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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 TYPES OF BILL OF EXCHANGE: 1. Draft – a common term for all bills of exchange and they are used synonymously. N.B. In bank drafts, DRAWER and DRAWEE are liable to purchaser of draft for not complying with his instructions. 2. Trade Acceptance – a 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 the goods and that it has arisen out of a purchase by goods by the acceptor. 3. Banker’s Acceptance – a draft or a bill of exchange of which the acceptor is a bank or banker engaged generally in the business of granting banker’s acceptance credit. It is similar to a trade acceptance, the fundamental difference being that the banker’s acceptance is drawn against a bank instead of the buyer. 4. Trust Receipt – the written or printed document signed by the entrustee in favor of the entruster containing terms and conditions substantially complying with the provisions of PD 115 (Trust Receipt Law, which took effect on January 21, 1973). No further formality of execution or authentication shall be necessary to the validity of the trust receipt. Note: It is the ENTRUSTEE NOT the ENTRUSTER is the real owner of the trust receipt. The liability of the entrustee to the entruster is EX CONTRACTU not ex delicto.
Negotiable Instruments Law
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. Note: Money order is NOT negotiable. 7. Clean and Documentary Bills of Exchange – “Clean bill of exchange” is one to which are not attached to documents of title to be delivered to the person against whom the bill is drawn when he either accepts or pays the bill. “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. “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. a. to be drawn in the Philippines but payable outside thereof; or b. to be payable in the Philippines but drawn outside thereof. Importance of the distinction: The distinction is important in: 1. That foreign bills are required to be protested. Failure to protest foreign bills will discharge persons secondarily liable thereon. 2. The distinction is also important for the determination of the law applicable. When bill may be treated as promissory note. 1. Where the drawer and the drawee are the person such as, in a draft drawn by an agent on his principal by authority of the principal. 2. Where the drawee is a fictitious person. 3. Where the drawee has no capacity to contract.
Negotiable Instruments Law
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. THE LIFE OF A NEGOTIABLE INSTRUMENT: (INPAD-PD-N-PD) 1. issue 2. negotiation 3. presentment for acceptance in certain bills 4. acceptance 5. dishonor by on acceptance 6. presentment for payment 7. dishonor by nonpayment 8. notice of dishonor 9. protest in certain cases 10. discharge 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 * 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
2. unconditional promise or order to pay
when expressed to be so payable when payable to person named therein or bearer when payable to order or fictitious/non-existent person. or d. when expressed to be payable on demand. or c. by stated installments. or b. or a particular account to be debited with amount. or on or at a fixed period after the occurrence of a specified event which is certain to happen. whether at a fixed rate or at the current rate. payable to order • where it is drawn payable to the order of a specified person or to him or his order. or d. accepting. it is. or b. drawee. and such fact known to the person making it so payable. payable on demand or at a fixed or determinable future time when it’s expressed to be payable at a fixed period after date or sight. as regards the person so issuing.Negotiable Instruments Law • 4 • • unqualified order or promise to pay is unconditional though coupled with a. an indication of a particular fund out of which reimbursement to be made. or when the only/last indorsement is in blank . or c. or at sight. or e. or on or before a fixed or determinable future time fixed therein. or indorsing it. accepted or indorsed when overdue. by stated installments with a provision that upon default in payment of any installment/interest. the whole shall become due. or e. with costs of collection or an attorney’s fee. though the time of happening be uncertain an instrument payable upon a contingency not negotiable. May be drawn payable to order of --a. a payee not the maker/drawer/drawee. and happening of event doesn’t cure it 3. a statement of the transaction which gives rise to the instrument an order or promise to pay out of a particular fund is not unconditional a sum certain in money even if stipulated to be paid--a. or on presentation. in case payment not made at maturity payable on demand. drawer or maker. 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. or where an instrument is issued. or b. with interest. with exchange. • • • • • • • 4. or when name of payee doesn’t purport to be the name of any person. when no time for payment expressed. two or more payees jointly.
Negotiable Instruments Law 5 5. 17. Does not specify the value given or that any value has been given therefore c. authorize sale of collateral security if instrument not paid at maturity 2. (f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign. the sum denoted by the words is the sum payable. restrictively indorsed 2. reference may be had to the figures to fix the amount. they are deemed to be jointly and severally liable thereon. Does not specify the place where it is drawn or the place where it is payable d. drawer and drawee are same person b. the written provisions prevail.5) Gen. Exception: negotiability not affected by provisions w/c 1. from the issue thereof. Not dated b. (c) Where the instrument is not dated. (d) Where there is a conflict between the written and printed provisions of the instrument. (e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note. authorize confession of judgment… 3. (a) Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two. Rule: order/promise to do any act in addition to the payment of money renders instrument non-negotiable. and if the instrument is undated. where a. discharged by payment or otherwise EFFECT OF ADDITIONAL PROVISIONS (Sec. the interest runs from the date of the instrument. it will be considered to be dated as of the time it was issued. . (b) Where the instrument provides for the payment of interest. give holder election to require something to be done in lieu of money Other Instances when negotiability not affected (Sec. Designates a particular kind of current money in w/c payment is to be made Sec. (g) Where an instrument containing the word "I promise to pay" is signed by two or more persons. drawee is fictitious/incapacitated CONTINUATION OF NEGOTIABLE CHARACTER Until: 1. Bears a seal e. but if the words are ambiguous or uncertain. the holder may treat it as either at his election. without specifying the date from which interest is to run. at option of holder. he is to be deemed an indorser. 6) a. where addressed to drawee: such drawee named/ indicated therein with reasonable certainty • bill may be addressed to two or more drawees jointly. waives benefit of any law intended for advantage/protection of obligor 4. whether partners or not. Construction where instrument is ambiguous. but not to two or more drawees in the alternative or in succession • bill may be treated as a PN.
