BLAW 2: LAW ON NEGOTIABLE INSTRUMENTS
The purpose of an acceptance for honor is to
UNIT 7: ACCEPTANCE FOR HONOR, PAYMENT FOR
HONOR,BILLS IN SET, PROMISSORY NOTES AND
CHECKS
LESSON 1: ACCEPTANCE FOR HONOR
I. Overview
The topic will focus on Acceptance for Honor of a
negotiable instrument and will provide the students
lesson to understand: (a) its purpose; (b) how
acceptance being made and its requisites; and (c)
rights and liabilities of a holder to acceptance.
II. Objectives
At the end of the lesson you should be able to:
• Learn the purpose and requisites of acceptance
for honor.
• Know the rights and liabilities of acceptor for
honor.
III. Warm-Up Activity
Read again Sections 161 to 170 of The Negotiable
Instruments Law (NIL) plus whatever explanations,
annotations or descriptions you can find on the
subject.
IV. Content
ACCEPTANCE FOR HONOR
Sec. 161. When bill may be accepted for honor. -
When a bill of exchange has been protested for
dishonor by non-acceptance or protested for better
security and is not overdue, any person not being a
party already liable thereon may, with the consent
of the holder, intervene and accept the bill supra
protest for the honor of any party liable thereon or
for the honor of the person for whose account the
bill is drawn. The acceptance for honor may be for
part only of the sum for which the bill is drawn; and
where there has been an acceptance for honor for
one party, there may be a further acceptance by a
different person for the honor of another party.
Acceptance for honor is an undertaking by a
stranger to a bill after protest for the benefit of any
party liable thereon or for the honor of the person for
whose account the bill is drawn which acceptance
inures also to the benefit of all parties subsequent to
the person for whose honor it is accepted, and
conditioned to pay the bill when it becomes due if
the original drawee does not pay it.
Another name for acceptance for honor is
acceptance supra protest since previous protest for
non-acceptance or for better security is necessary.
Purpose
preserve the credit of the parties to the instrument or
some party to it for whose honor the acceptance is
made, as the drawer, drawee, or indorser, or
somebody else. Someone desires to protect the
credit of another on the bill, and he does so by
writing "accepted" on the bill. In such case,
consideration is presumed, and the presumption is
that he has funds or money of the party for whose
honor he accepts.
Requisites
Before an acceptance for honor may be made, four
requisites must concur:
(1) The bill must have been protested for dishonor by
non- acceptance or for better security;
(2) The acceptor for honor must be a person not a
party already liable thereon, that is, a stranger to
the bill;
(3) The bill must not be overdue at the time of the
acceptance for honor; and
(4) The acceptance for honor must be with the
consent of the holder of the instrument.
The acceptor for honor must not be a party already
liable on the bill like an indorser because if he is
already liable thereon, his acceptance obviously
would not give additional security to the holder. The
consent of the holder is required because his right is
suspended until the maturity of the bill.
Sec. 162. Acceptance for honor; how made. - An
acceptance for honor supra protest must be in
writing and indicate that it is an acceptance for
honor and must be signed by the acceptor for
honor.
Formal Requisites Of Acceptance For Honor
The following requisites must be understood to be
included in the requisites just enumerated:
(1) The acceptance for honor must be in writing;
(2) It must indicate that it is an acceptance for
honor;
(3) It must be signed by the acceptor for honor;
(4) It must contain an express or implied promise to
pay money (see Sec. 132.); and
(5) The accepted bill for honor must be delivered to
the holder.
The practice is to write on the instrument, thus:
"Accepted for the honor of P. (Sgd.) X."
It has been held that the acceptor for honor must
appear before a notary public and declare his
intention to accept the protested bill for the honor of
some one or more of the parties thereon.
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Sec. 163. When deemed to be an acceptance for
honor of the drawer. - Where an acceptance for
honor does not expressly state for whose honor it is
made, it is deemed to be an acceptance for the
honor of the drawer.
When an Acceptance for Honor Deemed for Honor
of Drawer
An acceptance for honor which reads as follows:
"Acceptance for honor" or "Accepted supra protest"
or "Accepts S.P." without specifying the person for
whose honor it is made is deemed to be an
acceptance for the honor of the drawer.
The reason for the presumption is that only the
drawer will become liable to the acceptor for honor,
(see Sec. 164.) Acceptance for the honor of the
drawer will thus discharge the most parties to the bill.
Sec. 164. Liability of the acceptor for honor. - The
acceptor for honor is liable to the holder and to all
parties to the bill subsequent to the party for whose
honor he has accepted.
Rights and Liability of Acceptor for Honor
The acceptor for honor upon payment of the bill is
subrogated to the rights which “the parties to the bill
subsequent to the party for whose honor he has
accepted" may have as regards the latter and all
prior parties, (see Sec. 175.)
As the acceptor for honor takes the place of the
person for whose honor he accepts, he is liable to
the holder and all subsequent parties who have a
right of recourse against the person for whose honor
he accepts:
EXAMPLE:
A bill drawn by R against W with P, A, B, and C as
successive indorsers is presented by the holder D for
acceptance to W, who dishonors it and D has the bill
protested for non-acceptance.
If the bill is accepted by X with the consent of D for
the honor of B, X will be liable to the holder D, and
indorser C who is a party subsequent to B but not to
R, W, P, and A, who are parties prior to B.
If, after having been liable, X pays D, X will have a
right of recourse against R, W, P, A, and B. But X’s right
to hold W liable will depend upon whether W is liable
to R.
