the dog is a day which is certain to com. Therefore, the order to pay is unconditional, in compliance with Section 1 of the NIL.

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8.) A writes a promissory note in favor of his creditor, B. it says: Subject to my option, I promise to pay B P1M or his order or to give P1M worth of cement or to authorize him to sell my house worth P1M. signed, A.” Is the note negotiable? a. No, because the exercise of the option to pay lies with A, the maker and debtor. b. No, because it authorizes the sale of collateral securities in case the note is not paid at maturity. c. Yes, because the note is really payable to B or his order, the other provisions being merely optional. d. Yes, because an election to require something to be done in lieu of payment of money does not affect negotiability.

a. No, because the exercise of the option to pay lies with A, the maker and debtor.

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9.) Antonio issued the following instrument: August 10, 2013 Makati City P100,000.00 Sixty days after date, I promise to pay Bobby or his designated representative the sum of ONE HUNDRED THOUSAND PESOS (P100,000.00) from my BPI Acct. No. 1234 if, by this due date, the sun still sets in the west to usher in the evening and rises in the east the following morning to welcome the day. (Sgd.) Antonio Reyes Explain each requirement of negotiability present or absent in the instrument.

The instrument contains a promise to pay and was signed by the maker, Antonio Reyes. [Sec. 1(a) of NIL] The promise to pay is unconditional insofar as the reference to the setting of the sun in the west in the evening and its rising in the east in the morning are concerned. These are certain to happen. [Sec. 4(c) of the NIL] The promise to pay is conditional, because the money will be taken from a particular fund, the BPI Account No. 1234. (Sec. 3 of NIL)

The instrument contains a promise to pay a sum certain in money, P100, 000.00. [Sec. 4(b) of NIL]The money is payable at a determinable future time, sixty days after August 10, 2013. [Sec. 4(a) of NIL]

The instrument is not payable to order or to bearer. [Sec. 1(d) of the NIL]

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10.) Which of the following instruments is negotiable if all the other requirements of negotiability are met? a. A promissory note with promise to pay out of the U.S. Dollar account of the maker in XYZ Bank. b. A promissory note which designates the U.S. Dollar currency in which payment is to be made. c. A promissory note which contains in addition a promise to paint the portrait of the bearer. d. A promissory note made payable to the order of Jose Cruz or Josefa Cruz.

c. A promissory note which contains in addition a promise to paint the portrait of the bearer.

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