Professional Documents
Culture Documents
Nego Lecture Notes
Nego Lecture Notes
Nego Lecture Notes
RFBT3-Negotiable Instruments
LECTURE NOTES
Page 1 of 14 RFBT3
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
3. Manager’s check – one drawn by the bank’s manager (b) A statement of the shall become due; or
upon the bank itself. transaction which (d) With exchange,
4. Traveler’s check – It is one upon which the holder’s gives rise to the whether at a fixed rate
signature must appear twice, one to be affixed by him instrument. or at the current rate;
at the time it is issued and the second or But an order or promise or
countersignature, to be affixed by him in the presence to pay out of a particular (e) With costs of collection
of the payee before it is paid, otherwise, it is fund is not unconditional. or an attorney's fee, in
incomplete. case payment shall not
5. Certified check – One which bears upon its face an be made at maturity.
agreement by the drawee bank that the check will be
paid on presentment.
6. Crossed check – One which bears across its face two
(c) Must be payable on demand, or at a fixed or
parallel lines drawn diagonally, usually on the upper
determinable future time;
left side.
Demand (Sec 7) Determinable future
7. Stale check – One which has not been presented for
payment within a reasonable time after its issue. It is time (Sec 4)
valueless and, therefore, should not be paid.
An instrument is payable An instrument is payable
Effectivity of Act 2031 – Sec 198 on demand - at a determinable future
Sec. 1. Form of negotiable instruments. - An time, within the meaning
instrument to be negotiable must conform to the (a) When it is so of this Act, which is
following requirements: expressed to be payable expressed to be payable -
(a) It must be in writing and signed by the maker or on demand, or at sight,
drawer;
or on presentation; or (a) At a fixed period after
"Written" includes printed, and "writing" includes print.
date or sight; or
(Sec 191) (b) In which no time for (b) On or before a fixed
payment is expressed. or determinable
Signature future time specified
No person is liable on the instrument whose signature therein; or
Where an instrument is
does not appear thereon (Sec. 18) (c) On or at a fixed
issued, accepted, or
period after the
Exception: indorsed when overdue,
occurrence of a
1. One who signs in a trade or assumed name will be it is, as regards the specified event which
liable to the same extent as if he had signed in his person so issuing, is certain to happen,
own name. (Sec 18, (2)) accepting, or indorsing though the time of
2. The principal is bound by the signature of his duly it, payable on demand. happening be
authorized agent (Sec 19) uncertain.
3. Forgery (Sec 23)
4. Acceptance by the acceptor in a separate paper (d) Must be payable to order or to bearer; and
(Sec 134) Payable to order (Sec Payable to bearer (Sec
5. Written promise by a person to accept the bill
8) 9)
before it is drawn. (Sec 135)
Page 2 of 14 RFBT3
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
(e) Where the instrument is addressed to a drawee,
he must be named or otherwise indicated therein * An instrument which
with reasonable certainty. contains an order or promise
A bill may be addressed to two or more drawees to do any act in addition to
jointly, whether they are partners or not; but not to the payment of money is not
two or more drawees in the alternative or in negotiable.
succession. (Sec 128)
Provisions on Joint parties
(payees/drawees/indorsers)
Distinction of requisites of promissory note, bill of
Two or more payees jointly. (Sec 8 d)
exchange and a check:
One or some of several payees. (Sec 8 e)
Promissory note Bill of Check (Sec
I promise to pay" is signed by two or more persons,
(Sec. 184) exchange (Sec 185) they are deemed to be jointly and severally liable
126) thereon. (Sec 17 g)
Where an instrument is payable to the order of two or
It must be in It must be in It must be in more payees or indorsees who are not partners, all
writing and signed writing and writing and must indorse unless the one indorsing has authority to
by the maker signed by the signed by the indorse for the others. (Sec 41)
drawer drawer Joint payees or joint indorsees who indorse are deemed
to indorse jointly and severally. (Sec 68)
Where there are several persons, not partners (Joint
Must contain an Must contain an Must contain an
debtors), primarily liable on the instrument and no
unconditional unconditional unconditional
place of payment is specified, presentment must be
promise to pay a order to pay a order to pay a made to them all (Sec 78)
sum certain in sum certain in sum certain in Notice to joint persons who are not partners must be
money money money given to each of them unless one of them has authority
to receive such notice for the others. (Sec 100)
Must be payable Must be payable Must be payable A bill may be addressed to two or more drawees
on demand, or at on demand, or at on demand jointly, whether they are partners or not; but not to
two or more drawees in the alternative or in
a fixed or a fixed or
succession. (Sec 128)
determinable determinable
Where a bill is addressed to two or more drawees who
future time future time are not partners, presentment must be made to them
all unless one has authority to accept or refuse
Must be payable Must be payable Must be payable acceptance for all, in which case presentment may be
to order or to to order or to to order or to made to him only. (Sec 145)
bearer bearer bearer An indorsement which purports to transfer to two or
more indorsees severally, does not operate as a
Where the Where the negotiation of the instrument. (Sec 32)
instrument is instrument is Where two or more persons offer to pay a bill for the
honor of different parties, the person whose payment
addressed to a addressed to a
will discharge most parties to the bill is to be given the
drawee, he must bank, it must be preference. (Sec 174)
be named or named or
otherwise otherwise Rules on Date:
indicated therein indicated therein The validity and negotiable character of an instrument
with reasonable with reasonable are not affected by the fact that (a) It is not dated;
(Sec 6)
certainty. certainty
Where the instrument or an acceptance or any
indorsement thereon is dated, such date is deemed
prima facie to be the true date of the making, drawing,
acceptance, or indorsement, as the case may be. (Sec
11)
The instrument is not invalid for the reason only that it
is ante-dated or post-dated, provided this is not done
Additional provisions not Omissions; seal; for an illegal or fraudulent purpose. The person to
affecting negotiability (Sec 5) particular money (Sec 6) whom an instrument so dated is delivered acquires the
title thereto as of the date of delivery. (Sec 12)
a. Authorizes the sale of a. It is not dated; When date may be inserted
collateral securities in b. Does not specify the a. Where an instrument expressed to be payable at a
case the instrument be value given, or that fixed period after date is issued undated (e.g. 30
not paid at maturity; any value had been days after date, pay to the order of X (Sgd Y)
b. Authorizes a confession of given therefor; b. Where the acceptance of an instrument payable at
judgment if the c. Does not specify the a fixed period after sight is undated (e.g. 30 days
instrument be not paid at place where it is after sight, pay to the order of X (sgd Y))
maturity; drawn or the place Any holder may insert therein the true date of issue or
c. Waives the benefit of any where it is payable; acceptance, and the instrument shall be payable
law intended for the or accordingly. The insertion of a wrong date does not
advantage or protection of d. Bears a seal;
avoid the instrument in the hands of a subsequent
the obligor; e. Designates a
d. Gives the holder an particular kind of holder in due course; but as to him, the date so
election to require current money in inserted is to be regarded as the true date.
