Negotiable Instruments Law

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. 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) 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. 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

to be payable in the Philippines but drawn outside thereof. and happening of event doesn’t cure it payable to order • • 3. with costs of collection or an attorney’s fee. Where the drawee has no capacity to contract. an indication of a particular fund out of which reimbursement to be made. Failure to protest foreign bills will discharge persons secondarily liable thereon. accepting. notice of dishonor 9. necessary 2. 3. when expressed to be payable on demand. 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. acceptance 5. with exchange. THE LIFE OF A NEGOTIABLE INSTRUMENT: (INPAD-PD-N-PD) 1. it is. with interest. dishonor by on acceptance 6. . presentment for payment 7. presentment for acceptance in certain bills 4. in a draft drawn by an agent on his principal by authority of the principal. accepted or indorsed when overdue. 2. 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. negotiation 3. or on or at a fixed period after the occurrence of a specified event which is certain to happen. Where the drawee is a fictitious person. or e. 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. 2. 2 Importance of the distinction: The distinction is important in: 1. 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. 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.Negotiable Instruments Law b. issue 2. 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. That foreign bills are required to be protested. or d. by stated installments. protest in certain cases 10. or the bearer thereof. unconditional promise or order to pay • unqualified order or promise to pay is unconditional though coupled with a. in case payment not made at maturity payable on demand. or on presentation. though the time of happening be uncertain an instrument payable upon a contingency not negotiable. or c. as regards the person so issuing. or a particular account to be debited with amount. • • • • • • • 4. by stated installments with a provision that upon default in payment of any installment/interest. discharge NEGOTIABILITY REQUISITES (SUDOC) 1. no particular form of appt. or on or before a fixed or determinable future time fixed therein. When bill may be treated as promissory note. He adds words indicating that he signs as an agent. or where an instrument is issued. or b. or b. Where the drawer and the drawee are the person such as. 1. the whole shall become due. or at sight. dishonor by nonpayment 8. Note: It is the option of the holder to resort to the referee in case of need or not as he may see fit. whether at a fixed rate or at the current rate. when no time for payment expressed. The distinction is also important for the determination of the law applicable. or indorsing it. 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.

two or more payees jointly. or c. or when name of payee doesn’t purport to be the name of any person. 16) Issuance-the first delivery of the instrument complete in form to a person who takes it as a holder. and if the instrument is undated. immediate parties b. 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. when expressed to be so payable when payable to person named therein or bearer when payable to order or fictitious/non-existent person. (Sec. Delivery with intention to give effect thereto. Construction where instrument is ambiguous. without specifying the date from which interest is to run. or when the only/last indorsement is in blank where addressed to drawee: such drawee named/ indicated therein with reasonable certainty bill may be addressed to two or more drawees jointly. or d. May be drawn payable to order of --a. the interest runs from the date of the instrument. Does not specify the value given or that any value has been given therefore c. give holder election to require something to be done in lieu of money Other Instances when negotiability not affected (Sec. the written provisions prevail. 11) Effect of ante-dating or Post-dating: Instrument is not invalid. Designates a particular kind of current money in w/c payment is to be made . • • Sec. Where an instrument is payable at a fixed period after sight but the acceptance is undated DELIVERY (Sec. As between: a. drawer or maker. reference may be had to the figures to fix the amount. (e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note. a remote party other than holder in due course CONTINUATION OF NEGOTIABLE CHARACTER Until: 1. Rule: order/promise to do any act in addition to the payment of money renders instrument non-negotiable. 17. 1 2. a payee not the maker/drawer/drawee. or e. accepted by the drawee or indorsed by the payee. and such fact known to the person making it so payable. Does not specify the place where it is drawn or the place where it is payable d. drawer and drawee are same person b. authorize sale of collateral security if instrument not paid at maturity 2. but not to two or more drawees in the alternative or in succession bill may be treated as a PN. (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. Steps: 1. 6) a. it will be considered to be dated as of the time it was issued. Not dated b. restrictively indorsed 2. at option of holder. or b. Exception: negotiability not affected by provisions w/c 1. drawn by the drawer. (d) Where there is a conflict between the written and printed provisions of the instrument. where a. complying with requirements of Sec. (a) Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two.5) Gen. discharged by payment or otherwise EFFECT OF ADDITIONAL PROVISIONS (Sec. (g) Where an instrument containing the word "I promise to pay" is signed by two or more persons. he is to be deemed an indorser. drawee is fictitious/incapacitated 3 • • • • • • 5. they are deemed to be jointly and severally liable thereon.Negotiable Instruments Law • where it is drawn payable to the order of a specified person or to him or his order. 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. waives benefit of any law intended for advantage/protection of obligor 4. authorize confession of judgment… 3. drawee. Mechanical Act of writing. (c) Where the instrument is not dated. DATE IN AN INSTRUMENT Presumption as to date: Said date is the date when it was made by the maker. whether partners or not. (Sec. but if the words are ambiguous or uncertain. provided not done for an illegal or fraudulent purpose. Bears a seal e. (b) Where the instrument provides for the payment of interest. Where an instrument is payable at a fixed period after date but is issued undated b. • NI incomplete and revocable until delivery for the purpose of giving effect thereto. the holder may treat it as either at his election. from the issue thereof. the sum denoted by the words is the sum payable.