Acceptance for Honor and Ordinary
Acceptance Distinguished
Some distinctions between acceptance for honor
and ordinary acceptance are as follows:
(1) In the former, there must be previous protest
(Sec. 161.), while in the latter, protest is not
required;
(2) In the former, the acceptor must be a stranger to
the bill (ibid.), while in the latter, the acceptor is
the drawee (Sec 132.);
(3) In the former, the consent of the holder is
required, while in the latter (Sec. 161.), such
consent is not required;
(4) In the former, the acceptor is secondarily liable
(Sec. 165.), while in the latter, the acceptor is
primarily liable (Sec. 62.);
(5) In the former, there may be several acceptors for
honor for different parties in the bill (Sec. 161.),
while in the latter, there can be no acceptors in
the alternative or in succession (Sec. 128.); and
(6) In the former, the bill is not discharged upon
payment by the acceptor for honor (Sec. 164.),
while in the latter, it is discharged upon payment
by the acceptor. (Sec. 119[a], [b].)
LESSON 2: PAYMENT FOR HONOR
I. Overview
The topic will focus on Presentment for Acceptance,
and will provide the students lesson to understand:
(a) how it is being made; and (b) analyze the effects
for non-acceptance and his rights where bill is not
accepted
II. Objectives
At the end of the lesson you should be able to:
• Analyze the effects where bill is paid for honor
and the refusal of holder to receive payment.
• Examine the rights of payor for honor.
• Distinguish payment for honor and acceptance
for honor.
III. Warm-Up Activity
Read again Sections 171 to 177 of The Negotiable
Instruments Law (NIL) plus whatever explanations,
annotations or descriptions you can find on the
subject.
IV. Content
PAYMENT FOR HONOR
Sec. 171. Who may make payment for honor. -
Where a bill has been protested for non-payment,
any person may intervene and pay it supra protest
for the honor of any person liable thereon or for the
honor of the person for whose account it was drawn.
Payment for honor is payment made by a person,
whether a party to the bill or not, after it has been
protested for nonpayment, for the benefit of any
party liable thereon or for die benefit of the person
for whose account it was drawn.
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Another term for payment for honor is - payment
supra protest because prior protest for non-payment
is required. It is not applicable to promissory notes.
Thus, a person who, not being a regular party to a
note, pays it for the honor or for the credit of the
maker or indorsers, does not acquire any right of
recourse against prior parties.
Under Section 171, payment for honor may be made
by a party to the bill or by a stranger. Thus, it may be
made by the drawee after he has refused to accept
the bill. It has been held that the drawer of check
which has been dishonored and protested has a
right to intervene and pay it to protect his honor.
Purpose and Function of Payment for Honor
Payment for honor may be availed of when the
holder, knowing that the bill has already been
dishonored for non-payment, does not want to
indorse the bill and thereby incurs the liabilities of an
indorser specified under Section 66 or of one
negotiating by mere delivery under Section 65.
Sec. 172. Payment for honor; how made. - The
payment for honor supra protest, in order to operate
as such and not as a mere voluntary payment, must
be attested by a notarial act of honor which may be
appended to the protest or form an extension to it.
Sec. 173. Declaration before payment for honor. -
The notarial act of honor must be founded on a
declaration made by the payer for honor or by his
agent in that behalf declaring his intention to pay
the bill for honor and for whose honor he pays.
Requisites of Valid Payment for Honor
In order that payment for honor may operate as
such, the following requisites must be present:
(1) The bill has been dishonored by non-payment
(Sec. 83.);
(2) It has been protested for non-payment (Sec.
171.);
(3) Payment supra protest is made by any person,
even a party thereto;
(4) The payment is attested by a notarial act of
honor which must be appended to the protest or
form an extension of it (Sec. 172.); and
(5) The notarial act must be based on the
declaration made by the payer for honor or his
agent of his intention to pay the bill for honor and
for whose honor he pays. (Sec. 173.)
If the above formalities are not followed, the
payment will operate as a mere voluntary payment
and the payer acquires thereby no right to full
reimbursement against the party for whose honor he
pays, (see Arts. 1236-1237, Civil Code.)
Procedure for Payment for Honor
The following are the steps involved in making a
proper payment for honor:
(1) The payer for honor goes to a notary public after
the bill has been noted or protested for non-
payment and declares his intention to pay the
bill for honor and for whose honor he pays;
(2) The declaration is recorded by the notary public
either in the protest itself as an extension of it or
in a separate paper attached thereto; and
(3) The payer for honor then notifies within a
reasonable time the party for whose honor he
pays that he will make the payment.
Sec. 175. Effect on subsequent parties where bill is
paid for honor. - Where a bill has been paid for honor,
all parties subsequent to the party for whose honor it
is paid are discharged but 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.
Sec. 176. Where holder refuses to receive payment
supra protest. - Where the holder of a bill refuses to
receive payment supra protest, he loses his right of
recourse against any party who would have been
discharged by such payment.
Sec. 177. Rights of payer for honor. - The payer for
honor, on paying to the holder the amount of the bill
and the notarial expenses incidental to its dishonor,
is entitled to receive both the bill itself and the
protest.
Rights of Payer for Honor
The payer for honor is given the right to receive both
the bill and the protest obviously to enable him to
enforce his rights against the parties who are liable
to him under Section 175.