something to be done in which payment is to
lieu of payment of money. be made.
Page 3 of 14 RFBT3
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
Where the instrument is not dated, it will be considered Promissory note
to be dated as of the time it was issued. (Sec 17,c) a. Forgery of the maker’s signature
Except where an indorsement bears date after the b. Forgery of the indorser’s signature
maturity of the instrument, every negotiation is Bill of exchange or check
deemed prima facie to have been effected before the a. Forgery of the drawer’s signature
instrument was overdue. (Sec 45) 1. With acceptance by the drawee
Material alteration. Any alteration which changes the: 2. Without acceptance of the drawee but the bill is
a.) The date; (Sec 124) paid by the drawee
b. Forgery of the indorser’s signature
Construction where instrument is ambiguous. (Sec
17) RULES IN CASES OF FORGED
a. Where the sum payable is expressed in words and also SIGNATURE:
in figures and there is a discrepancy between the two, Where the drawer’s signature is forged and the drawee
the sum denoted by the words is the sum payable; but pays it without having detected the forgery, he cannot
if the words are ambiguous or uncertain, reference may charge the amount thereof to the drawer’s account.
be had to the figures to fix the amount; MOREOVER: The drawee who has paid a forged bill
b. Where the instrument provides for the payment of whether previously accepted or not, is prevented from
interest, without specifying the date from which recovering from the recipient the amount he paid
interest is to run, the interest runs from the date of the because he is bound to know the drawer’s signature.
instrument, and if the instrument is undated, from the EXCEPT, if the person to whom it was paid was guilty of
issue thereof; fraud, negligence, or who has not given value
c. Where the instrument is not dated, it will be considered therefore.
to be dated as of the time it was issued;
d. Where there is a conflict between the written and RECOURSE: Recover from the forger.
printed provisions of the instrument, the written
provisions prevail;
Where the payee’s indorsement is forged and the
e. Where the instrument is so ambiguous that there is
drawee bank pays it, he cannot charge the account of
doubt whether it is a bill or note, the holder may treat
the drawer BUT he can recover from the one to whom
it as either at his election;
he paid since he makes no warranty as to genuineness
of any indorsement.
Instances where the holder may treat the instrument
BUT IF BEARER instrument, the drawee may debit the
as bill or notes at his option:
drawer’s account since the indorsement may be
1. Where the instrument is so ambiguous that there is
doubt whether it is a bill or note (Sec 17, e) disregarded.
2. When the drawer and the drawee is the same
person HOWEVER: if the DRAWEE’S negligence is the
3. Where the drawee is a fictitious person proximate cause of the payment under a forged
4. When the drawee is a person not having capacity to instrument, the drawee is liable to the collecting bank.
contract
f. Where a signature is so placed upon the instrument BUT: Where both the drawee and the collecting banks
that it is not clear in what capacity the person making are guilty of negligence, the degree of negligence of
the same intended to sign, he is to be deemed an
each shall be weighed in considering the amount of loss
indorser;
A person placing his signature upon an instrument which each should bear.
otherwise than as maker, drawer, or acceptor, is
deemed to be indorser unless he clearly indicates Where a check has several indorsements on it and one
by appropriate words his intention to be bound in of the indorser’s signatures is forged, it was held that it
some other capacity. (Sec 63) is only the negotiation based on the forged or
g. Where an instrument containing the word "I promise to unauthorized signature, which is inoperative. Thus,
pay" is signed by two or more persons, they are where the drawee bank paid it to the encasher, the
deemed to be jointly and severally liable thereon drawee bank can recover since the indorser [Sec. 65-
66] is supposed to warrant to the drawee that the
A signature by "procuration" operates as notice that the signature of the payee and previous indorsers are
agent has but a limited authority to sign, and the genuine. One who purchases a check is bound to
principal is bound only in case the agent in so signing satisfy himself that the paper is genuine and that by
acted within the actual limits of his authority. (Sec 21) indorsing it or presenting it for payment, he impliedly
The indorsement or assignment of the instrument by a assets that he has performed his duty.
corporation or by an infant passes the property therein, Prior parties are not liable to forgery of signature.
notwithstanding that from want of capacity, the
corporation or infant may incur no liability thereon.