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. Where an instrument is payable at a fixed period after date but is issued undated b. Delivery with intention to give effect thereto. 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. accepted by the drawee or indorsed by the payee. (Sec. or to strengthen the security of the holder by assuming a contingent liability for its future payment. 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. The signature of the indorser is sufficient. 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. provided not done for an illegal or fraudulent purpose. Steps: 1. The indorsement must be written on the instrument itself or upon a paper attached thereto. 31) . • NI incomplete and revocable until delivery for the purpose of giving effect thereto. negotiated by delivery. 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 When date may be inserted? a. a valid and intentional delivery by him is presumed until the contrary is proved (*if in the hands of a HDC. As between: a. (Sec. Where an instrument is payable at a fixed period after sight but the acceptance is undated DELIVERY (Sec. to be effectual. drawn by the drawer. (Sec. 11) Effect of ante-dating or Post-dating: Instrument is not invalid. complying with requirements of Sec. if payable to ORDER. 16) Issuance-the first delivery of the instrument complete in form to a person who takes it as a holder. 1 2. a remote party other than holder in due course delivery.Negotiable Instruments Law DATE IN AN INSTRUMENT 6 Presumption as to date: Said date is the date when it was made by the maker. or for a special purpose only. immediate parties b. Mechanical Act of writing.
• constitutes indorsee as agent of indorser. and make payment to the indorsee or his transferee. (can’t be indorsement of only part of amount payable. qualified. 2. As to presence/absence of express limitations put by indorser upon primary obligor’s privileges of paying the holder 1. 32] KINDS OF INDORSEMENT A. instrument so indorsed is payable to bearer. As to manner of future method of negotiation 1. or • vests title in indorsee in trust for another • Rights of indorsee in restrictive indorsement: • receive payment of instrument • Bring any action thereon that indorser could bring • Transfer his rights as such indorsee. As to kind of title transferred 1. a party required to pay the instrument may disregard the condition. indorsement of such indorsee is necessary to further negotiation. Special – specifies the person to whom/to whose order the instrument is to be payable. restrictive • prohibits further negotiation of instrument.constitutes indorser as mere assignor of title (eg. nor can it be to two or more indorsees severally. unqualified D. unconditional INDORSEMENT OF BEARER INSTRUMENT (Sec. non-restrictive C. 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. “without recourse”) 2. it may nevertheless be further negotiated by delivery • Person indorsing specially liable as indorser to only such holders as make title through his indorsement . but all subsequent indorsees acquire only title of first indorsee under restrictive indorsement 2. But may be indorsed as to the residue of partially paid instrument) [Sec. • Where an indorsement is conditional. Blank – specifies no indorsee. As to kind of liability assumed by indorser 1. 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. conditional – additional condition annexed to indorser’s liability. 35) B.Negotiable Instruments Law 7 Indorsement must be of entire instrument. 40) • Where an instrument payable to bearer is indorsed specially.
or he may add his proper signature Presumption as to time of Indorsement—before instrument is overdue. Medium of currency or which adds a place of payment 2. complete and regular upon its face • sec. Effect: * The indorser whose indorsement is struck out and all indorsers subsequent to him relieved from liability.42) Presumed to be payable to the bank or corporation INDORSEMENT WHERE NAME MISSPELLED (Sec. 125 what constitute material alterations: a. Number or relations of the parties e. effects (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. holder became such before it was overdue.Negotiable Instruments Law 8 INDORSEMENT WHERE INSTRUMENT PAYABLE TO TWO OR MORE PERSONS WHO ARE NOT PARTNERS (Sec. except where indorsement bears date which is after maturity. 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. either for principal or interest c. 49) 1. Time or place of payment d. without notice of any previous dishonor • sec. Date b. Spoliation.A material alteration made by a stranger • sec. 43) May continue indorsing through the misspelled name. right of transferee to have indorsement of transferor for purposes of determining HDC negotiation effective upon actual indorsement PRIOR PARTY WHO NEGOTIATES INSTRUMENT. 53 (instrument payable on demand negotiated after unreasonable length of time: holder is not HDC) . Sum Payable. UNINDORSED INSTRUMENTS (Sec. 50) Not entitled to enforce payment against any intervening party to whom he is personally liable HOLDER IN DUE COURSE REQUISITIES 1. transfer vests in transferee such title as transferor had therein 2. Presumption as to place of Indorsement—At the place where instrument dated Striking Out Indorsements.
instrument negotiated in breach of faith. . 27 (When a holder has lien on the instrument. illegal consideration/means. holds the instrument free from any defect of title of prior parties and free from personal defenses available to parties among themselves 4. 54-notice before full amt. taken in good faith and for value • sec. 58) Exception: holder who derives title through HDC and who is not himself a party to any fraud or illegality has all rights of such former holder in respect to all parties prior to the latter.defect in title of person negotiating: What defect constitutes (Sec.55) 1.. burden is now with holder to prove • but no reversal if party being made liable became bound prior to acquisition of defective title KINDS OF DEFENSES 1. 59) • prima facie presumption in favor of holder • but when shown that title of any person who has negotiated instrument was defective. or 2. presumption is reversed. payment to him in due course discharges instrument 3. 56-notice of defect: Actual knowledge necessary RIGHTS OF HOLDER IN DUE COURSE 1. sue thereon in his own name 2. 26 (Holder for value: one who has given a valuable consideration for the instrument issued or negotiated to him ) • sec. (Sec.infirmity in instrument b. Available to all parties both immediate and remote including HDC. by contract or implication he is deemed a holder for value to the extent of the lien) 4. 12 (effect antedating/postdating) 9 3. WHO DEEMED HDC (Sec. etc. instrument/signature obtained through fraud. he had no notice of -a. at time negotiated to him. on the principle that the right sought to be enforced never existed/there was no contract at all.Negotiable Instruments Law • sec. real defense – attaches to instrument. or fraudulent circumstances Notice Sec. NI is subject to same defenses as if it were non-negotiable. may enforce payment of the instrument for the full amount thereof against all parties liable thereon RIGHTS OF PURCHASER FROM HOLDER IN DUE COURSE General Rule: in the hands of any holder other than a HDC. paid: deemed HDC only to the extent of the amount paid by him Sec. 24 (presumption of consideration) • sec 25 (Value: is any consideration sufficient to support a simple contract) • sec.
