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Ateneo 2007 Commercial Law Negotiable in PDF
Ateneo 2007 Commercial Law Negotiable in PDF
NEGOTIABLE INSTRUMENTS
LAW Promissory Note vs. Bill of Exchange
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- not necessary that it be - necessary that it be short of the diligence expected from it. It may still,
presented for acceptance presented for however, pursue an action against the person
acceptance responsible or who may have unjustly benefited.
- drawn on a deposit - not drawn on a deposit
- the death of a drawer of a - the death of the drawer Pabugais vs. Sahijwani, 423 SCRA 596 (2004)
check, with knowledge by of the ordinary bill of Generally, a manager’s check is not legal tender and
the banks, revokes the exchange does not the creditor may accept or refuse it. But, payment by
authority of the banker to revoke the authority of check may be accepted as valid if no prompt
pay the banker to pay objection is made.
- must be presented for - may be presented for
payment within a payment within a 2. Crossed check
reasonable time after its reasonable time after its Though the NIL is silent as to crossed checks, courts
issue (6 months) last negotiation. can take judicial cognizance of the practice that a
check crossed with two parallel lines in the upper left
hand corner means that it can only be deposited and
not converted to cash. The effects of a crossed check
Promissory Note vs. Check
thus relate to the mode of payment – meaning that
PN CHECK the drawer intends it to be only for deposit by the
rightful person, the named payee.
there are two (2) parties, there are three (3) parties,
the maker and the payee the drawer, the drawee Bataan Cigar vs. CA
bank and the payee A holder of crossed-checks is not obliged to inquire,
may be drawn against always drawn against a when he acquires them, as to purpose for which the
any person, not bank checks were issued. A payee who further negotiates
necessarily a bank cross-checks that he accepted from someone cannot
be considered a holder in good faith (and thus not a
may be payable on always payable on HIDC) is not applicable to this case. Here, when the
demand or at a fixed or demand payee acquired the checks, he duly deposited them
determinable future time in his bank account, and therefore, the purpose
a promise to pay An order to pay behind the crossing was satisfied by the payee.
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Sec. 1. An instrument to be negotiable, must conform Sec 3. An unqualified order or promise to pay is
to the following requirements: unconditional within the meaning of this Act, though
(a) It must be in writing and signed by the maker coupled with —
or drawer;
(b) Must contain an unconditional promise or (a) An indication of a particular fund out of which
order to pay a certain sum in money; reimbursement is to be made, or a particular account
(c) Must be payable on demand, or at a fixed or to be debited with the amount; or
determinable future time; (b) A statement of the transaction which gives rise to
(d) Must be payable to order or to bearer; and the instrument.
Where the instrument is addressed to a drawee, he But an order or promise to pay out of a particular fund
must be named or otherwise indicated therein with is not unconditional.
reasonable certainty.
WHAT CONSTITUTES DETERMINABLE FUTURE
HOW NEGOTIABILITY IS DETERMINED TIME
1. By the provisions of the Negotiable
Instrument Law, particularly Section 1 Sec 4. An instrument is payable at a determinable
thereof future time, within the meaning of this Act, which is
2. By considering the whole instrument expressed to be payable —
3. By what appears on the face of the
instrument and not elsewhere (a) At a fixed period after date or sight; or
(b) On or before a fixed or determinable future time
NOTE: In determining whether the instrument is specified therein; or
negotiable, only the instrument itself and no other, (c) On or at a fixed period after the occurrence of a
must be examined and compared with the specified event, which is certain to happen, though
requirements stated in Sec. 1. If it appears on the the time of happening be uncertain.
instrument that it lacks one of the requirements, it is
not negotiable and the provisions of the NIL do not An instrument payable upon a contingency is not
govern the instrument. The requirement lacking negotiable, and the happening of the event does not
cannot be supplied by using a separate instrument in cure the defect.
which that requirement appears.
