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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.

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. 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

2. unconditional promise or order to pay

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 d. and happening of event doesn’t cure it 3.Negotiable Instruments Law • 4 • • unqualified order or promise to pay is unconditional though coupled with a. when expressed to be payable on demand. • • • • • • • 4. or b. by stated installments. as regards the person so issuing. or a particular account to be debited with amount. 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. or when name of payee doesn’t purport to be the name of any person. drawer or maker. drawee. with exchange. accepting. a payee not the maker/drawer/drawee. accepted or indorsed when overdue. or when the only/last indorsement is in blank . or where an instrument is issued. or b. whether at a fixed rate or at the current rate. in case payment not made at maturity payable on demand. when expressed to be so payable when payable to person named therein or bearer when payable to order or fictitious/non-existent person. or on or at a fixed period after the occurrence of a specified event which is certain to happen. or on or before a fixed or determinable future time fixed therein. and such fact known to the person making it so payable. payable to order • where it is drawn payable to the order of a specified person or to him or his order. by stated installments with a provision that upon default in payment of any installment/interest. it is. two or more payees jointly. or indorsing it. or on presentation. the whole shall become due. May be drawn payable to order of --a. an indication of a particular fund out of which reimbursement to be made. with interest. 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. or c. or e. or d. or b. when no time for payment expressed. or c. 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. or at sight. or e.

Exception: negotiability not affected by provisions w/c 1. drawee is fictitious/incapacitated CONTINUATION OF NEGOTIABLE CHARACTER Until: 1. discharged by payment or otherwise EFFECT OF ADDITIONAL PROVISIONS (Sec. the interest runs from the date of the instrument. 6) a. at option of holder. reference may be had to the figures to fix the amount. whether partners or not. give holder election to require something to be done in lieu of money Other Instances when negotiability not affected (Sec. Does not specify the place where it is drawn or the place where it is payable d.5) Gen. Bears a seal e. (d) Where there is a conflict between the written and printed provisions of the instrument. (c) Where the instrument is not dated. where a. (e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note. Not dated b. without specifying the date from which interest is to run . waives benefit of any law intended for advantage/protection of obligor 4. but if the words are ambiguous or uncertain. authorize sale of collateral security if instrument not paid at maturity 2. (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.Negotiable Instruments Law 5 5. from the issue thereof. the holder may treat it as either at his election. the written provisions prevail. Designates a particular kind of current money in w/c payment is to be made Sec. where addressed to drawee: such drawee named/ indicated therein with reasonable certainty • bill may be addressed to two or more drawees jointly. (b) Where the instrument provides for the payment of interest. . 17. Does not specify the value given or that any value has been given therefore c. it will be considered to be dated as of the time it was issued. and if the instrument is undated. the sum denoted by the words is the sum payable. but not to two or more drawees in the alternative or in succession • bill may be treated as a PN. authorize confession of judgment… 3. (a) Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two. restrictively indorsed 2. he is to be deemed an indorser. Rule: order/promise to do any act in addition to the payment of money renders instrument non-negotiable. Construction where instrument is ambiguous.

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. they are deemed to be jointly and severally liable thereon. DATE IN AN INSTRUMENT Presumption as to date: Said date is the date when it was made by the maker. Where an instrument is payable at a fixed period after date but is issued undated b. 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. negotiated by delivery.Negotiable Instruments Law 6 (g) Where an instrument containing the word "I promise to pay" is signed by two or more persons. a valid and intentional delivery by him is presumed until the contrary is proved (*if in the hands of a HDC. . drawn by the drawer. or to strengthen the security of the holder by assuming a contingent liability for its future payment. complying with requirements of Sec. 16) Issuance-the first delivery of the instrument complete in form to a person who takes it as a holder. As between: a. • If payable to BEARER. a remote party other than holder in due course delivery. to be effectual. (Sec. immediate parties b. 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. Delivery with intention to give effect thereto. 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. provided not done for an illegal or fraudulent purpose. (Sec. if payable to ORDER. Where an instrument is payable at a fixed period after sight but the acceptance is undated DELIVERY (Sec. presumption conclusive) NEGOTIATION • When an instrument is transferred from one person to another as to constitute the transferee the holder thereof. 11) Effect of ante-dating or Post-dating: Instrument is not invalid. Steps: 1. accepted by the drawee or indorsed by the payee. Mechanical Act of writing. 1 2. or for a special purpose only. • NI incomplete and revocable until delivery for the purpose of giving effect thereto.

