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III. Negotiable Instruments Law 3.

Banker’s Acceptance – a draft or a bill of


exchange of which the acceptor is a bank
A. FORMS AND INTERPRETATION or banker engaged generally in the
business of granting banker’s acceptance
1. Requisites of Negotiability credit. It is similar to a trade acceptance,
the fundamental difference being that the
An instrument to be negotiable, must banker’s acceptance is drawn against a
conform bank instead of the buyer.
to the following requirements: 4. Trust Receipt – the written or printed
W (a) It must be in writing and signed by document signed by the entrustee in
the maker favor of the entruster containing terms
or drawer; and conditions substantially complying
U(b) Must contain an unconditional promise or with the provisions of PD 115 (Trust
order to pay a certain sum in money; Receipt Law, which took effect on January
P(c) Must be payable on demand, or at a fixed 21, 1973). No further formality of
or execution or authentication shall be
determinable future time; necessary to the validity of the trust
O (d) Must be payable to order or to receipt.
bearer; and
Where the instrument is addressed to a
drawee, he 5. Treasury Warrants – a “treasury warrant”
must be named or otherwise indicated bearing on its face the words “payable
therein with from the appropriation for food
reasonable certainty. (Sec. 1) administration” is actually an order for
payment out of a particular fund and is
2. Kinds of Negotiable Instruments NOT UNCONDITIONAL, and does not fulfill
the one of the essential requirements of a
a. Promissory notes negotiable instrument. (Abubakar v.
Auditor General)
Unconditional promise to pay in writing made
by one person to another, signed by the
maker, engaging to pay on demand or a fixed
determinable future time a sum certain in 6. Money Order – a species of draft drawn
money to order or bearer. When the note is by the post-office upon another for an
drawn to maker’s own order, it is not amount of money deposited at the first
complete until indorse by him. (Sec. 184 NIL) post office by the person purchasing the
money order and payable at the second
b. Bills of Exchange office to a payee named in the order.

Unconditional order in writing addressed by


one person to another, signed by the person Note: Money order is NOT
giving it, requiring the person to whom it is negotiable.
addressed to pay on demand or at a fixed or
determinable future time a sum certain in 7. Clean and Documentary Bills of Exchange
money to order or to bearer. (Sec. 126 NIL) – “Clean bill of exchange” is one to which
are not attached to documents of title to
be delivered to the person against whom
TYPES OF BILL OF EXCHANGE: the bill is drawn when he either accepts
or pays the bill.
1. Draft – a common term for all bills of
exchange and they are used
synonymously. “Documentary Bill of Exchange” is one to
which are attached documents of title to
be delivered and surrendered to the
NOTE: In bank drafts, DRAWER and DRAWEE drawee when he accepts or pays the bill.
are liable to purchaser of draft for not
complying with his instructions. 8. D/A and D/P Bills of Exchange -
“Documents Against Payment Bill” – “D/P
2. Trade Acceptance – a bill of exchange Bill” is a sight or time bill to which are
payable to order and at a certain attached documents to be delivered and
maturity, drawn by a seller against the surrendered to the drawee when he has
purchaser of goods as drawee, for a fixed paid the corresponding bill.
sum of money, showing on its face the
acceptance of the purchaser of the goods “Documents Against Acceptance Bill” –
and that it has arisen out of a purchase “D/A Bill” is a time bill to which are
by goods by the acceptor. attached documents to be delivered and
surrendered to the drawee when he Blanks, when may be filled. Where the
accepts the bill. instrument is wanting in any material
particular, the person in possession thereof
9. “Sight bills” are bills which are payable has a prima facie authority to complete it by
upon presentation or at sight or on filling up the blanks therein. And a signature
demand. on blank paper delivered by the person
10. “Time or usance bills” – are bills which making the signature in order that the paper
are payable at a fixed future time or at a may be converted into a negotiable
determinable future time. instrument operates as a prima facie
authority to fill it up as such for any amount.
(Sec. 14)
11. Inland Bill of Exchange – is a bill which is
or on its face purports to be BOTH drawn a. Authority to fill up the blanks
and payable within the Philippine Islands.

12. Foreign Bill of Exchange- is a bill which is, The law speaks of material particular. It
or on its face purports to be, drawn or may be defines as any particular proper
payable outside the Philippine Islands. to be inserted in a negotiable instrument
a. to be drawn in the Philippines but to make it complete. Thus, blanks for
payable outside thereof; or date, due date, name of payee, amount,
b. to be payable in the Philippines but or rate of interest may be filled in.
drawn outside thereof.

B. COMPLETION AND DELIVERY b. Authority to put any amount

1. Insertion of Date

Where an instrument expressed to be A signature on a blank paper delivered in


payable at a fixed period after date is issued order that may be converted into a
undated, or where the acceptance of an negotiable instrument operates as a
instrument payable at a fixed period after prima facie authority to fill it up as such
sight is undated, any holder may insert for any amount.
therein the true date of issue or acceptance,
and the instrument shall be payable
accordingly. The insertion of a wrong date
does not avoid the instrument in the hands of c. Right against party prior to completion
a subsequent holder in due course; but as to
him, the date so inserted is to be regarded as
the true date. (Sec. 13)
The instrument may be enforced only
The holder may put a date in an instrument against a PARTY PRIOR to completion if
when: filled up strictly in accordance with the
a. an instrument expressed to be payable at authority given and within a reasonable
a fixed period after date is issued time.
undated
b. where acceptance of an instrument
payable at a fixed period after sight is
undated d. Right of holder in due course

Effect of insertion of wrong date:


The defense that the instrument had not
1. The insertion of a wrong ate in an undated been filled up in accordance with the
instrument by one having knowledge of the authority given is NOT available as
true date of issue or acceptance will avoid the against a holder in due course. Sec. 14
instrument as to him merely raises a personal defense.

2. But not as to a subsequent holder in due


course who may enforce the same
3. Incomplete and Undelivered
notwithstanding the improper date. In the
Instruments
hands of a holder in due course, the date
inserted, even if wrong, is to be regarded as
Where an incomplete instrument has not
the true date.
been delivered, it will not, if completed and
negotiated without authority, be a valid
2. Completion of Blanks
contract in the hands of any holder, as
against any person whose signature was g. If delivery was made, it may be shown to
placed thereon before delivery. (Sec. 15) have been conditional, or for a special
a. Defense even against a holder in due purpose only and not for transferring title.
course
C. SIGNATURE
b. Defense available to parties prior to
delivery 1. Signing in Trade Name

The invalidity of the above instrument No person liable on the instrument whose
is only with reference to the parties signature does not appear thereon, except as
whose signature appear on the herein otherwise provided. But one who signs
instrument BEFORE and not after in a trade name will be liable to the same
delivery. extent as if he signed in his own name. (Sec.
18)
4. Complete but Undelivered
Instruments 2. Signature of Agent