(Sec 22) NOTE: CUT-OFF RULE – only if forged signature is
When a signature is forged or made without the necessary to vest title to subsequent parties will prior
authority of the person whose signature it purports to parties be excused from liability.
be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to CONSIDERATION
enforce payment thereof against any party thereto, can Every negotiable instrument is deemed prima facie to
be acquired through or under such signature, unless have been issued for a valuable consideration; and
the party against whom it is sought to enforce such every person whose signature appears thereon to have
right is precluded from setting up the forgery or want become a party thereto for value. (Sec 24)
of authority. (Sec 23) Value is any consideration sufficient to support a simple
contract. An antecedent or pre-existing debt constitutes
Cases of forgery value; and is deemed such whether the instrument is
Cases of forgery of negotiable instrument may be divided payable on demand or at a future time. (Sec 25)
as follows:
Page 4 of 14 RFBT3
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
What constitutes holder for value. — Where value has a. Pay to A P8,000 – Partial indorsement
at any time been given for the instrument, the holder is b. Pay to A P5,000 and B P5,000 (Sgd X) – two or
deemed a holder for value in respect to all parties who more indorsee severally
become such prior to that time. (Sec 26)
When lien on instrument constitutes holder for value. — Exception: When the instrument has been paid in part,
Where the holder has a lien on the instrument arising it may indorsed as to the residue.
either from contract or by implication of law, he is
deemed a holder for value to the extent of his lien. Allowed indorsement:
(Sec 27) a. Pay to A and B
Effect of want of consideration. — Absence or failure of b. Pay to A or B
consideration is a matter of defense as against any
person not a holder in due course; and partial failure of Distinction between negotiation and assignment
consideration is a defense pro tanto, whether the Negotiation Assignment
failure is an ascertained and liquidated amount or Only negotiable instrument Ordinary contract
otherwise. (Sec 28) Transferee is a holder Transferee is an assignee
An accommodation party is one who has signed the Holder in due course acquire Assignee merely step into
instrument as maker, drawer, acceptor, or indorser, better title than his the shoes of his transferor
without receiving value therefor, and for the purpose of transferor
lending his name to some other person. Such a person
Holder in due course is Assignee is subject to
is liable on the instrument to a holder for value,
subject to real defense only personal and real defense
notwithstanding such holder, at the time of taking the
General indorser warrants Assignor does not warrant
instrument, knew him to be only an accommodation
the solvency of prior parties the solvency of prior parties
party. (Sec. 29)
Governed by Negotiable Governed by Civil code on
instrument law assignment of credits.
NEGOTIATION
Mode of transfer of negotiable instruments
Kinds of Indorsement
1. Special (Sec 34) – specify the indorsee
a. Issue - means the first delivery of the instrument,
2. Blank (ibid) – specify no indorsee
complete in form, to a person who takes it as a holder;
3. Restrictive
(Sec 191)
1. Prohibit further negotiation (i.e. Pay to “A ony”; “A
b. Negotiation - An instrument is negotiated when it is
and no other person”)
transferred from one person to another in such manner
2. Constitute the indorsee the agent of the indorser
as to constitute the transferee the holder thereof. (Sec
(i.e., pay to A for “Collecton”; “collection or
30)
remittance”; “collection only”; “deposit”)
Instrument Negotiation
3. Vests the title in the indorsee in trust for another
Payable to bearer Delivey
(i.e., Pay to A “in trust for B”; as trustee for B”;
Payable to order Indorsement + Delivery “for my use”; for the use of B”)
c. Assignment – Transfer of order instrument without But all subsequent indorsees acquire only the title of
indorsement.
the first indorsee under the restrictive indorsement.
Instrument payable to bearer (Sec 36)
Where an instrument, payable to bearer, is indorsed
specially, it may nevertheless be further negotiated by Effect: (Sec 37)
delivery; but the person indorsing specially is liable as 1.) Receive payment
indorser to only such holders as make title through his 2.) Bring any action thereon that the indorser could
indorsement. (Sec 40) bring;
The holder may at any time strike out any indorsement 3.) Transfer his rights as such indorsee, where the
which is not necessary to his title. The indorser whose form of the indorsement authorizes him to do so.
indorsement is struck out, and all indorsers subsequent Note: Only restrictive indorsement which prohibit the
to him, are thereby relieved from liability on the further negotiation of the instrument rendered the
instrument. (Sec 48) instrument non negotiable.
Where a person places his indorsement on an
instrument negotiable by delivery, he incurs all the
liability of an indorser. (Sec. 67)
Every person negotiating an instrument by delivery 4. Non restrictive
warrants: (a) That the instrument is genuine and in all 5. Qualified – Constitute the indorser as a mere assignor
respects what it purports to be; (b) That he has a good of the title to the instrument. (i.e. Pay to A “without
title to it; (c) That all prior parties had capacity to recourse”; “indorser not holder”; sans recourse”; “at
contract;;(d) That he has no knowledge of any fact indorsee’s own risk”; “indorser not holder”. (Sec 38)
which would impair the validity of the instrument or Such an indorsement does not impair the negotiable
render it valueless. The warranty however, extends in character of the instrument.
favor of no holder other than the immediate transferee. 6. Unqualified or general – no condition
(Sec 65) 7. Conditional – Where an indorsement is conditional, the
party required to pay the instrument may disregard the
Indorsement condition and make payment to the indorsee or his
1. Indorsement means an indorsement completed by transferee whether the condition has been fulfilled or
deliver (Sec 191) not. But any person to whom an instrument so
2. The indorsement must be written on the instrument indorsed is negotiated will hold the same, or the
itself or upon paper attached thereto (allonged) (Sec proceeds thereof, subject to the rights of the person
31) indorsing conditionally. (Sec 39)
3. The indorsement must be an indorsement of the entire 8. Unconditional
instrument. 9. Joint - Where an instrument is payable to the order of
Tenor of the Instrument: Pay to the order of X P10,000 two or more payees or indorsees who are not partners,
(Sgd Y) all must indorse unless the one indorsing has authority
Page 5 of 14 RFBT3
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
to indorse for the others. (Sec 41) Where the transferee receives notice of any infirmity in
10. Successive - Where an instrument is negotiated back to the instrument or defect in the title of the person
a prior party, such party may, subject to the provisions negotiating the same before he has paid the full
of this Act, reissue and further negotiable the same.
amount agreed to be paid therefor, he will be deemed
But he is not entitled to enforce payment thereof
against any intervening party to whom he was a holder in due course only to the extent of the amount
personally liable. (Sec 50) As respects one another, therefore paid by him.
indorsers are liable prima facie in the order in which
they indorse; but evidence is admissible to show that, 5. Holder in due course by subrogation (Sec 58)
as between or among themselves, they have agreed A holder who derives his title through a holder in due
otherwise. (Sec 68) course, and who is not himself a party to any fraud or
11. Irregular or anomalous - Where a person, not illegality affecting the instrument, has all the rights of
otherwise a party to an instrument, places thereon his such former holder in respect of all parties prior to the
signature in blank before delivery, he is liable as latter.