conditional – additional condition annexed to indorser’s liability. and make payment to the indorsee or his transferee. • Where an indorsement is conditional.Negotiable Instruments Law 7  The indorsement must be written on the instrument itself or upon a paper attached thereto. 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. 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. “without recourse”) 2. instrument so indorsed is payable to bearer. 35) B. As to kind of title transferred 1. (can’t be indorsement of only part of amount payable. • constitutes indorsee as agent of indorser. nor can it be to two or more indorsees severally. unconditional INDORSEMENT OF BEARER INSTRUMENT (Sec. Special – specifies the person to whom/to whose order the instrument is to be payable. 2. qualified. 32] KINDS OF INDORSEMENT A. Blank – specifies no indorsee. a party required to pay the instrument may disregard the condition. unqualified D. As to kind of liability assumed by indorser 1. As to presence/absence of express limitations put by indorser upon primary obligor’s privileges of paying the holder 1. But may be indorsed as to the residue of partially paid instrument) [Sec. (Sec. The signature of the indorser is sufficient.constitutes indorser as mere assignor of title (eg. non-restrictive C. 31)  Indorsement must be of entire instrument. restrictive • prohibits further negotiation of instrument. indorsement of such indorsee is necessary to further negotiation. but all subsequent indorsees acquire only title of first indorsee under restrictive indorsement 2. As to manner of future method of negotiation 1. 40) • Where an instrument payable to bearer is indorsed specially. 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.

50) Not entitled to enforce payment against any intervening party to whom he is personally liable HOLDER IN DUE COURSE REQUISITIES 1. Effect: * The indorser whose indorsement is struck out and all indorsers subsequent to him relieved from liability. without notice of any previous dishonor . Time or place of payment d. UNINDORSED INSTRUMENTS (Sec.A material alteration made by a stranger • sec. right of transferee to have indorsement of transferor for purposes of determining HDC negotiation effective upon actual indorsement PRIOR PARTY WHO NEGOTIATES INSTRUMENT.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. 125 what constitute material alterations: a. 49) 1. Presumption as to place of Indorsement—At the place where instrument dated Striking Out Indorsements. Sum Payable. except where indorsement bears date which is after maturity. Medium of currency or which adds a place of payment 2. either for principal or interest c. 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. or he may add his proper signature Presumption as to time of Indorsement— before instrument is overdue. complete and regular upon its face • sec.41)  All must indorse unless the one indorsing has authority to indorse for others  INSTRUMENT DRAWN OR INDORSED TO A PERSON AS CASHIER (Sec. holder became such before it was overdue. Number or relations of the parties e. Spoliation. transfer vests in transferee such title as transferor had therein 2. Date b.42)  Presumed to be payable to the bank or corporation INDORSEMENT WHERE NAME MISSPELLED (Sec. 43)  May continue indorsing through the misspelled name. effects (Sec.

paid: deemed HDC only to the extent of the amount paid by him Sec. 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. 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. taken in good faith and for value • sec. 27 (When a holder has lien on the instrument. at time negotiated to him. or 2.. illegal consideration/means. payment to him in due course discharges instrument 3. holds the instrument free from any defect of title of prior parties and free from personal defenses available to parties among themselves 4.Negotiable Instruments Law 9 • sec. etc. he had no notice of -a. 54-notice before full amt. NI is subject to same defenses as if it were non-negotiable. 59) • prima facie presumption in favor of holder • but when shown that title of any person who has negotiated instrument was defective. 56-notice of defect: Actual knowledge necessary RIGHTS OF HOLDER IN DUE COURSE 1. .55) 1. instrument/signature obtained through fraud. WHO DEEMED HDC (Sec. 53 (instrument payable on demand negotiated after unreasonable length of time: holder is not HDC) • sec. instrument negotiated in breach of faith. 24 (presumption of consideration) • sec 25 (Value: is any consideration sufficient to support a simple contract) • sec. 12 (effect antedating/postdating) 3.defect in title of person negotiating: What defect constitutes (Sec. 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. (Sec. Available to all parties both immediate and remote including HDC. presumption is reversed. by contract or implication he is deemed a holder for value to the extent of the lien) 4. 26 (Holder for value: one who has given a valuable consideration for the instrument issued or negotiated to him ) • sec. on the principle that the right sought to be enforced never existed/there was no contract at all. or fraudulent circumstances Notice Sec.infirmity in instrument b. sue thereon in his own name 2. real defense – attaches to instrument.

MATERIAL ALTERATION • Where NI materially altered w/o assent of all parties liable thereon. FORGERY: Real: Definition: the counterfeit-making or fraudulent alteration of any writing. tenor *material alteration a personal defense when used to deny liability according to org. UNDELIVERED INSTRUMENT . party who has himself made. HDC may enforce payment thereof according to orig. General Rule: a. FRAUD a.Negotiable Instruments Law 10 2. except as against 1. with intent thereby to defraud. fraud in execution: real defense (didn’t know it was a Negotiable Instrument) b. COMPLETE. no right to retain instrument. 4. amount. or enforce payment vs. INCAPACITY: REAL: indorsement/assignment property but corp/infant no liability by corporation/infant passes 2. renders it inequitable to be enforced against defendant. description of the person and the like. estopped/negligent parties 3. authorized or assented to alteration 2. Available to prior parties among themselves but w/c are not good against a HDC. like a general indorser or acceptor b. parties who make certain warranties. 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. avoided. wholly inoperative b. or give discharge. personal defense – growing out of agreement. tenor of instrument. 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. DEFENSES 1. fraud in inducement: personal defense (knows it’s Negotiable Instrument but deceived as to value/terms) 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. any party. but real defense when relied on to deny liability according to altered terms. and may consist in the signing of another’s name or the alteration of an instrument in the name.

