Negotiable Instruments Law
NEGOTIABLE INSTRUMENT
•Written contract for the payment of money, by its form intended as substitute for money and
intended to pass from hand to hand to give the holder in due course the right to hold the same
and collect the sum due
PROMISSORY NOTE
•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
Parties:
1. Maker—one who makes a promise and signs the instrument
2. Payee—party to whom the promise is made or the instrument is payable
BILL OF EXCHANGE
•unconditional order in writing addressed by one person to another signed by the person giving
it
•requiring the person to whom it’s addressed to pay on demand or at a fixed or determinable
future time a sum certain in money to order or to bearer
Parties:
1. Drawer—one who gives the order to pay money to a 3rd party
2. Drawee—person to whom the bill is addressed and who is ordered to pay
3. Payee—party in whose favor the bill is drawn or is payable
TYPES OF BILL OF EXCHANGE:
1. Draf – a common term for all bills of exchange and they are used synonymously.
N.B. In bank drafts, DRAWER and DRAWEE are liable to purchaser of draft for
not complying with his instructions.
2. Trade Acceptance – a bill of exchange payable to order and at a certain maturity,
drawn by a seller against the purchaser of goods as drawee, for a fixed sum of
money, showing on its face the acceptance of the purchaser of the goods and that
it has arisen out of a purchase by goods by the acceptor.
3. Banker’s Acceptance – a draft or a bill of exchange of which the acceptor is a bank
or banker engaged generally in the business of granting banker’s acceptance
credit. It is similar to a trade acceptance, the fundamental difference being that
the banker’s acceptance is drawn against a bank instead of the buyer.
4. Trust Receipt – the written or printed document signed by the entrustee in favor
of the entruster containing terms and conditions substantially complying with the
provisions of PD 115 (Trust Receipt Law, which took effect on January 21, 1973).
No further formality of execution or authentication shall be necessary to the
validity of the trust receipt.
Note: It is the ENTRUSTEE NOT the ENTRUSTER is the real owner of the trust
receipt.
The liability of the entrustee to the entruster is EX CONTRACTU not ex delicto.
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5. Treasury Warrants – a “treasury warrant” bearing on its face the words “payable
from the appropriation for food administration” is actually an order for payment
out of a particular fund and is NOT UNCONDITIONAL, and does not fulfill the one
of the essential requirements of a negotiable instrument. (Abubakar v. Auditor
General)
6. Money Order – a species of draft drawn by the post-office upon another for an
amount of money deposited at the first post office by the person purchasing the
money order and payable at the second office to a payee named in the order.
Note: Money order is NOT negotiable.
7. Clean and Documentary Bills of Exchange – “Clean bill of exchange” is one to
which are not attached to documents of title to be delivered to the person against
whom the bill is drawn when he either accepts or pays the bill.
“Documentary Bill of Exchange” is one to which are attached documents of title
to be delivered and surrendered to the drawee when he accepts or pays the bill.
8. D/A and D/P Bills of Exchange -
“Documents Against Payment Bill” – “D/P Bill” is a sight or time bill to which are
attached documents to be delivered and surrendered to the drawee when he has paid
the corresponding bill.
“Documents Against Acceptance Bill” – “D/A Bill” is a time bill to which are attached
documents to be delivered and surrendered to the drawee when he accepts the bill.
9. “Sight bills” are bills which are payable upon presentation or at sight or on
demand.
10. “Time or usance bills” – are bills which are payable at a fixed future time or at a
determinable future time.
 Inland Bill of Exchange – is a bill which is or on its face purports to be BOTH drawn and
payable within the Philippine Islands.
 Foreign Bill of Exchange- is a bill which is, or on its face purports to be, drawn or payable
outside the Philippine Islands.
a. to be drawn in the Philippines but payable outside thereof; or
b. to be payable in the Philippines but drawn outside thereof.
Importance of the distinction:
The distinction is important in:
1. That foreign bills are required to be protested. Failure to protest foreign bills will
discharge persons secondarily liable thereon.
2. The distinction is also important for the determination of the law applicable.
When bill may be treated as promissory note.
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1. Where the drawer and the drawee are the person such as, in a draft drawn by an agent * Where a person makes a written promise to accept a bill before it is
on his principal by authority of the principal. drawn
2. Where the drawee is a fictitious person.  one who signs in a trade or assumed name liable to the same extent as if he had signed in
3. Where the drawee has no capacity to contract. his own name
 signature of any party may be made by a duly authorized agent, no particular form of appt.
Referee in case of need – is the person whose name was inserted by the drawer of the bill and necessary
any indorser to whom the holder may resort in case of need – that is in case the bill is dishonored
by non-acceptance or by non-payment. 2. unconditional promise or order to pay
 unqualified order or promise to pay is unconditional though coupled with
Note: It is the option of the holder to resort to the referee in case of need or not as he may see a. an indication of a particular fund out of which reimbursement to be made, or a
fit. particular account to be debited with amount, or
b. a statement of the transaction which gives rise to the instrument
BEARER
 an order or promise to pay out of a particular fund is not unconditional
Person in possession of a bill/note payable to bearer
a sum certain in money
HOLDER
 even if stipulated to be paid---
Payee or indorsee of a bill or note who is in possession of it, or the bearer thereof.
a. with interest, or
b. by stated installments, or
THE LIFE OF A NEGOTIABLE INSTRUMENT: (INPAD-PD-N-PD)
c. by stated installments with a provision that upon default in payment of any
1. issue
installment/interest, the whole shall become due, or
2. negotiation
d. with exchange, whether at a fixed rate or at the current rate, or
3. presentment for acceptance in certain bills
e. with costs of collection or an attorney’s fee, in case payment not made at maturity
4. acceptance
5. dishonor by on acceptance
3. payable on demand,
6. presentment for payment
 when expressed to be payable on demand, or at sight, or on presentation;
7. dishonor by nonpayment
 when no time for payment expressed, or
8. notice of dishonor
 where an instrument is issued, accepted or indorsed when overdue, it is, as regards the
9. protest in certain cases
person so issuing, accepting, or indorsing it, payable on demand
10. discharge
or at a fixed or determinable future time
NEGOTIABILITY
 when it’s expressed to be payable at a fixed period after date or sight, or
 on or before a fixed or determinable future time fixed therein, or
REQUISITES (SUDOC)
 on or at a fixed period after the occurrence of a specified event which is certain to happen,
1. in writing and signed by maker or drawer though the time of happening be uncertain
 no person liable on the instrument whose signature does not appear thereon  an instrument payable upon a contingency not negotiable, and happening of event doesn’t
Exceptions: cure it
* A person signing in a trade or assumed name
* Principal is liable if a duly authorized agent signs in his own behalf 4. payable to order
(Agent must be duly authorized; He adds words indicating that he  where it is drawn payable to the order of a specified person or to him or his order. May be
signs as an agent; He must disclosed his principal) drawn payable to order of ---
(Signature by procuration-operates as notice that the agent has a. a payee not the maker/drawer/drawee, or
limited authority to sign and principal is bound if agent acted beyond b. drawer or maker, or
