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 makers own order, it is not
complete until indorsed by him
Parties:
1. Makerone who makes a promise and signs the
instrument
2. Payeeparty 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 its 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. Drawerone who gives the order to pay money to a 3 rd
party
2. Draweeperson to whom the bill is addressed and
who is ordered to pay
3. Payeeparty 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. Bankers Acceptance a draft or a bill of
exchange of which the acceptor is a bank or banker
engaged generally in the business of granting
bankers acceptance credit. It is similar to a trade
acceptance, the fundamental difference being that
the bankers 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.

9.
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.

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.

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-NPD)
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

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

NEGOTIABILITY
REQUISITES (SUDOC)
1. in writing and signed by maker or drawer

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 a particular account to
be debited with amount, or
b. 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. with interest, or
b. by stated installments, or
c. by stated installments with a provision that upon default
in payment of any installment/interest, the whole shall
become due, or
d. with exchange, whether at a fixed rate or at the current
rate, or
e. with costs of collection or an attorneys fee, in case
payment not made at maturity

3. payable on demand,
when expressed to be payable on demand, or at sight, or
on presentation;
when no time for payment expressed, or
where an instrument is issued, accepted or indorsed when
overdue, it is, as regards the person so issuing, accepting,
or indorsing it, payable on demand

or at a fixed or determinable future time

when its expressed to be payable at a fixed period after
date or sight, or
on or before a fixed or determinable future time fixed
therein, or
on or at a fixed period after the occurrence of a specified
event which is certain to happen, though the time of
happening be uncertain
an instrument payable upon a contingency not negotiable,
and happening of event doesnt cure it

4. payable to order

where it is drawn payable to the order of a specified person

or to him or his order. May be drawn payable to order of --a. a payee not the maker/drawer/drawee, or
b. drawer or maker, or
c. drawee, or
d. two or more payees jointly, or
e. holder of an office for time being
when the instrument is payable to order the payee must be
named or otherwise indicated therein with reasonable
certainty
or bearer,
when expressed to be so payable
when payable to person named therein or bearer
when payable to order or fictitious/non-existent person,
and such fact known to the person making it so payable, or
when name of payee doesnt purport to be the name of
any person, or
when the only/last indorsement is in blank

5. where addressed to drawee: such drawee named/

indicated therein with reasonable certainty
bill may be addressed to two or more drawees jointly,
whether partners or not, but not to two or more drawees in
the alternative or in succession
bill may be treated as a PN, at option of holder, where
a. drawer and drawee are same person
b. drawee is fictitious/incapacitated
CONTINUATION OF NEGOTIABLE CHARACTER
Until:
1. restrictively indorsed

2. discharged by payment or otherwise

EFFECT OF ADDITIONAL PROVISIONS
(Sec.5) Gen. Rule: order/promise to do any act in addition to
the payment of money renders instrument non-negotiable.
Exception: negotiability not affected by provisions w/c
1. authorize sale of collateral security if instrument not paid at
maturity
2. authorize confession of judgment
3. waives benefit of any law intended for advantage/protection
of obligor
4. give holder election to require something to be done in lieu
of money
Other Instances when negotiability not affected
(Sec. 6) a. Not dated
b. Does not specify the value given or that any value has
been given therefore
c. Does not specify the place where it is drawn or the
place where it is payable
d. Bears a seal
e. Designates a particular kind of current money in w/c
payment is to be made
Sec. 17. Construction where instrument is ambiguous.
(a) Where the sum payable is expressed in words and also
in figures and there is a discrepancy between the two, the sum
denoted by the words is the sum payable; but if the words are
ambiguous or uncertain, reference may be had to the figures
to fix the amount;
(b) Where the instrument provides for the payment of interest,
without specifying the date from which interest is to run, the

interest runs from the date of the instrument, and if the

instrument is undated, from the issue thereof;
(c) Where the instrument is not dated, it will be considered to
be dated as of the time it was issued;
(d) Where there is a conflict between the written and
printed provisions of the instrument, the written provisions
prevail;
(e) Where the instrument is so ambiguous that there is
doubt whether it is a bill or note, the holder may treat it as
either at his election;
(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, he is to be deemed an indorser;
(g) Where an instrument containing the word "I promise to
pay" is signed by two or more persons, they are deemed to be
jointly and severally liable thereon.
DATE IN AN INSTRUMENT
Presumption as to date: Said date is the date when it was
made by the maker, drawn by the drawer, accepted by the
drawee or indorsed by the payee. (Sec. 11)
Effect of ante-dating or Post-dating: Instrument is not
invalid, provided not done for an illegal or fraudulent purpose.
(Sec. 12)
* Ante-dating: Giving an instrument a date that is earlier
than the date it was issued
* Post-dating: Giving an instrument a date that is later
than the date it was issued
When date may be inserted?

a. Where an instrument is payable at a fixed period after date

but is issued undated
b. Where an instrument is payable at a fixed period after sight
but the acceptance is undated
DELIVERY (Sec. 16)
Issuance-the first delivery of the instrument complete in form
to a person who takes it as a holder.
Steps:
1. Mechanical Act of writing, complying with requirements
of Sec. 1
2. Delivery with intention to give effect thereto.
NI incomplete and revocable until delivery for the purpose of
giving effect thereto. As between:
a. immediate parties
b. a remote party other than holder in due course
delivery, to be effectual, must be made by or under the
authority of the party making/drawing/accepting/indorsing
in such case delivery may be shown to have been
conditional, or for a special purpose only, and not for the
purpose of transferring the property in the instrument
PRESUMPTION OF DELIVERY
Where the instrument is no longer in the possession of a party
whose signature appears thereon, a valid and intentional
delivery by him is presumed until the contrary is proved (*if in
the hands of a HDC, presumption conclusive)
Indorsement must be of entire instrument. (cant be
indorsement of only part of amount payable, nor can it be to
two or more indorsees severally. But may be indorsed as to
the residue of partially paid instrument) [Sec. 32]

