Masancay, Donna Marie D.

BSA41KB2
BILLS OF EXCHANGE
Chapter IX FORM AND INTERPRETATION
SEC.126
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 determinable future time a sum
certain in money to order or to bearer.
Kinds of bill of exchange:
a.) Draft a bill of exchange payable on demand or at a future determinable
time.
b.) Trade Acceptance is a draft or bill of exchange drawn by the seller on the
purchaser of goods and accepted by the latter.
c.) Check- a bill of exchange drawn on bank payable on demand.
d.) Bankers Acceptance a draft or bill of exchange of which the acceptor is
a bank or banker engaged generally in the business of granting bankers
acceptance credit.
e.) Treasury warrant is an order to pay, issued by a government to agency
to the Treasurer of the Philippines, to pay money out of a particular
appropriation.
f.) Money Order a draft drawn by the post-office upon another, for an
amount of money deposited at the first office by the person purchasing
the money order and payable at the second office to a payee named in
the order.
g.) Clean and documentary (Clean bill of exchange) - is one which are not
attached documents of title to be delivered to the person against whom
the bill is drawn when he either accepts or pays the bill.
h.) Sight Bills are bills which are payable upon presentation or at sight or on
demand.
i.) Time or Usance Bills are bills which are payable at a fixed future time or
at a determinable future time.
j.) Inland Bills an inland bill of exchange is one which is, or on its face
purports to be, drawn or payable within the Philippines.
k.) Foreign bill of exchange is a bill which is, or on its face purports to be,
drawn or payable outside the Philippines.
SEC.127
A bill of itself does not operate as an assignment of the funds in the hands
of the drawee available for the payment thereof, and the drawee is not liable on
the bill unless and until he accepts the same.

(*In a bill of exchange, the contracting parties are the drawer and the
payee on one hand, and the drawer and drawee on the other hand. The payee
and the drawee has no contract at all, such that if the drawee refused to pay,
the payee or holder has no cause of action against the drawee.)
If the drawee accepts the bill, his obligation is principal as he becomes an
acceptor of a bill. The liability is not premised on the assignment of funds in his
hands belonging to the drawer but solely because it is by virtue of his
acceptance.
SEC.128
A bill may be addressed to two or more drawees jointly but not in the alternative
or in succession.
a.) To W and Y instrument is negotiable.
b.) To W or Y instrument is not negotiable.
c.) To W, or in his absence, Y instrument is not negotiable.
SEC.129
An inland bill of exchange is a bill which is or on its face purports to be
both drawn and payable in the Philippines.
Any other bill is a foreign bill that is:
a.) To be drawn in the Philippines but payable outside the Philippines, or
b.) To be drawn outside in the Philippines but payable in the Philippines.
Unless the contrary appears on the face of the bill, the holder may treat it as an
inland bill.
Importance of distinction: A foreign bill of exchange requires protest in case of
dishonor.
SEC.130
A bill of exchange may be treated as a promissory note in any of the following
cases:
a.) Where the drawer and drawee are the same person.
b.) Where the drawee is a fictitious person.
c.) Where the drawee is a person not having capacity to contract.
d.) Where the instrument is so ambiguous that there is doubt whether it is a
bill or a note, the holder may treat at his option.
If a bill is treated as a note, the drawer becomes the maker therefore
presentment and notice of dishonor are with respect to the drawer,
dispensed with.
SEC.131

The drawer and any indorser may insert on the bill the name of any person to
whom the holder may resort in case of need, that is, in case of dishonor by nonacceptance or non-payment.
a.) Such person is referred to as a referee in case of need.
b.) The holder, at his option, may resort to the referee in case of need as he
may fit.
c.) If the referee pays the holder, he may recover the amount from the holder
or indorser who named him.
CHAPTER X ACCEPTANCE
SEC.132
Acceptance is the signification by the drawee of his assent to the order of
the drawer.
Kinds of acceptance:
a.) Actual acceptance
b.) Constructive acceptance
c.) General acceptance
d.) Qualified acceptance
e.) Acceptance supra protest
Requisites of actual acceptance:
a.) It must be in writing
b.) It must be signed by the drawer
c.) It must not express that the drawee will perform his promise by any other
means than the payment of money.
d.) There must be delivery or notification of the acceptance.
How actual acceptance is made
Acceptance is usually made by writing the word Accepted, Good,
Certified, Honored, or any word or words of similar import on the face of the
bill, followed by the signature of the drawee. However, any of these words is not
required as the signature of the drawee is sufficient.
Effect of acceptance
Before acceptance, the drawee is a stranger to the bill of exchange. Once
he accepts, he becomes primarily liable on the bill. Drawee and the drawers
liability become secondary.
Payment is no acceptance
The payment of the check is not equivalent to acceptance because
acceptance is not required for check; the same being payable on demand.