the limits of his authority) c. drawee, or
* In case of forgery, the forger is liable even if his signature does not d. two or more payees jointly, or
appear on the instrument e. holder of an office for time being
* Where the acceptor makes his acceptance of a bill on a separate paper
 Negotiable Instruments Law
 when the instrument is payable to order the payee must be named or otherwise indicated
therein with reasonable certainty
or bearer,
 when expressed to be so payable
 when payable to person named therein or bearer
 when payable to order or fictitious/non-existent person, and such fact known to the person
making it so payable, or
 when name of payee doesn’t purport to be the name of any person, or
 when the only/last indorsement is in blank
5. where addressed to drawee: such drawee named/ indicated therein with reasonable
certainty
 bill may be addressed to two or more drawees jointly, whether partners or not, but not to
two or more drawees in the alternative or in succession
 bill may be treated as a PN, at option of holder, where
a. drawer and drawee are same person
b. drawee is fictitious/incapacitated
CONTINUATION OF NEGOTIABLE CHARACTER
Until:
1. restrictively indorsed
2. discharged by payment or otherwise
EFFECT OF ADDITIONAL PROVISIONS
(Sec.5) Gen. Rule: order/promise to do any act in addition to the payment of money renders
instrument non-negotiable.
Exception: negotiability not affected by provisions w/c
1. authorize sale of collateral security if instrument not paid at maturity
2. authorize confession of judgment…
3. waives benefit of any law intended for advantage/protection of obligor
4. give holder election to require something to be done in lieu of money
Other Instances when negotiability not affected
(Sec. 6) a. Not dated
b. Does not specify the value given or that any value has been given therefore
c. Does not specify the place where it is drawn or the place where it is payable
d. Bears a seal
e. Designates a particular kind of current money in w/c payment is to be made
Sec. 17. Construction where instrument is ambiguous.
(a) Where the sum payable is expressed in words and also in figures and there is a discrepancy
between the two, the sum denoted by the words is the sum payable; but if the words are
ambiguous or uncertain, reference may be had to the figures to fix the amount;
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(b) Where the instrument provides for the payment of interest, without specifying the date from
which interest is to run, the interest runs from the date of the instrument, and if the instrument
is undated, from the issue thereof;
(c) Where the instrument is not dated, it will be considered to be dated as of the time it was
issued;
(d) Where there is a conflict between the written and printed provisions of the instrument, the
written provisions prevail;
(e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the
holder may treat it as either at his election;
(f) Where a signature is so placed upon the instrument that it is not clear in what capacity the
person making the same intended to sign, he is to be deemed an indorser;
(g) Where an instrument containing the word "I promise to pay" is signed by two or more
persons, they are deemed to be jointly and severally liable thereon.
DATE IN AN INSTRUMENT
Presumption as to date: Said date is the date when it was made by the maker, drawn by the
drawer, accepted by the drawee or indorsed by the payee. (Sec. 11)
Effect of ante-dating or Post-dating: Instrument is not invalid, provided not done for an illegal or
fraudulent purpose. (Sec. 12)
* Ante-dating: Giving an instrument a date that is earlier than the date it was issued
* Post-dating: Giving an instrument a date that is later than the date it was issued
When date may be inserted?
a. Where an instrument is payable at a fixed period after date but is issued undated
b. Where an instrument is payable at a fixed period after sight but the acceptance is undated
DELIVERY (Sec. 16)
Issuance-the first delivery of the instrument complete in form to a person who takes it as a
holder.
Steps:
1. Mechanical Act of writing, complying with requirements of Sec. 1
2. Delivery with intention to give effect thereto.
• NI incomplete and revocable until delivery for the purpose of giving effect thereto. As between:
a. immediate parties
b. a remote party other than holder in due course
delivery, to be effectual, must be made by or under the authority of the party
making/drawing/accepting/indorsing
• in such case delivery may be shown to have been conditional, or for a special purpose only, and
not for the purpose of transferring the property in the instrument
PRESUMPTION OF DELIVERY
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Where the instrument is no longer in the possession of a party whose signature appears thereon,
a valid and intentional delivery by him is presumed until the contrary is proved (*if in the hands C. As to kind of liability assumed by indorser
of a HDC, presumption conclusive) 1. qualified- constitutes indorser as mere assignor of title (eg. “without recourse”)
2. unqualified
NEGOTIATION
• When an instrument is transferred from one person to another as to constitute the transferee D. As to presence/absence of express limitations put by indorser upon primary obligor’s
the holder thereof. privileges of paying the holder
• If payable to BEARER, negotiated by delivery; if payable to ORDER, negotiated by indorsement 1. conditional – additional condition annexed to indorser’s liability.
of holder + delivery • Where an indorsement is conditional, a party required to pay the instrument may disregard the
condition, and make payment to the indorsee or his transferee, whether condition has been
INDORSEMENT fulfilled or not
 It is the writing of the name of the indorser on the instrument with the intent either to • Any person to whom an instrument so indorsed is negotiated will hold the same/proceeds
transfer the title to the same, or to strengthen the security of the holder by assuming a subject to rights of person indorsing conditionally
contingent liability for its future payment.
 The indorsement must be written on the instrument itself or upon a paper attached thereto. 2. unconditional
The signature of the indorser is sufficient. (Sec. 31)
 Indorsement must be of entire instrument. (can’t be indorsement of only part of amount INDORSEMENT OF BEARER INSTRUMENT (Sec. 40)
payable, nor can it be to two or more indorsees severally. But may be indorsed as to the residue • Where an instrument payable to bearer is indorsed specially, it may nevertheless be further
of partially paid instrument) [Sec. 32] negotiated by delivery
• Person indorsing specially liable as indorser to only such holders as make title through his
indorsement
KINDS OF INDORSEMENT
A. As to manner of future method of negotiation INDORSEMENT WHERE INSTRUMENT PAYABLE TO TWO OR MORE PERSONS WHO ARE NOT
1. Special – specifies the person to whom/to whose order the instrument is to be payable; PARTNERS (Sec.41)
indorsement of such indorsee is necessary to further negotiation.  All must indorse unless the one indorsing has authority to indorse for others
2. Blank – specifies no indorsee, instrument so indorsed is payable to bearer, and may be 
negotiated by delivery INSTRUMENT DRAWN OR INDORSED TO A PERSON AS CASHIER (Sec.42)
 Presumed to be payable to the bank or corporation
• The holder may convert a blank indorsement into a special indorsement by writing over the
signature of the indorser in blank any contract consistent with the character of the indorsement INDORSEMENT WHERE NAME MISSPELLED (Sec. 43)
(Sec. 35)  May continue indorsing through the misspelled name, or he may add his proper
signature
B. As to kind of title transferred
1. restrictive Presumption as to time of Indorsement—before instrument is overdue, except where
• prohibits further negotiation of instrument, indorsement bears date which is after maturity.
• constitutes indorsee as agent of indorser, or
• vests title in indorsee in trust for another Presumption as to place of Indorsement—At the place where instrument dated