KINDS OF INDORSEMENT
A. As to manner of future method of negotiation
1. Special specifies the person to whom/to whose order the
instrument is to be payable; indorsement of such indorsee is
necessary to further negotiation.
2. Blank specifies no indorsee, instrument so indorsed is
payable to bearer, and may be negotiated by delivery
The holder may convert a blank indorsement into a special
indorsement by writing over the signature of the indorser in
blank any contract consistent with the character of the
indorsement (Sec. 35)
B. As to kind of title transferred
1. restrictive
prohibits further negotiation of instrument,
constitutes indorsee as agent of indorser, 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, but all subsequent
indorsees acquire only title of first indorsee under restrictive
indorsement
2. non-restrictive
C. As to kind of liability assumed by indorser
1. qualified- constitutes indorser as mere assignor of title (eg.
without recourse)

2. unqualified
D. As to presence/absence of express limitations put by
indorser upon primary obligors privileges of paying the
holder
1. conditional additional condition annexed to indorsers
liability.
Where an indorsement is conditional, a party required to pay
the instrument may disregard the condition, and make
payment to the indorsee or his transferee, whether condition
has been fulfilled or not
Any person to whom an instrument so indorsed is negotiated
will hold the same/proceeds subject to rights of person
indorsing conditionally
2. unconditional
INDORSEMENT OF BEARER INSTRUMENT (Sec. 40)
Where an instrument payable to bearer is indorsed specially,
it may nevertheless be further negotiated by delivery
Person indorsing specially liable as indorser to only such
holders as make title through his indorsement
INDORSEMENT WHERE INSTRUMENT PAYABLE TO TWO
OR MORE PERSONS WHO ARE NOT PARTNERS (Sec.41)
All must indorse unless the one indorsing has authority
to indorse for others

INSTRUMENT DRAWN OR INDORSED TO A PERSON AS

CASHIER (Sec.42)
Presumed to be payable to the bank or corporation
INDORSEMENT WHERE NAME MISSPELLED (Sec. 43)

May continue indorsing through the misspelled name,

or he may add his proper signature
Presumption as to time of Indorsementbefore instrument
is overdue, except where indorsement bears date which is
after maturity.
Presumption as to place of IndorsementAt the place
where instrument dated
Striking Out Indorsements, Effect:
* The indorser whose indorsement is struck out and all
indorsers subsequent to him relieved from liability.
UNINDORSED INSTRUMENTS (Sec. 49)
1. transfer vests in transferee such title as transferor had
therein
2. right of transferee to have indorsement of transferor for
purposes of determining HDC negotiation effective upon actual
indorsement
PRIOR PARTY WHO NEGOTIATES INSTRUMENT, effects
(Sec. 50)
Not entitled to enforce payment against any intervening party
to whom he is personally liable
HOLDER IN DUE COURSE
REQUISITIES
1. complete and regular upon its face

sec. 124 (effect of material alterationnot defense

against HDC)

Material Alteration: any change in the instrument which

affects or changes the
liability of the parties.
Spoliation- A material alteration made by a stranger

sec. 125 what constitute material alterations:

a. Date
b. Sum Payable, either for principal or interest
c. Time or place of payment
d. Number or relations of the parties
e. Medium of currency or which adds a place of
payment
2. holder became such before it was overdue, without
notice of any previous dishonor

sec. 53 (instrument payable on demand negotiated after

unreasonable length of time: holder is not HDC)

sec. 12 (effect antedating/postdating)

3. taken in good faith and for value

sec. 24 (presumption of consideration)

sec 25 (Value: is any consideration sufficient to support a

simple contract)

sec. 26 (Holder for value: one who has given a valuable

consideration for the instrument issued or negotiated to him )

sec. 27 (When a holder has lien on the instrument, by

contract or implication he is deemed a holder for value to the
extent of the lien)
4. at time negotiated to him, he had no notice of -a.infirmity in instrument
b.defect in title of person negotiating:
What defect constitutes (Sec.55)
1. instrument/signature obtained through fraud, etc., illegal
consideration/means, or

2. instrument negotiated in breach of faith, or fraudulent

circumstances
Notice
Sec. 54-notice before full amt. paid: deemed HDC
only to the extent of the
amount paid by him
Sec. 56-notice of defect: Actual knowledge necessary
RIGHTS OF HOLDER IN DUE COURSE
1. sue thereon in his own name
2. payment to him in due course discharges instrument
3. holds the instrument free from any defect of title of prior
parties and free from personal defenses available to parties
among themselves
4. 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,
NI is subject to same defenses as if it were non-negotiable.
(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.
WHO DEEMED HDC (Sec. 59)

prima facie presumption in favor of holder

but when shown that title of any person who has

negotiated instrument was defective, presumption is reversed,
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. real defense attaches to instrument; on the principle
that the right sought to be enforced never existed/there was
no contract at all. Available to all parties both immediate and
remote including HDC.
2. personal defense growing out of agreement; renders it
inequitable to be enforced against defendant. Available to prior
parties among themselves but w/c are not good against a
HDC.
DEFENSES
1. INCAPACITY:
REAL:
indorsement/assignment
by
corporation/infant passes property but corp/infant no liability
2. FORGERY: Real:
Definition: the counterfeit-making or fraudulent alteration of
any writing, and may consist in the signing of anothers name
or the alteration of an instrument in the name, amount,
description of the person and the like, with intent thereby to
defraud.
Bad Forgeryforgery which is apparent or naked to the eye
Good Forgeryrequires examination of signature if it was
forged
Effect when Signature is forged or made without authority
of person whose signature it purports to be.
General Rule:
a. wholly inoperative
b. no right to retain instrument, or give discharge, or enforce
payment vs. any party, can be acquired through or under such

signature (unless forged signature unnecessary to holders

title)
Exception:
unless the party against whom it is sought to enforce such
right is precluded from setting up forgery/want of authority
Precluded:
a. parties who make certain warranties, like a general
indorser or acceptor
b. estopped/negligent parties
3. MATERIAL ALTERATION
Where NI materially altered w/o assent of all parties liable
thereon, avoided, except as against
1. party who has himself made, authorized or assented to
alteration
2. and subsequent indorsers
But when an instrument has been materially altered and is in
the hands of a HDC not a party to the alteration, HDC may
enforce payment thereof according to orig. tenor
*material alteration a personal defense when used to deny
liability according to org. tenor of instrument, but real defense
when relied on to deny liability according to altered terms.
4. FRAUD
a. fraud in execution: real defense (didnt know it was a
Negotiable Instrument)
b. fraud in inducement: personal defense (knows its
Negotiable Instrument but deceived as to value/terms)
5.

