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NEGOTIABLE INSTRUMENT •Written contract for the payment of money, by its form intended as substitute for money and intended to pass from hand to hand to give the holder in due course the right to hold the same and collect the sum due PROMISSORY NOTE •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 Parties: 1. Maker—one who makes a promise and signs the instrument 2. Payee—party to whom the promise is made or the instrument is payable BILL OF EXCHANGE •unconditional order in writing addressed by one person to another signed by the person giving it •requiring the person to whom it’s addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer Parties: 1. Drawer—one who gives the order to pay money to a 3rd party 2. Drawee—person to whom the bill is addressed and who is ordered to pay 3. Payee—party in whose favor the bill is drawn or is payable TYPES OF BILL OF EXCHANGE: 1. Draft – a common term for all bills of exchange and they are used synonymously. N.B. In bank drafts, DRAWER and DRAWEE are liable to purchaser of draft for not complying with his instructions. 2. Trade Acceptance – a bill of exchange payable to order and at a certain maturity, drawn by a seller against the purchaser of goods as drawee, for a fixed sum of money, showing on its face the acceptance of the purchaser of the goods and that it has arisen out of a purchase by goods by the acceptor. 3. Banker’s Acceptance – a draft or a bill of exchange of which the acceptor is a bank or banker engaged generally in the business of granting banker’s acceptance credit. It is similar to a trade acceptance, the fundamental difference being that the banker’s acceptance is drawn against a bank instead of the buyer. 4. Trust Receipt – the written or printed document signed by the entrustee in favor of the entruster containing terms and conditions substantially complying with the provisions of PD 115 (Trust Receipt Law, which took effect on January 21, 1973). No further formality of execution or authentication shall be necessary to the validity of the trust receipt. Note: It is the ENTRUSTEE NOT the ENTRUSTER is the real owner of the trust receipt. The liability of the entrustee to the entruster is EX CONTRACTU not ex delicto.
Negotiable Instruments Law
5. Treasury Warrants – a “treasury warrant” bearing on its face the words “payable from the appropriation for food administration” is actually an order for payment out of a particular fund and is NOT UNCONDITIONAL, and does not fulfill the one of the essential requirements of a negotiable instrument. (Abubakar v. Auditor General) 6. Money Order – a species of draft drawn by the post-office upon another for an amount of money deposited at the first post office by the person purchasing the money order and payable at the second office to a payee named in the order. Note: Money order is NOT negotiable. 7. Clean and Documentary Bills of Exchange – “Clean bill of exchange” is one to which are not attached to documents of title to be delivered to the person against whom the bill is drawn when he either accepts or pays the bill. “Documentary Bill of Exchange” is one to which are attached documents of title to be delivered and surrendered to the drawee when he accepts or pays the bill. 8. D/A and D/P Bills of Exchange “Documents Against Payment Bill” – “D/P Bill” is a sight or time bill to which are attached documents to be delivered and surrendered to the drawee when he has paid the corresponding bill. “Documents Against Acceptance Bill” – “D/A Bill” is a time bill to which are attached documents to be delivered and surrendered to the drawee when he accepts the bill. 9. “Sight bills” are bills which are payable upon presentation or at sight or on demand. 10. “Time or usance bills” – are bills which are payable at a fixed future time or at a determinable future time. Inland Bill of Exchange – is a bill which is or on its face purports to be BOTH drawn and payable within the Philippine Islands. Foreign Bill of Exchange- is a bill which is, or on its face purports to be, drawn or payable outside the Philippine Islands. a. to be drawn in the Philippines but payable outside thereof; or b. to be payable in the Philippines but drawn outside thereof. Importance of the distinction: The distinction is important in: 1. That foreign bills are required to be protested. Failure to protest foreign bills will discharge persons secondarily liable thereon. 2. The distinction is also important for the determination of the law applicable. When bill may be treated as promissory note. 1. Where the drawer and the drawee are the person such as, in a draft drawn by an agent on his principal by authority of the principal. 2. Where the drawee is a fictitious person. 3. Where the drawee has no capacity to contract.
Negotiable Instruments Law
Referee in case of need – is the person whose name was inserted by the drawer of the bill and any indorser to whom the holder may resort in case of need – that is in case the bill is dishonored by non-acceptance or by non-payment. Note: It is the option of the holder to resort to the referee in case of need or not as he may see fit. BEARER Person in possession of a bill/note payable to bearer HOLDER Payee or indorsee of a bill or note who is in possession of it, or the bearer thereof. THE LIFE OF A NEGOTIABLE INSTRUMENT: (INPAD-PD-N-PD) 1. issue 2. negotiation 3. presentment for acceptance in certain bills 4. acceptance 5. dishonor by on acceptance 6. presentment for payment 7. dishonor by nonpayment 8. notice of dishonor 9. protest in certain cases 10. discharge NEGOTIABILITY REQUISITES (SUDOC) 1 1 in writing and signed by maker or drawer • no person liable on the instrument whose signature does not appear thereon Exceptions: * A person signing in a trade or assumed name * Principal is liable if a duly authorized agent signs in his own behalf (Agent must be duly authorized; He adds words indicating that he signs as an agent; He must disclosed his principal) (Signature by procuration-operates as notice that the agent has limited authority to sign and principal is bound if agent acted beyond the limits of his authority) * In case of forgery, the forger is liable even if his signature does not appear on the instrument * Where the acceptor makes his acceptance of a bill on a separate paper * Where a person makes a written promise to accept a bill before it is drawn • one who signs in a trade or assumed name liable to the same extent as if he had signed in his own name • signature of any party may be made by a duly authorized agent, no particular form of appt. necessary 1 1 unconditional promise or order to pay
with interest. or e.Negotiable Instruments Law • 4 • • unqualified order or promise to pay is unconditional though coupled with a. when expressed to be so payable when payable to person named therein or bearer when payable to order or fictitious/non-existent person. or c. or at sight. the whole shall become due. payable on demand or at a fixed or determinable future time when it’s expressed to be payable at a fixed period after date or sight. it is. accepting. in case payment not made at maturity payable on demand. a payee not the maker/drawer/drawee. when no time for payment expressed. holder of an office for time being • when the instrument is payable to order the payee must be named or otherwise indicated therein with reasonable certainty • • • • • or bearer. with costs of collection or an attorney’s fee. though the time of happening be uncertain an instrument payable upon a contingency not negotiable. or b. • • • • • • • 4. or d. drawer or maker. by stated installments. and such fact known to the person making it so payable. and happening of event doesn’t cure it 3. or a particular account to be debited with amount. or c. or e. accepted or indorsed when overdue. or when the only/last indorsement is in blank . May be drawn payable to order of --a. or b. or when name of payee doesn’t purport to be the name of any person. or on or at a fixed period after the occurrence of a specified event which is certain to happen. a statement of the transaction which gives rise to the instrument an order or promise to pay out of a particular fund is not unconditional a sum certain in money even if stipulated to be paid--a. when expressed to be payable on demand. or on presentation. or d. two or more payees jointly. or b. or where an instrument is issued. drawee. by stated installments with a provision that upon default in payment of any installment/interest. as regards the person so issuing. whether at a fixed rate or at the current rate. with exchange. or on or before a fixed or determinable future time fixed therein. an indication of a particular fund out of which reimbursement to be made. payable to order • where it is drawn payable to the order of a specified person or to him or his order. or indorsing it.
