Professional Documents
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Nego Finals Reviewer
Nego Finals Reviewer
NEGOTIABLE INSTRUMENT
•Written contract for the payment of money, by its form intended as substitute for money and intended to pass from hand to hand to
give the holder in due course the right to hold the same and collect the sum due
PROMISSORY NOTE
•unconditional promise in writing made by one person to another signed by the maker
•engaging to pay on demand, or at a fixed or determinable future time a sum certain in money to order or to bearer
•where a note is drawn to the maker’s own order, it is not complete until indorsed by him
Parties:
1. Maker—one who makes a promise and signs the instrument
2. Payee—party to whom the promise is made or the instrument is payable
BILL OF EXCHANGE
•unconditional order in writing addressed by one person to another signed by the person giving it
•requiring the person to whom it’s addressed to pay on demand or at a fixed or determinable future time a sum certain in money to
order or to bearer
Parties:
1. Drawer—one who gives the order to pay money to a 3rd party
2. Drawee—person to whom the bill is addressed and who is ordered to pay
3. Payee—party in whose favor the bill is drawn or is payable
Note: It is the ENTRUSTEE NOT the ENTRUSTER is the real owner of the trust receipt.
5. Treasury Warrants – a “treasury warrant” bearing on its face the words “payable from the appropriation for food
administration” is actually an order for payment out of a particular fund and is NOT UNCONDITIONAL, and does not
fulfill the one of the essential requirements of a negotiable instrument. (Abubakar v. Auditor General)
6. Money Order – a species of draft drawn by the post-office upon another for an amount of money deposited at the first
post office by the person purchasing the money order and payable at the second office to a payee named in the order.
“ Documentary Bill of Exchange” is one to which are attached documents of title to be delivered and surrendered to the
drawee when he accepts or pays the bill.
8. D/A and D/P Bills of Exchange -
“Documents Against Payment Bill” – “D/P Bill” is a sight or time bill to which are attached documents to be delivered and
surrendered to the drawee when he has paid the corresponding bill.
Negotiable Instruments Law 2
“Documents Against Acceptance Bill” – “D/A Bill” is a time bill to which are attached documents to be delivered and
surrendered to the drawee when he accepts the bill.
9. “ Sight bills” are bills which are payable upon presentation or at sight or on demand.
10. “ Time or usance bills” – are bills which are payable at a fixed future time or at a determinable future time.
Inland Bill of Exchange – is a bill which is or on its face purports to be BOTH drawn and payable within the Philippine Islands.
Foreign Bill of Exchange - is a bill which is, or on its face purports to be, drawn or payable outside the Philippine Islands.
Referee in case of need – is the person whose name was inserted by the drawer of the bill and any indorser to whom the holder may
resort in case of need – that is in case the bill is dishonored by non-acceptance or by non-payment.
Note: It is the option of the holder to resort to the referee in case of need or not as he may see fit.
BEARER
Person in possession of a bill/note payable to bearer
HOLDER
Payee or indorsee of a bill or note who is in possession of it, or the bearer thereof.