WHEN SOME OTHER ACT IS REQUIRED OTHER
WHEN A SUM IS CERTAIN THAN PAYMENT OF MONEY IN AN INSTRUMENT
Sec 2. The sum payable is a sum certain within the
meaning of this Act, although it is to be paid:
Sec 5. An instrument which contains an order or
(a) With interest; or promise to do any act in addition to the payment of
(b) By statedTIFF
installments; or
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(c) By stated installments, with a provision that, of an instrument otherwise negotiable is not affected
upon default in payment of any installment or
by a provision which —
of interest, the whole shall become due; or
(d) With costs of collection or an attorney’s fee, (a) Authorizes the sale of collateral securities in case
in case payment shall not be made at
the instrument be not paid at maturity; or
maturity. (b) Authorizes a confession of judgment if the
instrument be not paid at maturity; or
EFFECT OF A CONDITIONAL PROMISE OR (c) Waives the benefit of any law intended for the
ORDER advantage or protection of the obligor; or
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(d) Gives the holder an election to require something An instrument is payable to order when it is drawn
to be done in lieu of payment of money. payable to the order of a specified person or to a
specified person or his order.
But nothing in this section shall validate any provision
or stipulation otherwise illegal.
Notes on Section 5:
1. Limitation on the provision: it cannot require
something illegal. FOR WHOSE ORDER AN INSTRUMENT CAN BE
2. There are two kinds of judgments by DRAWN
confession:
a. cognovit actionem Sec. 8 The instrument is payable to order where it is
b. relicta verificatione drawn payable to the order of a specified person or to
3. Confessions of judgment in the Philippines him or his order. It may be drawn payable to the
are void as against public policy. order of —
4. If the choice lies with the debtor, the
instrument is rendered non-negotiable. (a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
INSTANCES THAT DO NOT AFFECT THE (c) The drawee; or
VALIDITY AND NEGOTIABILITY OF AN (d) Two or more payees jointly; or
INSTRUMENT (e) One or some of several payees; or
(f) The holder of an office for the time being.
Sec 6. The validity and negotiable character of an
Where the instrument is payable to order the payee
instrument are not affected by the fact that —
must be named or otherwise indicated therein with
(a) It is not dated; or reasonable certainty.
(b) Does not specify the value given, or that any
value has been given therefor; or INSTRUMENTS PAYABLE TO BEARER
(c) Does not specify the place where it is drawn or Sec. 9 The instrument is payable to bearer —
the place where it is payable; or
(d) Bears a seal; or (a) When it is expressed to be so payable; or
(e) Designates particular kind of current money in (b) When it is payable to a person named therein or
which payment is to be made. bearer; or
(c) When it is payable to the order of a fictitious or
But nothing in this section shall alter or repeal any non-existing person, and such fact was known to the
statute requiring in certain cases the nature of the person making it so payable; or
consideration to be stated in the instrument. (d) When the name of the payee does not purport to
be the name of any person; or
(e) When the only or last indorsement is an
WHEN AN INSTRUMENT IS PAYABLE UPON indorsement in blank.
DEMAND
Sec. 7 An instrument is payable on demand — INSTANCES WHEN A DATE MAY BE INSERTED
IN AN INSTRUMENT
(a) Where it is expressed to be payable on
demand, or at sight, or on presentation;
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Sec. 13. Where an instrument expressed to be
(b) In which no time for payment is expressed. payable at a fixed period after date is issued undated,
or where the acceptance of an instrument payable at
Where an instrument is issued, accepted, or indorsed a fixed period after sight is undated, any holder may
when overdue, it is, as regards the person so issuing, insert therein the true date of issue or acceptance,
accepting, or indorsing it, payable on demand. and the instrument shall be payable accordingly. The
insertion of a wrong date does not avoid the
WHEN AN INSTRUMENT IS PAYABLE TO ORDER instrument in the hands of a subsequent holder in
due course; but as to him, the date so inserted is to
be regarded as the true date.
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DEFICIENCIES THAT DO NOT AFFECT THE Sec. 15. Where an incomplete instrument has not
RIGHTS OF A SUBSEQUENT HOLDER IN DUE been delivered, it will not, if completed and
COURSE negotiated without authority, be a valid contract in the
1. Incomplete but delivered instrument (Sec. hands of any holder, as against any person whose
14) signature was placed thereon before delivery.
2. Complete but undelivered (Sec. 16)
3. Complete and delivered issued without Note: It is a real defense. It can be interposed
consideration or a consideration consisting of
against a holder in due course. Delivery is not
a promise which was not fulfilled (Sec 28) conclusively presumed where the instrument is
incomplete. Defense of the maker is to prove non-
DEFICIENCIES/ABNORMALITIES THAT AFFECT delivery of the incomplete instrument.
