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 makers own order, it is not complete until indorsed by him
Parties:
1. Makerone who makes a promise and signs the instrument
2. Payeeparty 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 its 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. Drawerone who gives the order to pay money to a 3
rd
party
2. Draweeperson to whom the bill is addressed and who is ordered to pay
3. Payeeparty 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 bank drafts, $%&W'% and $%&W'' are liable to purchaser of
draft for not complying with his instructions.
(. Trade Acceptance a bill of exchange payable to order and at a certain
maturity, drawn by a seller against the purchaser of goods as drawee, for a
fixed sum of money, showing on its face the acceptance of the purchaser of
the goods and that it has arisen out of a purchase by goods by the acceptor.
). Bankers Acceptance a draft or a bill of exchange of which the acceptor is
a bank or banker engaged generally in the business of granting bankers
acceptance credit. #t is similar to a trade acceptance, the fundamental
difference being that the bankers acceptance is drawn against a bank
instead of the buyer.
*. Trust Receipt the written or printed document signed by the entrustee in
favor of the entruster containing terms and conditions substantially complying
with the provisions of +$ 11, -.rust %eceipt /aw, which took effect on
0anuary (1, 112)3. !o further formality of execution or authentication shall be
necessary to the validity of the trust receipt.
!ote4 #t is the '!.%56.'' !7. the '!.%56.'% is the real owner of the
trust receipt.
.he liability of the entrustee to the entruster is '8 97!.%&9.5 not ex
delicto.
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Negotiable Instruments Law
,. 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 !7. 5!97!$#.#7!&/, and
does not fulfill the one of the essential requirements of a negotiable
instrument. -&bubakar v. &uditor <eneral3
=. oney !rder a species of draft drawn by the post>office upon another for
an amount of money deposited at the first post office by the person
purchasing the money order and payable at the second office to a payee
named in the order.
!ote4 ?oney order is !7. negotiable.
2. "lean and Documentary Bills of #$chan%e "lean bill of e$chan%e is
one to which are not attached to documents of title to be delivered to the
person against whom the bill is drawn when he either accepts or pays the bill.
Documentary Bill of #$chan%e is one to which are attached documents
of title to be delivered and surrendered to the drawee when he accepts or
pays the bill.
@. D&A and D&P Bills of #$chan%e >
:Documents A%ainst Payment Bill :$A+ "ill; 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 A!"nst Acce#t!nce B"$$% ' :$A& "ill; is a time bill to which are
attached documents to be delivered and surrendered to the drawee when he
accepts the bill.
1. (i%ht bills are bills which are payable upon presentation or at sight or on
demand.
1B. Time or usance bills are bills which are payable at a fixed future time or
at a determinable future time.
)nland Bill of #$chan%e is a bill which is or on its face purports to be "7.C drawn
and payable within the +hilippine #slands.
*orei%n Bill of #$chan%e> is a bill which is, or on its face purports to be, drawn or
payable outside the +hilippine #slands.
a. to be drawn in the +hilippines but payable outside thereofD or
b. to be payable in the +hilippines but drawn outside thereof.
Im#o&t!nce o' t(e )"st"nct"on:
The distintion is important in!
1. .hat foreign bills are required to be protested. Eailure to protest foreign bills will
discharge persons secondarily liable thereon.
(. .he distinction is also important for the determination of the law applicable.
*(en +"$$ m!, +e t&e!te) !s #&om"sso&, 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.
(. Where the drawee is a fictitious person.
). Where the drawee has no capacity to contract.
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Negotiable Instruments Law
Re'e&ee "n c!se o' nee) 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.
!ote4 #t is the option of the holder to resort to the referee in case of need or not as he
may see fit.
BEARER
+erson in possession of a billAnote payable to bearer
HOLDER
+ayee 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/PD0
1. issue
(. negotiation
). presentment for acceptance in certain bills
*. acceptance
,. dishonor by on acceptance
=. presentment for payment
2. dishonor by nonpayment
@. notice of dishonor
1. protest in certain cases
1B. discharge
NEGOTIABILITY
RE1UISITES .SUDOC0
2- "n 3&"t"n !n) s"ne) +, m!4e& o& )&!3e&
no person liable on the instrument whose signature does not appear thereon
"#eptions!
F & person signing in a trade or assumed name
F +rincipal is liable if a duly authoriGed agent signs in his own behalf
-&gent must be duly authoriGedD Ce adds words indicating that he
signs as an agentD Ce must disclosed his principal3
-(i%nature by procuration+operates as notie that the agent has
limited authority to sign and prinipal is bound if agent ated
beyond the limits of his authority$
F #n case of forgery, the forger is liable even if his signature does not
appear on the instrument
F Where the acceptor makes his acceptance of a bill on a separate paper
F 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 authoriGed agent, no particular form of
appt. necessary
5- uncon)"t"on!$ #&om"se o& o&)e& to #!,
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Negotiable Instruments Law
unqualified order or promise to pay is unconditional though coupled with
a. an indication of a particular fund out of which reimbursement to be made, or a
particular account to be debited with amount, or
b. 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
! sum ce&t!"n "n mone,
even if stipulated to be paid>>>
a. with interest, or
b. by stated installments, or
c. by stated installments with a provision that upon default in payment of any
installmentAinterest, the whole shall become due, or
d. with exchange, whether at a fixed rate or at the current rate, or
e. with costs of collection or an attorneys fee, in case payment not made at
maturity
6- #!,!+$e on )em!n)7
when expressed to be payable on demand, or at sight, or on presentationD
when no time for payment expressed, or
where an instrument is issued, accepted or indorsed when overdue, it is, as regards
the person so issuing, accepting, or indorsing it, payable on demand
o& !t ! '"8e) o& )ete&m"n!+$e 'utu&e t"me
when its expressed to be payable at a fixed period after date or sight, or
on or before a fixed or determinable future time fixed therein, or
on or at a fixed period after the occurrence of a specified event which is certain to
happen, though the time of happening be uncertain
an instrument payable upon a contingency not negotiable, and happening of event
doesnt cure it
9- #!,!+$e to o&)e&
where it is drawn payable to the order of a specified person or to him or his order.
?ay be drawn payable to order of >>>
a. a payee not the makerAdrawerAdrawee, or
b. drawer or maker, or
c. drawee, or
d. two or more payees Hointly, or
e. holder of an office for time being
when the instrument is payable to order the payee must be named or otherwise
indicated therein with reasonable certainty
o& +e!&e&7
when expressed to be so payable
when payable to person named therein or bearer
when payable to order or fictitiousAnon>existent person, and such fact known to the
person making it so payable, or
when name of payee doesnt purport to be the name of any person, or
when the onlyAlast indorsement is in blank
4
Negotiable Instruments Law
:- where addressed to drawee4 such )&!3ee n!me); "n)"c!te) t(e&e"n 3"t(
&e!son!+$e ce&t!"nt,
bill may be addressed to two or more drawees Hointly, whether partners or not, but
not to two or more drawees in the alternative or in succession
bill may be treated as a +!, at option of holder, where
a. drawer and drawee are same person
b. drawee is fictitiousAincapacitated
"!,T),-AT)!, !* ,#.!T)AB/# "0ARA"T#R
5ntil4
1. restrictively indorsed
(. discharged by payment or otherwise
EFFECT OF ADDITIONAL PRO<ISIONS
.Sec-:0 Gen- Ru$e: orderApromise to do any act in addition to the payment of money
renders instrument non>negotiable.
