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Requisites of Negotiability
An instrument to be negotiable, must conform to the following requirements: W (a) It must be in writing and signed by the maker or drawer; U(b) Must contain an unconditional promise or order to pay a certain sum in money; P (c) Must be payable on demand, or at a fixed or determinable future time; O (d) Must be payable to order or to bearer; and Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. (Sec. 1) 2. Kinds of Negotiable Instruments
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. 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. 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)
a. Promissory notes Unconditional promise to pay in writing made by one person to another, signed by the maker, engaging to pay on demand or a fixed determinable future time a sum certain in money to order or bearer. When the note is drawn to maker’s own order, it is not complete until indorse by him. (Sec. 184 NIL) b. Bills of Exchange Unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer. (Sec. 126 NIL) TYPES OF BILL OF EXCHANGE: 1. Draft – a common term for all bills of exchange and they are used synonymously.
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 negotiable. order is NOT
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.
NOTE: 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.
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
10. any holder may insert therein the true date of issue or acceptance. In the hands of a holder in due course. even if wrong. or rate of interest may be filled in. (Sec. Right against party prior to completion The instrument may be enforced only against a PARTY PRIOR to completion if filled up strictly in accordance with the authority given and within a reasonable time. Authority to put any amount A signature on a blank paper delivered in order that may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. The insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in due course. 2. b. or on its face purports to be. Completion of Blanks Where an incomplete instrument has not been delivered. 14) a. The defense that the instrument had not been filled up in accordance with the authority given is NOT available as against a holder in due course. a. The insertion of a wrong ate in an undated instrument by one having knowledge of the true date of issue or acceptance will avoid the instrument as to him But not as to a subsequent holder in due course who may enforce the same notwithstanding the improper date. name of payee. 11. It may be defines as any particular proper to be inserted in a negotiable instrument to make it complete. “Sight bills” are bills which are payable upon presentation or at sight or on demand. 13) The holder may put a date in an instrument when: a. COMPLETION AND DELIVERY 1. Sec. and the instrument shall be payable accordingly. Thus. if completed and negotiated without authority. 9. Right of holder in due course Effect of insertion of wrong date: 1. or b. as . it will not. is to be regarded as the true date.is a bill which is. 12. Authority to fill up the blanks The law speaks of material particular. And a signature on blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. to be payable in the Philippines but drawn outside thereof.surrendered to the drawee when he accepts the bill. amount. b. be a valid contract in the hands of any holder. B. when may be filled. Inland Bill of Exchange – is a bill which is or on its face purports to be BOTH drawn and payable within the Philippine Islands. or where the acceptance of an instrument payable at a fixed period after sight is undated. (Sec. d. Insertion of Date Where an instrument expressed to be payable at a fixed period after date is issued undated. blanks for date. to be drawn in the Philippines but payable outside thereof. drawn or payable outside the Philippine Islands. the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. the date so inserted is to be regarded as the true date. an instrument expressed to be payable at a fixed period after date is issued undated where acceptance of an instrument payable at a fixed period after sight is undated Blanks. the date inserted. Foreign Bill of Exchange . due date. but as to him. 3. “Time or usance bills” – are bills which are payable at a fixed future time or at a determinable future time. Incomplete Instruments and Undelivered 2. Where the instrument is wanting in any material particular. c. 14 merely raises a personal defense.
Defense even against a holder in due course b. (Sec. And where the instrument is no longer in the possession of a party whose signature appears thereon. there is a prima facie presumption until the contrary is proved. But where the instrument is in the hands of a holder in due course. for or on behalf of a principal. (Sec.20) When agent may escape liability: a. as the case may be. Signature of Agent The signature of any party may be made by a duly authorized agent. Remote parties are those who are not in direct contractual relation to each other. or indorsing. but the mere addition of words describing him as an agent. that is . b. a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. a valid delivery by all parties prior to him is conclusively presumed. without disclosing his principal. or as filling a representative character. (Sec. b. or for a special purpose only. He is duly authorized. Indorsement by Minor or Corporation The indorsement or assignment of the instrument by a corporation or by an infant passes the property therein. must be made either by or under the authority of the party making. No particular form of appointment is necessary for this purpose and the authority of the agent may be established as in other cases of agency. he is not liable on the instrument if he was duly authorized. the delivery. C. Even if it is completely written it is incomplete and revocable until its delivery. notwithstanding that from the want of capacity. Forgery When a signature is forged or made without the authority of the person whose signature it c. drawing. the corporation or infant may incur no liability thereon. and his principal is bound only in case the agent in so signing acted within the actual limits of his authority. SIGNATURE 1. and in such case the delivery may be shown to have been conditional. does not exempt him from personal liability. (Sec. 191) If a complete instrument is found in the possession of an immediate or remote party OTHER THAN a holder in due course. (Sec. f. from one person to another. 4. or in a representative capacity. . As between immediate parties. e. accepting. Complete Instruments but Undelivered g. or for a special purpose only and not for transferring title. If delivery was made. a valid and intentional delivery by him is presumed until the contrary is proved. actual or constructive. 18) 2.against any person whose signature was placed thereon before delivery. Signing in Trade Name No person liable on the instrument whose signature does not appear thereon. (Sec. except as herein otherwise provided. He adds words to his signature indicating that he signs as an agent. 21) 3. But one who signs in a trade name will be liable to the same extent as if he signed in his own name. Effect of signature by procuration A signature by procuration operates as notice that the agent has but a limited authority to sign. Delivery means transfer of possession. (Sec. it may be shown to have been conditional. c. 22) 4. Immediate in the sense of having or being held to know of the conditions or limitations placed upon the delivery of the instrument. (Sec. 19) Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal. and as regards a remote party other than a holder in due course. or in a representative capacity. in order to be effectual. and He discloses his principal Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. Defense available to parties prior to delivery The invalidity of the above instrument is only with reference to the parties whose signature appear on the instrument BEFORE and not after delivery. d. If it is in the hands of a holder in due course. 15) a. and not for the purpose of transferring the property in the instrument. 16) a.