Every contract on a negotiable instrument is The signature of any party may be made by a
incomplete and revocable until delivery of the duly authorized agent. No particular form of
instrument for the purpose of giving effect appointment is necessary for this purpose
thereto. As between immediate parties, and and the authority of the agent may be
as regards a remote party other than a holder established as in other cases of agency. (Sec.
in due course, the delivery, in order to be 19)
effectual, must be made either by or under
the authority of the party making, drawing, Where the instrument contains or a person
accepting, or indorsing, as the case may be; adds to his signature words indicating that he
and in such case the delivery may be shown signs for or on behalf of a principal, or in a
to have been conditional, or for a special representative capacity, he is not liable on
purpose only, and not for the purpose of the instrument if he was duly authorized; but
transferring the property in the instrument. the mere addition of words describing him as
But where the instrument is in the hands of a an agent, or as filling a representative
holder in due course, a valid delivery thereof character, without disclosing his principal,
by all parties prior to him so as to make them does not exempt him from personal liability.
liable to him is conclusively presumed. And (Sec.20)
where the instrument is no longer in the
possession of a party whose signature When agent may escape liability:
appears thereon, a valid and intentional
delivery by him is presumed until the a. He is duly authorized;
contrary is proved. (Sec. 16)
b. He adds words to his signature indicating
a. Even if it is completely written it is that he signs as an agent, that is , for or
incomplete and revocable until its on behalf of a principal, or in a
delivery. representative capacity; and

b. Delivery means transfer of possession, c. He discloses his principal


actual or constructive, from one person to
another. (Sec. 191) Effect of signature by procuration

c. If a complete instrument is found in the A signature by procuration operates as notice


possession of an immediate or remote that the agent has but a limited authority to
party OTHER THAN a holder in due sign, and his principal is bound only in case
course, there is a prima facie the agent in so signing acted within the
presumption until the contrary is proved. actual limits of his authority. (Sec. 21)

d. Immediate in the sense of having or 3. Indorsement by Minor or Corporation


being held to know of the conditions or
limitations placed upon the delivery of The indorsement or assignment of the
the instrument. instrument by a corporation or by an infant
passes the property therein, notwithstanding
e. Remote parties are those who are not in that from the want of capacity, the
direct contractual relation to each other. corporation or infant may incur no liability
thereon. (Sec. 22)
f. If it is in the hands of a holder in due
course, a valid delivery by all parties prior 4. Forgery
to him is conclusively presumed.
When a signature is forged or made without
the authority of the person whose signature it
purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give a In a PN:
discharge therefor, or to enforce payment
thereof against any party thereto, can be 1. A party whose indorsement is forged on a
acquired through or under such signature note payable to order and all parties prior
unless the party against whom it is sought to to him including the maker cannot be held
enforce such right is precluded from setting liable by any holder
up the forgery or want of authority.
2. A party whose indorsement is forged on a
a. Section 23 applies only to forged note originally payable to bearer and all
signatures or signatures made without parties prior to him including the maker may
authority; be held liable by a holder in due course
provided that it was mechanically complete
b. Alterations such as to amounts or the like before the forgery
fall under section 124; 3. A maker whose signature was forged
cannot be held liable by any holder
c. Forms of forgery are
a) fraud in factum; In a BOE:
b) duress amounting to fraud;
c) fraudulent impersonation 1. The drawer’s account cannot be charged
by the drawee where the drawee paid;
d. Only the signature forged or made without
authority is inoperative, the instrument or 2. The drawer has no right to recover from
other signatures which are genuine are not the collecting bank;
affected
3. The drawee bank can recover from the
e. The instrument can be enforced by holders collecting bank;
to whose title the forged signature is not 4. The payee can recover from the drawer;
necessary
5. The payee can recover from the recipient
f. Persons who are precluded from setting up of the payment, such as the collecting bank;
the forgery are
a) Those who warrant or admit the 6. The payee cannot collect from the drawee
genuineness of the signature bank;
b) Those who are estopped.
7. The collecting bank bears the loss but can
g. Persons who are precluded by warranting recover from the person to whom it paid;
are:
a) Indorsers; 8. If payable to bearer, the rules are the same
b) Persons negotiating by delivery; as in PN;
c) Acceptors.
9. If the drawee has accepted the bill, the
h. Drawee bank is conclusively presumed to drawee bears the loss and his remedy is to go
know the signature of its drawer after the forger;

i. If endorser’s signature is forged, loss will 10. If the drawee has not accepted the bill
be borne by the forger and parties but has paid it, the drawee cannot recover
subsequent thereto from the drawer or the recipient of the
proceeds,
Forgery absent
is the any act of
counterfeiting negligence on
of any
j. Drawee bank is not conclusively presumed their part.
writing, consisting of the signing of
to know the signature of the indorser. The another’s name with intent to defraud, is
responsibility falls on the bank which last forgery. The bank which allows the
guaranteed the indorsement and not the payment on a check where the signature
drawee bank is forged is liable to the depositor-drawer.
When one of two persons suffers the
k. Where the payee’s signature is forged, wrongful act of a third person, he whose
payments made by the drawee bank to the negligence was the proximate cause of
collecting bank are ineffective. No the loss must bear the loss. Pursuant to its
debtor/creditor relationship is created. An prime duty to ascertain well the
agency to collect is created between the genuineness of the signatures of its client
person depositing and the collecting bank. depositors, the drawee-bank is expected
The drawee bank may recover from collecting to use reasonable business prudence. In
bank who may, in turn, recover from the the performance of that obligation, it is
person depositing. bound by its internal banking rules and
regulation that form part of the contract it
Rules on Liabilities of Parties on a Forged enters into with its depositors. A drawee
Instrument bank must restore to the account of the
drawer the amounts of checks on which
the signature of its president was forged
even of the forger was the independent
auditor of the drawer, who was in charge
An instrument is negotiated when it is
transferred from one person to another in
such manner as to constitute the transferee
the holder thereof. If payable to bearer, it is
negotiated by delivery; if payable to order, it
is negotiated by the indorsement of the
holder and completed by delivery (sec 30)