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. • If payable to BEARER. it may nevertheless be further negotiated by delivery • 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. a valid and intentional delivery by him is presumed until the contrary is proved (*if in the hands of a HDC. Presumption as to place of Indorsement— At the place where instrument dated Striking Out Indorsements. (Sec.Negotiable Instruments Law delivery. Special – specifies the person to whom/to whose order the instrument is to be payable. 35) B. conditional – additional condition annexed to indorser’s liability. unconditional INDORSEMENT OF BEARER INSTRUMENT (Sec. non-restrictive 4 C. nor can it be to two or more indorsees severally. instrument so indorsed is payable to bearer.constitutes indorser as mere assignor of title (eg. 2. or for a special purpose only. or to strengthen the security of the holder by assuming a contingent liability for its future payment. 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. indorsement of such indorsee is necessary to further negotiation. 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. (can’t be indorsement of only part of amount payable. to be effectual. 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. • constitutes indorsee as agent of indorser. transfer vests in transferee such title as transferor had therein .42)  Presumed to be payable to the bank or corporation INDORSEMENT WHERE NAME MISSPELLED (Sec. 40) • Where an instrument payable to bearer is indorsed specially.  The indorsement must be written on the instrument itself or upon a paper attached thereto. 31)  Indorsement must be of entire instrument. except where indorsement bears date which is after maturity. and make payment to the indorsee or his transferee. • Where an indorsement is conditional. a party required to pay the instrument may disregard the condition. unqualified D. 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. 43)  May continue indorsing through the misspelled name. Effect: * The indorser whose indorsement is struck out and all indorsers subsequent to him relieved from liability.41)  All must indorse unless the one indorsing has authority to indorse for others  INSTRUMENT DRAWN OR INDORSED TO A PERSON AS CASHIER (Sec. 32] KINDS OF INDORSEMENT A. As to kind of liability assumed by indorser 1. Blank – specifies no indorsee. negotiated by delivery. As to kind of title transferred 1. 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. qualified. restrictive • prohibits further negotiation of instrument. 49) 1. but all subsequent indorsees acquire only title of first indorsee under restrictive indorsement 2. The signature of the indorser is sufficient. “without recourse”) 2. UNINDORSED INSTRUMENTS (Sec. or he may add his proper signature Presumption as to time of Indorsement—before instrument is overdue. As to presence/absence of express limitations put by indorser upon primary obligor’s privileges of paying the holder 1. As to manner of future method of negotiation 1. But may be indorsed as to the residue of partially paid instrument) [Sec. if payable to ORDER. presumption conclusive) NEGOTIATION • When an instrument is transferred from one person to another as to constitute the transferee the holder thereof.

description of the person and the like. Available to all parties both immediate and remote including HDC. 24 (presumption of consideration) • sec 25 (Value: is any consideration sufficient to support a simple contract) • sec. 53 (instrument payable on demand negotiated after unreasonable length of time: holder is not HDC) • sec. payment to him in due course discharges instrument 3. he had no notice of -a. Available to prior parties among themselves but w/c are not good against a HDC. sue thereon in his own name 5 2. taken in good faith and for value • sec. at time negotiated to him. real defense – attaches to instrument. 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. General Rule: a. amount. Time or place of payment d. Sum Payable. on the principle that the right sought to be enforced never existed/there was no contract at all.A material alteration made by a stranger • sec. or enforce payment vs. 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. 125 what constitute material alterations: a. presumption is reversed. instrument negotiated in breach of faith. personal defense – growing out of agreement. by contract or implication he is deemed a holder for value to the extent of the lien) 4. Spoliation. complete and regular upon its face • sec. renders it inequitable to be enforced against defendant. or give discharge.defect in title of person negotiating: What defect constitutes (Sec. any party. 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. Date b.. INCAPACITY: REAL: indorsement/assignment by corporation/infant passes property but corp/infant no liability 2.Negotiable Instruments Law 2. holder became such before it was overdue. Medium of currency or which adds a place of payment 2. 56-notice of defect: Actual knowledge necessary RIGHTS OF HOLDER IN DUE COURSE 1. or fraudulent circumstances Notice Sec. 50) Not entitled to enforce payment against any intervening party to whom he is personally liable HOLDER IN DUE COURSE REQUISITIES 1. effects (Sec. can be acquired through or under such signature (unless forged signature unnecessary to holder’s title) Exception: . holds the instrument free from any defect of title of prior parties and free from personal defenses available to parties among themselves 4. no right to retain instrument. 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. (Sec. and may consist in the signing of another’s name or the alteration of an instrument in the name. without notice of any previous dishonor • sec. 54-notice before full amt. right of transferee to have indorsement of transferor for purposes of determining HDC negotiation effective upon actual indorsement PRIOR PARTY WHO NEGOTIATES INSTRUMENT. 12 (effect antedating/postdating) 3. etc. WHO DEEMED HDC (Sec. illegal consideration/means.infirmity in instrument b. 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. 59) • prima facie presumption in favor of holder • but when shown that title of any person who has negotiated instrument was defective.55) 1. either for principal or interest c. FORGERY: Real: Definition: the counterfeit-making or fraudulent alteration of any writing. 27 (When a holder has lien on the instrument. 2. with intent thereby to defraud. instrument/signature obtained through fraud. NI is subject to same defenses as if it were non-negotiable. Number or relations of the parties e. paid: deemed HDC only to the extent of the amount paid by him Sec. or 2. DEFENSES 1. wholly inoperative b. 26 (Holder for value: one who has given a valuable consideration for the instrument issued or negotiated to him ) • sec.