The drawer’s account cannot be charged by the drawee where the drawee paid. such as the collecting bank. writing. is forgery. absent any act of negligence on Forgery is the counterfeiting of any their part. The payee cannot collect from the drawee bank. the drawee bears the loss and his remedy is to go after the forger. A party whose indorsement is forged on a note originally payable to bearer and all parties prior to him including the maker may be held liable by a holder in due course provided that it was mechanically complete before the forgery 3. When one of two persons suffers the wrongful act of a third person. 3. the drawee-bank is expected to use reasonable business prudence. in turn. b) Persons negotiating by delivery. The drawee bank can recover from the collecting bank. Alterations such as to amounts or the like fall under section 124. c. it is bound by its internal banking rules and regulation that form part of the contract it enters into with its depositors. recover from the person depositing. loss will be borne by the forger and parties subsequent thereto j. the instrument or other signatures which are genuine are not affected e. b. Persons who are precluded by warranting are: a) Indorsers. If endorser’s signature is forged. Drawee bank is not conclusively presumed to know the signature of the indorser. 6. The responsibility falls on the bank which last guaranteed the indorsement and not the drawee bank k. Where the payee’s signature is forged. Section 23 applies only to forged signatures or signatures made without authority. b) duress amounting to fraud. h. 8. the rules are the same as in PN. the drawee cannot recover from the drawer or the recipient of the proceeds. and no right to retain the instrument. No debtor/creditor relationship is created. The payee can recover from the drawer. c) fraudulent impersonation d. The bank which allows the payment on a check where the signature is forged is liable to the depositor-drawer. who was in charge . Rules on Liabilities of Parties on a Forged Instrument In a PN: 1. If the drawee has not accepted the bill but has paid it. In the performance of that obligation. An agency to collect is created between the person depositing and the collecting bank. 9. The instrument can be enforced by holders to whose title the forged signature is not necessary f.purports to be. If payable to bearer. it is wholly inoperative. The drawer has no right to recover from the collecting bank. 5. The collecting bank bears the loss but can recover from the person to whom it paid. c) Acceptors. A maker whose signature was forged cannot be held liable by any holder In a BOE: 1. 10. Persons who are precluded from setting up the forgery are a) Those who warrant or admit the genuineness of the signature b) Those who are estopped. or to give a discharge therefor. 4. consisting of the signing of another’s name with intent to defraud. A drawee bank must restore to the account of the drawer the amounts of checks on which the signature of its president was forged even of the forger was the independent auditor of the drawer. he whose negligence was the proximate cause of the loss must bear the loss. or to enforce payment thereof against any party thereto. Only the signature forged or made without authority is inoperative. If the drawee has accepted the bill. Drawee bank is conclusively presumed to know the signature of its drawer i. Forms of forgery are a) fraud in factum. The payee can recover from the recipient of the payment. payments made by the drawee bank to the collecting bank are ineffective. The drawee bank may recover from collecting bank who may. a. 7. can be acquired through or under such signature unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. A party whose indorsement is forged on a note payable to order and all parties prior to him including the maker cannot be held liable by any holder 2. g. 2. Pursuant to its prime duty to ascertain well the genuineness of the signatures of its client depositors.
and every person whose signature appears thereon to have become a party thereto for value. in which case the title vests in the surviving payee or indorsee in general (Agbayani. Negotiation . (Note: the surety’s liability to the creditor is immediate. acceptor or indorser.an inducement to a contract. and the indorsement of such endorsee is necessary to the further negotiation of the instrument (Sec 34) e.it specifies NO endorsee. Blank . even if the original bearer negotiated it by special endorsement (Sec 40) B. LIABILITY OF ACCOMMODATION PARTY . If payable to bearer. they have the right to sue the accommodated party for reimbursement since the relation between them is in effect of a principal and sureties. by the death of holder. Special . (Sec. by operation of law: i. (sgd) “A” Note: if X. The relationship between an accommodation party and the accommodated party is one of principal and surety---the accommodation party being the surety.a method of transferring a negotiable or non-negotiable instrument whereby the assignee is merely placed in the position of the assignor and acquires the instrument subject to all defenses that might have been set up against the original payee. the accommodation parties being the sureties. the cause. 34). ACCOMMODATION PARTY A person “who has signed the instrument as maker. iii. the endorsee. ii. Modes of Negotiation (how negotiation takes place) a. LIABILITY OF AN ACCOMMODATED PARTY when the accommodation party makes payment to the holder of the notes. F.it qualifies the person to whom or to whose order the instrument is payable. By Operation of Law The full title to a bill may pass without assignment. 24) Consideration . CONSIDERATION Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration. ii) by mere delivery (in case of bearer Instrument) Effect: Makes the transferee the holder of the instrument b. a. price or impelling influence which induces a contracting party to enter into the contract NOTE: It is not necessary that the consideration be expressly stated in the instrument. he must sign it at the back.a legal arrangement under which a person called the accommodation party lends his name and credit to another called the accommodated party.An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. Kinds of Indorsements: A. Commercial law of the Phils) 3. Associated Bank (2007)] 2. indorsement. if payable to order. primary and absolute—he is directly and equally bound with the principal. [Ang v. and the instrument so endorsed is payable to bearer and may be negotiated by mere delivery (Sec. HOWEVER. b. upon the death of a joint payee or indorsee. Distinguished from Assignment ASSIGNMENT . that is. it is negotiated by the indorsement of the holder and completed by delivery (sec 30) 1. without any consideration. D. where the title vests in his personal representatives. i.e. where the title vests in his assignee or trustee.g Pay to X. it can further be negotiated by mere delivery. or delivery. without receiving value therefor. by the bankruptcy of the holder. notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party. ACCOMMODATION . drawer. E. it is negotiated by delivery. when the instrument is originally payable to bearer.such a person is liable on the instrument to a holder for value. It is sufficient if it is valuable one. c. wants to further negotiate the instrument.the transfer of the instrument from one person to another so as to constitute the transferee a holder thereof: i) by indorsement completed by delivery (in case of order instrument). and for the purpose of lending his name to some other person. A valuable consideration need not be adequate. NEGOTIATION .