1. Distinguished from Assignment

D. CONSIDERATION ASSIGNMENT - a method of transferring a


negotiable or non-negotiable instrument
Every negotiable instrument is deemed prima whereby the assignee is merely placed in the
facie to have been issued for a valuable position of the assignor and acquires the
consideration, and every person whose instrument subject to all defenses that might
signature appears thereon to have become a have been set up against the original payee.
party thereto for value. (Sec. 24)
2. Modes of Negotiation (how negotiation
Consideration - an inducement to a contract, that is, takes place)
the cause, price or impelling influence which induces
a contracting party to enter into the contract a. Negotiation - the transfer of the instrument
from one person to another so as to
NOTE: It is not necessary that the consideration be constitute the transferee a holder thereof:
expressly stated in the instrument. A valuable i) by indorsement completed by
consideration need not be adequate. It is sufficient if delivery (in case of order instrument);
it is valuable one. ii) by mere delivery (in case of bearer
Instrument)
E. ACCOMMODATION PARTY Effect: Makes the transferee the
holder of the instrument
A person “who has signed the instrument as b. By Operation of Law
maker, drawer, acceptor or indorser, without
receiving value therefor, and for the purpose The full title to a bill may pass without
of lending his name to some other person. The assignment, indorsement, or delivery, i.e. by
relationship between an accommodation party operation of law:
and the accommodated party is one of i. by the bankruptcy of the holder,
principal and surety---the accommodation where the title vests in his assignee
party being the surety. (Note: the surety’s or trustee;
liability to the creditor is immediate, primary ii. by the death of holder, where the title
and absolute—he is directly and equally vests in his personal representatives;
bound with the principal. [Ang v. Associated iii. upon the death of a joint payee or
Bank (2007)] indorsee, in which case the title vests
in the surviving payee or indorsee in
general (Agbayani, Commercial law
of the Phils)
a. ACCOMMODATION - a legal arrangement
under which a person called the 3. Kinds of Indorsements:
accommodation party lends his name and
credit to another called the accommodated A. Special - it qualifies the person to whom or
party, without any consideration. to whose order the instrument is payable,
b. LIABILITY OF ACCOMMODATION PARTY - such and the indorsement of such endorsee is
a person is liable on the instrument to a necessary to the further negotiation of the
holder for value, notwithstanding such holder instrument (Sec 34) e.g Pay to X. (sgd) “A”
at the time of taking the instrument knew him
to be only an accommodation party. Note: if X, the endorsee, wants to further
c. LIABILITY OF AN ACCOMMODATED PARTY - negotiate the instrument, he must sign it at
when the accommodation party makes the back. HOWEVER, when the instrument is
payment to the holder of the notes, they originally payable to bearer, it can further be
have the right to sue the accommodated negotiated by mere delivery, even if the
party for reimbursement since the relation original bearer negotiated it by special
between them is in effect of a principal and endorsement (Sec 40)
sureties, the accommodation parties being B. Blank - it specifies NO endorsee, and the
the sureties. instrument so endorsed is payable to bearer
and may be negotiated by mere delivery
F. NEGOTIATION (Sec. 34).
Holder may convert a blank indorsement into the ff: Forgery; Lack of good title on
a special indorsement by writing over the the part of the endorser; Lack of
signature of the endorser in blank any capacity to endorse on the part of the
contract consistent with the character of the prior parties; the fact that at the time
endorsement. of the endorsement, the instrument
was valueless or not valid, and he
C. Absolute - One by which endorser binds knew of that fact.
himself to pay, upon no other condition than G. Joint - where an instrument is payable to
the failure of prior parties to do so, and of the order of two or more payees or indorsees
due notice to him of such failure. who are not partners, ALL must endorse,
unless the one indorsing has authority to
D. Conditional - Party required to pay the endorse for the others (sec 41)
instrument may disregard condition and H. Irregular - where a person, not otherwise a
make payment to the endorsee or his party to an instrument, places thereon his
transferee whether condition has been signature in blank before delivery, he is liable
fulfilled or not. But any person to whom an as endorser. (sec 64)
instrument so endorsed is negotiated will
hold the same, or the proceeds thereof, G. RIGHT OF HOLDERS
subject to the rights of the person indorsing
conditionally. (sec. 39) Holder - payee or indorsee of a bill or note
who is in possession of it or the bearer
Pay to X ₱500 if it rains on March 31, 2013. thereof entitled to receive the sum for which
(Sgd, “B”) it calls
If presented before said date, B may tell X to:
wait for March 31, 2013; or Pay X ₱500 X Classes:
₱500 but if does not rain on said date, X must 1. Holder in Due Course – one who has
return the money on the principle of solutio taken the instrument under the
indebiti. conditions of Sec 52 and holds the
instrument free from personal defenses
E. Restrictive - such indorsement either: available to prior parties
i. Prohibits further negotiation of 2. Simple Holder or Holder Not in Due
instrument; Course - one who became a holder
ii. Constitutes endorsee the agent of without any, some or all of the requisites
endorser; under Sec 52. He holds the instrument
iii. Vest title in endorsee in trust for or subject to the same defenses as if it were
to the use of some other person. non-negotiable.
3. Holders for Value – where value has at
Note: mere absence or words implying anytime been given for the instrument,
power to negotiate does not make an the holder is deemed a holder for value in
indorsement restrictive (Sec 36) respect to all parties who become such
Effect of Restrictive Indorsement - confers prior to that time.
upon endorsee the right:
a. To receive payment of the instrument;
b. To bring any action thereon that the
endorser could bring;
c. To transfer his rights as such endorsee, 1. Holder in Due Course (HDC)
where the form of the indorsement
authorizes him to do so. (sec 37) A Holder who has taken the instrument under
the following conditions: key: COVN
But all subsequent indorsees acquire only the 1. That the instrument is Complete and
title of the first indorsee under the restrictive regular upon its face;
indorsement. • It is incomplete when it is wanting in any
material particular or particular proper to
F. Qualified - constitute the endorser a mere be inserted in a negotiable instrument
assignor of the title to the instrument. It may • The common type of irregularity is
be made by adding to the endorser’s alteration upon the face of the
signature the words “without recourse” or instrument. It must be apparent on the
“sans recourse” or other terms of similar face of the instrument, otherwise, the
import. (sec 38) matter is governed sole by Sec 124,
i. “without recourse” - means without which renders the instrument void.
resort to a person who is secondarily • Absence of the required documentary
liable after the default of person who stamp will not make the instrument
is primarily liable. incomplete.
ii. “Qualified endorser has limited • Omissions of date and place of payment
liability, i.e., he is liable if the
and no consideration mentioned
instrument is dishonored by non-
acceptance or non-payment due to
considered complete and regular upon its • “notice” to holder covers only situation
face. where the holder had actual or
• That he has become a holder of it before chargeable knowledge of the infirmity or
it was Overdue and without notice that it defect or must have acted in bad faith.
has been previously dishonored, if such • Knowledge of the agent is constructive
was the fact; knowledge to the principal and will render
• Instrument is overdue after the date of the principal not a HDC
maturity • Title is defective when the instrument is
• If it is payable on demand, the date of obtained or any signature thereto by
maturity is determined by the date of fraud, duress, or force and fear, other
presentment, which must be made within unlawful means, or for an illegal
a reasonable time after its issue, if it is a consideration Or when it is negotiated in
note, or after the last negotiation thereof, breach of faith, or under such
if it is a bill of exchange circumstances as amount to a fraud.
• If payable on demand and is negotiated • The holder of a cashier’s check as
after an UN reasonable length of time indorsed by the person who stole it
after its issue, the holder if not deemed a cannot or refuses to say how and why it
HDC was passed to him is not a HDC.
o What constitutes “reasonable
time”, regard is to be had to the RIGHTS OF HDC:
nature of the instrument, usage
of trade or business (if any) with 1. To sue on the instrument
respect to such instrument, and 2. To receive payment on the instrument
the facts of the particular case and payment in due course discharges
(Sec 193) the instrument.
• An overdue instrument carries the strong 3. To hold the instrument free from any
indication that it has been dishonored. defect of title of prior parties.
However, it is still negotiable, but it is 4. To hold it free from defenses available to
subject to defenses existing at the time of prior parties among themselves
transfer. • The defenses referred to are personal
• Where transferee receives notice of any defenses or equities. REAL DEFENSES
infirmity in instrument or defect in the are available even against an HDC
title of the person negotiating the same 5. To enforce payment on the instrument to
before he had paid the full amount the full amount against all parties liable
agreed to be paid therefor, he will be thereon. (sec 57)
deemed a HDC only to the extent of the
amount therefor paid by him (Sec 54) 2. Defenses Against the Holder

