NEGOTIABLE INSTRUMENTS LAW

X. PRESENTMENT FOR PAYMENT

Presentment It is defined as: a. the production of a bill of exchange to the drawee for his acceptance, or to the drawee or acceptor for payment; or b. the production of a promissory note to the party liable for its payment. (Windham Bank v. Norton, 22 comm. 213, 56 am. Dec. 297). It consists of: a. a personal demand for payment at a proper place b. the bill or note must be ready to be exhibited if required and surrendered upon payment. A. NECESSITY OF PRESENTMENT FOR PAYMENT Where necessary Presentment for payment is necessary in order to charge the drawer and endorsers. (Sec. 70, NIL). Without presentment, the persons secondarily liable are discharged. For Promissory Notes: it is necessary that: Presentment for payment must be made to the person primarily liable (Sec. 71, NIL); - If the note is dishonored by nonpaYment, notice of dishonor by nonpayment must be given to the person secondarily liable (Sec. 80, NIL), unless excused In All Other Cases: it is necessary that - Protest for nonpayment by drawee is necessary to charge an acceptor for honor (Sec. 167, NIL); - Protest for nonpayment by the acceptor for honor is also required. (Sec. 170, NIL).

Where NOT necessary General rule: Presentment for payment is not necessary to charge persons primarily liable on the instrument. (the person primarily liable on the instrument is the person who by the terms of the instrument is absolutely required to pay the same under Section 192). This pertains to the maker of a promissory note and the acceptor of a bill of exchange. Note: if instrument is, by its terms, payable at a special place and the person primarily liable is able and willing to pay it there at maturity, such ability and willingness are equivalent to tender of payment on his part. (Sec. 70 NIL). This pertains to a situation where the instrument is payable at a particular institution or office, such as a bank and not when the instrument is payable in a certain locality. Presentment for Payment is Necessary to charge persons secondarily liable

Exception:

a. to charge the person primarily liable on the instrument (Sec. 70, NIL) b. to charge the drawer where he has no right to expect or require that the drawee or acceptor will pay the instrument. (Sec. 79, NIL) c. to charge an indorser where the instrument was made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented. (Sec. 80, NIL) Under Section 79 and 80 of the Negotiable Instruments Law, only the drawer or indorser are not discharged. All other parties secondarily liable are discharged d. Excused (Sec. 82, NIL): 1) Where, after the exercise of reasonable diligence, presentment cannot be made; 2) Where the drawee is a fictitious person; 3) By waiver of presentment, express or implied. e. when a bill is dishonored by nonacceptance immediate right to recourse accrues to holder (Sec. 151, NIL) f. in case of waiver of protest, whether in the case of a foreign bill of exchange or other NI deemed to be a waiver not only of a formal protest but also of presentment and notice of dishonor. (Sec. 111, NIL) When Presentment Must Be Made 1. Instrument on a Fixed or Determinable Future Time/ Not payable on demand Presentment must be made on the day it falls due. Presentment before maturity is improper. (a) Every negotiable instrument is payable at the time fixed therein without grace (Sec. 85, NIL). (b) When the day of maturity falls upon a Sunday or a holiday, the instrument is payable on the next succeeding business day (Sec. 85, NIL). (c) When the day of maturity is on a Saturday, presentment for payment shall be made on the next succeeding business day; except that demand instrument may, at the option of the holder, be presented for payment before 12:00 oclock noon on Saturday when that entire day is not a holiday (Sec. 85, NIL).

(d) Where the instrument is payable at a fixed period after date, after sight, or after the happening of a specified event, the time of payment is determined by excluding the day from which the time is to begin to run, and by including the date of payment. (Sec. 86, NIL). Illustration: 18 June 2001 10 days after date Pay A or order P500. (Sgd.) B Present this on 28 June 2001 for payment because that is its due date

GENERAL RULE: Presentment for payment must be made on due date of instrument EXCEPTION: If the due date falls on a Saturday, present instrument on Monday next REASON: Obligor is entitled to the full day to make payment. But since Saturday is half day work and the banks would be closed in the afternoon, and the following day is a Sunday, he should have until Monday to pay. The law wants to give the person primarily liable one whole day to look for money. EXCEPTION TO EXCEPTION: If the instrument is payable on demand, the instrument can be presented on a aturday. The reason is that the holder could have presented it on any day. 2. Instrument Payable on Demand within a reasonable time after its issue (a) In case of note, it must be presented for payment within a reasonable time from issue; (b) In case of a bill of exchange, it must be presented for payment within a reasonable time from last negotiation. The last negotiation is the last transfer for value. Subsequent transfers between banks for purposes of collection are not negotiations within this section. Reasonable time has been defined as so much time as is necessary under the circumstances for a reasonable prudent and diligent man to do, conveniently, what the contract or duty requires should be done, having a regard for the rights and possibility of loss, if any, to the other party. ( Far East Realty Investment Inc. vs. CA, 166 SCRa 256, 1994 BEQ) 3. demand bill of exchange within a reasonable time after the last negotiation. (Sec. 71, NIL) (NOTE: though reasonable time from last negotiation, it may be unreasonable time from issuance thus holder may not be HDC under sec. 71 ) Check - must be presented for payment within reasonable time after its issue or drawer will be discharged from liability thereon to extent of loss caused by delay

How time computed When payable at a (1) fixed period after date, (2) after sight, or (3) after that happening of a specified event, exclude day from which the time is to begin to run, include date of payment. (Sec. 86, NIL) Where the day, or the last day for payment falls on a Sunday or on a holiday may be done on the next succeeding secular or business day. ( Sec. 194, NIL)

Where DELAY excused When the delay is caused by circumstances beyond the control of the holder and not imputable to his default, misconduct, or negligence; when the cause of delay ceases to operate, presentment must be made with reasonable diligence ( Sec. 81,NIL)

Manner of Presentment The instrument must be exhibited; when paid, must be delivered up to the party paying it. (Sec. 74, NIL)

B. PARTIES TO WHOM PRESENTMENT FOR PAYMENT SHOULD BE MADE

What constitutes a sufficient presentment. (Sec. 72, NIL) Presentment for payment, to be sufficient, must be made 1. By the holder, or by some person authorized to receive payment on his behalf. (a) Presentment for payment of a promissory note by a bank having it for collection is sufficient. (Caine v. Foreman, 289 Pac. 929). (b) Instrument must be exhibited to the person from whom payment is demanded, and when it is paid must be delivered up to the party paying it. (Sec. 74). Demand over the telephone therefore cannot constitute proper presentment. First Acceptance v. Dimayuga 11 SCRA 114 (1967) The instrument must be exhibited in order that the maker or the acceptor may be able to determine the genuineness of the instrument, the right of the holder to receive pyment, and so that he may immediately reclaim possession upon paying the amount. Non-exhibition or surrender would not constitute due presentment to charge drawer and endorsers. (c) The makers right to exhibition of a note is waived when he does not demand to see the note and he refuses payment on some other grounds. (Greensteen v. Kucharski. 140 Atl. 482; Foster East Jordan Realty Co., 177 N.W. 987). 2. At a reasonable hour on a business day 3. To the person primarily liable or if absent to any person found at the place where presentment is made 4. Where Notice must be Sent: Where a party has added an address to his signature, notice of dishonor must be sent to that address; but if he has not given such address, then the notice must be sent as follows: (a) Either to the post office nearest to his place of residence or to the post office where he is accustomed to receive his letters; or (b) If he lives in one place, and has his place or business in another, notice may be sent to either place; or (c) If he is sojourning in another place, notice may be sent to the place where he is so sojourning. But where the notice is actually received by the party within the time specified by law, it will be sufficient, though not sent in accordance with the requirement of this section. (Section 108, NIL).