• Rights of indorsee in restrictive indorsement: Striking Out Indorsements, Effect:

• receive payment of instrument * The indorser whose indorsement is struck out and all indorsers subsequent to him
• Bring any action thereon that indorser could bring relieved from liability.
• Transfer his rights as such indorsee, but all subsequent indorsees acquire only title of first
indorsee under restrictive indorsement UNINDORSED INSTRUMENTS (Sec. 49)
1. transfer vests in transferee such title as transferor had therein
2. non-restrictive 2. right of transferee to have indorsement of transferor for purposes of determining HDC
negotiation effective upon actual indorsement
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1. sue thereon in his own name

PRIOR PARTY WHO NEGOTIATES INSTRUMENT, effects (Sec. 50)
Not entitled to enforce payment against any intervening party to whom he is personally liable
HOLDER IN DUE COURSE
2. payment to him in due course discharges instrument
3. holds the instrument free from any defect of title of prior parties and free from personal
defenses available to parties among themselves
4. may enforce payment of the instrument for the full amount thereof against all parties liable
thereon

REQUISITIES RIGHTS OF PURCHASER FROM HOLDER IN DUE COURSE

1. complete and regular upon its face
• sec. 124 (effect of material alteration—not defense against HDC)
Material Alteration: any change in the instrument which affects or changes the
of the parties.
Spoliation- A material alteration made by a stranger
• sec. 125 what constitute material alterations:
a. Date
b. Sum Payable, either for principal or interest
c. Time or place of payment
d. Number or relations of the parties
e. Medium of currency or which adds a place of payment
General Rule: in the hands of any holder other than a HDC, NI is subject to same defenses as if it
were non-negotiable. (Sec. 58)
liability Exception: holder who derives title through HDC and who is not himself a party to any fraud or
illegality has all rights of such former holder in respect to all parties prior to the latter.
WHO DEEMED HDC (Sec. 59)
• prima facie presumption in favor of holder
• but when shown that title of any person who has negotiated instrument was defective,
presumption is reversed, burden is now with holder to prove
• but no reversal if party being made liable became bound prior to acquisition of defective
title