indorser, in accordance with the following rules: (Sec
64)
Classification of parties according to liability
a. If the instrument is payable to the order of a third
Parties to a negotiable instrument (e.g. promissory note,
person, he is liable to the payee and to all
subsequent parties. bill of exchange and checks) are classified according to
b. If the instrument is payable to the order of the their liability as follows:
maker or drawer, or is payable to bearer, he is
liable to all parties subsequent to the maker or 1. Primarily liable
drawer. Maker of a promissory note (Sec 60)
c. If he signs for the accommodation of the payee, he Acceptor of a bill of exchange (Sec. 62)
is liable to all parties subsequent to the payee. Certifier of a check (Sec. 187)
12. Facultative (Sec 111) 2. Secondarily liable
Drawer of a bill (Sec. 61)
Holder General indorser of a bill or note (Sec. 66)
1. Holder – means a payee or indorsee of a bill or a note Acceptor for honor (Sec 165)
who, is in possession of it, or the bearer thereof. (Sec 3. Not liable on the instrument
191) a. Drawee of a bill unless he accepts the bill.
In the hands of any holder other than a holder in due A bill of itself does not operate as an assignment of
course, a negotiable instrument is subject to the same the funds in the hands of the drawee available for
defenses as if it were non-negotiable. (Sec. 58) the payment thereof, and the drawee is not liable
on the bill unless and until he accepts the same.
2. Holder in due course (Sec 52) (Sec 127)
Holder who has taken the instrument under the
following condition: b. Drawee bank in a check unless it accepts or
certifies the check.
a. That it is complete and regular upon its face; A check of itself does not operate as an assignment
b. That he became the holder of it before it was of any part of the funds to the credit of the drawer
overdue, and without notice that it has been with the bank, and the bank is not liable to the
previously dishonored, if such was the fact; holder unless and until it accepts or certifies the
c. That he took it in good faith and for value;
check. (Sec. 189)
d. That at the time it was negotiated to him, he had
no notice of any infirmity in the instrument or
defect in the title of the person negotiating it. Condition of Drawer for Secondary liability (Sec 61)
* Every holder is deemed prima facie to be a holder in 1. That the bill is presented for acceptance (Sec. 143)
when required or presented for payment (Sec. 70), as
due course.
the case may be, to the drawer.
2. That the bill is dishonored by non acceptance (Sec.
Exception: When it is shown that the title of any person 149) or non payment (Sec 83) as the case may be.
who has negotiated the instrument was defective, the 3. That the necessary proceedings on dishonor be duly
burden is on the holder to prove that he or some taken such as notice of dishonor is given to the drawer
person under whom he claims acquired the title as or in case of a foreign bills, protest is made followed by
holder in due course. But the last-mentioned rule does a notice of protest. (Sec 152)
not apply in favor of a party who became bound on the
Condition of General indorser for Secondary liability
instrument prior to the acquisition of such defective
(Sec. 66)
title. (Sec 59) 1. That the instrument is presented for acceptance (Sec.
143) when required or presented for payment (Sec.
Right of a holder in due course 70), as the case may be, to the drawer.
a. He may sue in its own name; (Sec 51) 2. That the instrument is dishonored by non acceptance
b. A holder in due course holds the instrument free (Sec. 149) or non payment (Sec 83) as the case may
from any defect of title of prior parties, be.
c. Free from defenses available to prior parties among 3. That the necessary proceedings on dishonor be duly
themselves; (Sec 57) made .
d. May enforce payment of the instrument for the full Non acceptance (Sec Non payment (Sec 83)
amount thereof against all parties liable thereon.
149)
(Sec 57) and payment to hi in due course
discharged the instrument. (Sec 51)
A bill is dishonored by The instrument is dishonored
3. Holder for value (Sec 26) – Where value has at any
time given for the instrument. nonacceptance — by non-payment when:
4. Partial holder in due course (Sec 54)
Page 6 of 14 RFBT3
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
(a) When it is duly (a) It is duly presented 1. Real defense – are defense that are available against
presented for acceptance for payment and payment is all parties including a holder in due course because the
and such an acceptance as refused or cannot be defect is attached to the res or instrument itself.
2. Personal defense – are defenses available to prior
is prescribed by this Act is obtained; or
parties among themselves but not against a holder in
refused or can not be due course.
obtained; or (b) Presentment is
Personal Defense Real defense
excused and the instrument
(b) When presentment is overdue and unpaid. Incomplete but delivered Incomplete and undelivered
for acceptance is excused (Sec 14) (Sec 15)
and the bill is not accepted.
Complete but undelivered Indorsement by infant or
(Sec 16) corporation (available to
Distinction between Maker and Drawer
minor or corporation only)
Maker Drawer
(Sec 22)
Party to a Promissory note Party to a bill of exchange
Insertion of a wrong date Forgery (Sec 23)
Primary liable Secondary liable (Sec 13)
Party to a promissory note Party to a bill of exchange Acquisition of instrument by Fraud in factum or fraud in
fraud, duress, or force and esse contractus
Engage to pay the Engage to pay the fear
instrument according to its instrument according to its
tenor acceptance. Acquisition of instrument by
unlawful means
Do not admit the existence Admit the existence of the
of the drawer. drawer, the genuineness of Acquisition of instrument for
his signature, and his an illegal consideration
capacity and authority to
draw the instrument By negotiation of the
instrument in breach of faith
Page 7 of 14 RFBT3
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
Complete but undelivered - Every contract on a c. Has fund - during banking hours
negotiable instrument is incomplete and revocable until d. No funds to meet it at any time
delivery of the instrument for the purpose of giving during the day – Any hour before
effect thereto. As between immediate parties and as the bank is closed
regards a remote party other than a holder in due It is equivalent to an order to the bank to pay
course, the delivery, in order to be effectual, must be the same for the account of the principal
made either by or under the authority of the party debtor. (Sec 87)
making, drawing, accepting, or indorsing, as the case
may be; and, in such case, the delivery may be shown Time of maturity (Sec 85)
to have been conditional, or for a special purpose only,
and not for the purpose of transferring the property in
1. Time fixed – At the time fixed without
the instrument. But where the instrument is in the
grace
hands of a holder in due course, a valid delivery thereof
2. Maturity fall on Sunday, holiday – next
by all parties prior to him so as to make them liable to
succeeding business day
him is conclusively presumed. And where the
3. Maturity fall on Saturday
instrument is no longer in the possession of a party
a. Payable on demand – Before 12:00
whose signature appears thereon, a valid and
noon if Saturday is not a holiday
intentional delivery by him is presumed until the
b. Not payable on demand - next
contrary is proved. (Sec. 16)
succeeding business day
Summary on Presentment for payment
General Rule: Presentment for payment is not necessary to
Note: The time of payment is determined by
charge the person primarily liable but it is necessary to
excluding the day from which the time is to
charge the Drawer and Indorser.