DEFENSES 1. INCAPACITY: REAL: indorsement/assignment property but corp/infant no liability by corporation/infant passes 2. amount. 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. with intent thereby to defraud. renders it inequitable to be enforced against defendant. authorized or assented to alteration 2. parties who make certain warranties. MATERIAL ALTERATION • Where NI materially altered w/o assent of all parties liable thereon. like a general indorser or acceptor b. fraud in inducement: personal defense (knows it’s Negotiable Instrument but deceived as to value/terms) 5. General Rule: a. UNDELIVERED INSTRUMENT . avoided. Bad Forgery—forgery which is apparent or naked to the eye Good Forgery—requires examination of signature if it was forged Effect when Signature is forged or made without authority of person whose signature it purports to be. 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. or enforce payment vs. but real defense when relied on to deny liability according to altered terms. tenor *material alteration a personal defense when used to deny liability according to org. tenor of instrument. party who has himself made. personal defense – growing out of agreement. 4. Available to prior parties among themselves but w/c are not good against a HDC. COMPLETE. no right to retain instrument. FRAUD a. FORGERY: Real: Definition: the counterfeit-making or fraudulent alteration of any writing. HDC may enforce payment thereof according to orig. any party.Negotiable Instruments Law 10 2. fraud in execution: real defense (didn’t know it was a Negotiable Instrument) b. description of the person and the like. wholly inoperative b. and may consist in the signing of another’s name or the alteration of an instrument in the name. estopped/negligent parties 3. or give discharge. except as against 1.
Negotiation in breach of faith 10. Acquisition of instrument by unlawful means 8. if completed and negotiated without authority. Acquisition of the instrument for an illegal consideration 9. 4. within a reasonable time • but if any such instrument after completion is negotiated to HDC. Real Defenses Material Alteration Want of delivery of incomplete instrument Duress amounting to forgery Fraud in factum or Fraud in esse contractus Minority (available to the minor only) Marriage in the case of a wife Insanity where the insane person has a guardian appointed by the court Ultra Vires acts of corporation Want of authority of agent Execution of instrument b/w public enemies Illegality—if declared void for any purpose Forgery Personal Defenses 1. he may enforce it as if it had been filled up properly 1. 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 • In order that any such instrument.Negotiable Instruments Law • • • 11 Personal defense (sec. Filling up of blank contrary to authority given or not w/in reasonable time 5. 16) If instrument not in possession of party who signed. 9. as against any person whose signature was placed thereon before delivery 7. UNDELIVERED INSTRUMENT • Real defense (sec. duress or fear 7. Negotiation under circumstances that amount to fraud 11. may be enforced against any person who became a party thereto prior to its completion: 1. be a valid contract in the hands of any holder. 7. Insertion of wrong date in an instrument 4. 6. 8. Intoxication 13. delivery conclusively presumed 6. 11. Want of delivery of complete instrument 3. 10. INCOMPLETE. must be filled up strictly in accordance w/ authority given 2. Mistake 12. when completed. 5. INCOMPLETE. 15) • Instrument will not. 2. Fraud in inducement 6. 12. Where instrument is wanting in any material particular: person in possession has prima facie authority to complete it by filing up blanks therein 2. Absence or failure of consideration whether partial or total 2. delivery prima facie presumed If holder is HDC. 14) • 2 Kinds of Writings: 1. 3. Acquisition of instrument by force. DELIVERED • Personal defense (sec. it's valid for all purposes in his hands. Ultra Vires Acts of corporations where the corporation has the power to issue negotiable paper but the issuance was not authorized for the particular purpose for which it was issued .
warranty only extends in favor of immediate transferee • Liability of a General or Unqualified Indorser . 127 (bill not an assignment of funds in hands of drawee) • sec. He has good title c. • • a. Liability of Maker Promises to pay it according to its tenor admits existence of payee and his then capacity to indorse 2.Negotiable Instruments Law 12 LIABILITIES OF PARTIES A. 1. Status of drawee prior to acceptance or payment • sec. SECONDARY PARTIES 1. Liability of Drawer a. and the necessary proceedings on dishonor be duly taken. a. Engages that on due presentment instrument will be accepted. b. PRIMARY PARTIES • Person primarily liable: person who by the terms of the instrument is absolutely required to pay the same. Instrument genuine. according to its tenor and that c. 189 (when check does not operate as assignment until bank certifies or accepts it) 3. d. or both. If it be dishonored. 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. he had no knowledge of any fact w/c would impair validity of instrument or render it valueless • in case of negotiation by delivery only. in all respects what it purports to be b. c. or paid. Admits existence of payee and his then capacity to endorse b. b. Liability of Acceptor Promises to pay instrument according to its tenor Admits the following: existence of drawer genuineness of his signature his capacity and authority to draw the instrument existence of payee and his then capacity to indorse B. Liability of Indorsers: • Qualified Indorser and one Negotiating by Delivery (Sec 65) a. all prior parties had capacity to contract d.