Designates a particular kind of current money in w/c payment is to be made Sec. at option of holder. Does not specify the value given or that any value has been given therefore c. (c) Where the instrument is not dated. whether partners or not. (e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note. Bears a seal e. and if the instrument is undated. (f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign. drawer and drawee are same person b. where addressed to drawee: such drawee named/ indicated therein with reasonable certainty • bill may be addressed to two or more drawees jointly. (d) Where there is a conflict between the written and printed provisions of the instrument. waives benefit of any law intended for advantage/protection of obligor 4. 17. (a) Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two. he is to be deemed an indorser. it will be considered to be dated as of the time it was issued. drawee is fictitious/incapacitated CONTINUATION OF NEGOTIABLE CHARACTER Until: 1. but if the words are ambiguous or uncertain.5) Gen. 6) a. Construction where instrument is ambiguous. discharged by payment or otherwise EFFECT OF ADDITIONAL PROVISIONS (Sec. Rule: order/promise to do any act in addition to the payment of money renders instrument non-negotiable.Negotiable Instruments Law 5 5. authorize sale of collateral security if instrument not paid at maturity 2. give holder election to require something to be done in lieu of money Other Instances when negotiability not affected (Sec. where a. reference may be had to the figures to fix the amount. Exception: negotiability not affected by provisions w/c 1. Does not specify the place where it is drawn or the place where it is payable d. authorize confession of judgment… 3. restrictively indorsed 2. from the issue thereof. without specifying the date from which interest is to run . but not to two or more drawees in the alternative or in succession • bill may be treated as a PN. (b) Where the instrument provides for the payment of interest. the holder may treat it as either at his election. the interest runs from the date of the instrument. . the sum denoted by the words is the sum payable. Not dated b. the written provisions prevail.
complying with requirements of Sec. (Sec. Mechanical Act of writing. presumption conclusive) NEGOTIATION • When an instrument is transferred from one person to another as to constitute the transferee the holder thereof. 16) Issuance-the first delivery of the instrument complete in form to a person who takes it as a holder. negotiated by delivery. drawn by the drawer. Where an instrument is payable at a fixed period after date but is issued undated b. • If payable to BEARER. immediate parties b. Delivery with intention to give effect thereto. provided not done for an illegal or fraudulent purpose. As between: a. to be effectual. • NI incomplete and revocable until delivery for the purpose of giving effect thereto. Steps: 1. or to strengthen the security of the holder by assuming a contingent liability for its future payment. and not for the purpose of transferring the property in the instrument PRESUMPTION OF DELIVERY Where the instrument is no longer in the possession of a party whose signature appears thereon. (Sec. or for a special purpose only. must be made by or under the authority of the party making/drawing/accepting/indorsing • in such case delivery may be shown to have been conditional. Where an instrument is payable at a fixed period after sight but the acceptance is undated DELIVERY (Sec. if payable to ORDER. 11) Effect of ante-dating or Post-dating: Instrument is not invalid. . accepted by the drawee or indorsed by the payee. a valid and intentional delivery by him is presumed until the contrary is proved (*if in the hands of a HDC. they are deemed to be jointly and severally liable thereon. 12) * Ante-dating: Giving an instrument a date that is earlier than the date it was issued * Post-dating: Giving an instrument a date that is later than the date it was issued When date may be inserted? a. 1 2. DATE IN AN INSTRUMENT Presumption as to date: Said date is the date when it was made by the maker. a remote party other than holder in due course delivery.Negotiable Instruments Law 6 (g) Where an instrument containing the word "I promise to pay" is signed by two or more persons. negotiated by indorsement of holder + delivery INDORSEMENT It is the writing of the name of the indorser on the instrument with the intent either to transfer the title to the same.
conditional – additional condition annexed to indorser’s liability. The signature of the indorser is sufficient. As to presence/absence of express limitations put by indorser upon primary obligor’s privileges of paying the holder 1. Special – specifies the person to whom/to whose order the instrument is to be payable. • constitutes indorsee as agent of indorser. unqualified D. 40) • Where an instrument payable to bearer is indorsed specially. instrument so indorsed is payable to bearer. non-restrictive C. restrictive • prohibits further negotiation of instrument. 35) B. or • vests title in indorsee in trust for another • Rights of indorsee in restrictive indorsement: • receive payment of instrument • Bring any action thereon that indorser could bring • Transfer his rights as such indorsee. (can’t be indorsement of only part of amount payable. but all subsequent indorsees acquire only title of first indorsee under restrictive indorsement 2. it may nevertheless be further negotiated by delivery . whether condition has been fulfilled or not • Any person to whom an instrument so indorsed is negotiated will hold the same/proceeds subject to rights of person indorsing conditionally 2. But may be indorsed as to the residue of partially paid instrument) [Sec.Negotiable Instruments Law 7 The indorsement must be written on the instrument itself or upon a paper attached thereto. and make payment to the indorsee or his transferee. (Sec.constitutes indorser as mere assignor of title (eg. 2. qualified. 31) Indorsement must be of entire instrument. As to kind of liability assumed by indorser 1. a party required to pay the instrument may disregard the condition. nor can it be to two or more indorsees severally. indorsement of such indorsee is necessary to further negotiation. “without recourse”) 2. • Where an indorsement is conditional. As to kind of title transferred 1. 32] KINDS OF INDORSEMENT A. unconditional INDORSEMENT OF BEARER INSTRUMENT (Sec. and may be negotiated by delivery • The holder may convert a blank indorsement into a special indorsement by writing over the signature of the indorser in blank any contract consistent with the character of the indorsement (Sec. As to manner of future method of negotiation 1. Blank – specifies no indorsee.
effects (Sec.A material alteration made by a stranger • sec. Medium of currency or which adds a place of payment 2. 43) May continue indorsing through the misspelled name. except where indorsement bears date which is after maturity. 50) Not entitled to enforce payment against any intervening party to whom he is personally liable HOLDER IN DUE COURSE REQUISITIES 1. Spoliation.41) All must indorse unless the one indorsing has authority to indorse for others INSTRUMENT DRAWN OR INDORSED TO A PERSON AS CASHIER (Sec. Sum Payable. Presumption as to place of Indorsement—At the place where instrument dated Striking Out Indorsements.42) Presumed to be payable to the bank or corporation INDORSEMENT WHERE NAME MISSPELLED (Sec. 125 what constitute material alterations: a. 49) 1. Effect: * The indorser whose indorsement is struck out and all indorsers subsequent to him relieved from liability. either for principal or interest c. without notice of any previous dishonor . right of transferee to have indorsement of transferor for purposes of determining HDC negotiation effective upon actual indorsement PRIOR PARTY WHO NEGOTIATES INSTRUMENT. Time or place of payment d. Number or relations of the parties e. 124 (effect of material alteration—not defense against HDC) Material Alteration: any change in the instrument which affects or changes the liability of the parties. UNINDORSED INSTRUMENTS (Sec. transfer vests in transferee such title as transferor had therein 2.Negotiable Instruments Law 8 • Person indorsing specially liable as indorser to only such holders as make title through his indorsement INDORSEMENT WHERE INSTRUMENT PAYABLE TO TWO OR MORE PERSONS WHO ARE NOT PARTNERS (Sec. complete and regular upon its face • sec. holder became such before it was overdue. or he may add his proper signature Presumption as to time of Indorsement— before instrument is overdue. Date b.
