ACCEPTANCE

Formal requisites
Sec 132- How made
Sec 133 Holder entitled to acceptance on face
of bill
1. It must be in writing
2. It must be signed by the drawee
3. It must not change the implied promise of the
acceptor to pay only in money.
Although it is not essential requisite that the
acceptance be made on the instrument itself, in case
of refusal of the drawee to do so, the holder has the
option to treat the bill as dishonored and go against
the persons secondarily liable.
LAWLESS vs TEMPLE
Acceptance is usually made by writing the word
accepted and signing immediately below. However,
the drawees signature alone is sufficient.
Sec 138 Acceptance of incomplete bill
A bill may be accepted even after it is overdue or
dishonored, since an instrument does not lose its
negotiability by the mere fact that its maturity date
has passed or that the drawee has refused to accept
or pay it.
KIGORE NATL BANK vs MOORE BROs
Constructive acceptance Sec 136 Time allowed drawee to accept
Sec 137 Liability of drawee retaining or
destroying bill
Sec 150 Duty of holder where bill not
accepted
24hour period counted from delivery
1. Return it within 24hrs the bill is not necessarily
dishonored because he can still accept it until the
expiration of the 24th hr.
2. Return it before the 24hr period and fails to accept
within such period the holder must treat the bill as
dishonored
3. Return it with a statement of refusal to accept
even if the 24hr period has not lapsed, the bill should
then be considered as dishonored.
4. If destroyed instead of returning or accepting it
the law considers the bill as accepted, unless the
destruction is accidental or otherwise not wilfully
done.
If demand is made on the drawee to return the bill
within the prescribed period and he refuses to return
it, there is also a CONSTRUCTIVE ACCEPTANCE
Suppose there is no demand, and the drawee keeps
it until after the expiration of the 24hr period without
accepting refusing it?
One view constructive acceptance
WISNER vs FIRST NATL BANK

The mere failure to accept within the prescribed

period even without previous demand for the return
of the bill constitutes constructive acceptance
Another view dishonor of the bill
ST.LOUIS vs JAMES
Such inaction on the part of the drawee is not
acceptance but a dishonor of a bill
Sec 137 refuses which implies a previous demand
for the return of the bill
Sec 150 if no acceptance is given within the
prescribed time, it is the duty of the holder to
consider it as dishonored.
*Many American courts which follow the first view do
not apply Sec 137 to checks, on the ground that it
expressly refers to delivery of the bill for acceptance.
A check is presented for payment rather than for
acceptance.
*Under the clearing house rules, failure to return
within the prescribed time will be deemed payment
or acceptance of the check. It is true that a
regulation cannot override an express provision of
the NIL (Sec 137), however, a bank may waive its
right under such provision, and it so waives such
right by its agreement under the clearing house
regulation.
URWILER vs PLATEE VALLEY STATE BANK
Retention for more than 24hrs by a bank of a check
forwarded to it for collection and payment does not
render the bank liable as an acceptor for the reason
that the sections relied upon for that purpose have
no application to such transaction
SUMCAD vs SAMAR
Acceptance on a separate instrument
Sec 134
Sec 135 Promise to accept; when equivalent
to acceptance
e.g. by letter or telegram
1. acceptance of an existing bill extrinsic
acceptance
2. acceptance of a future bill virtual acceptance
COOLIDGE vs PAYSON
To be operative, it must identify the bill to which the
acceptance refers and must be clear and
unequivocal.
Reliance is a more important requisite than physical
exhibition of the instrument bearing the acceptance.
An acceptance of a future bill must be
UNCONDITIONAL, otherwise, it cannot be considered
an acceptance.
Kinds of acceptance Sec 139
a. General Acceptance Sec 140
b. Qualified Acceptance Sec 141
Sec 142 Rights of parties as to qualified
acceptance

PRESENTMENT FOR ACCEPTANCE

The production or exhibition of the bill of
exchange to the drawee for the purpose of
obtaining his acceptance or assent to the
order of the drawer.
*refers to bills of exchange only

The acceptance should be given within 24hrs from

presentment, otherwise it should be treated as
dishonoured and a notice of dishonour should be sent
to a secondary parties. The holders failure to do so
will discharge such parties but will not prejudice the
rights of a subsequent HIDC.