By Whom:

the holder, or by some person authorized to receive payment on his behalf; Only the holder or one authorized by him has the right to make presentment for payment CHAN WAN v. TAN KIM(1960)

Tan Kim drew specially crossed checks payable to bearer. Chan Wan presented the checks for payment to the drawee bank but they were dishonored due to insufficient funds. Chan Wan seeks recovery on these checks. HELD: Checks crossed specially to China Banking should have been presented for payment by that bank, not by Chan Wan. Inasmuch as Chan Wan presented them for payment himself, there was no proper presentment & the liability did not attach to the drawer. But there was due presentment as clearance endorsements by China Bank can be found at the back of the checks. However, some of the checks were stamped account closed. As Chan Wan filed to indicate how the checks reached his hands, the court held him not to be a holder in due course who can still recover on the checks but subject to personal defenses, such as lack of consideration. NOTE: Camposes note that despite the addition of the words "nonnegotiable" on the specially crossed checks, the Court considered the checks as negotiable instruments. A check on its face normally has all the requisites of negotiability, and the addition of the above words should not change its character as a negotiable instrument. ASSOCIATED BANK v. CA & REYES (1992) Different department stores issued crossed checks bearing "for payee's account only" payable to Melissa's RTW. Sayson, acting without authority, deposited & encashed the checks with Associated Bank. HELD: Citing State Invt House v IAC, the effects of crossing a check are: 1. check may not be encashed but only deposited in the bank; 2. check may be negotiated only one -- to one who has an account with a bank; and 3. the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose. The effects of crossing a check relate to the mode of presentment for payment. The law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness & regularity.

Time: reasonable hour on a business day; where instrument payable at bank. must be made during banking hours, UNLESS the person to make payment has no funds there to meet it at any time during the day, in which case presentment at any hour before the bank is closed on that day is sufficient (Sec. 75, NIL) Presentment cannot be made on a Sunday or holiday If the instrument is payable on demand a) if it is a note presentment must be made within reasonable time after issue b) if it is a bill - presentment must be made within reasonable time after last negotiation. Place: proper place as herein defined: (Sec. 73, NIL) 1) place of payment specified at place of payment;

2) no place of payment specified but address of the person to make payment is given in the instrument at the address given; 3) no place of payment and no address is given at the usual place of business or residence of the person to make payment; 4) in any other case wherever person to make payment can be (1) found, or if presented (2) at his last known place of business or residence

TO WHOM PRESENTMENT OF PAYMENT SHOULD BE MADE: (1) Person primarily liable on the instrument, or if he is absent or inaccessible Presentment for payment is made to the maker, or acceptor. Not to the person secondarily liable. Hence: 1. For Promissory Notes: it is necessary that: Presentment for payment must be made to the person primarily liable (Section 71); If the note is dishonored by nonpayment, notice of dishonor by nonpayment must be given to the person secondarily liable (Sec. 80), unless excused 2. In All Other Cases: it is necessary that Protest for nonpayment by drawee is necessary to charge an acceptor for honor (Sec. 167); Protest for nonpayment by the acceptor for honor is also required. (Sec. 170). Acts needed to charge persons secondarily liable: a) Presentment for payment/acceptance b) Dishonor by non-payment/non-acceptance c) Notice of dishonor to secondary parties

(2) To any person found at the place where the presentment is made. where principal debtor is dead and no place of payment is specified to his personal representative, IF any AND IF he can be found with the exercise of reasonable diligence (Sec. 76, NIL) where persons primarily liable are partners and no place of payment is specified, presentment for - to any one of them, even though there has been a dissolution of the firm. (Sec. 77, NIL) joint debtors and no place of payment is specified - to them all (Sec. 78, NIL) If payable at the special place, and the person liable is willing to pay there at maturity, such willingness and ability is equivalent to tender of payment. C. DISPENSATION WITH PRESENTMENT FOR PAYMENT Presentment not required to charge the drawer: a. He has no right to expect b. He has no right to require that the drawee or acceptor will pay (Sec 79, NIL) Presentment not required to charge the indorser where: a. The instrument was made or accepted for his accommodation b. He has no reason to expect that the instrument will be paid if presented (Sec. 80, NIL) Only the drawer or indorser are not discharged. All other parties secondarily liable are discharged.

When delay in making presentment is excused Delay in making presentment for payment is excused when the delay is caused by circumstances beyond the control of the holder and not imputable to his default, misconduct, or negligence. When the cause of delay ceases to operate, presentment must be made with reasonable diligence. (Sec. 81, NIL) When presentment for payment is excused Presentment for payment is excused: 1. Where, after the exercise of reasonable diligence, presentment, as required by this Act, cannot be made; 2. Where the drawee is a fictitious person; 3. By waiver of presentment, express or implied. (Sect. 82, NIL) What is excused is the failure to make presentment. There is no need to make any presentment versus under section 81 (delay in presentment) presentment for payment is still required after the cause of delay has ceased.

D. DISHONOR BY NON-PAYMENT The instrument is dishonored by non-payment when: 1. It is duly presented for payment and payment is refused or cannot be obtained; or 2. Presentment is excused and the instrument is overdue and unpaid. (Sec. 83, NIL) Liability of person secondarily liable, when instrument dishonored Subject to the provisions of this Act, when the instrument is dishonored by nonpayment, an immediate right of recourse to all parties secondarily liable thereon accrues to the holder. (Sec. 84) EFFECTS OF DISHONOR BY NON-PAYMENT: An immediate right of recourse to all parties secondarily liable accrues to the holder (Sec. 84) Parties cease to be secondarily liable and become principal debtors. Liability becomes the same as that of the original obligors.

PNB v. SEETO (1952) On 13 March, Seeto indorsed to PNB-Surigao a bearer check dated 10 March drawn against PBC-Cebu. PNB-Surigao mailed the check to its Cebu branch on 20 March & was presented to the drawee bank on 09 April. The check was dishonored for insufficient funds because the delay in presentment cause the exhaustion of the drawer's funds. Indorser Seeto asked that the suit be deferred while he made inquiries. He assured PNB that he would refund the value in case of dishonor. HELD: The indorser is discharged from liability by reason of the delay in the presentment for payment, under 84. Drawer had enough funds when he issued the check because his subsequent checks drawn against the same bank had been encashed. The assurances of refund by the indorser are the ordinary obligation of an indorser which are discharged by the unreasonable delay in presentation of the check.

NOTE: Camposes note that the discharge of the indorser should have been based on 66 & 71 on presentment as a condition to the indorser's liability & presentment for payment of a demand bill made within a reasonable time from its last negotiation. Is the drawer an indispensible party to a suit against the indorsers in case of dishonor of the instrument by nonpayment? After an instrument is dishonored by non-payment, indorsers cease to be merely secondarily liable; they become principal debtors whose liability becomes identical to that of the original obligor. The holder of a negotiable instrument need not even proceed against the maker before suing the indorser. Hence, the drawer is not an indispensible party in an action against the indorser of the checks. (TUAZON VS. HEIRS OF RAMOS, G.R. No. 156262 14 July 2005)

XI. NOTICE OF DISHONOR

By notice of dishonor is meant 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 hasnt been paid, and that the party notified is expected to pay it. A. PARTIES TO BE NOTIFIED To whom notice of dishonor MUST be given (Sec. 89, NIL)