COMPLETE, UNDELIVERED INSTRUMENT

Personal defense (sec. 16)


If instrument not in possession of party who signed,
delivery prima facie presumed

If holder is HDC, delivery conclusively presumed

6. INCOMPLETE, UNDELIVERED INSTRUMENT

Real defense (sec. 15)

Instrument will not, if completed and negotiated without

authority, be a valid contract in the hands of any holder, as
against any person whose signature was placed thereon
before delivery
7. INCOMPLETE, DELIVERED

Personal defense (sec. 14)

2 Kinds of Writings:
1. Where instrument is wanting in any material particular:
person in possession has prima facie authority to complete it
by filing up blanks therein
2. Signature on blank paper delivered by person making the
signature in order that the paper may be converted into a NI:
prima facie authority to fill up as such for any amount

3. Duress amounting to forgery

4. Fraud in factum or Fraud in
esse contractus
5. Minority (available to the
minor only)
6. Marriage in the case of a
wife
7. Insanity where the insane
person has a guardian
appointed by the court
8. Ultra
Vires
acts
of
corporation
9. Want of authority of agent
10. Execution of instrument b/w
public enemies
11. Illegalityif declared void
for any purpose
12. Forgery

In order that any such instrument, when completed, may

be enforced against any person who became a party thereto
prior to its completion:
1. must be filled up strictly in accordance w/ authority given
2. within a reasonable time
but if any such instrument after completion is negotiated to
HDC, it's valid for all purposes in his hands, he may enforce it
as if it had been filled up properly
Real Defenses
1. Material Alteration
2. Want
of
delivery
incomplete instrument

of

Personal Defenses
1. Absence
or
failure
of
consideration whether partial or
total

LIABILITIES OF PARTIES

2. Want of delivery of complete

instrument
3. Insertion of wrong date in an
instrument
4. Filling up of blank contrary to
authority given or not w/in
reasonable time
5. Fraud in inducement
6. Acquisition of instrument by
force, duress or fear
7. Acquisition of instrument by
unlawful means
8. Acquisition of the instrument
for an illegal consideration
9. Negotiation in breach of faith
10.
Negotiation
under
circumstances
that
amount to fraud
11.
Mistake
12.
Intoxication
13.
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

A. PRIMARY PARTIES

Person primarily liable: person who by the terms of the

instrument is absolutely required to pay the same.

drawer may insert in the instrument an express stipulation

negativing / limiting his own liability to holder
2.

1. Liability of Maker
a. Promises to pay it according to its tenor
b. admits existence of payee and his then capacity to
indorse
2. Status of drawee prior to acceptance or payment

sec. 127 (bill not an assignment of funds in hands of

drawee)

sec. 189 (when check does not operate as assignment

until bank certifies or accepts it)
3.

a.
b.
c.
d.

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. SECONDARY PARTIES
1. Liability of Drawer
a. Admits existence of payee and his then capacity to
endorse
b. Engages that on due presentment instrument will be
accepted, or paid, or both, according to its tenor and that
c. If it be dishonored, and the necessary proceedings on
dishonor be duly taken, he will pay the amount thereof to the
holder or to an subsequent indorser who may be compelled to
pay it

Liability of Indorsers:

Qualified Indorser and one Negotiating by Delivery

(Sec 65)
a. Instrument genuine, in all respects what it purports to be
b. He has good title
c. all prior parties had capacity to contract
d. 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, warranty only

extends in favor of immediate transferee

Liability of a General or Unqualified Indorser

a. instrument genuine, good title, capacity of prior parties
b. instrument is at time of indorsement valid and subsisting
c. on due presentment, it shall be accepted or paid, or both,
according to tenor
d. if it be dishonored, and necessary proceedings on
dishonor be duly taken, he will pay the amt. To holder, or to
any subsequent indorser who may be compelled to pay it

Order of Liability among Indorsers

1. among themselves: liable prima facie in the order they
indorse, but proof of another agreement admissible
2. but holder may sue any of the indorsers, regardless of
order of indorsement
3. 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,
for the purpose of lending his name to some other person

Accomodation Party liable on the instrument to holder for

value even if holder, at time of taking instrument, knew he was
only an Accomodation Party
Some Terms:

Accommodation Bill or Noteone to which the

accommodation party has put his name, w/o
consideration, for the purpose of accommodating some
other party who is to use it and is expected to pay it.

Accomodated Partyis one in whose favor a

person, w/o receiving value therefore, signs an
instrument for the purpose of lending his credit and
enabling said party to raise money upon it.
Liability of Irregular Indorser

Where a person not otherwise a party to an instrument,

places thereon his signature in blank before delivery, hes
liable as an indorser, in accordance w/ these rules:
1. Instrument payable to order of 3rd person: liable to payee
and to all subsequent parties
2. Instrument payable to the order of maker/drawer, or payable
to bearer: liable to all parties subsequent to maker/drawer
3. Signs for accommodation of payee, liable to all parties
subsequent to payee
Liability of an Agent
Signature of any party may be made by duly authorized
agent, establish as in ordinary agency

Where instrument contains or a person adds to his signature

words indicating that he signs for or on behalf of a principal, he
is not liable on the instrument if he was duly authorized, but
the mere addition of words describing him as an agent without
disclosing his principal, does not exempt from personal liability.
Signature per procuration operates as notice that the agent
has but a limited authority to sign, and the principal is bound
only in case the agent in so signing acted within the actual
limits of his authority
Where a broker or agent negotiates an instrument without
indorsement, he incurs all liabilities in Sec. 65, unless he
discloses name of principal and fact that hes only acting as
agent

PRESENTMENT
A. In Promissory Notes
Purpose:
Not necessary to make the maker liable, but is necessary to
make the secondary parties liable.
Requisites:
For a valid presentment for payment of a promissory note, the
following are necessary:
a. made within a reasonable time after issue;
b. by the holder or his agent;
c. to the party liable under it;
d. at a reasonable hour on a business day; and
e. at the proper place.
***The holder must exhibit the instrument to the debtor and
should deliver it to said debtor if the latter pays.