Payment for Honor and Acceptance for Honor
Distinguished
Payment for honor is distinguished from acceptance
from honor as follows:
(1) In the former, the protest must be for non-
payment (Sec. 171.), while in the latter, for non-
acceptance or for better security (Sec. 161.);
(2) In the former, the bill is overdue, while in the latter
it must not be overdue (Sec. 161.);
(3) In the former, the consent of the holder is not
required nor can the holder refuse (Sec. 176.),
while in the latter, the consent of the holder is
required (Sec. 161.);
(4) In the former, the acceptor is secondarily liable
(Sec. 165.), while in the latter, the acceptor is
primarily liable (Sec. 62.);
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(5) In the former, a notarial act of honor is necessary
(Sees. 162,173.), while in the latter, it is not
necessary (see Sec. 162.);
(6) In the former, there can be only one payer for
honor (see Sec. 174.), while in the latter, there
may be several acceptors for honor (Sec. 161.);
and
(7) The effects of payment for honor are those
provided for in Sections 175 and 177, while the
effects of acceptance for honor are those
provided for in Sections 164 and 165.

LESSON 3: BILL IN SET

Second Part
I. Overview
The topic will focus on Bills in Set, and will provide the
students lesson to understand: (a) negotiation in
part; (b) rights and liabilities of holder; and (c)
analyze the effects of discharging by part.

II. Objectives
At the end of the lesson you should be able to:
Third Part
• Know the definition and of purpose bills in set.
• Analyze the rights of a holder where different
parts of a set are negotiated;
• Determine the liability of endorser and acceptor
of different parts of a set.
• Examine the effects of discharging a part of set.

III. Warm-Up Activity

Read again Sections 178 to 183 of The Negotiable
This is a bill in a set consisting of three parts. It will be
Instruments Law (NIL) plus whatever explanations,
noticed that each part is completely worded as a
annotations or descriptions you can find on the
bill but it gives warning as to the existence of the
subject.
other parts. By seeing just one part of the bill, one
may then easily know the number of parts the bill
IV. Content
contains.
BILLS IN SET
Purpose of Bills in Set
Sec. 178. Bills in set constitute one bill. - Where a bill
Bills in set are usually availed of in cases where a bill
is drawn in a set, each part of the set being
had to be sent to a distant place through some
numbered and containing a reference to the other
conveyance. If each part is sent by different means
parts, the whole of the parts constitutes one bill.
of conveyances, the chance that at least one part
of the set would reach its destination would be
A bill in a set is one composed of several parts, each
greater.
part being numbered and containing a reference to
the other parts, the whole of the parts constituting
The purpose then of drawing a bill in set is to avoid
but one bill.
the difficulties which would arise in case of loss or
miscarriage on the way of the bill.
EXAMPLE:
First Part
Sec. 179. Right of holders where different parts are
negotiated. - Where two or more parts of a set are
negotiated to different holders in due course, the
holder whose title first accrues is, as between such
holders, the true owner of the bill. But nothing in this
section affects the right of a person who, in due
course, accepts or pays the parts first presented to
him.

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 Rights of Holders Where Different Parts of a Set are
Negotiated
Each part of a bill in set may be negotiated. But the
payee is not supposed to negotiate all of the parts
since the only reason for drawing the bill in parts is to
obtain greater assurance that at least one part will
reach the payee or its destination safely. However,
should the payee negotiate die different parts to
different persons, then he is liable on each part. (Sec.
180.)
As between holders in due course, the owner of die
bill is the holder whose tide first accrues, that is, the
holder to whom a part is first negotiated. But if the
drawee in good faith accepts or pays the part first
presented to him, he is protected and he can
rightfully refuse to accept or pay the bill presented
by the holder in due course who first became the
owner.
Sec. 180. Liability of holder who indorses two or more
parts of a set to different persons. - Where the holder
of a set indorses two or more parts to different
persons he is liable on every such part, and every
indorser subsequent to him is liable on the part he
has himself indorsed, as if such parts were separate
bills.
Liability of Indorser of Different Parts of a Set
The holder of a bill drawn in a set is liable to each
person to whom he has indorsed a part of the bill;
and should the indorsees, in turn, indorse their
respective parts of the bill, each would be liable on
the part he has himself indorsed such part being
considered a separate bill by itself.
The drawee is not liable for more than one part since
his order is to accept or pay only one part, (see Sec.
183.)
EXAMPLE:
In the example under Section 179, P, as already
stated, is liable to A, B, and C. In other words, P is
liable for a total of P30,000.00.
If A, in turn, indorses the first part to D, B, the second
part to E and C, the third part to F, then each would
be liable to
his respective indorsee. But R is liable only for one
part or for P10,000.00.
Sec. 181. Acceptance of bill drawn in sets. - 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 to different holders in due course, he is
liable on every such part as if it were a separate bill.
Liability of Acceptor of Different Parts of a Set
The drawee is required to accept only one part of a
bill drawn in a set; and the acceptance may be
written on any part.
But should the drawee accept more than one part
and they are negotiated to holders in due course, he
is liable to every holder of the different parts as if such
parts were separate bills.
Of course, if all the parts are in the hands of the same
holder, the drawee is liable only for one part.
EXAMPLE:
In the example given in Section 179, suppose P,
before negotiating the three parts of the bill,
presented them for acceptance to W and W writes
his acceptance on each part. Then P negotiates the
three parts to A, B, and C, under circumstances
which make them holders in due course.