Absence or failure of consideration whether partial or total 2. Acquisition of the instrument for an illegal consideration 9. fraud in execution: real defense (didn’t know it was a Negotiable Instrument) b. COMPLETE. 189 (when check does not operate as assignment until bank certifies or accepts it) 3. Promises to pay it according to its tenor b. 4. delivery prima facie presumed • If holder is HDC. MATERIAL ALTERATION • Where NI materially altered w/o assent of all parties liable thereon. except as against 1. be a valid contract in the hands of any holder. Status of drawee prior to acceptance or payment • sec. party who has himself made. 15) • Instrument will not. Marriage in the case of a wife 7. Forgery 1. may be enforced against any person who became a party thereto prior to its completion: 1. Fraud in inducement 6. avoided. tenor of instrument. as against any person whose signature was placed thereon before delivery 7. DELIVERED • Personal defense (sec. b. Acquisition of instrument by unlawful means 8. PRIMARY PARTIES • Person primarily liable: person who by the terms of the instrument is absolutely required to pay the same. Insertion of wrong date in an instrument 4. Negotiation in breach of faith 10. 6 Personal Defenses 1. Ultra Vires acts of corporation 9. Minority (available to the minor only) 6. • • a. HDC may enforce payment thereof according to orig. Liability of Acceptor Promises to pay instrument according to its tenor Admits the following: existence of drawer genuineness of his signature . he may enforce it as if it had been filled up properly Real Defenses Material Alteration Want of delivery of incomplete instrument 3. UNDELIVERED INSTRUMENT • Personal defense (sec. INCOMPLETE. delivery conclusively presumed 6. Mistake 12. 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. Intoxication 13. 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 LIABILITIES OF PARTIES A. 1. fraud in inducement: personal defense (knows it’s Negotiable Instrument but deceived as to value/terms) 5. but real defense when relied on to deny liability according to altered terms. 2. Illegality—if declared void for any purpose 12. parties who make certain warranties. duress or fear 7. Fraud in factum or Fraud in esse contractus 5. 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. it's valid for all purposes in his hands. like a general indorser or acceptor b. 14) • 2 Kinds of Writings: 1. Execution of instrument b/w public enemies 11.Negotiable Instruments Law unless the party against whom it is sought to enforce such right is precluded from setting up forgery/want of authority Precluded: a. Liability of Maker a. admits existence of payee and his then capacity to indorse 2. Acquisition of instrument by force. Insanity where the insane person has a guardian appointed by the court 8. FRAUD a. Negotiation under circumstances that amount to fraud 11. when completed. Want of authority of agent 10. within a reasonable time • but if any such instrument after completion is negotiated to HDC. UNDELIVERED INSTRUMENT • Real defense (sec. Want of delivery of complete instrument 3. tenor *material alteration a personal defense when used to deny liability according to org. Filling up of blank contrary to authority given or not w/in reasonable time 5. Where instrument is wanting in any material particular: person in possession has prima facie authority to complete it by filing up blanks therein 2. 16) • If instrument not in possession of party who signed. authorized or assented to alteration 2. estopped/negligent parties 3. must be filled up strictly in accordance w/ authority given 2. 127 (bill not an assignment of funds in hands of drawee) • sec. if completed and negotiated without authority. Duress amounting to forgery 4. INCOMPLETE.

In Promissory Notes Purpose: Not necessary to make the maker liable. Admits existence of payee and his then capacity to endorse b. c. when after due diligence presentment cannot be made. when the indorser is an accommodated party. or both. but the mere addition of words describing him as an agent without disclosing his principal. Engages that on due presentment instrument will be accepted. but holder may sue any of the indorsers. instrument genuine. made within a reasonable time after issue. To holder. and necessary proceedings on dishonor be duly taken. he’s liable as an indorser. 65. In Bills of Exchange B. and 3. according to its tenor and that c. 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. for the purpose of lending his name to some other person • Accomodation Party liable on the instrument to holder for value even if holder. When NOT required/excused Presentment is NOT required: 1. according to tenor d. 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. Signs for accommodation of payee. in accordance w/ these rules: 1. or payable to bearer: liable to all parties subsequent to maker/drawer 3. at a reasonable hour on a business day. He has good title c. w/o receiving value therefore. among themselves: liable prima facie in the order they indorse. Instrument payable to order of 3rd person: liable to payee and to all subsequent parties 2. at the proper place. 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. the following are necessary: a.  Accomodated Party—is one in whose favor a person. Instrument payable to the order of maker/drawer. regardless of order of indorsement 3. at time of taking instrument. or both. but is necessary to make the secondary parties liable. or paid. d. b. Liability of Drawer a. signs an instrument for . SECONDARY PARTIES 1. liable to all parties subsequent to payee Liability of an Agent • Signature of any party may be made by duly authorized agent. his capacity and authority to draw the instrument existence of payee and his then capacity to indorse 7 the purpose of lending his credit and enabling said party to raise money upon it. 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. all prior parties had capacity to contract d. Instrument genuine. Liability of Irregular Indorser • Where a person not otherwise a party to an instrument. on due presentment. by the holder or his agent. unless he discloses name of principal and fact that he’s only acting as agent  PRESENTMENT A. he will pay the amt. w/o consideration. to the party liable under it. does not exempt from personal liability. but proof of another agreement admissible 2. Liability of Indorsers: • Qualified Indorser and one Negotiating by Delivery (Sec 65) a. • Signature per procuration operates as notice that the agent has but a limited authority to sign. for the purpose of accommodating some other party who is to use it and is expected to pay it. ***The holder must exhibit the instrument to the debtor and should deliver it to said debtor if the latter pays. or to any subsequent indorser who may be compelled to pay it • Order of Liability among Indorsers 1. and the necessary proceedings on dishonor be duly taken. warranty only extends in favor of immediate transferee • Liability of a General or Unqualified Indorser a. places thereon his signature in blank before delivery. when presentment is waived. Requisites: For a valid presentment for payment of a promissory note. 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. he incurs all liabilities in Sec. instrument is at time of indorsement valid and subsisting c. capacity of prior parties b. d. he is not liable on the instrument if he was duly authorized. knew he was only an Accomodation Party Some Terms:  Accommodation Bill or Note—one to which the accommodation party has put his name. in all respects what it purports to be b. if it be dishonored. B. and e.Negotiable Instruments Law c. good title. If it be dishonored. it shall be accepted or paid. 2.