places thereon his signature in blank before delivery. “Qualified endorser has limited liability.where a person. That the instrument is Complete and regular upon its face. and he knew of that fact.such indorsement either: i.where an instrument is payable to the order of two or more payees or indorsees who are not partners. Constitutes endorsee the agent of endorser. It must be apparent on the face of the instrument. some or all of the requisites under Sec 52. C. To receive payment of the instrument. Vest title in endorsee in trust for or to the use of some other person. “without recourse” . F. 1.constitute the endorser a mere assignor of the title to the instrument. the matter is governed sole by Sec 124. Joint . It may be made by adding to the endorser’s signature the words “without recourse” or “sans recourse” or other terms of similar import. Holder in Due Course (HDC) A Holder who has taken the instrument under the following conditions: key: COVN 1. (sec 38) i. • Absence of the required documentary stamp will not make the instrument incomplete. He holds the instrument subject to the same defenses as if it were non-negotiable. “B”) If presented before said date. or Pay X ₱500 X ₱500 but if does not rain on said date. Qualified . not otherwise a party to an instrument. E. (sec..e. To bring any action thereon that the endorser could bring. G. the instrument was valueless or not valid.Holder may convert a blank indorsement into a special indorsement by writing over the signature of the endorser in blank any contract consistent with the character of the endorsement. D. c. 3. the fact that at the time of the endorsement. Restrictive . Conditional . or the proceeds thereof. ii. upon no other condition than the failure of prior parties to do so. (sec 64) G. To transfer his rights as such endorsee. But any person to whom an instrument so endorsed is negotiated will hold the same. 2013. Lack of good title on the part of the endorser. Prohibits further negotiation of instrument. Simple Holder or Holder Not in Due Course one who became a holder without any. which renders the instrument void. Absolute . Note: mere absence or words implying power to negotiate does not make an indorsement restrictive (Sec 36) Effect of Restrictive Indorsement . 39) Pay to X ₱500 if it rains on March 31. ii.means without resort to a person who is secondarily liable after the default of person who is primarily liable. he is liable if the instrument is dishonored by nonacceptance or non-payment due to the ff: Forgery.Party required to pay the instrument may disregard condition and make payment to the endorsee or his transferee whether condition has been fulfilled or not.confers upon endorsee the right: a. he is liable as endorser. (Sgd. • It is incomplete when it is wanting in any material particular or particular proper to be inserted in a negotiable instrument • The common type of irregularity is alteration upon the face of the instrument. unless the one indorsing has authority to endorse for the others (sec 41) H. otherwise. Irregular . i. • Omissions of date and place of payment and no consideration mentioned . 2013. b. Holders for Value – where value has at anytime been given for the instrument. Lack of capacity to endorse on the part of the prior parties.One by which endorser binds himself to pay. X must return the money on the principle of solutio indebiti. where the form of the indorsement authorizes him to do so. the holder is deemed a holder for value in respect to all parties who become such prior to that time. and of due notice to him of such failure. subject to the rights of the person indorsing conditionally. RIGHT OF HOLDERS Holder . (sec 37) But all subsequent indorsees acquire only the title of the first indorsee under the restrictive indorsement.payee or indorsee of a bill or note who is in possession of it or the bearer thereof entitled to receive the sum for which it calls Classes: 1. iii. B may tell X to: wait for March 31. ALL must endorse. Holder in Due Course – one who has taken the instrument under the conditions of Sec 52 and holds the instrument free from personal defenses available to prior parties 2.
which must be made within a reasonable time after its issue. To hold the instrument free from any defect of title of prior parties. it is sufficient that the facts within the knowledge tend to show that there was something wrong with the transaction. To hold it free from defenses available to prior parties among themselves • The defenses referred to are personal defenses or equities. if it is a note. However. Instrument is overdue after the date of maturity If it is payable on demand. but only by the parties entitled to raise them. Knowledge of the agent is constructive knowledge to the principal and will render the principal not a HDC Title is defective when the instrument is obtained or any signature thereto by fraud. the holder if not deemed a HDC o What constitutes “reasonable time”. where the discount is usually large. if such was the fact. Where transferee receives notice of any infirmity in instrument or defect in the title of the person negotiating the same before he had paid the full amount agreed to be paid therefor.• • • • • • considered complete and regular upon its face. regard is to be had to the nature of the instrument. it is still negotiable. 4. Good faith refers to the good faith of the indorsee or transferee and not the seller of the instrument. Adequacy of consideration is not required (1355 civ code) Purchase of the instrument at a discount does not prevent the holder from being HDC. RIGHTS OF HDC: 1. That at the time of its negotiation to him.Illegality – if declared void for any purpose 4.Presciption 2. 2. Defenses Against the Holder The right of the holder to enforce payment of a negotiable instrument may be defeated by the defenses that may be raised by the person primarily or secondarily liable. or for an illegal consideration Or when it is negotiated in breach of faith. That he has become a holder of it before it was Overdue and without notice that it has been previously dishonored. 3. whether in due course or not. Bad faith does not require actual knowledge of the exact truth. (sec 57) 5. Value is any consideration sufficient to support a simple contract.Material Alteration 3. STATUS OF CONTRACT: Void AVAILABLE AGAINST HDC: Available against HDC DEFENSES: Key: (PAID-WIFI-MUDFEM) 1.Duress amounting to forgery Personal Defenses Those which are available only against a person not an HDC or a subsequent holder who stands in privity with him 2. The holder of a cashier’s check as indorsed by the person who stole it cannot or refuses to say how and why it was passed to him is not a HDC. he will be deemed a HDC only to the extent of the amount therefor paid by him (Sec 54) That he has taken it in good faith and for Value. and the facts of the particular case (Sec 193) An overdue instrument carries the strong indication that it has been dishonored.Non-delivery of Complete instrument (sec 16) 2. the date of maturity is determined by the date of presentment. Key: (CUBIC-RAIN-WIFIMICU) 1. if it is a bill of exchange If payable on demand and is negotiated after an UN reasonable length of time after its issue. To sue on the instrument To receive payment on the instrument and payment in due course discharges the instrument. But Love and affection do not constitute value within the meaning of the law.Ultra vires acts of corporation where the corpo has the power . but it is subject to defenses existing at the time of transfer. this fact together with other facts. REAL DEFENSES are available even against an HDC To enforce payment on the instrument to the full amount against all parties liable thereon. 2. However. Real Defenses NATURE: Those that attach to the instrument itself and are available against all holders. or after the last negotiation thereof. may be material on determining whether the holder was in good faith. or under such circumstances as amount to a fraud. he has No Notice of any infirmity in the instrument or defect in the title of the person negotiating it. duress. or force and fear. • • • • “notice” to holder covers only situation where the holder had actual or chargeable knowledge of the infirmity or defect or must have acted in bad faith. usage of trade or business (if any) with respect to such instrument. other unlawful means. • • • Voidable Not HDC available against • 3.