W is liable to A, B, and C for P10,000.00 each, as if
there were three separate bills. But if P does not
negotiate the three parts, he is liable only for one
part or for P10,000.00.
Sec. 182. 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, and the part at maturity is
outstanding in the hands of a holder in due course,
he is liable to the holder thereon.
Liability of Acceptor Who Pays Part of a Set
Any part of a bill in set may be negotiated. But the
payee is not supposed to negotiate all of the parts
since the only reason for drawing the bill in parts is to
obtain greater assurance that at least one part will
reach the payee or its destination safely. However,
should the payee negotiate the different parts to
different persons then he is liable on each part. (Sec.
180.)
The drawee does not warrant every part of the bill in
a set that is indorsed but only the part accepted by
him. Upon paying the bill, the acceptor should
require surrender of the part bearing his
acceptance. Should he fail to do so, he would still be
liable to a holder in due course of such part.
EXAMPLE:
If W under the preceding example accepts only the
first part and pays the second part without requiring
the first part to be delivered up to him, he will also be
liable to A, notwithstanding the payment to B.
Sec. 183. Effect of discharging one of a set. - Except
as herein otherwise provided, where any one part of
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a bill drawn in a set is discharged by payment or
otherwise, the whole bill is discharged.
Effect of Discharging a Part of a Set
Any part of a bill drawn in a set may be negotiated.
As far as the drawer, however, is concerned, the
entire bill is discharged when any one part is
discharged by payments or otherwise (see Sec. 119.)
because a bill in a set constitutes only one bill.
The phrase "except as herein otherwise provided"
refers to the exceptions mentioned in Sections
180,181, and 182.
LESSON 4: PROMISSORY NOTE AND CHECK
I. Overview
The topic will focus on Consideration in negotiable
instruments, specifically understanding and
knowing: (a) who is an accommodation party; (b)
kinds of an accommodation party; (c) the rights and
liabilities of an accommodation party; and (d) the
difference between an accommodation and
regular party.
II. Objectives
At the end of the lesson you should be able to:
• Learn the meaning and requisites of
consideration that constitute a holder for value
and the legal implication of failure of
consideration.
• Explain who is an accommodation party, kind,
and liabilities and as distinguished from regular
party.
III. Warm-Up Activity
Read again Sections 184 to 189 of The Negotiable
Instruments Law (NIL) plus whatever explanations,
annotations or descriptions you can find on the
subject.
IV. Content
PROMISSORY NOTES AND CHECKS
Sec. 184. Promissory note, defined. - A negotiable
promissory note within the meaning of this Act is an
unconditional promise in writing made by one
person to another, signed by the maker, engaging
to pay on demand, or at a fixed or determinable
future time, a sum certain in money to order or to
bearer. Where a note is drawn to the maker's own
order, it is not complete until indorsed by him.
A promissory note payable to the maker's own order
(not to bearer) is not complete until indorsed by him.
In the absence of delivery, the maker is not liable to
any holder where his indorsement is forged, (see Sec.
14 and 15.)
The same reasoning applies to bills of exchange
payable to the drawer's order; no obligation arises
and the bill is incomplete until the drawer indorses
and delivers it to some other person. But the principle
should not apply after the drawee accepts, since an
obligation has already arisen. The acceptance
makes the bill complete.
The mere fact, however, that a note is not indorsed
does not prevent recovery on the debt for which it
was given by the maker.
There is a conflict in the cases as to whether a maker
who indorses a note payable to himself is liable only
as maker or both as maker and indorser.
Special types of promissory notes
Promissory notes are used in a variety of credit
transactions and usually carry the name of the
transaction involved. When used alone, the term
usually refers to the simplest kind of notes, that is,
those merely containing a promise by one person to
pay a sum of money to another.
Below are some other instruments which are in form
and substance promissory notes.
(1) Certificate of deposit. — It is a written
acknowledgment by a bank of the receipt of
money received or on deposit which the bank
promises to pay to the depositor, or to him or his
order, or to some other person, or to him or his
order, or to bearer, or to a specified person or
bearer, on demand or on a fixed date, often with
interest.
(a) A certificate of deposit creates the relation
of debtor and creditor between the bank
and the depositor. It should not be confused
with the deposit slip issued by the bank when
cash or checks are deposited in a checking
account. A deposit slip is a mere receipt.
(b) A certificate of deposit (commonly called
"CD") is negotiable only if drawn with all the
essential elements of a negotiable paper,
(see Sec. 1.) Its negotiability allows it to be
indorsed or sold to pay debts or to serve as
security (collateral) for a loan. It is not to be
confused with savings deposit. It is most
commonly a time deposit of money with a
bank. In the absence of a promise to pay, it
is a mere receipt.
(c) Certificates of deposit are frequently used by
banks to get deposits for longer periods of
time than regular savings deposits, for which
they pay higher rate of interest. They
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 resemble a check in that the one expected
to pay is always a bank.
(d) The principles governing other types of bank
deposits are applicable to certificates of
deposits, as sure the rules governing
promissory notes when they contain an
unconditional promise to pay a sum certain
of money absolutely.
(2) Bond. — It is an evidence of indebtedness issued
by a public or private corporation, promising to
pay a sum of money on a day certain in die
future. Its negotiability is controlled by the same
rules governing promissory notes, (ibid.) It runs for
a longer period of time than a promissory note
and is issued for debts of substantially larger
amounts. 1
Bonds are of two sorts:
(a) registered bond or one payable only to the
person whose name appears on the face of
the certificate and in the books of the
company. Hence, it is not negotiable. It is
transferable by the registration of the
transferee's name in the books of the
company; and
(b) coupon bond or one to which are attached
coupons which entitle the holder to interest
when due. These interest coupons may be
detached and negotiated just like promissory
notes independent of the main instrument.