2. holder became such before it was overdue, without notice of any previous dishonor
• sec. 53 (instrument payable on demand negotiated after unreasonable length of time: KINDS OF DEFENSES
holder is not HDC) 1. real defense – attaches to instrument; on the principle that the right sought to be enforced
• sec. 12 (effect antedating/postdating) never existed/there was no contract at all. Available to all parties both immediate and remote
including HDC.
3. taken in good faith and for value 2. personal defense – growing out of agreement; renders it inequitable to be enforced against
• sec. 24 (presumption of consideration) defendant. Available to prior parties among themselves but w/c are not good against a HDC.
• sec 25 (Value: is any consideration sufficient to support a simple contract)
• sec. 26 (Holder for value: one who has given a valuable consideration for the instrument
issued or negotiated to him ) DEFENSES
• sec. 27 (When a holder has lien on the instrument, by contract or implication he is deemed 1. INCAPACITY: REAL: indorsement/assignment by corporation/infant passes property but
a holder for value to the extent of the lien) corp/infant no liability

4. at time negotiated to him, he had no notice of -- 2. FORGERY: Real:

a.infirmity in instrument Definition: the counterfeit-making or fraudulent alteration of any writing, and may consist in the
b.defect in title of person negotiating: signing of another’s name or the alteration of an instrument in the name, amount, description of
What defect constitutes (Sec.55) the person and the like, with intent thereby to defraud.
1. instrument/signature obtained through fraud, etc., illegal consideration/means, or
2. instrument negotiated in breach of faith, or fraudulent circumstances Bad Forgery—forgery which is apparent or naked to the eye
Good Forgery—requires examination of signature if it was forged
Notice
Sec. 54-notice before full amt. paid: deemed HDC only to the extent of the Effect when Signature is forged or made without authority of person whose signature it
amount paid by him purports to be.
Sec. 56-notice of defect: Actual knowledge necessary General Rule:
a. wholly inoperative
RIGHTS OF HOLDER IN DUE COURSE
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b. no right to retain instrument, or give discharge, or enforce payment vs. any party, can be • In order that any such instrument, when completed, may be enforced against any person
acquired through or under such signature (unless forged signature unnecessary to holder’s title) who became a party thereto prior to its completion:
Exception: 1. must be filled up strictly in accordance w/ authority given
unless the party against whom it is sought to enforce such right is precluded from setting up 2. within a reasonable time
forgery/want of authority • but if any such instrument after completion is negotiated to HDC, it's valid for all purposes in his
hands, he may enforce it as if it had been filled up properly
Precluded:
a. parties who make certain warranties, like a general indorser or acceptor Real Defenses Personal Defenses
b. estopped/negligent parties 1. Material Alteration 1. Absence or failure of consideration whether
2. Want of delivery of incomplete instrument partial or total
3. MATERIAL ALTERATION 3. Duress amounting to forgery 2. Want of delivery of complete instrument
4. Fraud in factum or Fraud in esse contractus 3. Insertion of wrong date in an instrument
• Where NI materially altered w/o assent of all parties liable thereon, avoided, except as against
5. Minority (available to the minor only) 4. Filling up of blank contrary to authority given or
1. party who has himself made, authorized or assented to alteration 6. Marriage in the case of a wife not w/in reasonable time
2. and subsequent indorsers 7. Insanity where the insane person has a 5. Fraud in inducement
guardian appointed by the court 6. Acquisition of instrument by force, duress or
• But when an instrument has been materially altered and is in the hands of a HDC not a party to 8. Ultra Vires acts of corporation fear
the alteration, HDC may enforce payment thereof according to orig. tenor 9. Want of authority of agent 7. Acquisition of instrument by unlawful means
10. Execution of instrument b/w public enemies 8. Acquisition of the instrument for an illegal
11. Illegality—if declared void for any purpose consideration
*material alteration a personal defense when used to deny liability according to org. tenor of
12. Forgery 9. Negotiation in breach of faith
instrument, but real defense when relied on to deny liability according to altered terms. 10. Negotiation under circumstances that amount
to fraud
4. FRAUD 11. Mistake
a. fraud in execution: real defense (didn’t know it was a Negotiable Instrument) 12. Intoxication
b. fraud in inducement: personal defense (knows it’s Negotiable Instrument but deceived as 13. Ultra Vires Acts of corporations where the
to value/terms) corporation has the power to issue negotiable
paper but the issuance was not authorized for the
particular purpose for which it was issued
5. COMPLETE, UNDELIVERED INSTRUMENT
• Personal defense (sec. 16)
• If instrument not in possession of party who signed, delivery prima facie presumed
• If holder is HDC, delivery conclusively presumed

