Negotiablity Flashcards
What are the REQUISITES OF NEGOTIABILITY? (Sec. 1)
An instrument to be negotiable must conform to the following requirements:
1) It must be in writing and signed by the maker or drawer;
2) Must contain an unconditional promise or order to pay a sum certain in money;
3) Must be payable on demand, or at a fixed or determinable future time;
4) Must be payable to order or to bearer; and
5) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.
Factors in determining negotiability
1) The whole of the instrument shall be considered;
2) Only what appears on the face of the instrument shall be considered;
3) The provisions of the Negotiable Instruments Law, especially Sec. 1.
When a promise is unconditional? (Sec. 3)
An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with —
1) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or
2) A statement of the transaction which gives rise to the instrument.
But an order or promise to pay out of a particular fund is not unconditional.
What constitutes a certainty as to sum? (Sec. 2)
The sum payable is certain within the meaning of this act, although it is to be paid —
1) With interest; or
2) By stated installments; or
3) By stated installments, with a provision that, upon default in payment of any installment or of interest the whole shall become due; or
4) With exchange, whether at a fixed rate or at the current rate; or
5) With costs of collection or an attorney’s fees, in case payment shall not be made at maturity.
What constitutes a determinable future time? (Sec. 4)
An instrument is payable at a determinable future time, within the meaning of this Act, which is expressed to be payable:
1) At a fixed period after date or sight; or
2) On or before a fixed or determinable future time of specified therein; or
3) On or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of happening be uncertain.
An instrument payable upon contingency is not negotiable, and the happening of the event does not cure the defect.
When is an instrument payable to BEARER? (Sec. 9)
The instrument is payable to bearer —
1) When it is expressed to be so payable; or
2) When it is payable to a person named therein or bearer; or
3) When it is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable; or
4) When the name of the payee does not purport to be the name of any person; or
5) When the only or last indorsement is an indorsement in blank.
When is an instrument payable TO ORDER? (Sec. 8)
The instrument is payable to order where it is drawn to the order of a specified person or to him or to his order. It may be drawn payable to the order of:
1) A payee who is not maker, drawer, or drawee; or
2) The drawer or maker; or
3) The drawee; or
4) Two or more payees jointly; or
5) One or some of several payees; or
6) The holder of an office for the time being.
Where the instrument is payable to order, the payee must named or otherwise indicated therein with reasonable certainty.
Omissions which does not affect the negotiability of the instrument? (Sec. 6)
The validity and negotiable character of an instrument are not affected by the fact that:
1) It is not dated; or
2) Does not specify the value, or that any value had been given therefor; or
3) Does not specify the place where it is drawn or the place where it is payable; or
4) Bears a seal; or
5) Designates a particular kind of current money in which payment is to be made.
But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the consideration to be stated in the instrument.
Additional provisions which do not affect the negotiability of the instrument? (Sec. 5)
An instrument which contains an order or promise to do any act in addition to the payment of money is NOT NEGOTIABLE…
But the negotiable character of an instrument otherwise negotiable is not affected by a provision which:
1) Authorizes the sale of collateral securities in case the instrument be not paid at maturity; or
2) Authorizes a confession of judgment if the instrument be no paid at maturity; or
3) Waives the benefit of any law intended for the advantage or protection of the obligor; or
4) Gives the holder an election to require something to be done in lieu of payment of money.
But nothing in this section shall validate any provision or stipulation otherwise illegal