he may enforce it as if it had been filled up properly 1. Filling up of blank contrary to authority given or not w/in reasonable time 5. Negotiation in breach of faith 10. it's valid for all purposes in his hands. as against any person whose signature was placed thereon before delivery 7. 3. 7. Want of delivery of complete instrument 3. delivery conclusively presumed 6. 15) • Instrument will not. 4. Acquisition of the instrument for an illegal consideration 9. Absence or failure of consideration whether partial or total 2. must be filled up strictly in accordance w/ authority given 2. 8. 11. when completed. may be enforced against any person who became a party thereto prior to its completion: 1. be a valid contract in the hands of any holder.Negotiable Instruments Law • • • 11 Personal defense (sec. 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. 9. Acquisition of instrument by unlawful means 8. Negotiation under circumstances that amount to fraud 11. 16) If instrument not in possession of party who signed. 10. within a reasonable time • but if any such instrument after completion is negotiated to HDC. Where instrument is wanting in any material particular: person in possession has prima facie authority to complete it by filing up blanks therein 2. 12. Fraud in inducement 6. Insertion of wrong date in an instrument 4. DELIVERED • Personal defense (sec. duress or fear 7. 6. 5. Acquisition of instrument by force. INCOMPLETE. Mistake 12. delivery prima facie presumed If holder is HDC. if completed and negotiated without authority. 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 . 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. 14) • 2 Kinds of Writings: 1. UNDELIVERED INSTRUMENT • Real defense (sec. 2. INCOMPLETE.

SECONDARY PARTIES 1. b. Engages that on due presentment instrument will be accepted. all prior parties had capacity to contract d. c. b. Liability of Indorsers: • Qualified Indorser and one Negotiating by Delivery (Sec 65) a. Liability of Maker Promises to pay it according to its tenor admits existence of payee and his then capacity to indorse 2. 189 (when check does not operate as assignment until bank certifies or accepts it) 3. in all respects what it purports to be b. 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. • • a. If it be dishonored. a. Admits existence of payee and his then capacity to endorse b. Status of drawee prior to acceptance or payment • sec. PRIMARY PARTIES • Person primarily liable: person who by the terms of the instrument is absolutely required to pay the same. according to its tenor and that c. 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. Instrument genuine. 1. 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. and the necessary proceedings on dishonor be duly taken. or both. 127 (bill not an assignment of funds in hands of drawee) • sec. warranty only extends in favor of immediate transferee • Liability of a General or Unqualified Indorser . He has good title c. Liability of Drawer a. or paid.Negotiable Instruments Law 12 LIABILITIES OF PARTIES A.

knew he was only an Accomodation Party Some Terms:  Accommodation Bill or Note—one to which the accommodation party has put his name. liable to all parties subsequent to payee Liability of an Agent • Signature of any party may be made by duly authorized agent. in accordance w/ these rules: 1. it shall be accepted or paid. unless he discloses name of principal and fact that he’s only acting as agent . 65. • Signature per procuration operates as notice that the agent has but a limited authority to sign. or payable to bearer: liable to all parties subsequent to maker/drawer 3. he incurs all liabilities in Sec. 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. among themselves: liable prima facie in the order they indorse.  Accomodated Party—is one in whose favor a person. if it be dishonored. capacity of prior parties b. according to tenor d. places thereon his signature in blank before delivery. signs an instrument for the purpose of lending his credit and enabling said party to raise money upon it. for the purpose of accommodating some other party who is to use it and is expected to pay it. 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. at time of taking instrument. instrument genuine.Negotiable Instruments Law 13 a. 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. does not exempt from personal liability. To holder. w/o receiving value therefore. Instrument payable to the order of maker/drawer. he’s liable as an indorser. for the purpose of lending his name to some other person • Accomodation Party liable on the instrument to holder for value even if holder. but holder may sue any of the indorsers. he is not liable on the instrument if he was duly authorized. he will pay the amt. but proof of another agreement admissible 2. w/o consideration. and necessary proceedings on dishonor be duly taken. regardless of order of indorsement 3. Signs for accommodation of payee. on due presentment. but the mere addition of words describing him as an agent without disclosing his principal. or to any subsequent indorser who may be compelled to pay it • Order of Liability among Indorsers 1. Liability of Irregular Indorser • Where a person not otherwise a party to an instrument. or both. good title. Instrument payable to order of 3rd person: liable to payee and to all subsequent parties 2. instrument is at time of indorsement valid and subsisting c.