2. That he has taken it in good faith and for The right of the holder to enforce payment of
Value; a negotiable instrument may be defeated by
• Good faith refers to the good faith of the the defenses that may be raised by the
indorsee or transferee and not the seller person primarily or secondarily liable.
of the instrument.
• Bad faith does not require actual Real Defenses Personal Defenses
knowledge of the exact truth; it is NATURE:
sufficient that the facts within the Those that attach to the Those which are available
knowledge tend to show that there was instrument itself and are only against a person not
something wrong with the transaction. available against all an HDC or a subsequent
holders, whether in due holder who stands in
• Value is any consideration sufficient to
course or not, but only by privity with him
support a simple contract. But Love and
the parties entitled to
affection do not constitute value within
raise them.
the meaning of the law. Adequacy of
STATUS OF CONTRACT:
consideration is not required (1355 civ
Void Voidable
code)
AVAILABLE AGAINST
• Purchase of the instrument at a discount
HDC: Not available against
does not prevent the holder from being
Available against HDC HDC
HDC. However, where the discount is
DEFENSES:
usually large, this fact together with other
Key: (PAID-WIFI-MUD- Key: (CUBIC-RAIN-WIFI-
facts, may be material on determining
FEM) MICU)
whether the holder was in good faith.
1.Presciption 1.Non-delivery of
3. That at the time of its negotiation to him,
2.Material Alteration Complete instrument
he has No Notice of any infirmity in the
3.Illegality – if declared (sec 16)
instrument or defect in the title of the
void for any purpose 2.Ultra vires acts of
person negotiating it.
4.Duress amounting to corporation where the
forgery corpo has the power
5.Want of authority of to issue negotiable such age (estoppel); 2) the minor kept the fruits
agent paper but the or benefits; and 3) the minor spent the money in
6.Non-delivery of issuance was not good faith (art 1427, NCC)
Incomplete authorized for the
instrument particular purpose for 2. Fraud
7.Forgery which it was issued
8.Insanity where the 3.Negotiation in Breach a. Fraud In Factum (real defense)
insane person has a of faith (sec 55) The person who signs the instrument lacks
guardian appointed 4.Insertion of wrong knowledge of or essential terms of the
by the court date in an instrument instrument. But the defense is not available if
9.Minority (available (sec 13) the party involved had reasonable
only to the minor) 5.Conditional delivery opportunity to obtain such knowledge.
10. Ultra Vires Act of of compete
Corpo instrument An essential element is that the maker or
11. Discharge in 6.Filling up blank indorser must have exercised ordinary
Insolvency beyond Reasonable diligence and in no manner contributed
12. Fraud in Factum time (sec14) negligently to the imposition.
or Esse contractus or 7.Absence or failure of
Fraud in Execution consideration, b. Fraud in Inducement (personal defense)
13. Execution of whether partial or The person who signs the instrument intends
instrument between total (sec28) to sign the same as a Negotiable Instrument
public enemies 8.Illegal consideration (NI) but was induced by fraud.
14. Marriage in the (sec55)
case of a wife 9.Filling up blank Not 3. Incomplete but Delivered NI (sec 14)
within authority (sec
Note: an instrument 14) a. Prima Facie Authority to Complete the
subject to real defense 10. Want of authority Instrument
cannot be enforced of agent where he has Requisites:
against the person to apparent authority
whom the defense is 11. Fraud in a) Want of a material particular in the
available but it can be Inducement instrument (note: it includes the matters
enforced against those 12. Acquisition by stated in Sec 125 of the NIL)
who such defense is not Force, duress or fear b) Possession thereof by a person;
available such as under (sec55) c) That such person had authority to fill up
sec. 23. 13. Intoxication the blank:
14. Mistake 1. strictly in accordance with the
15. Insanity where authority given; and
there is no notice of 2. within a reasonable time
insanity on the part of
the one contracting b. Prima Facie Authority to Fill up for Any
with the insane Amount
person Requisites:
16. Negotiation a) Signature on a blank paper
under Circumstances b) Person signing in blank delivers it to
that amount to fraud another
(sec55) c) Delivery was for the purpose of
17. Acquisition of the converting it into a negotiable
instrument by instrument.
Unlawful means
(sec55) If the holder of the instrument, after it was
filled up, is a HDC, the holder may enforce
Effects of Certain Defenses the instrument as if it has been filled up
strictly in accordance with the authority given
1. Minority and within a reasonable time. (Aquino, Notes
and Cases on Banks, Negotiable Instruments
Negotiation by a minor passes title to the and other Commercial Documents, 2006ed)
instrument (sec 22). Furthermore, under Secs 60,
61, 62, the maker, drawer and acceptor, by 4. Incomplete and Undelivered NI (sec 15)
making, drawing and accepting the instrument, Two steps in the execution of a negotiable
admits the capacity of the payee to indorse. But instrument:
the minor is not liable and the defense is personal 1. The act of writing the instrument
to him. Thus, other parties who are capacitated completely and in accordance with Sec.
cannot invoke such defense. 1; and
2. The delivery of the instrument with the
However, the minor shall be liable under the ff intention of giving effect thereto.
exceptions: 1) the minor actively misrepresents
his age and it appears that he is physically of
Note: if completed and negotiated without a) When a signature is forged or made
authority, not a valid contract against a person without the authority of the person, the
who has signed before delivery of the contract signature (not the instrument itself and
even in the hands of HDC but subsequent the genuine signatures) is wholly
indorsers are liable. This is REAL defense which inoperative.
belongs to the drawer (or parties, if any, prior to b) No right to retain the instrument, or
the delivery of the instrument to the payee) to give discharge therefore, or to enforce
against “any holder” payment thereof against any party
thereto, can be acquired.
Reason: The law does not make any distinction Exception: UNLESS the party against
between a HDC and one who is not a HDC. whom it is sought to enforce such right is
precluded from setting up the forgery or
NOTE: Where an INCOMPLETE and want of authority. (sec23)
UNDELIVERED instrument I sin the hands of
HDC, there is a PRIMA FACIE presumption of H. LIABILITIES OF PARTIES
delivery which the maker may rebut by proof of
non-delivery Primary Liability
• AS TO THE MAKER, the unconditional
promise attaches the moment the maker
makes the instrument
• AS TO THE ACCEPTOR, the acceptor’s
assent to the unconditional order
5. Complete but Undelivered (sec 15) attaches the moment he accepts the
instrument. No further act is necessary in
Every contract on a negotiable instrument is order for the liability to accrue. What is
incomplete and revocable until delivery of the necessary only is for the holder to
instrument for the purpose of giving effect enforce such liability by presenting it for
thereto. payment.