at time of taking instrument. or payable to bearer: liable to all parties subsequent to maker/drawer 3. on due presentment. for the purpose of accommodating some other party who is to use it and is expected to pay it. Signs for accommodation of payee. regardless of order of indorsement 3.Negotiable Instruments Law 13 a. good title. but holder may sue any of the indorsers. in accordance w/ these rules: 1. he incurs all liabilities in Sec. places thereon his signature in blank before delivery. or to any subsequent indorser who may be compelled to pay it • Order of Liability among Indorsers 1. unless he discloses name of principal and fact that he’s only acting as agent . knew he was only an Accomodation Party Some Terms: Accommodation Bill or Note—one to which the accommodation party has put his name. or both. instrument is at time of indorsement valid and subsisting c. he is not liable on the instrument if he was duly authorized. Instrument payable to order of 3rd person: liable to payee and to all subsequent parties 2. among themselves: liable prima facie in the order they indorse. if it be dishonored. 65. capacity of prior parties b. Liability of Irregular Indorser • Where a person not otherwise a party to an instrument. he’s liable as an indorser. • Signature per procuration operates as notice that the agent has but a limited authority to sign. establish as in ordinary agency • Where instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal. w/o receiving value therefore. To holder. but proof of another agreement admissible 2. signs an instrument for the purpose of lending his credit and enabling said party to raise money upon it. w/o consideration. instrument genuine. joint payees/indorsees deemed to indorse jointly and severally Liability of Accomodation Party • Definition: one who signed instrument as maker/drawer/acceptor/ indorser w/o receiving value thereof. Accomodated Party—is one in whose favor a person. does not exempt from personal liability. and necessary proceedings on dishonor be duly taken. he will pay the amt. for the purpose of lending his name to some other person • Accomodation Party liable on the instrument to holder for value even if holder. 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. it shall be accepted or paid. according to tenor d. liable to all parties subsequent to payee Liability of an Agent • Signature of any party may be made by duly authorized agent. but the mere addition of words describing him as an agent without disclosing his principal. Instrument payable to the order of maker/drawer.
b. General and Qualified General Acceptance – a general acceptance assents without qualification to the order of the drawer. .A sight draft (usually accompanying a letter of credit in importations) is payable on demand and needs no acceptance by the drawee.The drawee. In Promissory Notes Purpose: Not necessary to make the maker liable. Qualified Acceptance – it varies the effect of the bill as drawn. c. must do so expressly within twenty-four (24) hours from presentment to him. Requisites: For a valid presentment for payment of a promissory note. . Partial. d. Conditional. ***The holder must exhibit the instrument to the debtor and should deliver it to said debtor if the latter pays. 2. d. b. c. and 3. . to the party liable under it. In Bills of Exchange Acceptance is the signification by the drawee of his assent to the order of the drawer. when after due diligence presentment cannot be made. The acceptance is qualified if it is: a. and may even be in writing before the bill is drawn. or refuses to return the bill within said period of twenty-four hours. Qualified as to time. the following are necessary: a. if he wants to dishonor. on a separate paper (allonge). Local. when presentment is waived. made within a reasonable time after issue. When NOT required/excused Presentment is NOT required: 1. he is deemed to have accepted the bill – implied acceptance. Classes of Acceptance 1. by the holder or his agent. B. e.The acceptance may be on the bill. tears the bill. but is necessary to make the secondary parties liable. How made: .Negotiable Instruments Law 14 PRESENTMENT A. and e. when the indorser is an accommodated party. Accepted by some or more of the drawees but not by all. at a reasonable hour on a business day. If he refuses to act. at the proper place.
. WHERE BILL MAY BE WRITTEN: .B. 3. N. the acceptance on a separate paper must comply with following requirements: i. within twenty four hours from presentment to him of the instrument. . Is payment equivalent to acceptance? NO. or refuses or fails to return the bill accepted or unaccepted. in writing. and the drawer. NIL.Acceptance by telegram has been held sufficient. If the bill is non-existent.Acceptance is express if written on the instrument by the drawee. if any. Acceptance is NOT required for CHECKS for the same are payable on demand. Express and Constructive . “SEEN” followed by the signature of the drawee. HOW MADE? . But should the drawee refuse to accept. “I WILL PAY THE BILL”. and if on a separate paper a. on a separate paper.Negotiable Instruments Law 15 2. the drawee becomes liable on the bill. REQUISITES OF ACTUAL ACCEPTANCE: 1. NIL. EFFECT OF ACCEPTANCE: Upon acceptance.It is usually done by writing across the face of the bill the word “ACCEPTED” or words of similar import.Acceptance may be made 1. “HONORED”. if drawee. and 4. it may be acceptance as to a non-existing bill.g.The drawee must sign because without his signature he would not be bound – See Section 18. or 2. and 2. or b. it may be acceptance as to an existing bill. . it must not express that the drawee will perform his promise by another means than the payment of money. The bill becomes in effect a note. destroys the same. signed by the drawee. on the bill itself. in the place of the first indorser. e. .the payment of a check does not include or imply its acceptance in the sense that this word is used in Section 62. ACCEPTANCE. the acceptor standing in the place of the maker. the payee or the holder has no recourse against him but only against the drawer and indorsers. and constructive. That the contemplated drawee shall describe the bill to be drawn and promise to accept it. it must be communicated or delivered to the holder.
4. and iii. destroys it. 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. the acceptance if given. 2. Constructive Acceptance: . That the holder shall take the bill upon the credit of the promise. Before the bill has been signed by the drawer. . That the bill shall be drawn within a reasonable time after such promise is written. as certification is equivalent to acceptance. .If the holder should demand its return before twenty-four hours. Even when the bill is otherwise incomplete. - . dates as of the day of presentation. In all the foregoing. the drawee will be deemed to have accepted the bill even if there is NO ACTUAL WRITTEN ACCEPTANCE by him.Negotiable Instruments Law 16 ii. Instances when a bill may be accepted: 1. to return the bill accepted or not accepted. Where the drawee refuses. 1. within 24 hours after such delivery or within such time as is given him. 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.The drawee is allowed twenty-four hours after presentment in which to decide whether or not he will accept the bill.Drawee bank is NOT entitled to 24 hours to decide whether for payment NOT acceptance. . Even after it has been dishonored by non-acceptance or by non-payment. Section 136. Even when the bill is overdue. if the check is presented for certification.this class of acceptance is NOT in writing. 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. .The holder of the bill has the right to require GENERAL ACCEPTANCE – thus he may REFUSE to take qualified acceptance and if he DOES NOT obtain an unqualified acceptance – he may treat the bill as dishonored. 3. Where the drawee to whom the bill is delivered for acceptance. or 2. the drawee would be required to comply on pain of being held as an acceptor. this ruling will not apply. But. but return within twenty-four hours unaccepted would not be a dishonor.
Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. where presentment for acceptance is necessary in order to fix the maturity of the instrument. It must be presented at a reasonable hour. Where the bill is payable after sight. 2. in which case presentment may be made to him only. presentment may be made to him or to his trustee or assignee. EXCEPTIONS: 1. It must be presented on a business day. To WHOM will it be presented? 1. Presentment. and 2. It must be presented before the bill is overdue. or in any other case. to negotiate the bill within a reasonable time. how made: -Presentment MUST be made by or on behalf of the holder: Requisites: 1. Where the drawee has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors. GENERAL RULE: Presentment for acceptance is NOT NECESSARY to render any party to the bill liable. To the DRAWEE or some person authorized to ACCEPT or REFUSE ACCEPTANCE on his BEHALF. Where a bill is addressed to two or more drawees who are not partners. or 2. Where the bill is expressly stipulates that it shall be presented for acceptance. or 3. to make presentment for acceptance or ii. Days when presentment may be made: . and 3. NOTE: In those instances found in Section 143 – it is NECESSARY – in order to charge persons secondarily liable (Section 144): i. 3. 4. Where the drawee is dead presentment may be made to his personal representative. presentment must be made to them all unless one has authority to accept or refuse acceptance for all.Negotiable Instruments Law 17 Presentment for Acceptance Definition: It is the production or exhibition of a bill of exchange to the drawee for his acceptance.
to the acceptor or his agent 3. acceptance has been refused on some other ground. Where a bill is duly presented for acceptance and is not accepted within the prescribed time. The bill must be exhibited to the acceptor and surrendered to him when he pays. 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. When Presentment for payment is excused. at a reasonable hour on a business day 4. Presentment For Payment Of Accepted Bill Purpose: The purpose of presentment for payment of an accepted bill is to collect from the acceptor. or is a fictitious person or a person not having capacity to contract by bill. it cannot be made b. when after due diligence. to collect from the secondary parties. Where the drawee is dead. where there is a waiver of presentment. or has absconded. 3. 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. the person presenting it must treat the bill as dishonored by nonacceptance or he loses the right of recourse against the drawer and indorsers. when the drawee is a fictitious person c.Negotiable Instruments Law 18 A bill may be presented for acceptance on ANY DAY on which negotiable instruments may be presented for payment. The accepted bill must be presented for payment within a reasonable time from the last negotiation by the holder or his agent 2. Where. Instances when PRESENTMENT FOR ACCEPTANCE IS EXCUSED and A BILL MAY BE TREATED AS DISHONORED BY NON-ACCEPTANCE: 1. 2. When SATURDAY is NOT OTHER WISE A HOLIDAY – presentment for ACCEPTANCE may be made before twelve o’clock noon on that day. Requisites: 1. . Where the holder of a bill drawn payable elsewhere other than the place of business or the residence of the drawee – has no time. Where. although presentment has been irregular. at the proper place as defined. Duty of the holder where bill is not accepted. a. after the exercise of reasonable diligence. and if refused. HOW? By giving NOTICE OF DISHONOR or by making a PROTEST when required. presentment can not be made.
where the bill is presented for acceptance and is returned dishonored. or by any party who may be compelled by the holder to pay. 102) 4. 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. has not been accepted or has not been paid and that the party notified is expected to pay it. In BILLS OF EXCHANGE . the drawer and indorsers as the case may be b.Negotiable Instruments Law 19 DISHONOR 1 . upon proper proceedings taken. 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. 103 & 104) TO WHOM GIVEN a. Given by a holder or his agent(SPA necessary). Given as soon as the instrument is dishonored and within the periods provided by law. after it has been accepted is not paid when presented for payment. is not paid on the date of maturity.In a promissory note.In bills of exchange. namely. -There is a dishonor by non-payment if the bill. 90) 2. 84) 2. Given to a secondarily liable party or his agentSec. 151) Note: Same effect in Dishonor by Non-payment is Promissory Note NOTICE OF DISHONOR --bringing either verbally or by writing. (Sec. (Sec. Given at the proper place (Secs.In PROMISSORY NOTE . Non-payment (bill and note)—indorsers BY whom Given . the instrument is overdue and unpaid. which requires notice of dishonor (Sec. Non-acceptance(bill)—to persons secondarily liable. (Sec. to the knowledge of the drawer or indorser of an instrument. REQUISITES: 1. or within twenty four hours from presentment. the fact that a specified negotiable instrument. or presentment being excused. or if presentment is excused. Effect: There is an immediate right of recourse by the holder against persons secondarily liable. 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. dishonor by non-payment takes place when it is duly presented for payment and payment is refused or cannot be obtained.