The drawee. by the holder or his agent. d. and 3. . Qualified as to time. c. but is necessary to make the secondary parties liable. When NOT required/excused Presentment is NOT required: 1. How made: . at the proper place.Negotiable Instruments Law 14  PRESENTMENT A. Qualified Acceptance – it varies the effect of the bill as drawn.A sight draft (usually accompanying a letter of credit in importations) is payable on demand and needs no acceptance by the drawee. d. The acceptance is qualified if it is: a. he is deemed to have accepted the bill – implied acceptance. c. made within a reasonable time after issue. ***The holder must exhibit the instrument to the debtor and should deliver it to said debtor if the latter pays. e. B. .The acceptance may be on the bill. General and Qualified General Acceptance – a general acceptance assents without qualification to the order of the drawer. or refuses to return the bill within said period of twenty-four hours. the following are necessary: a. when after due diligence presentment cannot be made. Accepted by some or more of the drawees but not by all. and may even be in writing before the bill is drawn. In Promissory Notes Purpose: Not necessary to make the maker liable. and e. to the party liable under it. if he wants to dishonor. Local. . on a separate paper (allonge). 2. Requisites: For a valid presentment for payment of a promissory note. b. when the indorser is an accommodated party. when presentment is waived. Conditional. b. at a reasonable hour on a business day. Classes of Acceptance 1. If he refuses to act. In Bills of Exchange Acceptance is the signification by the drawee of his assent to the order of the drawer. tears the bill. must do so expressly within twenty-four (24) hours from presentment to him. Partial.

EFFECT OF ACCEPTANCE: Upon acceptance. and 2. or b. and 4. “I WILL PAY THE BILL”. N. it may be acceptance as to a non-existing bill. . destroys the same. REQUISITES OF ACTUAL ACCEPTANCE: 1. The bill becomes in effect a note. in writing.The drawee must sign because without his signature he would not be bound – See Section 18. If the bill is non-existent.It is usually done by writing across the face of the bill the word “ACCEPTED” or words of similar import. NIL. or 2. in the place of the first indorser. the drawee becomes liable on the bill. the acceptance on a separate paper must comply with following requirements: i. “SEEN” followed by the signature of the drawee.Negotiable Instruments Law 15 2. ACCEPTANCE. it may be acceptance as to an existing bill. or refuses or fails to return the bill accepted or unaccepted. the payee or the holder has no recourse against him but only against the drawer and indorsers. “HONORED”. . on a separate paper. Is payment equivalent to acceptance? NO.g. But should the drawee refuse to accept. and if on a separate paper a. 3.Acceptance is express if written on the instrument by the drawee. That the contemplated drawee shall describe the bill to be drawn and promise to accept it.B.Acceptance by telegram has been held sufficient. it must be communicated or delivered to the holder. HOW MADE? . signed by the drawee. and constructive. e. NIL. . WHERE BILL MAY BE WRITTEN: . and the drawer.Acceptance may be made 1. if any. the acceptor standing in the place of the maker. Acceptance is NOT required for CHECKS for the same are payable on demand. Express and Constructive . . within twenty four hours from presentment to him of the instrument. if drawee.the payment of a check does not include or imply its acceptance in the sense that this word is used in Section 62. on the bill itself. it must not express that the drawee will perform his promise by another means than the payment of money.

- .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. the acceptance if given. to return the bill accepted or not accepted. Section 136. the drawee will be deemed to have accepted the bill even if there is NO ACTUAL WRITTEN ACCEPTANCE by him. Even after it has been dishonored by non-acceptance or by non-payment. Even when the bill is otherwise incomplete. destroys it. as certification is equivalent to acceptance. . .The drawee is allowed twenty-four hours after presentment in which to decide whether or not he will accept the bill. But. 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. Constructive Acceptance: . Instances when a bill may be accepted: 1.Drawee bank is NOT entitled to 24 hours to decide whether for payment NOT acceptance. dates as of the day of presentation. Before the bill has been signed by the drawer. . 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. In all the foregoing.Negotiable Instruments Law 16 ii. or 2. this ruling will not apply. but return within twenty-four hours unaccepted would not be a dishonor. 4. if the check is presented for certification. Even when the bill is overdue.this class of acceptance is NOT in writing. . 1. Where the drawee to whom the bill is delivered for acceptance. 3.If the holder should demand its return before twenty-four hours. 2. That the bill shall be drawn within a reasonable time after such promise is written. That the holder shall take the bill upon the credit of the promise. Where the drawee refuses. within 24 hours after such delivery or within such time as is given him. and iii. the drawee would be required to comply on pain of being held as an acceptor. 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.