begin to run, and by excluding the date of
Exception: payment.
a. Drawer - The drawer has no right to expect or require
that the drawee or acceptor will pay the instrument. Where 1. Place of payment specified – Place
(Sec 79) specified (Sec 73)
b. Indorser – The instrument was made or accepted for 2. Place not specified but the address of the
indorser accomodation and he has no reason to expect person to make is given - Address
that the instrument will be paid if presented. (Sec 80) indicated in the instrument;
c. When presentment is dispensed with (Sec 82) 3. Place of payment and address not given –
1. Presentment cannot be made after exercise of Usual place of business or residence of the
reasonable diligence person to make payment.
2. Drawee is a fictitious person 4. Other cases – Where the person to make
3. Waiver f presentment, express or implied payment he can be found or if presented
d. When the bill is dishonored by non acceptance (Sec at his last known place of business or
151) residence.
Page 8 of 14 RFBT3
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
When a negotiable instrument has been dishonored by non- Where notice is given by or on behalf of a party entitled
acceptance or non-payment, notice of dishonor must be to give notice, it inures to the benefit of the holder and
given to the drawer and to each indorser, and any drawer all parties subsequent to the party to whom notice is
given. (Sec. 93)
or indorser to whom such notice is not given is
Where the instrument has been dishonored in the
discharged. hands of an agent, he may either himself give notice to
the parties liable thereon, or he may give notice to his
Exception: principal. If he gives notice to his principal, he must do
1. Notice of dishonor is waived (Sec 109) so within the same time as if he were the holder, and
Notice of dishonor may be waived either before the the principal, upon the receipt of such notice, has
time of giving notice has arrived or after the omission himself the same time for giving notice as if the agent
to give due notice, and the waiver may be expressed or had been an independent holder. (Sec. 94)
implied.
Summary on Notice of Dishonor
2. Protest is waived (Sec 111) By Whom By or on behalf of the holder, or by or on
A waiver of protest, whether in the case of a foreign bill behalf of any party to the instrument who
of exchange or other negotiable instrument, is deemed might be compelled to pay it to the holder.
to be a waiver not only of a formal protest but also of (Sec 90)
presentment and notice of dishonor.
To whom General Rule:
3. Notice is dispensed with (Sec 112)
Notice of dishonor is dispensed with when, after the - Party himself
exercise of reasonable diligence, it cannot be given to - Duly authorized agent
or does not reach the parties sought to be charged. Exception:
Page 9 of 14 RFBT3
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
he is so sojourning. (Sec 108) A cancellation made unintentionally or under a mistake
or without the authority of the holder, is inoperative
DISCHARGEOF NEGOTIABLE INSTRUMENTS but where an instrument or any signature thereon
Discharge of instrument - a release of all parties, whether appears to have been cancelled, the burden of proof
primary or secondary, from the obligations arising lies on the party who alleges that the cancellation was
thereunder. It renders the instrument without force and made unintentionally or under a mistake or without
authority. (Sec 123)
effect and, consequently, it can no longer be negotiated.
Where a negotiable instrument is materially altered
without the assent of all parties liable thereon, it is
A negotiable instrument is discharged: (Sec 119) avoided, except as against a party who has himself
a. By payment in due course by or on behalf of the made, authorized, or assented to the alteration and
principal debtor; subsequent indorsers. But when an instrument has
b. By payment in due course by the party been materially altered and is in the hands of a holder
accommodated, where the instrument is made or in due course not a party to the alteration, he may
accepted for his accommodation; enforce payment thereof according to its original
c. By the intentional cancellation thereof by the tenor. (Sec. 124)
holder; What constitutes a material alteration - Any alteration
d. By any other act which will discharge a simple which changes:
contract for the payment of money; a. The date;
e. When the principal debtor becomes the holder of b. The sum payable, either for principal or interest;
the instrument at or after maturity in his own right. c. The time or place of payment:
A person secondarily liable on the instrument is d. The number or the relations of the parties;
discharged: (Sec 120) e. The medium or currency in which payment is to be
a. By any act which discharges the instrument; made;
b. By the intentional cancellation of his signature by f. Or which adds a place of payment where no place
the holder; of payment is specified, or any other change or
c. By the discharge of a prior party; addition which alters the effect of the
d. By a valid tender or payment made by a prior instrument in any respect, is a material
party; alteration.