NEGOTIABILITY
REQUISITES (SUDOC)
1. in writing and signed by maker or drawer
no person liable on the instrument whose signature does not appear thereon
Exceptions:
* A person signing in a trade or assumed name
Negotiable Instruments Law 3
* Principal is liable if a duly authorized agent signs in his own behalf (Agent must be duly authorized; He adds words
indicating that he signs as an agent; He must disclosed his principal)
(Signature by procuration-operates as notice that the agent has limited authority to sign and principal is bound if agent acted
beyond the limits of his authority)
* In case of forgery, the forger is liable even if his signature does not appear on the instrument
* Where the acceptor makes his acceptance of a bill on a separate paper
* Where a person makes a written promise to accept a bill before it is drawn
one who signs in a trade or assumed name liable to the same extent as if he had signed in his own name
signature of any party may be made by a duly authorized agent, no particular form of appt. necessary
3. payable on demand,
when expressed to be payable on demand, or at sight, or on presentation;
when no time for payment expressed, or
where an instrument is issued, accepted or indorsed when overdue, it is, as regards the person so issuing, accepting, or indorsing
it, payable on demand
4. payable to order
where it is drawn payable to the order of a specified person or to him or his order. May be drawn payable to order of ---
a. a payee not the maker/drawer/drawee, or
b. drawer or maker, or
c. drawee, or
d. two or more payees jointly, or
e. holder of an office for time being
when the instrument is payable to order the payee must be named or otherwise indicated therein with reasonable certainty
or bearer,
when expressed to be so payable
when payable to person named therein or bearer
when payable to order or fictitious/non-existent person, and such fact known to the person making it so payable, or
when name of payee doesn’t purport to be the name of any person, or
when the only/last indorsement is in blank
Negotiable Instruments Law 4
5. where addressed to drawee: such drawee named/ indicated therein with reasonable certainty
bill may be addressed to two or more drawees jointly, whether partners or not, but not to two or more drawees in the alternative or
in succession
bill may be treated as a PN, at option of holder, where
a. drawer and drawee are same person
b. drawee is fictitious/incapacitated
(Sec.5) Gen. Rule: order/promise to do any act in addition to the payment of money renders instrument non-negotiable.
Exception: negotiability not affected by provisions w/c
1. authorize sale of collateral security if instrument not paid at maturity
2. authorize confession of judgment…
3. waives benefit of any law intended for advantage/protection of obligor
4. give holder election to require something to be done in lieu of money
DATE IN AN INSTRUMENT
Presumption as to date: Said date is the date when it was made by the maker, drawn by the drawer, accepted by the drawee or
indorsed by the payee. (Sec. 11)
Effect of ante-dating or Post-dating: Instrument is not invalid, provided not done for an illegal or fraudulent purpose. (Sec. 12)
* Ante-dating: Giving an instrument a date that is earlier than the date it was issued
* Post-dating: Giving an instrument a date that is later than the date it was issued
b. Where an instrument is payable at a fixed period after sight but the acceptance is undated
Issuance-the first delivery of the instrument complete in form to a person who takes it as a holder.
Steps:
1. Mechanical Act of writing, complying with requirements of Sec. 1
2. Delivery with intention to give effect thereto.
• NI incomplete and revocable until delivery for the purpose of giving effect thereto. As between:
a. immediate parties
b. a remote party other than holder in due course
delivery, to be effectual, must be made by or under the authority of the party making/drawing/accepting/indorsing
• in such case delivery may be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the
property in the instrument
PRESUMPTION OF DELIVERY
Where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him
is presumed until the contrary is proved (*if in the hands of a HDC, presumption conclusive)
NEGOTIATION
• When an instrument is transferred from one person to another as to constitute the transferee the holder thereof.
• If payable to BEARER, negotiated by delivery; if payable to ORDER, negotiated by indorsement of holder + delivery
INDORSEMENT
It is the writing of the name of the indorser on the instrument with the intent either to transfer the title to the same, or to strengthen
the security of the holder by assuming a contingent liability for its future payment.
The indorsement must be written on the instrument itself or upon a paper attached thereto. The signature of the indorser is
sufficient. (Sec. 31)
Indorsement must be of entire instrument. (can’t be indorsement of only part of amount payable, nor can it be to two or more
indorsees severally. But may be indorsed as to the residue of partially paid instrument) [Sec. 32]
KINDS OF INDORSEMENT
A. As to manner of future method of negotiation
1. Special – specifies the person to whom/to whose order the instrument is to be payable; indorsement of such indorsee is necessary to
further negotiation.
2. Blank – specifies no indorsee, instrument so indorsed is payable to bearer, and may be negotiated by delivery
• The holder may convert a blank indorsement into a special indorsement by writing over the signature of the indorser in blank any
contract consistent with the character of the indorsement (Sec. 35)
2. non-restrictive
D. As to presence/absence of express limitations put by indorser upon primary obligor’s privileges of paying the holder
1. conditional – additional condition annexed to indorser’s liability.