sue thereon in his own name 2. real defense – attaches to instrument. taken in good faith and for value • sec. 59) • prima facie presumption in favor of holder • but when shown that title of any person who has negotiated instrument was defective. instrument negotiated in breach of faith. 26 (Holder for value: one who has given a valuable consideration for the instrument issued or negotiated to him ) • sec. presumption is reversed. illegal consideration/means.55) 1. etc. . or 2.defect in title of person negotiating: What defect constitutes (Sec. or fraudulent circumstances Notice Sec. he had no notice of -a. 12 (effect antedating/postdating) 3. burden is now with holder to prove • but no reversal if party being made liable became bound prior to acquisition of defective title KINDS OF DEFENSES 1. holds the instrument free from any defect of title of prior parties and free from personal defenses available to parties among themselves 4. 56-notice of defect: Actual knowledge necessary RIGHTS OF HOLDER IN DUE COURSE 1.infirmity in instrument b. WHO DEEMED HDC (Sec. payment to him in due course discharges instrument 3. 53 (instrument payable on demand negotiated after unreasonable length of time: holder is not HDC) • sec. on the principle that the right sought to be enforced never existed/there was no contract at all. (Sec. 27 (When a holder has lien on the instrument.Negotiable Instruments Law 9 • sec. may enforce payment of the instrument for the full amount thereof against all parties liable thereon RIGHTS OF PURCHASER FROM HOLDER IN DUE COURSE General Rule: in the hands of any holder other than a HDC. at time negotiated to him.. Available to all parties both immediate and remote including HDC. NI is subject to same defenses as if it were non-negotiable. 54-notice before full amt. by contract or implication he is deemed a holder for value to the extent of the lien) 4. instrument/signature obtained through fraud. 58) Exception: holder who derives title through HDC and who is not himself a party to any fraud or illegality has all rights of such former holder in respect to all parties prior to the latter. paid: deemed HDC only to the extent of the amount paid by him Sec. 24 (presumption of consideration) • sec 25 (Value: is any consideration sufficient to support a simple contract) • sec.
Available to prior parties among themselves but w/c are not good against a HDC. tenor of instrument. FRAUD a. party who has himself made. any party. DEFENSES 1. description of the person and the like. renders it inequitable to be enforced against defendant. COMPLETE. tenor *material alteration a personal defense when used to deny liability according to org. can be acquired through or under such signature (unless forged signature unnecessary to holder’s title) Exception: unless the party against whom it is sought to enforce such right is precluded from setting up forgery/want of authority Precluded: a. avoided. Bad Forgery—forgery which is apparent or naked to the eye Good Forgery—requires examination of signature if it was forged Effect when Signature is forged or made without authority of person whose signature it purports to be. INCAPACITY: REAL: indorsement/assignment property but corp/infant no liability by corporation/infant passes 2. or give discharge. parties who make certain warranties. with intent thereby to defraud. fraud in inducement: personal defense (knows it’s Negotiable Instrument but deceived as to value/terms) 5. estopped/negligent parties 3. 4. and may consist in the signing of another’s name or the alteration of an instrument in the name. UNDELIVERED INSTRUMENT . but real defense when relied on to deny liability according to altered terms. fraud in execution: real defense (didn’t know it was a Negotiable Instrument) b.Negotiable Instruments Law 10 2. and subsequent indorsers • But when an instrument has been materially altered and is in the hands of a HDC not a party to the alteration. wholly inoperative b. except as against 1. authorized or assented to alteration 2. HDC may enforce payment thereof according to orig. FORGERY: Real: Definition: the counterfeit-making or fraudulent alteration of any writing. MATERIAL ALTERATION • Where NI materially altered w/o assent of all parties liable thereon. General Rule: a. or enforce payment vs. no right to retain instrument. amount. personal defense – growing out of agreement. like a general indorser or acceptor b.
14) • 2 Kinds of Writings: 1. Acquisition of the instrument for an illegal consideration 9. it's valid for all purposes in his hands. 16) If instrument not in possession of party who signed. when completed. duress or fear 7. Acquisition of instrument by force. 5. delivery conclusively presumed 6. Filling up of blank contrary to authority given or not w/in reasonable time 5. be a valid contract in the hands of any holder. Absence or failure of consideration whether partial or total 2. Insertion of wrong date in an instrument 4. 6. within a reasonable time • but if any such instrument after completion is negotiated to HDC. Real Defenses Material Alteration Want of delivery of incomplete instrument Duress amounting to forgery Fraud in factum or Fraud in esse contractus Minority (available to the minor only) Marriage in the case of a wife Insanity where the insane person has a guardian appointed by the court Ultra Vires acts of corporation Want of authority of agent Execution of instrument b/w public enemies Illegality—if declared void for any purpose Forgery Personal Defenses 1. 8. Where instrument is wanting in any material particular: person in possession has prima facie authority to complete it by filing up blanks therein 2. INCOMPLETE. Intoxication 13. Want of delivery of complete instrument 3. 2. Fraud in inducement 6. 15) • Instrument will not. 7. must be filled up strictly in accordance w/ authority given 2. Negotiation under circumstances that amount to fraud 11. 3. delivery prima facie presumed If holder is HDC. may be enforced against any person who became a party thereto prior to its completion: 1. 4. Mistake 12. INCOMPLETE.Negotiable Instruments Law • • • 11 Personal defense (sec. 11. 10. he may enforce it as if it had been filled up properly 1. Negotiation in breach of faith 10. if completed and negotiated without authority. 9. Acquisition of instrument by unlawful means 8. Ultra Vires Acts of corporations where the corporation has the power to issue negotiable paper but the issuance was not authorized for the particular purpose for which it was issued . as against any person whose signature was placed thereon before delivery 7. UNDELIVERED INSTRUMENT • Real defense (sec. 12. DELIVERED • Personal defense (sec. Signature on blank paper delivered by person making the signature in order that the paper may be converted into a NI: prima facie authority to fill up as such for any amount • In order that any such instrument.