When necessary Sec 143

Effect of non-presentment Sec 144
presentment must be made or it should be
negotiated within a reasonable time otherwise the
drawers and indorsers will be discharged because
they have an interest in having the bills accepted
immediately in order to shorten their time of
payment and thus put a limit to the period of their
liability.
How and when made Sec 145 and 146
The law does not prescribe the place where
presentment for acceptance should be made as long
as such presentment is made to the proper person/s
in accordance with Sec 145, otherwise, it would be
irregular and ineffective and the drawees refusal will
not be a dishonour of the bill.
Drawee is dead presentment for acceptance may
be made to his personal representative (merely
permissive) Sec 148 excuses presentment if drawee
is dead
Drawee is insolvent presentment for acceptance
either to the insolvent himself or to his trustee or
assignee (presentment is not excused)

PROTEST
The testimony of some proper person, usually a
notary and usually in the form of an affidavit, that
the regular legal steps to fix the liability of drawer
and indorsers have been taken.
This is done on the day of dishonor. And on the same
day, or afterwards, the notary extends the protest
thus noted by embodying in a certificate the facts of
the protest and his acts in making presentment,
demand and in giving notice of dishonor.
When necessary Sec 152
Sec 129 Inland and Foreign bills of exchange
Sec 157 Protest both for non-acceptance and
non-payment
The necessity of protest is confined to foreign BOE
which under Sec 185 include foreign checks. It is NOT
necessary in foreign PNs because the maker is
unconditionally liable.
It may be made in case of other kinds of bills if the
holder so wishes.
A bill which has already been protested for nonacceptance need not be protested again for nonpayment but Sec 157 allows such t be done if the
holder wants to.

When excused
Excuses delay Sec 147
Excuses non-presentment Sec 148

Form and contents of Certificate of Protest

(COP) Sec 153

Sec 148c other ground

When a bill is presented after business hours or on a
holiday and the drawee refuses because the drawer
has no funds with him although the presentment
may have been irregular, the bill may be treated as
dishonour.

Purpose of the COP to furnish to the holder legal

testimony of presentment , demand and notice of
dishonour, to be used in actions against the drawer
and indorsers. However, it is merely prima facie
evidence and may be disproved by competent
evidence.

Dishonor and its effects

Sec 149 When dishonoured by nonacceptance
Sec 150 Duty of holder where bill not
accepted
Sec 151 Rights of holder where bill not
accepted
Sec 80 To whom notice of dishonour be given
Sec 117 Effect of omission to give notice of
non-acceptance

By whom made Sec 154

The notary is making a written statement of facts
which are within his knowledge. He is stating that he
himself presented the instrument for acceptance of
payment.

The holder is entitled to an unqualified acceptance

written on the bill itself although he may agree to a
qualified acceptance and/or to an acceptance on a
separate instrument.
Effect:
1. Qualified Acceptance the drawer and indorsers
would be discharged from liability unless they have
consented to such an acceptance
2. Acceptance on a separate instrument makes the
acceptor liable only to one who takes the bill for
value on the faith of such acceptance

Time and place of protest Sec 155 and 156

In the second sentence of Sec 155, protest is used to
mean COP. The notation is for the purpose of
requiring the commitment of the facts to writing
while they are in fresh in the mind of the notary. He
does not have to make the formal COP on the same
day the instrument is protested by him, if he makes a
notation on the bill to show that the instrument was
dishonoured and on what date. In such case, the
formal COP may be made at any time before the
bringing an action against the secondary parties, and
its effect will retroact to the date of noting.
Protest for better security Sec 158