Acceptance is a promise to perform an act while payment is the actual

performance f the act.
SEC.133
The holder of a bill may require that the acceptance be written on the face
of the bill, and if such request is refused, he may treat the bill as dishonored.
Accordingly, if he treats the bill as dishonored, he must give notice of dishonor
to the drawer and each indorser. His failure to give such notice will discharge
such parties secondary liable.
SEC.134
When 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.
SEC.135
The holder, if he so desires is entitled to an acceptance on the face of the
bill. However, an acceptance may be written on a paper other than the bill itself,
such as acceptance made by letter or telegram. This acceptance by letter or a
telegram may be refused by the holder and may insist that the acceptance be
written on the bill itself, and if such request is refused, he may treat the bill as
dishonored.
If, therefore the bill is treated as dishonored, it is the obligation of the
holder to give notice of dishonor to persons secondarily liable otherwise, they
are discharged of their obligation.
If the bill is existing in order to bind the acceptor, the following requisites must
concur:
a.) The holder must have seen the written acceptance
b.) He must have acquired the bill on the faith of that acceptance.
If the bill is non-existing, the acceptor is bound if the following requisites concur:
a.) The intended drawee should describe the bill to be drawn, and promise to
accept it.
b.) The bill should be drawn within a reasonable time after such promise was
written.
c.) The holder should take the bill upon the credit of such promise.
SEC.136
The drawee is allowed 24 hours after presentment to decide whether or
not he will accept the bill. The acceptance, if given, dates as of the day of
presentation.

A drawee bank is not allowed 24-hours to decide whether to pay a check

or not since a check is presented for payment, not acceptance.
SEC.137
Constructive acceptance
There is constructive acceptance when a drawee to whom a bill is
delivered for acceptance:
a.) Destroys the bill, or
b.) Refuses within 24 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.
SEC.138
A bill may be accepted:
a.) Before it has been signed by the drawer
b.) While it is still incomplete
c.) When it is already overdue
d.) After it has been previously dishonored by a refusal to accept, or by
non-payment.
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.
SEC.139
Kinds of Acceptance
1.) General acceptance assents without qualification to the order of the
drawer. Here, the drawee engages to pay according to the tenor of the bill
of exchange.
SEC.140
An acceptance to pay at a particular place is a general acceptance. However,
if it expressly states that the bill is to be paid there only and not elsewhere, it
shall be deemed a qualified acceptance.
SEC.141
2.) A qualified acceptance in express terms varies the effect of the bill as
drawn.
Kinds of qualified acceptance:
a.) Conditional acceptance an acceptance that makes payment by the
acceptor dependent on the fulfillment of a condition as stated in such
acceptance.

b.) Partial an acceptance where the acceptor agrees to pay only a part of
the amount for which the bill was drawn.
c.) Local acceptance is to pay only at a particular place.
d.) Qualified as to time acceptance varies the time of payment.
e.) Acceptance by one or more, but not all of the drawees.
SEC.142
Rights of parties as to qualified acceptance:
a.) 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.
b.) Where a qualified acceptance is taken, the drawer and indorsers are
discharged from liability except when:
o They have expressly or impliedly authorized the holder to take a
qualified acceptance, or
o When they subsequently assent thereto.
When the drawer or an indorser receives notice of qualified
acceptance, he must, within, a reasonable time, express his dissent
to the holder, or he will be deemed to have assented thereto.
CHAPTER XI PRESENTMENT FOR ACCEPTANCE
Sec.143
Presentment for acceptance must be made in the following cases:
a.) Where the bill is payable after sight, or in any other case, where
presentment for acceptance is necessary to fix the maturity of the
instrument.
b.) Where the bill expressly provides 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.
SEC. 144
Option of holder when bill is required to be presented for acceptance, must
either:
a.) Present it for acceptance within a reasonable time, or
b.) Negotiate it within a reasonable time.
Failure of the holder to exercise his option will discharge the drawer and
indorsers.
SEC.145
Presentment for acceptance must be made by the holder or any person in his
behalf.