• Where an indorsement is conditional, a party required to pay the instrument may disregard the condition, and make payment to the
indorsee or his transferee, whether condition has been fulfilled or not
• Any person to whom an instrument so indorsed is negotiated will hold the same/proceeds subject to rights of person indorsing
conditionally
2. unconditional
INDORSEMENT WHERE INSTRUMENT PAYABLE TO TWO OR MORE PERSONS WHO ARE NOT PARTNERS (Sec.41)
All must indorse unless the one indorsing has authority to indorse for others
INSTRUMENT DRAWN OR INDORSED TO A PERSON AS CASHIER (Sec.42)
Presumed to be payable to the bank or corporation
Presumption as to time of Indorsement—before instrument is overdue, except where indorsement bears date which is after
maturity.
REQUISITIES
1. complete and regular upon its face
• sec. 124 (effect of material alteration—not defense against HDC)
Material Alteration: any change in the instrument which affects or changes the liability of the parties.
Spoliation- A material alteration made by a stranger
Negotiable Instruments Law 7
2. holder became such before it was overdue, without notice of any previous dishonor
• sec. 53 (instrument payable on demand negotiated after unreasonable length of time: holder is not HDC)
• sec. 12 (effect antedating/postdating)
Notice
Sec. 54-notice before full amt. paid: deemed HDC only to the extent of the amount paid by him
Sec. 56-notice of defect: Actual knowledge necessary
KINDS OF DEFENSES
1. real defense – attaches to instrument; on the principle that the right sought to be enforced never existed/there was no contract
at all. Available to all parties both immediate and remote including HDC.
2. personal defense – growing out of agreement; renders it inequitable to be enforced against defendant. Available to prior parties
among themselves but w/c are not good against a HDC.
Negotiable Instruments Law 8
DEFENSES
1. INCAPACITY: REAL: indorsement/assignment by corporation/infant passes property but corp/infant no liability
2. FORGERY: Real: Definition: the counterfeit-making or fraudulent alteration of any writing, and may consist in the signing of
another’s name or the alteration of an instrument in the name, amount, description of the person and the like, with intent thereby to
defraud.
Effect when Signature is forged or made without authority of person whose signature it purports to be.
General Rule:
a. wholly inoperative
b. no right to retain instrument, or give discharge, or enforce payment vs. any party, can be acquired through or under such signature
(unless forged signature unnecessary to holder’s title)
Exception:
unless the party against whom it is sought to enforce such right is precluded from setting up forgery/want of authority
Precluded:
a. parties who make certain warranties, like a general indorser or acceptor
b. estopped/negligent parties
3. MATERIAL ALTERATION
• Where NI materially altered w/o assent of all parties liable thereon, avoided, except as against
1. party who has himself made, authorized or assented to alteration
2. and subsequent indorsers
• But when an instrument has been materially altered and is in the hands of a HDC not a party to the alteration, HDC may enforce
payment thereof according to orig. tenor
*material alteration a personal defense when used to deny liability according to org. tenor of instrument, but real defense when
relied on to deny liability according to altered terms.
4. FRAUD
a. fraud in execution: real defense (didn’t know it was a Negotiable Instrument)
b. fraud in inducement: personal defense (knows it’s Negotiable Instrument but deceived as to value/terms)
7. INCOMPLETE, DELIVERED
• Personal defense (sec. 14)
• 2 Kinds of Writings:
1. Where instrument is wanting in any material particular: person in possession has prima facie authority to complete it by filing up
blanks therein
2. Signature on blank paper delivered by person making the signature in order that the paper may be converted into a NI: prima
facie authority to fill up as such for any amount
Negotiable Instruments Law 9
• In order that any such instrument, when completed, may be enforced against any person who became a party thereto prior to its
completion:
1. must be filled up strictly in accordance w/ authority given
2. within a reasonable time
• but if any such instrument after completion is negotiated to HDC, it's valid for all purposes in his hands, he may enforce it as if it had
been filled up properly
LIABILITIES OF PARTIES
A. PRIMARY PARTIES
• Person primarily liable: person who by the terms of the instrument is absolutely required to pay the same.