Where the drawee is dead presentment may be made to his personal representative.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. 3. EXCEPTIONS: 1. To WHOM will it be presented? 1. where presentment for acceptance is necessary in order to fix the maturity of the instrument. Where the bill is payable after sight. GENERAL RULE: Presentment for acceptance is NOT NECESSARY to render any party to the bill liable. how made: -Presentment MUST be made by or on behalf of the holder: Requisites: 1. in which case presentment may be made to him only. or in any other case. 4. Where the bill is expressly stipulates that it shall be presented for acceptance. Where a bill is addressed to two or more drawees who are not partners. and 3. to make presentment for acceptance or ii. 2. To the DRAWEE or some person authorized to ACCEPT or REFUSE ACCEPTANCE on his BEHALF. It must be presented at a reasonable hour.  Presentment. presentment may be made to him or to his trustee or assignee. Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. Days when presentment may be made: . Where the drawee has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors. and 2. It must be presented before the bill is overdue. or 2. NOTE: In those instances found in Section 143 – it is NECESSARY – in order to charge persons secondarily liable (Section 144): i. It must be presented on a business day. to negotiate the bill within a reasonable time. or 3. presentment must be made to them all unless one has authority to accept or refuse acceptance for all.

Where a bill is duly presented for acceptance and is not accepted within the prescribed time.Negotiable Instruments Law 18 A bill may be presented for acceptance on ANY DAY on which negotiable instruments may be presented for payment. the person presenting it must treat the bill as dishonored by nonacceptance or he loses the right of recourse against the drawer and indorsers. Instances when PRESENTMENT FOR ACCEPTANCE IS EXCUSED and A BILL MAY BE TREATED AS DISHONORED BY NON-ACCEPTANCE: 1. Where the drawee is dead. 2.  Where the holder of a bill drawn payable elsewhere other than the place of business or the residence of the drawee – has no time. presentment can not be made. Where. 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. when the drawee is a fictitious person c. When Presentment for payment is excused. where there is a waiver of presentment.  Presentment For Payment Of Accepted Bill Purpose: The purpose of presentment for payment of an accepted bill is to collect from the acceptor. to the acceptor or his agent 3. a. to collect from the secondary parties. it cannot be made b. acceptance has been refused on some other ground. When SATURDAY is NOT OTHER WISE A HOLIDAY – presentment for ACCEPTANCE may be made before twelve o’clock noon on that day. HOW? By giving NOTICE OF DISHONOR or by making a PROTEST when required. Where. 3. when after due diligence. or is a fictitious person or a person not having capacity to contract by bill. and if refused. Requisites: 1.  The bill must be exhibited to the acceptor and surrendered to him when he pays. 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. The accepted bill must be presented for payment within a reasonable time from the last negotiation by the holder or his agent 2. . or has absconded. although presentment has been irregular. Duty of the holder where bill is not accepted. at a reasonable hour on a business day 4. after the exercise of reasonable diligence. at the proper place as defined.

Non-payment (bill and note)—indorsers  BY whom Given . is not paid on the date of maturity. Non-acceptance(bill)—to persons secondarily liable. Effect: There is an immediate right of recourse by the holder against persons secondarily liable. REQUISITES: 1. In BILLS OF EXCHANGE .In bills of exchange. 102) 4. has not been accepted or has not been paid and that the party notified is expected to pay it. Given at the proper place (Secs. or if presentment is excused. or presentment being excused. namely. where the bill is presented for acceptance and is returned dishonored. 84) 2. which requires notice of dishonor (Sec. after it has been accepted is not paid when presented for payment. (Sec.Negotiable Instruments Law 19  DISHONOR 1 . Given to a secondarily liable party or his agentSec.In a promissory note.In PROMISSORY NOTE . dishonor by non-payment takes place when it is duly presented for payment and payment is refused or cannot be obtained. Given by a holder or his agent(SPA necessary). to the knowledge of the drawer or indorser of an instrument. 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. (Sec. upon proper proceedings taken. is not returned accepted or unaccepted. -There is a dishonor by non-payment if the bill. 103 & 104)  TO WHOM GIVEN a. 151) Note: Same effect in Dishonor by Non-payment is Promissory Note  NOTICE OF DISHONOR --bringing either verbally or by writing. the fact that a specified negotiable instrument. 90) 2. or when presentment for acceptance is excused and the bill is not accepted there is a dishonor by non-acceptance. or within twenty four hours from presentment. 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. the drawer and indorsers as the case may be b. the instrument is overdue and unpaid. (Sec. or by any party who may be compelled by the holder to pay. Given as soon as the instrument is dishonored and within the periods provided by law.

The holder b. 5.Negotiable Instruments Law 20 a. 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. and who would have a right of reimbursement from the party to whom notice is given  WHEN NOTICE OF DISHONOR IS DISPENSED WITH: 1. 2. Any party to the instrument who may be compelled to pay it to the holder. 3.A release of all the parties liable from obligations arising thereunder. but if written above the signature of an indorser. 88) • Good faith refers to the maker or acceptor and not to the holder. 3. Instruments falling due or payable on a Saturday are also to be presented for payment on the next succeeding business day. It renders the instrument without force and effect and. it can no longer be negotiated. Drawer has no right to expect or require that the drawee or acceptor will honor the instrument. (Sec. Drawer and drawee are the same person 2. on behalf of the holder c. Made to the holder. 2. consequently.  DISCHARGE OF NEGOTIABLE INSTRUMENT . Drawer is the person to whom the instrument is presented for payment 4. the instrument is payable on the next succeeding business day. 112)  WHEN NOTICE OF DISHONOR NEED NOT BE GIVEN TO DRAWER 1. 109) --If waiver embodied in instrument itself it binds all parties. Made at of after maturity. Another. When after due diligence. Drawee is a fictitious person or a person not having capacity to contract 3. In good faith and without notice that the holder’s title is defective. Every negotiable instrument is payable at the time fixed therein without grace. (Sec. 85)  REQUISITES OF PAYMENT IN DUE COURSE 1. When the day of maturity falls on a Sunday or a Holiday. the latter is only bound 3. Drawer has countermanded payment. . it cannot be given (Sec.  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. When the party to be notified knows about the dishonor. actually or constructively 2. 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.