E8ce#t"on: negotiability not affected by provisions wAc
1. authoriGe sale of collateral security if instrument not paid at maturity
(. authoriGe confession of HudgmentI
). waives benefit of any law intended for advantageAprotection of obligor
*. give holder election to require something to be done in lieu of money
Ot(e& Inst!nces 3(en neot"!+"$"t, not !''ecte)
.Sec- =0 a. !ot dated
b. $oes not specify the value given or that any value has been given therefore
c. $oes not specify the place where it is drawn or the place where it is payable
d. "ears a seal
e. $esignates a particular kind of current money in wAc payment is to be made
Sec- 2>- Const&uct"on 3(e&e "nst&ument "s !m+"uous-
-a3 Where the sum #!,!+$e is expressed in words and also in figures and there is a
discrepancy between the two, the sum denoted by the words is the sum payableD but if
the words are ambiguous or uncertain, reference may be had to the figures to fix the
amountD
-b3 Where the instrument provides for the payment of interest, without specifying the
)!te '&om 3("c( "nte&est "s to &un, the interest runs from the date of the instrument,
and if the instrument is undated, from the issue thereofD
-c3 Where the "nst&ument "s not )!te)7 it will be considered to be dated as of the time it
was issuedD
-d3 Where there is a con'$"ct +et3een t(e 3&"tten !n) #&"nte) #&o?"s"ons of the
instrument, the written provisions prevailD
-e3 Where the instrument is so !m+"uous t(!t t(e&e "s )ou+t 3(et(e& "t "s ! +"$$ o&
note, the holder may treat it as either at his electionD
-f3 Where a s"n!tu&e is so placed upon the instrument that it is not c$e!& "n 3(!t
c!#!c"t, t(e #e&son m!4"n t(e s!me intended to sign, he is to be )eeme) !n
"n)o&se&D
5
Negotiable Instruments Law
-g3 Where an instrument containing the word @I #&om"se to #!,@ is signed by two or
more persons, they are deemed to be Hointly and severally liable thereon.
DATE IN AN INSTRUMENT
Presumption as to date: %aid date is the date when it was made by the maker& drawn
by the drawer& aepted by the drawee or indorsed by the payee. '%e. 11$
#ffect of ante+datin% or Post+datin%: (nstrument is not invalid& provided not done for
an illegal or fraudulent purpose. '%e. 12$
1 Ante+datin%: <iving an instrument a date that is earlier than the date it was issued
1 Post+datin%: <iving an instrument a date that is later than the date it was issued
When date may be inserted2
a. )here an instrument is payable at a fi#ed period after date but is issued undated
b. )here an instrument is payable at a fi#ed period after sight but the aeptane is
undated
DELI<ERY .Sec- 2=0
Issu!nce/the first delivery of the instrument complete in form to a person who takes it as
a holder.
(teps:
1. ?echanical &ct of writing, complying with requirements of 6ec. 1
(. $elivery with intention to give effect thereto.
!# incomplete and revocable until delivery for the purpose of giving effect thereto. &s
between4
a. immediate parties
b. a remote party other than holder in due course
delivery, to be effectual, must be made by or under the authority of the party
makingAdrawingAacceptingAindorsing
in such case delivery may be shown to have been conditional, or for a special purpose
only, and not for the purpose of transferring the property in the instrument
PRESUMPTION OF DELI<ERY
Where the instrument is no longer in the possession of a party whose signature appears
thereon, a valid and intentional delivery by him is presumed until the contrary is proved
-Fif in the hands of a C$9, presumption conclusive3
NEGOTIATION
When an instrument is transferred from one person to another as to constitute the
transferee the holder thereof.
#f payable to "'&%'%, negotiated by deliveryD if payable to 7%$'%, negotiated by
indorsement of holder J delivery
INDORSEMENT
#t is the writing of the name of the indorser on the instrument with the intent either to
transfer the title to the same, or to strengthen the security of the holder by assuming a
contingent liability for its future payment.
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Negotiable Instruments Law
.he indorsement must be written on the instrument itself or upon a paper attached
thereto. .he signature of the indorser is sufficient. -6ec. )13
#ndorsement must be of entire instrument. -cant be indorsement of only part of
amount payable, nor can it be to two or more indorsees severally. "ut may be indorsed
as to the residue of partially paid instrument3 K6ec. )(L
AINDS OF INDORSEMENT
A- As to m!nne& o' 'utu&e met(o) o' neot"!t"on
1. 6pecial specifies the person to whomAto whose order the instrument is to be
payableD indorsement of such indorsee is necessary to further negotiation.
(. "lank specifies no indorsee, instrument so indorsed is payable to bearer, and may
be negotiated by delivery
.he 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 -6ec. ),3
B- As to 4"n) o' t"t$e t&!ns'e&&e)
1. restrictive
prohibits further negotiation of instrument,
constitutes indorsee as agent of indorser, or
vests title in indorsee in trust for another
3 Ri%hts of indorsee in restricti4e indorsement:
receive payment of instrument
"ring any action thereon that indorser could bring
.ransfer his rights as such indorsee, but all subsequent indorsees acquire only title of
first indorsee under restrictive indorsement
(. non>restrictive
C- As to 4"n) o' $"!+"$"t, !ssume) +, "n)o&se&
1. qualified> constitutes indorser as mere assignor of title -eg. :without recourse;3
(. unqualified
D- As to #&esence;!+sence o' e8#&ess $"m"t!t"ons #ut +, "n)o&se& u#on #&"m!&,
o+$"o&Bs #&"?"$ees o' #!,"n t(e (o$)e&
1. conditional additional condition annexed to indorsers liability.
Where an indorsement is conditional, a party required to pay the instrument may
disregard the condition, and make payment to the indorsee or his transferee, whether
condition has been fulfilled or not
&ny person to whom an instrument so indorsed is negotiated will hold the
sameAproceeds subHect to rights of person indorsing conditionally
(. unconditional
INDORSEMENT OF BEARER INSTRUMENT .Sec- 9C0
Where an instrument payable to bearer is indorsed specially, it may nevertheless be
further negotiated by delivery
7
Negotiable Instruments Law
+erson indorsing specially liable as indorser to only such holders as make title through
his indorsement
INDORSEMENT *HERE INSTRUMENT PAYABLE TO T*O OR MORE PERSONS
*HO ARE NOT PARTNERS .Sec-920
&ll must indorse unless the one indorsing has authority to indorse for others

INSTRUMENT DRA*N OR INDORSED TO A PERSON AS CASHIER .Sec-950

+resumed to be payable to the bank or corporation
INDORSEMENT *HERE NAME MISSPELLED .Sec- 960
?ay continue indorsing through the misspelled name, or he may add his proper
signature
P&esum#t"on !s to t"me o' In)o&sementDbefore instrument is overdue, except where
indorsement bears date which is after maturity.
P&esum#t"on !s to #$!ce o' In)o&sementD&t the place where instrument dated
St&"4"n Out In)o&sements7 E''ect:
F .he indorser whose indorsement is struck out and all indorsers subsequent to him
relieved from liability.
UNINDORSED INSTRUMENTS .Sec- 9E0
1. transfer vests in transferee such title as transferor had therein
(. right of transferee to have indorsement of transferor for purposes of determining
C$9 negotiation effective upon actual indorsement
PRIOR PARTY *HO NEGOTIATES INSTRUMENT7 e''ects .Sec- :C0
!ot entitled to enforce payment against any intervening party to whom he is personally
liable
HOLDER IN DUE COURSE
RE1UISITIES
1. com#$ete !n) &eu$!& u#on "ts '!ce
sec. 1(* -effect of material alterationMnot defense against C$93
aterial Alteration: any hange in the instrument whih affets or hanges the
liability of the parties.