1. Liability of Maker
a. Promises to pay it according to its tenor
b. admits existence of payee and his then capacity to indorse
3. Liability of Acceptor
• Promises to pay instrument according to its tenor
• Admits the following:
a. existence of drawer
b. genuineness of his signature
c. his capacity and authority to draw the instrument
d. existence of payee and his then capacity to indorse
Negotiable Instruments Law 10
B. SECONDARY PARTIES
1. Liability of Drawer
a. Admits existence of payee and his then capacity to endorse
b. Engages that on due presentment instrument will be accepted, or paid, or both, according to its tenor and that
c. If it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to
an subsequent indorser who may be compelled to pay it
• drawer may insert in the instrument an express stipulation negativing / limiting his own liability to holder
2. Liability of Indorsers:
1. Instrument payable to order of 3rd person: liable to payee and to all subsequent parties
2. Instrument payable to the order of maker/drawer, or payable to bearer: liable to all parties subsequent to maker/drawer
3. Signs for accommodation of payee, liable to all parties subsequent to payee
Liability of an Agent
• Signature of any party may be made by duly authorized agent, establish as in ordinary agency
Negotiable Instruments Law 11
• Where instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal, he is not
liable on the instrument if he was duly authorized, but the mere addition of words describing him as an agent without disclosing his
principal, does not exempt from personal liability.
• Signature per procuration operates as notice that the agent has but a limited authority to sign, and the principal is bound only in case
the agent in so signing acted within the actual limits of his authority
• Where a broker or agent negotiates an instrument without indorsement, he incurs all liabilities in Sec. 65, unless he discloses name of
principal and fact that he’s only acting as agent
PRESENTMENT
A. In Promissory Notes
Purpose:
Not necessary to make the maker liable, but is necessary to make the secondary parties liable.
Requisites:
For a valid presentment for payment of a promissory note, the following are necessary:
a. made within a reasonable time after issue;
b. by the holder or his agent;
c. to the party liable under it;
d. at a reasonable hour on a business day; and
e. at the proper place.
***The holder must exhibit the instrument to the debtor and should deliver it to said debtor if the latter pays.
B. In Bills of Exchange
Acceptance is the signification by the drawee of his assent to the order of the drawer.
How made:
- The acceptance may be on the bill, on a separate paper (allonge), and may even be in writing before the bill is drawn.
- The drawee, if he wants to dishonor, must do so expressly within twenty-four (24) hours from presentment to him. If he
refuses to act, tears the bill, or refuses to return the bill within said period of twenty-four hours, he is deemed to have accepted
the bill – implied acceptance.
- A sight draft (usually accompanying a letter of credit in importations) is payable on demand and needs no acceptance by the
drawee.
Classes of Acceptance
1. General and Qualified
General Acceptance – a general acceptance assents without qualification to the order of the drawer.
Qualified Acceptance – it varies the effect of the bill as drawn. The acceptance is qualified if it is:
a. Conditional;
b. Partial;
c. Local;
d. Qualified as to time;
e. Accepted by some or more of the drawees but not by all.
- Acceptance is express if written on the instrument by the drawee; and constructive, if drawee, within twenty four hours from
presentment to him of the instrument, destroys the same, or refuses or fails to return the bill accepted or unaccepted.
- The drawee must sign because without his signature he would not be bound – See Section 18, NIL.
N.B. Acceptance is NOT required for CHECKS for the same are payable on demand.
EFFECT OF ACCEPTANCE:
Upon acceptance, the drawee becomes liable on the bill. The bill becomes in effect a note, the acceptor standing in the place of
the maker, and the drawer, in the place of the first indorser.
But should the drawee refuse to accept, the payee or the holder has no recourse against him but only against the drawer and
indorsers, if any.
Is payment equivalent to acceptance? NO, - the payment of a check does not include or imply its acceptance in the sense that this
word is used in Section 62, NIL.
- If the bill is non-existent, the acceptance on a separate paper must comply with following requirements:
i. That the contemplated drawee shall describe the bill to be drawn and promise to accept it.
ii. That the bill shall be drawn within a reasonable time after such promise is written; and
iii. That the holder shall take the bill upon the credit of the promise.
Section 136.
- The drawee is allowed twenty-four hours after presentment in which to decide whether or not he will accept the bill;
the acceptance if given, dates as of the day of presentation.
