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

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

Does not specify the value given or that any value has been given therefore c. without specifying the date from which interest is to run. where addressed to drawee: such drawee named/ indicated therein with reasonable certainty • bill may be addressed to two or more drawees jointly. (c) Where the instrument is not dated. Not dated b. give holder election to require something to be done in lieu of money Other Instances when negotiability not affected (Sec. reference may be had to the figures to fix the amount. at option of holder. Exception: negotiability not affected by provisions w/c 1. discharged by payment or otherwise EFFECT OF ADDITIONAL PROVISIONS (Sec. 17. they are deemed to be jointly and severally liable thereon. Designates a particular kind of current money in w/c payment is to be made Sec. he is to be deemed an indorser. drawer and drawee are same person b. but not to two or more drawees in the alternative or in succession • bill may be treated as a PN. . from the issue thereof. (a) Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two. Rule: order/promise to do any act in addition to the payment of money renders instrument non-negotiable. (e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note. whether partners or not. the interest runs from the date of the instrument. (b) Where the instrument provides for the payment of interest. (g) Where an instrument containing the word "I promise to pay" is signed by two or more persons. waives benefit of any law intended for advantage/protection of obligor 4. authorize confession of judgment… 3. and if the instrument is undated. (d) Where there is a conflict between the written and printed provisions of the instrument. the sum denoted by the words is the sum payable. the written provisions prevail. (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. Bears a seal e. but if the words are ambiguous or uncertain. restrictively indorsed 2.5) Gen. Construction where instrument is ambiguous. where a. the holder may treat it as either at his election. authorize sale of collateral security if instrument not paid at maturity 2. Does not specify the place where it is drawn or the place where it is payable d. it will be considered to be dated as of the time it was issued.Negotiable Instruments Law 5 5. drawee is fictitious/incapacitated CONTINUATION OF NEGOTIABLE CHARACTER Until: 1. 6) a.

The signature of the indorser is sufficient. 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. 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. provided not done for an illegal or fraudulent purpose. negotiated by delivery. presumption conclusive) NEGOTIATION • When an instrument is transferred from one person to another as to constitute the transferee the holder thereof. Where an instrument is payable at a fixed period after date but is issued undated b. 12) * Ante-dating: Giving an instrument a date that is earlier than the date it was issued * Post-dating: Giving an instrument a date that is later than the date it was issued When date may be inserted? a. or to strengthen the security of the holder by assuming a contingent liability for its future payment. a valid and intentional delivery by him is presumed until the contrary is proved (*if in the hands of a HDC. to be effectual. (Sec. • If payable to BEARER. 16) Issuance-the first delivery of the instrument complete in form to a person who takes it as a holder. (Sec. (Sec.Negotiable Instruments Law DATE IN AN INSTRUMENT 6 Presumption as to date: Said date is the date when it was made by the maker. a remote party other than holder in due course delivery. or for a special purpose only. As between: a. complying with requirements of Sec. accepted by the drawee or indorsed by the payee. Where an instrument is payable at a fixed period after sight but the acceptance is undated DELIVERY (Sec. Mechanical Act of writing. • NI incomplete and revocable until delivery for the purpose of giving effect thereto. if payable to ORDER. 31) . drawn by the drawer. 1 2. 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.  The indorsement must be written on the instrument itself or upon a paper attached thereto. immediate parties b. Delivery with intention to give effect thereto. 11) Effect of ante-dating or Post-dating: Instrument is not invalid. Steps: 1.

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

49) 1. right of transferee to have indorsement of transferor for purposes of determining HDC negotiation effective upon actual indorsement PRIOR PARTY WHO NEGOTIATES INSTRUMENT.41)  All must indorse unless the one indorsing has authority to indorse for others  INSTRUMENT DRAWN OR INDORSED TO A PERSON AS CASHIER (Sec. Effect: * The indorser whose indorsement is struck out and all indorsers subsequent to him relieved from liability. 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. 125 what constitute material alterations: a. 43)  May continue indorsing through the misspelled name. UNINDORSED INSTRUMENTS (Sec. without notice of any previous dishonor • sec. Spoliation. Date b. either for principal or interest c.42)  Presumed to be payable to the bank or corporation INDORSEMENT WHERE NAME MISSPELLED (Sec. except where indorsement bears date which is after maturity. Sum Payable. Medium of currency or which adds a place of payment 2. transfer vests in transferee such title as transferor had therein 2.Negotiable Instruments Law 8 INDORSEMENT WHERE INSTRUMENT PAYABLE TO TWO OR MORE PERSONS WHO ARE NOT PARTNERS (Sec. 53 (instrument payable on demand negotiated after unreasonable length of time: holder is not HDC) . effects (Sec. Time or place of payment d. or he may add his proper signature Presumption as to time of Indorsement—before instrument is overdue. Presumption as to place of Indorsement—At the place where instrument dated Striking Out Indorsements. complete and regular upon its face • sec. 50) Not entitled to enforce payment against any intervening party to whom he is personally liable HOLDER IN DUE COURSE REQUISITIES 1.A material alteration made by a stranger • sec. holder became such before it was overdue. Number or relations of the parties e.