Made to the holder. Drawer has no right to expect or require that the drawee or acceptor will honor the instrument. but if written above the signature of an indorser. In good faith and without notice that the holder’s title is defective. it cannot be given (Sec. Instruments falling due or payable on a Saturday are also to be presented for payment on the next succeeding business day.A release of all the parties liable from obligations arising thereunder. 88) • Good faith refers to the maker or acceptor and not to the holder. It renders the instrument without force and effect and. 109) --If waiver embodied in instrument itself it binds all parties. . except when the instrument is payable on demand where it may be the option of the holder to present the instrument for payment before 12:00 noon on Saturday when the entire day is not a holiday. Made at of after maturity. 5. 2. The holder b. Drawer is the person to whom the instrument is presented for payment 4. 3. 112) WHEN NOTICE OF DISHONOR NEED NOT BE GIVEN TO DRAWER 1. the latter is only bound 3. and the indorser was aware of that fact at the time he indorsed the instrument (b) Where the indorser is the person to whom the instrument is presented for payment (c) Where the instrument was made or accepted for his accommodation MATURITY OF NEGOTIABLE INSTRUMENT: 1. (Sec. When after due diligence. 3. Drawee is a fictitious person or a person not having capacity to contract 3. actually or constructively 2. and who would have a right of reimbursement from the party to whom notice is given WHEN NOTICE OF DISHONOR IS DISPENSED WITH: 1. Any party to the instrument who may be compelled to pay it to the holder.Negotiable Instruments Law 20 a. When the day of maturity falls on a Sunday or a Holiday. 85) REQUISITES OF PAYMENT IN DUE COURSE 1. (Sec. consequently. on behalf of the holder c. If waived (either before the time of giving notice has arrived or after the omission to give due notice) (Sec. WHEN NOTICE OF DISHONOR NEED NOT BE GIVEN TO INDORSER (a) When the drawee is a fictitious person or person not having capacity to contract. Every negotiable instrument is payable at the time fixed therein without grace. DISCHARGE OF NEGOTIABLE INSTRUMENT . the instrument is payable on the next succeeding business day. Drawer and drawee are the same person 2. 2. it can no longer be negotiated. When the party to be notified knows about the dishonor. Drawer has countermanded payment. Another.
122)-The act of surrendering a right or claim w/o recompense. By payment in due course by or on behalf of the principal debtor 21 Payment in Due Course. Payment must be made in good faith and w/o notice that the holder’s title is defective By Whom Made: a. if a primary party or c. When the principal debtor becomes the holder of the instrument at or after maturity in his own right. Payment must be made to the holder c. Renunciation (Sec. . 5. at or after its maturity. erasing. obliterating or burning. It may be made by any other means by w/c the intention to cancel the instrument may be evident. It is not limited by writing the word “cancelled” or “paid” or drawing criss-cross lines across the instrument. > If renunciation is absolute and unconditional in favor of the principal debtor. Payment must be made at or after maturity b. 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. By maker or acceptor b. 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. Surety. By any act which will discharge a simple contract for the payment of money. Requisites a. Payment by accommodated party 3.Negotiable Instruments Law WHEN A NEGOTIABLE INSTRUMENT IS DISCHARGED 1. Intentional cancellation by the holder 4. Cancellation: it includes the act of tearing. By an agent on behalf of the principal 2. WHEN PERSONS SECONDARILY LIABLE DISCHARGED (a) By any act which discharges the instrument (b) By the intentional cancellation of his signature by the holder (c) By the discharge of a prior party (d) By a valid tender or payment made by a prior party (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.
for uniformity in international transactions because most countries require it and 2. it must be protested for non-payment before it is presented for payment to the referee in case of need. in order to furnish authentic and satisfactory evidence of the dishonor to the drawer who. in which it is declared that the same was on a certain day presented for payment (or acceptance as the case may be). how made: The protest must be annexed to the bill or must contain a copy thereof.” It means all the steps or acts accompanying the dishonor of a bill or note necessary to charge an indorser. may experience difficulty in verifying the matter and may be forced to rely on the representation of the holder. they may also be protested if desired. and such payment (or acceptance) was refused. The demand made and the manner given. 2. but not for inland bills or notes. it any. OMISSION OF PROTEST. it must be protested for nonpayment to the acceptor for honor. * When a bill has been DULY NOTED – the protest may be subsequently extended as of the date of the noting. from his residence abroad. Where the foreign bill is dishonored by non-acceptance. Protest. Where the foreign bill is dishonored by non-payment. The fact that presentment was made and the manner thereof. 3. Protest may be made by – a.Negotiable Instruments Law 22 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. The time and place of presentment. Where the bill contains a referee in case of need. Where the bill has been accepted for honor. or the fact that the drawee or acceptor could not be found. . 3. 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. 2. will DISCHARGE the DRAWER and the INDORSERS. or 4. A notary public or b. Reason for requiring protest: 1. and must be under the HAND AND SEAL of the NOTARY making it and must specify: 1. By any respectable resident of the place where the bill is dishonored.” Necessity of Protest: Protest is required only for FOREIGN BILLS. Protest. in the presence of two or more credible witnesses. Instances when protest is required: 1. The cause or reason for protesting the bill. where protest is required. HOWEVER. when made: * Protest MUST be made on the day of its dishonor UNLESS delay is excused. it not having been dishonored by non-acceptance. 4.
NOTE: Protest is dispensed with by any circumstances which would dispense with notice of dishonor. After acceptance. and the bill has been protested for non-acceptance or where the bill has been protested for better security. 2. 4. When a . OR DEMADNN ON. THE DRAWEE IS NECESSARY. But before the date of maturity. The bill must have been previously protested (a) for non-acceptance or (b) for better security. consisting of his initials or signature and those matters required to be stated in Section 153. is wrongfully detained from the person entitled to hold it ACCEPTANCE FOR HONOR Acceptance of a bill made by a stranger to it before maturity. A bill MAY BE PROTESTED BEFORE MATURITY – aka “PROTEST FOR BETTER SECURITY” Requisites for Protest for better security: . as the drawer. 3. Purpose for acceptance for honor: An acceptance for honor is done “to save the credit of the parties to the instrument or some party to it. or somebody else. When the acceptor has been adjudged bankrupt and insolvent or has made an assignment for the benefit of creditors. and c. The acceptor for honor must be a stranger to the bill. bill is lost or destroyed .PROTEST MAY BE MADE ON A COPY OR WRITTEN PARTICULARS THEREOF.A protest for better security must be made: a.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 nonacceptance – IT MUST BE PROTESTED FOR NON-PAYMENT AT THE PLACE WHERE IT IS EXPRESSED TO BE PAYABLE. or 2. Acceptance for honor: . drawee. or indorser. AND NO FURTHER PRESENTMENT FOR PAYMENT TO. The bill is not overdue at the time of the acceptance for honor. or in his registry book. where the drawee of the bill refused to accept it. The holder must give his consent.Negotiable Instruments Law 23 “DULY NOTED” – means that a notary public jots down on a note on the bill or an paper attached thereto. b. Protest where made: GENERALLY – the protest must be made at the place where the instrument is dishonored. EXCEPTION: .“acceptance supra protest” – how made: .” Requisites for acceptance for honor: 1. 1.