This practice seems to be obsolete. It would not

deprive the holder of any rights, nor acquires it any
additional right.
The purpose is merely to inform the drawer of the
failure of the acceptor to enable the former to
arrange for the payment of the bill at maturity, as for
example, for its acceptance for honor.
When delay is excused and protest is
dispensed with Sec 159
Sec 112 When notice is dispensed with
(by implication Sec 114 and 115)
CASES:
ELLENBOGEN vs STATE BANK
NOD is not required to be given to the drawer, if the
drawer has no right to expect or require that the
drawee or acceptor will honor the instrument and
protest is dispensed with by any circumstances which
would dispense with NOD. Furthermore, PFP is not
required, in order to charge the drawer, where he has
no right to expect or require that the drawee or
acceptor will pay the instrument.
TAN LEONCO vs GO INQUI (PH Case)
Facts: The plaintiff had delivered a quantity of hemp
into the warehouse of the defendant. The defendant
drew a bill of exchange in the sum of P800,
representing the price which had been agreed upon
for the hemp thus delivered. Prior to the presentation
of the bill for payment, the hemp was destroyed.
Whereupon, the defendant suspended payment of
the bill. It was held that the hemp having been
already delivered, the title had passed and the loss
was the vendee's.
It was alleged that he said bill of exchange, after
being presented to the drawee in Manila, was not
protested and that there is some question of the
right of the p[plaintiff to recover upon said bill of
exchange without the same having been duly
protested. The action was not brought upon the bill
of exchange; the bill of exchange was used only as
evidence of the indebtedness. We believe, however,
that inasmuch as the defendant had himself
ordered the drawee not to pay the said bill of
exchange, that protest and notice of
nonpayment under these conditions was
unnecessary in order to render the drawer, or
defendant in this case, liable.
Waiver of protest Sec 111
Protest in case of loss of instrument Sec 160
The loss of an instrument does not affect the rights
and liabilities of the parties thereto, and the contents
of the instrument may be proven as in other cases of
lost documents.
ACCEPTANCE FOR HONOR (AFH)
Sec 161 When bill may be accepted for honor
Sec131 Referee in case of need
AFH is proper only after a bill has been protested for
dishonour by non-acceptance or for better security. It
is made to save the credit of some party or parties to
an instrument.

If the name of a referee in case of need is inserted in

the bill, the holder may resort to him in case of
dishonour, and his acceptance would be an AFH.
AFH
1. must be in writing
2. signed by the acceptor
3. indicate that it is AFH
4. where the acceptor does not state for whose honor
he accepts, it will be deemed to have been for the
honor of the drawer.
5. instrument not overdue
6. not a party to the instrument
Liability of AFH not absolute but merely conditioned
on the drawees failure to pay upon presentment at
maturity, after which a protest must be made and a
notice of dishonor be given to the AFH.
The holders rights against the secondary parties are
postponed until the following conditions take place:
1. presentment for payment to the drawee
2. dishonor by such drawee
3. NOD to the acceptor for honor and secondary
parties
4. protest
5. presentment to the acceptor for honor
6. dishonor by him
7. NOD to the secondary parties
PAYMENT FOR HONOR (PFH)
Sec 171 Who may make payment for honor
Only a bill which has been protested can be paid for
honor and in order not to operate as a mere
voluntary payment, it has to be made before a
notary after a declaration by the payor of his
intention to pay for honor and for whose honor he
pays.
A PFH is not confined to an acceptor for honor but
may be made by anyone as long as the requisites are
complied with.
EFFECT: To discharge all parties subsequent to the
party for whose honor it was paid.
The holder who refuses such payment loses his right
of recourse against any party who would have been
discharged by such payment.
The payor for honor is subrogated to all the rights
and duties of the holder as regards the party for
whose honor he pays and all parties liable to the
latter.
PURPOSE: To free some party to the bill from the
obligation to make immediate payment on maturity.
BILLS IN SET
Sec 178 Bills in set constitute one bill
Sec 179 Rights of holders where different
parts are negotiated
Sec 180 Liability of holder who indorsers two
or more parts of a set to different persons
Sec 181 Acceptance of bills drawn in sets
Sec 182 Payment by acceptor of bills drawn in
sets
Sec 183 Effect of discharging one of a set