e. By a release of the principal debtor unless the
holder's right of recourse against the party BILL OF EXCHANGE
secondarily liable is expressly reserved; An inland bill of exchange is a bill which is, or on its
f. By any agreement binding upon the holder to face purports to be, both drawn and payable within the
extend the time of payment or to postpone the Philippines. Any other bill is a foreign bill. Unless the
holder's right to enforce the instrument unless contrary appears on the face of the bill, the holder may
made with the assent of the party secondarily liable treat it as an inland bill. (Sec 129)
or unless the right of recourse against such party is The drawer of a bill and any indorser may insert
expressly reserved. thereon the name of a person to whom the holder may
Spoliation – alteration made by a stranger. resort in case of need; that is to say, in case the bill is
Where the instrument is paid by a party secondarily dishonored by non-acceptance or non-payment. Such
liable thereon, it is not discharged; but the party so person is called a referee in case of need. It is in the
paying it is remitted to his former rights as regard all option of the holder to resort to the referee in case of
prior parties, and he may strike out his own and all need or not as he may see fit. (Sec 131)
subsequent indorsements and against negotiate the
instrument, except: Acceptance
a. Where it is payable to the order of a third person The acceptance of a bill is the signification by the
and has been paid by the drawer; and drawee of his assent to the order of the drawer. The
b. Where it was made or accepted for accommodation acceptance must be in writing and signed by the
and has been paid by the party accommodated. drawee. It must not express that the drawee will
perform his promise by any other means than the
The holder may expressly renounce his rights against payment of money. (Sec 132)
any party to the instrument before, at, or after its The holder of a bill presenting the same for acceptance
maturity. An absolute and unconditional renunciation of may require that the acceptance be written on the bill,
his rights against the principal debtor made at or after and, if such request is refused, may treat the bill as
the maturity of the instrument discharges the dishonored. (Sec 133)
instrument. But a renunciation does not affect the Where an acceptance is written on a paper other than
rights of a holder in due course without notice. A the bill itself, it does not bind the acceptor except in
renunciation must be in writing unless the instrument is favor of a person to whom it is shown and who, on the
delivered up to the person primarily liable thereon. faith thereof, receives the bill for value. (Sec 134)
(Sec 122) The drawee is allowed twenty-four hours after
presentment in which to decide whether or not he will
Effects of Renunciation: accept the bill; the acceptance, if given, dates as of the
1. A renunciation in favor of a secondary party may be day of presentation. (Sec 136)
made by the holder before, at or after maturity of the Where a drawee to whom a bill is delivered for
instrument. acceptance destroys the same, or refuses within
Effect: only such secondary party is discharged and all twenty-four hours after such delivery or within such
parties subsequent to him but the instrument itself other period as the holder may allow, to return the bill
remains in force. accepted or non-accepted to the holder, he will be
deemed to have accepted the same. (Sec 137)
2. A renunciation in favor of the principal debtor may be A bill may be accepted before it has been signed by the
effected at or after maturity. drawer, or while otherwise incomplete, or when it is
Effect: the instrument is discharged and all parties overdue, or after it has been dishonored by a previous
thereto provided the renunciation is made refusal to accept, or by non payment. But when a bill
payable after sight is dishonored by non-acceptance
Page 10 of 14 RFBT3
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
and the drawee subsequently accepts it, the holder, in to them all unless one has authority to accept or
the absence of any different agreement, is entitled to refuse acceptance for all, in which case
have the bill accepted as of the date of the first presentment may be made to him only;
presentment. (Sec 138) b. Where the drawee is dead, presentment may be
made to his personal representative;
Kinds of acceptance (Sec 139) c. Where the drawee has been adjudged a bankrupt
a. General acceptance. — assents without qualification or an insolvent or has made an assignment for the
to the order of the drawer. An acceptance to pay at benefit of creditors, presentment may be made to
a particular place is a general acceptance unless it him or to his trustee or assignee.
expressly states that the bill is to be paid there A bill may be presented for acceptance on any day on
only and not elsewhere. (Sec 140) which negotiable instruments may be presented for
b. Qualified acceptance - An acceptance is qualified payment under the provisions of Sections seventy-two
which is: (Sec 141) and eighty-five of this Act. When Saturday is not
1. Conditional - that is to say, which makes payment otherwise a holiday, presentment for acceptance may
by the acceptor dependent on the fulfillment of a be made before twelve o'clock noon on that day. (Sec
condition therein stated; 146)
2. Partial - that is to say, an acceptance to pay part Sec. 72. What constitutes a sufficient presentment. —
only of the amount for which the bill is drawn; Presentment for payment, to be sufficient, must be
3. Local - that is to say, an acceptance to pay only at made:
a particular place;
4. Qualified as to time; a. By the holder, or by some person authorized to
5. The acceptance of some, one or more of the receive payment on his behalf
drawees but not of all. b. At a reasonable hour on a business day;
The holder may refuse to take a qualified acceptance c. At a proper place as herein defined;
and if he does not obtain an unqualified acceptance, he d. To the person primarily liable on the instrument, or
may treat the bill as dishonored by non-acceptance. if he is absent or inaccessible, to any person found
Where a qualified acceptance is taken, the drawer and at the place where the presentment is made.
indorsers are discharged from liability on the bill unless Sec 85. Time of maturity. — Every negotiable
they have expressly or impliedly authorized the holder
instrument is payable at the time fixed therein without
to take a qualified acceptance, or subsequently assent
thereto. When the drawer or an indorser receives grace. When the day of maturity falls upon Sunday or a
notice of a qualified acceptance, he must, within a holiday, the instruments falling due or becoming
reasonable time, express his dissent to the holder or he payable on Saturday are to be presented for payment
will be deemed to have assented thereto. (Sec 142) on the next succeeding business day except that
instruments payable on demand may, at the option of
PRESENTMENT FOR ACCEPTANCE the holder, be presented for payment before twelve
Presentment for acceptance must be made: (Sec 143)
o'clock noon on Saturday when that entire day is not a
a. Where the bill is payable after sight, or in any other
case, where presentment for acceptance is holiday..