6. Absence or Failure of Consideration (sec 28) Secondary Liability


1. Indorser; and 2. Drawer
Personal defense to the prejudice of a party and • Their liability cannot be immediately
available against any person not HDC enforced. There are necessary steps
which should be taken in order to
Partial failure of consideration is a defense pro charge these persons.
tanto, whether the failure is an ascertained and
liquidated amount or otherwise (sec 29) 1. Liability of Maker:
7. Prescription a. Maker of the negotiable promissory note
warrants that:
Refers to extinctive prescription and may be • He will pay according to the tenor of the
raised even against a holder in due course.
promissory note;
Under the civil code, the prescriptive period of
• The payee exists; and
an action based on a written contract is 10 years
from accrual or cause of action. • The payee has capacity to endorse.
8. Material Alteration.
b. Consequently, maker is precluded from
It is a “partial” real defense because a HDC can setting-up the following defenses:
enforce it according to its original tenor. • that payee is a fictitious person;
• that payee was insane, a minor,
An alteration is said to be material if it alters the or a corporation acting ultra
effect of the instrument. In other words, a vires.
material alteration is one which changes the
items which are required to be stated under Sec c. Maker’s liability is primary and
1 of the NIL unconditional. Therefore, he cannot shift his
liability to any person without the payee’s
8. Forgery consent.

Counterfeiting or fraudulent alteration of any NOTE: neither can the maker escape
writing, which may consist of: liability by virtue of the non-benefit to
him of the proceeds of the note since that
a. Signing of another’s name with intent to is of no concern to the payee. [Araneta vs
defraud; or Perez, (1965)]
b. Alteration of an instrument in the name,
amount, name of payee, etc. with intent to d. Solidary liability of Joint Makers
defraud.
Effects:
• As a co-maker, he binds himself to be compelled to pay the instrument on account of
jointly and severally liable with the Sec 66.
principal debtor in case the latter defaults
in the payment of the loan, such Irregular Indorser - usually they are
undertaking is deemed to be that of a accommodation parties.
surety as an insurer of the debt, and not To be considered as an irregular indorser:
as a guarantor who warrants the solvency 1. A person must not be a party to the
of the debtor. The creditor’s right to instrument
proceed against the surety exists 2. He must have signed it in blank; and
independently of his right to proceed 3. He must have signed before delivery.
against the principal.
“irregular” or “anomalous” indorser because
2. Liability of Drawer he indorses in an unusual, singular, or
peculiar manner. His name appears where we
a. Drawer, by merely signing his name on naturally expect another name.
the bill as drawer, admits that: He is liable as a general indorser because he
indorses without qualification.
• Payee exists
• Payee has capacity to endorse 5. Warranties
• Drawee will accept or pay or both
a. Maker: he warrants that:
according to tenor of bill.
a) He will pay according to the tenor
• in case of non-acceptance or non-
of the promissory note;
payment, drawer will pay b) The payee exists; and
c) The payee has capacity to
b. Drawer does not engage to pay the bill indorse
absolutely. He engages that the bill will be b. Acceptor: he warrants that:
accepted or paid or both, according to its a) The existence of the drawer;
tenor, and that he will pay only when: b) Genuineness of drawer’s
i. it is dishonored; and signature;
ii. the necessary proceedings of c) Capacity and authority of drawer
dishonor are duly taken. to draw the instrument
d) Existence of payee and his then
NOTE: There is a contractual relation capacity to indorse.
between the drawer and the drawee; a c. One who negotiates by delivery and qualified
drawer may not unilaterally discharge himself indorsement (completed by delivery)
from liability on checks issued by him as warrants (Sec. 65):
security and not for value and negotiated to a a) That the instrument is genuine and in
holder in due course by the mere expediency all respects what it purports to be;
of withdrawing his funds from the drawee b) That he has a good title to it;
bank (State Investment House Inc v. CA, ’93); c) That all prior parties had capacity
when the holder deposits his check with the to contract;
collecting bank, the nature of relationship d) That he has no knowledge of any fact
created is one of agency, i.e., the bank is to which would impair the validity of the
collect from the drawee of the check the instrument or render it valueless.
corresponding proceeds. Thus, the privity of
contract is between the holder-depositor and NOTE: But when the negotiation is by
the collecting bank. There is no privity of delivery only, the warranty extends in favor
contract between the drawer and the of no holder other than the immediate
collecting bank. transferee. The provisions of subdivision (c)
of this section do not apply to a person
3. Liability of Acceptor negotiating public or corporation securities
other than bills and notes.(sec 65)
• engages to pay acc to the tenor of his
acceptance d. General Indorser: every indorser who
• admits the existence of the drawer, the indorses without qualification warrants to all
genuineness of his signature and his capacity subsequent holders in due course:
and authority to draw the instrument; and The matters and things mentioned in
• admits the existence of the payee and his subdivisions (a), (b), and (c) of the next
capacity to indorse preceding section 65 and
that the instrument is, at the time of his
4. Liability of Indorser indorsement, valid and subsisting.
And, in addition, he engages that, on due
General Indorser - indorses the instrument presentment, it shall be accepted or paid,
without any qualification; secondarily liable to the or both, as the case may be, according to
holder or any subsequent indorser who may be its tenor, and that if be dishonored and
the necessary proceedings on dishonor
be duly taken, he will pay the amount
thereof to the holder, or to any Reason: If the drawee is fictitious, there is no
subsequent indorser who may be one to whom presentment is to be mad
compelled to pay it.
c) By waiver of presentment, express or implied

I. PRESENTMENT FOR PAYMENT d) Presentment for payment is not required in


order to charge the drawer where he has no
1. Necessity of presentment for payment right to expect or require that the drawee or
acceptor will pay the instrument
• The presentment and demand for payment is
not necessary in order to charge the persons e) Presentment for payment is not required in
primarily liable (maker or acceptor) since his order to charge an indorser where the
liability is absolute. However, if the instrument was made or accepted for his
instrument is not presented to such persons, accommodation and he has no reason to
the persons secondarily liable (drawer and expect that the instrument will be paid if
the indorsers) are discharged from their presented
secondary liability unless such presentment is
excused or dispensed with. The persons NOTE: In the last two exceptions, only the
secondarily liable undertake to pay only if the drawer or indorser referred to is not
instrument is dishonored. ( de Leon, see discharged but all other parties secondarily
Secs. 61 and 66 ) liable are relieved unless presentment for
payment is made to hold such parties liable.
2. Parties to whom presentment for (Agbayani).
payment should be made
4. When the instrument is dishonored by
The presentment for payment must be made non – payment
to the person primarily liable on the
instrument: a) When it is duly presented for payment and
payment is refused or cannot be obtained
• maker – in case of promissory note
• acceptor – in case of an accepted bill Requisites:

1. that the instrument is duly presented


If the bill of exchange or check is payable on
to the person primarily liable thereon
demand, the presentment must be made to
2. the payment is either refused or
the drawee although he is not liable on the
cannot be obtained
bill. (De Leon, see Sec. 61, 66, and 70)
NOTE: The instrument is dishonored by non-
If the person primarily liable on the
payment as long as it is not paid although the
instrument is absent or inaccessible, the
person primarily liable may be willing to pay
presentment must be made to any person of
(de Leon)
sufficient discretion found at the proper place
of presentment. (Sec. 72)
b) When presentment is excused and the
instrument is overdue and unpaid
If the person primarily liable on the Requisites:
instrument is dead, presentment for payment
must be made to his personal representative 1. Presentment is excused
(his executor or administrator), if any, and if,
with the exercise of reasonable diligence, he
• Where the drawer has no
can be found.
right to expect or require that
the drawee or acceptor will
If the persons primarily liable on the
pay the instrument (Sec. 79)
instrument are liable as partners,
presentment for payment to any one of them, • Where the instrument is
even if there has been dissolution of the firm. made or accepted for the
(Sec. 77) accommodation of the
indorser and he has no
reason to expect that the
3. When presentment may be dispensed instrument will be paid if
with presented (Sec. 80)
• Where the presentment may
a) Where after the exercise of reasonable be dispensed with (Sec. 82)
diligence, presentment cannot be made
2. The instrument is overdue
b) Where the drawee is a fictitious person
3. It is unpaid • the holder and
• all parties subsequent to the party to
NOTE: Although presentment may be whom notice is given including parties
excused, the indorser is still entitled to notice subsequent to the holder who gave notice
of dishonor of instrument by its being
overdue and unpaid. But where there has 4. Form of notice
been no presentment for payment, and the
presentment is not excused, the instrument is Notice of dishonor may be
not dishonored although it is overdue and
unpaid (Carter v. Jennings, 98 So. 687, as a) in writing or
cited in de Leon) b) merely oral

J. NOTICE OF DISHONOR NOTE: Thus, notice may be given by telephone


provided that it is clearly shown that the party
1. Parties to be notified notified was really communicated with, that is fully
identified as the party at the receiving end of the
Except as otherwise provided in the line. (American National Bank v. Nat. Fertilizer Co.,
Negotiable Instruments Law, when a 143 S.W. 597)
negotiable instrument is dishonored by non-
acceptance or non-payment, notice of Contents of notice (written or oral)
dishonor must be given to:
1. the identity of the instrument
1. the drawer and 2. the fact that it has been dishonored by non-
2. each indorser acceptance or by non-payment and
3. a statement that the notice of dishonor party
NOTE: Any drawer or indorser to whom such giving notice intends to look to the party
notice is not given is discharged. However, addressed for payment
the holder is not required to notify all the
indorsers although the law says “each How notice is given
indorser.” He may select to hold only one or a) by personal delivery or
some of the indorsers and any party to whom b) by mail
such notice is not given is discharged.
Although the latter is discharged, he is still 5. Waiver
liable for breach of warranties pertaining to
the instrument (de Leon). Waiver of notice of dishonor

2. Parties who may give notice of dishonor Waiver – the intentional abandonment of a known
right; with reference to a notice of dishonor, it is
The notice may be given: the willingness on the part of the drawer or the
1. by the holder or indorser concerned to be bound as such even
2. another in behalf of the holder or without due notice of dishonor
3. by a party to the instrument who may
be compelled to pay it to the holder • it may be made before the time of giving
and who, upon taking it up, would notice or after the omission to give notice
have a right to reimbursement from • express waiver – made orally or in writing (ex.
the party to whom notice is given or
when “notice of dishonor waived” appears
4. another person in behalf of such
above the indorser’s signature)
party
• implied waiver – inferred from act or
3. Effect of notice language and it usually takes place after
there has been tan omission to give notice
a) When notice of dishonor is given by or on
behalf of the holder, it inures to the Who are affected by an express waiver?
benefit of
• If the waiver is embodied in the instrument
• all holders subsequent to the holder who itself (i.e.,it appears in the body or on the
has given notice, and face of the instrument), it binds all parties
• all parties prior to the holder but • If it is written above the signature of an
subsequent to the party to whom the indorser, it binds only him
notice has been given and against whom
they have a right of recourse Effect of waiver of protest

b) When notice of dishonor is given by or on Protest – the formal instrument executed usually
behalf of the party entitled to give notice, it by a notary public certifying that the legal steps
inures to the benefit of necessary to fix the liability of the drawee and
the indorsers have been taken
Where protest is waived, the following are also the instrument to the drawee for acceptance
deemed waived and notify the drawer and indorsers is
acceptance is refused (Sec.117)
a) presentment and
b) notice of dishonor K. DISCHARGE OF NEGOTIABLE INSTRUMENT

NOTES: Discharge of an instrument – release of all


• Where presentment for payment is waived, parties, whether primary or secondary, from
notice of dishonor is also waived, but waiver the obligations arising thereunder; it renders
of the latter does not include waiver of the the instrument without force and effect,
former consequently, it can no longer be negotiated
• When an indorser waives presentment and
notice of dishonor, he thereby enlarges his 1. Discharge of a negotiable instrument
liability and his indorsement is known as (Sec. 119):
facultative indorsement
a) By payment in due course by or on behalf of
6. Dispensation with notice the principal debtor

a) Notice of dishonor is dispensed with when, • Principal debtor – the person ultimately
after the exercise of reasonable diligence, it bound to pay the debt and not
cannot be given or does not reach the parties necessarily the person primarily liable on
sought to be reached.(Sec. 112) the instrument

Note: Reasonable diligence implies active • Requisites:


search and depends upon the circumstances
of each cases. a. it must be made by or on behalf
of the principal debtor
b) When no notice need not be given to drawer
(Sec. 114): b. at or after its maturity

1) Where the drawer and the drawee are c. to the holder thereof
the same person
2) When the drawee is a fictitious d. in good faith and without notice
person or a person not having that the holder’s title is defective
capacity to contract
3) When the drawer is the person to
whom the instrument is presented for
b) By payment in due is course by the party
payment
accommodated, where the instrument is
4) Where the drawer has no right to
made or accepted for his accommodation
expect or require the drawer has
countermanded payment

c) When notice need not be given to the c) By the intentional cancellation thereof by the
indorser (Sec. 115): holder
i. When the drawee is a fictitious
• Cancellation may be done by writing the
person or a person not having
word “cancelled” or “paid” on the face of
capacity to contract, and the indorser
the instrument or by tearing, burning,
was aware of the fact at the time he
mutilating or destroying the instrument
indorsed the instrument
(de Leon)
ii. Where the indorser is the person to
whom the instrument is presented for
payment
iii. Where the instrument is made or d) By any other act which will discharge simple
accepted for his accommodation contract for the payment of money
d) When it is waived expressly or impliedly (Sec. • Obligations are extinguished by (Article
109)
1231 New Civil Code):