- NOTE: The time allowed begins from the time of delivery and not after demand for a return of the bill and the time for
returning the bill to the holder does not begin to run from the demand for its return but from the date of its delivery.
- Drawee bank is NOT entitled to 24 hours to decide whether for payment NOT acceptance. But, if the check is presented
for certification, this ruling will not apply, as certification is equivalent to acceptance.
2. Where the drawee refuses, within 24 hours after such delivery or within such time as is given him, to return the bill
accepted or not accepted.
- If the holder should demand its return before twenty-four hours, the drawee would be required to comply on pain of
being held as an acceptor; but return within twenty-four hours unaccepted would not be a dishonor.
- In all the foregoing, the drawee will be deemed to have accepted the bill even if there is NO ACTUAL WRITTEN
ACCEPTANCE by him.
- Effect of taking qualified acceptance: Where a qualified acceptance is taken – THE DRAWER and INDORSERS
are discharged from liability on the bill unless they have expressly or impliedly authorized the holder to take qualified
acceptance or subsequently assents thereto.
- When the drawer or indorser receives notice of qualified acceptance – he must – within a REASONABLE TIME –
express his dissent to the holder or he will be deemed to have assented thereto.
GENERAL RULE:
Presentment for acceptance is NOT NECESSARY to render any party to the bill liable.
EXCEPTIONS:
1. Where the bill is payable after sight, or in any other case, where presentment for acceptance is necessary in order to fix the
maturity of the instrument; or
2. Where the bill is expressly stipulates that it shall be presented for acceptance; or
3. Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee.
NOTE: In those instances found in Section 143 – it is NECESSARY – in order to charge persons secondarily liable
(Section 144):
Requisites:
1. It must be presented at a reasonable hour;
2. It must be presented on a business day; and
3. It must be presented before the bill is overdue.
1. To the DRAWEE or some person authorized to ACCEPT or REFUSE ACCEPTANCE on his BEHALF; and
2. Where a bill is addressed to two or more drawees who are not partners; presentment must be made to them all
unless one has authority to accept or refuse acceptance for all, in which case presentment may be made to him only;
3. Where the drawee is dead presentment may be made to his personal representative;
4. Where the drawee has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of
creditors, presentment may be made to him or to his trustee or assignee.
A bill may be presented for acceptance on ANY DAY on which negotiable instruments may be presented for payment.
When SATURDAY is NOT OTHER WISE A HOLIDAY – presentment for ACCEPTANCE may be made before twelve o’clock
noon on that day.
Note: The only difference between Section 72 and 85 is that under Section 146 there is no distinction between the instruments
payable at a fixed or determinable future time and instruments payable on demand.
Where the holder of a bill drawn payable elsewhere other than the place of business or the residence of the drawee – has no
time, with the exercise of reasonable diligence to present the bill for acceptance before presenting it for payment on that day it
falls due – THE DELAY CAUSED BY PRESENTING THE BILL FOR ACCEPTANCE BEFORE PRESENTING IT FOR
PAYMENT IS EXCUSED AND DOES NOT DISCHARGE THE DRAWERS AND INDORSERS.
Instances when PRESENTMENT FOR ACCEPTANCE IS EXCUSED and A BILL MAY BE TREATED AS DISHONORED BY
NON-ACCEPTANCE:
1. Where the drawee is dead, or has absconded, or is a fictitious person or a person not having capacity to contract by bill;
2. Where, after the exercise of reasonable diligence, presentment can not be made;
3. Where, although presentment has been irregular, acceptance has been refused on some other ground.
Purpose: The purpose of presentment for payment of an accepted bill is to collect from the acceptor; and if refused, to collect from the
secondary parties.
Requisites:
1. The accepted bill must be presented for payment within a reasonable time from the last negotiation by the holder or his agent
2. to the acceptor or his agent
3. at a reasonable hour on a business day
4. at the proper place as defined.
The bill must be exhibited to the acceptor and surrendered to him when he pays.
DISHONOR
1 .In PROMISSORY NOTE
- In a promissory note, dishonor by non-payment takes place when it is duly presented for payment and payment is refused or
cannot be obtained; or if presentment is excused, the instrument is overdue and unpaid.