(3) Bank note. — It is an instrument issued by a bank
for circulation as money payable to bearer on
demand, (see 8 C.J. 42.)
(4) Due bill. — It is a promissory note which shows on
its face an acknowledgment by a person of his
indebtedness to another. The word "due" is
usually used.
(5) Mortgage note. — Two kinds are: the chattel
mortgage note and the real estate mortgage
note. As the name implies, the first is secured by
personal property and the second, by real
property. In sale of a house, for example, the
note secured by mortgage on the property, is for
the unpaid balance of the purchase price. The
security contract, known as a mortgage, most
frequently provides that the mortgage can be
foreclosed if the note is not paid when it is due.
(6) Title-retaining note. — This type is secured by a
conditional sales contract which ordinarily
provides that the title to the goods shall remain
in the payee’s name until the note is paid in full.
It is used to secure the purchase price of goods.
(7) Collateral note. — It is used when the maker
pledges securities (shares of stocks, bonds, and
other personal property) to the payee to secure
the payment of the amount of the note. The
securities are usually placed with the holder as
collateral security. Banks also use a device
called "signature note" for short-term unsecured
loans or loans made without collaterals.
(8) Judgment note. — This is a note to which a power
of attorney is added enabling the payee to take
judgment against the maker without the
formality of a trial if the note is not paid on its due
date. (Wyatt & Wyatt,
(9) Installment note. — It is a note payable in
specified or periodic installments at
predetermined time such as for payment of a
refrigerator over a 12-month period.
Sec. 185. Check, defined. - A check is a bill of
exchange drawn on a bank payable on demand.
Except as herein otherwise provided, the provisions
of this Act applicable to a bill of exchange payable
on demand apply to a check.
The above provision gives the definition of a check.
It has also been defined as a written order addressed
to a bank or persons carrying on the business of
banking by a party having money in their hands
requesting them to pay on presentment to a person
named therein or to his order or to bearer, a named
sum of money, (see Hawley v. Jete, 10 Ore. 31,45,
Am. Rep. 129.)
Distinctive Characteristics of Checks
The two essential distinctive characteristics of checks
are that they are drawn on a bank and payable
instantly on demand.
(1) A check is customarily made out on the
printed form supplied by the bank but the use
of such form is not required by law. In actual
practice, there is no acceptor to a check.
The bank simply honors the check if it gives
credit, and pays the money. In such case,
the bank stands in the position of the
acceptor.
(2) A check has been defined in terms requiring
the drawer to be a person other than a bank,
a check drawn by a bank being defined as
a draft, (see Sec. 126.) But such instrument is
generally subject to the rules applicable to
checks. (11 Am. Jur. 2d 45-46.)
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 An instrument not drawn on a bank is not a
check although it may be so styled on its
face.
(3) A check need not state that it is payable on
demand. Presentment for acceptance is
unnecessary. By issuing a check, the drawer,
in effect, represents that there are funds in
the bank for its payment.
(4) Aside from serving as an instrument of credit
in the settlement of an obligation, a check
also serves as a receipt after it has been paid
and cancelled by the bank. Checks are
generally governed by the same rules
applicable to bills of exchange payable on
demand.
Checks Not mere Contracts
(1) A representation of funds on deposit. — Checks
cannot be categorized as mere contracts. A
check is an order addressed to a bank and
partakes of a representation that the drawer has
funds on deposit against which the check is
drawn, sufficient to ensure payment upon its
presentation to the bank. It is not a mere
undertaking to pay an amount of money. There
is, therefore, an element of certainty or
assurance that the instrument will be paid upon
presentation.
For this reason, checks have become widely
accepted as a medium of payment in trade and
commerce, as a convenient substitute for
money; they form part of the banking system
and, therefore, not entirely free from the
regulatory power of the state. (Lozano vs.
Martinez, 146 SCRA 323 [1986]; Tan vs. Court of
Appeals, 239 SCRA 310 (1994].)
(2) A representation of credit stated in monetary
value. — The delivery of a check, however, does
not in itself constitute payment of a debt (Art.
1249, Civil Code.) and may be refused by the
creditor.
(3) A substitute for cash. —A check while not
regarded as legal tender is normally, under
commercial usage, a substitute for cash. The
credit represented by it in stated monetary value
is properly capable of appropriation. The
conversion or misappropriation of the amount of
the check by depositing the check payable to
another in one’s personal account when he has
no right thereto constitutes estafa penalized
under Article 315 (par. 3.) of the Revised Penal
Code.
A check which has been cleared and credited
to the account of the creditor shall be equivalent
to a delivery to the creditor of cash in an amount
equal to the amount credited to his account.
(Equitable PCI Bank vs. Ong, 502 SCRA 119
[2007].) A check duly- stamped "paid" gives rise
to the presumption that it was already paid to
the intended payee. (Citibank,
N.A. vs. Sembrano, 504 SCRA 378 [2006].)
(4) As payment for an obligation. —A check is not a
legal tender, and an offer of a check in payment
of a debt is not a valid tender of payment. Since
a check is only a substitute for money and not
money, the delivery of such an instrument does
not, by itself, operate as payment, and this is
especially true in the case of a postdated check.