By payment in due course by or on behalf of the principal debtor 21 Payment in Due Course. erasing. Payment must be made to the holder c. at or after its maturity. 122)-The act of surrendering a right or claim w/o recompense. 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. Requisites a. 5.  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. By any act which will discharge a simple contract for the payment of money. Intentional cancellation by the holder 4. Renunciation (Sec. By an agent on behalf of the principal 2. Payment must be made at or after maturity b. When the principal debtor becomes the holder of the instrument at or after maturity in his own right. obliterating or burning. It may be made by any other means by w/c the intention to cancel the instrument may be evident.Negotiable Instruments Law  WHEN A NEGOTIABLE INSTRUMENT IS DISCHARGED 1. 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. By maker or acceptor b. It is not limited by writing the word “cancelled” or “paid” or drawing criss-cross lines across the instrument. Payment by accommodated party 3. Surety. Payment must be made in good faith and w/o notice that the holder’s title is defective By Whom Made: a. . Cancellation: it includes the act of tearing. if a primary party or c. > If renunciation is absolute and unconditional in favor of the principal debtor.

in which it is declared that the same was on a certain day presented for payment (or acceptance as the case may be). 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 means all the steps or acts accompanying the dishonor of a bill or note necessary to charge an indorser. A notary public or b.” Necessity of Protest: Protest is required only for FOREIGN BILLS. Where the foreign bill is dishonored by non-acceptance. Protest may be made by – a. from his residence abroad. Reason for requiring protest: 1. it must be protested for nonpayment to the acceptor for honor. but not for inland bills or notes. in the presence of two or more credible witnesses.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. OMISSION OF PROTEST. The time and place of presentment. how made: The protest must be annexed to the bill or must contain a copy thereof. * When a bill has been DULY NOTED – the protest may be subsequently extended as of the date of the noting. The fact that presentment was made and the manner thereof. will DISCHARGE the DRAWER and the INDORSERS. for uniformity in international transactions because most countries require it and 2. they may also be protested if desired. Protest. it any. where protest is required. Where the foreign bill is dishonored by non-payment. Protest. 4. in order to furnish authentic and satisfactory evidence of the dishonor to the drawer who. it not having been dishonored by non-acceptance. when made: * Protest MUST be made on the day of its dishonor UNLESS delay is excused. 2. 2. or 4. The cause or reason for protesting the bill. or the fact that the drawee or acceptor could not be found. it must be protested for nonpayment before it is presented for payment to the referee in case of need. . 3. Where the bill contains a referee in case of need. The demand made and the manner given. and such payment (or acceptance) was refused. By any respectable resident of the place where the bill is dishonored. may experience difficulty in verifying the matter and may be forced to rely on the representation of the holder. and must be under the HAND AND SEAL of the NOTARY making it and must specify: 1. Where the bill has been accepted for honor. HOWEVER. 3. Instances when protest is required: 1.

2. and c. 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. drawee. OR DEMADNN ON. and the bill has been protested for non-acceptance or where the bill has been protested for better security. 4. The acceptor for honor must be a stranger to the bill. But before the date of maturity. Acceptance for honor: . EXCEPTION: . b. bill is lost or destroyed . as the drawer.  A bill MAY BE PROTESTED BEFORE MATURITY – aka “PROTEST FOR BETTER SECURITY” Requisites for Protest for better security: . or indorser. THE DRAWEE IS NECESSARY. or in his registry book. AND NO FURTHER PRESENTMENT FOR PAYMENT TO.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. The bill must have been previously protested (a) for non-acceptance or (b) for better security.A protest for better security must be made: a. Protest where made: GENERALLY – the protest must be made at the place where the instrument is dishonored. or somebody else. consisting of his initials or signature and those matters required to be stated in Section 153.” Requisites for acceptance for honor: 1.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. The bill is not overdue at the time of the acceptance for honor. After acceptance. The holder must give his consent. When a .“acceptance supra protest” – how made: . 1. where the drawee of the bill refused to accept it. 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.PROTEST MAY BE MADE ON A COPY OR WRITTEN PARTICULARS THEREOF. When the acceptor has been adjudged bankrupt and insolvent or has made an assignment for the benefit of creditors. or 2. 3.