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. 54-notice before full amt. sue thereon in his own name 2. 12 (effect antedating/postdating) 9 3. he had no notice of -a. on the principle that the right sought to be enforced never existed/there was no contract at all. taken in good faith and for value • sec. presumption is reversed. may enforce payment of the instrument for the full amount thereof against all parties liable thereon RIGHTS OF PURCHASER FROM HOLDER IN DUE COURSE General Rule: in the hands of any holder other than a HDC. at time negotiated to him.55) 1. Available to all parties both immediate and remote including HDC. NI is subject to same defenses as if it were non-negotiable.defect in title of person negotiating: What defect constitutes (Sec. 59) • prima facie presumption in favor of holder • but when shown that title of any person who has negotiated instrument was defective. or fraudulent circumstances Notice Sec. 24 (presumption of consideration) • sec 25 (Value: is any consideration sufficient to support a simple contract) • sec.infirmity in instrument b. (Sec.Negotiable Instruments Law • sec. illegal consideration/means. 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.. WHO DEEMED HDC (Sec. payment to him in due course discharges instrument 3. paid: deemed HDC only to the extent of the amount paid by him Sec. or 2. instrument/signature obtained through fraud. real defense – attaches to instrument. 27 (When a holder has lien on the instrument. . by contract or implication he is deemed a holder for value to the extent of the lien) 4. 56-notice of defect: Actual knowledge necessary RIGHTS OF HOLDER IN DUE COURSE 1. holds the instrument free from any defect of title of prior parties and free from personal defenses available to parties among themselves 4. etc. 26 (Holder for value: one who has given a valuable consideration for the instrument issued or negotiated to him ) • sec. instrument negotiated in breach of faith.

fraud in execution: real defense (didn’t know it was a Negotiable Instrument) b. avoided. fraud in inducement: personal defense (knows it’s Negotiable Instrument but deceived as to value/terms) 5. MATERIAL ALTERATION • Where NI materially altered w/o assent of all parties liable thereon. description of the person and the like. or enforce payment vs. personal defense – growing out of agreement. 4. UNDELIVERED INSTRUMENT . authorized or assented to alteration 2. FORGERY: Real: Definition: the counterfeit-making or fraudulent alteration of any writing. 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. 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. parties who make certain warranties. estopped/negligent parties 3. party who has himself made. General Rule: a. DEFENSES 1. no right to retain instrument. or give discharge. renders it inequitable to be enforced against defendant. COMPLETE. except as against 1. INCAPACITY: REAL: indorsement/assignment property but corp/infant no liability by corporation/infant passes 2. like a general indorser or acceptor b. and may consist in the signing of another’s name or the alteration of an instrument in the name. but real defense when relied on to deny liability according to altered terms. FRAUD a. amount.Negotiable Instruments Law 10 2. with intent thereby to defraud. HDC may enforce payment thereof according to orig. tenor *material alteration a personal defense when used to deny liability according to org. wholly inoperative b. any party. Available to prior parties among themselves but w/c are not good against a HDC. 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. tenor of instrument.

UNDELIVERED INSTRUMENT • Real defense (sec.Negotiable Instruments Law • • • 11 Personal defense (sec. INCOMPLETE. Mistake 12. Acquisition of instrument by force. when completed. 15) • Instrument will not. Where instrument is wanting in any material particular: person in possession has prima facie authority to complete it by filing up blanks therein 2. DELIVERED • Personal defense (sec. be a valid contract in the hands of any holder. 12. 7. 5. 8. Fraud in inducement 6. INCOMPLETE. may be enforced against any person who became a party thereto prior to its completion: 1. Acquisition of instrument by unlawful means 8. delivery prima facie presumed If holder is HDC. 3. he may enforce it as if it had been filled up properly 1. 9. must be filled up strictly in accordance w/ authority given 2. 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. Insertion of wrong date in an instrument 4. Acquisition of the instrument for an illegal consideration 9. 6. duress or fear 7. 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. as against any person whose signature was placed thereon before delivery 7. Filling up of blank contrary to authority given or not w/in reasonable time 5. if completed and negotiated without authority. 10. 16) If instrument not in possession of party who signed. 4. Negotiation under circumstances that amount to fraud 11. 11. Negotiation in breach of faith 10. delivery conclusively presumed 6. Intoxication 13. it's valid for all purposes in his hands. 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 . Want of delivery of complete instrument 3. within a reasonable time • but if any such instrument after completion is negotiated to HDC. 2. 14) • 2 Kinds of Writings: 1. Absence or failure of consideration whether partial or total 2.