a. By payment or performance
7. Effect of failure to give notice of
dishonor by non-acceptance b. By the loss of the thing due
• Failure of a previous holder to give a notice of c. By the condonation or remission
dishonor by non-acceptance cannot prejudice of the debts
a holder in due course who may still present
d. By the confusion or merger of the recourse against such party is expressly
rights of creditor and debtor reserved (Sec. 120)
• “agreement binding on the holder”
e. By compensation means agreement binding on the holder
made with the principal debtor
f. By novation • Agreement must be supported by a
valuable consideration and for a definite
period
e) When the principal debtor becomes the g) By failure to give notice of dishonor to him
holder of the instrument at or after maturity unless excused (Sec. 89)
in his own right
NOTE: Generally, a discharge of a party
• Requisites: secondarily liable does not effect a discharge of the
instrument itself
a. Reacquisition must be by the
principal debtor 3. Right of a party who discharged
instrument
b. In his own right (not in a
representative capacity)
General Rule: Where the instrument is paid by a
party secondarily liable thereon, it is not discharged
c. at or after the date of maturity
but the party paying is remitted to his former rights
as regards all prior parties, and he may strike out
2. Discharge of parties secondarily liable
his own and all subsequent indorsement, and
(Sec. 120):
renegotiate the instrument.
Exceptions:
a) By any act which discharges the instrument
a) Where it is payable to the order of a third
(any of those acts mentioned in Sec. 119)
person and has been paid by the drawer
b) By the intentional cancellation of his
b) Where it is made or accepted for his
signature by the holder
accommodation and has been paid by the
• The holder’s right to cancel an indorser’s
party accommodated
signature is subject to the limitation that
the indorsement is not necessary to the 4. Renunciation by the holder
holder’s title
c) By the discharge of a prior party How it is made:
• Applies only to discharge by a holder and
not to discharge by operation of law a) Renunciation must be in writing unless the
instrument is delivered up to the person
d) By a valid tender of payment made by a prior primarily liable thereon, or
party b) in oral accompanied by a surrender of the
• “Tender of Payment” – the act by which instrument to the person primarily liable
one produces and offers a person holding thereon
a claim or demand against him the
amount of money which he considers and Effect of renunciation
admits to be due, in satisfaction of such
claim or demand without any stipulation a) If it is in favor of a secondary party made by
or condition the holder before, at or after the maturity of
• An accepted valid tender of payment the instrument, it discharges the such
made by a prior party discharges the secondary party and all parties subsequent to
latter and all parties subsequent to him him but the instrument remains in force
b) If in favor a the principal debtor, made at or
e) By a release of the principal debtor, unless after maturity, it discharges the instrument
the holder’s right of recourse against the and all parties thereto, provided, renunciation
party secondarily liable is expressly reserved is made absolutely and unconditionally
• The release of the principal debtor c) In either case, the renunciation does not
discharges the instrument, thus, all the affect the rights of a holder in due course
secondary parties are also discharged without notice
• The release of the principal debtor must
be by the act of the holder and not by L. MATERIAL ALTERATION
operation of law
1. Concept
f) By any agreement binding upon the holder to
extend the time of payment, or to postpone • Material alteration is defined to be any
the holder’s right to enforce the instrument, change in the instrument which affects or
unless made with the assent of the party changes the liability of the parties in any
secondarily liable, or unless the right of way. Any other alteration is immaterial
and, therefore, inoperative to affect the refused, may treat the bill as dishonored.
liability of any party to the instrument (Sec. 133)
prior to the alteration.
- Where an acceptance is written on a paper
• It is any alteration which changes
other than the bill itself, it does not bind the
a) The date
acceptor except in favor of a person to
b) The sum payable, either for
whom it is shown and who, on the faith
principal or interest
thereof, receives the bill for value. (Sec. 134)
c) The time or place of payment
d) The number or relations of the
parties
e) The medium or currency in which Types of Acceptance
payment is to be made 1. Actual
f) or which adds a place of payment
where no place of payment is (a) In writing
specified, or any other change or (b) Signed by the drawee
addition which alters the effect of
the instrument in any respect (c) Must not express that the drawee will
(Sec.125) perform his promise by any other means
than payment of money
2. Effects of material alteration
(d) Communicated or delivered to the holder
a) If done by a holder – discharges the 2. Constructive
instrument and all prior parties thereto who
did not give their consent to the alteration Where the drawee:
(a) destroys the bill, or
Exceptions:
(b) refuses within 24hrs or such other period
a. It does not discharge the instrument as the holder may allow, to return the bill
as against a party who has made the accepted or non-accepted to the holder
alteration, and
b. A party who has authorized or (c) Under the clearing house rules, the
assented to the alteration, and drawee bank’s failure to return within the
c. Indorsers who indorsed subsequent to prescribed time will be deemed payment
the alteration or acceptance of the check.
b) If done by a stranger (spoliation) – has no (d) If there is not demand for the return of
effect upon the instrument if the original the bill and the drawee keeps it until
meaning can be ascertained (Brooks v. Allen after the expiration of said period without
62 Ind. 401; Singer Sewing Machine Co. v. expressly accepting or refusing it; two
Bayer B9 N.W. 741) views:
i. Constitutes constructive notice
c) Material alteration avoids the instrument in
the hands of a person who is not a holder in ii. Constitutes dishonor because
due course as against any prior party who
has not assented to the alteration Sec.137, NIL uses the word "refuses"
d. Acceptance, if given, will retroact to date of
d) If an altered instrument is negotiated to a presentation.
holder in due course, he may enforce
payment thereof according to its original 3. General
tenor regardless of whether the alteration A general acceptance assents without
was innocent or fraudulent qualification to the order of the drawer.
M. ACCEPTANCE An acceptance to pay at a particular place is
a general acceptance unless it expressly
1. Definition - the signification by the drawee states that the bill is to be paid there only
of his assent to the order of the drawer. It is an and not elsewhere. (Sec. 140)
act by which a person on whom the BOE is
drawn assents to the request of the drawer to 4. Qualified
pay it
A qualified acceptance in express terms
2. Manner varies the effect of the bill as drawn.
The acceptance must be communicated or Types:
delivered to the holder.
(a) Conditional; that is to say, which makes
- The holder of a bill presenting the same for payment by the acceptor dependent on
acceptance may require that the acceptance the fulfillment of a condition therein
be written on the bill, and, if such request is stated
(b) Partial; that is to say, an acceptance to and is not accepted within prescribed time,
pay part only of the amount for which the person presenting it must treat the bill as
the bill is drawn; dishonored by nonacceptance or he loses
right of recourse against the drawer and
(c) Local; that is to say, an acceptance to indorsers. (Sec. 150, NIL)
pay only at a particular place;
Constructive Acceptance
(d) Qualified as to time;
Sec. 137. Where a drawee to whom a bill is
delivered for acceptance destroys the same, or
3. Time for Acceptance refuses within twenty-four hours after such delivery,
or within such other period as the holder may allow,
The drawee is allowed twenty-four hours after to return the bill accepted or non-accepted to
presentment in which to decide whether or not the holder, he will be deemed to have accepted the
he will accept the bill; the acceptance, if given, same.
dates as of the day of presentation. (Sec. 136)
N. PRESENTMENT FOR ACCEPTANCE
1. Time/Place/Manner of Presentment
4. Rules Governing Acceptance
When presentment for acceptance must be made
A holder has a right to:
(a) bill payable after sight, or in other cases
1. require that acceptance be written on the where presentment for acceptance necessary
bill and if refused, treat it as if dishonored to fix maturity
(Sec.133)
(b) where bill expressly stipulates that it shall be
2. refuse to accept a qualified acceptance presented for acceptance
and may treat it as dishonored (Sec. 142)
(c) where bill is drawn payable elsewhere than at
residence or place of business of drawee
Acceptance of an INCOMPLETE bill (d) In no other case is presentment for
1. A bill may be accepted: acceptance necessary in order to render any
party to the bill liable.
a) before it has been signed by the drawer,
or How made? (Sec. 145, NIL)