Acquisition by Force. is a HDC. drawing and accepting the instrument.Want of authority of agent 6.5. However. Fraud in Inducement (personal defense) The person who signs the instrument intends to sign the same as a Negotiable Instrument (NI) but was induced by fraud. 1. and 3) the minor spent the money in good faith (art 1427. admits the capacity of the payee to indorse. The act of writing the instrument completely and in accordance with Sec.Filling up blank beyond Reasonable time (sec14) 7. Notes and Cases on Banks. The delivery of the instrument with the intention of giving effect thereto. But the defense is not available if the party involved had reasonable opportunity to obtain such knowledge. Intoxication 14. An essential element is that the maker or indorser must have exercised ordinary diligence and in no manner contributed negligently to the imposition. Minority Negotiation by a minor passes title to the instrument (sec 22).Illegal consideration (sec55) 9. Ultra Vires Act of Corpo 11. But the minor is not liable and the defense is personal to him. whether partial or total (sec28) 8.Forgery 8. the holder may enforce the instrument as if it has been filled up strictly in accordance with the authority given and within a reasonable time. 2006ed) 4. 61. other parties who are capacitated cannot invoke such defense. Fraud in Factum or Esse contractus or Fraud in Execution 13. Marriage in the case of a wife Note: an instrument subject to real defense cannot be enforced against the person to whom the defense is available but it can be enforced against those who such defense is not available such as under sec. Negotiable Instruments and other Commercial Documents.Absence or failure of consideration.Insertion of wrong date in an instrument (sec 13) 5.Minority (available only to the minor) 10. c) That such person had authority to fill up the blank: 1. Insanity where there is no notice of insanity on the part of the one contracting with the insane person 16. Prima Facie Authority to Complete the Instrument Requisites: a) Want of a material particular in the instrument (note: it includes the matters stated in Sec 125 of the NIL) b) Possession thereof by a person.Insanity where the insane person has a guardian appointed by the court 9. and 2. NCC) 2. Prima Facie Authority to Fill up for Any Amount Requisites: a) Signature on a blank paper b) Person signing in blank delivers it to another c) Delivery was for the purpose of converting it into a negotiable instrument.Conditional delivery of compete instrument 6. Mistake 15. the maker. Fraud In Factum (real defense) The person who signs the instrument lacks knowledge of or essential terms of the instrument. the minor shall be liable under the ff exceptions: 1) the minor actively misrepresents his age and it appears that he is physically of . 3. (Aquino. Fraud a. Execution of instrument between public enemies 14. 23. drawer and acceptor. after it was filled up. 62. Incomplete but Delivered NI (sec 14) a. Negotiation under Circumstances that amount to fraud (sec55) 17. Incomplete and Undelivered NI (sec 15) Two steps in the execution of a negotiable instrument: 1. Thus. duress or fear (sec55) 13.Filling up blank Not within authority (sec 14) 10. Furthermore. Want of authority of agent where he has apparent authority 11. 2) the minor kept the fruits or benefits. Acquisition of the instrument by Unlawful means (sec55) such age (estoppel).Non-delivery of Incomplete instrument 7. by making. Fraud in Inducement 12. under Secs 60. If the holder of the instrument. within a reasonable time b. Effects of Certain Defenses 1.Negotiation in Breach of faith (sec 55) 4. Discharge in Insolvency 12. b. strictly in accordance with the authority given. to issue negotiable paper but the issuance was not authorized for the particular purpose for which it was issued 3. and 2.
What is necessary only is for the holder to enforce such liability by presenting it for payment. There are necessary steps which should be taken in order to charge these persons. Under the civil code. 8. 6. Maker’s liability is primary and unconditional. the prescriptive period of an action based on a written contract is 10 years from accrual or cause of action. • The payee exists. An alteration is said to be material if it alters the effect of the instrument. amount. with intent to defraud. he cannot shift his liability to any person without the payee’s consent. the signature (not the instrument itself and the genuine signatures) is wholly inoperative. • that payee was insane. This is REAL defense which belongs to the drawer (or parties. or b. It is a “partial” real defense because a HDC can enforce it according to its original tenor. or a corporation acting ultra vires. b. Consequently. etc. Material Alteration. Alteration of an instrument in the name. Therefore. Forgery Counterfeiting or fraudulent alteration of any writing. In other words. LIABILITIES OF PARTIES Primary Liability • AS TO THE MAKER. the unconditional promise attaches the moment the maker makes the instrument • AS TO THE ACCEPTOR. (sec23) H. 1. maker is precluded from setting-up the following defenses: • that payee is a fictitious person. not a valid contract against a person who has signed before delivery of the contract even in the hands of HDC but subsequent indorsers are liable. Secondary Liability 1. Complete but Undelivered (sec 15) Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. c. Maker of the negotiable promissory note warrants that: • He will pay according to the tenor of the promissory note. a minor. [Araneta vs Perez. whether the failure is an ascertained and liquidated amount or otherwise (sec 29) 7. or to give discharge therefore. if any. which may consist of: a. name of payee. Prescription Refers to extinctive prescription and may be raised even against a holder in due course. a material alteration is one which changes the items which are required to be stated under Sec 1 of the NIL 8. Liability of Maker: a. Signing of another’s name with intent to defraud.Note: if completed and negotiated without authority. Absence or Failure of Consideration (sec 28) Personal defense to the prejudice of a party and available against any person not HDC Partial failure of consideration is a defense pro tanto. b) No right to retain the instrument. and • The payee has capacity to endorse. NOTE: Where an INCOMPLETE and UNDELIVERED instrument I sin the hands of HDC. and 2. or to enforce payment thereof against any party thereto. Indorser. Effects: . prior to the delivery of the instrument to the payee) against “any holder” Reason: The law does not make any distinction between a HDC and one who is not a HDC. Solidary liability of Joint Makers 5. there is a PRIMA FACIE presumption of delivery which the maker may rebut by proof of non-delivery a) When a signature is forged or made without the authority of the person. (1965)] d. can be acquired. Exception: UNLESS the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. Drawer • Their liability cannot be immediately enforced. No further act is necessary in order for the liability to accrue. the acceptor’s assent to the unconditional order attaches the moment he accepts the instrument. NOTE: neither can the maker escape liability by virtue of the non-benefit to him of the proceeds of the note since that is of no concern to the payee.