necessary in order to fix the maturity of the
instrument; or Where the holder of a bill drawn payable elsewhere
b. Where the bill expressly stipulates that it shall be than at the place of business or the residence of the
presented for acceptance; or drawee has no time, with the exercise of reasonable
c. Where the bill is drawn payable elsewhere than at diligence, to present the bill for acceptance before
the residence or place of business of the drawee. presenting it for payment on the day that it falls due,
In no other case is presentment for acceptance the delay caused by presenting the bill for acceptance
necessary in order to render any party to the bill liable. before presenting it for payment is excused and does
not discharge the drawers and indorsers. (Sec 147)
Where a bill is duly presented for acceptance and is not
General Rule:
accepted within the prescribed time, the person
The holder of a bill which is required to present it for
presenting it must treat the bill as dishonored by
acceptance must either present it for acceptance or
nonacceptance or he loses the right of recourse against
negotiate it within a reasonable time. If he fails to do so, the drawer and indorsers. (Sec 150)
the drawer and all indorsers are discharged. When a bill is dishonored by nonacceptance, an
immediate right of recourse against the drawer and
Exception: indorsers accrues to the holder and no presentment for
Presentment for acceptance is excused and a bill may be payment is necessary. (Sec 151)
treated as dishonored by non-acceptance in either of the
following cases: (Sec 148) PROTEST
General Rule:
a. Where the drawee is dead, or has absconded, or is a Where a foreign bill appearing on its face to be such is
fictitious person or a person not having capacity to dishonored by nonacceptance, it must be duly protested for
contract by bill. nonacceptance, by nonacceptance is dishonored and where
b. Where, after the exercise of reasonable diligence, such a bill which has not previously been dishonored by
presentment can not be made. nonpayment, it must be duly protested for nonpayment. If
c. Where, although presentment has been irregular,
it is not so protested, the drawer and indorsers are
acceptance has been refused on some other ground.
discharged. Where a bill does not appear on its face to be
Presentment for acceptance must be made by or on
behalf of the holder at a reasonable hour, on a business a foreign bill, protest thereof in case of dishonor is
day and before the bill is overdue, to the drawee or unnecessary. (Sec 152)
some person authorized to accept or refuse acceptance
on his behalf; and (Sec 145) Exception:
a. Where a bill is addressed to two or more drawees Protest is dispensed with by any circumstances which
who are not partners, presentment must be made would dispense with notice of dishonor.
Page 11 of 14 RFBT3
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
A notice of dishonor is dispensed with when, after the made on a copy or written particulars thereof. (Sec
exercise of reasonable diligence, it cannot be given to or 160)
does not reach the parties sought to be charged. (Sec 112)
ACCEPTANCE FOR HONOR
Delay in noting or protesting is excused when delay Sec. 161. When bill may be accepted for honor. — When a
is: bill of exchange has been protested for dishonor by non-
1. Caused by circumstances beyond the control of the acceptance or protested for better security and is not
holder and not imputable to his default, misconduct, or overdue, any person not being a party already liable
negligence. thereon may, with the consent of the holder, intervene and
2. When the cause of delay ceases to operate, the bill accept the bill supra protest for the honor of any party
must be noted or protested with reasonable diligence
liable thereon or for the honor of the person for whose
Summary on PROTEST account the bill is drawn. The acceptance for honor may be
How The protest must be annexed to the bill or for part only of the sum for which the bill is drawn; and
must contain a copy thereof, and must be where there has been an acceptance for honor for one
under the hand and seal of the notary party, there may be a further acceptance by a different
making it and must specify: person for the honor of another party.
(a) The time and place of presentment; Sec. 162. Acceptance for honor; how made. — An
acceptance for honor supra protest must be in writing and
(b) The fact that presentment was made indicate that it is an acceptance for honor and must be
and the manner thereof; signed by the acceptor for honor.
(c) The cause or reason for protesting Sec. 163. When deemed to be an acceptance for honor of
the bill; the drawer. — Where an acceptance for honor does not
expressly state for whose honor it is made, it is deemed to
(d) The demand made and the answer be an acceptance for the honor of the drawer.
given, if any, or the fact that the drawee or
acceptor could not be found. (Sec 153) Sec. 164. Liability of the acceptor for honor. — The
acceptor for honor is liable to the holder and to all parties
By whom Protest may be made by — (Sec 154) to the bill subsequent to the party for whose honor he has
accepted.
(a) A notary public; or
Sec. 165. Agreement of acceptor for honor. — The acceptor
(b) By any respectable resident of the
for honor, by such acceptance, engages that he will, on due
place where the bill is dishonored, in the
presentment, pay the bill according to the terms of his
presence of two or more credible witnesses
acceptance provided it shall not have been paid by the
drawee and provided also that is shall have been duly
When When a bill is protested, such protest must
presented for payment and protested for non-payment and
be made on the day of its dishonor unless
notice of dishonor given to him.
delay is excused as herein provided. When a
bill has been duly noted, the protest may be Sec. 166. Maturity of bill payable after sight; accepted for
subsequently extended as of the date of the honor. — Where a bill payable after sight is accepted for
noting. (Sec 155) honor, its maturity is calculated from the date of the noting
for non-acceptance and not from the date of the
Where A bill must be protested at the place where it
acceptance for honor.
is dishonored, except that when a bill drawn
payable at the place of business or residence Sec. 167. Protest of bill accepted for honor, and so forth. —
of some person other than the drawee has Where a dishonored bill has been accepted for honor supra
been dishonored by nonacceptance, it must protest or contains a referee in case of need, it must be
be protested for non-payment at the place protested for non-payment before it is presented for
where it is expressed to be payable, and no payment to the acceptor for honor or referee in case of
further presentment for payment to, or need.
demand on, the drawee is necessary. (Sec
156) Sec. 168. Presentment for payment to acceptor for honor,
how
A bill which has been protested for non-acceptance made. — Presentment for payment to the acceptor for
may be subsequently protested for non-payment. (Sec honor must be made as follows:
157)
Protest before maturity where acceptor insolvent. —
(a) If it is to be presented in the place where the
Where the acceptor has been adjudged a bankrupt or
protest for non-payment was made, it must be presented
an insolvent or has made an assignment for the benefit
of creditors before the bill matures, the holder may not later than the day following its maturity.
cause the bill to be protested for better security against
the drawer and indorsers. (Sec. 158) (b) If it is to be presented in some other place than the
When a bill is lost or destroyed or is wrongly detained place where it was protested, then it must be forwarded
from the person entitled to hold it, protest may be within the time specified in Section one hundred and four.