When NOT required/excused

Presentment is NOT required:
1. when after due diligence presentment cannot be made;
2. when presentment is waived, and
3. when the indorser is an accommodated party.
B. In Bills of Exchange
Acceptance is the signification by the drawee of his assent to
the order of the drawer.
How made:
- The acceptance may be on the bill, on a separate paper
(allonge), and may even be in writing before the bill is drawn.
- The drawee, if he wants to dishonor, must do so
expressly within twenty-four (24) hours from
presentment to him. If he refuses to act, tears the bill,
or refuses to return the bill within said period of twentyfour hours, he is deemed to have accepted the bill
implied acceptance.
- A sight draft (usually accompanying a letter of credit in
importations) is payable on demand and needs no
acceptance by the drawee.
Classes of Acceptance
1. General and Qualified
General Acceptance a general acceptance assents without
qualification to the order of the drawer.
Qualified Acceptance it varies the effect of the bill as drawn.
The acceptance is qualified if it is:
a. Conditional;
b. Partial;

c. Local;
d. Qualified as to time;
e. Accepted by some or more of the drawees but not by
all.

2. Express and Constructive

- Acceptance is express if written on the instrument by the
drawee; and constructive, if drawee, within twenty four hours
from presentment to him of the instrument, destroys the same,
or refuses or fails to return the bill accepted or unaccepted.
REQUISITES OF ACTUAL ACCEPTANCE:
1. in writing, and
2. signed by the drawee,
3. it must not express that the drawee will perform his
promise by another means than the payment of money,
and
4. it must be communicated or delivered to the holder.
ACCEPTANCE, HOW MADE?
- It is usually done by writing across the face of the bill the
word ACCEPTED or words of similar import, e.g.
HONORED, I WILL PAY THE BILL, SEEN followed by the
signature of the drawee.
- The drawee must sign because without his signature he
would not be bound See Section 18, NIL.
- Acceptance by telegram has been held sufficient.

N.B. Acceptance is NOT required for CHECKS for the same

are payable on demand.

iii. That the holder shall take the bill upon

the credit of the promise.

EFFECT OF ACCEPTANCE:
Upon acceptance, the drawee becomes liable on the bill.
The bill becomes in effect a note, the acceptor standing in the
place of the maker, and the drawer, in the place of the first
indorser.
But should the drawee refuse to accept, the payee or the
holder has no recourse against him but only against the
drawer and indorsers, if any.

Section 136.
- The drawee is allowed twenty-four hours after
presentment in which to decide whether or not
he will accept the bill; the acceptance if given,
dates as of the day of presentation.

Is payment equivalent to acceptance? NO, - the payment

of a check does not include or imply its acceptance in the
sense that this word is used in Section 62, NIL.
WHERE BILL MAY BE WRITTEN:
- Acceptance may be made
1. on the bill itself, or
2. on a separate paper; and if on a separate paper
a. it may be acceptance as to an existing bill; or
b. it may be acceptance as to a non-existing bill.
-

If the bill is non-existent, the acceptance on a

separate paper must comply with following
requirements:
i. That the contemplated drawee shall
describe the bill to be drawn and
promise to accept it.
ii. That the bill shall be drawn within a
reasonable time after such promise is
written; and

NOTE: The time allowed begins from the time

of delivery and not after demand for a return of
the bill and the time for returning the bill to the
holder does not begin to run from the demand
for its return but from the date of its delivery.

- Drawee bank is NOT entitled to 24 hours to

decide whether for payment NOT acceptance. But,
if the check is presented for certification, this ruling
will not apply, as certification is equivalent to
acceptance.
Constructive Acceptance: - this class of acceptance is NOT
in writing.
1. Where the drawee to whom the bill is delivered for
acceptance, destroys it; or
2. Where the drawee refuses, within 24 hours after
such delivery or within such time as is given him, to
return the bill accepted or not accepted.
- If the holder should demand its return before
twenty-four hours, the drawee would be
required to comply on pain of being held as an
acceptor; but return within twenty-four hours
unaccepted would not be a dishonor.

In all the foregoing, the drawee will be deemed

to have accepted the bill even if there is NO
ACTUAL WRITTEN ACCEPTANCE by him.

Instances when a bill may be accepted:

1. Before the bill has been signed by the drawer;
2. Even when the bill is otherwise incomplete;
3. Even when the bill is overdue;
4. Even after it has been dishonored by non-acceptance
or by non-payment.
- 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.
-

Effect of taking qualified acceptance: Where

a qualified acceptance is taken THE
DRAWER and INDORSERS are discharged
from liability on the bill unless they have
expressly or impliedly authorized the holder to
take qualified acceptance or subsequently
assents thereto.
When the drawer or indorser receives notice of
qualified acceptance he must within a
REASONABLE TIME express his dissent to
the holder or he will be deemed to have
assented thereto.

Presentment for Acceptance

Definition:
It is the production or exhibition of a bill of
exchange to the drawee for his acceptance.
GENERAL RULE:
Presentment for acceptance is NOT NECESSARY to
render any party to the bill liable.
EXCEPTIONS:
1. Where the bill is payable after sight, or in any other case,
where presentment for acceptance is necessary in order
to fix the maturity of the instrument; or
2. Where the bill is expressly stipulates that it shall be
presented for acceptance; or
3. Where the bill is drawn payable elsewhere than at the
residence or place of business of the drawee.
NOTE: In those instances found in Section 143 it
is NECESSARY in order to charge persons
secondarily liable (Section 144):
i. to make presentment for acceptance or
ii. to negotiate the bill within a reasonable
time.
Presentment, how made:
-Presentment MUST be made by or on behalf of the
holder:
Requisites:
1. It must be presented at a reasonable hour;
2. It must be presented on a business day; and
3. It must be presented before the bill is overdue.