The obligation is not extinguished and remains
suspended until the payment by the commercial
document is actually realized, (par. 3, Art. 1249,
Civil Code.) A creditor may validly refuse
payment by check, whether it be a manager's,
cashier's, or personal check. Acceptance of a
check implies an undertaking of due diligence
on the part of the holder presenting it for
payment.
Under Article 1249 of the Civil Code, a check
produces the effect of payment only when it has
been cashed, or when through the fault of the
creditor it has been impaired. Thus, if the check
delivered by the drawer for the redemption of
property was dishonored by the bank upon
presentment by the sheriff for insufficient funds,
the redemption is null and void. On the other
hand, if the check had only become stale and
was consequently dishonored by the bank,
without fault of the drawer then it would be unfair
to deprive him of the rights as he, had acquired
as redemptioner, particularly, if, after all the
value of the check has otherwise been received
or realized by the party concerned.
Check and Ordinary Bill of Exchange Distinguished
A check differs from an ordinary or regular bill of
exchange in these particulars:
(1) A check is always drawn on a bank or banker,
while an ordinary bill may or may not be drawn
on a bank;
(2) A check is always payable on demand, while an
ordinary bill is either payable on demand or at a
fixed or determinable future time (Sec. 4.);
(3) A check is supposed to be drawn against a
previous deposit of funds, while an ordinary bill
need hot be drawn against a deposit;
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(4) A check need not be presented for acceptance
(see Sec. 185.), while an ordinary bill is required
to be presented for acceptance in certain cases
(Sec. 143.);
(5) A check is ordinarily intended for immediate
payment, while an ordinary bill is for circulation
as an instrument of credit;
(6) The death of the drawer of a check with the
knowledge of the bank revokes the authority of
the bank to pay, while the death of the drawer
of an ordinary bill does not revoke the authority
of the drawee to pay;
(7) A check must be presented for payment within
a reasonable time after its issue (Sec. 186.), while
an ordinary bill must be presented for payment
within a reasonable time after its last negotiation
(Sec. 171.);
(8) The drawer of a check not presented within a
reasonable time after its issue is discharged from
liability thereon to the extent of the loss caused
by the delay (Sec. 186.), while the drawer of an
ordinary bill is totally discharged (Sec.70.); and
(9) When a check is accepted or certified, the
drawer and indorsers are discharged from
liability thereon (Sec. 188.), while in an ordinary
bill, they remain liable in spite of the
acceptance, (see Sec. 84.)
Special Types of Check
Checks are usually three-party instruments but on
certain types of checks (Nos. 2 and 3), the bank can
serve as both the drawer and the drawee. The most
common type of check is the personal check or
check drawn by a depositor of a bank on the bank.
The other types are enumerated below.
(1) Memorandum check. — It is like an ordinary
check except that die word "memorandum/'
"mem" or "memo" is written upon the face of the
check, signifying that the drawer engages to
pay the bona fide holder absolutely, and not
upon a condition to pay upon presentment at
maturity and if due notice of the presentment
and non-payment should be given.
(a) In other words, the drawer may be sued the
same as a maker upon a promissory note
although it is to be distinguished from the
latter which is but a mere promise to pay.
Such a check is an evidence of debt against
the drawer, and although may not be
intended to be presented, has the same
effect as an ordinary check. If the check is
presented for payment and the drawer has
sufficient funds in the bank to meet it, the
bank must honor the same, and if passed to
a third person, will be valid in his hands like
any other check.
(b) A memorandum check comes within the
meaning of Section 185 and, therefore, falls
within the ambit of B.P. Big. 22, the Bouncing
Checks Law (infra.), which does not
distinguish between the kinds of check. It is a
common practice in commercial
transactions to require debtors to issue
checks on which creditors must rely as
guarantee of payment, or as evidence of
indebtedness, if not as mode of payment.
(2) Cashier’s check. — It is a check of the bank’s
cashier on the bank itself payable on demand to
a payee.
(a) It is, in effect, a bill of exchange drawn by the
cashier of a bank upon the bank itself,
committing its total resources, integrity and
honor behind the check. A cashier's check is
a primary obligation of the issuing bank and
accepted in advance by the act of its
issuance. Hence, it is not subject to
countermand by the payee after
indorsement and has the same legal effect
as a certificate of deposit or a certified
check. It is really the bank’s own check and
may be treated as a promissory note with the
bank as the maker (see Sec. 130.) and,
therefore, the holder need not prove
presentment for payment or present the bill
to the drawee for acceptance. It operates
as an assignment of funds represented by die
check to the credit of the payee or holder.
(Sec. 189.)
(b) A cashier's check issued on request of a
depositor is the substantial equivalent of a
certified check (infra.) and the deposit
represented by the check passes to the
credit of the checkholder who is, therefore, a
depositor to that amount. It is payable either
to the person who purchases the check from
the bank, or to the person who is to cash it. It
is a well-known and accepted practice in
the business sector that a cashier's check is
deemed as cash or "regarded substantially
to be as good as the money which it
represents. In transactions involving sale of
property, the seller may require the
purchaser (or bidder) to submit cashier's (or
manager's) checks if he wants to have
guaranteed payment of the price.
If the check is drawn by a bank upon another
bank in which it has funds on deposit, in favor
of a third party, it is called bank draft.
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(3) Manager’s check. — It is one drawn by the
bank’s manager upon the bank itself.