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

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

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

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

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

where presentment for acceptance is necessary in order to fix the maturity of the instrument. how made: -Presentment MUST be made by or on behalf of the holder: Requisites: 1. GENERAL RULE: Presentment for acceptance is NOT NECESSARY to render any party to the bill liable. Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. 4. Where the bill is payable after sight. to negotiate the bill within a reasonable time. EXCEPTIONS: 1. Where the bill is expressly stipulates that it shall be presented for acceptance. presentment may be made to him or to his trustee or assignee.  Presentment. presentment must be made to them all unless one has authority to accept or refuse acceptance for all. Where the drawee has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors. 2. or 3. to make presentment for acceptance or ii. and 3. or in any other case. To the DRAWEE or some person authorized to ACCEPT or REFUSE ACCEPTANCE on his BEHALF. It must be presented before the bill is overdue. 3. It must be presented on a business day. or 2. Where the drawee is dead presentment may be made to his personal representative. To WHOM will it be presented? 1. It must be presented at a reasonable hour.Negotiable Instruments Law 17  Presentment for Acceptance Definition: It is the production or exhibition of a bill of exchange to the drawee for his acceptance. Where a bill is addressed to two or more drawees who are not partners. NOTE: In those instances found in Section 143 – it is NECESSARY – in order to charge persons secondarily liable (Section 144): i. and 2. in which case presentment may be made to him only. Days when presentment may be made: .

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

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

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

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

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

3. When the acceptor has been adjudged bankrupt and insolvent or has made an assignment for the benefit of creditors. The bill must have been previously protested (a) for non-acceptance or (b) for better security. The bill is not overdue at the time of the acceptance for honor. Protest where made: GENERALLY – the protest must be made at the place where the instrument is dishonored.” Requisites for acceptance for honor: 1. where the drawee of the bill refused to accept it. After acceptance. drawee. The acceptor for honor must be a stranger to the bill. b. The holder must give his consent. NOTE: Protest is dispensed with by any circumstances which would dispense with notice of dishonor. as the drawer. or somebody else.Negotiable Instruments Law 23 “DULY NOTED” – means that a notary public jots down on a note on the bill or an paper attached thereto. bill is lost or destroyed . EXCEPTION: . OR DEMADNN ON. 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. or 2. and c.  A bill MAY BE PROTESTED BEFORE MATURITY – aka “PROTEST FOR BETTER SECURITY” Requisites for Protest for better security: . or indorser. and the bill has been protested for non-acceptance or where the bill has been protested for better security. 1.A protest for better security must be made: a.PROTEST MAY BE MADE ON A COPY OR WRITTEN PARTICULARS THEREOF. 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.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. 2.“acceptance supra protest” – how made: . When a . 4. But before the date of maturity. AND NO FURTHER PRESENTMENT FOR PAYMENT TO. THE DRAWEE IS NECESSARY. consisting of his initials or signature and those matters required to be stated in Section 153. Acceptance for honor: . or in his registry book.

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

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

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

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

8. 3.If it bounces – the drawer can be charged for violation of BP 22. 7. 5. . signifying that the drawer engages to pay the bona fide holder absolutely and not upon a condition to pay upon presentment and non-payment. Effects of Crossing a check 1. and “mem”. Traveler’s Check. When these checks are lost or stolen. who must put his signature upon purchase of the check and countersign with the same signature on the space indicated on its face or back when using the check as a mode of payment in his travel. A check may be crossed (1) specially or (2) generally. Here. 6. It is similar to the cashier’s check as to effect and use. Gift Check-Similar to a cashier’s or manager’s check and may be signed either by the cashier or manager. Here. so as to be used as a gift for birthdays. such as. Under crossed check – the payee has the duty to ascertain the holder’s title to checks. 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. How is crossing of check done: -it is usually done by drawing two parallel lines transversally on the face of the check. usually a traveller. The check may be negotiated only once to one who has an account with a bank . NOTES: 1. 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. The check may not be encashed but only deposited in the bank 2. usually on the upper left hand corner. 2. 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 issued by a bank to a holder. graduations and similar occasions. Crossed check –One which has two parallel lines. weddings. 3. 4. 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. Memorandum Checks – a check on which is written the word “memorandum”. 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.Negotiable Instruments Law 28 2. It is indicated as a “Gift Check”. or when nothing is written at all between the parallel lines. 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. Drawee should not encash a crossed check but merely the same for deposit. the drawer is instructing the drawee bank not to honor the check unless the payee is identified by the particular bank named in between the two parallel lines. by stamping on the check the word “certified” or “Good For Payment” and underneath it is written the signature of the cashier. Where other than payee of crossed checks presented it for payment. “memo”.

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

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

The bank has reason to believe that the check is forgery. The holder refuses to identify himself 7.Negotiable Instruments Law 5. 31 . The drawer has countermanded payment 6.

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