the privity of contract is between the holder-depositor and the collecting bank. admits that: • Payee exists • Payee has capacity to endorse Drawee will accept or pay or according to tenor of bill. CA. he binds himself to be jointly and severally liable with the principal debtor in case the latter defaults in the payment of the loan. such undertaking is deemed to be that of a surety as an insurer of the debt. b) That he has a good title to it. according to its tenor. (b). the nature of relationship created is one of agency. it shall be accepted or paid. and that if be dishonored and the necessary proceedings on dishonor . a drawer may not unilaterally discharge himself from liability on checks issued by him as security and not for value and negotiated to a holder in due course by the mere expediency of withdrawing his funds from the drawee bank (State Investment House Inc v. c) Capacity and authority of drawer to draw the instrument d) Existence of payee and his then capacity to indorse. “irregular” or “anomalous” indorser because he indorses in an unusual. b) The payee exists. 3. He must have signed before delivery. the warranty extends in favor of no holder other than the immediate transferee. He is liable as a general indorser because he indorses without qualification. c) That all prior parties had capacity to contract. it is dishonored. and admits the existence of the payee and his capacity to indorse c.• As a co-maker. the bank is to collect from the drawee of the check the corresponding proceeds. and (c) of the next preceding section 65 and that the instrument is. secondarily liable to the holder or any subsequent indorser who may be General Indorser: every indorser who indorses without qualification warrants to all subsequent holders in due course: The matters and things mentioned in subdivisions (a). Drawer does not engage to pay the absolutely. or peculiar manner. There is no privity of contract between the drawer and the collecting bank. 65): a) That the instrument is genuine and in all respects what it purports to be. 5. The provisions of subdivision (c) of this section do not apply to a person negotiating public or corporation securities other than bills and notes.. and not as a guarantor who warrants the solvency of the debtor.(sec 65) d. as the case may be. according to tenor. Thus. b. One who negotiates by delivery and qualified indorsement (completed by delivery) warrants (Sec. valid and subsisting. on due presentment. Liability of Drawer a. and that he will pay only when: i. singular. He engages that the bill will accepted or paid or both. when the holder deposits his check with the collecting bank. in case of non-acceptance or payment. 4. or both. b. compelled to pay the instrument on account of Sec 66. Irregular Indorser usually they are accommodation parties. and c) The payee has capacity to indorse Acceptor: he warrants that: a) The existence of the drawer. and 3. His name appears where we naturally expect another name. he engages that. by merely signing his name on the bill as drawer. To be considered as an irregular indorser: 1. The creditor’s right to proceed against the surety exists independently of his right to proceed against the principal. b) Genuineness of drawer’s signature. And. Liability of Indorser General Indorser . at the time of his indorsement. Warranties 2. Drawer. drawer will pay • • both nonbill be its of a.indorses the instrument without any qualification. He must have signed it in blank. Maker: he warrants that: a) He will pay according to the tenor of the promissory note. NOTE: But when the negotiation is by delivery only.e. d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. the necessary proceedings dishonor are duly taken. the genuineness of his signature and his capacity and authority to draw the instrument. A person must not be a party to the instrument 2. NOTE: There is a contractual relation between the drawer and the drawee. i. ’93). Liability of Acceptor • • • engages to pay acc to the tenor of his acceptance admits the existence of the drawer. and ii. in addition.
72) NOTE: The instrument is dishonored by nonpayment as long as it is not paid although the person primarily liable may be willing to pay (de Leon) b) When presentment is excused instrument is overdue and unpaid Requisites: 1. he will pay the amount thereof to the holder. PRESENTMENT FOR PAYMENT 1. presentment for payment must be made to his personal representative (his executor or administrator). 80) Where the presentment may be dispensed with (Sec. or to any subsequent indorser who may be compelled to pay it. see Secs. Parties to whom presentment payment should be made for Reason: If the drawee is fictitious. the presentment must be made to any person of sufficient discretion found at the proper place of presentment. if the instrument is not presented to such persons. When presentment may be dispensed with a) Where after the exercise of reasonable diligence. he can be found. When the instrument is dishonored by non – payment a) When it is duly presented for payment and payment is refused or cannot be obtained Requisites: 1. even if there has been dissolution of the firm. The persons secondarily liable undertake to pay only if the instrument is dishonored.be duly taken. 66. there is no one to whom presentment is to be mad By waiver of presentment. only the drawer or indorser referred to is not discharged but all other parties secondarily liable are relieved unless presentment for payment is made to hold such parties liable. 82) and the If the person primarily liable on the instrument is dead. Presentment is excused • Where the drawer has no right to expect or require that the drawee or acceptor will pay the instrument (Sec. (Agbayani). 4. 77) 3. and 70) If the person primarily liable on the instrument is absent or inaccessible. c) I. Necessity of presentment for payment • The presentment and demand for payment is not necessary in order to charge the persons primarily liable (maker or acceptor) since his liability is absolute. express or implied d) Presentment for payment is not required in order to charge the drawer where he has no right to expect or require that the drawee or acceptor will pay the instrument e) Presentment for payment is not required in order to charge an indorser where the instrument was made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented NOTE: In the last two exceptions. presentment for payment to any one of them. ( de Leon. the presentment must be made to the drawee although he is not liable on the bill. (De Leon. that the instrument is duly presented to the person primarily liable thereon the payment is either refused or cannot be obtained The presentment for payment must be made to the person primarily liable on the instrument: • • maker – in case of promissory note acceptor – in case of an accepted bill If the bill of exchange or check is payable on demand. 2. (Sec. with the exercise of reasonable diligence. However. If the persons primarily liable on the instrument are liable as partners. 79) Where the instrument is made or accepted for the accommodation of the indorser and he has no reason to expect that the instrument will be paid if presented (Sec. see Sec. presentment cannot be made b) Where the drawee is a fictitious person • • 2. 61 and 66 ) 2. and if. (Sec. The instrument is overdue . 61. if any. the persons secondarily liable (drawer and the indorsers) are discharged from their secondary liability unless such presentment is excused or dispensed with.
