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BILLS OF EXCHANGE

Law 114 Law on Negotiable Instruments Atty. Froilyn P. Doyaoen-Pagayatan

A. Form and Interpretation


1. Bill of Exchange, Defined (Sec. 126): A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer.

A. Form and Interpretation


2. Bill of Exchange vs. Promissory Note: a. As to contents b. As to number of parties c. As to liability of drawer and maker d. Necessity of indorsement if payable to drawers/makers order e. Necessity of presentment for acceptance d. Period for presentment for payment for bill or note payable on demand

A. Form and Interpretation


3. Other Types of Bill of Exchange: a. Foreign bill of exchange drawn in one state or country and payable in another state or country; distinguished from an inland bill of exchange b. Bank draft is a bill of exchange drawn by a bank against its branch or another bank
Illustration: To: Citibank Valero Pay on demand to the order of Bobby Buchoy the amount of Php50,000.00. Mr. Timothy Yap (Sgd.) Branch Manager

A. Form and Interpretation


3. Other Types of Bill of Exchange: c. Trade acceptance is a draft or bill of exchange with a definite date of maturity drawn by the seller on the purchaser of goods and accepted by the latter by signing it as drawee. The purpose of the trade acceptance is to enable the seller to raise money on it before it is due through indorsement and discount.

A. Form and Interpretation


3. Other Types of Bill of Exchange: c. Trade acceptance (cont.) Illustration: To: Mr. Floyd Mayweather (Buyer) (Accepted, payment at BPI, Ayala) Pay to the order of Mr. Manny Pacquiao on 30 June 2012 the amount of Php1,000,000.00. The transaction giving rise to this instrument is purchase of goods by the acceptor from the drawer. Mr. Bradley (Sgd.)

A. Form and Interpretation


4. Status of Drawee Prior to Acceptance (Sec. 127): A drawee is a mere stranger to the bill drawn on him, until he accepts the same. The drawee who refuses to accept the bill of exchange may be liable to the drawer. 5. Bill Addressed to Several Drawees (Sec. 128): A bill may be addressed to two or more drawees, jointly. A bill cannot be addressed to two or more drawees in the alternative or in succession. The reason for this is it becomes difficult to determine the exact date of dishonor of the bill.
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A. Form and Interpretation


6. When Bill Treated as Promissory Note (Sec. 130): a. When the drawer and drawee are the same person, like a bank draft drawn by a bank on its branch; b. The drawee is a fictitious person; c. The drawee has no capacity to contract. 7. Referee in Case of Need (Sec. 131): Referee in case of need: the person named by the drawer or indorser as the one to whom the holder may resort in case of need, that is, in case the bill is dishonored by nonacceptance or non-payment. Example: In case of need, apply to Ms. Jinkee Pacquiao.

B. Acceptance
1. Acceptance, Defined (Sec. 132): Acceptance is the signification by the drawee of his agreement to the order of drawer. Acceptance should be in writing and signed by the drawee. Acceptance is usually made by writing across the face of the bill the word Accepted with the date of acceptance and the signature of the drawee. If the holder requires that acceptance be written on the bill and the drawee refuses, the holder may treat the bill as dishonored (Sec. 133).

B. Acceptance
2. Types of Acceptance:
a. Acceptance by writing on the bill (Sec. 133) b. Acceptance by writing on separate instrument (Sec. 134) in order to bind the acceptor, i) the acceptance must be shown to the person to whom the instrument is negotiated, ii) such person must take the bill for value on the faith of such acceptance c. Unconditional promise to accept (Sec. 135) an unconditional promise in writing to accept a bill before it is drawn is deemed an actual acceptance in favor of any person who, upon the faith of the promise, receives the bill for value. d. Constructive acceptance (Sec. 137) if the drawee destroys a bill delivered for acceptance or refuses to return it within 24 hours, the bill will be deemed accepted.

B. Acceptance
3. Period to Accept (Sec. 136): The drawee has a period of 24 hours after presentment to decide whether or not to accept the bill. However, acceptance, once given, dates as of the day of presentment.

B. Acceptance
4. Incomplete Bill (Sec. 138): A bill may be accepted in the following cases; a. before it has been signed by the drawer b. while still incomplete in other respects c. when it is overdue d. after it has been dishonored by a previous refusal to accept or non=payment.

B. Acceptance
5. Kinds of Acceptance (Sec. 139): a. General acceptance agrees without qualification to the order of the drawer b. Qualified acceptance varies in express terms the effect of the bill as drawn, such as an acceptance which is: i. conditional; ii. partial; iii. local, or sets payment only at a particular place; iv. qualified as to time; v. the acceptance of only one or more of the drawees, but not all

B. Acceptance
6. Rights of Parties if Qualified Acceptance (Sec. 142): a. Holder may refuse to take a qualified acceptance and may treat the bill as dishonored by non-acceptance b. Drawer and indorsers if a qualified acceptance is taken by a holder, the drawer and indorsers are discharged, except if: i. they express authorized the holder to take a qualified acceptance; ii. subsequently assent to a qualified acceptance. Upon notice of a qualified acceptance, the drawer and indorser must express their dissent, otherwise, they will be deemed to have assented to the qualified acceptance.

C. Presentment for Acceptance


1. When Presentment for Acceptance Must be Made (Sec. 143): a. 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 b. Where the bill expressly stipulates that it shall be presented for acceptance; c. Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. * Presentment for acceptance is the production or exhibition of a bill of exchange to the drawee for his acceptance or payment.

C. Presentment for Acceptance


2. When Presentment for Acceptance Not Necessary: a. In the case of bills payable on demand or on sight; or b. In the case of bills payable at a fixed time after its date; c. In the case of bills payable upon other certain event. However, presentment for payment is necessary in order to charge the drawer and indorsers. 3. Failure to Present for Acceptance (Sec. 144): The bills required in Section 143 to be presented for acceptance must be presented for acceptance or negotiated within a reasonable time. Failure to do so shall result in the discharge of the drawer and all indorsers.

C. Presentment for Acceptance


4. How Presentment is Made (Sec. 145): a. Presentment must be made by or on behalf of holder; b. Presentment must be made at a reasonable hour; c. Presentment must be made on a business day; d. Presentment must be made before the bill is overdue; e. Presentment must be made to the drawee or some person authorized to accept or refuse acceptance on his behalf. * Where the bill is addressed to 2 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.

C. Presentment for Acceptance


4. How Presentment is Made (Sec. 145) (cont.): Where the drawee is dead, presentment may be made to his personal representative. 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.

C. Presentment for Acceptance


5. Where Presentment is Excused (Sec. 148): a. Where the drawee is dead, or has absconded, or is a fictitious person or a person not having capacity to contract by bill. b. Where, after the exercise of reasonable diligence, presentment cannot be made. c. Where, although presentment has been irregular, acceptance has been refused on some other ground.

C. Presentment for Acceptance


6. When a Bill is Dishonored by Non-acceptance (Sec. 149): a. When it is duly presented for acceptance, and such an acceptance as is prescribed by this Act is refused or cannot be obtained; or b. When presentment for acceptance is excused and the bill is not accepted.

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