b) while otherwise incomplete, or (1) BY or ON BEHALF of the holder


(2) AT a reasonable hour,
c) when it is overdue, or (3) ON a business day and before the bill is
d) after it has been dishonored by a overdue,
previous refusal to accept, or by non (4) TO the drawee or some person authorized to
payment accept or refuse acceptance on his behalf;
2. But when a bill payable after sight is and
dishonored by nonacceptance and drawee a. bill addressed to drawees not partners,
subsequently accepts it, the holder, in the MUST be made to them all unless one has
absence of different agreement, is entitled to authority to accept or refuse acceptance
have the bill accepted as of the date of the for all;
last presentment.
b. drawee is dead, MAY be made to his
a) Sec. 138, NIL allows acceptance to be personal representative;
made while the bill is incomplete
c. drawee has been adjudged a bankrupt or
b) The bill may be accepted even after it is an insolvent or has made an assignment
overdue or dishonored, since an instrument for the benefit of creditors, MAY be made:
does not lose its negotiability by the mere
fact that its maturity date has passed or the i) to him or
drawee’s refusal to accept or pay it. ii) to his trustee or assignee.
When made? (Sec. 146, NIL)
3. PERIOD within which to accept (a) on any day on which NIs may be presented
(a) The drawee is allowed 24 hours after for payment at a reasonable hour on a
presentment to decide WON he will accept business day if Instruments falling due or
the bill; the acceptance, if given, dates becoming payable on Saturday next
as of the day of presentation. (Sec. 136, succeeding business day
NIL) EXCEPT instruments payable on demand
(b) Effect of non-acceptance within the [at the option of the holder before twelve
prescribed period Where bill is duly presented o'clock noon on Saturday WHEN that entire
day is not a holiday. 2. Effect of omission to give notice of non-
acceptance any drawer or indorser to whom
(b) at the time fixed therein without grace. such notice is not given is discharged but
(c) Where the holder has no time, with the does not prejudice the rights of a HDC
exercise of reasonable diligence, to subsequent to the omission. (Sec. 117, NIL)
present the bill for acceptance before O. PROMISSORY NOTE
presenting it for payment, delay is
excused and doesn’t discharge the Promissory note - a promise to pay money
drawers and indorsers. (Sec. 147, NIL)
• unconditional promise in writing made by one
person to another signed by the maker
engaging to pay on demand, or at a fixed or
When Excused
determinable future time a sum certain in
Bill may be treated as dishonored by money to order or to bearer where
nonacceptance:
• a note is drawn to the maker’s own order, not
(a) Where the drawee complete until indorsed by him (Sec. 184,
NIL).
1. is dead
P. CHECKS
2. has absconded,
1. Definition
3. is fictitious,
A bill of exchange drawn on a bank and
4. does not have capacity to contract by
payable on demand. (Sec. 185)
bill.
2. Kinds
(b) Where, after the exercise of reasonable
diligence, presentment cannot be made. a. Cashier's or manager's - drawn by a bank on
itself and its issuance has the effect of
(c) Where, although presentment has been
acceptance; since the drawer and drawee
irregular, acceptance has been refused on
are the same, the holder may treat it is
some other ground.
either a BE or PN.
b. Memorandum check - where the word
2. Effect of Failure to make presentment "memorandum" or "memo" is written across
its face, signifying that the drawer will pay
Failure to present releases drawer and indorser the holder absolutely, without need of
the holder of a bill which is required by the next presentment.
preceding section to be presented for
acceptance must either present it for c. Traveler's check - upon which the holder's
acceptance or negotiate it within a reasonable signature must appear twice -- first when it
time. If he fails to do so, the drawer and all is issued, and again when it is cashed.
indorsers are discharged. (Sec. 144)
d. Crossed – when the name of a particular
banker or a company is written between the
parallel lines drawn.
3. Dishonor by Non-Acceptance
1. When duly presented for acceptance and
such acceptance is refused or cannot be Crossed check should put the payee on inquiry to
obtained; or ascertain the holders’ title to the check or the nature
of his possession. Failing this, the payee is declared
2. When presentment for acceptance is excused guilty of gross negligence to the effect that the holder
and the bill is not accepted. (Sec. 149, NIL) of the check is not a holder in good faith. Effects of a
NON ACCEPTANCE of the bill crossed check:

1. Duty of holder: must treat the bill as (a) the check may not be encashed but only
dishonored by nonacceptance or he loses the deposited in the bank;
right of recourse against the drawer and (b) the check may be negotiated only once – to one
indorsers. (Sec. 150, NIL) who has an account with the bank; and
2. Right of holder: immediate right of recourse (c) the act serves as a warning to the holder that the
against the drawer and indorsers and no check has been issued for a definite purpose so that
presentment for payment is necessary. (Sec. he must inquire if he has received the check pursuant
151NIL) to that purpose, otherwise, he is not a HDC.
NOTICE OF DISHONOR (Statement Investment v IAC)

1. Recipient- (Sec.89, NIL) Except as herein


otherwise provided, to the drawer and to
each indorser, The negotiability of a check is not affected by its
being crossed, whether specially or generally. It may
legally be negotiated as long as the one who drawer will be discharged from liability
encashes the check with the drawee bank is another thereon to the extent of the loss caused by
bank, or if it is especially crossed, by the bank the delay. (Sec. 186)
mentioned between the parallel lines. (Bataan Cigar
(b) Effect of Delay
& Cigarette v. FAC)
The drawer will be discharged from
liability thereon to the extent of the loss caused
Demand drafts have not been presented either for by the delay. (Sec. 186)
acceptance or for payment, thus the bank never had
any chance of accepting or rejecting them; as such,
these cannot be subject of escheat. Cashier's check is
the substantial equivalent of a certified check and is
thus subject to escheat. Telegraphic transfers are
likewise subject to escheat because upon
making payment complete the transaction insofar as
he is concerned, though insofar as the remitting bank
is concerned, the contract is executory until the
credit is established. (RP V PNB, 1961)

A check, whether a manager's check or ordinary


check, and an offer of a check in payment of a
debt is not a valid tender of payment and may
be refused receipt by the obligee or creditor. The
issuance of the check to a person authorized to
receive it operates to release the judgment debtor
from any further obligations on the judgment.
(PAL V CA, 1990)

A manager’s check is one drawn by the bank’s


manager upon the bank itself. It is similar to a
cashier’s check both as to effect and use. A cashier’s
check is a check of the bank’s cashier on his own or
another check. In effect, it is a bill of exchange drawn
by the cashier of a bank upon the bank itself, and
accepted in advance by the act of its issuance. It is
really the bank’s own check and may be treated as a
promissory note with the bank as a maker. The
check becomes the primary obligation of the bank
which issues it and constitutes its written promise to
pay upon demand. The mere issuance of it is
considered an acceptance thereof. If treated as
promissory note, the drawer would be the maker and
in which case the holder need not prove presentment
for payment or present the bill to the drawee for
acceptance. (INTERNATIONAL CORPORATE BANK v
GUECO ,2001)

A manager’s check is an order of the bank to pay,


drawn upon itself, committing in effect its total
resources, integrity and honor behind its issuance. By
its peculiar character and general use in commerce, a
manager’s check is regarded substantially to be as
good as the money it represents. (EPCIB V. ONG,
2006)

3. Presentment for Payment


(a) Time
A check must be presented for payment
within a reasonable time after its issue or the

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