Accepted by some or more of the drawees but not by all. REQUISITES OF ACTUAL ACCEPTANCE: 1.Acceptance by telegram has been held sufficient. and constructive. or b.this class of acceptance is NOT in writing. it may be acceptance as to a non-existing bill. e.The drawee must sign because without his signature he would not be bound – See Section 18. .B.Drawee bank is NOT entitled to 24 hours to decide whether for payment NOT acceptance. But.Acceptance is express if written on the instrument by the drawee. signed by the drawee. e. That the bill shall be drawn within a reasonable time after such promise is written. General and Qualified General Acceptance – a general acceptance assents without qualification to the order of the drawer. WHERE BILL MAY BE WRITTEN: . if he wants to dishonor. Section 136. and iii. or refuses to return the bill within said period of twenty-four hours.It is usually done by writing across the face of the bill the word “ACCEPTED” or words of similar import. and 4. it must be communicated or delivered to the holder. N. Partial. on a separate paper. the drawee becomes liable on the bill. ACCEPTANCE. Constructive Acceptance: . must do so expressly within twenty-four (24) hours from presentment to him. Express and Constructive . as certification is equivalent to acceptance. Qualified as to time. if the check is presented for certification. destroys the same. . Conditional. b. The acceptance is qualified if it is: a. If he refuses to act. 8 EFFECT OF ACCEPTANCE: Upon acceptance. and may even be in writing before the bill is drawn.The acceptance may be on the bill. NIL. If the bill is non-existent. Local.the payment of a check does not include or imply its acceptance in the sense that this word is used in Section 62. How made: . tears the bill. and 2.Negotiable Instruments Law Acceptance is the signification by the drawee of his assent to the order of the drawer. NIL. Acceptance is NOT required for CHECKS for the same are payable on demand. the acceptance if given. on the bill itself. the acceptance on a separate paper must comply with following requirements: i. d. 3. 2. or 2. The drawee is allowed twenty-four hours after presentment in which to decide whether or not he will accept the bill. 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. That the holder shall take the bill upon the credit of the promise. or refuses or fails to return the bill accepted or unaccepted. Classes of Acceptance 1. c. 1. But should the drawee refuse to accept. “HONORED”. Is payment equivalent to acceptance? NO. Qualified Acceptance – it varies the effect of the bill as drawn. .The drawee. That the contemplated drawee shall describe the bill to be drawn and promise to accept it. “SEEN” followed by the signature of the drawee.g. if drawee.Acceptance may be made 1. this ruling will not apply. dates as of the day of presentation. it may be acceptance as to an existing bill. the acceptor standing in the place of the maker. if any. and the drawer. HOW MADE? . .A sight draft (usually accompanying a letter of credit in importations) is payable on demand and needs no acceptance by the drawee. it must not express that the drawee will perform his promise by another means than the payment of money. ii. . Where the drawee to whom the bill is delivered for acceptance. in writing. The bill becomes in effect a note. destroys it. - - . he is deemed to have accepted the bill – implied acceptance. “I WILL PAY THE BILL”. on a separate paper (allonge). within twenty four hours from presentment to him of the instrument. or . and if on a separate paper a. the payee or the holder has no recourse against him but only against the drawer and indorsers. in the place of the first indorser.