Presentment must be made to the drawee or some person authorized to

accept or refuse acceptance in his behalf
a.) When there are two or more drawees presentment must be made to
them all, except
o When the drawees are partners, in which case, presentment may be
made to any one of them.
o When one of the drawees has been authorized to accept or refuse
acceptance for all, I which case, presentment may be made to him
only.
b.) When the drawee is dead, presentment for acceptance may be made to
his personal representative. However, this is optional since presentment
for acceptance is excused.
c.) When the drawee has been adjudged a bankrupt or an insolvent, or has
made an assignment for the benefit of his creditors, presentment may be
made to the:
o Drawee, or
o His trustee or assignee.
Place of presentment:
a.) If the drawees place of business or residence is known, presentment for
acceptance should be made there, regardless of the place where the bill is
drawn payable.
b.) If the drawee has his home in one town and his place of business in
another, the bill may be presented for acceptance at either place.
c.) If the bill designates a place of payment and the drawees residence or
place of business is not known, the bill may be presented at the place of
payment.
Time of presentment:
a.) Before the bill is overdue.
b.) Within reasonable hour on a business day.
SEC.146
When presented:
a.) At a reasonable hour
b.) On a business day.
o Presentment for acceptance on a Saturday
If not a holiday, presentment for acceptance may be made
before 12:00 noon on a Saturday, whether the bill is payable
on demand or not.
If Saturday is a holiday, presentment for acceptance cannot
be made on that day.

o Presentment for acceptance on a Saturday or a holiday cannot be

made on a Sunday or a holiday. Hence, presentment for acceptance
must be made on the succeeding business day.
SEC.147
Where the holder of a bill drawn payable elsewhere than at the place of
business or residence of the drawee has no time with the exercise of reasonable
diligence to present the bill for acceptance before presenting it for payment on
that day it falls due, the delay caused by presenting it for payment is excused,
and does not discharge the drawer and indorsers.
Presentment for acceptance is made by exhibiting the bill to the drawee
for his acceptance.
SEC.148
When presentment is excused:
a.) Drawee Is dead.
b.) Drawee has absconded
c.) Fictitious drawee
d.) Drawee is incapacitated
e.) Presentment cannot be made
f.) Acceptance has been refused
SEC.149
When bill is dishonored by non-acceptance:
a.) When it is duly presented for acceptance, and such acceptance is refused
b.) When presentment for acceptance is refused, and the bill is not accepted
SEC.150
Duty of holder if bill is not accepted:
Where a bill is duly presented for acceptance and is not accepted within
the prescribed time, the holder must treat the bill as dishonored by nonacceptance or he loses his right of recourse against the drawers and indorsers
SEC.151
Rights of holder if bill is not accepted:
If a bill is dishonored by non-acceptance, an immediate right of recourse
against the drawer and indorsers accrues to the holder and no further
presentment for payment is necessary. Thus, the holder can enforce payment of
the bill against the drawer and indorsers without waiting for its date of maturity.
SEC.152

Protest is a formal declaration of a fact of non-acceptance or non-payment

usually executed by notary, and in popular sense all the steps accompanying
the dishonor of a bill or note necessary to charge the drawer or an indorser.
Protest is required only for foreign bills when it is dishonored by nonacceptance
SEC.153
How protest is made:
a.) The protest must be annexed to the bill or must contain a copy thereof
b.) It must be under the hand and seal of the notary making it
c.) It must specify the:
o Time and place of presentment
o Fact that presentment was make and the manner thereof
o Cause or reason for protesting the bill
o Demand made and the answer given, if any or the fact that the
drawee or acceptor could not be find
SEC.154
Protest may be made by:
a.) A notary public, or
b.) Any respectable resident of the place where the bill is dishonored, in the
presence of two or more credible witnesses
SEC.155
Protest, when to be made:
The protest must be made on the day of its dishonor unless delay is
excused. When a bill has been duly noted, the protest may be subsequently
extended as of the day of noting.
SEC.156
Protest, where to be made:
A bill must be protested at the place where the bill is dishonored.
SEC.157
If the bill has been protested for non-acceptance and due notice has been
given to the drawer and indorsers, it is not necessary anymore to protest it for
non-payment. Payment for non-payment is therefore optional.
SEC.158
Protest for better security:

a.) Grounds
o When the acceptor has been adjudged a bankrupt or an insolvent
o When the acceptor has made an assignment for the benefit of
creditors
b.) When made
o After the bill has been accepted but before its maturity
c.) Against whom presented:
o Drawer
o Indorsers
d.) Reason for protest:
o To let the persons liable know that in all probability, the instrument
will not be honored upon its maturity, so that they may take the
necessary steps to insure payment.
SEC.159
Protest is dispensed with by any circumstance that would dispense with
notice of dishonor.
SEC.160
When a bill is lost, destroyed or is wrongly detained from the person
entitled to hold it, protest may be made on a copy or written particulars thereof.
CHAPTER XIII ACCEPTANCE FOR HONOR
SEC.161
Requisites for acceptance for honor:
a.) The bill must have been previously protested for non-acceptance or for
better security
b.) The acceptance for honor must be made before the bill is overdue
c.) The acceptance for honor must be made by a person who is not already a
party liable on the bill
d.) The holder must give his consent to the acceptance for honor
SEC.162
How acceptance for honor is made:
a.) It must be in writing
b.) It must indicate that it is an acceptance for honor
c.) It must be signed by the acceptor for honor
SEC.163
When acceptance for honor is deemed for the drawer
a.) When the acceptance for honor expressly provides that it is being made
for the honor of the drawer