To WHOM will it be presented?

1. To the DRAWEE or some person authorized to
ACCEPT or REFUSE ACCEPTANCE on his
BEHALF; and
2. Where a bill is addressed to two or more
drawees who are not partners; presentment
must be made to them all unless one has
authority to accept or refuse acceptance for all,
in which case presentment may be made to him
only;
3. Where the drawee is dead presentment may be
made to his personal representative;
4. Where the drawee has been adjudged a
bankrupt or an insolvent or has made an
assignment for the benefit of creditors,
presentment may be made to him or to his
trustee or assignee.
Days when presentment may be made:
A bill may be presented for acceptance on ANY DAY on
which negotiable instruments may be presented for
payment.
When SATURDAY is NOT OTHER WISE A HOLIDAY
presentment for ACCEPTANCE may be made before
twelve oclock noon on that day.
Note: The only difference between Section 72 and 85 is
that under Section 146 there is no distinction between

the instruments payable at a fixed or determinable

future time and instruments payable on demand.
Where the holder of a bill drawn payable elsewhere
other than the place of business or the residence of the
drawee has no time, with the exercise of reasonable
diligence to present the bill for acceptance before
presenting it for payment on that day it falls due THE
DELAY CAUSED BY PRESENTING THE BILL FOR
ACCEPTANCE BEFORE PRESENTING IT FOR
PAYMENT IS EXCUSED AND DOES NOT
DISCHARGE THE DRAWERS AND INDORSERS.
Instances when PRESENTMENT FOR ACCEPTANCE IS
EXCUSED and A BILL MAY BE TREATED AS
DISHONORED BY NON-ACCEPTANCE:
1. Where the drawee is dead, or has absconded, or is a
fictitious person or a person not having capacity to
contract by bill;
2. Where, after the exercise of reasonable diligence,
presentment can not be made;
3. Where, although presentment has been irregular,
acceptance has been refused on some other ground.
Duty of the holder where bill is not accepted.
Where a bill is duly presented for acceptance and is
not accepted within the prescribed time, the person
presenting it must treat the bill as dishonored by nonacceptance or he loses the right of recourse against the
drawer and indorsers.
HOW? By giving NOTICE OF DISHONOR or by making a
PROTEST when required.

 Presentment For Payment Of Accepted Bill

Purpose: The purpose of presentment for payment of an
accepted bill is to collect from the acceptor; and if refused, to
collect from the secondary parties.
Requisites:
1. The accepted bill must be presented for payment within a
reasonable time from the last negotiation by the holder or his
agent
2. to the acceptor or his agent
3. at a reasonable hour on a business day
4. at the proper place as defined.
The bill must be exhibited to the acceptor and
surrendered to him when he pays.
When Presentment for payment is excused;
a. when after due diligence, it cannot be made
b. when the drawee is a fictitious person
c. where there is a waiver of presentment.
DISHONOR
1 .In PROMISSORY NOTE
- In a promissory note, dishonor by non-payment takes
place when it is duly presented for payment and payment is
refused or cannot be obtained; or if presentment is excused,
the instrument is overdue and unpaid.
Effect: There is an immediate right of recourse by the holder
against persons secondarily liable, which requires notice of
dishonor (Sec. 84)

2. In BILLS OF EXCHANGE
- In bills of exchange, where the bill is presented for
acceptance and is returned dishonored, or within twenty four
hours from presentment, is not returned accepted or
unaccepted, or when presentment for acceptance is excused
and the bill is not accepted
there is a dishonor by non-acceptance.
-There is a dishonor by non-payment if the bill, after it has
been accepted is not paid when presented for payment, or
presentment being excused, is not paid on the date of
maturity.
Effect of Dishonor by Non-acceptance: An immediate right
of recourse against the drawer and indorsers accrues to the
holder and NO PRESENTMENT for payment is necessary.
(Sec. 151)
Note: Same effect in Dishonor by Non-payment is Promissory
Note
NOTICE OF DISHONOR
--bringing either verbally or by writing, to the knowledge of
the drawer or indorser of an instrument, the fact that a
specified negotiable instrument, upon proper proceedings
taken, has not been accepted or has not been paid and that
the party notified is expected to pay it.
REQUISITES:
1. Given by a holder or his agent(SPA necessary), or by any
party who may be compelled by the holder to pay. (Sec. 90)
2. Given to a secondarily liable party or his agentSec. 97)
-Notice to one partner is notice to all even though there
has been dissolution

-Notice to persons jointly liable who are not partners must

be given to each of them unless one of them has authority to
receive such notice for others
-Notice to bankrupt may be given to his trustee or
assignee
3. Given as soon as the instrument is dishonored and within
the periods provided by law. (Sec. 102)
4. Given at the proper place (Secs. 103 & 104)
TO WHOM GIVEN
a. Non-acceptance(bill)to persons secondarily
namely, the drawer and indorsers as the case may be
b. Non-payment (bill and note)indorsers

liable,

BY whom Given
a. The holder
b. Another, on behalf of the holder
c. Any party to the instrument who may be compelled to pay it
to the holder, and who would have a right of reimbursement
from the party to whom notice is given

WHEN NOTICE OF DISHONOR IS DISPENSED WITH:

1. When the party to be notified knows about the dishonor,
actually or constructively
2. If waived (either before the time of giving notice has arrived
or after the omission to give due notice) (Sec. 109)
--If waiver embodied in instrument itself it binds all parties,
but if written above the signature of an indorser, the latter is
only bound
3. When after due diligence, it cannot be given (Sec. 112)

WHEN NOTICE OF DISHONOR NEED NOT BE GIVEN

TO DRAWER
1. Drawer and drawee are the same person
2. Drawee is a fictitious person or a person not having capacity
to contract
3. Drawer is the person to whom the instrument is presented
for payment
4. Drawer has no right to expect or require that the drawee or
acceptor will honor the instrument;
5. Drawer has countermanded payment.