Effect: There is an immediate right of recourse by the holder against persons secondarily liable, which requires notice of dishonor
(Sec. 84)
2. In BILLS OF EXCHANGE
- In bills of exchange, where the bill is presented for acceptance and is returned dishonored, or within twenty four hours from
presentment, is not returned accepted or unaccepted, or when presentment for acceptance is excused and the bill is not accepted
there is a dishonor by non-acceptance.
-There is a dishonor by non-payment if the bill, after it has been accepted is not paid when presented for payment, or presentment
being excused, is not paid on the date of maturity.
Effect of Dishonor by Non-acceptance: An immediate right of recourse against the drawer and indorsers accrues to the holder and
NO PRESENTMENT for payment is necessary. (Sec. 151)
NOTICE OF DISHONOR
--bringing either verbally or by writing, to the knowledge of the drawer or indorser of an instrument, the fact that a specified
negotiable instrument, upon proper proceedings taken, has not been accepted or has not been paid and that the party notified is
expected to pay it.
REQUISITES:
1. Given by a holder or his agent(SPA necessary), or by any party who may be compelled by the holder to pay. (Sec. 90)
2. Given to a secondarily liable party or his agentSec. 97)
-Notice to one partner is notice to all even though there has been dissolution
-Notice to persons jointly liable who are not partners must be given to each of them unless one of them has authority to receive
such notice for others
-Notice to bankrupt may be given to his trustee or assignee
3. Given as soon as the instrument is dishonored and within the periods provided by law. (Sec. 102)
4. Given at the proper place (Secs. 103 & 104)
TO WHOM GIVEN
a. Non-acceptance(bill)—to persons secondarily liable, namely, the drawer and indorsers as the case may be
b. Non-payment (bill and note)—indorsers
BY whom Given
a. The holder
b. Another, on behalf of the holder
c. Any party to the instrument who may be compelled to pay it to the holder, and who would have a right of reimbursement from the
party to whom notice is given
By Whom Made:
a. By maker or acceptor
b. Surety, if a primary party or
c. By an agent on behalf of the principal
(e) By a release of the principal debtor unless the holder's right of recourse against the party secondarily liable is expressly reserved
(f) By any agreement binding upon the holder to extend the time of payment or to postpone the holder's right to enforce the instrument
unless made with the assent of the party secondarily liable or unless the right of recourse against such party is expressly reserved.
Cancellation: it includes the act of tearing, erasing, obliterating or burning. It is not limited by writing the word “cancelled” or “paid”
or drawing criss-cross lines across the instrument. It may be made by any other means by w/c the intention to cancel the
instrument may be evident.
Renunciation (Sec. 122)-The act of surrendering a right or claim w/o recompense, but it can be applied w/ equal propriety to the
relinquishing of a demand upon an agreement supported by a consideration
> Holder may expressly renounces his rights against any party to the instrument before, at or after its maturity.
> If renunciation is absolute and unconditional in favor of the principal debtor, instrument is discharged
> Notice is required to affect rights of HDC
> Renunciation must be in writing unless instrument is delivered up to the person primarily liable thereon.
PROTEST
“It is a formal statement in writing made by a notary under his seal of office at the request of the holder of a bill or note, in which it
is declared that the same was on a certain day presented for payment (or acceptance as the case may be), and such payment (or
acceptance) was refused, whereupon the notary protests against all parties to such instrument and declares that they will be held
responsible for all loss or damage arising from its dishonor.” It means all the steps or acts accompanying the dishonor of a bill or note
necessary to charge an indorser,”
Necessity of Protest: Protest is required only for FOREIGN BILLS, but not for inland bills or notes. HOWEVER, they may also be
protested if desired. OMISSION OF PROTEST, where protest is required, will DISCHARGE the DRAWER and the INDORSERS.
* When a bill has been DULY NOTED – the protest may be subsequently extended as of the date of the noting.
Negotiable Instruments Law 18
“DULY NOTED” – means that a notary public jots down on a note on the bill or an paper attached thereto, or in his registry book,
consisting of his initials or signature and those matters required to be stated in Section 153.