THE RIGHTS OF A HOLDER IN DUE COURSE
1. Incomplete and undelivered instrument (Sec.
WHEN AN INSTRUMENT IS COMPLETE BUT
15)
UNDELIVERED
2. Maker/drawer’s signature forged (Sec. 23)
Sec. 16. Every contract on a negotiable instrument is
Republic Bank v. Court of Appeals, 196 SCRA 100
incomplete and revocable until delivery of the
Where the amount of the check was altered by
instrument for the purpose of giving effect thereto. As
increasing it but the drawee bank failed to return it to
between immediate parties, and as regards a remote
the collecting bank within 24 hours, the collecting
party other than a holder in due course, the delivery,
bank is absolved from liability for the drawee bank
in order to be effectual, must be made either by or
should detect the alteration.
under the authority of the party making, drawing,
accepting, or indorsing, as the case may be; and in
PNB v. Court of Appeals, 256 SCRA 491 such case the delivery may be shown to have been
The alteration of a serial number of a check is not conditional, or for a special purpose only, and not for
material and does not entitle the drawee bank which the purpose of transferring the property in the
paid it to recover the payment. instrument. But where the instrument is in the hands
of a holder in due course, a valid delivery thereof by
all parties prior to him so as to make them liable to
WHEN INSTRUMENTS ARE INCOMPLETE BUT him is conclusively presumed. And where the
DELIVERED instrument is no longer in the possession of a party
1. Where an instrument is wanting in any whose signature appears thereon, a valid and
material particular: intentional delivery by him is presumed until the
a. Holder has QuickTime™
prima facie and a authority to fill up
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the blanks therein. picture.
are needed to see this
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11. Where the payee’s signature is forged, Bank of P.I. vs. Casa Montessori Internationale,
payments made by the drawee bank to 430 SCRA 261 (2004]
the collecting bank are ineffective. No Forgery is the counterfeiting of any writing, consisting
debtor/creditor relationship is created. of the signing of another’s name with intent to
An agency to collect is created between defraud, is forgery.
the person depositing and the collecting The bank which allows the payment on a check
bank. The drawee bank may recover where the signature is forged is liable to the
from collecting bank who may, in turn, depositor-drawer. When one of two persons suffers
recover from the person depositing. the wrongful act of a third person, he whose
negligence was the proximate cause of the loss must
Rules On Liabilities Of Parties On A Forged bear the loss. Pursuant to its prime duty to ascertain
Instrument well the genuineness of the signatures of its client-
In a PN depositors, the drawee-bank is expected to use
1. A party whose indorsement is forged on a reasonable business prudence. In the performance of
note payable to order and all parties prior to that obligation, it is bound by its internal banking rules
him including the maker cannot be held liable and regulation that form part of the contract it enters
by any holder into with its depositors.
2. A party whose indorsement is forged on a A drawee bank must restore to the account of the
note originally payable to bearer and all drawer the amounts of checks on which the signature
parties prior to him including the maker may of its president was forged even of the forger was the
be held liable by a holder in due course independent auditor of the drawer, who was in
provided that it was mechanically complete charge of reconciling the bank statements with the
before the forgery records of the drawer.
3. A maker whose signature was forged
cannot be held liable by any holder Astro-Electronics Corp. vs. Philguarantee, 411
SCRA 462 (2003)
In a BOE The Pres is personally liable. In signing his name
1. The drawer’s account cannot be charged by apart from being the Pres., he became a co-maker.
the drawee where the drawee paid Persons who write their names on the fact of PNs are
2. The drawer has no right to recover from the makers.
collecting bank
3. The drawee bank can recover from the Metropolitan Waterworks & Sewerage System v.
collecting bank Court of Appeals, 143 SCRA 20
4. The payee can recover from the drawer Where a depositor who was allowed to print its
5. The payee can recover from the recipient of checks privately adopted no security measures in the
the payment, such as the collecting bank printing of the checks, 23 checks with forged
6. The payee cannot collect from the drawee signatures of the authorized signatories were
bank deposited over a period of three months, and the
7. The collecting bank bears the loss but can fraud was not discovered because of the failure of the
recover from the person to whom it paid depositor to reconcile the bank statements with its
8. If payable to bearer, the rules are the same records, the depositor must bear the loss because of
as in PN. its negligence.
