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NEGOTIABLE INSTRUMENT
Written contract for the payment of money, by its form intended as substitute for money and intended to pass
from hand to hand to give the holder in due course the right to hold the same and collect th e 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 3rd 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
Note: It is the ENTRUSTEE NOT the ENTRUSTER is the real owner of the trust receipt.
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.
Documentary Bill of Exchange is one to which are attached documents of title to be delivered
and surrendered to the drawee when he accepts or pays the bill.
8. D/A and D/P Bills of Exchange -
Documents Against Payment Bill D/P Bill is a sight or time bill to which are attached documents
to be delivered and surrendered to the drawee when he has paid the corresponding bill.
Documents Against Acceptance Bill D/A Bill is a time bill to which are attached documents to
be delivered and surrendered to the drawee when he accepts the bill.
9. Sight bills are bills which are payable upon presentation or at sight or on demand.
10. Time or usance bills are bills which are payable at a fixed future time or at a determinable
future time.
Inland Bill of Exchange is a bill which is or on its face purports to be BOTH drawn and payable within the
Philippine Islands.
Foreign Bill of Exchange- is a bill which is, or on its face purports to be, drawn or payable outside the
Philippine Islands.
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.
NEGOTIABILITY
REQUISITES (SUDOC)
1. in writing and signed by maker or drawer
no person liable on the instrument whose signature does not appear thereon
Exceptions:
* A person signing in a trade or assumed name
* Principal is liable if a duly authorized agent signs in his own behalf (Agent must be
duly authorized; He adds words indicating that he signs as an agent; He must disclosed his
principal)
(Signature by procuration-operates as notice that the agent has limited
authority to sign and principal is bound if agent acted beyond the limits of his authority)
* In case of forgery, the forger is liable even if his signature does not appear on the
instrument
* Where the acceptor makes his acceptance of a bill on a separate paper
* Where a person makes a written promise to accept a bill before it is drawn
one who signs in a trade or assumed name liable to the same extent as if he had signed in his own name
signature of any party may be made by a duly authorized agent, no particular form of appt. necessary
3. payable on demand,
Negotiable Instruments Law 3
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
(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
(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
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)
NEGOTIATION
When an instrument is transferred from one person to another as to constitute the transferee the holder
thereof.
If payable to BEARER, negotiated by delivery; if payable to ORDER, negotiated by indorsement of holder +
delivery
INDORSEMENT
It is the writing of the name of the indorser on the instrument with the intent either to transfer the title to the
same, or to strengthen the security of the holder by assuming a contingent liability for its future payment.
The indorsement must be written on the instrument itself or upon a paper attached thereto. The signature of
the indorser is sufficient. (Sec. 31)
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)
Transfer his rights as such indorsee, but all subsequent indorsees acquire only title of first indorsee under
restrictive indorsement
2. non-restrictive
2. unconditional
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
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)
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)
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
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.
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
Negotiable Instruments Law 7
*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)
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
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
LIABILITIES OF PARTIES
A. PRIMARY PARTIES
Person primarily liable: person who by the terms of the instrument is absolutely required to pay the same.
1. Liability of Maker
a. Promises to pay it according to its tenor
b. admits existence of payee and his then capacity to indorse
3. Liability of Acceptor
Promises to pay instrument according to its tenor
Admits the following:
a. existence of drawer
b. genuineness of his signature
c. his capacity and authority to draw the instrument
d. 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
drawer may insert in the instrument an express stipulation negativing / limiting his own liability to holder
2. Liability of Indorsers:
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
Negotiable Instruments Law 9
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.
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
twenty-four 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.
- The drawee must sign because without his signature he would not be bound See Section 18, NIL.
N.B. Acceptance is NOT required for CHECKS for the same are payable on demand.
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.
Negotiable Instruments Law 10
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.
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.
- 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
iii. That the holder shall take the bill upon the credit of the promise.
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.
- 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.
- 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.
- 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.
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.
Negotiable Instruments Law 11
NOTE: In those instances found in Section 143 it is NECESSARY in order to charge persons
secondarily liable (Section 144):
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.
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.
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.
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.
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)
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 liable, namely, the drawer and indorsers as the case may be
b. Non-payment (bill and note)indorsers
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
By Whom Made:
a. By maker or acceptor
b. Surety, if a primary party or
c. By an agent on behalf of the principal
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.
* When a bill has been DULY NOTED the protest may be subsequently extended as of
the date of the noting.
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.
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.
NOTE: Protest is dispensed with by any circumstances which would dispense with notice
of dishonor.
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.
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.
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.
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.
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 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.
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.
NOTE:
Where a note is drawn to the makers own order, it is NOT complete until indorsed
by him.
Classes of Bonds:
1. Mortgage bonds 6. Income bonds
2. Equipment Bonds 7. Convertible bonds
3. Collateral trust bonds 8. Redeemable Bonds
4. Guaranteed bonds 9. Registered Bonds
5. Debentures
Negotiable Instruments Law 19
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.
NOTE:
- Acceptance is NOT required for checks for the same are PAYABLE ON DEMAND.
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 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
Negotiable Instruments Law 20
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.
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.
must be presented within six (6) months otherwise it will become stale.
- 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.
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.
Form of certification:
- No particular form is required BUT IT MUST BE IN WRITING.
- 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.
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.
Negotiable Instruments Law 22