EXCEPTION: - where that when the bill drawn payable at the place of business or residence of some person other than the
drawee has been dishonored by non-acceptance – IT MUST BE PROTESTED FOR NON-PAYMENT AT THE PLACE WHERE IT
IS EXPRESSED TO BE PAYABLE, AND NO FURTHER PRESENTMENT FOR PAYMENT TO, OR DEMADNN ON, THE DRAWEE
IS NECESSARY.
A bill MAY BE PROTESTED BEFORE MATURITY – aka “PROTEST FOR BETTER SECURITY”
NOTE: Protest is dispensed with by any circumstances which would dispense with notice of dishonor.
NOTE:
It is necessary that the acceptor for honor MUST APPEAR before a notary public and declare that he accepts the protested
bill in honor of the drawer or indorser, as the case may be, and that he will pay it at the appointed time.
The LIABILITY OF THE ACCEPTOR FOR HONOR is SECONDARY – NOT primary or absolute.
MATURITY OF A BILL PAYABLE AFTER SIGHT – which has been accepted for honor: Maturity is calculated from the date of
NOTING of the NON-ACCEPTANCE and NOT from the date of the acceptance for honor.
Bills which MUST BE PROTESTED FOR NON-PAYMENT before it will be presented for payment:
1. Where a dishonored bill has been accepted for honor supra protest; or
2. Where a dishonored bill contains a referee in case of need.
Note: Delay in making presentment is excused when the delay was caused by events which are BEYOND HIS CONTROL and NOT
IMPUTABLE TO DEFAULT, MISCONDUCT or NEGLIGENCE.
When a bill is DISHONORED by the ACCEPTOR FOR HONOR – it must be protested for non-payment by him.
Reason: In order to fix the liability of the indorsers.
He loses his right of recourse against any party who would have been discharged by such payment.
BILLS IN SET
Bills in set – one composed of various parts, each part being numbered and containing a reference to the other parts, all of which
parts constitute but one bill.
Liability of holder who indorses two or more parts of a set to different persons:
- He is liable on EVERY SUC H PART; and
- EVERY INDORSER SUBSEQUENT to him is LIABLE on the part he has himself indorsed – AS IF SUCH PARTS WERE
SEPARATE BILLS.
Promissory Note – is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on
demand, or at a fixed or determinable future time, a sum certain in money to order or bearer.
NOTE:
Where a note is drawn to the maker’s own order, it is NOT complete until indorsed by him.
- is a written acknowledgment by a bank of the receipt of money on deposit which the bank promises to pay to the
depositor, bearer, or to some other person or order.
- It is NOT ipso facto negotiable – it must first comply with the requirements provided under Section 1, NIL.
2. Bonds
- A promise, under seal, to pay money.
- The bond certifies that the issuing company is indebted to the bondholder for the amount specified on the face of the bond,
and contains an agreement of the company to pay the sum at a specified time in the future, and meanwhile to pay a specified
interest on the principal amount at regular intervals, generally six months apart. They are negotiable if it the requisites in
Section 1, NIL are complied with.
Classes of Bonds:
1. Mortgage bonds 6. Income bonds
2. Equipment Bonds 7. Convertible bonds
3. Collateral trust bonds 8. Redeemable Bonds
4. Guaranteed bonds 9. Registered Bonds
5. Debentures
10. Coupon Bonds – those which are attached a sheet of dated, numbered and similarly printed coupons which the bondholder
may cut off when due or thereafter. Such coupons may be served and deposited in a bank, negotiated before the maturity of
the interest they represent, and transferred just like any commercial paper. They are negotiable if it the requisites in Section 1,
NIL are complied with.
CHECK – is a bill of exchange drawn on a bank payable on demand. It is a written order on a bank, purporting to be drawn
against a deposit of funds for the payment of all events, of a sum of money to a certain person therein named or to his order or to
cash and payable on demand.
NOTE:
- Acceptance is NOT required for checks for the same are PAYABLE ON DEMAND.