It must be presented before the bill is overdue. the drawee would be required to comply on pain of being held as an acceptor. Even when the bill is overdue. 4. Where a bill is addressed to two or more drawees who are not partners. Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. A bill may be presented for acceptance on ANY DAY on which negotiable instruments may be presented for payment. . 4. Even after it has been dishonored by non-acceptance or by non-payment. to make presentment for acceptance or ii. or 3. Where the drawee is dead presentment may be made to his personal representative. where presentment for acceptance is necessary in order to fix the maturity of the instrument. and 3. Presentment. When SATURDAY is NOT OTHER WISE A HOLIDAY – presentment for ACCEPTANCE may be made before twelve o’clock noon on that day. how made: -Presentment MUST be made by or on behalf of the holder: Requisites: 1. Before the bill has been signed by the drawer. the drawee will be deemed to have accepted the bill even if there is NO ACTUAL WRITTEN ACCEPTANCE by him.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. Where the bill is payable after sight. To the DRAWEE or some person authorized to ACCEPT or REFUSE ACCEPTANCE on his BEHALF. within 24 hours after such delivery or within such time as is given him. . 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. in which case presentment may be made to him only. It must be presented on a business day. 2. to negotiate the bill within a reasonable time. Where the bill is expressly stipulates that it shall be presented for acceptance. In all the foregoing.If the holder should demand its return before twenty-four hours. Even when the bill is otherwise incomplete. - Days when presentment may be made:  Presentment for Acceptance Definition: It is the production or exhibition of a bill of exchange to the drawee for his acceptance. . GENERAL RULE: Presentment for acceptance is NOT NECESSARY to render any party to the bill liable. to return the bill accepted or not accepted. Where the drawee has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors.  9 NOTE: In those instances found in Section 143 – it is NECESSARY – in order to charge persons secondarily liable (Section 144): i. but return within twentyfour hours unaccepted would not be a dishonor.Negotiable Instruments Law 2. Where the drawee refuses. or 2. Instances when a bill may be accepted: 1. presentment may be made to him or to his trustee or assignee. or in any other case. 2. presentment must be made to them all unless one has authority to accept or refuse acceptance for all. and 2. EXCEPTIONS: 1. 3. 3. It must be presented at a reasonable hour. 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. To WHOM will it be presented? 1. 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.

 DISHONOR 1 . Where a bill is duly presented for acceptance and is not accepted within the prescribed time. the instrument is overdue and unpaid. HOW? By giving NOTICE OF DISHONOR or by making a PROTEST when required. 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. or has absconded.In bills of exchange. the fact that a specified negotiable instrument. Instances when PRESENTMENT FOR ACCEPTANCE IS EXCUSED and A BILL MAY BE TREATED AS DISHONORED BY NON-ACCEPTANCE: 1. when the drawee is a fictitious person c. 151) Note: Same effect in Dishonor by Non-payment is Promissory Note NOTICE OF DISHONOR --bringing either verbally or by writing. Another. to the knowledge of the drawer or indorser of an instrument.In PROMISSORY NOTE . Where. 2.  Presentment For Payment Of Accepted Bill Purpose: The purpose of presentment for payment of an accepted bill is to collect from the acceptor.Negotiable Instruments Law  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 within twenty four hours from presentment. is not returned accepted or unaccepted. 90) 2. on behalf of the holder c. to the acceptor or his agent 3. 10 Effect: There is an immediate right of recourse by the holder against persons secondarily liable. or by any party who may be compelled by the holder to pay. 3.In a promissory note. Given to a secondarily liable party or his agentSec. a. and who would have a right of reimbursement from the party to whom notice is given . after it has been accepted is not paid when presented for payment. and if refused. has not been accepted or has not been paid and that the party notified is expected to pay it. or is a fictitious person or a person not having capacity to contract by bill. it cannot be made b.  REQUISITES: 1. Given at the proper place (Secs. In BILLS OF EXCHANGE . at a reasonable hour on a business day 4. (Sec. 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. dishonor by non-payment takes place when it is duly presented for payment and payment is refused or cannot be obtained. When Presentment for payment is excused. at the proper place as defined. where the bill is presented for acceptance and is returned dishonored. to collect from the secondary parties. although presentment has been irregular. or presentment being excused. The accepted bill must be presented for payment within a reasonable time from the last negotiation by the holder or his agent 2. where there is a waiver of presentment. 84) 2. Where the drawee is dead. -There is a dishonor by non-payment if the bill. (Sec. when after due diligence. Non-acceptance(bill)—to persons secondarily namely.  The bill must be exhibited to the acceptor and surrendered to him when he pays. 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. upon proper proceedings taken. Requisites: 1. (Sec. Duty of the holder where bill is not accepted.  BY whom Given a. presentment can not be made. 102) 4. is not paid on the date of maturity. 103 & 104)  TO WHOM GIVEN a. Given as soon as the instrument is dishonored and within the periods provided by law. The holder b. Any party to the instrument who may be compelled to pay it to the holder. Given by a holder or his agent(SPA necessary). the person presenting it must treat the bill as dishonored by nonacceptance or he loses the right of recourse against the drawer and indorsers. or when presentment for acceptance is excused and the bill is not accepted there is a dishonor by non-acceptance. the drawer and indorsers as the case may be b. Where. after the exercise of reasonable diligence. or if presentment is excused. acceptance has been refused on some other ground. Non-payment (bill and note)—indorsers liable. which requires notice of dishonor (Sec.

