Promissory Note (Sec.

184)
1. An unconditional promise in writing
2. Made by one person to another
3. Signed by the maker
4. Engaging to pay on demand, or at a fixed or determinable future time
5. A sum certain in money to order or to bearer
6. Where a note is drawn to the maker’s own order, it is not complete until indorsed by him.

Bill of Exchange (Sec. 126)

1. An unconditional order in writing
2. Addressed by one person to another
3. Signed by the person giving it
4. Requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future
time
5. A sum certain in money to order or to bearer

Promissory Note Bill of Exchange

Unconditional promise Unconditional order
Involves 2 parties (maker & payee) Involves 3 parties (drawer, drawee & payee)
Maker is primarily liable Drawer is only secondarily liable
Only one presentment: for payment Two presentments: for acceptance and for payment
(drawee not liable unless & until he accepts)
*Sec. 127 - Bill does not operate as an assignment
of funds in the hands of the drawee available for
payment. Therefore where the drawee has not
accepted the bill drawn against him, the holder
cannot enforce it even if the drawer has sufficient
funds. And a holder in due course of a dishonored
bill has no cause of action against the drawee either
at or in equity as an assignee of the drawer’s
contractual rights underlying the bill.
Indorsement by maker needed when drawn payable Acceptance by drawee needed to complete if
to his own order payable to drawer’s own order even w/ no
indorsement
If payable on demand must be presented for If payable on demand must be presented for
payment within a reasonable time from its issue payment w/n a reasonable time from its last
negotiation

Instances when a bill of exchange may be treated as a promissory note: (Sec. 130)
1. The drawer and the drawee are the same person
2. Drawee is a fictitious person
3. Drawee does not have the capacity to contract (Sec. 130)
4. Where the bill is drawn on a person who is legally absent
5. Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder
may treat is as either at his election (Sec. 17[e])

Types of Bill of Exchange

1. Draft
2. Trade acceptance
3. Banker’s acceptance
4. Inland bills
5. Foreign bills
6. Clean bills of exchange
7. Documentary bill of exchange
8. Time or usance bills
9. Bills in set
10. Check

Check (Sec. 185)

- a bill of exchange drawn on a bank payable on demand.
 - provisions of the NIL applicable to a bill of exchange payable on demand apply to a check
- acceptance is not required for checks for the same are payable on demand. (PNB v CA, 25 SCRA
698)

Draft
- A common term for al bills of exchange and they are used synonymously
- payable (a) on demand or at sight, upon presentment for payment or at a stated time after sight
(sight or demand draft), or (b) at a definite future time or some future determinable time (time draft).
- other ex: bank draft

Trade Acceptance
- (1) bill of exchange payable to order and at a certain maturity, drawn by a seller against the
purchaser of goods as drawee, for a fixed sum of money, showing on its face the acceptance of the
purchaser of goods and that it has arisen out of a purchase of goods by the acceptor;
- (2) draft or bill of exchange drawn by the seller on the purchaser of goods and accepted by the latter
by signing it as drawee.

* The trade acceptance states upon its face that the obligation of the acceptor arises out of the
purchase of goods from the drawer, while the ordinary bill of exchange does not state upon its face the
transacioin out of which the giving of the instrument arose.
The trade acceptance is confined to credit obligations arising from the sale of goods and must have a
definite maturity, while the ordinary bill of exchange may cover carious kinds of transactions and may be
payable on demand, at sight, or at the end of a stated time.

* How handled
The seller or merchandise sends with the goods or the invoice a filled-in trade acceptance form,
often in duplicate to enable the buyer to retain a copy for his files. The buyer accepts the bill by
signing his name across its face, with date, and designating the bank where it is payable. It is returned
to the seller who may hold it against maturity or may discount it at his bank. At maturity, it is
collected exactly as if it were a check. Under the NIL, a bill made payable at a bank is equivalent to
an order on the bank to pay it and to charge to the account of the acceptor. Usually, the buyer of
goods is given a cash discount and other options besides the acceptance privilege.

Banker’s Acceptance
- A draft or bill of exchange of which the acceptor is a bank or banker engaged generally in the
business of granting banker’s acceptance credit.
- Similar to a trade acceptace, the fundamental difference being that the banker’s acceptance is drawn
against a bank instead of the buyer.