Page 12 of 14 RFBT3
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
Sec. 169. When delay in making presentment is excused. regards the party for whose honor he pays and all parties
— The provisions of Section eighty-one apply where there liable to the latter.
is delay in making presentment to the acceptor for honor or
referee in case of need. Sec. 176. Where holder refuses to receive payment supra
protest. — Where the holder of a bill refuses to receive
Sec. 170. Dishonor of bill by acceptor for honor. — When payment supra protest, he loses his right of recourse
the bill is dishonored by the acceptor for honor, it must be against any party who would have been discharged by such
protested for non-payment by him. payment.
Sec. 177. Rights of payer for honor. — The payer for honor,
XIV — PAYMENT FOR HONOR on paying to the holder the amount of the bill and the
notarial expenses incidental to its dishonor, is entitled to
Payment for Honor - payment made by a person, whether receive both the bill itself and the protest.
a party to the bill or not, after it has been protested for
non-payment, for the benefit of any party liable thereon or BILLS IN SET
for the benefit of the person for whose account it was Where a bill is drawn in a set, each part of the set
drawn. (Secs. 171-177) being numbered and containing a reference to the
other parts, the whole of the parts constitutes one bill.
Requisites: (Sec 178)
1. the bill has been dishonored by nonpayment Where two or more parts of a set are negotiated to
2. it has been protested for non-payment; different holders in due course, the holder whose title
3. payment supra protest (another term for payment for first accrues is, as between such holders, the true
honor because prior protest for non-payment is owner of the bill. But nothing in this section affects the
required) is made by any person, even by a party right of a person who, in due course, accepts or pays
thereto; the parts first presented to him. (Sec. 179)
4. the payment is attested by a notarial act of honor Where the holder of a set indorses two or more parts to
which must be appended to the protest or form an different persons he is liable on every such part, and
extension of it; every indorser subsequent to him is liable on the part
5. the notarial act must be based on the declaration made he has himself indorsed, as if such parts were separate
by the payor for honor or his agent of his intention to bills. (Sec 180)
pay the bill for honor and for whose honor he pays. The acceptance may be written on any part and it must
be written on one part only. If the drawee accepts
more than one part and such accepted parts negotiated
Note: If the above formalities are not complied with, to different holders in due course, he is liable on every
such part as if it were a separate bill. (Sec 181)
payment will operate as a mere voluntary payment and the
Payment by acceptor of bills drawn in sets. — When the
payor will acquire no right to full reimbursement against
acceptor of a bill drawn in a set pays it without
the party for whose honor he pays. requiring the part bearing his acceptance to be
delivered up to him, and the part at maturity is
Sec. 171. Who may make payment for honor. — Where a outstanding in the hands of a holder in due course, he
bill has been protested for non-payment, any person may is liable to the holder thereon. (Sec 182)
intervene and pay it supra protest for the honor of any Except as herein otherwise provided, where any one
person liable thereon or for the honor of the person for part of a bill drawn in a set is discharged by payment
whose account it was drawn. or otherwise, the whole bill is discharged. (Sec 183)
Page 13 of 14 RFBT3
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
holder unless and until it accepts or certifies the Note: * The word "credit" as used herein shall be construed
check. (Sec 189) to mean an arrangement or understanding with the bank
for the payment of such check (Sec 4)
BATAS PAMBANSA BLG. 22
AN ACT PENALIZING THE MAKING OR DRAWING AND Evidence of knowledge of insufficient funds
ISSUANCE OF A CHECK WITHOUT SUFFICIENT FUNDS OR The making, drawing and issuance of a check payment
CREDIT AND FOR OTHER PURPOSES. of which is refused by the drawee because of
insufficient funds in or credit with such bank, when
Checks without sufficient funds. presented within ninety (90) days from the date of
Any person who makes or draws and issues any the check, shall be prima facie evidence of knowledge
check to apply on account or for value, knowing at of such insufficiency of funds or credit unless such
the time of issue that he does not have sufficient maker or drawer pays the holder thereof the
funds in or credit* with the drawee bank for the amount due thereon, or makes arrangements for
payment of such check in full upon its presentment, payment in full by the drawee of such check
which check is subsequently dishonored by the drawee within (5) banking days after receiving notice
bank for insufficiency of funds or credit or would have that such check has not been paid by the drawee.
been dishonored for the same reason had not the (Sec 2)
drawer, without any valid reason, ordered the bank to
stop payment. Duty of drawee; rules of evidence
Any person who, having sufficient funds in or credit It shall be the duty of the drawee of any check, when
with the drawee bank when he makes or draws and refusing to pay the same to the holder thereof upon
issues a check, shall fail to keep sufficient funds or to presentment, to cause to be written, printed, or
maintain a credit to cover the full amount of the check stamped in plain language thereon, or attached
if presented within a period of ninety (90) days from thereto, the reason for drawee's dishonor or refusal to
the date appearing thereon, for which reason it is pay the same: Provided, That where there are no
dishonored by the drawee bank. sufficient funds in or credit with such drawee bank,
Where the check is drawn by a corporation, company such fact shall always be explicitly stated in the notice
or entity, the person or persons who actually signed of dishonor or refusal. In all prosecutions under this
the check in behalf of such drawer shall be liable under Act, the introduction in evidence of any unpaid and
dishonored check, having the drawee's refusal to pay
this Act. (Sec 1)
stamped or written thereon or attached thereto, with
the reason therefor as aforesaid, shall be prima facie
Penalty
evidence of the making or issuance of said check, and
1. Imprisonment of not less than thirty days but not more
the due presentment to the drawee for payment and
than one (1) year or
the dishonor thereof, and that the same was properly
2. By a fine of not less than but not more than double the
dishonored for the reason written, stamped or attached
amount of the check which fine shall in no case exceed
by the drawee on such dishonored check.
Two Hundred Thousand Pesos, or
Notwithstanding receipt of an order to stop payment,
3. Both such fine and imprisonment at the discretion of
the drawee shall state in the notice that there were no
the court.
sufficient funds in or credit with such bank for the
payment in full of such check, if such be the fact. (Sec
3)
Page 14 of 14 RFBT3