obliterating or burning. By payment in due course by or on behalf of the principal debtor Payment in Due Course. but if written above the signature of an indorser. 2. By an agent on behalf of the principal 2.Negotiable Instruments Law 11 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. but it can be applied w/ equal propriety to the relinquishing of a demand upon an agreement supported by a consideration . Requisites a. Payment must be made to the holder c. (Sec. If waived (either before the time of giving notice has arrived or after the omission to give due notice) (Sec. 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. 122)-The act of surrendering a right or claim w/o recompense. When the day of maturity falls on a Sunday or a Holiday. it can no longer be negotiated. In good faith and without notice that the holder’s title is defective. 109) --If waiver embodied in instrument itself it binds all parties. 3. 4. Made at of after maturity. Made to the holder. It is not limited by writing the word “cancelled” or “paid” or drawing criss-cross lines across the instrument.  DISCHARGE OF NEGOTIABLE INSTRUMENT . if a primary party or c. It may be made by any other means by w/c the intention to cancel the instrument may be evident. When the party to be notified knows about the dishonor. 5. erasing. the instrument is payable on the next succeeding business day. Renunciation (Sec. It renders the instrument without force and effect and. 3. (Sec. consequently.  REQUISITES OF PAYMENT IN DUE COURSE 1. 88) • Good faith refers to the maker or acceptor and not to the holder. Instruments falling due or payable on a Saturday are also to be presented for payment on the next succeeding business day. 85) WHEN NOTICE OF DISHONOR IS DISPENSED WITH: 1. Drawer and drawee are the same person 2. 2. Payment by accommodated party Intentional cancellation by the holder By any act which will discharge a simple contract for the payment of money. except when the instrument is payable on demand where it (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. it cannot be given (Sec. Surety. SECONDARILY LIABLE  WHEN PERSONS DISCHARGED Cancellation: it includes the act of tearing. actually or constructively 2. Drawee is a fictitious person or a person not having capacity to contract 3. Every negotiable instrument is payable at the time fixed therein without grace. Drawer has countermanded payment. 3.A release of all the parties liable from obligations arising thereunder. When after due diligence.   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. the latter is only bound 3. By maker or acceptor b. Payment must be made at or after maturity b. 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.  WHEN A NEGOTIABLE INSTRUMENT IS DISCHARGED 1. Payment must be made in good faith and w/o notice that the holder’s title is defective By Whom Made: a. When the principal debtor becomes the holder of the instrument at or after maturity in his own right. 5. Drawer has no right to expect or require that the drawee or acceptor will honor the instrument.

4. 4. will DISCHARGE the DRAWER and the INDORSERS. Protest may be made by – a. By any respectable resident of the place where the bill is dishonored. 12 Reason for requiring protest: 1. Protest. from his residence abroad. may experience difficulty in verifying the matter and may be forced to rely on the representation of the holder.”  Necessity of Protest: Protest is required only for FOREIGN BILLS. HOWEVER. The fact that presentment was made and the manner thereof. consisting of his initials or signature and those matters required to be stated in Section 153. Where the bill has been accepted for honor. 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.” It means all the steps or acts accompanying the dishonor of a bill or note necessary to charge an indorser. and must be under the HAND AND SEAL of the NOTARY making it and must specify: 1. 2. 3. it must be protested for nonpayment before it is presented for payment to the referee in case of need. or Where the bill contains a referee in case of need. and such payment (or acceptance) was refused. A notary public or b. they may also be protested if desired. The cause or reason for protesting the bill. > If renunciation is absolute and unconditional in favor of the principal debtor. OMISSION OF PROTEST. at or after its maturity. or the fact that the drawee or acceptor could not be found. it not having been dishonored by non-acceptance.  . AND NO FURTHER PRESENTMENT FOR PAYMENT TO. OR DEMADNN ON. EXCEPTION: . A bill MAY BE PROTESTED BEFORE MATURITY – aka “PROTEST FOR BETTER SECURITY” Protest. 3. Instances when protest is required: 1. The time and place of presentment. how made: The protest must be annexed to the bill or must contain a copy thereof. for uniformity in international transactions because most countries require it and 2.Negotiable Instruments Law > Holder may expressly renounces his rights against any party to the instrument before. when made: * Protest MUST be made on the day of its dishonor UNLESS delay is excused. but not for inland bills or notes.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. in which it is declared that the same was on a certain day presented for payment (or acceptance as the case may be). or in his registry book. 2. in order to furnish authentic and satisfactory evidence of the dishonor to the drawer who. The demand made and the manner given. * When a bill has been DULY NOTED – the protest may be subsequently extended as of the date of the noting. 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. Protest where made: GENERALLY – the protest must be made at the place where the instrument is dishonored. “DULY NOTED” – means that a notary public jots down on a note on the bill or an paper attached thereto. Where the foreign bill is dishonored by non-payment. it any. 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. it must be protested for nonpayment to the acceptor for honor. where protest is required. Where the foreign bill is dishonored by non-acceptance. in the presence of two or more credible witnesses. THE DRAWEE IS NECESSARY.