Jennings. 2. and the presentment is not excused. Form of notice Notice of dishonor may be a) in writing or b) merely oral NOTE: Thus.it appears in the body or on the face of the instrument). the drawer and each indorser • • the holder and all parties subsequent to the party to whom notice is given including parties subsequent to the holder who gave notice 4. another in behalf of the holder or 3. Nat. Effect of notice a) When notice of dishonor is given by or on behalf of the holder. it inures to the benefit of • • all holders subsequent to the holder who has given notice. with reference to a notice of dishonor. 3. Parties who may give notice of dishonor The notice may be given: 1. it binds all parties If it is written above the signature of an indorser. when a negotiable instrument is dishonored by nonacceptance or non-payment. and all parties prior to the holder but subsequent to the party to whom the notice has been given and against whom they have a right of recourse How notice is given a) by personal delivery or b) by mail 5.W. it inures to the benefit of .3. the instrument is not dishonored although it is overdue and unpaid (Carter v. when “notice of dishonor waived” appears above the indorser’s signature) implied waiver – inferred from act or language and it usually takes place after there has been tan omission to give notice Who are affected by an express waiver? • • If the waiver is embodied in the instrument itself (i. But where there has been no presentment for payment. 143 S. upon taking it up.” He may select to hold only one or some of the indorsers and any party to whom such notice is not given is discharged.. NOTICE OF DISHONOR 1. that is fully identified as the party at the receiving end of the line. 2. it binds only him Effect of waiver of protest Protest – the formal instrument executed usually by a notary public certifying that the legal steps necessary to fix the liability of the drawee and the indorsers have been taken b) When notice of dishonor is given by or on behalf of the party entitled to give notice. another person in behalf of such party 3.. 687. It is unpaid NOTE: Although presentment may be excused. However.e. notice of dishonor must be given to: 1. the indorser is still entitled to notice of dishonor of instrument by its being overdue and unpaid. (American National Bank v. he is still liable for breach of warranties pertaining to the instrument (de Leon). 98 So. the holder is not required to notify all the indorsers although the law says “each indorser. as cited in de Leon) J. by the holder or 2. Fertilizer Co. the identity of the instrument the fact that it has been dishonored by nonacceptance or by non-payment and a statement that the notice of dishonor party giving notice intends to look to the party addressed for payment NOTE: Any drawer or indorser to whom such notice is not given is discharged. Although the latter is discharged. notice may be given by telephone provided that it is clearly shown that the party notified was really communicated with. Waiver Waiver of notice of dishonor Waiver – the intentional abandonment of a known right. by a party to the instrument who may be compelled to pay it to the holder and who. would have a right to reimbursement from the party to whom notice is given or 4. Parties to be notified Except as otherwise provided in the Negotiable Instruments Law. 597) Contents of notice (written or oral) 1. 2. it is the willingness on the part of the drawer or the indorser concerned to be bound as such even without due notice of dishonor • • • it may be made before the time of giving notice or after the omission to give notice express waiver – made orally or in writing (ex.
it must be made by or on behalf of the principal debtor at or after its maturity to the holder thereof in good faith and without notice that the holder’s title is defective • b) By payment in due is course by the party accommodated. Discharge of a negotiable instrument (Sec. c. mutilating or destroying the instrument (de Leon) ii. d) By any other act which will discharge simple contract for the payment of money • Obligations are extinguished by (Article 1231 New Civil Code): a. d. burning.Where protest is waived. Dispensation with notice a) Notice of dishonor is dispensed with when. 112) Note: Reasonable diligence implies active search and depends upon the circumstances of each cases. DISCHARGE OF NEGOTIABLE INSTRUMENT Discharge of an instrument – release of all parties. from the obligations arising thereunder. 109) 7. consequently.117) K. but waiver of the latter does not include waiver of the former • When an indorser waives presentment and notice of dishonor. c. he thereby enlarges his liability and his indorsement is known as facultative indorsement 6. where the instrument is made or accepted for his accommodation c) By the intentional cancellation thereof by the holder • Cancellation may be done by writing the word “cancelled” or “paid” on the face of the instrument or by tearing. whether primary or secondary. iii. 115): i.(Sec. Effect of failure to give dishonor by non-acceptance • notice of Failure of a previous holder to give a notice of dishonor by non-acceptance cannot prejudice a holder in due course who may still present . it renders the instrument without force and effect. b. after the exercise of reasonable diligence. b) When no notice need not be given to drawer (Sec. When the drawee is a fictitious person or a person not having capacity to contract. it can no longer be negotiated 1. 119): a) By payment in due course by or on behalf of the principal debtor • Principal debtor – the person ultimately bound to pay the debt and not necessarily the person primarily liable on the instrument Requisites: a. b. 114): 1) Where the drawer and the drawee are the same person 2) When the drawee is a fictitious person or a person not having capacity to contract 3) When the drawer is the person to whom the instrument is presented for payment 4) Where the drawer has no right to expect or require the drawer has countermanded payment c) When notice need not be given to the indorser (Sec. notice of dishonor is also waived. it cannot be given or does not reach the parties sought to be reached. the following are also deemed waived a) presentment and b) notice of dishonor NOTES: • Where presentment for payment is waived. By payment or performance By the loss of the thing due By the condonation or remission of the debts d) When it is waived expressly or impliedly (Sec. and the indorser was aware of the fact at the time he indorsed the instrument Where the indorser is the person to whom the instrument is presented for payment Where the instrument is made or accepted for his accommodation the instrument to the drawee for acceptance and notify the drawer and indorsers is acceptance is refused (Sec.
