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b) signed by the maker c) engaging to pay on demand or at a fixed or determinable future time d) a sum certain in money to order or to bearer ** note drawn to maker’s OWN order – NOT complete until it is indorsed by him ** simplest kind of notes – merely containing a promise by one person to pay a sum of money to another SPECIAL TYPES OF PROMISSORY NOTES: 1) CERTIFICATE OF DEPOSIT (CD) written acknowledgment by a bank of the receipt of money received or on deposit which the bank promises to pay to: i) the depositor, or to him or his order ii) some other person or to him or his order iii) specified person ** on demand or on a fixed date ** negotiable ONLY if it complies with Section 1 ** absence of a promise to pay = mere receipt 2) BOND an evidence of indebtedness issued by a public or private corporation, promising to pay a sum certain in money on a day certain in the future a) REGISTERED BOND payable only to the person whose name appears on the face of the certificate and in the books of the company ** NOT negotiable b) COUPON BOND one to which are attached coupons which entitle the holder to interest when due 3) BANK NOTE an instrument issued by a bank for circulation as money payable to bearer on demand 4) DUE BILL a promissory note which shows on its face an acknowledgment by a person of his indebtedness to another ** word “due” – usually used 5) MORTGAGE NOTE a) CHATTEL MORTGAGE NOTE – secured by personal property b) REAL ESTATE MORTGAGE NOTE – secured by real property 6) TITLE RETAINING NOTE secured by a conditional sales contract which ordinarily provides that the title to the goods shall remain in the payee’s name until the note is paid in full – secure the purchase of goods 7) COLLATERAL NOTE used when the maker pledges securities to the payee to secure the payment of the amount of the note 8) JUDGMENT NOTE note which a power of attorney is added enabling the payee to take judgment against the maker without the formality of a trial if the note is not paid on its due date 9) INSTALLMENT NOTE a note payable in specified or periodic installments at predetermined time SEC 185 – CHECK DEFINED a bill of exchange drawn on a bank payable on demand a written order against a bank or persons carrying on the business of banking by a party having money in their hands requesting them to pay on presentment to a person named therein or to his order or to bearer, a named sum of money ** TWO ESSENTIAL Characteristics: a) drawn on a bank b) payable instantly on demand ** check need NOT state that it is payable on demand ** presentment is NOT necessary ** NOT mere contracts ** partakes of a representation that the drawer has funds on deposit – sufficient to ensure payment
otherwise he is not a holder in due course STALE CHECK one which has not been presented for payment within a reasonable time after its issue – valueless ** current banking practice – 6 months/180 days SEC 186 – WITHIN WHAT TIME A CHECK MUST BE PRESENTED must be presented within a REASONABLE TIME after its issue or the drawer will be DISCHARGED from liability REQUISITES to DISCHARGE the drawer from liability: a) check is not presented within a reasonable time after its issue b) drawer suffers loss c) loss suffered by the drawer is attributable to the delay ** no loss shown = not discharged ** extent of loss caused by the delay in case of drawer . can only be deposited but may not be converted into cash by the drawee ** 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. otherwise it is incomplete ** only the purchaser can negotiate them ** constitutes as a complete purchase and sale of credit 6) CERTIFIED CHECK one which bears upon its face an agreement by the drawee-bank that the check will be paid on presentation 7) CROSSED CHECK one which bears across its face two parallel lines diagonally ** SPECIAL – name of a particular bank or company – drawee-bank must pay the check only upon presentment by such bank or company (absence of presentment – no liability will attach) ** GENERAL – only the words “and Co. and subsequent to the date of its issue is a BILL OF EXCHANGE and NOT a check SPECIAL TYPES OF CHECKS 1) PERSONAL – most common – check drawn by the depositor of a bank on the bank 2) MEMORANDUM same as personal checks but the word “memorandum/memo/mem” is written on its face signifies that the drawer engages to pay the bona fide holder absolutely 3) CASHIER’S CHECK a check of the bank’s cashier on the bank itself payable on demand to a payee operates as an assignment of funds represented by the check to the credit of the payee/holder deemed as cash 4) MANAGER’S CHECK on drawn by the bank’s manager 5) TRAVELER’S CHECK one upon which the holder’s signature must appear twice: 1 – be affixed by him at the time it is issue 2 – for counter-signature to be affixed by him in the presence of the payee before it is paid.** NOT a mere undertaking to pay an amount of money ** substitute for cash – NOT a legal tender ** delivery of a check does NOT operate as paymet ** checks produces the EFFECT OF PAYMENT ONLY when it has been ENCASHED.” or when nothing is written between the lines imposes no legal obligation on the drawee-bank no to honor such a check can only be deposited with the payee’s bank ** purpose – to insure payment to the rightful person. or when through the FAULT OF THE CREDITOR it has been IMPAIRED (Art. 1249 – CC) BILLS PAYABLE IN THE FUTURE KINDS: a) those bearing the date of their issuance but directing payment on a specified date in the future b) postdated checks or those bearing a date subsequent to their delivery and specifying no time for payment ** a written order to a bank to pay a sum of money at a day subsequent to its date.
** wholly discharged in case of indorser ** NO presentment of the check = drawer incurs no liability regardless of the loss suffered ** TEST – whether the payee employed such diligence as a prudent person exercises in his own affairs SEC 187 – CERTIFICATION OF CHECK. make the bank primarily liable on the instrument 2) discharges persons secondarily liable if procured by the holder 3) operates as an assignment of the funds of the drawer in the hands of the drawee-bank – drawer cannot draw out the funds then in the bank necessary to meet the certified check 4) payee or holder. becomes the depositor of the drawee-bank with rights and duties of one in such a situation 5) the bank becomes the primary debtor and cannot thereafter refuse to pay it 6) drawer may not issue a stop payment order on the certified check ** certification = sufficient funds ** a check CANNOT be certified before it is payable – must be made by an officer of the bank SEC 188 – EFFECT WHERE THE HOLDER OF A CHECK PROCURES IT TO BE ACCEPTED/CERTIFIED the drawer and all indorses are discharged from liability thereon ** 188 applies only to indorsers at the time of certification – subsequent indorsers are not released SEC 189 – WHEN CHECK OPERATES AS AN ASSIGNMENT check itself does NOT operate as an assignment of any part of the funds to the credit of the drawer with the bank bank is NOT liable to the holder UNLESS AND UNTIL it ACCEPTS or CERTIFIES the check ** certification = the funds ceases to be under the control of the drawer CASES WHERE BANK MAY REFUSE PAYMENT 1) bank is insolvent 2) drawer’s deposit is insufficient or he has not account with the bank or said account had been closed or garnished 3) drawer is insolvent and proper notice is received by the bank 4) the drawer dies and proper notice is received by the bank 5) drawer has countermanded payment 6) holder refuses to identify himself 7) bank has reason to believe that the check is forgery 8) check is stale or postdated . EFFECT OF check certified by a bank on which it is drawn = acceptance CERTIFICATION: an agreement by the bank against whom a check is drawn that the check will be paid when presented for payment ** stamping the word “certified” ** MUST be in writing on the check itself or on a separate instrument EFFECTS OF CERTIFICATION 1) equivalent to acceptance. for all intents and purposes.
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