(poliation+ * material alteration made by a stranger
sec. 1(, what constitute material alterations4
a. $ate
b. 6um +ayable, either for principal or interest
c. .ime or place of payment
d. !umber or relations of the parties
e. ?edium of currency or which adds a place of payment
(. (o$)e& +ec!me suc( +e'o&e "t 3!s o?e&)ue7 3"t(out not"ce o' !n, #&e?"ous
)"s(ono&
8
Negotiable Instruments Law
sec. ,) -instrument payable on demand negotiated after unreasonable length of
time4 holder is not C$93
sec. 1( -effect antedatingApostdating3
). t!4en "n oo) '!"t( !n) 'o& ?!$ue
sec. (* -presumption of consideration3
sec (, -5alue4 is any onsideration suffiient to support a simple ontrat3
sec. (= -0older for 4alue! one who has given a valuable onsideration for the
instrument issued or negotiated to him 3
sec. (2 -)hen a holder has lien on the instrument& by ontrat or impliation he is
deemed a holder for value to the e#tent of the lien3
*. !t t"me neot"!te) to ("m7 (e (!) no not"ce o' //
!-"n'"&m"t, "n "nst&ument
+-)e'ect "n t"t$e o' #e&son neot"!t"n:
What defect constitutes -6ec.,,3
1. instrumentAsignature obtained through fraud, etc., illegal considerationAmeans, or
(. instrument negotiated in breach of faith, or fraudulent circumstances
!otice
6ec. ,*>notie before full amt. paid4 deemed C$9 only to the extent of the
amount paid by him
6ec. ,=>notie of defet! &ctual knowledge necessary
R).0T( !* 0!/D#R ), D-# "!-R(#
1. sue thereon in his own name
(. payment to him in due course discharges instrument
). holds the instrument free from any defect of title of prior parties and free from personal
defenses available to parties among themselves
*. may enforce payment of the instrument for the full amount thereof against all parties
liable thereon
RIGHTS OF PURCHASER FROM HOLDER IN DUE COURSE
Gene&!$ Ru$e: in the hands of any holder other than a C$9, !# is subHect to same
defenses as if it were non>negotiable. -6ec. ,@3
E8ce#t"on: holder who derives title through C$9 and who is not himself a party to any
fraud or illegality has all rights of such former holder in respect to all parties prior to the
latter.
*HO DEEMED HDC .Sec- :E0
prima facie presumption in favor of holder
but when shown that title of any person who has negotiated instrument was
defective, presumption is reversed, burden is now with holder to prove
but no reversal if party being made liable became bound prior to acquisition of
defective title
AINDS OF DEFENSES
2- &e!$ )e'ense F attaches to instrumentD on the principle that the right sought to be
enforced never existedAthere was no contract at all. &vailable to all parties both
immediate and remote including C$9.
9
Negotiable Instruments Law
5- #e&son!$ )e'ense F growing out of agreementD renders it inequitable to be enforced
against defendant. &vailable to prior parties among themselves but wAc are not good
against a C$9.
DEFENSES
2- INCAPACITY: REAL4 indorsementAassignment by corporationAinfant passes
property but corpAinfant no liability

5- FORGERY: Re!$:
$efinition4 the ounterfeit+making or fraudulent alteration of any writing& and may onsist
in the signing of another,s name or the alteration of an instrument in the name& amount&
desription of the person and the like& with intent thereby to defraud.
Bad *or%ery6forgery whih is apparent or naked to the eye
.ood *or%eryre-uires e#amination of signature if it was forged
#ffect 7hen (i%nature is for%ed or made 7ithout authority of person 7hose
si%nature it purports to be8
Gene&!$ Ru$e4
!- wholly inoperative
+- no right to retain instrument, or give discharge, or enforce payment vs. any party, can
be acquired through or under such signature -unless forged signature unnecessary to
holders title3
E8ce#t"on:
unless the party against whom it is sought to enforce such right is precluded from setting
up forgeryAwant of authority
P&ec$u)e):
!- parties who make certain warranties, like a general indorser or acceptor
+- estoppedAnegligent parties
6- MATERIAL ALTERATION
G Where !# materially altered wAo assent of all parties liable thereon, avoided, except as
against
1. party who has himself made, authoriGed or assented to alteration
(. and subsequent indorsers
"ut when an instrument has been materially altered and is in the hands of a C$9 not a
party to the alteration, C$9 may enforce payment thereof according to orig. tenor
Fmaterial alteration a #e&son!$ )e'ense when used to deny liability according to org.
tenor of instrument, but &e!$ )e'ense when relied on to deny liability according to altered
terms.
9- FRAUD
!- '&!u) "n e8ecut"on: real defense -didnt know it was a !egotiable #nstrument3
+- '&!u) "n "n)ucement: personal defense -knows its !egotiable #nstrument but
deceived as to valueAterms3
:- COMPLETE7 UNDELI<ERED INSTRUMENT
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Negotiable Instruments Law
+ersonal defense -sec. 1=3
#f instrument not in possession of party who signed, delivery prima facie presumed
#f holder is C$9, delivery conclusively presumed
=- INCOMPLETE7 UNDELI<ERED INSTRUMENT
G %eal defense -sec. 1,3
G #nstrument will not, if completed and negotiated without authority, be a valid contract
in the hands of any holder, as against any person whose signature was placed thereon
before delivery
>- INCOMPLETE7 DELI<ERED
G +ersonal defense -sec. 1*3
G 5 A"n)s o' *&"t"ns:
1. Where instrument is wanting in any material particular4 person in possession has
prima facie authority to complete it by filing up blanks therein
(. 6ignature on blank paper delivered by person making the signature in order that the
paper may be converted into a !#4 prima facie authority to fill up as such for any amount
G #n order that any such instrument, when completed, may be enforced against any
person who became a party thereto prior to its completion4
1. must be filled up strictly in accordance wA authority given
(. within a reasonable time
but if any such instrument after completion is negotiated to C$9, itNs valid for all
purposes in his hands, he may enforce it as if it had been filled up properly
Re!$ De'enses Pe&son!$ De'enses
1. ?aterial &lteration
(. Want of delivery of incomplete instrument
). $uress amounting to forgery
*. Eraud in factum or Eraud in esse
contractus
,. ?inority -available to the minor only3
=. ?arriage in the case of a wife
2. #nsanity where the insane person has a
guardian appointed by the court
@. 5ltra Oires acts of corporation
1. Want of authority of agent
1B. 'xecution of instrument bAw public enemies
11. #llegalityMif declared void for any purpose
1(. Eorgery
1. &bsence or failure of consideration whether
partial or total
(. Want of delivery of complete instrument
). #nsertion of wrong date in an instrument
*. Eilling up of blank contrary to authority
given or not wAin reasonable time
,. Eraud in inducement
=. &cquisition of instrument by force, duress
or fear
2. &cquisition of instrument by unlawful
means
@. &cquisition of the instrument for an illegal
consideration
1. !egotiation in breach of faith
1B. !egotiation under
circumstances that amount to fraud
11. ?istake
1(. #ntoxication
1). 5ltra Oires &cts of corporations
where the corporation has the power to issue
negotiable paper but the issuance was not
authoriGed for the particular purpose for which
it was issued
11
Negotiable Instruments Law
LIABILITIES OF PARTIES
A- PRIMARY PARTIES
+erson primarily liable4 person who by the terms of the instrument is absolutely
required to pay the same.