6. INCOMPLETE, UNDELIVERED INSTRUMENT

• Real defense (sec. 15)
• Instrument will not, if completed and negotiated without authority, be a valid contract in
the hands of any holder, as against any person whose signature was placed thereon before
LIABILITIES OF PARTIES
delivery
A. PRIMARY PARTIES
7. INCOMPLETE, DELIVERED
• Person primarily liable: person who by the terms of the instrument is absolutely required to
• Personal defense (sec. 14)
pay the same.
• 2 Kinds of Writings:
1. Where instrument is wanting in any material particular: person in possession has prima
1. Liability of Maker
facie authority to complete it by filing up blanks therein
a. Promises to pay it according to its tenor
2. Signature on blank paper delivered by person making the signature in order that the paper
b. admits existence of payee and his then capacity to indorse
may be converted into a NI: prima facie authority to fill up as such for any amount
2. Status of drawee prior to acceptance or payment
• sec. 127 (bill not an assignment of funds in hands of drawee)
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• sec. 189 (when check does not operate as assignment until bank certifies or accepts it) • Definition: one who signed instrument as maker/drawer/acceptor/ indorser w/o receiving
value thereof, for the purpose of lending his name to some other person
3. Liability of Acceptor • Accomodation Party liable on the instrument to holder for value even if holder, at time of
• Promises to pay instrument according to its tenor taking instrument, knew he was only an Accomodation Party
• Admits the following: Some Terms:
a. existence of drawer  Accommodation Bill or Note—one to which the accommodation party has put his
b. genuineness of his signature name, w/o consideration, for the purpose of accommodating some other party who is to
c. his capacity and authority to draw the instrument use it and is expected to pay it.
d. existence of payee and his then capacity to indorse  Accomodated Party—is one in whose favor a person, w/o receiving value therefore,
signs an instrument for the purpose of lending his credit and enabling said party to raise
B. SECONDARY PARTIES money upon it.
1. Liability of Drawer
a. Admits existence of payee and his then capacity to endorse Liability of Irregular Indorser
b. Engages that on due presentment instrument will be accepted, or paid, or both, according • Where a person not otherwise a party to an instrument, places thereon his signature in
to its tenor and that blank before delivery, he’s liable as an indorser, in accordance w/ these rules:
c. If it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay
the amount thereof to the holder or to an subsequent indorser who may be compelled to pay it 1. Instrument payable to order of 3rd person: liable to payee and to all subsequent parties
2. Instrument payable to the order of maker/drawer, or payable to bearer: liable to all parties
• drawer may insert in the instrument an express stipulation negativing / limiting his own subsequent to maker/drawer
liability to holder 3. Signs for accommodation of payee, liable to all parties subsequent to payee

2. Liability of Indorsers:
Liability of an Agent
• Qualified Indorser and one Negotiating by Delivery (Sec 65) • Signature of any party may be made by duly authorized agent, establish as in ordinary agency
a. Instrument genuine, in all respects what it purports to be • Where instrument contains or a person adds to his signature words indicating that he signs for
b. He has good title or on behalf of a principal, he is not liable on the instrument if he was duly authorized, but the
c. all prior parties had capacity to contract mere addition of words describing him as an agent without disclosing his principal, does not
d. he had no knowledge of any fact w/c would impair validity of instrument or render it exempt from personal liability.
valueless • Signature per procuration operates as notice that the agent has but a limited authority to sign,
• in case of negotiation by delivery only, warranty only extends in favor of immediate and the principal is bound only in case the agent in so signing acted within the actual limits of his
transferee authority
• Where a broker or agent negotiates an instrument without indorsement, he incurs all liabilities
• Liability of a General or Unqualified Indorser in Sec. 65, unless he discloses name of principal and fact that he’s only acting as agent
a. instrument genuine, good title, capacity of prior parties
b. instrument is at time of indorsement valid and subsisting
c. on due presentment, it shall be accepted or paid, or both, according to tenor
d. if it be dishonored, and necessary proceedings on dishonor be duly taken, he will pay the
amt. To holder, or to any subsequent indorser who may be compelled to pay it
 PRESENTMENT
• Order of Liability among Indorsers A. In Promissory Notes
1. among themselves: liable prima facie in the order they indorse, but proof of another Purpose:
agreement admissible Not necessary to make the maker liable, but is necessary to make the secondary parties liable.
2. but holder may sue any of the indorsers, regardless of order of indorsement Requisites:
3. joint payees/indorsees deemed to indorse jointly and severally For a valid presentment for payment of a promissory note, the following are necessary:
a. made within a reasonable time after issue;
Liability of Accomodation Party b. by the holder or his agent;
 Negotiable Instruments Law 8

c. to the party liable under it; REQUISITES OF ACTUAL ACCEPTANCE:

d. at a reasonable hour on a business day; and 1. in writing, and
e. at the proper place. 2. signed by the drawee,
***The holder must exhibit the instrument to the debtor and should deliver it to said debtor 3. it must not express that the drawee will perform his promise by another means than
if the latter pays. the payment of money, and
4. it must be communicated or delivered to the holder.

When NOT required/excused

Presentment is NOT required: ACCEPTANCE, HOW MADE?
1. when after due diligence presentment cannot be made; - It is usually done by writing across the face of the bill the word “ACCEPTED” or words of similar
2. when presentment is waived, and import, e.g. “HONORED”, “I WILL PAY THE BILL”, “SEEN” followed by the signature of the drawee.
3. when the indorser is an accommodated party.
- The drawee must sign because without his signature he would not be bound – See Section 18,
NIL.
B. In Bills of Exchange
- Acceptance by telegram has been held sufficient.
Acceptance is the signification by the drawee of his assent to the order of the drawer.
N.B. Acceptance is NOT required for CHECKS for the same are payable on demand.
How made:
- The acceptance may be on the bill, on a separate paper (allonge), and may even be in writing EFFECT OF ACCEPTANCE:
before the bill is drawn. Upon acceptance, the drawee becomes liable on the bill. The bill becomes in effect a note,
- The drawee, if he wants to dishonor, must do so expressly within twenty-four (24) the acceptor standing in the place of the maker, and the drawer, in the place of the first indorser.
hours from presentment to him. If he refuses to act, tears the bill, or refuses to return But should the drawee refuse to accept, the payee or the holder has no recourse against
the bill within said period of twenty-four hours, he is deemed to have accepted the bill him but only against the drawer and indorsers, if any.
– implied acceptance.
- A sight draft (usually accompanying a letter of credit in importations) is payable on Is payment equivalent to acceptance? NO, - the payment of a check does not include or imply
demand and needs no acceptance by the drawee. its acceptance in the sense that this word is used in Section 62, NIL.