he had no knowledge of any fact w/c would impair validity of instrument or render it valueless • in case of negotiation by delivery only. SECONDARY PARTIES 1. Liability of Indorsers: • Qualified Indorser and one Negotiating by Delivery (Sec 65) a. If it be dishonored. or paid. warranty only extends in favor of immediate transferee • Liability of a General or Unqualified Indorser . d. or both. he will pay the amount thereof to the holder or to an subsequent indorser who may be compelled to pay it • drawer may insert in the instrument an express stipulation negativing / limiting his own liability to holder 2. • • a. according to its tenor and that c. Admits existence of payee and his then capacity to endorse b. b. b. a. Status of drawee prior to acceptance or payment • sec. all prior parties had capacity to contract d. Liability of Acceptor Promises to pay instrument according to its tenor Admits the following: existence of drawer genuineness of his signature his capacity and authority to draw the instrument existence of payee and his then capacity to indorse B. 1. in all respects what it purports to be b. Engages that on due presentment instrument will be accepted. 189 (when check does not operate as assignment until bank certifies or accepts it) 3. c. and the necessary proceedings on dishonor be duly taken. He has good title c. Instrument genuine.Negotiable Instruments Law 12 LIABILITIES OF PARTIES A. PRIMARY PARTIES • Person primarily liable: person who by the terms of the instrument is absolutely required to pay the same. Liability of Drawer a. 127 (bill not an assignment of funds in hands of drawee) • sec. Liability of Maker Promises to pay it according to its tenor admits existence of payee and his then capacity to indorse 2.
he incurs all liabilities in Sec. but holder may sue any of the indorsers. on due presentment. Signs for accommodation of payee. among themselves: liable prima facie in the order they indorse. at time of taking instrument. knew he was only an Accomodation Party Some Terms: Accommodation Bill or Note—one to which the accommodation party has put his name. 65. establish as in ordinary agency • Where instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal. or to any subsequent indorser who may be compelled to pay it • Order of Liability among Indorsers 1. he will pay the amt. for the purpose of lending his name to some other person • Accomodation Party liable on the instrument to holder for value even if holder. he’s liable as an indorser. good title. places thereon his signature in blank before delivery. and the principal is bound only in case the agent in so signing acted within the actual limits of his authority • Where a broker or agent negotiates an instrument without indorsement. for the purpose of accommodating some other party who is to use it and is expected to pay it. w/o consideration. • Signature per procuration operates as notice that the agent has but a limited authority to sign. but proof of another agreement admissible 2. liable to all parties subsequent to payee Liability of an Agent • Signature of any party may be made by duly authorized agent. according to tenor d. instrument genuine. does not exempt from personal liability. Instrument payable to the order of maker/drawer. regardless of order of indorsement 3. it shall be accepted or paid. and necessary proceedings on dishonor be duly taken. unless he discloses name of principal and fact that he’s only acting as agent . Instrument payable to order of 3rd person: liable to payee and to all subsequent parties 2. or both. To holder. joint payees/indorsees deemed to indorse jointly and severally Liability of Accomodation Party • Definition: one who signed instrument as maker/drawer/acceptor/ indorser w/o receiving value thereof. Accomodated Party—is one in whose favor a person. Liability of Irregular Indorser • Where a person not otherwise a party to an instrument. instrument is at time of indorsement valid and subsisting c. capacity of prior parties b. if it be dishonored. in accordance w/ these rules: 1. w/o receiving value therefore. signs an instrument for the purpose of lending his credit and enabling said party to raise money upon it. he is not liable on the instrument if he was duly authorized. but the mere addition of words describing him as an agent without disclosing his principal. or payable to bearer: liable to all parties subsequent to maker/drawer 3.Negotiable Instruments Law 13 a.
Accepted by some or more of the drawees but not by all. B. 2. ***The holder must exhibit the instrument to the debtor and should deliver it to said debtor if the latter pays. General and Qualified General Acceptance – a general acceptance assents without qualification to the order of the drawer. . when presentment is waived. Classes of Acceptance 1. if he wants to dishonor. Requisites: For a valid presentment for payment of a promissory note. he is deemed to have accepted the bill – implied acceptance. How made: . to the party liable under it. If he refuses to act. by the holder or his agent.The drawee. at a reasonable hour on a business day.The acceptance may be on the bill. at the proper place.A sight draft (usually accompanying a letter of credit in importations) is payable on demand and needs no acceptance by the drawee. tears the bill. when after due diligence presentment cannot be made. Partial. when the indorser is an accommodated party. In Bills of Exchange Acceptance is the signification by the drawee of his assent to the order of the drawer. and may even be in writing before the bill is drawn. the following are necessary: a. Conditional. Qualified as to time. c. e. Local. b. on a separate paper (allonge). Qualified Acceptance – it varies the effect of the bill as drawn. d. b. made within a reasonable time after issue.Negotiable Instruments Law 14 PRESENTMENT A. . In Promissory Notes Purpose: Not necessary to make the maker liable. The acceptance is qualified if it is: a. . When NOT required/excused Presentment is NOT required: 1. and e. but is necessary to make the secondary parties liable. d. and 3. or refuses to return the bill within said period of twenty-four hours. must do so expressly within twenty-four (24) hours from presentment to him. c.
and if on a separate paper a. WHERE BILL MAY BE WRITTEN: . if drawee. the acceptance on a separate paper must comply with following requirements: i. . the drawee becomes liable on the bill.It is usually done by writing across the face of the bill the word “ACCEPTED” or words of similar import. “I WILL PAY THE BILL”. within twenty four hours from presentment to him of the instrument.B. if any. Acceptance is NOT required for CHECKS for the same are payable on demand. and the drawer.Negotiable Instruments Law 15 2. and constructive. ACCEPTANCE. Is payment equivalent to acceptance? NO. . it may be acceptance as to an existing bill. NIL. and 4. or b.Acceptance may be made 1. 3.The drawee must sign because without his signature he would not be bound – See Section 18. HOW MADE? . destroys the same. it may be acceptance as to a non-existing bill. the acceptor standing in the place of the maker. on the bill itself. REQUISITES OF ACTUAL ACCEPTANCE: 1. it must not express that the drawee will perform his promise by another means than the payment of money. “HONORED”. or 2. EFFECT OF ACCEPTANCE: Upon acceptance. N. That the contemplated drawee shall describe the bill to be drawn and promise to accept it. and 2. on a separate paper. The bill becomes in effect a note. signed by the drawee.Acceptance by telegram has been held sufficient. e. or refuses or fails to return the bill accepted or unaccepted.Acceptance is express if written on the instrument by the drawee. it must be communicated or delivered to the holder. But should the drawee refuse to accept. . If the bill is non-existent. the payee or the holder has no recourse against him but only against the drawer and indorsers. . in writing.g. in the place of the first indorser.the payment of a check does not include or imply its acceptance in the sense that this word is used in Section 62. “SEEN” followed by the signature of the drawee. Express and Constructive . NIL.