119) b) By the intentional cancellation of his signature by the holder • The holder’s right to cancel an indorser’s signature is subject to the limitation that the indorsement is not necessary to the holder’s title c) By the discharge of a prior party • Applies only to discharge by a holder and not to discharge by operation of law d) By a valid tender of payment made by a prior party • “Tender of Payment” – the act by which one produces and offers a person holding a claim or demand against him the amount of money which he considers and admits to be due. unless the holder’s right of recourse against the party secondarily liable is expressly reserved • The release of the principal debtor discharges the instrument. it discharges the such secondary party and all parties subsequent to him but the instrument remains in force b) If in favor a the principal debtor. it discharges the instrument and all parties thereto.d. at or after the maturity of the instrument. Discharge of parties secondarily liable (Sec. Renunciation by the holder How it is made: a) Renunciation must be in writing unless the instrument is delivered up to the person primarily liable thereon. all the secondary parties are also discharged • The release of the principal debtor must be by the act of the holder and not by operation of law f) By any agreement binding upon the holder to extend the time of payment. e. unless made with the assent of the party secondarily liable. 89) NOTE: Generally. the renunciation does not affect the rights of a holder in due course without notice L. Exceptions: a) Where it is payable to the order of a third person and has been paid by the drawer b) Where it is made or accepted for his accommodation and has been paid by the party accommodated 4. renunciation is made absolutely and unconditionally c) In either case. Any other alteration is immaterial . or b) in oral accompanied by a surrender of the instrument to the person primarily liable thereon Effect of renunciation a) If it is in favor of a secondary party made by the holder before. c. By the confusion or merger of the rights of creditor and debtor By compensation By novation recourse against such party is expressly reserved (Sec. a discharge of a party secondarily liable does not effect a discharge of the instrument itself 3. f. in satisfaction of such claim or demand without any stipulation or condition • An accepted valid tender of payment made by a prior party discharges the latter and all parties subsequent to him e) By a release of the principal debtor. and he may strike out his own and all subsequent indorsement. and renegotiate the instrument. provided. 120) • “agreement binding on the holder” means agreement binding on the holder made with the principal debtor • Agreement must be supported by a valuable consideration and for a definite period g) By failure to give notice of dishonor to him unless excused (Sec. Concept • Material alteration is defined to be any change in the instrument which affects or changes the liability of the parties in any way. or unless the right of General Rule: Where the instrument is paid by a party secondarily liable thereon. Right instrument of a party who discharged e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right • Requisites: a. b. MATERIAL ALTERATION 1. 120): a) By any act which discharges the instrument (any of those acts mentioned in Sec. or to postpone the holder’s right to enforce the instrument. made at or after maturity. Reacquisition must be by the principal debtor In his own right (not representative capacity) in a at or after the date of maturity 2. thus. it is not discharged but the party paying is remitted to his former rights as regards all prior parties.
and. 134) Types of Acceptance 1. or any other change or addition which alters the effect of the instrument in any respect (Sec.137. (Sec. will retroact to date of presentation. c. v. receives the bill for value. he may enforce payment thereof according to its original tenor regardless of whether the alteration was innocent or fraudulent M. two views: i. Constitutes dishonor because Sec. on the faith thereof. and A party who has authorized or assented to the alteration. may treat the bill as dishonored. (Sec. It is any alteration which changes a) The date b) The sum payable.W. either for principal or interest c) The time or place of payment d) The number or relations of the parties e) The medium or currency in which payment is to be made f) or which adds a place of payment where no place of payment is specified. communicated or An acceptance to pay at a particular place is a general acceptance unless it expressly states that the bill is to be paid there only and not elsewhere. which makes payment by the acceptor dependent on the fulfillment of a condition therein stated The acceptance delivered to the - The holder of a bill presenting the same for acceptance may require that the acceptance be written on the bill.• and. 133) Where an acceptance is written on a paper other than the bill itself. therefore. Bayer B9 N. inoperative to affect the liability of any party to the instrument prior to the alteration. that is to say. if such request is . Allen 62 Ind. (Sec. It is an act by which a person on whom the BOE is drawn assents to the request of the drawer to pay it 2. Definition . Constitutes constructive notice ii. Manner must be holder. or (b) refuses within 24hrs or such other period as the holder may allow. 2. General A general acceptance assents without qualification to the order of the drawer. b. It does not discharge the instrument as against a party who has made the alteration.the signification by the drawee of his assent to the order of the drawer. Types: (a) Conditional. Qualified A qualified acceptance in express terms varies the effect of the bill as drawn. (d) If there is not demand for the return of the bill and the drawee keeps it until after the expiration of said period without expressly accepting or refusing it. to return the bill accepted or non-accepted to the holder (c) Under the clearing house rules. it does not bind the acceptor except in favor of a person to whom it is shown and who. Effects of material alteration a) If done by a holder – discharges the instrument and all prior parties thereto who did not give their consent to the alteration Exceptions: a. NIL uses the word "refuses" d. Singer Sewing Machine Co. Actual (a) In writing (b) Signed by the drawee (c) Must not express that the drawee will perform his promise by any other means than payment of money (d) Communicated or delivered to the holder 2. and Indorsers who indorsed subsequent to the alteration b) If done by a stranger (spoliation) – has no effect upon the instrument if the original meaning can be ascertained (Brooks v. Constructive Where the drawee: (a) destroys the bill. 3. 741) c) Material alteration avoids the instrument in the hands of a person who is not a holder in due course as against any prior party who has not assented to the alteration d) If an altered instrument is negotiated to a holder in due course. ACCEPTANCE 1. 401. Acceptance. the drawee bank’s failure to return within the prescribed time will be deemed payment or acceptance of the check. if given.125) refused. 140) 4.
3. to return the bill accepted or non-accepted to the holder. How made? (Sec. or c) when it is overdue. bill addressed to drawees not partners. 142) Acceptance of an INCOMPLETE bill 1. PERIOD within which to accept (a) The drawee is allowed 24 hours after presentment to decide WON he will accept the bill. a) Sec.(b) Partial. c. or by non payment 2. that is to say. 137. (Sec. require that acceptance be written on the bill and if refused. A bill may be accepted: a) before it has been signed by the drawer. 146. Time for Acceptance The drawee is allowed twenty-four hours after presentment in which to decide whether or not he will accept the bill. in the absence of different agreement. (d) Qualified as to time. MAY be made to his personal representative. drawee has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors. When made? (Sec. (c) Local. NIL) (1) BY or ON BEHALF of the holder (2) AT a reasonable hour. NIL) (b) Effect of non-acceptance within the prescribed period Where bill is duly presented (a) on any day on which NIs may be presented for payment at a reasonable hour on a business day if Instruments falling due or becoming payable on Saturday next succeeding business day EXCEPT instruments payable on demand [at the option of the holder before twelve o'clock noon on Saturday WHEN that entire .133) 2. (4) TO the drawee or some person authorized to accept or refuse acceptance on his behalf. the person presenting it must treat the bill as dishonored by nonacceptance or he loses right of recourse against the drawer and indorsers. an acceptance to pay part only of the amount for which the bill is drawn. and a. Rules Governing Acceptance A holder has a right to: 1. the acceptance. since an instrument does not lose its negotiability by the mere fact that its maturity date has passed or the drawee’s refusal to accept or pay it. (Sec. NIL) Constructive Acceptance Sec. or d) after it has been dishonored by a previous refusal to accept. if given. PRESENTMENT FOR ACCEPTANCE 1. that is to say. MUST be made to them all unless one has authority to accept or refuse acceptance for all. N. 136. 145. NIL) b. an acceptance to pay only at a particular place. 3. or b) while otherwise incomplete. 138. is entitled to have the bill accepted as of the date of the last presentment. 150. drawee is dead. or in other cases where presentment for acceptance necessary to fix maturity (b) where bill expressly stipulates that it shall be presented for acceptance (c) where bill is drawn payable elsewhere than at residence or place of business of drawee (d) In no other case is presentment for acceptance necessary in order to render any party to the bill liable. the holder. (3) ON a business day and before the bill is overdue. dates as of the day of presentation. But when a bill payable after sight is dishonored by nonacceptance and drawee subsequently accepts it. Where a drawee to whom a bill is delivered for acceptance destroys the same. Time/Place/Manner of Presentment When presentment for acceptance must be made (a) bill payable after sight. NIL allows acceptance to be made while the bill is incomplete b) The bill may be accepted even after it is overdue or dishonored. and is not accepted within prescribed time. he will be deemed to have accepted the same. or refuses within twenty-four hours after such delivery. MAY be made: i) to him or ii) to his trustee or assignee. 136) 4. if given. treat it as if dishonored (Sec. the acceptance. refuse to accept a qualified acceptance and may treat it as dishonored (Sec. dates as of the day of presentation. or within such other period as the holder may allow. (Sec.