Bills which MUST BE PROTESTED FOR NON-PAYMENT before it will be presented for payment: 1. 2. When a bill is DISHONORED by the ACCEPTOR FOR HONOR – it must be protested for non-payment by him. If it is to be presented in some other place other than the place where it was protested. 2. where the drawee of the bill refused to accept it. 3. It must indicate that it is an acceptance for honor. 2. 2. MISCONDUCT or NEGLIGENCE.  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. ACCEPTOR FOR HONOR agrees to pay if: 1.“acceptance supra protest” – how made: 1. or somebody else. and the bill has been protested for non-acceptance or where the bill has been protested for better security. 2. It must be in writing.   PAYMENT FOR HONOR 13 Requisites for payment for honor: 1. then it must be forwarded within the time specified in Section 104. The bill has been protested for nonpayment. 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. The holder must give his consent. as the drawer. 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.Negotiable Instruments Law Requisites for Protest for better security: . 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. After acceptance. ANY PERSON. NOTE: Protest is dispensed with by any circumstances which would dispense with notice of dishonor. It must be signed by the acceptor for honor. But before the date of maturity. the drawee does not pay.” Requisites for acceptance for honor: 1. Acceptance for honor: . as the case may be. b. notice of dishonor is given to him. or indorser.PROTEST MAY BE MADE ON A COPY OR WRITTEN PARTICULARS THEREOF. the bill is protested for non-payment. and 3. even a party thereto may pay supra protest. The bill is not overdue at the time of the acceptance for honor. Where a dishonored bill has been accepted for honor supra protest. 3. Where a dishonored bill contains a referee in case of need. how made: 1. or 2. Reason: In order to fix the liability of the indorsers. presentment for payment has been made. and that he will pay it at the appointed time. bill is lost or destroyed . When a . 4. or 2. drawee. 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. In . and c. The bill must have been previously protested (a) for non-acceptance or (b) for better security. Presentment for payment to acceptor for honor. Note: Delay in making presentment is excused when the delay was caused by events which are BEYOND HIS CONTROL and NOT IMPUTABLE TO DEFAULT. When the acceptor has been adjudged bankrupt and insolvent or has made an assignment for the benefit of creditors. The LIABILITY OF THE ACCEPTOR FOR HONOR is SECONDARY – NOT primary or absolute. The acceptor for honor must be a stranger to the bill. and 4. NOTE: As distinguished from acceptance for honor – the acceptor for honor MUST BE A STRANGER. 1.A protest for better security must be made: a.

Purpose of payment for honor: Instead of simple negotiation to the person desiring to pay. Form for payment for honor: 1. and 2.Negotiable Instruments Law payment for honor – the PAYOR SUPRA PROTEST – may even be a PARTY to the instrument. 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. 3. 2. The payor then notifies the person for whose honor he pays within reasonable time. Payment by acceptor of bills drawn in sets: . The payment must be attested by notarial act appended to the protest. and 2. each part being numbered and containing a reference to the other parts. He acquires the rights of the holder under Section 175.He is liable on EVERY SUC H PART. Effect of discharging one of a set: . The notarial act must be based in a declaration by the payer for honor. The payer or his agent goes to a notary public and declares his intention to pay the bill and for whose honor he pays. All parties subsequent to the party for whose honor it is paid are discharged. . Liability of holder who indorses two or more parts of a set to different persons: . 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. Effects on subsequent parties where bill is paid for honor: 1. 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. Acceptance of bills in set: .EVERY INDORSER SUBSEQUENT to him is LIABLE on the part he has himself indorsed – AS IF SUCH PARTS WERE SEPARATE BILLS. Preference of parties offering to pay for honor: . He has also the right to receive both the bill and the protest. and to avoid the difficulties which would arise in case of loss or miscarriage on the way of the bill.  BILLS IN SET 14 Bills in set – one composed of various parts. Effect if the drawee accepts more than one part: .The acceptance may be written on any part and it must be written on ONE PART only. all of which parts constitute but one bill. and . and the part at maturity is outstanding in the hands of a holder in due course – he is liable to the holder thereof. 2.The person WHOSE PAYMENT will DISCHARGE MOST PARTIES to the bill is to be given the preference. or form an extension to it. Procedure for payment for honor: 1.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. Purpose of bill in set: In order to increase the probability of the bill reaching its destination. The notary then records the declaration in the protest or in a separate paper attached to it.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.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. Rights of payer for honor: 1. Right of holders where different parts are negotiated: 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.

of a sum of money to a certain person therein named or to his order or to cash and payable on demand. or to some other person or order. and transferred just like any commercial paper. It is indicated as a “Gift Check”.A promise. Guaranteed bonds 5. It is a written order on a bank. . purporting to be drawn against a deposit of funds for the payment of all events. Classes of Bonds: 6. Certificate of deposit . NOTE: 2. Due Bills . 11. NOTE: Where a note is drawn to the maker’s own order. they are not money. They are negotiable if it the requisites in Section 1. 15 Promissory Note – is an unconditional promise in writing made by one person to another. a sum certain in money to order or bearer. Bank Notes . NIL. A check can be considered encashed through the clearing house. Gift Check-Similar to a cashier’s or manager’s check and may be signed either by the cashier or manager. . The check was encashed. numbered and similarly printed coupons which the bondholder may cut off when due or thereafter. 12. Mortgage bonds a written acknowledgment by a bank of the receipt of money on deposit which the bank promises to pay to the 1. but produces the effect of payment when: a. It is similar to the cashier’s check as to effect and use.Are promissory notes of the issuing bank payable to bearer on demand and intended to circulate as money. It is NOT ipso facto negotiable – it must first comply with the requirements provided under Section 1. NIL are complied with. it is NOT complete until indorsed by him. They are negotiable if it the requisites in Section 1. Registered Bonds . signed by the maker. Equipment Bonds 3. Convertible bonds 8. engaging to pay on demand. 3. under seal.  CHECK – is a bill of exchange drawn on a bank payable on demand. generally six months apart. 4.Negotiable Instruments Law  PROMISSORY NOTES AND CHECKS depositor. 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. However. Coupon Bonds – those which are attached a sheet of dated. or when the check had been credited to the account of the creditor) b. 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. Ordinary Check—The most common check issued by a bank to a client who opens a checking account 2. When through the fault of the creditor the check is impaired c. Collateral trust bonds 4.Acceptance is NOT required for checks for the same are PAYABLE ON DEMAND. They are regarded as cash and pass from hand to hand without any evidence of titled in the holder than that which arises form an instrument whereby one person acknowledges his indebtedness to another. Bonds . or at a fixed or determinable future time. In case of redemption Kinds of checks: 1. Such coupons may be served and deposited in a bank. and meanwhile to pay a specified interest on the principal amount at regular intervals. Debentures 10. to pay money.The bond certifies that the issuing company is indebted to the bondholder for the amount specified on the face of the bond. Special types of promissory notes: 1. bearer. negotiated before the maturity of the interest they represent. Income bonds 7. Redeemable Bonds 9. (Encashment is not limited to physical encashment over the counter of the drawee bank.  Check is not Legal Tender. and contains an agreement of the company to pay the sum at a specified time in the future. NIL are complied with.