Except as herein otherwise provided, when a negotiable instrument has been dishonored by non-acceptance or non-payment, notice of dishonor must be given to: 1. The drawer and to each indorser 2. Any drawer or indorser to whom such notice is not given is discharged. GULLAS v. PNB (1935) Gullas indorsed the treasury warrant which was sold to PNB. Gullas also maintained an account with the bank. The warrant was subsequently dishonored by the Insular Treasurer. The bank sent notices of dishonor to by mail to Gullas which could not be delivered to him at that time because he was in Manila. The bank set off Gullas' deposits as payment of the warrant. This resulted in the non-payment of checks he had issued. HELD: A notice of dishonor is necessary to charge an indorser & that the right of action against him does not accrue until the notice is given. As a general rule, a bank has a right of set off of the deposits in its hands for the payment of any indebtedness to it on the part of a depositor. However, prior to the mailing of notice of dishonor & without awaiting any action by Gullas, the bank made use of the money standing in his account to make good for the treasury warrant. Gullas was merely an indorser & notice should actually have been given to him in order that he might protect his interests. To whom notice MAY BE given 1. To his principal, in case of an instrument dishonored in the hands of an agent (Sec. 94, NIL) 2. To the party himself or his agent in that behalf (Sec. 97, NIL)

 When notice is given to an agent, he must be duly authorized to receive notice of dishonor, otherwise, the notice is not valid. 3. Where party is dead and death known to the party giving notice (1) MUST be given to a personal representative, if there be one, and if with reasonable diligence, he can be found; (2) no personal representative MAY be sent to the last residence or last place of business of the deceased. (Sec. 98, NIL) 4. Partners to any one partner, even though there has been a dissolution. ( Sec. 99, NIL) a. Persons jointly liable. to each of them unless one of them has authority to receive such notice for the others. (Sec. 100, NIL) b. Bankrupt. where a party has been adjudged a bankrupt or insolvent,or has made an assignemnet for the benefit of creditors, notice may be given either to the party himself or to his trustee or assignee (Sec. 101, NIL) H & BC v. Peoples Bank 35 SCRA 140 (1970) The period within which to clear checks at the clearing house of the Central Bank was 24 hours (i.e, any forgery must be discovered and reported within 24 hours). Hongkong and Shanghai Banks representative whether the check was in fact genuine. Shanghai Bank said yes. This had to be done within 24 hours. Two months later, the forgery was discovered and Hongkong and shanghai Bank sought to recover, but this was denied by the court. Because the period of clearing has been extended to 180 days, but once any alteration is discovered, the same must be reported within 24 hours after discovery. B. PARTIES WHO MAY GIVE NOTICE OF DISHONOR

By Whom Given o (1) By or on behalf of the holder or (2) any party to the instrument who may be compelled to pay it to the holder, and who, upon taking it up, would have a right to reimbursement from the party to whom the notice is given (Sec. 90, NIL) o Notice of dishonor may be given by an agent either in his own name or in the name of any party entitled to give notice, whether that party be his principal or not (Sec. 91, NIL) o Where instrument has been dishonored in hands of agent, he may either himself give notice to the parties liable thereon, or he may give notice to his principal (as if agent were holder) (Sec. 94, NIL)

By Whom Given Notice of Dishonor may be given: 1. By or on behalf of the holder 2. By or on behalf of any party who: a. Is a party to the instrument and might be compelled to pay the instrument. b. To a holder who having taken it up would have a right of reimbursement from the party to whom notice is given. (Sec. 90, NIL) Notice of dishonor may be given by any agent either: a. in his own name; or b. in the name of any party entitled to give notice, whether that party be his principal or not. (Sec. 91, NIL)

 Where instrument has been dishonored in hands of agent, he may either himself give notice to: 1. the parties liable thereon; or 2. to his principal (within the same time as if agent was an independent holder) (Sec. 94, NIL) Q. DOES FAILURE TO GIVE NOTICE OF DISHONOR OF A PREVIOUS INSTALLMENT TO PERSONS SECONDARILY LIABLE ALSO DISCHARGE THEM ON THE SUCCEEDING INSTALLMENTS? A. It depends on whether the instrument contains an acceleration clause RULE WHERE THERE IS NO ACCELERATION CLAUSE Where the instrument contains no acceleration clause, failure to give notice of dishonor on previous installment doesnt discharge drawers and indorsers as to the succeeding installments, and therefore, the holder can file an action against them for such succeeding installments, notice is given The reason is that each separate installment is equivalent to another note RULE WHERE THERE IS AN ACCELERATION CLAUSE It depends whether the clause is optional or automatic If it is automatic, failure to give notice of dishonor as to a previous installment will discharge the persons secondarily liable as to the succeeding installments If it is optional and it is not exercised, the rule would be the same as where there is no acceleration clause C. EFFECT OF NOTICE Effect of notice on behalf of holder Where notice is given by or on behalf of the holder, it inures to the benefit of all subsequent holders and all prior parties who have a right of recourse against the party to whom it is given. (Sec. 92, NIL) Effect where notice is given by a party entitled thereto Where notice is given by or on behalf of a party entitled to give notice, it inures to the benefit of the holder and all parties subsequent to the party to whom notice is given. (Sec. 93, NIL) In whose favor notice operates 1. when given by/on behalf of holder: insures to benefit of a. all subsequent holders and b. all prior parties who have a right of recourse vs. the party to whom its given 2. where notice given by/on behalf of a party entitled to give notice: insures for benefit of a. holder , and b. all parties subsequent to party to whom notice given General rule: discharged. Any drawer or indorser to whom such notice is not given is

Exceptions: a. Waiver (Sec. 109, NIL)

b. Notice is dispensed (Sec. 112, NIL) c. Not necessary to Drawer (Sec. 114, NIL) d. Not necessary to Indorser (Sec. 115, NIL) If notice is delayed, delay may be excused (Sec. 113, NIL) D. FORM OF NOTICE Form of notice (Sec. 96, NIL) The notice may be: 1. in writing; or 2. merely oral Contents: may be given in any terms which sufficiently 1. identify the instrument, and 2. indicate that it has been dishonored by non-acceptance or non-payment. It may in all cases be given: 1. by delivering it personally; or 2. through the mails. The ff. notice still sufficient: (Sec. 95, NIL) (1) a written notice, not signed (2) insufficient written notice, supplemented and validated by verbal communication (3) instrument suffering from misdescription UNLESS the party to whom the notice is given is in fact misled thereby. TIME WITHIN WHICH NOTICE GIVEN 1. Notice may not be given before the maturity of the instrument. Notice may be given on the date of maturity, provided that instrument has been presented for payment and it has been dishonored. 2. Where Parties Reside in Same Place: where the person given and the person to receive notice reside in the same place, notice must be given within the following periods: (a) If given at the place of businss of the person to receive notice it must be given before the close of business hours on the day following: (b) If given by mail it must be deposited in the post office in time to reach him in usual course on the day following. (Sec. 103, NIL). Same place referes to the corporate limits of a town or city where the presentment is made or where the holder resides. 3. Where Parties Reside in Different Place: Where the person giving and the person to receive notice reside in different place, the notice must be given within the following periods: (a) If sent by mail, it must be deposited in the post office in time to go by mail the day following the day of the dishonor, or if there be no mail at a convenient hour or that day, by the next mail thereafter; (b) If given otherwise than through post office, then within the time that notice would have been received in due course of mail, if it had been deposited in post office within the time specified. (Sec. 104, NIL). NOTE: these provisions are similar to Art. 54 of the Code of Commerce which provides: contracts enetered into through correspondence shall be

