Lecture Notes On Regulatory Framework And Legal Issues (introduction To Regulatory Framework Etc.) (1)

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LECTURE NOTES ON ‘REGULATORY FRAMEWORK AND LEGAL ISSUES IN BUSINESS’ BSA 2104; Sections BFC and BEC; MWF – 12.10 – 1 .10 p.m. and 1.20 pm – 2.20 pm College of Business Administration University of the East – Manila 1. Definition of terms and phrases Bill of Exchange - it 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. Consideration – is the cause, price or impelling influence which induces a contracting party to enter into the contract. Delivery (Sec. 192) - it is the transfer of possession of the instrument whether actual or constructive, from one person to another, with intent to transfer title to the instrument. Before delivery, the instrument is inoperative and revocable. Even if the instrument is already properly indorsed but if it is not yet delivered, the indorser still has the right to revoke the instrument. Drawer - the person giving the order to pay, he draws or makes the instrument. He is the issuer of a bill of exchange. Drawee or Acceptor - the person to whom the instrument is addressed and who signifies his acceptance to the order of the drawer to pay a sum certain in money. He is called the ACCEPTOR upon his acceptance of the instrument. Good faith - it means that the person taking the instrument has acted with due honesty with regards to the rights of the parties liable on the instrument; that at the time he took it, he has no knowledge of any defect or infirmity of the instrument.

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Indorsement - it is the act of a payee, drawee, accommodation indorser or holder of a bill, note, check or other negotiable instrument, in writing his name upon the back of the same, with or without further or qualifying words, whereby the property named in the instrument is assigned and transferred to another. Holder - he is the payee or the indorsee of a bill of exchange, who is in possession of the instrument, or the bearer thereof. The person who has legally acquired possession of the instrument by indorsement or delivery and who is entitled to receive payment thereof. Holder for value (Sec. 26) - he is one who has given a valuable consideration (quantifiable) for the instrument issued or negotiated to him. The holder is deemed a holder for value in respect to all parties who become such prior to that time when the value was given. Holder in Due Course (HDC) - a person is a HDC if he has taken the instrument: (a) complete and regular upon its face; (b) before it was overdue; (c) he took it in good faith and for value; and (d) he has no notice of any defect in the title of the person negotiating it. A payee may be a HDC. A holder does not become a HDC of an instrument by purchase of it at a judicial sale or by taking it under legal process, or by acquiring it in taking over an estate, or by purchasing it as part of a bulk transaction not in regular course of business of the transferor. Immediate parties - are those with privity to one another, they are aware of the conditions and limitations placed upon the instrument they need not be physically closed to the maker/drawer but is considered immediate by reason of his knowledge of the conditions or limitations placed upon the delivery of the instrument. Remote parties – are those not in direct contractual relations to each other and are not aware of the restrictions and limitations placed on the instrument. Indorser is a person who being the payee or holder of a negotiable instrument writes his name on the back thereof usually for the purpose of transferring it to another party.

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Indorsee - the person to whom a negotiable instrument, promissory note, bill of lading, etc. is assigned by indorsement. Issue - the first delivery of the instrument complete in form to a person who takes it as a holder. Infirmity - refers to a thing(s) that are wrong with the instrument itsef. Maker – he is the person issuing a promissory note. Negotiable Instruments - these are written security instruments that can be transferred by indorsement plus delivery or delivery only. It is a written contract that calls for the payment of money only. It must be delivered to have any legal effect between the immediate parties. It is a contract between the maker/drawer and the payee. Negotiation - it is the transfer of a negotiable instrument from one person to another vesting legal ownership to the latter and giving the new owner the right to demand payment of the face amount of the instrument, along with any interest that may be due. Order - a designation of the person to whom a bill of exchange or negotiable promissory note is to be paid. It is a direction to pay and must be more than an authorization or request. Party primarily liable - the person who, by the terms of the instrument is absolutely required to pay the same upon its maturity because he is unconditionally bound. (Maker, acceptor/drawee upon acceptance and certifier of a check). Party secondarily liable - the person who undertakes to pay the instrument only after certain conditions have been fulfilled. Such as: due presentment for payment; dishonor of instrument by party primarily liable and complying with the requirements of law. (Drawer and indorser)

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Payee - person to whom the instrument is drawn or payable or who will receive the stated amount of money on the instrument. Promissory note (Sec. 184) - it 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. Unconditional promise - it is a promise that is not limited or affected by any condition. Warranty - a promise that a proposition of facts are truly as they are represented to be and that they will remain to subject to any specified limitations. Ooooo oooooooooo

2. The law that governs negotiable instruments and the principal features or important characteristics of a negotiable instrument. The law that governs Negotiable Instruments is the Negotiable Instruments Law or Act No. 2031 which took effect on June 2, 1911. The principal functions or important characteristics of a negotiable instrument are the following: A) Negotiability; B) Accumulation of secondary contracts as it is negotiated from one person to another. 3. Requisites for the negotiability of a promissory note (Sec. 1). a) It must be in writing and signed by the maker or drawer. b) It must contain an unconditional promise or order to pay a sum certain in money. c) It must be payable on demand or at a fixed or determinable future time; and d) It must be payable to order or to bearer.

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