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, 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. Every negotiable instrument is payable at the time fixed
therein without grace.
2. When the day of maturity falls on a Sunday or a Holiday, the
instrument is payable on the next succeeding business day.
3. Instruments falling due or payable on a Saturday are also to
be presented for payment on the next succeeding business
day, 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. (Sec. 85)
REQUISITES OF PAYMENT IN DUE COURSE
1. Made at of after maturity.
2. Made to the holder.
3. In good faith and without notice that the holders title is
defective. (Sec. 88)
Good faith refers to the maker or acceptor and not to the
holder.
DISCHARGE OF NEGOTIABLE INSTRUMENT
- A release of all the parties liable from obligations arising
thereunder. It renders the instrument without force and effect
and, consequently, it can no longer be negotiated.
WHEN A NEGOTIABLE INSTRUMENT IS DISCHARGED
1. By payment in due course by or on behalf of the
principal debtor
Payment in Due Course. Requisites
a. Payment must be made at or after maturity
b. Payment must be made to the holder
c. Payment must be made in good faith and w/o
notice that the holders title is
defective
By Whom Made:
a. By maker or acceptor
b. Surety, if a primary party or
c. By an agent on behalf of the principal
2. Payment by accommodated party
3. Intentional cancellation by the holder

4. By any act which will discharge a simple contract for

the payment of money.
5. When the principal debtor becomes the holder of the
instrument at or after maturity in his own right.
WHEN
PERSONS
DISCHARGED

SECONDARILY

LIABLE

(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.
Cancellation: it includes the act of tearing, erasing,
obliterating or burning. It is not limited by writing the word
cancelled or paid or drawing criss-cross lines across
the instrument. It may be made by any other means by w/c
the intention to cancel the instrument may be evident.
Renunciation (Sec. 122)-The act of surrendering a right or
claim w/o recompense, but it can be applied w/ equal
propriety to the relinquishing of a demand upon an
agreement supported by a consideration

> Holder may expressly renounces his rights against

any party to the instrument before, at or after its maturity.
> If renunciation is absolute and unconditional in favor
of the principal debtor, instrument is discharged
> Notice is required to affect rights of HDC
> Renunciation must be in writing unless instrument is
delivered up to the person primarily liable thereon.
PROTEST
It is a formal statement in writing made by a notary under
his seal of office at the request of the holder of a bill or note, in
which it is declared that the same was on a certain day
presented for payment (or acceptance as the case may be),
and such payment (or acceptance) was refused, whereupon
the notary protests against all parties to such instrument and
declares that they will be held responsible for all loss or
damage arising from its dishonor. It means all the steps or
acts accompanying the dishonor of a bill or note necessary to
charge an indorser,
Necessity of Protest: Protest is required only for FOREIGN
BILLS, but not for inland bills or notes. HOWEVER, they may
also be protested if desired. OMISSION OF PROTEST, where
protest is required, will DISCHARGE the DRAWER and the
INDORSERS.
Instances when protest is required:
1. Where the foreign bill is dishonored by nonacceptance;
2. Where the foreign bill is dishonored by non-payment, it
not having been dishonored by non-acceptance;
3. Where the bill has been accepted for honor, it must be
protested for non-payment to the acceptor for honor; or

4. Where the bill contains a referee in case of need, it

must be protested for non-payment before it is
presented for payment to the referee in case of need.
Protest, how made:
The protest must be annexed to the bill or must contain a
copy thereof, and must be under the HAND AND SEAL of the
NOTARY making it and must specify:
1. The time and place of presentment;
2. The fact that presentment was made and the manner
thereof;
3. The cause or reason for protesting the bill;
4. The demand made and the manner given, it any, or the
fact that the drawee or acceptor could not be found.
Reason for requiring protest:
1. for uniformity in international transactions because
most countries require it and
2. in order to furnish authentic and satisfactory evidence
of the dishonor to the drawer who, from his residence
abroad, may experience difficulty in verifying the matter
and may be forced to rely on the representation of the
holder.
Protest may be made by
a. A notary public or
b. By any respectable resident of the place where the bill
is dishonored, in the presence of two or more credible
witnesses.
Protest, when made:
* Protest MUST be made on the day of its dishonor
UNLESS delay is excused.

* When a bill has been DULY NOTED the protest may be

subsequently extended as of the date of the noting.

NOTE: Protest is dispensed with by any circumstances which

would dispense with notice of dishonor.

DULY NOTED means that a notary public jots down on

a note on the bill or an paper attached thereto, or in his
registry book, consisting of his initials or signature and
those matters required to be stated in Section 153.

When a - PROTEST MAY BE MADE ON A COPY OR

WRITTEN PARTICULARS THEREOF.
1. bill is lost or destroyed ; or
2. is wrongfully detained from the person entitled to hold it

Protest where made:

GENERALLY the protest must be made at the place
where the instrument is dishonored.

ACCEPTANCE FOR HONOR

Acceptance of a bill made by a stranger to it before
maturity, where the drawee of the bill refused to accept it, and
the bill has been protested for non-acceptance or where the
bill has been protested for better security.

EXCEPTION: - where that when the bill drawn payable at

the place of business or residence of some person other
than the drawee has been dishonored by non-acceptance
IT MUST BE PROTESTED FOR NON-PAYMENT AT
THE PLACE WHERE IT IS EXPRESSED TO BE
PAYABLE, AND NO FURTHER PRESENTMENT FOR
PAYMENT TO, OR DEMADNN ON, THE DRAWEE IS
NECESSARY.
A bill MAY BE PROTESTED BEFORE MATURITY aka
PROTEST FOR BETTER SECURITY
Requisites for Protest for better security:
- A protest for better security must be made:
a. After acceptance;
b. But before the date of maturity; and
c. When the acceptor has been adjudged bankrupt and
insolvent or has made an assignment for the benefit of
creditors.