perfected from the time an answer is made accepting the propositions by which the latter may be modified. 4. Where a party receives notice of dishonor, he has, after the receipt of such notice, the same time for giving notice to antecedent parties that the holder has after the dishonor. (sec. 107, NIL). E. WAIVER When Waiver of Dishonor May Be Made (Sec. 109, NIL) 1. Before the time of giving notice has arrived, such as express waiver in the body of the instrument or added to the signature of the party; or 2. After omission to give due notice > Waiver of notice may be expressed or implied - Waiver may be implied from acts, declarations, or silence Whom Affected by Waiver in General (Sec. 110, NIL) The persons affected by waiver depends upon whether the waiver is in the instrument itself or is written above the signature of the indorser If the waiver is embodied in the instrument itself, it is binding upon all parties If the waiver is written above the signature of an indorser, it binds him only Waiver of Protest Whether in the case of foreign bill of exchange or other negotiable instrument, is deemed to be a waiver not only of a formal protest but also of presentment and notice of dishonor. (Sec. 111, NIL). PROTEST: 1. Where any negotiable instrument has been dishonored, it may be protested for non-acceptance or non-payment, as the case may be (Sec. 118, NIL). 2. But protest is not required except I the case of foreign bills of exchange (Sec. 118, NIL). 3. Distinctions between Inland Bill and Foreign Bill: An inland bill of exchange bill of exchange is a bill which is or on its face, purports to be, both drawn and payable within the Philippines. Any other bill is foreign bill which is onewhich is, or on its face purports to be drawn or payable outside the Philippines. (Sec. 129, NIL). A foreign bill of exchange is one: (a) Drawn in the Philippines but payable outside the Philippines. (b) Payable in the Philippines but drawn outside the Philippines NOTE: Unless the contrary appears on the face of the bill of exchange, the holder may treat it as an inland bill of exchange. 4. Under Sec. 118 NIL, verbal notice of dishonor is s sufficient in case of promissory note and inland bill of exchange. But with respect to a foreign bill of exchange, a protest is needed. Where presentment for payment is waived, notice of dishonor is also waived But where notice of dishonor is waived, presentment for payment is not waived Where protest is waived, notice and presentment is waived When Delay In notice allowed

Delay in giving notice of dishonor is excused when the delay is caused by circumstances beyond the control of the holder, and not imputable to his default, misconduct, or negligemce. When the cause of delay ceases to operate, notice must be given with reasonable diligence. (Sec. 113, NIL). When Notice Need Not Be Given to Drawer Notice of dishonor is not required to be given to the drawer in any of the following cases: (a) Where the drawer and drawee are the same person; (b) When the drawee is a fictitious person or a person not having capacity to contract; (c) When the drawer is the person to whom the instrument is presented for payment (d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument; (e) Where the drawer has countermanded payment (Sec. 114, NIL). Where not necessary to charge endorser Notice of dishonor is not required to be given to an endorser in either of the following cases: (a) When the drawee is a fictitious person or does not have capacity to contract and the endorser was aware of this at the time of endorsement; (b) Where the endorser is the person to whom the instrument is presented for payment; (c) Where the instrument was made or accepted for his accommodation (Sec. 115, NIL). Where due notice of dishonor by non-acceptance has been given, notice of subsequent dishonor by non-payment is not necessary unless in the meantime instrument has been accepted. (Sec. 116, NIL). Effect of omission to Give notice of Acceptance An omission to give notice of dishonor by non-acceptance does not prejudice the rights of a holder in due course subsequent to the omission. (Sec. 117, NIL). F. DISPENSATION WITH NOTICE When notice of dishonor is dispensed with Notice of dishonor is dispensed with when, after the exercise of reasonable diligence, it cannot be given to or does not reach the parties sought to be charged. (Sec. 112, NIL) Delay in giving notice; how excused (Section 113, NIL) Delay in giving notice of dishonor is excused when the delay is caused by circumstances beyond the control of the holder and not imputable to his default, misconduct, or negligence. When the cause of delay ceases to operate, notice must be given with reasonable diligence. When political disturbances interrupt and obstruct the ordinary negotiations of trade, they constitute a sufficient excuse for want of

presentment or notice, upon the same principle that controls in cases of military operations or interdictions of commerce, or prevalence of a malignant, contagious, infectious disease. Instances when Notice of Dishonor Not Necessary to Drawer (Sec. 114, NIL)
a. b. c. d.

Drawer and drawee same person Drawee is a fictitious/incapacitated person Drawer is the person to whom presentment for payment is made Drawer has no right to expect that the drawee will accept/pay the instrument

Instances when Notice Not Required to Indorser (Sec. 115, NIL)

a. drawee was a fictitious/incapacitated person and the indorser was aware of such

at the time of indorsement

b. indorser is the person to whom instrument was presented for payment c. instrument made/accepted for his accommodation

G. EFFECT OF FAILURE TO GIVE NOTICE Effect of omission to give notice of non-acceptance An omission to give notice of dishonor by non-acceptance does not prejudice the rights of a holder in due course subsequent to the omission. (Sec. 117, NIL)

XII. DISCHARGE OF NEGOTIABLE INSTRUMENT

It is the release of all parties, whether primary or secondary, from the obligation on the instrument; It renders the instrument non-negotiable. A. DISCHARGE OF NEGOTIABLE INSTRUMENT

How may a Negotiable Instrument be Discharged (Sec. 119, NIL): 1. By payment in due course by or on behalf of principal debtor; a. by whom made b. at or after maturity c. to the holder thereof d. in good faith and without notice that his title is defective Discharge of the instrument discharges all the parties thereto Payment must be in due course, and by the principal debtor or on his behalf If payment is not made by the principal debtor, payment only cancels the liability of the payor and those obligated after him but does not discharge the instrument. Payment by an accommodation party does not discharge the instrument. That the post-dated checks were merely issued as security is not a ground for the discharge of the instrument as against a holder in due course. For the only grounds are those outlined in Section 119 of the Negotiable Instruments Law. The intentional cancellation contemplated under par. C, Sec. 119 is that the cancellation effected by destroying the instrument either by tearing it up, burning it, or writing the word canceled on the instrunebt. The drawing and negotiation of a check have certain effects aside from the transfer of title or the incurring of liability in regard to the instrument by the transferor. The holder who takes the negotiated paper makes a contract with the parties on the face of the instrument. There is an implied representation that funds or credit are available for the payment of the instrument in the bank

upon which it is drawn. Consequently, the withdrawal of the money from the drawee bank to avoid liability on the checks cannot prejudice the rights of holders in due course. (State Investment vs. CA; 217 SCRA 32) 2. By payment in due course by party accommodated where party is made/ accepted for accommodation 3. By the intentional cancellation thereof by holder a cancellation made unintentionally, or under a mistake or without the authority of the holder, is inoperativeBut where an instrument or any signature thereon appears to have been cancelled the burden of proof lies on the party who alleges that the cancellation was made unintentionally, or under a mistake or without authority. (Sec. 123, NIL). 4. By any other act which discharges a simple contract for payment of money: (a remission; (b) novation; (c) confusion or merger. As to the other modes: pay ment is already in (a) or (b); loss of a negotiable instrument will not extinguish liability. Compensation is not available so long as an obligation is evidenced by a negotiable instrument. PRESUMPTION: when the principal debtor becomes the holder of the instrument at or after majority in his own right. If a private document evidencing an obligation is in the possession of the debtor, the presumption is that the debtor has paid such an obligation. State Investment v. CA 217 SCRA 32 (1993) The fact that post dated checks were issued merely as security is not a ground for the discharge of the checks as against a holder in due course. The intentional cancellation contemplated under Sec. 119 on NIL for the discharge of an instrument is the cancellation effected by destroying the instrument either by tearing it up, burning it, or writing the work canceled on the instrument, and certainly requires the lement in the holder in intentionally cancelling it. Cancellation cannot be presumed by failure to recover the instrument. The discharge of the instrument would necessarily carry with it the discharge of the persons primarily liable thereon.