. 3. Even when the bill is overdue. In all the foregoing. Where the drawee to whom the bill is delivered for acceptance. or 2. . Section 136. Even after it has been dishonored by non-acceptance or by non-payment. Before the bill has been signed by the drawer. Even when the bill is otherwise incomplete. . When the drawer or indorser receives notice of qualified acceptance – he must – within a REASONABLE TIME – express his dissent to the holder or he will be deemed to have assented thereto. and iii. the acceptance if given. Where the drawee refuses. within 24 hours after such delivery or within such time as is given him. Instances when a bill may be accepted: 1.The holder of the bill has the right to require GENERAL ACCEPTANCE – thus he may REFUSE to take qualified acceptance and if he DOES NOT obtain an unqualified acceptance – he may treat the bill as dishonored. this ruling will not apply.this class of acceptance is NOT in writing.If the holder should demand its return before twenty-four hours. That the bill shall be drawn within a reasonable time after such promise is written. to return the bill accepted or not accepted. NOTE: The time allowed begins from the time of delivery and not after demand for a return of the bill and the time for returning the bill to the holder does not begin to run from the demand for its return but from the date of its delivery. as certification is equivalent to acceptance. if the check is presented for certification.The drawee is allowed twenty-four hours after presentment in which to decide whether or not he will accept the bill. But. the drawee would be required to comply on pain of being held as an acceptor. dates as of the day of presentation. Constructive Acceptance: . . That the holder shall take the bill upon the credit of the promise. but return within twenty-four hours unaccepted would not be a dishonor. destroys it. the drawee will be deemed to have accepted the bill even if there is NO ACTUAL WRITTEN ACCEPTANCE by him. 4.Negotiable Instruments Law 16 ii. 1. - . Effect of taking qualified acceptance: Where a qualified acceptance is taken – THE DRAWER and INDORSERS are discharged from liability on the bill unless they have expressly or impliedly authorized the holder to take qualified acceptance or subsequently assents thereto. 2.Drawee bank is NOT entitled to 24 hours to decide whether for payment NOT acceptance.
to negotiate the bill within a reasonable time. To the DRAWEE or some person authorized to ACCEPT or REFUSE ACCEPTANCE on his BEHALF. 2. It must be presented on a business day. to make presentment for acceptance or ii. 3. presentment may be made to him or to his trustee or assignee.Negotiable Instruments Law 17 Presentment for Acceptance Definition: It is the production or exhibition of a bill of exchange to the drawee for his acceptance. Where the drawee has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors. and 3. or 2. Where the bill is expressly stipulates that it shall be presented for acceptance. Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. how made: -Presentment MUST be made by or on behalf of the holder: Requisites: 1. NOTE: In those instances found in Section 143 – it is NECESSARY – in order to charge persons secondarily liable (Section 144): i. Where the drawee is dead presentment may be made to his personal representative. It must be presented at a reasonable hour. Where the bill is payable after sight. and 2. 4. in which case presentment may be made to him only. EXCEPTIONS: 1. GENERAL RULE: Presentment for acceptance is NOT NECESSARY to render any party to the bill liable. Where a bill is addressed to two or more drawees who are not partners. or in any other case. Days when presentment may be made: . or 3. It must be presented before the bill is overdue. presentment must be made to them all unless one has authority to accept or refuse acceptance for all. Presentment. To WHOM will it be presented? 1. where presentment for acceptance is necessary in order to fix the maturity of the instrument.
The accepted bill must be presented for payment within a reasonable time from the last negotiation by the holder or his agent 2. Where the drawee is dead. presentment can not be made. to the acceptor or his agent 3. a. at a reasonable hour on a business day 4. Where the holder of a bill drawn payable elsewhere other than the place of business or the residence of the drawee – has no time. or is a fictitious person or a person not having capacity to contract by bill. 2. acceptance has been refused on some other ground. when the drawee is a fictitious person c. when after due diligence. Duty of the holder where bill is not accepted. 3. after the exercise of reasonable diligence. Where a bill is duly presented for acceptance and is not accepted within the prescribed time. or has absconded. The bill must be exhibited to the acceptor and surrendered to him when he pays.Negotiable Instruments Law 18 A bill may be presented for acceptance on ANY DAY on which negotiable instruments may be presented for payment. Presentment For Payment Of Accepted Bill Purpose: The purpose of presentment for payment of an accepted bill is to collect from the acceptor. with the exercise of reasonable diligence to present the bill for acceptance before presenting it for payment on that day it falls due – THE DELAY CAUSED BY PRESENTING THE BILL FOR ACCEPTANCE BEFORE PRESENTING IT FOR PAYMENT IS EXCUSED AND DOES NOT DISCHARGE THE DRAWERS AND INDORSERS. to collect from the secondary parties. Where. at the proper place as defined. HOW? By giving NOTICE OF DISHONOR or by making a PROTEST when required. When Presentment for payment is excused. . where there is a waiver of presentment. the person presenting it must treat the bill as dishonored by nonacceptance or he loses the right of recourse against the drawer and indorsers. Requisites: 1. it cannot be made b. Note: The only difference between Section 72 and 85 is that under Section 146 there is no distinction between the instruments payable at a fixed or determinable future time and instruments payable on demand. although presentment has been irregular. Where. and if refused. When SATURDAY is NOT OTHER WISE A HOLIDAY – presentment for ACCEPTANCE may be made before twelve o’clock noon on that day. Instances when PRESENTMENT FOR ACCEPTANCE IS EXCUSED and A BILL MAY BE TREATED AS DISHONORED BY NON-ACCEPTANCE: 1.
is not paid on the date of maturity. the instrument is overdue and unpaid. 151) Note: Same effect in Dishonor by Non-payment is Promissory Note NOTICE OF DISHONOR --bringing either verbally or by writing. 103 & 104) TO WHOM GIVEN a. or when presentment for acceptance is excused and the bill is not accepted there is a dishonor by non-acceptance. or presentment being excused. after it has been accepted is not paid when presented for payment. Non-payment (bill and note)—indorsers BY whom Given .In PROMISSORY NOTE .In bills of exchange. to the knowledge of the drawer or indorser of an instrument. or by any party who may be compelled by the holder to pay. Given to a secondarily liable party or his agentSec. (Sec.Negotiable Instruments Law 19 DISHONOR 1 . 97) -Notice to one partner is notice to all even though there has been dissolution -Notice to persons jointly liable who are not partners must be given to each of them unless one of them has authority to receive such notice for others -Notice to bankrupt may be given to his trustee or assignee 3. namely. or if presentment is excused. -There is a dishonor by non-payment if the bill. (Sec. has not been accepted or has not been paid and that the party notified is expected to pay it. Non-acceptance(bill)—to persons secondarily liable. Given at the proper place (Secs. where the bill is presented for acceptance and is returned dishonored. Given as soon as the instrument is dishonored and within the periods provided by law. or within twenty four hours from presentment. is not returned accepted or unaccepted. the fact that a specified negotiable instrument. 90) 2. upon proper proceedings taken. which requires notice of dishonor (Sec. Given by a holder or his agent(SPA necessary). Effect of Dishonor by Non-acceptance: An immediate right of recourse against the drawer and indorsers accrues to the holder and NO PRESENTMENT for payment is necessary. 84) 2. (Sec. dishonor by non-payment takes place when it is duly presented for payment and payment is refused or cannot be obtained.In a promissory note. 102) 4. REQUISITES: 1. In BILLS OF EXCHANGE . Effect: There is an immediate right of recourse by the holder against persons secondarily liable. the drawer and indorsers as the case may be b.