(a) It is like a cashier’s check and certified check
(infra.) both as to effect and use, which, in
the commercial world, is regarded
substantially to be as good as the money it
represents. (Bank of the Phil. Islands vs. Court
of Appeals, 326 SCRA 641 [2000]; Rizal
Commercial Banking Corp. vs. Security Bank
& Trust Co., 577 SCRA407 [2009].) The mere
fact that a manager’s check does not bear
the payee's signature at the back does not
negate deposit thereof in payee's account.
(Citibank vs. Sabeniano, 504 SCRA 378
[2006].)
(b) A demand draft is very different from a
cashier’s or manager's check. The former is
an order upon a third party purporting to be
drawn upon a deposit of funds. The latter is a
primary obligation of the bank which issues it
and constitutes its written promise to pay
upon demand. (Republic vs. Phil. National
Bank, supra.)
(4) Traveler’s check. — It is one upon which the
holder's signature must appear twice; one, to be
affixed by him at the time it is issued and the
second, for counter-signature, to be affixed by
him in the presence of the payee before it is
paid, otherwise, it is incomplete.
(a) Its purpose is to provide the traveler safe and
convenient method by which to supply
himself with funds in almost all parts of the
civilized world without the hazard of carrying
the money on his person. Anyone finding or
stealing traveler’s checks cannot use them,
for only the purchaser may negotiate them.
The bank or company issuing the instrument
has the right to refuse to pay it when it does
not bear the countersign agreed upon and
the owner of the check also has the right to
insist that it shall not be paid when not
countersigned.
(b) Traveler's checks differ from ordinary checks
in that they are sold by banks and express
companies and require both signature and
counter-signature by the purchaser. They
constitute a complete purchase and sale of
credit, have the characteristics of a cashier’s
check when issued by a bank, and are
foreign bills of exchange. (11 Am. Jur. 2d 47.)
Technically, most traveller's checks are not
checks but drafts (see Sec. 126.) because the
drawee (e.g., American Express) is ordinarily
not a bank.
(5) Certified check. — It is one which bears upon its
face an agreement by the drawee-bank that
the check will be paid on presentation. The usual
practice is by stamping or writing the word
"certified" upon the check. In some respects it is
similar to a certificate of deposit, (see Sec. 184.)
(6) Crossed check. — It is one which bears across its
face two parallel lines diagonally, usually on the
upper left corner between which are either the
name of a bank or the words "and company" in
full or abbreviated. The Negotiable Instruments
Law does not contain any provision on the
subject of crossed checks although the practice
has been given judicial cognizance.
Sec. 186. Within what time a check must be
presented. - 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.
Checks intended for immediate use.
A check, unlike an ordinary bill of exchange, is
supposed to be drawn against a previous deposit of
funds for it is ordinarily designed for immediate
payment and not to be retained or kept by the
holder for such time as he may want. For this reason
it is of greater importance than in the case of bill that
a check shall be promptly presented, and the
drawer notified of non-payment, so that he may
speedily inquire into the cause of the refusal, and
take prompt action to secure his funds deposited in
the bank.
Hence, the special rule set forth in Section 186.
Risk of loss for drawee’s insolvency.
While delivery of a check produces the effect of
payment only when it is encashed, the rule is
otherwise if the drawer (debtor) was prejudiced by
the holder’s/payee's (creditor’s) unreasonable
delay in presentment.
The drawer of a check assumes the risk of the
drawee's insolvency only during a reasonable period
for presentment. (Keenan v. McClure, 252 N.W. 204.)
So, the holder should exercise his rights to obtain
payment within a reasonable time after its issue in
order to preserve his right of recourse on the drawer
in case of non-payment by the drawee, If he fails to
do so, the loss from non-payment must fall on him.
No transfer or series of transfer can prolong the risk of
the borrower (or indorser) beyond this period though
each party is allowed the same period as between
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himself and his immediate predecessor, that the
payee had, as between himself and the drawer; for
no transferee can stand on any better footing than
his transferor, in respect to the time within which the
check must be presented in order to render the
drawer's (or previous indorser's) liability absolute in
the event of the failure of the bank.
The Bouncing Checks Law.
(1) Act penalized. — Under Batas Pambansa Big. 22,
"the making, drawing and issuing of a check
payment of which is refused by the drawee
because of insufficient funds in or credit (an
arrangement or understanding with a bank for
die payment of such credit) with such bank,
when presented within ninety (90) days from the
date of the check, shall be prima facie evidence
of knowledge of such insufficiency of funds or
credit unless such maker or drawer pays the
holder thereof the amount due thereon, or
makes arrangements for payment in full by the
drawee of such check within five (5) banking
days after receiving notice that such check has
not been paid by the drawee." (Sec. 2 thereof.)
(a) This law took effect on June 29, 1979, fifteen
days after its publication (i.e., when it was
officially released for circulation) on June 14,
1979, as provided in its effectivity clause. It
penalizes the act of making, drawing, or
issuing a bouncing or bum check and not
only the fact of its dishonor.
(b) Where the check is drawn by a corporation,
company or entity, the person or persons
who actually signed the check in behalf of
such drawer is/are liable under B.P. Big. 22.
(Sec. 1 thereof.) A person charged with a
transitory or continuing crime under which
violation of B.P. Blg. 22 is categorized may be
validly tried in any municipality or city where
the offense was in part committed, it being
understood that the first court taking
cognizance of the case, excludes the other.