Illustration:
(1) B, importer, makes an aplication with the PNB for the issuance to A, exporter, of a letter of
credit, if the PNB is satisfactory to A, exporter. B, the originator of the letter of creit is variously
called the (a) “accredited buyer,” or (b) the “consignee,” or (c) the “account” of the importer. The
PNB which undertakes the credit of his account, is called the “opening bank.” A, exporter, is termed
the “beneficiary” or “accreditee.”

(2) If the PNB is willing, it issues the letter either by mail or by cable. If by cable, the PNB
instruct its correspondent bank in its country (say China) to notify A, exporter. Such correspondent
bank is called “notifying bank.” Or directly to A by mail or through B, importer.

(3) A, exporter, then draws a draft or bill of exchange against the PNB pursuant to the letter of
credit. When A ships the goods to B, A receives a bill of lading from the shipping company. He
attaches this document to the draft or bill of exchange. The draft with the document attached is called
a “documentary bill” and so long as the document is attached to the bill, the holder of the bill has title
to the goods and is protected to the value therof.

(4) A, exporter, then discounts the bill with his bank X, in China. X bank is then called the
“negotiating bank.”
(5) Through a correspondent bank in Manila, X bank, then presents the draft or bill to the PNB
for acceptance.
 (6) Then, the PNB accepts the draft or bill. The draft or bill then becomes a banker’s acceptance.

Inland and Foreign Bill (Sec. 129)

- An Inland BOE is a bill which is, or on its face purports to be, both drawn and payable within the
Philippine Islands.
- A Foreign BOE is a bill which is, or on its face purports to be, drawn or payable outside the
Philippines.
Accordingly, a bill is foreign if, on its face, it purports (1) to be drawn in the Philippines but
payable outside thereof; or (2) to be payable in the Philippines but drawn outside thereof.

Ex.
Beijing, China
November 28, 2016

Pay to B or order P1,000,000.00 at the PNB,

Manila.

(Sgd.) A

*But even if the bill is drawn in China, if the place where it is drawn does not appear thereon, as
when “Beijing, China” is omitted, the holder may treat it as an inland bill, as the contrary does not
appear thereon.

Importance of Distinction
- Foreign bills are required to be protested. Failure to protest foreign bills will discharge persons
secondarilty liable thereon.
- For the determination of the law applicable.

Clean and Documentary BOE

- Clean BOE is one to which are not attached documents of title to be delivered to the person against
whom the bill is drawn when he either accepts or pays the bill.
- Documentary BOE is one to which are attached documents of title to be delivered and surrendered
to the drawee when heh accepts or pays the bill.

Time or Usance Bills

- “Sight bills” are bills which are payable upon presentatio or at sight or on demand. “Time or usance
bills” are bills which are payable at a fixed gture time or at a determinable future time.

Referee in case of need (Sec. 130)

Pay to P or order P1,000,000.00.

In case of need apply to X

(Sgd.) A
To W

*The bill is successively indorsed to B, C and D. If W dishonors the bill, D may apply to X for
payment after protesting the bill (Sec. 167). But he may, if wants to, immediately go against A, drawer, B
or C, indorsers, of course after proceedings of dishonor have been taken by him.
If X, referee, pays, he may recover the amount from the drawer (or indorser) who has named him as
referee in case of need.
Acceptance (Sec. 132)
- “the act by which the drawee manifests his consent to comply with the request contained in the bill
of exchange directed to him and it contemplates an engagement or promise to pay.”
- the signification of the drawee of his assent to the order of the drawer

*Acceptance may be:

1. actual (Sec. 132)
2. constructive (Sec. 137)
3. general (Sec. 140)
4. qualified (Sec. 141)

*Requisites of actual acceptance:

1. in writing
2. signed by the drawee otherwise he would not be bound, pursuant to the principle in Sec. 18
3. must not express that the drawee will perform his promise by any other means than the payment of
money,
4. must be communicated or delivered to the holder - acceptance is incomplete until delivery or
notification. The acceptor or drawee who has not communicated his acceptance or transmitted the
accepted bill to the holder, may revoke an acceptance before delivery and cacel the written acceptance.

*Payment not acceptance*

Time allowed to accept (Sec. 136)

- 24 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.

*When is there constructive acceptance:

- when acceptance is not in writing
1. where the drawee to whom the bill is delivered for acceptance destroys it
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.
*Accordingly, the drawee will be primarily liable as an acceptor