2- L"!+"$"t, o' M!4e&
a. +romises to pay it according to its tenor
b. admits existence of payee and his then capacity to indorse
5- St!tus o' )&!3ee #&"o& to !cce#t!nce o& #!,ment
sec. 1(2 -bill not an assignment of funds in hands of drawee3
sec. 1@1 -when check does not operate as assignment until bank certifies or
accepts it3
6- L"!+"$"t, o' Acce#to&
+romises to pay instrument according to its tenor
&dmits the following4
a. existence of drawer
b. genuineness of his signature
c. his capacity and authority to draw the instrument
d. existence of payee and his then capacity to indorse
B- SECONDARY PARTIES
2- L"!+"$"t, o' D&!3e&
a. &dmits existence of payee and his then capacity to endorse
b. 'ngages that on due presentment instrument will be accepted, or paid, or both,
according to its tenor and that
c. #f it be dishonored, and the necessary proceedings on dishonor be duly taken, 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 A limiting his
own liability to holder
5- L"!+"$"t, o' In)o&se&s:
1u!$"'"e) In)o&se& !n) one Neot"!t"n +, De$"?e&, .Sec =:0
a. #nstrument genuine, in all respects what it purports to be
b. Ce has good title
c. all prior parties had capacity to contract
d. he had no knowledge of any fact wAc would impair validity of instrument or render it
valueless
in case of negotiation by delivery only, warranty only extends in favor of immediate
transferee
L"!+"$"t, o' ! Gene&!$ o& UnHu!$"'"e) In)o&se&
12
Negotiable Instruments Law
a. instrument genuine, good title, capacity of prior parties
b. instrument is at time of indorsement valid and subsisting
c. on due presentment, it shall be accepted or paid, or both, according to tenor
d. if it be dishonored, and necessary proceedings on dishonor be duly taken, he will
pay the amt. .o holder, or to any subsequent indorser who may be compelled to pay it
O&)e& o' L"!+"$"t, !mon In)o&se&s
1. among themselves4 liable prima facie in the order they indorse, but proof of another
agreement admissible
(. but holder may sue any of the indorsers, regardless of order of indorsement
). Hoint payeesAindorsees deemed to indorse Hointly and severally
L"!+"$"t, o' Accomo)!t"on P!&t,
De'"n"t"on: one who signed instrument as makerAdrawerAacceptorA indorser wAo
receiving value thereof, for the purpose of lending his name to some other person
&ccomodation +arty liable on the instrument to holder for value even if holder, at
time of taking instrument, knew he was only an &ccomodation +arty
%ome Terms!
*ommodation .ill or /oteone to whih the aommodation party has
put his name& w0o onsideration& for the purpose of aommodating some other
party who is to use it and is e#peted to pay it.
*omodated Partyis one in whose favor a person& w0o reeiving value
therefore& signs an instrument for the purpose of lending his redit and enabling
said party to raise money upon it.
L"!+"$"t, o' I&&eu$!& In)o&se&
Where a person not otherwise a party to an instrument, places thereon his signature
in blank before delivery, hes liable as an indorser, in accordance wA these rules4
1. #nstrument payable to order of )rd person4 liable to payee and to all subsequent
parties
(. #nstrument payable to the order of makerAdrawer, or payable to bearer4 liable to all
parties subsequent to makerAdrawer
). 6igns for accommodation of payee, liable to all parties subsequent to payee
L"!+"$"t, o' !n Aent
6ignature of any party may be made by duly authoriGed agent, 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, he is not liable on the instrument if he was duly
authoriGed, but the mere addition of words describing him as an agent without disclosing
his principal, does not exempt from personal liability.
6ignature per procuration operates as notice that the agent has but a limited authority
to sign, 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, he incurs all
liabilities in 6ec. =,, unless he discloses name of principal and fact that hes only acting
as agent
13
Negotiable Instruments Law
PR#(#,T#,T
A- In P&om"sso&, Notes
Pu&#ose:
!ot necessary to make the maker liable, but is necessary to make the secondary parties
liable.
ReHu"s"tes:
Eor a valid presentment for payment of a promissory note, the following are necessary4
a. made within a reasonable time after issueD
b. by the holder or his agentD
c. to the party liable under itD
d. at a reasonable hour on a business dayD and
e. at the proper place.
FFF.he holder must exhibit the instrument to the debtor and should deliver it to said
debtor if the latter pays.
When ,!T re9uired&e$cused
+resentment is !7. required4
1. when after due diligence presentment cannot be madeD
(. when presentment is waived, and
). when the indorser is an accommodated party.
B- In B"$$s o' E8c(!ne
Acce#t!nce is the signification by the drawee of his assent to the order of the drawer.
Ho3 m!)e:
> .he acceptance may be on the bill, on a separate paper -allonge3, and may even be in
writing before the bill is drawn.
> .he drawee, if he wants to dishonor, must do so expressly within twenty>four
-(*3 hours from presentment to him. #f he refuses to act, tears the bill, or refuses
to return the bill within said period of twenty>four hours, he is deemed to have
accepted the bill implied aeptane.
> & sight draft -usually accompanying a letter of credit in importations3 is payable
on demand and needs no acceptance by the drawee.
1lasses of *eptane
1. 2eneral and 3ualified
<eneral &cceptance F a general acceptance assents without qualification to the order of
the drawer.
Pualified &cceptance it varies the effect of the bill as drawn. .he acceptance is
qualified if it is4
a. 9onditionalD
b. +artialD
c. /ocalD
d. Pualified as to timeD
e. &ccepted by some or more of the drawees but not by all.
14
Negotiable Instruments Law
(. "#press and 1onstrutive
> &cceptance is e8#&ess if written on the instrument by the draweeD and const&uct"?e, if
drawee, within twenty four hours from presentment to him of the instrument, destroys the
same, or refuses or fails to return the bill accepted or unaccepted.
RE1UISITES OF ACTUAL ACCEPTANCE:
1. in writing, and
(. signed by the drawee,
). it must not express that the drawee will perform his promise by another means
than the payment of money, and
*. it must be communicated or delivered to the holder.
ACCEPTANCE7 HO* MADEI
> #t is usually done by writing across the face of the bill the word :&99'+.'$; or words
of similar import, e.g. :C7!7%'$;, :# W#// +&Q .C' "#//;, :6''!; followed by the
signature of the drawee.
> .he drawee must sign because without his signature he would not be bound 6ee
6ection 1@, !#/.
> &cceptance by telegram has been held sufficient.
!.". &cceptance is !7. required for 9C'9R6 for the same are payable on demand.
EFFECT OF ACCEPTANCE:
5pon acceptance, the drawee becomes liable on the bill. .he bill becomes in effect a
note, the acceptor standing in the place of the maker, and the drawer, in the place of the
first indorser.
"ut should the drawee refuse to accept, the payee or the holder has no recourse
against him but only against the drawer and indorsers, if any.
)s payment e9ui4alent to acceptance2 !7, > the payment of a check does not include
or imply its acceptance in the sense that this word is used in 6ection =(, !#/.
*HERE BILL MAY BE *RITTEN:
> &cceptance may be made
1. on the bill itself, or
(. on a separate paperD and if on a separate paper
a. it may be acceptance as to an existing billD or
b. it may be acceptance as to a non>existing bill.
- #f the bill is non>existent, the acceptance on a separate paper must
comply with following requirements4
i. .hat the contemplated drawee shall describe the bill to be drawn
and promise to accept it.
15
Negotiable Instruments Law
ii. .hat the bill shall be drawn within a reasonable time after such
promise is writtenD and
iii. .hat the holder shall take the bill upon the credit of the promise.
Sect"on 26=-
- .he drawee is allowed t3ent,/'ou& (ou&s after presentment in which to
decide whether or not he will accept the billD the acceptance if given,
dates as of the day of presentation.
- !7.'4 .he 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.
> $rawee bank is !7. entitled to (* hours to decide whether for payment
!7. acceptance. "ut, if the check is presented for certification, this ruling will
not apply, as certification is equivalent to acceptance.
Const&uct"?e Acce#t!nce: > this class of acceptance is !7. in writing.
1. Where the drawee to whom the bill is delivered for acceptance, destroys itD or
(. Where the drawee refuses, within (* hours after such delivery or within such
time as is given him, to return the bill accepted or not accepted.