(c) Conviction for violation of B.P. Big. 22 "imports
deceit" and "certainly relates to and affects
the moral character of a person. Deceit,
however, is not an essential element of the
offense; malice or criminal intent is
immaterial, (infra.)
(d) It has been held that B.P. Big. 22 is not a bill of
attainder for under it, every element of the
crime is still to be proven before the trial court
to warrant a conviction for violation thereof.
(2) Elements of the offense punishable under the
law. — They are:
(a) The making, drawing and issuance of any
check to apply on account or for value;
(b) The knowledge of the maker, drawer, or
issuer that at the time of issue he does not
have sufficient funds in, or credit with the
drawee-bank for the payment of such check
in full upon its presentment; and
(3) Subsequent dishonor of the check by the
drawee-bank for insufficiency of funds or credit,
or dishonor for the same reason had not the
drawer, without any valid cause, ordered the
bank to stop payment
(4) Ways of violating the law. — There are actually
two (2) ways of violating B.P. Big. 22 or two (2)
distinct acts punished:
(a) by making or drawing and issuing a check to
apply on account or for value knowing at the
time of issue that the check is not sufficiently
funded; and
(b) by failing to keep sufficient funds or to
maintain a credit to cover the full amount of
the check when presented to the drawee
bank within a period of 90 days from the date
of the check for which reason it is dishonored
by the drawee banks.
(c) Presumption of prima facie evidence of
knowledge of insufficient funds. — B.P. No. 22
creates a presumption juris tantum that the
second element of prima facie evidence of
knowledge of insufficient funds exists when
the first and third elements of the offense are
present,
(d) Requisites. — For this presumption to arise,
the prosecution must prove the following:
1. The check is presented within 90 days
from the date of the check;
2. The drawer or maker of the check
receives notice that such check has not
been paid by the drawee; and
3. The drawer or maker of the check fails to
pay the holder of the check the amount
due thereon, or to make arrangements
for its payment in five (5) working days
after receiving notice that such check
has not been paid by the drawee.
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(e) Notice of non-payment. - This presumption or
prima facie evidence of knowledge cannot
arise if no notice of nonpayment is sent to the
drawer or maker, or there is no proof as to
when such notice was received by the
drawer since there could simply be no way
of reckoning the crucial 5-day period.
(f) Evidence to the contrary.—\l not rebutted,
the presumption suffices to sustain a
conviction. But such presumption cannot
hold if there is evidence to the contrary.
Petitioner definitely had no knowledge that
his funds or credit would be insufficient when
the checks would be presented for
encashment. He could not have foreseen
that he would be advised by his own bank in
the future, to close his account to avoid
paying the hefty banks charges that came
with each 'stop payment7 order issued to
prevent private respondent from encashing
the 30 or so checks in its possession. What the
prosecution has established is the closure of
petitioner's checking account. But this does
not suffice to prove the second element of
the offense under B.P. Big. 22, which explicitly
requires 'evidence of knowledge of
insufficient funds' by the accused at the time
the check or checks are presented for
encashment."
(g) Novation theory. — This theory, recognized in
certain cases, does not apply where the offer
to pay by the debtor (10% of the amount of
the check within a certain period and the
balance to be rolled over for 90 days), turned
out only to be an empty promise which
effectively delayed the complainant's filing
of a case for violation of BP Big. 22 against
the accused. Even if another check was
intended to replace a bad one, its issuance
15 days after the drawer had been notified
of the previous check cannot negate the
presumption that the drawer knew of the
insufficiency of funds to cover the amount of
the previous check.
(h) Presentment of check within 90 days. —
Nowhere in Section 2 of the law does it
require a maker to maintain funds in his bank
account for only 90 days. That the check
must be deposited within 90 days is simply
one of the conditions for the prima facie
presumption of knowledge of lack of funds to
arise. It is not an element of the offense.
Neither does it discharge the drawer from his
duty to maintain sufficient funds in his
account within a reasonable time thereof,
(see Sec. 186.) Since by banking practice, a
check becomes stale after more than six (6)
months, or 180 days, a check deposited
within said period, cannot be considered
stale. The only consequence of the failure to
present the check for payment within the 90-
day period is that there arises no prima facie
presumption of knowledge of insufficiency of
funds. The prosecution may still prove such
knowledge through other evidence.
(5) Gravamen of the offense. — It is knowingly issuing
a worthless check or a check that is dishonored
uponits presentment for payment and not the
non-payment of the obligation that is being
punished.
(a) Section 2 of B.P. Big. 22 establishes a prima
facie evidence of knowledge of insufficient
funds, because knowledge involves a state
of mind which is difficult to establish The
drawer can overcome the prima facie
presumption by proving payment of the
value of the check either by the drawer or by
the drawee or those arrangements was
made for its payment within five (5) banking
days from notice of the dishonor but such
check has not been paid by the drawee
bank. Such fact is a complete defense. This
defense lies regardless of the strength of the
evidence of the prosecution to prove the
elements of the offense.
(b) Only a full payment of the face value of the
check at the time of its presentment or during
the five-day grace period can exonerate the
drawer from criminal liability.
1. Act No. 2031, The Negotiable
Primary Instruments Law.
References 2. De Leon, Hector S & De Leon Hecotr
Jr, M. The Philippine Negotiable
Instruments Law (and Allied Laws)
Annotated. Manila: REX Book Store,
2004.
Other References 1. Sundiang, Jose R. & Aquino, Timoteo
B. Reviewer on Commercial Law.
Manila: REX Book Store, 2011.
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