The practice of drawing bills in set was common in

cases where a bill had to be sent to a distant place.
Example:
A drew three bills in a set and sends each part by
different means of transportation to B, the payee. All
parts of the bill reach B safely.. B should negotiate
only one part. If he negotiates each part to different
persons, he is liable on each part.
Suppose B negotiates the first part to C on May 1,
the second part to D on May 2 and the third part to E
on May 3, - as between C. D and E, C is the true
owner.
Thus, supposing all three of them go simultaneously
to the drawee X, X should only accept or pay Cs
part, otherwise the acceptance or payment will not
be in due course since he knows that Cs title
accrued earliest.
But suppose E goes to X ahead of either C or D and X
does not know that the other parts have been
negotiated by B, and X accepts or pays E, such
acceptance or payment is valid and binding.
Although C is the true owner, X did not know this fact
and as far as X is concerned, he had the privilege to
accept Es part.
Should C later on present his part to X, X may
rightfully reject it. Should he accept it, then he will be
liable on both Es and Cs part as if they were
different bills.
Upon paying one of the parts, the acceptor should
require delivery of such part to him in order to
prevent its further negotiation. Should he fail to do
so, he will be liable to a HIDC to whom it may be
later negotiated.
CHECKS
Sec 185 definition
Sec 63 Legal Character
Always payable on demand and always drawn on a
bank
Personal check A depositor places money in his
bank under an agreement that it may be withdrawn
anytime by his order.
Cashiers check/Managers check - Since the
drawer and drawee are the same, the holder may
treat it either as a BOE or as a PN.
Memorandum check where the word
memorandum or memo is written across its face,
signifying that the drawer will pay the holder
absolutely, without need of presentment; It is drawn
on a bank
Travelers check - a negotiable instrument upon
which the holders signature must appear twice on
the instrument first when it is issued and again
when it is cashed. It is usually payable in the world.
CASES:

REPUBLIC vs PNB
Do demand draft and telegraphic orders come within
the meaning of the term "credits" or "deposits"
employed in the law? Can their import be considered
as a sum credited on the books of the bank to a
person who appears to be entitled to it? Do they
create a creditor-debtor relationship between drawee
and the payee?
To begin with, we may say that a demand draft is a
bill of exchange payable on demand (Arnd vs.
Aylesworth, 145 Iowa 185; Ward vs. City Trust
Company, 102 N.Y.S. 50; Bank of Republic vs.
Republic State Bank, 42 S.W. 2d, 27). Considered as a
bill of exchange, a draft is said to be, like the former,
an open letter of request from, and an order by, one
person on another to pay a sum of money therein
mentioned to a third person, on demand or at a
future time therein specified (13 Words and Phrases,
371). As a matter of fact, the term "draft" is often
used, and is the common term, for all bills of
exchange. And the words "draft" and "bill of
exchange" are used indiscriminately (Ennis vs.
Coshoctan Nat. Bank, 108 S.E., 811; Hinnemann vs.
Rosenback, 39 N.Y. 98, 100, 101; Wilson vs.
Bechenau, 48 Supp. 272, 275).
On the other hand, a bill of exchange within the
meaning of our Negotiable Instruments Law (Act No.
2031) does not operate as an assignment of funds in
the hands of the drawee who is not liable on the
instrument until he accepts it. This is the clear import
of Section 127. It says: "A bill of exchange of itself
does not operate as an assignment of the funds in
the hands of the drawee available for the payment
thereon and the drawee is not liable on the bill unless
and until he accepts the same." In other words, in
order that a drawee may be liable on the draft and
then become obligated to the payee it is necessary
that he first accepts the same. In fact, our law
requires that with regard to drafts or bills of
exchange there is need that they be presented either
for acceptance or for payment within a reasonable
time after their issuance or after their last
negotiation thereof as the case may be (Section 71,
Act 2031). Failure to make such presentment will
discharge the drawer from liability or to the extent of
the loss caused by the delay (Section 186, Ibid.)
Since it is admitted that the demand drafts herein
involved have not been presented either for
acceptance or for payment, the inevitable
consequence is that the appellee bank never had any
chance of accepting or rejecting them. Verily,
appellee bank never became a debtor of the payee
concerned and as such the aforesaid drafts cannot be
considered as credits subject to escheat within the
meaning of the law.
But a demand draft is very different from a cashier's
or manager's cheek, contrary to appellant's pretense,
for it has been held that the latter is a primary
obligation of the bank which issues it and constitutes
its written promise to pay upon demand.
PAL vs CA 1990
Payment by check will not extinguish a judgment
debt where it is made payable not to the judgment
creditor but to the sheriff who later absconds with
the funds.