9. If the drawee has accepted the bill, the
drawee bears the loss and
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go after the forger Philippine National Bank v. Court of Appeals, 25
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10. If the drawee has not accepted the bill but SCRA 693
has paid it, the drawee cannot recover from A drawee bank which paid a check on which the
the drawer or the recipient of the proceeds, signature of the drawer had been forged cannot
absent any act of negligence on their part. recover the payment from the collecting bank,
because payment implies acceptance and an
LIABILITY OF BANK FOR ALLOWING PAYMENT acceptor admits the genuineness of the signature of
ON CHECKS WHERE THE DRAWER’S the drawer.
SIGNATURE IS FORGED
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Notes:
Yang vs. CA, 409 SCRA 159 (2003) 1. A maker’s liability is primarily and
Every holder is presumed to be a HDC. Also, a unconditional
holder is not obliged to show that there was valuable 2. One who has signed as such is presumed to
consideration, since the same is presumed. He does have acted with care and to have signed with
not also have to show that he made the full knowledge of its contents, unless fraud is
aforementioned inquiry. Absence the showing of a proved
circumstance that should have put the holder into 3. The payee’s interest is only to see to it that
such an inquiry, the failure to inquire is no tantamount the note is paid according to its terms
to bad faith. 4. When two or more makers sign jointly, each
is individually liable for the full amount even if
Banco Atlantico v. Auditor General, 81 SCRA 335 one did not receive the value given
A collecting bank which allowed the depositor to 5. The maker is precluded from setting up the
withdraw the proceeds of a check although the check defense that a) the payee is fictional, b) that
had not been cleared and was told by the depositor the payee was insane, a minor or a
not to present the check for payment until a later date corporation acting ultra vires.
although the check was already due, is not a holder
in due course and cannot recover from the drawer in LIABILITY OF A DRAWER
case the check is dishonored. A drawer is secondarily liable. By drawing the
instrument, the drawer:
1. Admits the existence of the payee,
State Investment House v. Intermediate Appellate 2. The capacity of such payee to indorse
Court, 175 SCRA 310 3. Engages that on due presentment, the
Where the postdated checks issued by the drawer as instrument will be accepted or paid or both
a loan to the payee were crossed, were indorsed by according to its tenor.
the payee to an investment house and were
dishonored for lack of funds, the investment house Notes:
cannot hold the drawer liable, because it is not a 1. If the instrument is dishonored, and the
holder in due course. Since the checks were crossed necessary proceedings on dishonor duly
and could only be deposited, it should have taken
ascertained the title to the check and the nature of a. The drawer will pay the amount thereof
the possession by the payee. If it failed to do so, it is to the holder
not a holder in good faith. Hence, if the issuance of b. Will pay to any subsequent indorser who
the check was subject to the condition that the payee may be compelled to pay it. (Sec. 61)
would deposit funds for the check and failed to do so, 2. A drawer may insert an express stipulation to
the drawer can raise this defense. negative or limit his liability
State Investment House, Inc. v. Court of Appeals, ACCEPTOR - By accepting the instrument, an
217 SCRA 32 acceptor:
A drawer who issued two checks as security for 1. Engages that he will pay according to the
jewelry to be sold by the drawer is liable to an tenor of his acceptance
endorsee to whom the payee negotiated the checks 2. Admits the existence of the drawer, the
even if the drawer returned the pieces of jewelry to genuineness of his signature and his
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holder in due course and the drawer cannot invoke 3. The existence of the payee and his then
want of consideration between the drawer and the capacity indorse
payee as a defense.
IRREGULAR INDORSER - a person not otherwise
LIABILITIES OF A MAKER a party to an instrument places his signature in blank
Sec. 60. The maker of a negotiable instrument by before delivery is liable as an indorser in the following
making it engages that he will pay it according to its manner:
tenor, and admits the existence of the payee and his 1. If payable to order of a third person – liable to
then capacity to indorse. the payee and to all subsequent parties
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WARRANTIES AND ITS LIMITATIONS (a) The matters and things mentioned in subdivisions
Sec. 65. Every person negotiating an instrument by (a), (b), and (c) of the next preceding section; and
delivery or by a qualified indorsement warrants — (b) That the instrument is at the time of his
indorsement valid and subsisting.