3. Where a dishonored bill contains a referee in case of need. 2. The LIABILITY OF THE ACCEPTOR FOR HONOR is SECONDARY – NOT primary or absolute. 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. MISCONDUCT or NEGLIGENCE. It must indicate that it is an acceptance for honor. the drawee does not pay. The bill has been protested for non-payment. Presentment for payment to acceptor for honor. and 3. the bill is protested for non-payment. 2. It must be signed by the 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. as the case may be. even a party thereto may pay supra protest. ANY PERSON. NOTE: As distinguished from acceptance for honor – the acceptor for honor MUST BE A STRANGER. then it must be forwarded within the time specified in Section 104. Where a dishonored bill has been accepted for honor supra protest. If it is to be presented in some other place other than the place where it was protested. It must be in writing. and that he will pay it at the appointed time. how made: 1. 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.Negotiable Instruments Law 1. Reason: In order to fix the liability of the indorsers. . 2. In payment for honor – the PAYOR SUPRA PROTEST – may even be a PARTY to the instrument. ACCEPTOR FOR HONOR agrees to pay if: 1.  When a bill is DISHONORED by the ACCEPTOR FOR HONOR – it must be protested for non-payment by him. Bills which MUST BE PROTESTED FOR NON-PAYMENT before it will be presented for payment: 1. notice of dishonor is given to him. 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. presentment for payment has been made.  PAYMENT FOR HONOR Requisites for payment for honor: 1. 2. and 4. or 2.

The notarial act must be based in a declaration by the payer for honor. and to avoid the difficulties which would arise in case of loss or miscarriage on the way of the bill. and 2. Rights of payer for honor: 1. He has also the right to receive both the bill and the protest. or form an extension to it. each part being numbered and containing a reference to the other parts. 3. The payer or his agent goes to a notary public and declares his intention to pay the bill and for whose honor he pays. Effects on subsequent parties where bill is paid for honor: 1. all of which parts constitute but one bill. 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. All parties subsequent to the party for whose honor it is paid are discharged. Preference of parties offering to pay for honor: .  BILLS IN SET Bills in set – one composed of various parts. Purpose of bill in set: In order to increase the probability of the bill reaching its destination. Right of holders where different parts are negotiated: . He acquires the rights of the holder under Section 175.Negotiable Instruments Law 25 Form for payment for honor: 1. Purpose of payment for honor: Instead of simple negotiation to the person desiring to pay. and 2. The notary then records the declaration in the protest or in a separate paper attached to it. 2. 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. 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. 2. Procedure for payment for honor: 1. The payor then notifies the person for whose honor he pays within reasonable time. The payment must be attested by notarial act appended to the protest.The person WHOSE PAYMENT will DISCHARGE MOST PARTIES to the bill is to be given the preference.

The acceptance may be written on any part and it must be written on ONE PART only. and meanwhile to pay a .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. Effect of discharging one of a set: .  PROMISSORY NOTES AND CHECKS Promissory Note – is an unconditional promise in writing made by one person to another.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. . . or at a fixed or determinable future time. Effect if the drawee accepts more than one part: . engaging to pay on demand. Special types of promissory notes: 1. and contains an agreement of the company to pay the sum at a specified time in the future. bearer. signed by the maker. or to some other person or order.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.He is liable on EVERY SUC H PART.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.is a written acknowledgment by a bank of the receipt of money on deposit which the bank promises to pay to the depositor. to pay money.A promise. Liability of holder who indorses two or more parts of a set to different persons: . Bonds .It is NOT ipso facto negotiable – it must first comply with the requirements provided under Section 1. Acceptance of bills in set: . Payment by acceptor of bills drawn in sets: . under seal. NIL. 2. a sum certain in money to order or bearer.EVERY INDORSER SUBSEQUENT to him is LIABLE on the part he has himself indorsed – AS IF SUCH PARTS WERE SEPARATE BILLS. Certificate of deposit . it is NOT complete until indorsed by him. and . NOTE: Where a note is drawn to the maker’s own order.

or when the check had been credited to the account of the creditor) b.  CHECK – is a bill of exchange drawn on a bank payable on demand. Equipment Bonds 7. They are negotiable if it the requisites in Section 1. When through the fault of the creditor the check is impaired c.is an instrument whereby one person acknowledges his indebtedness to another. However. They are negotiable if it the requisites in Section 1.Are promissory notes of the issuing bank payable to bearer on demand and intended to circulate as money. Income bonds 2. they are not money. numbered and similarly printed coupons which the bondholder may cut off when due or thereafter. . It is a written order on a bank. 11. but produces the effect of payment when: a. 12. generally six months apart. purporting to be drawn against a deposit of funds for the payment of all events. In case of redemption Kinds of checks: 1. Redeemable Bonds 4. Debentures 10. Due Bills . Coupon Bonds – those which are attached a sheet of dated.Negotiable Instruments Law 27 specified interest on the principal amount at regular intervals. Bank Notes . Convertible bonds 3. and transferred just like any commercial paper. Mortgage bonds 6. NIL are complied with. The check was encashed. negotiated before the maturity of the interest they represent. Registered Bonds 5. Ordinary Check—The most common check issued by a bank to a client who opens a checking account 2. (Encashment is not limited to physical encashment over the counter of the drawee bank.Acceptance is NOT required for checks for the same are PAYABLE ON DEMAND. of a sum of money to a certain person therein named or to his order or to cash and payable on demand. Classes of Bonds: 1. 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. NIL are complied with. A check can be considered encashed through the clearing house. NOTE: . Guaranteed bonds 9. Collateral trust bonds 8. Such coupons may be served and deposited in a bank. 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.  Check is not Legal Tender.