2. 2. It must be signed by the acceptor for honor. It must be presented in the place where the protest for non-payment was made – it must be presented NOT LATER than the day following its maturity. If it is to be presented in some other place other than the place where it was protested. When a bill is DISHONORED by the ACCEPTOR FOR HONOR – it must be protested for non-payment by him. In payment for honor – the PAYOR SUPRA PROTEST – may even be a PARTY to the instrument. 3. PAYMENT FOR HONOR Requisites for payment for honor: 1. Presentment for payment to acceptor for honor. as the case may be. 24 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. Reason: In order to fix the liability of the indorsers. NOTE: As distinguished from acceptance for honor – the acceptor for honor MUST BE A STRANGER. and 4. . and that he will pay it at the appointed time. The bill has been protested for non-payment. 2. 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. ANY PERSON. or 2. the drawee does not pay. even a party thereto may pay supra protest. how made: 1. notice of dishonor is given to him. and 3. 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. presentment for payment has been made. It must be in writing. The LIABILITY OF THE ACCEPTOR FOR HONOR is SECONDARY – NOT primary or absolute. the bill is protested for non-payment. MISCONDUCT or NEGLIGENCE. 2. It must indicate that it is an acceptance for honor. then it must be forwarded within the time specified in Section 104. 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.Negotiable Instruments Law 1. ACCEPTOR FOR HONOR agrees to pay if: 1.
The notary then records the declaration in the protest or in a separate paper attached to it. and 2. payment for honor may be availed of when the holder does not want to indorse the bill and thereby incur the liabilities of an indorser or of one negotiating by mere delivery. 3. Preference of parties offering to pay for honor: . Purpose of bill in set: In order to increase the probability of the bill reaching its destination. and to avoid the difficulties which would arise in case of loss or miscarriage on the way of the bill. 2. The payor then notifies the person for whose honor he pays within reasonable time. Procedure for payment for honor: 1. Effects on subsequent parties where bill is paid for honor: 1. BILLS IN SET Bills in set – one composed of various parts. all of which parts constitute but one bill. All parties subsequent to the party for whose honor it is paid are discharged. He has also the right to receive both the bill and the protest. Rights of payer for honor: 1. 2.The person WHOSE PAYMENT will DISCHARGE MOST PARTIES to the bill is to be given the preference. He acquires the rights of the holder under Section 175. Purpose of payment for honor: Instead of simple negotiation to the person desiring to pay. and 2. Effect if the holder REFUSES to receive payment supra protest? He loses his right of recourse against any party who would have been discharged by such payment. each part being numbered and containing a reference to the other parts. Right of holders where different parts are negotiated: . The notarial act must be based in a declaration by the payer for honor. The payment must be attested by notarial act appended to the protest. or form an extension to it. The payer or his agent goes to a notary public and declares his intention to pay the bill and for whose honor he pays. The payer for honor is subrogated for and succeeds to both the rights and duties of the holder as regards the party for whose honor he pays and all parties liable to the latter.Negotiable Instruments Law 25 Form for payment for honor: 1.
NIL. or to some other person or order.is a written acknowledgment by a bank of the receipt of money on deposit which the bank promises to pay to the depositor. Effect if the drawee accepts more than one part: If the drawee ACCEPTS MORE THAN ONE PART and such accepted parts are negotiated to different holders in due course he is liable on every part as if it were a separate bill. a sum certain in money to order or bearer. to pay money. Bonds . Certificate of deposit . Effect of discharging one of a set: Where ONE PART OF A BILL DRAWN in a set is discharged by payment or otherwise – THE WHOLE BILL is DISCHARGED – except as otherwise provided. Liability of holder who indorses two or more parts of a set to different persons: He is liable on EVERY SUC H PART. NOTE: Where a note is drawn to the maker’s own order. Acceptance of bills in set: The acceptance may be written on any part and it must be written on ONE PART only. it is NOT complete until indorsed by him. 2. and EVERY INDORSER SUBSEQUENT to him is LIABLE on the part he has himself indorsed – AS IF SUCH PARTS WERE SEPARATE BILLS.It is NOT ipso facto negotiable – it must first comply with the requirements provided under Section 1. or at a fixed or determinable future time. Payment by acceptor of bills drawn in sets: When the acceptor of a bill drawn in a set pays it without requiring the part bearing his acceptance to be delivered up to him.Negotiable Instruments Law 26 Where two or more parts are negotiated to different HOLDERS IN DUE COURSE – the HOLDER whose title FIRST ACCRUES – AS BETWEEN SUCH HOLDERS – is the TRUE OWNER of the bill. bearer. . engaging to pay on demand. under seal. and the part at maturity is outstanding in the hands of a holder in due course – he is liable to the holder thereof. . PROMISSORY NOTES AND CHECKS Promissory Note – is an unconditional promise in writing made by one person to another. Special types of promissory notes: 1. signed by the maker.A promise.