(a) That the instrument is genuine and in all
respects what it purports to be; And, in addition, he engages that on due
(b) That he has a good title to it; presentment, it shall be accepted or paid, or both, as
(c) That all prior parties had capacity to contract; the case may be, according to its tenor, and that if it
(d) That he has no knowledge of any fact which be dishonored, and the necessary proceedings on
would impair the validity of the instrument or render it dishonor be duly taken, he will pay the amount
valueless. thereof to the holder, or to any subsequent indorser
who may be compelled to pay it.
But when the negotiation is by delivery only, the
warranty extends in favor of no holder other than the Notes:
immediate transferee. 1. The indorser under Section 66 warrants the
solvency of a prior party
The provisions of subdivision (c) of this section do not 2. The indorser warrants that the instrument is
apply to persons negotiating public or corporation valid and subsisting regardless of whether he
securities, other than bills and notes. is ignorant of that fact or not.
3. Warranties extend in favor of a) a HDC b)
Notes: persons who derive their title from HDC c)
1. A qualified indorser is one who indorses immediate transferees even if not HDC
without recourse 4. The indorser does not warrant the
2. Recourse - resort to a person secondarily genuineness of the drawer’s signature
liable after default of person primarily liable 5. General indorser is only secondarily liable
3. A qualified indorser cannot raise the defense
of a) forgery b) defect of his title or that it is
void c) the incapacity of the maker, drawer or PRESENTMENT FOR PAYMENT
previous indorsers. Sec. 70. Presentment for payment is not necessary
4. A qualified indorsement makes the indorser in order to charge the person primarily liable on the
mere assignor of title of instrument, relieves instrument; but if the instrument is, by its terms,
him of general obligation to pay if instrument payable at a special place, and he is able and willing
is dishonored, but he is still liable for the to pay it there at maturity, such ability and willingness
warranties arising from instrument only up to are equivalent to a tender of payment upon his part.
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5. The warranty is to the capacity of prior presentment for payment is necessary in order to
parties at the time the instrument was charge the drawer and indorsers.
negotiated. Subsequent incapacity does not
breach the warranty.
Notes:
6. Lack of knowledge of the indorser as to any
fact that would impair the validity or the value PRESENMENT FOR PAYMENT – production of
of the instrument must be subsisting all a BOE to the drawee for his acceptance, or to a
throughout. drawee or acceptor for payment. Also
presentment of a PN to the party liable for
payment of the same.
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(c) By the intentional cancellation thereof by the 2. Instrument cannot be renegotiated where it
holder; was made or accepted for accommodation
(d) By any other act which will discharge a simple and it has been paid by the party
contract for the payment of money; accommodated.
(e) When the principal debtor becomes the holder of
the instrument at or after maturity in his own right. WHEN RENUNCIATION BY A HOLDER
DISCHARGES AN INSTRUMENT
1. Made in favor of a person primarily liable
Notes:
2. Made at or after maturity of the instrument
1. Discharge of the instrument discharges all 3. In writing or the instrument is delivered up to
the parties thereto the person primarily liable .
2. Payment must be in due course, and by the Notes:
principal debtor or on his behalf 1. If renounced in favor of a party secondarily liable,
3. If payment is not made by the principal only he is exonerated from liability and all parties
debtor, payment only cancels the liability of subsequent to him.
the payor and those obligated after him but 2. Discharge by novation is allowed.
does not discharge the instrument.
4. Payment by an accommodation party does General rule: When materially altered, without
not discharge the instrument. the consent of all parties liable, the instrument is
avoided
HOW A SECONDARY PARTY IS DISCHARGED Except as against:
Sec. 120. A person secondarily liable on the 1. The party who has made the
instrument is discharged — alteration
(a) By any act which discharges the instrument; 2. The party who authorized or
(b) By the intentional cancellation of his signature by assented to the alteration.
the holder; Subsequent indorsers
(c) By the discharge of a prior party; Exception:
(d) By a valid tender of payment made by a prior If in the hands of a HDC, may be enforced
party; according to its original tenor
(e) By a release of the principal debtor, unless the
holder's right of recourse against the party Material Alteration - if it alters the effect of the
secondarily liable is expressly reserved; instrument.