5. When the principal debtor becomes holder of instrument at or after maturity in his own right

6. renunciation of holder: (Sec. 122, NIL) holder may expressly renounce his rights vs. any party to the instrument, before or after its maturity absolute and unconditional renunciation of his rights against PRINCIPAL DEBTOR made at or after maturity discharges the instrument renunciation does not affect rights of HDC w/o notice. Renunciation must be in writing unless instrument delivered up to person primarily liable thereon 7. material alteration review Sec. 125, NIL: what constitutes material alteration (Sec. 124, NIL: material alteration w/o assent of all parties liable avoids instrument except as against party to alteration and subsequent indorsers)

Payment by Principal Debtor In order to discharge the instrument, the payment must be 1. a payment in due course, 2. a payment made by the principal debtor PRINCIPAL DEBTOR - Person ultimately bound to pay the debt If payment is made before the date of maturity, the instrument is not discharged as the payment is not in due course Where payment is made by a party who is not a primary obligor or an accommodation party, his payment only conceals his own liability and those who are obligated after him. All prior parties primarily or secondarily liable on the bill, are liable to such a payer, and the payer may cancel indorsements subsequent to his own and reissue the paper, and it will be valid as against the prior partie.

Payment by Third Persons If payment is made by a third person, the instrument is not discharged because payment is not made by the person principally liable Not any one who desires may pay the instrument and then recover of the maker. He must be a person who has in some way made himself liable for the payment of the instrument. EXCEPTION: Where an instrument has been protested and someone voluntarily makes payment supra protest or for honor. And if the instrument was to give money in payment, the instrument is discharged.

Summary of Discharge by Payment 1. Payment by a person ultimately liable, whatever his position in the paper, is a discharge of the instrument 2. Payment by an accommodation party isnt a discharge of the instrument, whatever his position thereon and whether the indorsement be regular or anomalous 3. Payment by the drawer or indorser is not a discharge of the instrument

B. DISCHARGE OF PARTIES SECONDARILY LIABLE When persons secondarily liable on the instrument are discharged 1. By any act which discharges the instrument 2. By the intentional cancellation of his signature by the holder a) No consideration is necessary to support a discharge by intentional cancellation of an endorsers signature by holder. 3. By the discharge of a prior party (a) Discharge of a party by intentional cancellation of his signature also operates to discharge parties subsequent to the party discharged. (b) The rule only applies to discharge by the act of the holder and not to discharges by operation of law, such as insolvency. 4. By a valid tender or payment made by a prior party

5. By a release of the principal debtor unless the holders right of recourse against the party secondarily liable is expressly reserved 6. By any agreement binding upon the holder to extend the time of payment or to postpone the holders right to enforce the instrument unless made with the assent of the party secondarily liable or unless the right of recourse against such party is expressly reserved. (Sec. 120, NIL) 7. Failure to make due presentment (Sec. 70, 144) 8. Failure to give notice of dishonor 9. Certification of check at instance of holder 10. Reacquisition by prior party where instrument negotiated back to a prior party, such party may reissue and further negotiate, but not entitled to enforce payment vs. any intervening party to whom he was personally liable where instrument is paid by party secondarily liable, its not discharged, but a. the party so paying it is remitted to his former rights as regard to all prior parties b. and he may strike out his own and all subsequent indorsements, and again negotiate instrument, except where its payable to order of 3rd party and has been paid by drawer where its made/accepted for accommodation and has been paid by party accommodated In the discharging of persons secondarily liable: (a) The liability of a party secondarily liable is subsidiary. (b) His liability is similar (but not exactly the same) to that of a guarantor. (c) Endorsers are liable in the order in which they endorse. GENERAL PROCEDURES TO CHARGE PERSON SECONDARILY LIABLE: 1. In the three cases required by law, presentment for acceptance to the drawee or negotiation within a reasonable time after acquisition is required (Secs. 143 and 144, NIL), unless excused. (Sec. 148, NIL). In all other cases, there is no need for presentment for acceptance. 2. If bill is dishonored by non-acceptance: (a) notice of dishonor by non-acceptance must be given to persons secondarily liable (Sec. 80) unless excused (Sec. 117); and (b) in case of foreign bils, protest for dishonor by non-acceptance must be made, unless excused (Secs 117 and 159, NIL). 3. But if the bill is accepted, or if the bill is not required to be presented for acceptance, it must be presented for payment to the persons primarily liable (Sec. 71, NIL), unless excused. (Sec. 82, NIL). 4. If the bill is dishonored by nonpayment then: A notice of dishonor by nonpayment must also be given to persons secondarily liable (Sec. 80, NIL), unless excused; and In case of foreign bill a protest for dishonor by nonpayment must be made (Sec. 152, NIL), unless excused. C. RIGHT OF PARTY WHO DISCHARGED INSTRUMENT

Right of party who discharges instrument (Sec. 121, NIL) Where the instrument is paid by a party secondarily liable thereon, it is not discharged; but the party so paying it is remitted to his former rights (e.g. right to Collect) as regard all prior parties and he may strike out his own and all subsequent indorsements and again negotiate the instrument (to new parties- but not to subsequent parties) except: 1) Where the bill of exchange is payable to the order of a third person and has been paid by the drawer himself; and 2) Where it was made or accepted for accommodation and has been paid by the party accommodated. The party secondarily liable who pays will have the effect of discharging the party paying The party paying is remitted to his former rights against parties prior to him; if he was formerly a holder in due course, even if at the time of payment he already had notice of the defects of the title, he can enforce his rights against any of the prior parties free from defenses.

D. RENUNCIATION BY HOLDER As a Rule: The holder may expressly renounce his rights against any party to the instrument before, at, or after its maturity. (Sec. 122, NIL) An absolute and unconditional renunciation of his rights against the principal debtor made at or after the maturity of the instrument discharges the instrument. However: A renunciation does not affect the rights of a holder in due course without notice. A renunciation must be in writing unless the instrument is delivered up to the person primarily liable thereon. [Section 122, Negotiable Instruments Law] Renunciation by a holder discharges an instrument when: a. it is absolute and unconditional b. made in favor of a person primarily liable c. made at or after maturity of the instrument d. in writing or the instrument is delivered up to the person primarily liable (Sec. 122, NIL ) Section 122, NIL applies only to renunciation by the unilateral act of the holder without consideration and in cases where the instrument is not delivered up to the person intended to be released Renunciationact of surrendering a right or claim without recompense but it can be applied with equal propriety to the relinquishing of a demand upon an agreement supported by a consideration if renounced in favor of a party secondarily liable, only he is exonerated from liability and all parties subsequent to him discharge by novation is allowed

XIII. MATERIAL ALTERATION

Material Alteration - Any change in the instrument which affects or changes the liability of the parties in any way. A. CONCEPT There is no distinction between fraudulent and innocent alteration An alteration is said to be material if it alters the effect of the instrument. In other words, a material alteration is one which changes the items which are required to be stated under Sec.1, NIL. ( PNB v. CA et al. 256 SCRA 491) What constitutes a material alteration Under Section 125 NIL, any alteration which changes the following are considered material alterations: 1. The date; 2. The sum payable, either for principal or interest; 3. The time or place of payment: 4. The number or the relations of the parties; 5. The medium or currency in which payment is to be made; 6. Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect, is a material alteration.

Does the alteration on the serial number of the check constitute material alteration? A serial number is an item which is not an essential requisite for negotiability under Sec. 1 of NIL, and which does not affect the right of the parties, hence its alteration is not material. (PNB v. CA, 256 SCRA 491, 1999 BEQ) The alteration on the serial numbers do not constitute material alteration within the contemplation of the Negotiable instruments Law. An alteration is said to be material if it alters the effect of the instrument. It means an authorized change in an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. In other words, a material alteration is one which changes the items which are required to be stated under Section 1 of the NIL (THE INTERNATIONAL CORPORATE BANK, INC. v. COURT OF APPEALS, G.R. No. 129910, September 5, 2006) B. EFFECT OF MATERIAL ALTERATION General rule: When materially altered, without the consent of all parties liable, the instrument is avoided except as against: 1. The party who has made the alteration

2. The party who authorized or assented to the alteration. 3. Subsequent indorsers Exception: When an instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration, he may enforce payment thereof according to its original tenor. [Section 124, Negotiable Instruments Law] The EFFECTS of alteration: 1. Alteration by a PARTY Material alteration by the holder discharged the instrument and all prior parties thereto who did not give their consent to such alteration. Whether the alteration made is favorable or unfavorable to the party making the alteration, no distinction as to the effect is made. The intent of the law is to preserve the integrity of the negotiable instrument. 2. Alteration by a STRANGER ( SPOLIATION) If subsequently negotiated to a non-Holder in Due CourseA material alteration avoids the instrument as against any prior party who has not assented to the alteration. If subsequently negotiated to a Holder in Due Course He may enforce payment thereof according to its original tenor regardless of whether the alteration was innocent or fraudulent.