Classes of Bonds: 1.Are promissory notes of the issuing bank payable to bearer on demand and intended to circulate as money. Collateral trust bonds 8.The bond certifies that the issuing company is indebted to the bondholder for the amount specified on the face of the bond. It is a written order on a bank. Bank Notes . CHECK – is a bill of exchange drawn on a bank payable on demand. Guaranteed bonds 9. Check is not Legal Tender. of a sum of money to a certain person therein named or to his order or to cash and payable on demand. Due Bills . The check was encashed. A check can be considered encashed through the clearing house. They are negotiable if it the requisites in Section 1. NIL are complied with. Mortgage bonds 6. NOTE: . or when the check had been credited to the account of the creditor) b. and transferred just like any commercial paper. purporting to be drawn against a deposit of funds for the payment of all events. but produces the effect of payment when: a. and contains an agreement of the company to pay the sum at a specified time in the future. They are negotiable if it the requisites in Section 1. Registered Bonds 5. generally six months apart. Debentures 10. When through the fault of the creditor the check is impaired c. Such coupons may be served and deposited in a bank. In case of redemption Kinds of checks: 1. They are regarded as cash and pass from hand to hand without any evidence of titled in the holder than that which arises form possession.Acceptance is NOT required for checks for the same are PAYABLE ON DEMAND. Convertible bonds 3. Redeemable Bonds 4. 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. (Encashment is not limited to physical encashment over the counter of the drawee bank. 11. Income bonds 2. Ordinary Check—The most common check issued by a bank to a client who opens a checking account . 12. negotiated before the maturity of the interest they represent. NIL are complied with.is an instrument whereby one person acknowledges his indebtedness to another. However. and meanwhile to pay a specified interest on the principal amount at regular intervals. Equipment Bonds 7. they are not money.Negotiable Instruments Law 27 .
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. 7. NOTES: 1. signifying that the drawer engages to pay the bona fide holder absolutely and not upon a condition to pay upon presentment and non-payment. 6. Gift Check-Similar to a cashier’s or manager’s check and may be signed either by the cashier or manager. there is no proper presentment and drawer is not liable thereon. Drawee should not encash a crossed check but merely the same for deposit. The check may not be encashed but only deposited in the bank 2. 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. Crossed check –One which has two parallel lines. The check may be negotiated only once to one who has an account with a bank .Negotiable Instruments Law 28 2. 4. usually on the upper left hand corner. . It is indicated as a “Gift Check”. by stamping on the check the word “certified” or “Good For Payment” and underneath it is written the signature of the cashier. 3. “memo”. 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. 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. and “mem”. 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.If it bounces – the drawer can be charged for violation of BP 22. Effects of Crossing a check 1. graduations and similar occasions.one issued by a bank to a holder. Traveler’s Check. Memorandum Checks – a check on which is written the word “memorandum”. so as to be used as a gift for birthdays. 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. Here. When these checks are lost or stolen. 2. or when nothing is written at all between the parallel lines. Where other than payee of crossed checks presented it for payment. usually a traveller. Under crossed check – the payee has the duty to ascertain the holder’s title to checks. such as. 3. weddings. 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. 5. Here. 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. 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. 8.
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. must be presented within six (6) months – otherwise it will become stale. Date 2. Advantages of crossing check: . Amount in figures 4. Features of the Check I. Hence.Negotiable Instruments Law 29 3. Face. Account Number 8. Magnetic Ink Character Recognition Code (MICR)—a code designed to facilitate the clearing of checks among banks. . if no loss or injury is shown. Drawee-Bank 7.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.the drawer is discharged but only to the extent of the loss caused by the delay. 10.it is a good precaution when it is to be forwarded by mail or when it is entrusted to an agent and the drawer wants to be sure that it will be paid to the rightful owner. Drawer (Account Name) 6. Effect if the check was allowed to become stale? (Stale when not encashed w/in 6 months) . drawer. the drawer is not discharged. Space for indorsement (signature & address of the indorser) Check – when should it be presented for payment: A check MUST be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay. Space for signature of the drawer II. 1. A check is a bill of exchange payable on demand – is intended for immediate use and not to circulate as a promissory note. Check Number 9. . Payee 3. The act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has secured the check pursuant to that purpose. Amount in words 5. Dorsal Side/Back of the Check 1.
Iron-Clad Rule: Prohibits the countermanding of payment of certified checks. Indorsers subsequent to the certification are not discharged. It is equivalent to acceptance and is the operative act that makes the drawee bank liable.K. Requisites for Stop Payment Order 1. The letters “O. The bank is insolvent 2. A check of itself does not operate as assignment of any part of the funds to the credit of the drawer with the bank. The drawer is insolvent and proper notice is received by the bank 4. certification or payment to enable the bank. The drawer dies and proper notice is received by the bank . 2. A bank is not obliged to the depositor to certify checks. Effect of Certification: 1. undertakes to pay it at any future time when presented for payment. If obtained by the holder. It must be given to an authorized officer or employee of the drawee bank 3. It operates as an assignment of the funds of the drawer in the hands of the drawee bank. and 3. It must describe the check with reasonable accuracy 2. The certification of a check is EQUIVALENT to an ACCEPTANCE. Effect where the holder of check procures it to be certified. Where the holder of a check procures it to be accepted or certified. The drawer’s deposit is insufficient or he has no account with the bank or said account had been closed or garnished 3. It must give the bank sufficient time prior to acceptance. certified or paid by the drawee bank. it discharges persons secondarily liable thereon. It must be positive and unqualified 4. 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. and the bank is not liable to the holder unless and until it accepts or certifies the check. Cases when Bank May Refuse Payment 1. When check operates as an assignment.”. in the exercise of reasonable diligence to stop payment.Negotiable Instruments Law 30 Certification of check – is an agreement whereby the bank against whom a check is drawn. the drawer and all indorsers are discharged from liability thereon. with the initials of the cashier of a bank do not constitute a sufficient certification under modern banking practice. Form of certification: No particular form is required – BUT IT MUST BE IN WRITING.
31 . The holder refuses to identify himself 7.Negotiable Instruments Law 5. The drawer has countermanded payment 6. The bank has reason to believe that the check is forgery.
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