Commercial Law Review+lecture

Commercial Law Review+lecture
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  Commercial Law Review Glenn Tuazon, 4-AAtty. Jack JimenezSY 2010-114 Quizzes (50 each) + MT (100) + Finals (100) divided by 4 = Final Grade Part 1: Negotiable Instruments Law ã HISTORY: contrast a negotiable instrument with a non-negotiable PN: o First objection: a person stepping into the shoes of the seller isexposed otherwise to the defenses that the buyer may launchagainst the seller  Law’s solution – exempt from personal defenses o Second objection: “I don’t know the maker, I just know the onenegotiating it to me. How will I know he’s solvent?”  Law’s solution – will make the indorser liableregardless (Accumulation of secondary contracts)  The more indorsers, the more you can sue ã Two general parts in the law: o 1 – what makes an instrument negotiable o 2 – rights and obligations of parties ã Two basic forms: o Promise to pay (PN) o Order to pay (bill of exchange) ã If it does not comply with the requisites of negotiability, it is still acontract, but not covered by the NIL. ã Either: o Payable to order – negotiated by indorsement, and delivery o Payable to bearer – delivery is sufficient o N.B. If payable to a specific person, it is not negotiable ã Four basic contracts involved: o 1. Making o 2. Drawing o 3. Negotiating o 4. Accepting  To show consent o N.B. But for all, there must be delivery ã Basic principles: NIL is for justice. o 1. Bad faith: So if a person is in BF, he cannot invokedefenses. (Ex. Issued a negotiable instrument to pay for a carthat is defective. The indorsee knows that the car is defective,he is in bad faith.)  o 2. Estoppel – ex. A father allowing a son to steal a check andforge his signature is estopped from denying it o 3. Comparative fault  If a bank honors a check with a forged signature, thebank is considered negligent too  But if the negligence of the drawer outweighs thenegligence of the bank, the law shifts the fault to thedrawer o 4. The law will only protect you from personal defenses if youare a holder in due course (Sec. 52)  Good faith  With value  Before overdue ( see below )  With no notice of defenses o 5. General rule: there must be demand , before an instrumentbecomes overdue. Exception: If time is of the essence.  Ex. Reserve requirements of banks must be keptafloat, so overnight, banks sometimes transact witheach other  “An overdue instrument is shouting to the highheavens – I have been dishonored!” ã Requirements – found in Sec 1. 2-9 are elaborations of such. o 1a. It must be in writing o 1b. It must be signed – symbol of consent  If one signed another name or a symbol, it will bindhim if he intended for it to bind him  Location is immaterial o 2a. Must contain a promise or order to pay  Need not use exact words, even equivalent words arefine  Creates a NEW obligation to pay, not a mereacknowledgement of an old debt ã Exception 1: date of payment is mentioned,or at least, a date of maturity ã Exception 2: insertion of “or order” (words ofnegotiability) in the old terms  Authorization to pay or a mere request does notcreate a binding obligation to pay. o 2b. The promise to pay or order must be unconditional  Do not look into evidence aliunde. You must confineyourself within the four corners of the instrument todeem whether it is absolute.   Fall back on obligations and contracts – distinguishbetween uncertain events and certain events,although indeterminate (ex. Moment of death ofmother-in-law) o 2c. Sum certain, and payable in money  Because it is meant to be a substitute for money  Also, specify the denomination. Cannot just be anumber. o 3. Payable on demand or on a determinable future time o 4. Payable to order or bearer  Need not use exact words  But there must be reasonable certainty so peopleknow from whom they could demand payment  Ex. instead of “order”   pay to X or his indorsees; payto X or his assigns  Ex. instead of “bearer”   pay to X or holder; pay to Xor possessor o 5. Where the instrument is addressed to a drawee, he must benamed or otherwise indicated with reasonable certainty  If name of the drawee is left blank, it is an incompleteinstrument which can be filled up as a remedy ã Most cases involve fraud, by taking advantage of the features of the law. ã Sec 2: when a sum is certain o Even when there is a stipulation of interest. It must be inwriting. o The stipulated rate controls – there is no more ceiling oninterest rate. But it is unconscionable, it is void, and the rate isreduced to 12% (in circular 416). o If there is stipulated interest, without a rate, 12% as well. o If payment is by installment, for the instrument to be valid, theamount of installments must be indicated and the date ofmaturity of each installment is specified.  “Promise to pay Jose Cruz or order P100,000 in 10installments.”   not negotiable  You have to specify both AMOUNT and WHEN EACHis due. You cannot just give the starting point (ex.Nov 2005) o If there is an acceleration clause – failure to pay an installmentwill make the entire balance due and demandable. o It is now valid to stipulate payment in foreign currency. o If you talk about an exchange rate, you have to talk about atleast 2 currencies. It cannot be just one. o Under Civil Code, general rule is attorney’s fees are notrecoverable, except when there is written stipulation.Stipulating such makes the NI more attractive.   Ex. “I will pay reasonable attorney’s fees in case thereis failure to pay” – is this a sum certain?  Yes.Because you know how much is due at the date ofmaturity (it doesn’t matter what you pay aftermaturity). This is the reckoning point – at the date ofmaturity, is the sum certain? ALSO, stipulations onattorney’s fees is always subject to court controlanyway. ã Sec 3: promise is unconditional o Instructions on how payment will be entered into the books ofaccount does not affect unconditional nature  Neither does “reimburse yourself” affect  TEST: it must indicate the source of reimbursement ,not source of  payment . The latter is not negotiable. o Statement of how the original obligation came about does notaffect conditionality  But it will become non-negotiable if mention of theprior contract (ex. deed of sale) makes the NI subjectto the terms and conditions of the contract. Thismakes it conditional. o Elizalde : Person bought cars. He issued a PN, secured with aCM over vehicles. The PN said that the payment is secured bythe CM. It was negotiated to Elizalde by the car sellingcompany. Elizalde sought to collect. Issue is whether thestatement of security (CM) made it non-negotiable. HELD:Negotiable, because the promise to pay is still conditional, andis not dependent to the CM. Test:  does the promise to pay relyon the terms and conditions  of the security? If so, it is notnegotiable. Else, it is negotiable. o  Abubakar: A Treasury Warrant is not negotiable. It is payableout of a  particular fund , so you do not apply Sec. 66. “Nomoney should be paid out of the Treasury without anappropriation for that purpose” (Constitution).  FACTS here: X deposited treasury warrants with arural bank. The rural bank deposited with Metrobank.Even before the treasury warrants were cleared by theclearing house, Metrobank allowed withdrawal. Thewarrants were spurious. Metrobank is suing the ruralbank to recover, since the rural bank warranted thetreasury warrants by negotiating it to Metrobank.HELD: Metrobank is wrong, because the treasurywarrants are not negotiable instruments. o BUT a reference from which fund the obligation would be paiddoes not destroy negotiability if payment is not limited to comefrom such fund. ã Sec 4; payable at determinable future time o 1 st  situation: “Pay Jose Cruz or order… if the holder feelsinsecure, he may demand that I post reasonable securities,and if I fail to do so, he can declare the entire balance due anddemandable.”  One view: non-negotiable – because date of maturitybecomes uncertain because holder can accelerate
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