> (f the holder should demand its return before twenty+four hours& the
drawee would be re-uired to omply on pain of being held as an
aeptor4 but return within twenty+four hours unaepted would not be a
dishonor.
- #n all the foregoing, the drawee will be deemed to have accepted the bill
even if there is !7 &9.5&/ W%#..'! &99'+.&!9' by him.
Inst!nces 3(en ! +"$$ m!, +e !cce#te):
1. "efore the bill has been signed by the drawerD
(. 'ven when the bill is otherwise incompleteD
). 'ven when the bill is overdueD
*. 'ven after it has been dishonored by non>acceptance or by non>payment.
- .he holder of the bill has the ri%ht to re9uire .#,#RA/ A""#PTA,"#
thus he may %'E56' to take qualified acceptance and if he $7'6
!7. obtain an unqualified acceptance he may treat the bill as
dishonored.
- #ffect of takin% 9ualified acceptance: Where a qualified acceptance is
taken .C' $%&W'% and #!$7%6'%6 are discharged from liability on
the bill unless they have expressly or impliedly authoriGed the holder to
take qualified acceptance or subsequently assents thereto.
- When the drawer or indorser receives notice of qualified acceptance he
must within a %'&67!&"/' .#?' express his dissent to the holder
or he will be deemed to have assented thereto.
16
Negotiable Instruments Law
P&esentment 'o& Acce#t!nce
De'"n"t"on: #t is the production or exhibition of a bill of exchange to the drawee for his
acceptance.
GENERAL RULE:
+resentment for acceptance is !7. !'9'66&%Q to render any party to the bill
liable.
EXCEPTIONS:
1. Where the bill is payable after sight, or in any other case, where presentment for
acceptance is necessary in order to fix the maturity of the instrumentD or
(. Where the bill is expressly stipulates that it shall be presented for acceptanceD or
). Where the bill is drawn payable elsewhere than at the residence or place of
business of the drawee.
NOTE: #n those instances found in 6ection 1*) it is !'9'66&%Q in
order to charge persons secondarily liable -Sect"on 29934
i. to make presentment for acceptance or
ii. to negotiate the bill within a reasonable time.
P&esentment7 (o3 m!)e:
>+resentment ?56. be made by or on behalf of the holder4
Re9uisites:
1. #t must be presented at a reasonable hourD
(. #t must be presented on a business dayD and
). #t must be presented before the bill is overdue.
To *HOM 3"$$ "t +e #&esente)I
1. .o the $%&W'' or some person authoriGed to &99'+. or %'E56'
&99'+.&!9' on his "'C&/ED and
(. Where a bill is addressed to two or more drawees who are not partnersD
presentment must be made to them all unless one has authority to accept
or refuse acceptance for all, in which case presentment may be made to
him onlyD
). Where the drawee is dead presentment may be made to his personal
representativeD
*. Where the drawee has been adHudged a bankrupt or an insolvent or has
made an assignment for the benefit of creditors, presentment may be
made to him or to his trustee or assignee.
Days 7hen presentment may be made:
17
Negotiable Instruments Law
& bill may be presented for acceptance on &!Q $&Q on which negotiable
instruments may be presented for payment.
When 6&.5%$&Q is !7. 7.C'% W#6' & C7/#$&Q presentment for
&99'+.&!9' may be made before twelve oclock noon on that day.
!ote4 .he only difference between 6ection 2( and @, is that under 6ection 1*=
there is no distinction between the instruments payable at a fixed or determinable
future time and instruments payable on demand.
Where the holder of a bill drawn payable elsewhere other than the place of
business or the residence of the drawee has no time, with the exercise of
reasonable diligence to present the bill for acceptance before presenting it for
payment on that day it falls due .C' $'/&Q 9&56'$ "Q +%'6'!.#!< .C'
"#// E7% &99'+.&!9' "'E7%' +%'6'!.#!< #. E7% +&Q?'!. #6
'8956'$ &!$ DOES NOT $#69C&%<' .C' $%&W'%6 &!$ #!$7%6'%6.
Inst!nces 3(en PRESENTMENT FOR ACCEPTANCE IS EXCUSED !n) A BILL MAY
BE TREATED AS DISHONORED BY NON/ACCEPTANCE:
1. Where the drawee is dead, or has absconded, or is a fictitious person or a
person not having capacity to contract by billD
(. Where, after the exercise of reasonable diligence, presentment can not be madeD
). Where, although presentment has been irregular, acceptance has been refused
on some other ground.
Dut, o' t(e (o$)e& 3(e&e +"$$ "s not !cce#te)-
Where a bill is duly presented for acceptance and is not accepted within the
prescribed time, the person presentin% it must treat the bill as dishonored by non+
acceptance or he loses the ri%ht of recourse a%ainst the dra7er and indorsers8
HO*I "y giving !7.#9' 7E $#6C7!7% or by making a +%7.'6. when
required.
P&esentment Fo& P!,ment O' Acce#te) B"$$
Pu&#ose: .he purpose of presentment for payment of an accepted bill is to collect from
the acceptorD and if refused, to collect from the secondary parties.
ReHu"s"tes:
1. .he accepted bill must be presented for payment within a reasonable time from the
last negotiation by the holder or his agent
(. to the acceptor or his agent
). at a reasonable hour on a business day
*. at the proper place as defined.
.he bill must be exhibited to the acceptor and surrendered to him when he pays.
When Presentment for payment is e$cused:
a. when after due diligence, it cannot be made
b. when the drawee is a fictitious person
c. where there is a waiver of presentment.
18
Negotiable Instruments Law
DISHONOR
1 .(n P56M(%%657 /6T"
> #n a promissory note, )"s(ono& +, non/#!,ment takes place when it is duly presented
for payment and payment is refused or cannot be obtainedD or if presentment is excused,
the instrument is overdue and unpaid.
E''ect: .here is an immediate right of recourse by the holder against persons
secondarily liable, which requires notice of dishonor -6ec. @*3
2. (n .(88% 69 ":1;*/2"
> #n bills of exchange, where the bill is presented for acceptance and is returned
dishonored, or within twenty four hours from presentment, is not returned accepted or
unaccepted, or when presentment for acceptance is excused and the bill is not accepted
there is a )"s(ono& +, non/!cce#t!nce.
>.here is a )"s(ono& +, non/#!,ment if the bill, after it has been accepted is not paid
when presented for payment, or presentment being excused, is not paid on the date of
maturity.
E''ect o' D"s(ono& +, Non/!cce#t!nce: &n immediate right of recourse against the
drawer and indorsers accrues to the holder and !7 +%'6'!.?'!. for payment is
necessary. -6ec. 1,13
/ote! %ame effet in Dishonor by /on+payment is Promissory /ote
NOTICE OF DISHONOR
//bringing either verbally or by writing, to the knowledge of the drawer or indorser of
an instrument, the fact that a specified negotiable instrument, upon proper proceedings
taken, has not been accepted or has not been paid and that the party notified is
expected to pay it.
RE1UISITES:
1. <iven by a holder or his agent-6+& necessary3, or by any party who may be
compelled by the holder to pay. -6ec. 1B3
(. <iven to a secondarily liable party or his agent6ec. 123
>!otice to one partner is notice to all even though there has been dissolution
>!otice to persons Hointly liable who are not partners must be given to each of them
unless one of them has authority to receive such notice for others
>!otice to bankrupt may be given to his trustee or assignee
). <iven as soon as the instrument is dishonored and within the periods provided by law.