Check is not Legal Tender, but produces the effect of payment when:
a. The check was encashed. (Encashment is not limited to physical encashment over the counter of the drawee bank. A
check can be considered encashed through the clearing house, or when the check had been credited to the account of the
creditor)
b. When through the fault of the creditor the check is impaired
c. In case of redemption
Kinds of checks:
1. Ordinary Check —The most common check issued by a bank to a client who opens a checking account
2. Cashier’s check – it is a check drawn by the cashier of a bank in the name of the bank against the bank itself payable to a third
person or order.
3. Manager’s Check – a drawn by the manager of a bank in the name of the bank against the bank itself payable to a third
person. It is similar to the cashier’s check as to effect and use.
4. Gift Check-Similar to a cashier’s or manager’s check and may be signed either by the cashier or manager. It is indicated as a
“Gift Check”, so as to be used as a gift for birthdays, weddings, graduations and similar occasions.
5. Memorandum Checks – a check on which is written the word “memorandum”, “memo”, and “mem”, signifying that the drawer
engages to pay the bona fide holder absolutely and not upon a condition to pay upon presentment and non-payment.
- If it bounces – the drawer can be charged for violation of BP 22.
6. Certified Checks – a check on which the drawee bank has written an agreement whereby it undertakes to pay the check at any
future time when presented for payment, such as, by stamping on the check the word “certified” or “Good For Payment” and
underneath it is written the signature of the cashier.
7. Traveler ’s Check- one issued by a bank to a holder, usually a traveller, who must put his signature upon purchase of the check
and countersign with the same signature on the space indicated on its face or back when using the check as a mode of payment
in his travel. When these checks are lost or stolen, the purchaser can notify the agent of the seller anywhere in the world and
prevent the use of the lost or stolen traveller’s check.
8. Crossed check –One which has two parallel lines, usually on the upper left hand corner.
How is crossing of check done:
-it is usually done by drawing two parallel lines transversally on the face of the check. A check may be crossed (1)
specially or (2) generally.
Crossing specially – a check is crossed specially when the name of a particular banker or a company is written between the parallel
lines drawn transversally on the face of the check. Here, the drawer is instructing the drawee bank not to honor the check unless the
payee is identified by another bank
Crossing generally – a check is crossed generally when only the words “and company” are written between the parallel lines, or when
nothing is written at all between the parallel lines. Here, the drawer is instructing the drawee bank not to honor the check unless the
payee is identified by the particular bank named in between the two parallel lines.
NOTES:
1. Under crossed check – the payee has the duty to ascertain the holder’s title to checks.
2. Drawee should not encash a crossed check but merely the same for deposit.
3. Where other than payee of crossed checks presented it for payment, there is no proper presentment and drawer is not liable
thereon.
must be presented within six (6) months – otherwise it will become stale.
- a check under BP 22 must be presented for payment to the bank within 90 days from date so that the holder will enjoy the benefit
of the prima facie presumption that the maker, drawer, or issuer knows at the time of issue that he does not have sufficient funds in
or credit with the drawee bank for payment of such check.
A check is a bill of exchange payable on demand – is intended for immediate use and not to circulate as a promissory note.
Effect if the check was allowed to become stale? (Stale when not encashed w/in 6 months)
- the drawer is discharged but only to the extent of the loss caused by the delay. Hence, if no loss or injury is shown, the drawer is not
discharged.
Certification of check – is an agreement whereby the bank against whom a check is drawn, undertakes to pay it at any future time
when presented for payment. A bank is not obliged to the depositor to certify checks.
- The certification of a check is EQUIVALENT to an ACCEPTANCE.
Form of certification:
- No particular form is required – BUT IT MUST BE IN WRITING.
- The letters “O.K.”, with the initials of the cashier of a bank do not constitute a sufficient certification under modern banking
practice.
Effect of Certification:
1. It is equivalent to acceptance and is the operative act that makes the drawee bank liable;
2. It operates as an assignment of the funds of the drawer in the hands of the drawee bank; and
3. If obtained by the holder, it discharges persons secondarily liable thereon.
Stop Payment Order—an instruction by the drawer addressed to the drawee bank directing the latter not to honor or pay the check. A
drawer may stop payment of the check before the same is accepted, certified or paid by the drawee bank.