It is similar to the cashier’s check as to effect and use. It is indicated as a “Gift Check”. weddings. . Here. 8. or when nothing is written at all between the parallel lines. The check may not be encashed but only deposited in the bank 2.Negotiable Instruments Law 28 3. 7. such as. Memorandum Checks – a check on which is written the word “memorandum”. NOTES: 1. by stamping on the check the word “certified” or “Good For Payment” and underneath it is written the signature of the cashier. 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. so as to be used as a gift for birthdays. 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. there is no proper presentment and drawer is not liable thereon. 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. usually on the upper left hand corner. Where other than payee of crossed checks presented it for payment.If it bounces – the drawer can be charged for violation of BP 22. . 2. Crossed check –One which has two parallel lines. Drawee should not encash a crossed check but merely the same for deposit. usually a traveller. 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. The check may be negotiated only once to one who has an account with a bank 3. 5. A check may be crossed (1) specially or (2) generally. 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. Traveler’s Check. “memo”. When these checks are lost or stolen. and “mem”. How is crossing of check done: -it is usually done by drawing two parallel lines transversally on the face of the check. Effects of Crossing a check 1.one issued by a bank to a holder. 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. 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. signifying that the drawer engages to pay the bona fide holder absolutely and not upon a condition to pay upon presentment and non-payment. 3. graduations and similar occasions. Gift Check-Similar to a cashier’s or manager’s check and may be signed either by the cashier or manager. Under crossed check – the payee has the duty to ascertain the holder’s title to checks. 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. 4. Here.

Dorsal Side/Back of the Check 1. Hence. drawer. Magnetic Ink Character Recognition Code (MICR)—a code designed to facilitate the clearing of checks among banks. Account Number 8. if no loss or injury is shown.the drawer is discharged but only to the extent of the loss caused by the delay. Amount in words 5. Amount in figures 4. Payee 3. Check Number 9. Drawer (Account Name) 6. undertakes to pay it at any future time when presented for payment. A bank is not obliged to the depositor to certify checks. Date 2. 10. the drawer is not discharged.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. Space for signature of the drawer II. Face. 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. Features of the Check I. Drawee-Bank 7. Effect if the check was allowed to become stale? (Stale when not encashed w/in 6 months) . Certification of check – is an agreement whereby the bank against whom a check is drawn.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. A check is a bill of exchange payable on demand – is intended for immediate use and not to circulate as a promissory note. must be presented within six (6) months – otherwise it will become stale. 1. 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. . .Negotiable Instruments Law 29 Advantages of crossing check: .

Effect where the holder of check procures it to be certified. and the bank is not liable to the holder unless and until it accepts or certifies the check. . If obtained by the holder. Effect of Certification: 1. Requisites for Stop Payment Order 1. It is equivalent to acceptance and is the operative act that makes the drawee bank liable. It must give the bank sufficient time prior to acceptance. Cases when Bank May Refuse Payment 1.No particular form is required – BUT IT MUST BE IN WRITING. When check operates as an assignment. The holder refuses to identify himself 7. A drawer may stop payment of the check before the same is accepted. It operates as an assignment of the funds of the drawer in the hands of the drawee bank. The drawer dies and proper notice is received by the bank 5. The bank is insolvent 2. certification or payment to enable the bank. with the initials of the cashier of a bank do not constitute a sufficient certification under modern banking practice. A check of itself does not operate as assignment of any part of the funds to the credit of the drawer with the 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. 2. Stop Payment Order—an instruction by the drawer addressed to the drawee bank directing the latter not to honor or pay the check. certified or paid by the drawee bank. the drawer and all indorsers are discharged from liability thereon. It must be positive and unqualified 4. The drawer’s deposit is insufficient or he has no account with the bank or said account had been closed or garnished 3. Form of certification: . Iron-Clad Rule: Prohibits the countermanding of payment of certified checks. The letters “O. The drawer is insolvent and proper notice is received by the bank 4. Indorsers subsequent to the certification are not discharged.”. . in the exercise of reasonable diligence to stop payment. The bank has reason to believe that the check is forgery.Where the holder of a check procures it to be accepted or certified. The drawer has countermanded payment 6.K.Negotiable Instruments Law 30 - The certification of a check is EQUIVALENT to an ACCEPTANCE. it discharges persons secondarily liable thereon. and 3.

Negotiable Instruments Law 31 .

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