-6ec. 1B(3
*. <iven at the proper place -6ecs. 1B) S 1B*3
TO *HOM GI<EN
a. !on>acceptance-bill3Mto persons secondarily liable, namely, the drawer and indorsers
as the case may be
b. !on>payment -bill and note3Mindorsers
BY 3(om G"?en
19
Negotiable Instruments Law
a. .he holder
b. &nother, on behalf of the holder
c. &ny party to the instrument who may be compelled to pay it to the holder, and who
would have a right of reimbursement from the party to whom notice is given
*HEN NOTICE OF DISHONOR IS DISPENSED *ITH:
1. When the party to be notified knows about the dishonor, actually or constructively
(. #f waived -either before the time of giving notice has arrived or after the omission to
give due notice3 -6ec. 1B13
>>#f waiver embodied in instrument itself it binds all parties, but if written above the
signature of an indorser, the latter is only bound
). When after due diligence, it cannot be given -6ec. 11(3
*HEN NOTICE OF DISHONOR NEED NOT BE GI<EN TO DRA*ER
1. $rawer and drawee are the same person
(. $rawee is a fictitious person or a person not having capacity to contract
). $rawer is the person to whom the instrument is presented for payment
*. $rawer has no right to expect or require that the drawee or acceptor will honor the
instrumentD
,. $rawer has countermanded payment.
*HEN NOTICE OF DISHONOR NEED NOT BE GI<EN TO INDORSER
-a3 When the drawee is a fictitious person or person not having capacity to contract, and
the indorser was aware of that fact at the time he indorsed the instrument
-b3 Where the indorser is the person to whom the instrument is presented for payment
-c3 Where the instrument was made or accepted for his accommodation
MATURITY OF NEGOTIABLE INSTRUMENT:
1. 'very negotiable instrument is payable at the time fixed therein without grace.
(. When the day of maturity falls on a 6unday or a Coliday, the instrument is payable on
the next succeeding business day.
). #nstruments falling due or payable on a 6aturday are also to be presented for payment
on the next succeeding business day, except when the instrument is payable on demand
where it may be the option of the holder to present the instrument for payment before
1(4BB noon on 6aturday when the entire day is not a holiday. -6ec. @,3
RE1UISITES OF PAYMENT IN DUE COURSE
1. ?ade at of after maturity.
(. ?ade to the holder.
). #n good faith and without notice that the holders title is defective. -6ec. @@3
<ood faith refers to the maker or acceptor and not to the holder.
DISCHARGE OF NEGOTIABLE INSTRUMENT
/ & release of all the parties liable from obligations arising thereunder. #t renders the
instrument without force and effect and, consequently, it can no longer be negotiated.
20
Negotiable Instruments Law
*HEN A NEGOTIABLE INSTRUMENT IS DISCHARGED
1. "y payment in due course by or on behalf of the principal debtor
Payment in Due "ourse8 Re9uisites
a. +ayment must be made at or after maturity
b. +ayment must be made to the holder
c. +ayment must be made in good faith and wAo notice that the holders title is
defective
B, *(om M!)e:
a. "y maker or acceptor
b. 6urety, if a primary party or
c. "y an agent on behalf of the principal
(. +ayment by accommodated party
). #ntentional cancellation by the holder
*. "y any act which will discharge a simple contract for the payment of money.
,. When the principal debtor becomes the holder of the instrument at or after
maturity in his own right.
*HEN PERSONS SECONDARILY LIABLE DISCHARGED
-a3 "y any act which discharges the instrument
-b3 "y the intentional cancellation of his signature by the holder
-c3 "y the discharge of a prior party
-d3 "y a valid tender or payment made by a prior party
-e3 "y a release of the principal debtor unless the holderNs right of recourse against the
party secondarily liable is expressly reserved
-f3 "y any agreement binding upon the holder to extend the time of payment or to
postpone the holderNs 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.
C!nce$$!t"on: it inludes the at of tearing& erasing& obliterating or burning. (t is not
limited by writing the word <anelled= or <paid= or drawing riss+ross lines aross
the instrument. (t may be made by any other means by w0 the intention to anel
the instrument may be evident.
Renunc"!t"on .Sec- 2550>.he act of surrendering a right or claim wAo recompense,
but it can be applied wA equal propriety to the relinquishing of a demand upon an
agreement supported by a consideration
J Colder may expressly renounces his rights against any party to the instrument
before, at or after its maturity.
J #f renunciation is absolute and unconditional in favor of the principal debtor,
instrument is discharged
J !otice is required to affect rights of C$9
J %enunciation must be in writing unless instrument is delivered up to the
person primarily liable thereon.
21
Negotiable Instruments Law
PROTEST
:#t 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, in which it is declared that the same was on a
certain day presented for payment -or acceptance as the case may be3, and such
payment -or acceptance3 was refused, 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.; #t means all the steps or acts accompanying the dishonor of a
bill or note necessary to charge an indorser,;
Necess"t, o' P&otest: +rotest is required only for E7%'#<! "#//6, but not for inland
bills or notes. C7W'O'%, they may also be protested if desired. 7?#66#7! 7E
+%7.'6., where protest is required, will $#69C&%<' the $%&W'% and the
#!$7%6'%6.
Inst!nces 3(en #&otest "s &eHu"&e):
1. Where the foreign bill is dishonored by non>acceptanceD
(. Where the foreign bill is dishonored by non>payment, it not having been
dishonored by non>acceptanceD
). Where the bill has been accepted for honor, it must be protested for non>payment
to the acceptor for honorD or
*. Where the bill contains a referee in case of need, it must be protested for non>
payment before it is presented for payment to the referee in case of need.
P&otest7 (o3 m!)e:
.he protest must be annexed to the bill or must contain a copy thereof, and must be
under the C&!$ &!$ 6'&/ of the !7.&%Q making it and must specify4
1. .he time and place of presentmentD
(. .he fact that presentment was made and the manner thereofD
). .he cause or reason for protesting the billD
*. .he demand made and the manner given, it any, or the fact that the drawee or
acceptor could not be found.
Re!son 'o& &eHu"&"n #&otest:
1. for uniformity in international transactions because most countries require it and
(. in order to furnish authentic and satisfactory evidence of the dishonor to the
drawer who, from his residence abroad, may experience difficulty in verifying the
matter and may be forced to rely on the representation of the holder.
P&otest m!, +e m!)e +, F
a. & notary public or
b. "y any respectable resident of the place where the bill is dishonored, in the
presence of two or more credible witnesses.
P&otest7 3(en m!)e:
F +rotest ?56. be made on the day of its dishonor 5!/'66 delay is excused.
F When a bill has been $5/Q !7.'$ the protest may be subsequently extended
as of the date of the noting.
22
Negotiable Instruments Law
:$5/Q !7.'$; means that a notary public Hots down on a note on the bill or an
paper attached thereto, or in his registry book, consisting of his initials or signature
and those matters required to be stated in 6ection 1,).
P&otest 3(e&e m!)e:
GENERALLY the protest must be made at the place 7here the instrument is
dishonored8
EXCEPTION: > 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 non>
acceptance #. ?56. "' +%7.'6.'$ E7% !7!>+&Q?'!. &. .C' +/&9'
WC'%' #. #6 '8+%'66'$ .7 "' +&Q&"/', &!$ !7 E5%.C'% +%'6'!.?'!.
E7% +&Q?'!. .7, 7% $'?&$!! 7!, .C' $%&W'' #6 !'9'66&%Q.
A +"$$ MAY BE PROTESTED BEFORE MATURITY F aka :+%7.'6. E7% "'..'%
6'95%#.Q;
ReHu"s"tes 'o& P&otest 'o& +ette& secu&"t,:
> & protest for better security must be made4
a. &fter acceptanceD
b. "ut before the date of maturityD and
c. When the acceptor has been adHudged bankrupt and insolvent or has made an
assignment for the benefit of creditors.