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, as the drawer,
drawee, or indorser, or somebody else.
Requisites for acceptance for honor:
1. The bill must have been previously protested (a) for
non-acceptance or (b) for better security;
2. The bill is not overdue at the time of the acceptance for
honor;
3. The acceptor for honor must be a stranger to the bill.
4. The holder must give his consent.
Acceptance for honor: - acceptance supra protest how
made:
1. It must be in writing;
2. It must indicate that it is an acceptance for honor; and
3. It must be signed by the acceptor for honor.
NOTE:

It is necessary that the acceptor for honor MUST

APPEAR before a notary public and declare that he
accepts the protested bill in honor of the drawer or
indorser, as the case may be, and that he will pay it
at the appointed time.
The LIABILITY OF THE ACCEPTOR FOR HONOR is
SECONDARY NOT primary or absolute.

2. If it is to be presented in some other place other than

the place where it was protested, then it must be
forwarded within the time specified in Section 104.
Note: Delay in making presentment is excused when the delay
was caused by events which are BEYOND HIS CONTROL
and NOT IMPUTABLE TO DEFAULT, MISCONDUCT or
NEGLIGENCE.

ACCEPTOR FOR HONOR agrees to pay if:

1. presentment for payment has been made;
2. the drawee does not pay;
3. the bill is protested for non-payment; and
4. notice of dishonor is given to him.

When a bill is DISHONORED by the ACCEPTOR FOR

HONOR it must be protested for non-payment by him.
Reason: In order to fix the liability of the indorsers.

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.

Requisites for payment for honor:

1. The bill has been protested for non-payment;
2. ANY PERSON, even a party thereto may pay supra
protest.
NOTE:
As distinguished from acceptance for honor the
acceptor for honor MUST BE A STRANGER. In
payment for honor the PAYOR SUPRA PROTEST
may even be a PARTY to the instrument.

Bills which MUST BE PROTESTED FOR NON-PAYMENT

before it will be presented for payment:
1. Where a dishonored bill has been accepted for honor
supra protest; or
2. Where a dishonored bill contains a referee in case of
need.
Presentment for payment to acceptor for honor, how
made:
1. 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;

PAYMENT FOR HONOR

Form for payment for honor:

1. The payment must be attested by notarial act appended
to the protest, or form an extension to it; and
2. The notarial act must be based in a declaration by the
payer for honor.

Procedure for payment for honor:

1. The payer or his agent goes to a notary public and
declares his intention to pay the bill and for whose honor
he pays.
2. The notary then records the declaration in the protest or
in a separate paper attached to it.
3. The payor then notifies the person for whose honor he
pays within reasonable time.
Purpose of payment for honor:
Instead of simple negotiation to the person desiring to
pay, 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.
Preference of parties offering to pay for honor:
- The person WHOSE PAYMENT will DISCHARGE MOST
PARTIES to the bill is to be given the preference.
Effects on subsequent parties where bill is paid for honor:
1. All parties subsequent to the party for whose honor it is
paid are discharged.
2. 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.
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.

Rights of payer for honor:

1. He acquires the rights of the holder under Section 175;
and
2. He has also the right to receive both the bill and the
protest.
BILLS IN SET
Bills in set one composed of various parts, each part being
numbered and containing a reference to the other parts, all of
which parts constitute but one bill.
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.
Right of holders where different parts are negotiated:
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.
Liability of holder who indorses two or more parts of a set
to different persons:
- He is liable on EVERY SUC H PART; and
- EVERY INDORSER SUBSEQUENT to him is LIABLE on
the part he has himself indorsed AS IF SUCH PARTS
WERE SEPARATE BILLS.
Acceptance of bills in set:
- The acceptance may be written on any part and it must
be written on ONE PART only.

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.
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 thereof.
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.

is a written acknowledgment by a bank of the

receipt of money on deposit which the bank
promises to pay to the depositor, bearer, or to
some other person or order.
It is NOT ipso facto negotiable it must first
comply with the requirements provided under
Section 1, NIL.

2. Bonds
- A promise, under seal, to pay money.
- The bond certifies that the issuing company is
indebted to the bondholder for the amount specified on
the face of the bond, and contains an agreement of the
company to pay the sum at a specified time in the
future, and meanwhile to pay a specified interest on the
principal amount at regular intervals, generally six
months apart. They are negotiable if it the requisites in
Section 1, NIL are complied with.
Classes of Bonds:

PROMISSORY NOTES AND CHECKS

Promissory Note is an unconditional promise in writing
made by one person to another, signed by the maker,
engaging to pay on demand, or at a fixed or determinable
future time, a sum certain in money to order or bearer.
NOTE:
Where a note is drawn to the makers own order, it is
NOT complete until indorsed by him.
Special types of promissory notes:
1. Certificate of deposit

1.
2.
3.
4.
5.
6.
7.
8.
9.

Mortgage bonds
Equipment Bonds
Collateral trust bonds
Guaranteed bonds
Debentures
Income bonds
Convertible bonds
Redeemable Bonds
Registered Bonds

Negotiable Instruments Law

10. Coupon Bonds those which are attached a sheet of

dated, numbered and similarly printed coupons which
the bondholder may cut off when due or thereafter.
Such coupons may be served and deposited in a bank,
negotiated before the maturity of the interest they
represent, and transferred just like any commercial
paper. They are negotiable if it the requisites in Section
1, NIL are complied with.
11. Bank Notes
- Are promissory notes of the issuing bank payable
to bearer on demand and intended to circulate as
money. 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.
However, they are not money.
12. Due Bills
- is an instrument whereby one person
acknowledges his indebtedness to another.
CHECK is a bill of exchange drawn on a bank payable
on demand. It is a written order on a bank, purporting to be
drawn against a deposit of funds for the payment of all
events, of a sum of money to a certain person therein
named or to his order or to cash and payable on demand.
NOTE:
- Acceptance is NOT required for checks for the
same are PAYABLE ON DEMAND.