XIV. ACCEPTANCE
A. DEFINITION Acceptance is the signification by the drawee of his assent to the order of the drawer. It is an act by which a person on whom the BOE is drawn assents to the request of the drawer to pay it. (Sec. 132, NIL) The term, ACCEPTANCE referes only to a bill of exchange. A promissory note is not to be presented for acceptance. The purpose of an acceptance is to bind the DRAWEE, because the drawee does not become a party unless he accepts. Upon an acceptance by the drawee, he becomes an ACCEPTOR and the bill, in effect becomes a note. The drawee assumes the liability of a maker who is primarily liable. FORMAL REQUISITES OF ACCEPTANCE: a. the signification by the drawee of his assent to the order of the drawer b. "Acceptance" completed by delivery or notification (Sec. 19, NIL) c. in writing and signed by the drawee; must not express that the drawee will perform his promise by any other means than the payment of money. (Sec.132, NIL); does not change the implied promise of acceptor to pay only in money o Thus, there is no valid oral or implied acceptance except in case of Sec. 137 (Constructive Acceptance) B. MANNER Manner of acceptance

1. Actual/Express Acceptance Requisites of actual acceptance: a. In writing and signed by the drawee. b. Must not express that the drawee will perform his promise by any other means than the payment of money. (Section 132, NIL) c. The acceptance must be communicated or delivered to the holder A holder of a bill presenting the same for acceptance has the right to: 1) Require that acceptance be written on the bill and, if such request is refused, may treat the bill as dishonored (Sec. 133, NIL) Where an acceptance is written on a paper other than the bill itself, it does not bind the acceptor except in favor of a person to whom it is shown and who, on the faith thereof, receives the bill for value. (Section 134, NIL) i. Refuse to accept a qualified acceptance and may treat it as dishonored (Sec. 142, NIL)

SUMCAD v. PROVINCE OF SAMAR 1956. There was implied acceptance in view of the circumstances of the case (furnishing of photostatic copies, presentment for certification) by voluntary assuming the obligation of holding so much deposit as would be sufficient to cover the amount of the check. 2. Constructive Acceptance: Where the drawee to whom the bill has been delivered 1. destroys it OR 2. refuses within 24 hrs after such delivery or within such time as is given, to return the bill accepted or not. (Sec. 137, NIL) - Drawee becomes primarily liable as an acceptor. _ Mere retention is equivalent to acceptance Where bill is duly presented and is not accepted within prescribed time, the person presenting it must treat the bill as dishonored by nonacceptance or he loses right of recourse against the drawer and indorsers. (Sec. 150, NIL)

If there is not demand for the return of the bill and the drawee keeps it until after the expiration of said period without expressly accepting or refusing it; two views: a. Constitutes constructive notice b. Constitutes dishonor because Sec.137, NIL uses the word "refuses" - Acceptance, if given, will retroact to date of presentation.

3. General Acceptance A general acceptance assents without qualification to the order of the drawer. What constitutes a general acceptance

An acceptance to pay at a particular place is a general acceptance unless it expressly states that the bill is to be paid there only and not elsewhere. (Sec. 140, NIL) 4. Qualified Acceptance A qualified acceptance in express terms varies the effect/tenor of the bill as drawn. (Sec. 139, NIL) An acceptance is qualified which is: 1. Conditional; which makes payment by the acceptor dependent on the fulfillment of a condition therein stated; 2. Partial; an acceptance to pay part only of the amount for which the bill is drawn; 3. Local; an acceptance to pay only at a particular place; 4. Qualified as to time; 5. The acceptance of some, one or more of the drawees but not of all. (Sec. 141, NIL) So if a bill for P500,000 was accepted but only for P300,000, the acceptance is deemed to be a qualified one because the acceptance was not in accordance with the tenor of the bill. The acceptor will then be liable for the amount of P300,000 which is the tenor of his acceptance, not for P500,000 which is the tenor of the bill. WHAT MAY THE HOLDER DO UNDER THE CIRCUMSTANCES? Rights of parties as to qualified acceptance 1. The holder may refuse to take a qualified acceptance and if he does not obtain an unqualified acceptance, he may treat the bill as dishonored by non-acceptance. (He now must furnish the parties secondarily liable, a notice of dishonor) 2. 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 a qualified acceptance, or subsequently assent thereto. 3. When the drawer or an indorser receives notice of a qualified acceptance, he must, within a reasonable time, express his dissent to the holder or he will be deemed to have assented thereto. (Sec. 142, NIL)

ACCEPTANCE ON A SEPARATE INSTRUMENT Extrinsic acceptance - acceptance is written on a paper other than the bill itself; doesnt bind the acceptor except in favor of a person to whom it is shown and who, on the faith thereof, receives the bill for value. ( Sec. 134, NIL); acceptance of an existing bill Virtual acceptance - unconditional promise in writing to accept a bill before it is drawn; deemed an actual acceptance in favor of every person who, upon the faith thereof, receives the bill for value. (Sec. 135, NIL); acceptance of future bill In both cases, the acceptance must clearly and unequivocally identify the bill to which the acceptance refers.

C. TIME FOR ACCEPTANCE Time allowed drawee to accept

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. (Sec. 136, NIL) A bill may be accepted: a. before it has been signed by the drawer, or b. while otherwise incomplete, or c. when it is overdue, or d. after it has been dishonored by a previous refusal to accept, or by non payment. But when a bill payable after sight is dishonored by non-acceptance and drawee subsequently accepts it, the holder, in the absence of different agreement, is entitled to have bill accepted as of date of the 1 st presentment. (Sec. 138, NIL); Sec. 138, NIL allows acceptance to be made while the bill is incomplete.

D. RULES GOVERNING ACCEPTANCE 24-Hour Clearing House Rule (1996 BEQ) The Central Bank, in accordance with its rule-making authority issued the 24hour clearing house rule. Whatever remedy the plaintiff has would lie not against the defendant bank but as against the party responsible for changing the name of the payee. Its failure to call the attention of defendant bank as to such alteration until the lapse of 27 days would, in the light of the above Central Bank Circular, negate whatever right it may have had against defendant bank (Hong Kong and Shanghai Banking Corp. vs. Peoples Republic Bank and Trust co., 35 SCRA 140) The 24-hour clearing house rule is a valid rule applicable to commercial banks. It is true that when an endorsement is forged, the collecting bank or last endorser, as a general rule, bears the loss. But the unqualified endorsement of the collecting bank on the check should be read together with the 24-hour regulation on clearing house operation. Thus, when the drawee bank fails to return a forged or altered check to the collecting bank within the 24-hour clearing period, the collecting bank is absolved from liability (Republic Bank vs. CA; 196 SCRA 100). Under the clearing house rules, the failure to return within the prescribed time will be deemed payment or acceptance of the check. A bill of exchange does not need to be presented for acceptance at all times,. In order to know whether or not presentment for acceptance is necessary, you have to look at the bill. When presentment for acceptance is necessary: a. If necessary to fix the maturity of the bill b. If it is expressly stipulated that it shall be presented for acceptance c. If the bill is drawn payable elsewhere than the residence or place of business of the drawee (Sec. 143 NIL) So when the bill is written as Pay at sight.. the drawee must see the bill first and he can only see the bill if it is to be presented for acceptance. Also if the bill is written as : Pay. 30 days after sight, the bills maturity date is 30 dates after the drawee sees the bill. Hence, it must be presented f or acceptance. If the drawees place of business is in Manila and the bill is drawn payable in Cavite, then it must be presented for acceptance.