NOTE: +rotest is dispensed with by any circumstances which would dispense with
notice of dishonor.
When a + PROTEST MAY BE MADE ON A COPY OR *RITTEN PARTICULARS
THEREOF-
1. bill is lost or destroyed D or
(. is wrongfully detained from the person entitled to hold it
ACCEPTANCE FOR HONOR
&cceptance of a bill made by a stranger to it before maturity, where the drawee of the
bill refused to accept it, and the bill has been protested for non>acceptance or where the
bill has been protested for better security.
Pu&#ose 'o& !cce#t!nce 'o& (ono&:
&n acceptance for honor is done <to save the redit of the parties to the instrument
or some party to it& as the drawer& drawee& or indorser& or somebody else.=
ReHu"s"tes 'o& !cce#t!nce 'o& (ono&:
1. .he bill must have been previously protested -a3 for non>acceptance or -b3 for
better securityD
(. .he bill is not overdue at the time of the acceptance for honorD
). .he acceptor for honor must be a stranger to the bill.
*. .he holder must give his consent.
Acce#t!nce 'o& (ono&: / !cce#t!nce su#&! #&otest% F (o3 m!)e:
1. #t must be in writingD
23
Negotiable Instruments Law
(. #t must indicate that it is an acceptance for honorD and
). #t must be signed by the acceptor for honor.
!7.'4
#t is necessary that the acceptor for honor ?56. &++'&% before a notary
public and declare that he accepts the protested bill in honor of the drawer or
indorser, as the case may be, and that he will pay it at the appointed time.
T(e LIABILITY OF THE ACCEPTOR FOR HONOR "s SECONDARY F NOT #&"m!&, o&
!+so$ute-
ACCEPTOR FOR HONOR !&ees to #!, "':
1. presentment for payment has been madeD
(. the drawee does not payD
). the bill is protested for non>paymentD and
*. notice of dishonor is given to him.
AT-R)T; !* A B)// PA;AB/# A*T#R ().0T ' 7hich has been accepted for
honor: Maturity is alulated from the date of /6T(/2 of the /6/+*11"PT*/1" and
/6T from the date of the aeptane for honor.
Bills 7hich -(T B# PR!T#(T#D *!R ,!,+PA;#,T before it 7ill be presented
for payment:
1. Where a dishonored bill has been aepted for honor supra protestD or
(. Where a dishonored bill ontains a referee in ase of need.
P&esentment 'o& #!,ment to !cce#to& 'o& (ono&7 (o3 m!)e:
1. #t must be presented in the place where the protest for non>payment was made
it must be presented !7. /&.'% than the day following its maturityD
(. #f it is to be presented in some other place other than the place where it was
protested, then it must be forwarded within the time specified in 6ection 1B*.
/ote! Delay in making presentment is e#used when the delay was aused by events
whih are ."76/D ;(% 16/T568 and /6T (MP>T*.8" T6 D"9*>8T&
M(%16/D>1T or /"28(2"/1".
)hen a bill is D(%;6/65"D by the *11"PT65 965 ;6/65 ? it must be
protested for non+payment by him.
Reason: #n order to fix the liability of the indorsers.
PAYMENT FOR HONOR
ReHu"s"tes 'o& #!,ment 'o& (ono&:
1. .he bill has been protested for non>paymentD
(. &!Q +'%67!, even a party thereto may pay supra protest.
!7.'4
&s distinguished from acceptance for honor the acceptor for honor ?56.
"' & 6.%&!<'%. #n payment for honor the +&Q7% 65+%& +%7.'6.
may even be a +&%.Q to the instrument.
Fo&m 'o& #!,ment 'o& (ono&:
24
Negotiable Instruments Law
1. .he payment must be attested by notarial act appended to the protest, or form an
extension to itD and
(. .he notarial act must be based in a declaration by the payer for honor.
P&oce)u&e 'o& #!,ment 'o& (ono&:
1. .he payer or his agent goes to a notary public and declares his intention to pay the
bill and for whose honor he pays.
(. .he notary then records the declaration in the protest or in a separate paper
attached to it.
). .he payor then notifies the person for whose honor he pays within reasonable
time.
Pu&#ose o' #!,ment 'o& (ono&:
#nstead of simple negotiation to the person desiring to pay, 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.
P&e'e&ence o' #!&t"es o''e&"n to #!, 'o& (ono&:
+ The person );6%" P*7M"/T will D(%1;*52" M6%T P*5T("% to the bill is to be
given the preferene.
E''ects on su+seHuent #!&t"es 3(e&e +"$$ "s #!") 'o& (ono&:
1. &ll parties subsequent to the party for whose honor it is paid are discharged.
2. .he 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.
E''ect "' t(e (o$)e& REFUSES to &ece"?e #!,ment su#&! #&otestI
Ce loses his right of recourse against any party who would have been discharged by
such payment.
R"(ts o' #!,e& 'o& (ono&:
1. Ce acquires the rights of the holder under 6ection 12,D and
2. Ce has also the right to receive both the bill and the protest.
BILLS IN SET
B"$$s "n set one composed of various parts, each part being numbered and containing
a reference to the other parts, all of which parts constitute but one bill.
Pu&#ose o' +"$$ "n set:
#n order to increase the probability of the bill reaching its destination, and to avoid the
difficulties which would arise in case of loss or miscarriage on the way of the bill.
R"(t o' (o$)e&s 3(e&e )"''e&ent #!&ts !&e neot"!te):
25
Negotiable Instruments Law
Where two or more parts are negotiated to different C7/$'%6 #! $5' 975%6' the
C7/$'% whose title E#%6. &99%5'6 &6 "'.W''! 659C C7/$'%6 is the
.%5' 7W!'% of the bill.
/iability of holder 7ho indorses t7o or more parts of a set to different persons:
- Ce is liable on 'O'%Q 659 C +&%.D and
- 'O'%Q #!$7%6'% 65"6'P5'!. to him is /#&"/' on the part he has himself
indorsed &6 #E 659C +&%.6 W'%' 6'+&%&.' "#//6.
Acceptance of bills in set:
- .he acceptance may be written on any part and it must be written on 7!' +&%.
only.
#ffect if the dra7ee accepts more than one part:
- #f the drawee &99'+.6 ?7%' .C&! 7!' +&%. 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.
Payment by acceptor of bills dra7n in sets:
- 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, and the part at maturity is outstanding in
the hands of a holder in due course he is liable to the holder thereof.
#ffect of dischar%in% one of a set:
- Where 7!' +&%. 7E & "#// $%&W! in a set is discharged by payment or
otherwise .C' WC7/' "#// is $#69C&%<'$ except as otherwise provided.
PROMISSORY NOTES AND CHECAS
Promissory ,ote is an unconditional promise in writing made by one person to
another, signed by the maker, engaging to pay on demand, or at a fixed or determinable
future time, a sum certain in money to order or bearer.
NOTE:
Where a note is drawn to the makers own order, it is !7. complete until
indorsed by him.
S#ec"!$ t,#es o' #&om"sso&, notes:
2- Ce&t"'"c!te o' )e#os"t
- is a written acknowledgment by a bank of the receipt of money on deposit
which the bank promises to pay to the depositor, bearer, or to some other
person or order.
- #t is !7. ipso fato negotiable ? it must first omply with the re-uirements
provided under %etion 1& /(8.
5- Bon)s
> & promise, under seal, to pay money.
> .he bond certifies that the issuing company is indebted to the bondholder for
the amount specified on the face of the bond, and contains an agreement of the
company to pay the sum at a specified time in the future, and meanwhile to pay a
26
Negotiable Instruments Law
specified interest on the principal amount at regular intervals, generally six
months apart. .hey are negotiable if it the requisites in 6ection 1, !#/ are
complied with.