Classes of Acceptance
1. General and Qualified WHERE BILL MAY BE WRITTEN:
General Acceptance – a general acceptance assents without qualification to the order of the - Acceptance may be made
drawer. 1. on the bill itself, or
Qualified Acceptance – it varies the effect of the bill as drawn. The acceptance is qualified if it is: 2. on a separate paper; and if on a separate paper
a. Conditional; a. it may be acceptance as to an existing bill; or
b. Partial; b. it may be acceptance as to a non-existing bill.
c. Local;
d. Qualified as to time; - If the bill is non-existent, the acceptance on a separate paper must comply
e. Accepted by some or more of the drawees but not by all. with following requirements:
i. That the contemplated drawee shall describe the bill to be drawn
and promise to accept it.
ii. That the bill shall be drawn within a reasonable time after such
2. Express and Constructive promise is written; and
- Acceptance is express if written on the instrument by the drawee; and constructive, if drawee, iii. That the holder shall take the bill upon the credit of the promise.
within twenty four hours from presentment to him of the instrument, destroys the same, or
refuses or fails to return the bill accepted or unaccepted. Section 136.
 Negotiable Instruments Law 9

- 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.
- NOTE: The time allowed begins from the time of delivery and not after
demand for a return of the bill and the time for returning the bill to the
holder does not begin to run from the demand for its return but from the
date of its delivery.
- Drawee bank is NOT entitled to 24 hours to decide whether for payment NOT
acceptance. But, if the check is presented for certification, this ruling will not
apply, as certification is equivalent to acceptance.
Definition: It is the production or exhibition of a bill of exchange to the drawee for his
acceptance.
GENERAL RULE:
Presentment for acceptance is NOT NECESSARY to render any party to the bill liable.
EXCEPTIONS:
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 is 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.

Constructive Acceptance: - this class of acceptance is NOT in writing. NOTE: In those instances found in Section 143 – it is NECESSARY – in order to
1. Where the drawee to whom the bill is delivered for acceptance, destroys it; or charge persons secondarily liable (Section 144):
2. Where the drawee refuses, within 24 hours after such delivery or within such time
as is given him, to return the bill accepted or not accepted. i. to make presentment for acceptance or
ii. to negotiate the bill within a reasonable time.
- If the holder should demand its return before twenty-four hours, the drawee
would be required to comply on pain of being held as an acceptor; but return
within twenty-four hours unaccepted would not be a dishonor.  Presentment, how made:
-Presentment MUST be made by or on behalf of the holder:
- In all the foregoing, the drawee will be deemed to have accepted the bill even
if there is NO ACTUAL WRITTEN ACCEPTANCE by him. Requisites:
1. It must be presented at a reasonable hour;
Instances when a bill may be accepted: 2. It must be presented on a business day; and
1. Before the bill has been signed by the drawer; 3. It must be presented before the bill is overdue.
2. Even when the bill is otherwise incomplete;
3. Even when the bill is overdue; To WHOM will it be presented?
4. Even after it has been dishonored by non-acceptance or by non-payment. 1. To the DRAWEE or some person authorized to ACCEPT or REFUSE
- The holder of the bill has the right to require GENERAL ACCEPTANCE – thus ACCEPTANCE on his BEHALF; and
he may REFUSE to take qualified acceptance and if he DOES NOT obtain an
unqualified acceptance – he may treat the bill as dishonored. 2. 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
- Effect of taking qualified acceptance: Where a qualified acceptance is taken refuse acceptance for all, in which case presentment may be made to him
– THE DRAWER and INDORSERS are discharged from liability on the bill unless only;
they have expressly or impliedly authorized the holder to take qualified
acceptance or subsequently assents thereto. 3. Where the drawee is dead presentment may be made to his personal
representative;
- When the drawer or indorser receives notice of qualified acceptance – he
must – within a REASONABLE TIME – express his dissent to the holder or he 4. Where the drawee has been adjudged a bankrupt or an insolvent or has
will be deemed to have assented thereto. made an assignment for the benefit of creditors, presentment may be made
to him or to his trustee or assignee.