 If by the terms, the bill is to be presented for acceptance, then it must be presented. If the bill needs a presentment for acceptance, then it must be so presented. If it is not presented for acceptance, the drawer and the indorsers will be discharged from liability. Therefore, the holder must present it for acceptance or he negotiates the bill within a reasonable time

Liability of drawee retraining or destroying bill Where a drawee to whom a bill is delivered for acceptance destroys the same, or refuses within twenty-four hours after such delivery or within such other period as the holder may allow, to return the bill accepted or non-accepted to the holder, he will be deemed to have accepted the same. (Sec. 137, NIL)

Acceptance of incomplete bill A bill may be accepted before it has been signed by the drawer, or while otherwise incomplete, or when it is overdue, or after it has been dishonored by a previous refusal to accept, or by non payment. But when a bill payable after sight is dishonored by non-acceptance and the drawee subsequently accepts it, the holder, in the absence of any different agreement, is entitled to have the bill accepted as of the date of the first presentment. (Section 138, NIL)

XV. PRESENTMENT FOR ACCEPTANCE

It is the production of a Bill of Exchange to the drawee for his acceptance. Purpose: To get acceptance of the drawer for purpose of making him primarily liable as an acceptor. Presentment is also prerequisite to the accrual of secondary liability against the drawer and the indorsers. A. TIME/PLACE/MANNER OF PRESENTMENT The REQUISITES of Presentment: 1. Made within reasonable time - is meant not more than 6 months from the date of issue. Beyond said period, it is unreasonable time and the check becomes stale. 2. By holder or his agent 3. At a reasonable hour on a business day 4. Before bill overdue. 5. To the drawee or some person authorized to accept or refuse acceptance on his behalf; and a. bill addressed to drawees not partners, MUST be made to them all unless one has authority to accept or refuse acceptance for all; b. drawee is dead, MAY be made to his personal representative; c. drawee has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors, MAY be made (1) to him or (2) to his trustee or assignee. When is presentment for acceptance must be made In the following cases:

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 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. In no other case is presentment for acceptance necessary in order to render any party to the bill liable. (Sec. 143, NIL) Presentment; how made Presentment for acceptance must be made by or on behalf of the holder at a reasonable hour, on a business day and before the bill is overdue, to the drawee or some person authorized to accept or refuse acceptance on his behalf; and 1. 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; 2. Where the drawee is dead, presentment may be made to his personal representative; 3. 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. (Sec. 145, NIL) On what days presentment may be made (Sec. 146, NIL) A bill may be presented for acceptance on any day on which negotiable instruments may be presented for payment under the provisions of Sections 72 and 85 of the Negotiable Instruments Law. When Saturday is not otherwise a holiday, presentment for acceptance may be made before twelve o'clock noon on that day. Sec. 72, NIL at a reasonable hour on a business day Sec. 85, NIL at the time fixed therein without grace. Instruments falling due or becoming payable on Saturday - next succeeding business day EXCEPT instruments payable on demand [at the option of the holder] before twelve o'clock noon on Saturday WHEN that entire day is not a holiday.

Presentment where time is insufficient Where the holder of a bill drawn payable elsewhere than at 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 the day that 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. (Sec. 147, NIL)

Where presentment is excused Presentment for acceptance is excused and a bill may be treated as dishonored by non-acceptance in either of the following cases: 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. (Sec. 148, NIL) B. EFFECT OF FAILURE TO MAKE PRESENTMENT When failure to present releases drawer and indorser) Except as herein otherwise provided, the holder of a bill which is required to be presented for acceptance must either present it for acceptance or negotiate it within a reasonable time. If he fails to do so, the drawer and all indorsers are discharged. (Sec. 144, NIL) C. DISHONOR BY NON-ACCEPTANCE When dishonored by non-acceptance A bill is dishonored by non-acceptance: 1. When it is duly presented for acceptance and such an acceptance as is prescribed by this Act is refused or cannot be obtained; or 2. When presentment for acceptance is excused and the bill is not accepted. (Sec. 149) Duty of holder where bill not accepted must treat the bill as dishonored by nonacceptance or he loses the right of recourse against the drawer and indorsers. (Sec. 150, NIL) Rights of a holder where bill not accepted immediate right of recourse against the drawer and indorsers and no presentment for payment is necessary. (Sec. 151, NIL) To whom notice of dishonor must be given Except as herein otherwise provided, (1) to the drawer and (2) to each indorser, and any drawer or indorser to whom such notice is not given is discharged. (Sec.89, NIL) Effect of omission to give notice of non-acceptance does not prejudice the rights of a HDC subsequent to the omission. (Sec. 117, NIL)

XVI. PROMISSORY NOTES

Promissory note, defined A negotiable promissory note within the meaning of this Act is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer. Where a note is drawn to the maker's own order, it is not complete until indorsed by him. (Sec. 184) Parties: a. Maker one who makes a promise and sign the instrument b. Payee one to whom the promise is made or the instrument is payable.

What factors would negate personal liability on the part of corporate officers who signed a promissory note for a loan obtained by the corporation? The inference that they signed in their individual capacities would be negated by the following facts: a) The name and address of the corporation appeared on the space provided for Maker/Borrower; b) The officers had only had one set of signatures on the instrument, when there should have been two, if indeed they have intended to be bound solidarily the first as representatives of the corporation, and the second as themselves in their individual capacities; c) They did not sign under the spaces provided for co -maker, and neither where their addresses reflected there; and d) At the back of the promissory note, they signe d above the words authorized representative. Requisites of a Negotiable Note (PN): Key: (SUDO) It must: a. be in writing signed by the drawer b. contains an unconditional promise or order to pay a sum certain in money c. be payable on demand or at a fixed determinable future time d. be payable to order or to bearer (Sec. 1 NIL) OTHER FORMS OF PROMISSORY NOTE 1. Due bill , An instrument whereby one person acknowledges his indebtedness to another and promises to pay a sum certain in money . 2. Bonds, which are in the nature of PN. 3. Certificate of Deposit issued by banks payable to depositor or his order, or to bearer Promissory Note vs. Bill of Exchange Bill of Exchange Unconditional order Involves 3 parties Drawer only secondarily liable Generally 2 presentments - for acceptance and for payment

Promissory Note Unconditional promise Involves 2 parties Maker primarily liable Only 1 presentment - for payment

XVII. CHECKS
A. DEFINITION Check defined A check is a bill of exchange drawn on a bank payable on demand. For a check to be negotiable, it must conform to the requirements in Sec. 1 of the Negotiale Instruments Law. Checks have the character of negotiability, but at the same time, they may constitute evidence of indebtedness in the amounts stated in thefaces of those instruments (Go v. Bacaron, 472 SCRa 229, 2007 BEQ)

 Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a check. (Sec. 185, NIL) A check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank, is not liable to the holder, unless and until it accepts or certifies the check. A check is payable on demand even when not so stated on its face. A check is supposed to be drawn against a previous deposit of funds, while an ordinary need not be drawn against a deposit. A check need not be presented for acceptance. Promissory Note vs. Check CHECK - There are three (3) parties, the drawer, the drawee bank and the payee - Always drawn against a bank -Always payable on demand - An order to pay

PN - There are two (2) parties, the maker and the payee - May be drawn against any person, not necessarily a bank - May be payable on demand or at a fixed or determinable future time - A promise to pay B. KINDS Kinds of Check 1. Ordinary Check

