I. INTRODUCTION TO NEGOTIABLE INSTRUMENTS

Question 1

What are the functions of a negotiable instrument?

Answer 1

• The function of a negotiable instrument is a substitute for money
• It is also a medium of exchange because the written instrument is passed from one person to another [Traders Royal Bank v CA]
• A negotiable instrument is also a medium of credit transactions [De Leon]

Question 2

What is the difference between a check and a promissory note?

Answer 2

A check is primarily used for immediate payment while the ordinary bill of excahgne and the promissory note are intended fro the circulation of credits.

Question 3

What shall be the currency for payments of debts in money?

Answer 3

Art. 1249 NCC. The payment of debts in money shall be made in the currency stipulated and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the faut of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in abeyance.

Question 4

What is the maximum amount for 25 centavo coins to be legal tender?

Answer 4

Amount must not exceed Fifty pesos (P50.00) [Sec. 52, RA 7653]

Question 5

What is the maximum amount for ten centavo coins (or less) to be valid legal tender?

Answer 5

Must not exceed twenty pesos (P20.00) [Sec. 52, RA 7653]

Question 6

What is the legal character of checks representing demand deposits?

Answer 6

SECTION 60. Legal Character. — Checks representing demand deposits do not have legal tender power and their acceptance in the payment of debts, both public and private, is at the option of the creditor: Provided, however, That a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account. [Sec. 60 RA 7653]

Question 7

Are checks or promissory notes payable to order or other commercial papers valid legal tender?

Answer 7

No. Villanueva v. Santos, citing Belisario v. Navidad, provides, “A creditor is not bound to accept a check in satisfaction of his demand, because a check, even if good when offered, does not meet the requirements of a legal tender.”

Question 8

Is a manager’s check legal tender?

Answer 8

No. A check, whether a manager’s check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. [Tibajia v. CA citing PAL v. Court of Appeals; Roman Catholic Bishop of Malolos v. IAC].

Question 9

Does the delivery of a check discharge the obligation of the obligor?

Answer 9

No. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized. [Citibank N.A. v. Sabeniano, G.R. No. 156132, October 16, 2006.]

Question 10

Does a negotiable instrument operate as payment?

Answer 10

No. Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. [Citibank N.A. v. Sabeniano, G.R. No. 156132, October 16, 2006.]

Question 11

What are the kinds of negotiable instruments?

Answer 11

1. Promissory Note;
2. Bill of Exchange;
3. Checks

Question 12

What is a promissory note?

Answer 12

• Section 184, NILSec. 184. Promissory Note, Defined. — 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.

Question 13

What is a Bill of Exchange?

Answer 13

• Section 126, NILSec. 126. Bill of Exchange, Defined. — 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.

Question 14

What is a check?

Answer 14

• Section 185, NILSec. 185. Check, Defined. — A check is a bill of exchange drawn on a bank payable on demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a check.

Question 15

Who are the parties to a promissory note?

Answer 15

• Who are the parties to a Promissory Note?
  
  • Maker - the party who makes the promise and signs the instrument
  • Payee - the party to whom the promise is made or the instrument is payable

Question 16

Who are the parties to a bill of exchange?

Answer 16

• Who are the parties to a Bill of Exchange?
  
  • Drawer — the person who issues and draws the order bill; gives the order to pay money to a third party; does not pay directly [De Leon, 22]
  • Drawee — the party upon whom the bill is drawn; person to whom the bill is addressed and who is ordered to pay; becomes an acceptor when he indicates a willingness to accept responsibility for the payment of the bill (see Sec. 62 NIL). In case of a check, the drawee is a bank. [De Leon, 22]
  • Payee — the party in whose favor the bill is originally drawn or is payable. Up to the time of acceptance by the drawee, the payee looks exclusively to the drawer. Payee may be specifically designated, or may be an office or title, or unspecified; The drawee may also be the payee (see Sec. 8 NIL; one may draw on himself payable to his own order). [De Leon, 22]

Question 17

Who is a Bearer?

Answer 17

“Bearer” means the person in possession of a bill or note which is payable to bearer; [Sec. 191, NIL]

Question 18

Who is a “Holder”?

Answer 18

“Holder” means the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof; [Sec. 191 NIL]

Question 19

When is an instrument payable to order?

Answer 19

Section 8. When Payable to Order. — The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. It may be drawn payable to the order of:

(a) A payee who is not maker, drawer, or drawee; or

(b) The drawer or maker; or

(c) The drawee; or

(d) Two or more payees jointly; or

(e) One or some of several payees; or

(f) The holder of an office for the time being.

Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable certainty.

Question 20

May a bill be addressed to more than one drawee?

Answer 20

Section 128. Bill Addressed to More Than One Drawee. — A bill may be addressed to two or more drawees jointly, whether they are partners or not; but not to two or more drawees in the alternative or in succession.

Question 21

When may a bill be treated as a pormissory note?

Answer 21

Section 130. When Bill May Be Treated as Promissory Note. — Where in a bill the drawer and drawee are the same person or where the drawee is a fictitious person or a person not having capacity to contract, the holder may treat the instrument at his option either as a bill of exchange or as a promissory note.

Question 22

How is the negotiability of an instrument determined?

Answer 22

**The negotiability or non-negotiability of an instrument is determined from writing, that is, from the face of the instrument itself. **In the construction of a bill or note, the intention of the parties is to control, if it can be legally ascertained. While the writing may be read in the light of surrounding circumstances in order to more perfectly understand the intent and meaning of the parties, yet as they have constituted the writing to be the only outward and visible expression of their meaning, no other words are to be added to it or substituted in its stead. The duty of the court in such case is to ascertain, not what the parties may have secretly intended as contradistinguished from what their words express, but what is the meaning of the words they have used. What the parties meant must be determined by what they said. [Caltex (Philippines) v. CA, G.R. No. 97753, August 10, 1992]

Question 23

Is a deed of assignment a negotiable instrument?

Answer 23

No.
- An assignment is the process of transferring the right of the assignor to the assignee, who would then be allowed to proceed against the debtor.
- An assignment involves no transfer of ownership; it merely affects the transfer of rights which the assignor has at the time, to the assignee. [Casabuena v. CA, G.R. No. 115410, February 27, 1998.]