 Presentment for Acceptance

Days when presentment may be made:
 Negotiable Instruments Law
A bill may be presented for acceptance on ANY DAY on which negotiable instruments
may be presented for payment.
When SATURDAY is NOT OTHER WISE A HOLIDAY – presentment for ACCEPTANCE may
be made before twelve o’clock noon on that day.
Note: The only difference between Section 72 and 85 is that under Section 146 there is
no distinction between the instruments payable at a fixed or determinable future time
and instruments payable on demand.
 Where the holder of a bill drawn payable elsewhere other than 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 that day 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.
Instances when PRESENTMENT FOR ACCEPTANCE IS EXCUSED and A BILL MAY BE TREATED AS
DISHONORED BY NON-ACCEPTANCE:
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.
Duty of the holder where bill is not accepted.
Where a bill is duly presented for acceptance and is not accepted within the prescribed
time, the person presenting it must treat the bill as dishonored by non-acceptance or he loses
the right of recourse against the drawer and indorsers.
HOW? By giving NOTICE OF DISHONOR or by making a PROTEST when required.
 Presentment For Payment Of Accepted Bill
Purpose: The purpose of presentment for payment of an accepted bill is to collect from the
acceptor; and if refused, to collect from the secondary parties.
Requisites:
1. The accepted bill must be presented for payment within a reasonable time from the last
negotiation by the holder or his agent
2. to the acceptor or his agent
3. at a reasonable hour on a business day
4. at the proper place as defined.
 The bill must be exhibited to the acceptor and surrendered to him when he pays.
10
When Presentment for payment is excused;
a. when after due diligence, it cannot be made
b. when the drawee is a fictitious person
c. where there is a waiver of presentment.
 DISHONOR
1 .In PROMISSORY NOTE
- In a promissory note, dishonor by non-payment takes place when it is duly presented for
payment and payment is refused or cannot be obtained; or if presentment is excused, the
instrument is overdue and unpaid.
Effect: There is an immediate right of recourse by the holder against persons secondarily liable,
which requires notice of dishonor (Sec. 84)
2. In BILLS OF EXCHANGE
- In bills of exchange, where the bill is presented for acceptance and is returned dishonored, or
within twenty four hours from presentment, is not returned accepted or unaccepted, or when
presentment for acceptance is excused and the bill is not accepted
there is a dishonor by non-acceptance.
-There is a dishonor by non-payment if the bill, after it has been accepted is not paid when
presented for payment, or presentment being excused, is not paid on the date of maturity.
Effect of Dishonor by Non-acceptance: An immediate right of recourse against the drawer and
indorsers accrues to the holder and NO PRESENTMENT for payment is necessary. (Sec. 151)
Note: Same effect in Dishonor by Non-payment is Promissory Note
 NOTICE OF DISHONOR
--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 has not been paid and that the party notified is expected to pay it.
REQUISITES:
1. Given by a holder or his agent(SPA necessary), or by any party who may be compelled by the
holder to pay. (Sec. 90)
2. Given to a secondarily liable party or his agentSec. 97)
-Notice to one partner is notice to all even though there has been dissolution
-Notice to persons jointly liable who are not partners must be given to each of them unless
one of them has authority to receive such notice for others
-Notice to bankrupt may be given to his trustee or assignee
3. Given as soon as the instrument is dishonored and within the periods provided by law. (Sec.
102)
4. Given at the proper place (Secs. 103 & 104)
 TO WHOM GIVEN
 Negotiable Instruments Law 11

a. Non-acceptance(bill)—to persons secondarily liable, namely, the drawer and indorsers as the 2. When the day of maturity falls on a Sunday or a Holiday, the instrument is payable on the next
case may be succeeding business day.
b. Non-payment (bill and note)—indorsers 3. Instruments falling due or payable on a Saturday are also to be presented for payment on the
next succeeding business day, except when the instrument is payable on demand where it may
 BY whom Given be the option of the holder to present the instrument for payment before 12:00 noon on
a. The holder Saturday when the entire day is not a holiday. (Sec. 85)
b. Another, on behalf of the holder
c. Any party to the instrument who may be compelled to pay it to the holder, and who would  REQUISITES OF PAYMENT IN DUE COURSE
have a right of reimbursement from the party to whom notice is given 1. Made at of after maturity.
2. Made to the holder.
3. In good faith and without notice that the holder’s title is defective. (Sec. 88)
 Good faith refers to the maker or acceptor and not to the holder.

 WHEN NOTICE OF DISHONOR IS DISPENSED WITH:  DISCHARGE OF NEGOTIABLE INSTRUMENT

1. When the party to be notified knows about the dishonor, actually or constructively - A release of all the parties liable from obligations arising thereunder. It renders the instrument
2. If waived (either before the time of giving notice has arrived or after the omission to give due without force and effect and, consequently, it can no longer be negotiated.
notice) (Sec. 109)
--If waiver embodied in instrument itself it binds all parties, but if written above the  WHEN A NEGOTIABLE INSTRUMENT IS DISCHARGED
signature of an indorser, the latter is only bound 1. By payment in due course by or on behalf of the principal debtor
3. When after due diligence, it cannot be given (Sec. 112)
Payment in Due Course. Requisites
a. Payment must be made at or after maturity
 WHEN NOTICE OF DISHONOR NEED NOT BE GIVEN TO DRAWER
b. Payment must be made to the holder
1. Drawer and drawee are the same person
c. Payment must be made in good faith and w/o notice that the holder’s title is
2. Drawee is a fictitious person or a person not having capacity to contract
defective
3. Drawer is the person to whom the instrument is presented for payment
4. Drawer has no right to expect or require that the drawee or acceptor will honor the
By Whom Made:
instrument;
a. By maker or acceptor
5. Drawer has countermanded payment.
b. Surety, if a primary party or
c. By an agent on behalf of the principal
 WHEN NOTICE OF DISHONOR NEED NOT BE GIVEN TO INDORSER
(a) When the drawee is a fictitious person or person not having capacity to contract, and the
2. Payment by accommodated party
indorser was aware of that fact at the time he indorsed the instrument
(b) Where the indorser is the person to whom the instrument is presented for payment 3. Intentional cancellation by the holder
(c) Where the instrument was made or accepted for his accommodation
4. By any act which will discharge a simple contract for the payment of money.
5. When the principal debtor becomes the holder of the instrument at or after maturity in
 MATURITY OF NEGOTIABLE INSTRUMENT: his own right.
1. Every negotiable instrument is payable at the time fixed therein without grace.