b.) When the acceptance for honor does not expressly states for whose honor
if it is made
SEC.164
The acceptor for honor is liable to the holder and to all parties subsequent
to party whose honor he has accepted.
SEC.165
Requisites for liability:
a.) The bill must be presented for payment to the drawee at maturity
b.) The drawee refuses to pay the bill
c.) The bill must be protested for non-payment
d.) Notice of dishonor must be given to the acceptor for honor
SEC.166
If a bill payable after sight is accepted for honor, its maturity is calculated
from the date of noting for non-acceptance, and not from the date of acceptance
for honor
SEC.167
Where the bill has been accepted for honor, it must be protested for nonpayment before it is presented for payment to the acceptor for honor
Where the bill contains a referee in case of need, it must be protested for
non-payment before it is presented to payment to the referee in case of need
SEC.168
When presentment of bill for payment to acceptor for honor made:
a.) If the bill is to be presented in the place where the protest for nonpayment was made, it must be presented for payment not later than the
day following its maturity
b.) If it is to be presented at some other place than the place where it was
protested, then it must be forwarded within the following times
SEC.169
Delay in making presentment for payment to the acceptor for honor or
referee in case of need is excused when it is caused by circumstances beyond
the control of the holder, and not imputable to his default, misconduct or
negligence.
SEC.170

When the bill is dishonored by the acceptor for honor, it must be protested
for non-payment by him, and notice of dishonor given to the drawer and
indorsers, otherwise they are discharged.
CHAPTER XIV PAYMENT FOR HONOR
SEC.171
Payment for honor means payment of a bill of exchange after it has been
dishonored by non-payment and protested for non-payment by any person
including one already a party to the bill, for the honor of one, or all the parties to
the bill.
SEC.172
Payment for honor how made:
It must be attested by a notarial act which may be appended to the protest
an extension to it.
SEC.173
Procedure for payment for honor
a.) The payer for honor goes before a notary public and makes a declaration
of his intention to pay the bill and for whose honor he is paying the bill
b.) The notary public records the declaration either in the protest or on a
separate instrument
c.) After the declaration, the payer for honor notifies the person for whose
honor he is making the payment within a reasonable time
SEC.174
Where two or more persons offer to pay a bill for the honor of different
parties, the person whose payment will discharge most parties to the bill is
given the preference.
SEC.175
Where the bill has been paid for honor, all parties subsequent to the party
for whose honor it is paid are discharged but the payor for honor is subrogated
for, and succeeds to both the rights and duties of the holder as regards the
party for whose honor he pays and all parties liable to the latter.
SEC.176
If the holder refuses to accept the payment for honor, he loses his right of
recourse against any party who would have been discharged by the payment.
Sec.177
Rights of payer for honor:

a.) He acquires the rights of the holder

b.) To receive both the bill and the protest.
CHAPTER XV BILLS IN SET
SEC.178
A bill in set is one composed of several parts, each part of the set being
numbered and containing a reference to the other parts, the whole of the parts
contributing but one bill.
The purpose of a bill in set is to increase the probability of the bill
reaching its destination.
SEC.179
If two or more parts of a set are negotiated to different holders in due
course, the holder whose first title acquires is as between such holders the true
owner of the bill. However, the rights of a person who in due course accepts or
pays the part first presented to him shall be protected.
SEC.180
When the holder of a set indorses two or more parts to different persons,
he is liable on every such part and every indorser subsequent to him is liable on
the part he has himself indorsed, as if such parts were separate bills.
SEC.181
Where the drawee accepts more than one part and such accepted parts
are negotiated to different holders in due course, the discharge of one part does
not relieve him from liability for the other parts that bears his acceptance,
because he is liable on every part that he accepted as if it were a separate bill.
SEC.182
Where the acceptor of a bill in set pays it without requiring the part that
bears his acceptance to be delivered up to him, and that part at maturity is
outstanding in the hands of a holder in due course, he is liable to the holder
thereon.
SEC.183
When the acceptor of a bill drawn in a set pays it without requiring the
part bearing his acceptance to be delivered up to him, and the part at maturity
is outstanding in the hands of a holder in due course, he is liable to the holder
thereon.