3.Negotiable Instruments Law 20 a. it cannot be given (Sec. Drawer and drawee are the same person 2. actually or constructively 2. 3. If waived (either before the time of giving notice has arrived or after the omission to give due notice) (Sec. the latter is only bound 3. 5. 88) • Good faith refers to the maker or acceptor and not to the holder. Made to the holder. except when the instrument is payable on demand where it may be the option of the holder to present the instrument for payment before 12:00 noon on Saturday when the entire day is not a holiday. consequently. WHEN NOTICE OF DISHONOR NEED NOT BE GIVEN TO INDORSER (a) When the drawee is a fictitious person or person not having capacity to contract. but if written above the signature of an indorser. Instruments falling due or payable on a Saturday are also to be presented for payment on the next succeeding business day. (Sec. (Sec. Another. Made at of after maturity. . When the party to be notified knows about the dishonor. 112) WHEN NOTICE OF DISHONOR NEED NOT BE GIVEN TO DRAWER 1. Drawer is the person to whom the instrument is presented for payment 4. the instrument is payable on the next succeeding business day. When after due diligence. 2. 2. and the indorser was aware of that fact at the time he indorsed the instrument (b) Where the indorser is the person to whom the instrument is presented for payment (c) Where the instrument was made or accepted for his accommodation MATURITY OF NEGOTIABLE INSTRUMENT: 1. 109) --If waiver embodied in instrument itself it binds all parties. Drawee is a fictitious person or a person not having capacity to contract 3. It renders the instrument without force and effect and. When the day of maturity falls on a Sunday or a Holiday. In good faith and without notice that the holder’s title is defective. Drawer has no right to expect or require that the drawee or acceptor will honor the instrument. and who would have a right of reimbursement from the party to whom notice is given WHEN NOTICE OF DISHONOR IS DISPENSED WITH: 1. DISCHARGE OF NEGOTIABLE INSTRUMENT . Every negotiable instrument is payable at the time fixed therein without grace. on behalf of the holder c. it can no longer be negotiated. The holder b. Any party to the instrument who may be compelled to pay it to the holder. 85) REQUISITES OF PAYMENT IN DUE COURSE 1. Drawer has countermanded payment.A release of all the parties liable from obligations arising thereunder.
. It may be made by any other means by w/c the intention to cancel the instrument may be evident. 5. 122)-The act of surrendering a right or claim w/o recompense. It is not limited by writing the word “cancelled” or “paid” or drawing criss-cross lines across the instrument. Renunciation (Sec. Requisites a. obliterating or burning. Surety. By any act which will discharge a simple contract for the payment of money. By an agent on behalf of the principal 2. Cancellation: it includes the act of tearing. instrument is discharged > Notice is required to affect rights of HDC > Renunciation must be in writing unless instrument is delivered up to the person primarily liable thereon. When the principal debtor becomes the holder of the instrument at or after maturity in his own right. if a primary party or c. WHEN PERSONS SECONDARILY LIABLE DISCHARGED (a) By any act which discharges the instrument (b) By the intentional cancellation of his signature by the holder (c) By the discharge of a prior party (d) By a valid tender or payment made by a prior party (e) By a release of the principal debtor unless the holder's right of recourse against the party secondarily liable is expressly reserved (f) By any agreement binding upon the holder to extend the time of payment or to postpone the holder's right to enforce the instrument unless made with the assent of the party secondarily liable or unless the right of recourse against such party is expressly reserved. Intentional cancellation by the holder 4. By payment in due course by or on behalf of the principal debtor 21 Payment in Due Course. By maker or acceptor b. Payment by accommodated party 3. > If renunciation is absolute and unconditional in favor of the principal debtor. but it can be applied w/ equal propriety to the relinquishing of a demand upon an agreement supported by a consideration > Holder may expressly renounces his rights against any party to the instrument before.Negotiable Instruments Law WHEN A NEGOTIABLE INSTRUMENT IS DISCHARGED 1. Payment must be made to the holder c. at or after its maturity. Payment must be made in good faith and w/o notice that the holder’s title is defective By Whom Made: a. erasing. Payment must be made at or after maturity b.
and such payment (or acceptance) was refused. Where the bill contains a referee in case of need. HOWEVER. 3. * When a bill has been DULY NOTED – the protest may be subsequently extended as of the date of the noting. 4.” It means all the steps or acts accompanying the dishonor of a bill or note necessary to charge an indorser. By any respectable resident of the place where the bill is dishonored.” Necessity of Protest: Protest is required only for FOREIGN BILLS. 3. it must be protested for nonpayment before it is presented for payment to the referee in case of need. Protest may be made by – a. or the fact that the drawee or acceptor could not be found. Reason for requiring protest: 1. . may experience difficulty in verifying the matter and may be forced to rely on the representation of the holder. how made: The protest must be annexed to the bill or must contain a copy thereof. The time and place of presentment. but not for inland bills or notes. whereupon the notary protests against all parties to such instrument and declares that they will be held responsible for all loss or damage arising from its dishonor. where protest is required. it must be protested for nonpayment to the acceptor for honor. OMISSION OF PROTEST. from his residence abroad. Where the bill has been accepted for honor. in order to furnish authentic and satisfactory evidence of the dishonor to the drawer who. 2. A notary public or b. they may also be protested if desired. The cause or reason for protesting the bill. Protest. The demand made and the manner given. it not having been dishonored by non-acceptance. in which it is declared that the same was on a certain day presented for payment (or acceptance as the case may be). will DISCHARGE the DRAWER and the INDORSERS.Negotiable Instruments Law 22 PROTEST “It is a formal statement in writing made by a notary under his seal of office at the request of the holder of a bill or note. 2. Where the foreign bill is dishonored by non-acceptance. or 4. Where the foreign bill is dishonored by non-payment. when made: * Protest MUST be made on the day of its dishonor UNLESS delay is excused. and must be under the HAND AND SEAL of the NOTARY making it and must specify: 1. The fact that presentment was made and the manner thereof. for uniformity in international transactions because most countries require it and 2. Instances when protest is required: 1. Protest. in the presence of two or more credible witnesses. it any.
or 2. and c. The holder must give his consent. consisting of his initials or signature and those matters required to be stated in Section 153. When a . A bill MAY BE PROTESTED BEFORE MATURITY – aka “PROTEST FOR BETTER SECURITY” Requisites for Protest for better security: . EXCEPTION: . After acceptance. as the drawer. b.“acceptance supra protest” – how made: . or somebody else. Acceptance for honor: .Negotiable Instruments Law 23 “DULY NOTED” – means that a notary public jots down on a note on the bill or an paper attached thereto. NOTE: Protest is dispensed with by any circumstances which would dispense with notice of dishonor. 4. The bill must have been previously protested (a) for non-acceptance or (b) for better security. is wrongfully detained from the person entitled to hold it ACCEPTANCE FOR HONOR Acceptance of a bill made by a stranger to it before maturity. OR DEMADNN ON. THE DRAWEE IS NECESSARY. The acceptor for honor must be a stranger to the bill.A protest for better security must be made: a. or in his registry book. bill is lost or destroyed . But before the date of maturity. and the bill has been protested for non-acceptance or where the bill has been protested for better security. AND NO FURTHER PRESENTMENT FOR PAYMENT TO. or indorser. Purpose for acceptance for honor: An acceptance for honor is done “to save the credit of the parties to the instrument or some party to it.” Requisites for acceptance for honor: 1. drawee.where that when the bill drawn payable at the place of business or residence of some person other than the drawee has been dishonored by nonacceptance – IT MUST BE PROTESTED FOR NON-PAYMENT AT THE PLACE WHERE IT IS EXPRESSED TO BE PAYABLE. When the acceptor has been adjudged bankrupt and insolvent or has made an assignment for the benefit of creditors.PROTEST MAY BE MADE ON A COPY OR WRITTEN PARTICULARS THEREOF. 2. 1. 3. The bill is not overdue at the time of the acceptance for honor. where the drawee of the bill refused to accept it. Protest where made: GENERALLY – the protest must be made at the place where the instrument is dishonored.