(f) By any agreement binding upon the holder to
extend the time of payment, or to postpone the Sec. 125 Any alteration, which changes —
holder's right to enforce the instrument, unless made (a) The date;
with the assent of the party secondarily liable, or (b) The sum payable, either for principal or
unless the right of recourse against such party is interest;
expressly reserved. (c) The time or place of payment;
(d) The number or the relations of the parties;
RIGHTS OF A PARTY SECONDARILY LIABLE (e) The medium or currency in which payment is
WHO ALREADY PERFORMED HIS OBLIGATION to be made;
TO PAY
1. The instrument is not discharged Or which adds a place of payment where no place of
2. The party is remitted to and
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all prior parties
are needed to see this picture. which alters the effect of the instrument in any
3. The party may strike out his own and all respect, is a material alteration.
subsequent indorsements
4. The party may negotiate the instrument again INSTANCES WHEN A BOE MAY BE TREATED AS
A PN
EXCEPTIONS: 1. The drawer and the drawee are one and the
1. An instrument cannot be renegotiated where same
it is payable to order of a 3rd person and has 2. The drawee is a fictitious person
been paid by the drawer 3. The drawee has no capacity to contract.
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Acceptance - the signification by the drawee of his b. after due diligence presentment cannot
assent to the order of the drawer. It is an act by be made,
which a person on whom the BOE is drawn assents c. presentment is refused on another
to the request of the drawer to pay it. ground although presentment is irregular
(Sec. 148)
ACCEPTANCE MAY BE:
1. actual General rule: Protest is required only for foreign bills
2. constructive Exception: Inland bills and notes may also be
3. general protested if desired
4. qualified
WHEN PROTEST REQUIRED
REQUISITES OF AN ACTUAL ACCEPTANCE Sec. 152. Where a foreign bill appearing on its face
to be such is dishonored by non-acceptance, it must
1. In writing be duly protested for non-acceptance, and where
2. Signed by the drawee such bill which has not previously been dishonored
3. Must not express that the drawee will by non-acceptance is dishonored by non-payment, it
perform his promise by any other means than must be duly protested for non-payment. If it is not so
payment of money protested, the drawer and indorsers are discharged.
4. Communicated or delivered to the holder Where a bill does not appear on its face to be a
foreign bill, protest thereof in case of dishonor is
Note: unnecessary.
A holder has a right to:
1. require that acceptance be written on the bill
Notes:
and if refused, treat it as if dishonored (Sec. 1. Protest - formal statement in writing made by
133) a notary under his seal of office at the
2. refuse to accept a qualified acceptance and
request of the holder, in which it is declared
may treat it as dishonored (Sec. 142) that the same was presented for payment or
acceptance (as the case may be) and such
CONSTRUCTIVE ACCEPTANCE was refused
Sec. 137. Where a drawee to whom a bill is delivered 2. It means all steps or acts accompanying the
for acceptance destroys the same, or refuses within dishonor of a bill or note necessary to charge
twenty-four hours after such delivery, or within such an indorser
other period as the holder may allow, to return the bill 3. Required when the instrument is a foreign bill
accepted or non-accepted to the holder, he will be of exchange.
deemed to have accepted the same. 4. It must be made on the same date of
dishonor, by a notary/respectable citizen of
PRESENTMENT FOR ACCEPTANCE the place in the presence of 2 credible
1. If necessary to fix the maturity of the bill witnesses so recourse to secondary parties
2. If it is expressly stipulated that it shall be
presented for acceptance Bill in Set - a bill of exchange drawn in several parts,
3. If the bill is drawn payable elsewhere than each part of the set being numbered and containing a
the residence or place of business of the reference to the other parts, the whole of the parts
drawee. just constituting one bill.
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SUMMARY ON PRESENTMENT
are needed to see this picture. FOR
ACCEPTANCE OF BILLS OF EXCHANGE: Lee v. CA, 375 SCRA 5579 (2002)
1. To make the drawee primarily liable and for Although drafts issued in connection with letters of
the accrual of secondary liability (Sec. 144) credit are negotiable instruments.
2. Necessary to fix maturity date, where bill
expressly stipulates presentment, bill payable
other than place of drawee (Sec. 143)
3. When presentment is excused:
a. drawee is dead, hides, is fictitious,
incapacitated person,
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