2. Cashiers Check, - One drawn by the cashier of a bank in the name of the bank against the bank itself payable to a third person or order. A cashier's check is a primary obligation of the issuing bank and accepted in advance by its mere issuance. 3. Certified check , A personal check with guaranteed funds to cover the payment of the check. The certification is an agreement whereby the bank against whom a check is drawn undertakes to pay it on any future time when presented for payment. The Certification is equivalent to acceptance and operates as an assignment of a part of the funds to the creditors. Discuss the effects of certifying a check The effects are: b. It is equivalent to acceptance and is the operative act that makes the bank liable. c. It amounts to the assignment of the funds of the drawer in the hands of the drawee. d. If obtained by the holder, persons secondarily liable are discharged 4. Voucher Check 5. Travellers Check 6. Managers Check A check 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 a cashiers check both as to effect and use. A cashiers check is a check of the banks 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 banks 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. (EQUITABLE PCI vs. ONG 15 September 2006) 7. Crossed Check ( 2004, 2005 BEQ) A Crossed Check under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on the left top portion of the checks. The crossing is special where the name of the bank or a business institution is written between the two parallel lines, which mean that the drawee should pay only with the intervention of that company. The crossing is special where the name of the bank or a business institution is written between the two parallel lines, which means that the drawee should pay only with the intervention of that company. A check which in addition to the usual contents of an ordinary check contains also the name of a certain banker or business entity through whom it must be presented for payment. Effects (1996, 2005 BEQ): In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a check should have the following effects: a. That the check may not be encashed; it may only be deposited with the bank; b. That the check may be negotiated only once to a person who has an account with the bank; and c. That it serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant tothat purpose, otherwise, he is not a holder in due course. (Bataan Cigar v. CA 280 SCRA 643)

ASSOCIATED BANK v. CA & REYES 1992 Different department stores issued crossed checks bearing "for payee's account only" payable to Melissa's RTW. Sayson, acting without authority, deposited & encashed the checks with Associated Bank. HELD: Citing State Invt House v IAC, the effects of crossing a check are: 1. check may not be encashed but only deposited in the bank; 2. check may be negotiated only one -- to one who has an account with a bank; and 2. the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose. The effects of crossing a check relate to the mode of presentment for payment. The law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness & regularity.

*Note: Crossed Checks vs. Cancelled Checks (2004 BEQ)

A crossed check is one with two parallel lines drawn diagonally across its face or across a corner thereof. On the other hand, a cancelled check is one marked or stamped "paid" and/or "cancelled" by or on behalf of a drawee bank to indicate payment thereof. * State Investment House v IAC (GR 72764 13Jul1989), the SC considered a crossed check as subjecting a subsequent holder thereof to the contractual covenants of the payor and the payee. 2 Kinds of Crossed Check: 3. CROSSSED SPECIALLY- The same name of a particular bank or company is written or appears between thev. Tan parallel lines in which case the drawee-bank must pay the check only upon presentment by such bank or company (Chan Wan v. Tan Kim 109 Phil 706) on penalty of being made to pay agin by the rightful owner should the first payment prove to have been erroneous. 4. CROSSED GENERALLY- only the words and Co. are written between the parallel lines or when none at all is written at all between said lines. This Court has taken judicial cognizance of the practice that a check with 2 parallel lines in the upper left hand corner means that it could only be deposited and not converted into cash. IRON CLAD RULE prohibits the countermanding of payment of certified checks. (Rep. v. PNB, Dec. 1, 1961) *Note: The holder must be a holder in due course before the stop payment order may not be successfully invoked against him. (Mesina v. IAC, 146 SCRA 497, 505) 8. Memorandum Check. A check in 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 of maturity and if due notice of presentment and non-payment should be given. It is a check given by a borrower to a lender for the amount of a short loan, with the understanding that it is not to be presented at the bank, but will be redeemed by the maker himself when the loan falls due and which understanding is evidenced by writing the word "memorandum," "memo" or "mem" on the check. 9. Forged Checks (2006 BEQ) The legal consequences when a bank honors a forged check are as follows: When Drawers Signature is Forged: Drawee-bank by accepting the check cannot set up the defense of forgery, because by accepting the instrument, the drawee bank admits the genuineness of signature of drawer (BPI Family Bank vs. Buenaventura G.R. no. 148196, September 30, 2005; Section 23, NIL) Unless a forgery is attributable to the fault or negligence of the drawer himself, the REMEDY OF THE DRAWEE-BANK IS AGAINST THE PARTY RESPONSIBLE FOR THE FORGERY. Otherwise, drawee-bank bars the loss (BPI Family Bank vs. Buenaventura G.R. no. 148196, September 30, 2005)

 A drawee-bank paying on a forged check must be considered as paying out of its funds and cannot charge the amount to the drawe (Samsung Construction Co. Phils., v. Far East Bank, G.R. No. 129015, August 13, 2004) If the drawee-bank has charged drawers account, the latter can recover such amount from the drawee-bank (Associated ank v. court of Appeals, G.R. No. 107382, January 31, 1996, Bank of P.I. v. Case Montessori Internationale, G.R. No. 149454, May 28, 2004). However, the drawer may be precluded or stopped from setting up the defense of forgery as against the drawee-bank, when it is shown that the drawer himself had been guilty of gross negligence as to have facilitated the forgery (Metropolitan Waterworks v. Court of Appeals, G.R. No. L-62943, 143 SCRA 20, July 14, 1986). C. PRESENTMENT FOR PAYMENT (1) TIME Within what time a check must be presented A check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay. (Sec. 186, NIL) Hence, if no loss or injury is shown, the drawer is not discharged.

CRYSTAL v. CA 1976 Crystal used a check in paying the redemption price of the property sold at an execution sale. The value of the check had never been realized because it had either been dishonored or become stale. The validity of the redemption is in question. HELD: If the check had been dishonored, the redemption is void. But if it had only become stale through no fault of the redemptioner, then it would be unfair to deprive him of the rights he had acquired as redemptioner, particularly if the value of the check has otherwise been received or realized. There is a strong showing that the party had already been paid in full. VILLANUEVA VS. NITE, G.R. No. 148211, 25 July 2006 Can the holder sue the drawee bank if the latter refuses payment of a check notwithstanding sufficiency of funds? Held: NO. a check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder, unless and until it accepts or certifies the check (Sec. 189). Thus, if a bank refuses to pay a check (notwithstanding the sufficiency of funds), the payee-holder cannot sue the bank. The payeeholder should instead sue the drawer who might in turn sue the bank. Section 189 is a sound law based on logic and established legal principles; no privity of contract exists between the drawee-bank and the payee.

Explain the meaning of check kiting It refers to the wrongful practice of taking advantage of the float, the time that elapses between the deposit of the check in one bank and its collection at another. In anticipation of the dishonor of the check that was deposited, the original check will be replaced with another worthless check (Notes and Cases on Banks, Negotiable Instruments and other commercial Documents, Aquino 2006 ed)

(2) EFFECT OF DELAY Presentment should be made within a reasonable time (not more than 6 months from the date of issue) Beyond said period, it is unreasonable time and the check becomes stale and under Sec. 186 NIL the drawer will be discharged from liability thereon to the extent of the loss caused by the delay. ARCEO, JR. VS. PEOPLE OF THEPHILIPPINES, G.R. No. 142641 (17 July 2006) The check was presented to the drawee bank 120 days from the date thereof. Determine if the drawer has been discharged from the duty to maintain sufficient funds therefore? HELD: NO. According to current banking practice, the reasonable period within which to present a check to the drawee bank is six months; thereafter, the check becomes stale and the drawer is discharged from liability thereon to the extent of the loss caused by the delay. Thus, presentment of the check to the drawee bank 120 days (four months) after its issue was still within the allowable period. The drawer was freed neither from the obligation to keep sufficient funds in his account nor from liability resulting from the dishonor of the check.