presentment for payment has been made. or 2. ANY PERSON. Where a dishonored bill has been accepted for honor supra protest. Presentment for payment to acceptor for honor. Where a dishonored bill contains a referee in case of need. It must be signed by the acceptor for honor. It must indicate that it is an acceptance for honor. Reason: In order to fix the liability of the indorsers. ACCEPTOR FOR HONOR agrees to pay if: 1. notice of dishonor is given to him. how made: 1. the drawee does not pay. and 3. In payment for honor – the PAYOR SUPRA PROTEST – may even be a PARTY to the instrument. Bills which MUST BE PROTESTED FOR NON-PAYMENT before it will be presented for payment: 1. and that he will pay it at the appointed time. If it is to be presented in some other place other than the place where it was protested. 3. then it must be forwarded within the time specified in Section 104. MATURITY OF A BILL PAYABLE AFTER SIGHT – which has been accepted for honor: Maturity is calculated from the date of NOTING of the NON-ACCEPTANCE and NOT from the date of the acceptance for honor. and 4. The LIABILITY OF THE ACCEPTOR FOR HONOR is SECONDARY – NOT primary or absolute. MISCONDUCT or NEGLIGENCE. even a party thereto may pay supra protest. Note: Delay in making presentment is excused when the delay was caused by events which are BEYOND HIS CONTROL and NOT IMPUTABLE TO DEFAULT. It must be in writing. 2. 2. The bill has been protested for non-payment. the bill is protested for non-payment. PAYMENT FOR HONOR Requisites for payment for honor: 1. When a bill is DISHONORED by the ACCEPTOR FOR HONOR – it must be protested for non-payment by him. It must be presented in the place where the protest for non-payment was made – it must be presented NOT LATER than the day following its maturity. NOTE: As distinguished from acceptance for honor – the acceptor for honor MUST BE A STRANGER.Negotiable Instruments Law 1. 2. as the case may be. . 2. 24 NOTE: It is necessary that the acceptor for honor MUST APPEAR before a notary public and declare that he accepts the protested bill in honor of the drawer or indorser.
3. The payer for honor is subrogated for and succeeds to both the rights and duties of the holder as regards the party for whose honor he pays and all parties liable to the latter. Effect if the holder REFUSES to receive payment supra protest? He loses his right of recourse against any party who would have been discharged by such payment. Purpose of bill in set: In order to increase the probability of the bill reaching its destination. All parties subsequent to the party for whose honor it is paid are discharged. or form an extension to it. 2. The payment must be attested by notarial act appended to the protest. The payor then notifies the person for whose honor he pays within reasonable time. 2. Rights of payer for honor: 1. Effects on subsequent parties where bill is paid for honor: 1. Right of holders where different parts are negotiated: . The notarial act must be based in a declaration by the payer for honor.The person WHOSE PAYMENT will DISCHARGE MOST PARTIES to the bill is to be given the preference. and to avoid the difficulties which would arise in case of loss or miscarriage on the way of the bill. each part being numbered and containing a reference to the other parts.Negotiable Instruments Law 25 Form for payment for honor: 1. He has also the right to receive both the bill and the protest. He acquires the rights of the holder under Section 175. and 2. BILLS IN SET Bills in set – one composed of various parts. Preference of parties offering to pay for honor: . Purpose of payment for honor: Instead of simple negotiation to the person desiring to pay. all of which parts constitute but one bill. and 2. The notary then records the declaration in the protest or in a separate paper attached to it. The payer or his agent goes to a notary public and declares his intention to pay the bill and for whose honor he pays. Procedure for payment for honor: 1. payment for honor may be availed of when the holder does not want to indorse the bill and thereby incur the liabilities of an indorser or of one negotiating by mere delivery.
The acceptance may be written on any part and it must be written on ONE PART only. Acceptance of bills in set: . and . to pay money. . Bonds . and contains an agreement of the company to pay the sum at a specified time in the future.Negotiable Instruments Law 26 Where two or more parts are negotiated to different HOLDERS IN DUE COURSE – the HOLDER whose title FIRST ACCRUES – AS BETWEEN SUCH HOLDERS – is the TRUE OWNER of the bill. NIL. under seal. signed by the maker.He is liable on EVERY SUC H PART. or to some other person or order. Special types of promissory notes: 1.If the drawee ACCEPTS MORE THAN ONE PART and such accepted parts are negotiated to different holders in due course he is liable on every part as if it were a separate bill. and the part at maturity is outstanding in the hands of a holder in due course – he is liable to the holder thereof. . NOTE: Where a note is drawn to the maker’s own order. Liability of holder who indorses two or more parts of a set to different persons: . Payment by acceptor of bills drawn in sets: .It is NOT ipso facto negotiable – it must first comply with the requirements provided under Section 1.is a written acknowledgment by a bank of the receipt of money on deposit which the bank promises to pay to the depositor. Certificate of deposit . it is NOT complete until indorsed by him.When the acceptor of a bill drawn in a set pays it without requiring the part bearing his acceptance to be delivered up to him. engaging to pay on demand. bearer. and meanwhile to pay a . Effect if the drawee accepts more than one part: . a sum certain in money to order or bearer. 2.The bond certifies that the issuing company is indebted to the bondholder for the amount specified on the face of the bond.Where ONE PART OF A BILL DRAWN in a set is discharged by payment or otherwise – THE WHOLE BILL is DISCHARGED – except as otherwise provided. or at a fixed or determinable future time. PROMISSORY NOTES AND CHECKS Promissory Note – is an unconditional promise in writing made by one person to another. Effect of discharging one of a set: .EVERY INDORSER SUBSEQUENT to him is LIABLE on the part he has himself indorsed – AS IF SUCH PARTS WERE SEPARATE BILLS.A promise.