C$!sses o' Bon)s:
1. ?ortgage bonds
(. 'quipment "onds
). 9ollateral trust bonds
*. <uaranteed bonds
,. $ebentures
=. #ncome bonds
2. 9onvertible bonds
@. %edeemable "onds
1. %egistered "onds
1B. 9oupon "onds those which are attached a sheet of dated, numbered and
similarly printed coupons which the bondholder may cut off when due or
thereafter. 6uch coupons may be served and deposited in a bank, negotiated
before the maturity of the interest they represent, and transferred Hust like any
commercial paper. .hey are negotiable if it the requisites in 6ection 1, !#/ are
complied with.
11. "ank !otes
> &re promissory notes of the issuing bank payable to bearer on demand and
intended to circulate as money. .hey are regarded as cash and pass from
hand to hand without any evidence of titled in the holder than that which
arises form possession. Cowever, they are not money.
1(. $ue "ills
> is an instrument whereby one person acknowledges his indebtedness to
another.
CHECA is a bill of exchange drawn on a bank payable on demand. #t is a written
order on a bank, purporting to be drawn against a deposit of funds for the payment of
all events, of a sum of money to a certain person therein named or to his order or to
cash and payable on demand.
NOTE:
> &cceptance is !7. required for checks for the same are +&Q&"/' 7!
$'?&!$.
"heck is not /e%al Tender< but produes the effet of payment when!
a. The hek was enashed. '"nashment is not limited to physial
enashment over the ounter of the drawee bank. * hek an be onsidered
enashed through the learing house& or when the hek had been redited to the
aount of the reditor$
b. )hen through the fault of the reditor the hek is impaired
. (n ase of redemption
A"n)s o' c(ec4s:
1. !rdinary "heckM.he most common check issued by a bank to a client who
opens a checking account
(. "ashiers 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.
27
Negotiable Instruments Law
). ana%ers "heck a drawn by the manager of a bank in the name of the bank
against the bank itself payable to a third person. #t is similar to the cashiers check
as to effect and use.
*. .ift "heck+6imilar to a cashiers or managers check and may be signed either by
the cashier or manager. #t is indicated as a :<ift 9heck;, so as to be used as a gift
for birthdays, weddings, graduations and similar occasions.
,. emorandum "hecks a check on which is written the word :memorandum;,
:memo;, and :mem;, signifying that the drawer engages to pay the bona fide holder
absolutely and not upon a condition to pay upon presentment and non>payment.
> #f it bounces the drawer can be charged for violation of "+ ((.
=. "ertified "hecks 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, such as, by stamping on the check the word :certified; or :<ood Eor
+ayment; and underneath it is written the signature of the cashier.
2. Tra4elers "heck+ one issued by a bank to a holder, usually a traveller, 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. When these checks are lost or stolen, the purchaser
can notify the agent of the seller anywhere in the world and prevent the use of the
lost or stolen travellers check.
@. "rossed check 7ne which has two parallel lines, usually on the upper left hand
corner.
Ho3 "s c&oss"n o' c(ec4 )one:
>it is usually done by drawing two parallel lines transversally on the face of
the check. & check may be crossed -13 specially or -(3 generally.
"rossin% 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. Cere, the drawer is instructing the drawee bank not to honor the check unless the
payee is identified by another bank
"rossin% %enerally a check is crossed generally when only the words <and ompany=
are written between the parallel lines, or when nothing is written at all between the
parallel lines. Cere, 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.
NOTES:
1. 5nder crossed check the payee has the duty to ascertain the holders title to
checks.
(. $rawee should not encash a crossed check but merely the same for deposit.
). Where other than payee of crossed checks presented it for payment, there is no
proper presentment and drawer is not liable thereon.
#ffects of "rossin% a check
1. .he check may not be encashed but only deposited in the bank
(. .he check may be negotiated only once to one who has an account with a bank
). .he 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.
28
Negotiable Instruments Law
Ad4anta%es of crossin% check:
> 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.
Fe!tu&es o' t(e C(ec4
#. Eace.
1. $ate
(. +ayee
). &mount in figures
*. &mount in words
,. $rawer -&ccount !ame3
=. $rawee>"ank
2. &ccount !umber
@. 9heck !umber
1. ?agnetic #nk 9haracter %ecognition 9ode -?#9%3Ma code designed to facilitate
the clearing of checks among banks.
1B. 6pace for signature of the drawer
##. $orsal 6ideA"ack of the 9heck
1. 6pace for indorsement -signature S address of the indorser3
C(ec4 F 3(en s(ou$) "t +e #&esente) 'o& #!,ment:
& check ?56. 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.
must be presented within six -=3 months otherwise it will become stale.
> a check under "+ (( must be presented for payment to the bank within 1B days
from date so that the holder will enHoy the benefit of the prima faie presumption that
the maker, drawer, 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.
& check is a bill of exchange payable on demand is intended for immediate use
and not to circulate as a promissory note.
E''ect "' t(e c(ec4 3!s !$$o3e) to +ecome st!$eI -6tale when not encashed wAin =
months3
> the drawer is discharged but only to the extent of the loss caused by the delay. Cence,
if no loss or inHury is shown, the drawer is not discharged.
"ertification of check is an agreement whereby the bank against whom a check is
drawn, undertakes to pay it at any future time when presented for payment. A +!n4 "s
not o+$"e) to t(e )e#os"to& to ce&t"', c(ec4s-
29
Negotiable Instruments Law
- .he certification of a check is 'P5#O&/'!. to an &99'+.&!9'.
Fo&m o' ce&t"'"c!t"on:
- !o particular form is required "5. #. ?56. "' #! W%#.#!<.
- .he letters :7.R.;, with the initials of the cashier of a bank do not constitute a
sufficient certification under modern banking practice.
E''ect o' Ce&t"'"c!t"on:
1. #t is equivalent to acceptance and is the operative act that makes the drawee
bank liableD
(. #t operates as an assignment of the funds of the drawer in the hands of the
drawee bankD and
). #f obtained by the holder, it discharges persons secondarily liable thereon.
E''ect 3(e&e t(e (o$)e& o' c(ec4 #&ocu&es "t to +e ce&t"'"e)-
- Where the holder of a check procures it to be accepted or certified, the drawer and
all indorsers are discharged from liability thereon.
- #ndorsers subsequent to the certification are not discharged.
*(en c(ec4 o#e&!tes !s !n !ss"nment-
& check of itself does not operate as assignment of any part of the funds to the credit
of the drawer with the bank, and the bank is not liable to the holder unless and until it
accepts or certifies the check.
Sto# P!,ment O&)e&Dan instruction by the drawer addressed to the drawee bank
directing the latter not to honor or pay the check. & drawer may stop payment of the
check before the same is accepted, certified or paid by the drawee bank.
Re9uisites for (top Payment !rder
1. (t must desribe the hek with reasonable auray
2. (t must be given to an authori@ed offier or employee of the drawee bank
3. (t must be positive and un-ualified
A. (t must give the bank suffiient time prior to aeptane& ertifiation or payment
to enable the bank& in the e#erise of reasonable diligene to stop payment.
)ron+"lad Rule: Prohibits the ountermanding of payment of ertified heks.
C!ses 3(en B!n4 M!, Re'use P!,ment
1. .he bank is insolvent
(. .he drawers deposit is insufficient or he has no account with the bank or said account
had been closed or garnished
). .he drawer is insolvent and proper notice is received by the bank
*. .he drawer dies and proper notice is received by the bank
,. .he drawer has countermanded payment
=. .he holder refuses to identify himself
2. .he bank has reason to believe that the check is forgery.
30
Negotiable Instruments Law 31