26

Check is not Legal Tender, but produces the effect

of payment when:
a. The check was encashed. (Encashment is not
limited to physical encashment over the counter of the
drawee bank. A check can be considered encashed
through the clearing house, or when the check had been
credited to the account of the creditor)
b. When through the fault of the creditor the check is
impaired
c. In case of redemption
Kinds of checks:
1. Ordinary CheckThe most common check issued by a
bank to a client who opens a checking account
2. Cashiers check it is a check drawn by the cashier of
a bank in the name of the bank against the bank itself
payable to a third person or order.
3. Managers 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 cashiers check as to
effect and use.
4. Gift Check-Similar to a cashiers or managers check
and may be signed either by the cashier or manager. It is
indicated as a Gift Check, so as to be used as a gift for
birthdays, weddings, graduations and similar occasions.
5. Memorandum Checks a check on which is written the
word memorandum, memo, and mem, signifying that
the drawer engages to pay the bona fide holder
absolutely and not upon a condition to pay upon
presentment and non-payment.
- If it bounces the drawer can be charged for
violation of BP 22.
6. Certified Checks a check on which the drawee bank
has written an agreement whereby it undertakes to pay

Negotiable Instruments Law

the check at any future time when presented for

payment, such as, by stamping on the check the word
certified or Good For Payment and underneath it is
written the signature of the cashier.
7. Travelers Check- one issued by a bank to a holder,
usually a traveller, who must put his signature upon
purchase of the check and countersign with the same
signature on the space indicated on its face or back
when using the check as a mode of payment in his
travel. When these checks are lost or stolen, the
purchaser can notify the agent of the seller anywhere in
the world and prevent the use of the lost or stolen
travellers check.
8. Crossed check One which has two parallel lines,
usually on the upper left hand corner.
How is crossing of check done:
-it is usually done by drawing two parallel lines
transversally on the face of the check. A check may
be crossed (1) specially or (2) generally.
Crossing specially a check is crossed specially when the
name of a particular banker or a company is written between
the parallel lines drawn transversally on the face of the check.
Here, the drawer is instructing the drawee bank not to honor
the check unless the payee is identified by another bank
Crossing generally a check is crossed generally when only
the words and company are written between the parallel
lines, or when nothing is written at all between the parallel
lines. Here, the drawer is instructing the drawee bank not to
honor the check unless the payee is identified by the particular
bank named in between the two parallel lines.

27

NOTES:
1. Under crossed check the payee has the duty to
ascertain the holders title to checks.
2. Drawee should not encash a crossed check but merely
the same for deposit.
3. Where other than payee of crossed checks presented it
for payment, there is no proper presentment and
drawer is not liable thereon.
Effects of Crossing a check
1. The check may not be encashed but only deposited in the
bank
2. The check may be negotiated only once to one who has an
account with a bank
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.
Advantages of crossing check:
- 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.

Features of the Check

I. Face.
1. Date
2. Payee
3. Amount in figures

Negotiable Instruments Law

4. Amount in words
5. Drawer (Account Name)
6. Drawee-Bank
7. Account Number
8. Check Number
9. Magnetic Ink Character Recognition Code (MICR)a
code designed to facilitate the clearing of checks among
banks.
10. Space for signature of the drawer
II. Dorsal Side/Back of the Check
1. 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.

Effect if the check was allowed to become stale? (Stale

when not encashed w/in 6 months)
- the drawer is discharged but only to the extent of the loss
caused by the delay. Hence, if no loss or injury is shown, the
drawer is not discharged.
Certification of check is an agreement whereby the bank
against whom a check is drawn, undertakes to pay it at any
future time when presented for payment. A bank is not
obliged to the depositor to certify checks.
-

- a check under BP 22 must be presented for payment to

the bank within 90 days from date so that the holder will
enjoy the benefit of the prima facie presumption that the
maker, drawer, or issuer knows at the time of issue that he
does not have sufficient funds in or credit with the drawee
bank for payment of such check.
A check is a bill of exchange payable on demand is
intended for immediate use and not to circulate as a
promissory note.

The certification of a check is EQUIVALENT to an

ACCEPTANCE.

Form of certification:
- No particular form is required BUT IT MUST BE IN
WRITING.
-

must be presented within six (6) months otherwise it will

become stale.

28

The letters O.K., with the initials of the cashier of a

bank do not constitute a sufficient certification under
modern banking practice.

Effect of Certification:
1. It is equivalent to acceptance and is the operative act
that makes the drawee bank liable;
2. It operates as an assignment of the funds of the drawer
in the hands of the drawee bank; and
3. If obtained by the holder, it discharges persons
secondarily liable thereon.

Negotiable Instruments Law

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 and all indorsers are discharged from
liability thereon.

Indorsers subsequent
discharged.

to

the

certification

are

not

When check operates as an assignment.

A check of itself does not operate as assignment of any
part of the funds to the credit of the drawer with the bank,
and the bank is not liable to the holder unless and until it
accepts or certifies the check.
Stop Payment Orderan instruction by the drawer
addressed to the drawee bank directing the latter not to honor
or pay the check. A drawer may stop payment of the check
before the same is accepted, certified or paid by the drawee
bank.
Requisites for Stop Payment Order
1. It must describe the check with reasonable accuracy
2. It must be given to an authorized officer or employee of
the drawee bank
3. It must be positive and unqualified
4. It must give the bank sufficient time prior to
acceptance, certification or payment to enable the bank, in the
exercise of reasonable diligence to stop payment.
Iron-Clad Rule: Prohibits the countermanding of payment of
certified checks.

29

Cases when Bank May Refuse Payment

1. The bank is insolvent
2. The drawers deposit is insufficient or he has no account
with the bank or said account had been closed or garnished
3. The drawer is insolvent and proper notice is received by the
bank
4. The drawer dies and proper notice is received by the bank
5. The drawer has countermanded payment
6. The holder refuses to identify himself
7. The bank has reason to believe that the check is forgery.

Negotiable Instruments Law

30