NOTE: . CHECK – is a bill of exchange drawn on a bank payable on demand. numbered and similarly printed coupons which the bondholder may cut off when due or thereafter.is an instrument whereby one person acknowledges his indebtedness to another. They are regarded as cash and pass from hand to hand without any evidence of titled in the holder than that which arises form possession. negotiated before the maturity of the interest they represent. They are negotiable if it the requisites in Section 1. In case of redemption Kinds of checks: 1. NIL are complied with.Are promissory notes of the issuing bank payable to bearer on demand and intended to circulate as money. 12. Coupon Bonds – those which are attached a sheet of dated. The check was encashed. they are not money. of a sum of money to a certain person therein named or to his order or to cash and payable on demand. Debentures 10. Cashier’s check – it is a check drawn by the cashier of a bank in the name of the bank against the bank itself payable to a third person or order. Equipment Bonds 7. Guaranteed bonds 9. generally six months apart. and transferred just like any commercial paper. Ordinary Check—The most common check issued by a bank to a client who opens a checking account 2. or when the check had been credited to the account of the creditor) b. Such coupons may be served and deposited in a bank. Classes of Bonds: 1.Acceptance is NOT required for checks for the same are PAYABLE ON DEMAND. (Encashment is not limited to physical encashment over the counter of the drawee bank. . Collateral trust bonds 8. A check can be considered encashed through the clearing house. It is a written order on a bank. Mortgage bonds 6. Convertible bonds 3. When through the fault of the creditor the check is impaired c. 11. Income bonds 2. Redeemable Bonds 4. They are negotiable if it the requisites in Section 1. but produces the effect of payment when: a. NIL are complied with. Check is not Legal Tender. Due Bills . However.Negotiable Instruments Law 27 specified interest on the principal amount at regular intervals. Bank Notes . purporting to be drawn against a deposit of funds for the payment of all events. Registered Bonds 5.
graduations and similar occasions.If it bounces – the drawer can be charged for violation of BP 22. Memorandum Checks – a check on which is written the word “memorandum”. When these checks are lost or stolen. who must put his signature upon purchase of the check and countersign with the same signature on the space indicated on its face or back when using the check as a mode of payment in his travel. Here. It is similar to the cashier’s check as to effect and use. NOTES: 1. .one issued by a bank to a holder. 5. Manager’s Check – a drawn by the manager of a bank in the name of the bank against the bank itself payable to a third person. signifying that the drawer engages to pay the bona fide holder absolutely and not upon a condition to pay upon presentment and non-payment. Where other than payee of crossed checks presented it for payment. 4. or when nothing is written at all between the parallel lines. It is indicated as a “Gift Check”. there is no proper presentment and drawer is not liable thereon. weddings. 8. How is crossing of check done: -it is usually done by drawing two parallel lines transversally on the face of the check. Certified Checks – a check on which the drawee bank has written an agreement whereby it undertakes to pay the check at any future time when presented for payment. 7. A check may be crossed (1) specially or (2) generally. the drawer is instructing the drawee bank not to honor the check unless the payee is identified by another bank Crossing generally – a check is crossed generally when only the words “and company” are written between the parallel lines. such as. The act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has secured the check pursuant to that purpose. usually a traveller. Under crossed check – the payee has the duty to ascertain the holder’s title to checks. so as to be used as a gift for birthdays. The check may be negotiated only once to one who has an account with a bank 3.Negotiable Instruments Law 28 3. by stamping on the check the word “certified” or “Good For Payment” and underneath it is written the signature of the cashier. Effects of Crossing a check 1. and “mem”. . Traveler’s Check. Here. Drawee should not encash a crossed check but merely the same for deposit. the purchaser can notify the agent of the seller anywhere in the world and prevent the use of the lost or stolen traveller’s check. Gift Check-Similar to a cashier’s or manager’s check and may be signed either by the cashier or manager. 3. Crossed check –One which has two parallel lines. usually on the upper left hand corner. Crossing specially – a check is crossed specially when the name of a particular banker or a company is written between the parallel lines drawn transversally on the face of the check. the drawer is instructing the drawee bank not to honor the check unless the payee is identified by the particular bank named in between the two parallel lines. 6. The check may not be encashed but only deposited in the bank 2. “memo”. 2.
if no loss or injury is shown. must be presented within six (6) months – otherwise it will become stale.it is a good precaution when it is to be forwarded by mail or when it is entrusted to an agent and the drawer wants to be sure that it will be paid to the rightful owner.a check under BP 22 must be presented for payment to the bank within 90 days from date so that the holder will enjoy the benefit of the prima facie presumption that the maker. Effect if the check was allowed to become stale? (Stale when not encashed w/in 6 months) . Dorsal Side/Back of the Check 1. A bank is not obliged to the depositor to certify checks. undertakes to pay it at any future time when presented for payment. Hence. Features of the Check I. the drawer is not discharged. Space for indorsement (signature & address of the indorser) Check – when should it be presented for payment: A check MUST be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay. Amount in words 5. Payee 3. Amount in figures 4. Drawer (Account Name) 6. or issuer knows at the time of issue that he does not have sufficient funds in or credit with the drawee bank for payment of such check.Negotiable Instruments Law 29 Advantages of crossing check: . 1. . Space for signature of the drawer II. Magnetic Ink Character Recognition Code (MICR)—a code designed to facilitate the clearing of checks among banks. Check Number 9. Drawee-Bank 7.the drawer is discharged but only to the extent of the loss caused by the delay. Certification of check – is an agreement whereby the bank against whom a check is drawn. Account Number 8. A check is a bill of exchange payable on demand – is intended for immediate use and not to circulate as a promissory note. . Face. Date 2. drawer. 10.
Form of certification: . and 3. A drawer may stop payment of the check before the same is accepted. Cases when Bank May Refuse Payment 1. Effect of Certification: 1.K. It is equivalent to acceptance and is the operative act that makes the drawee bank liable.No particular form is required – BUT IT MUST BE IN WRITING. If obtained by the holder. It operates as an assignment of the funds of the drawer in the hands of the drawee bank. It must describe the check with reasonable accuracy 2. It must be given to an authorized officer or employee of the drawee bank 3. It must be positive and unqualified 4. Stop Payment Order—an instruction by the drawer addressed to the drawee bank directing the latter not to honor or pay the check. The bank is insolvent 2. The drawer’s deposit is insufficient or he has no account with the bank or said account had been closed or garnished 3. the drawer and all indorsers are discharged from liability thereon. The drawer has countermanded payment 6. The drawer is insolvent and proper notice is received by the bank 4. When check operates as an assignment. with the initials of the cashier of a bank do not constitute a sufficient certification under modern banking practice. certification or payment to enable the bank. Iron-Clad Rule: Prohibits the countermanding of payment of certified checks. Indorsers subsequent to the certification are not discharged. A check of itself does not operate as assignment of any part of the funds to the credit of the drawer with the bank. The drawer dies and proper notice is received by the bank 5. Requisites for Stop Payment Order 1.Where the holder of a check procures it to be accepted or certified.Negotiable Instruments Law 30 - The certification of a check is EQUIVALENT to an ACCEPTANCE. It must give the bank sufficient time prior to acceptance. . and the bank is not liable to the holder unless and until it accepts or certifies the check.”. The letters “O. it discharges persons secondarily liable thereon. in the exercise of reasonable diligence to stop payment. certified or paid by the drawee bank. The holder refuses to identify himself 7. 2. Effect where the holder of check procures it to be certified. The bank has reason to believe that the check is forgery. .
Negotiable Instruments Law 31 .
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