weddings. presentment and drawer is not liable thereon. 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. Crossed check –One which has two parallel lines. Date 2. Drawer (Account Name) 6. How is crossing of check done: -it is usually done by drawing two parallel lines transversally on the face of the check. When these checks are lost or stolen. 8.If it bounces – the drawer can be charged for violation of BP 22. Payee 3. Here.Negotiable Instruments Law so as to be used as a gift for birthdays. 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. 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. usually a traveller. and “mem”. such as. 6. there is no proper . signifying that the drawer engages to pay the bona fide holder absolutely and not upon a condition to pay upon presentment and non-payment. by stamping on the check the word “certified” or “Good For Payment” and underneath it is written the signature of the cashier. Account Number 8. Traveler’s Check. Space for signature of the drawer II. 1. usually on the upper left hand corner. Drawee should not encash a crossed check but merely the same for deposit. 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. NOTES: 1. Magnetic Ink Character Recognition Code (MICR)—a code designed to facilitate the clearing of checks among banks. 16 5. 7. 10. 3. graduations and similar 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. Features of the Check I. Under crossed check – the payee has the duty to ascertain the holder’s title to checks. Amount in words 5. A check is a bill of exchange payable on demand – is intended for immediate use and not to circulate as a promissory note. . Here. Drawee-Bank 7. 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. Effects of Crossing a check 1. Amount in figures 4. Memorandum Checks – a check on which is written the word “memorandum”. 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. “memo”. Where other than payee of crossed checks presented it for payment. 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. must be presented within six (6) months – otherwise it will become stale. drawer. or when nothing is written at all between the parallel lines. Advantages of crossing check: . The check may be negotiated only once to one who has an account with a bank 3. Dorsal Side/Back of the Check 1. 2. Check Number 9. A check may be crossed (1) specially or (2) generally. Face. 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.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. . The check may not be encashed but only deposited in the bank issued by a bank to a holder. 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.

Indorsers subsequent to the certification are not discharged. The holder refuses to identify himself 7. the drawer and all indorsers are discharged from liability thereon. 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 bank is insolvent 2. and 3. Cases when Bank May Refuse Payment 1.the drawer is discharged but only to the extent of the loss caused by the delay. When check operates as an assignment.”. A drawer may stop payment of the check before the same is accepted. Certification of check – is an agreement whereby the bank against whom a check is drawn.Negotiable Instruments Law Effect if the check was allowed to become stale? (Stale when not encashed w/in 6 months) . is 2. Effect where the holder of check procures it to be certified. undertakes to pay it at any future time when presented for payment. it discharges persons secondarily liable thereon. Requisites for Stop Payment Order 1. The certification of a check EQUIVALENT to an ACCEPTANCE. . The drawer dies and proper notice is received by the bank 5. in the exercise of reasonable diligence to stop payment. certification or payment to enable the bank. and the bank is not liable to the holder unless and until it accepts or certifies the check. if no loss or injury is shown. 17 Form of certification: . Iron-Clad Rule: Prohibits the countermanding of payment of certified checks. A bank is not obliged to the depositor to certify checks. The bank has reason to believe that the check is forgery. It must be positive and unqualified 4. The drawer has countermanded payment 6. The drawer is insolvent and proper notice is received by the bank 4. 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. certified or paid by the drawee bank. with the initials of the cashier of a bank do not constitute a sufficient certification under modern banking practice. The letters “O. It must describe the check with reasonable accuracy . Stop Payment Order—an instruction by the drawer addressed to the drawee bank directing the latter not to honor or pay the check. If obtained by the holder. It must be given to an authorized officer or employee of the drawee bank 3. the drawer is not discharged.Where the holder of a check procures it to be accepted or certified. Hence. It must give the bank sufficient time prior to acceptance.K. It operates as an assignment of the funds of the drawer in the hands of the drawee bank. 2. The drawer’s deposit is insufficient or he has no account with the bank or said account had been closed or garnished 3. Effect of Certification: 1.

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