without need of presentment. 184. Definition A bill of exchange drawn on a bank and payable on demand. 144) 3. Cashier's or manager's . 3. to the drawer and to each indorser. since the drawer and drawee are the same. Crossed – when the name of a particular banker or a company is written between the parallel lines drawn.day is not a holiday.drawn by a bank on itself and its issuance has the effect of acceptance. Memorandum check . to present the bill for acceptance before presenting it for payment.where the word "memorandum" or "memo" is written across its face. If he fails to do so. or 2. and (c) the act 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 received the check pursuant to that purpose. does not have capacity to contract by bill. 117. 147. Effect of omission to give notice of nonacceptance any drawer or indorser to whom such notice is not given is discharged but does not prejudice the rights of a HDC subsequent to the omission. (b) at the time fixed therein without grace. NIL) Crossed check should put the payee on inquiry to ascertain the holders’ title to the check or the nature of his possession. has absconded. (c) Where the holder has no time. acceptance has been refused on some other ground. NIL). When duly presented for acceptance and such acceptance is refused or cannot be obtained. Effect of Failure to make presentment Failure to present releases drawer and indorser the holder of a bill which is required by the next preceding section to be presented for acceptance must either present it for acceptance or negotiate it within a reasonable time. When Excused Bill may be treated nonacceptance: as dishonored by • (a) Where the drawee 1. (Sec. not complete until indorsed by him (Sec. otherwise. Dishonor by Non-Acceptance 1. whether specially or generally. 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.upon which the holder's signature must appear twice -. Kinds a. delay is excused and doesn’t discharge the drawers and indorsers. Duty of holder: must treat the bill as dishonored by nonacceptance or he loses the right of recourse against the drawer and indorsers. NIL) Except as herein otherwise provided. with the exercise of reasonable diligence. Failing this. (b) the check may be negotiated only once – to one who has an account with the bank. 2. is dead 2.first when it is issued. he is not a HDC. PROMISSORY NOTE Promissory note . the drawer and all indorsers are discharged.(Sec. 151NIL) NOTICE OF DISHONOR 1. c. P. b. It may . CHECKS 1. (Sec. the holder may treat it is either a BE or PN. Traveler's check . (Sec. (Sec. d. Recipient. 185) 2. NIL) O. the payee is declared guilty of gross negligence to the effect that the holder of the check is not a holder in good faith.a promise to pay money • unconditional promise in writing made by one person to another signed by the maker engaging to pay on demand. (Statement Investment v IAC) 2. signifying that the drawer will pay the holder absolutely. Effects of a crossed check: (a) the check may not be encashed but only deposited in the bank. When presentment for acceptance is excused and the bill is not accepted. NIL) 2. 150.89. is fictitious. 4. (Sec. NIL) NON ACCEPTANCE of the bill 1. (c) Where. after the exercise of reasonable diligence. (Sec. presentment cannot be made. The negotiability of a check is not affected by its being crossed. Right of holder: immediate right of recourse against the drawer and indorsers and no presentment for payment is necessary. and again when it is cashed. (b) Where. 149. (Sec. although presentment has been irregular.
A cashier’s check is a check of the bank’s cashier on his own or another check. a manager’s check is regarded substantially to be as good as the money it represents. as such. Cashier's check is the substantial equivalent of a certified check and is thus subject to escheat. Telegraphic transfers are likewise subject to escheat because upon making payment complete the transaction insofar as he is concerned. FAC) drawer will be discharged from liability thereon to the extent of the loss caused by the delay. 1990) A manager’s check is one drawn by the bank’s manager upon the bank itself. Presentment for Payment (a) Time A check must be presented for payment within a reasonable time after its issue or the . these cannot be subject of escheat. By its peculiar character and general use in commerce. If treated as promissory note. ONG. committing in effect its total resources. it is a bill of exchange drawn by the cashier of a bank upon the bank itself. by the bank mentioned between the parallel lines. The issuance of the check to a person authorized to receive it operates to release the judgment debtor from any further obligations on the judgment. ( Bataan Cigar & Cigarette v. the contract is executory until the credit is established. 1961) A check. (RP V PNB. or if it is especially crossed. thus the bank never had any chance of accepting or rejecting them. 2006) 3. drawn upon itself. though insofar as the remitting bank is concerned. 186) (b) Effect of Delay The drawer will be discharged from liability thereon to the extent of the loss caused by the delay. the drawer would be the maker and in which case the holder need not prove presentment for payment or present the bill to the drawee for acceptance. (EPCIB V. (PAL V CA.2001) A manager’s check is an order of the bank to pay. The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. (Sec. and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. 186) Demand drafts have not been presented either for acceptance or for payment. and accepted in advance by the act of its issuance. integrity and honor behind its issuance. It is really the bank’s own check and may be treated as a promissory note with the bank as a maker. (Sec. (INTERNATIONAL CORPORATE BANK v GUECO . The mere issuance of it is considered an acceptance thereof. In effect. It is similar to a cashier’s check both as to effect and use. whether a manager's check or ordinary check.legally be negotiated as long as the one who encashes the check with the drawee bank is another bank.