The check operates only as a conditional payment

and payment will be considered absolute only when
the check has been honoured by the bank either by
payment or by certification.
FORTUNATO vs CA
In case of redemption of property sold under
execution, a tender of payment within the prescribed
period, of the redemption price by check which was
accepted by the sheriff, constitutes a valid exercise
of the right of redemption, without prejudice to the
actual payment of the purchase price. Redemption is
a right and not an obligation
MESINA vs IAC
FACTS:
Jose Go purchased from Associated Bank a cashier's
check for P800,000.00. Unfortunately, he left said
check on the top of the desk of the bank manager
when he left the bank. The bank manager entrusted
the check for safekeeping to a bank official, a certain
Albert Uy. While Uy went to the men's room, the
check was stolen by his visitor in the person of
Alexander Lim. Upon discovering that the check was
lost, Jose Go accomplished a "STOP PAYMENT"
order. Two days later, Associated Bank received the
lost check for clearing from Prudential Bank. After
dishonoring the same check twice, Associated Bank
received summons and copy of a complaint for
damages of Marcelo Mesina who was in possession of
the lost check and is demanding payment. Petitioner
claims
that
a
cashier's
check
cannot
be
countermanded in the hands of a holder in due
course.
ISSUE:
Whether or not petitioner can collect on the stolen
check on the ground that he is a holder in due
course.
RULING:
No. Petitioner failed to substantiate his claim that he
is a holder in due course and for consideration or
value as shown by the established facts of the case.
Admittedly, petitioner became the holder of the
cashier's check as endorsed by Alexander Lim who
stole the check. He refused to say how and why it
was passed to him. He had therefore notice of the
defect of his title over the check from the start. The
holder of a cashier's check who is not a holder in due
course cannot enforce such check against the issuing
bank which dishonors the same.
**A person who became the holder of a cashier's
check as endorsed by the person who stole it and
who refused to say how and why it was passed to
him is not a holder in due course.
Certification and its effects
Sec 187

Certification
Equivalent to an acceptance in that it
imposes primary liability upon the certifying
bank
Must be in writing, may be made on the
check itself or on another instrument (like an
acceptance)
Sec 188 Effect where the holder of a check
procures it to be accepted or certified
Sec 189 When check operates as an
assignment
NEW PACIFIC TIMBER vs SENERIS
Payment of a judgment obligation by way of a
certified check is sufficient to prevent the sale at
auction of the defendants properties to satisfy such
obligation.
WACHTEL vs ROSEN
No particular words are necessary and the word
certified followed by the date and signature of the
proper bank officer is sufficient. Unlike refusal to
accept a bill however, refusal to certify a check does
not constitute dishonor. (the holder cannot at that
stage exercise his right of recourse against the
drawer and the indorsers)
BULLIET vs ALLEGHANY TRUST
Where the check is certified at the request of the
holder, the bank becomes the solitary debtor and the
drawer and indorsers are discharged. A certified
check circulates as representing so much cash in the
bank payable on demand to the holder. It is as if the
bank had paid the holder in cash, and the latter had
deposited the same with the bank. There is no reason
therefore to continue the liability of the drawer and
the indorsers whose representations that the drawee
bank would pay have been met.
*where the certification is obtained at the request of
the drawer, the secondary parties are not released.
SUTTER vs SECURITY TRUST
A stop order given by the drawer where the check
was certified at the request of the holder is
inoperative. On the other hand, where the
certification was obtained by the drawer, any stop
order later issued by him would be effective to
prevent the bank from paying the check.
ROMAN CATHOLIC BISHOP OF MALOLOS vs IAC