 WHEN PERSONS SECONDARILY LIABLE DISCHARGED

(a) By any act which discharges the instrument (f) By any agreement binding upon the holder to extend the time of payment or to postpone the
(b) By the intentional cancellation of his signature by the holder holder's right to enforce the instrument unless made with the assent of the party secondarily
(c) By the discharge of a prior party liable or unless the right of recourse against such party is expressly reserved.
(d) By a valid tender or payment made by a prior party
(e) By a release of the principal debtor unless the holder's right of recourse against the party Cancellation: it includes the act of tearing, erasing, obliterating or burning. It is not limited
secondarily liable is expressly reserved by writing the word “cancelled” or “paid” or drawing criss-cross lines across the instrument.
 Negotiable Instruments Law 12

It may be made by any other means by w/c the intention to cancel the instrument may be 2. in order to furnish authentic and satisfactory evidence of the dishonor to the drawer
evident. who, from his residence abroad, may experience difficulty in verifying the matter and
may be forced to rely on the representation of the holder.
Renunciation (Sec. 122)-The act of surrendering a right or claim w/o recompense, but it can
be applied w/ equal propriety to the relinquishing of a demand upon an agreement
Protest may be made by –
supported by a consideration
a. A notary public or
> Holder may expressly renounces his rights against any party to the instrument
b. By any respectable resident of the place where the bill is dishonored, in the presence of
before, at or after its maturity.
two or more credible witnesses.
> If renunciation is absolute and unconditional in favor of the principal debtor,
instrument is discharged
Protest, when made:
> Notice is required to affect rights of HDC
* Protest MUST be made on the day of its dishonor UNLESS delay is excused.
> Renunciation must be in writing unless instrument is delivered up to the person
primarily liable thereon.
* When a bill has been DULY NOTED – the protest may be subsequently extended as of the
date of the noting.
 PROTEST
“It is a formal statement in writing made by a notary under his seal of office at the request
“DULY NOTED” – means that a notary public jots down on a note on the bill or an paper
of the holder of a bill or note, in which it is declared that the same was on a certain day
attached thereto, or in his registry book, consisting of his initials or signature and those
presented for payment (or acceptance as the case may be), and such payment (or acceptance)
matters required to be stated in Section 153.
was refused, whereupon the notary protests against all parties to such instrument and declares
that they will be held responsible for all loss or damage arising from its dishonor.” It means all the
Protest where made:
steps or acts accompanying the dishonor of a bill or note necessary to charge an indorser,”
GENERALLY – the protest must be made at the place where the instrument is dishonored.
Necessity of Protest: Protest is required only for FOREIGN BILLS, but not for inland bills or notes.
EXCEPTION: - where that when the bill drawn payable at the place of business or residence
HOWEVER, they may also be protested if desired. OMISSION OF PROTEST, where protest is
of some person other than the drawee has been dishonored by non-acceptance – IT MUST
required, will DISCHARGE the DRAWER and the INDORSERS.
BE PROTESTED FOR NON-PAYMENT AT THE PLACE WHERE IT IS EXPRESSED TO BE PAYABLE,
AND NO FURTHER PRESENTMENT FOR PAYMENT TO, OR DEMADNN ON, THE DRAWEE IS
Instances when protest is required:
NECESSARY.
1. Where the foreign bill is dishonored by non-acceptance;
2. Where the foreign bill is dishonored by non-payment, it not having been dishonored by
 A bill MAY BE PROTESTED BEFORE MATURITY – aka “PROTEST FOR BETTER SECURITY”
non-acceptance;
3. Where the bill has been accepted for honor, it must be protested for non-payment to
Requisites for Protest for better security:
the acceptor for honor; or
- A protest for better security must be made:
4. Where the bill contains a referee in case of need, it must be protested for non-payment
a. After acceptance;
before it is presented for payment to the referee in case of need.
b. But before the date of maturity; and
c. When the acceptor has been adjudged bankrupt and insolvent or has made an
Protest, how made:
assignment for the benefit of creditors.
The protest must be annexed to the bill or must contain a copy thereof, and must be under
the HAND AND SEAL of the NOTARY making it and must specify:
NOTE: Protest is dispensed with by any circumstances which would dispense with notice of
1. The time and place of presentment;
dishonor.
2. The fact that presentment was made and the manner thereof;
3. The cause or reason for protesting the bill;
When a - PROTEST MAY BE MADE ON A COPY OR WRITTEN PARTICULARS THEREOF.
4. The demand made and the manner given, it any, or the fact that the drawee or
1. bill is lost or destroyed ; or
acceptor could not be found.
2. is wrongfully detained from the person entitled to hold it
Reason for requiring protest:
1. for uniformity in international transactions because most countries require it and
 Negotiable Instruments Law
 ACCEPTANCE FOR HONOR
Acceptance of a bill made by a stranger to it before maturity, where the drawee of the bill
refused to accept it, and the bill has been protested for non-acceptance or where the bill has
been protested for better security.
Purpose for acceptance for honor:
An acceptance for honor is done “to save the credit of the parties to the instrument or some
party to it, as the drawer, drawee, or indorser, or somebody else.”
Requisites for acceptance for honor:
1. The bill must have been previously protested (a) for non-acceptance or (b) for better
security;
2. The bill is not overdue at the time of the acceptance for honor;
3. The acceptor for honor must be a stranger to the bill.
4. The holder must give his consent.
Acceptance for honor: - “acceptance supra protest” – how made:
1. It must be in writing;
2. It must indicate that it is an acceptance for honor; and
3. It must be signed by the acceptor for honor.
NOTE:
It is necessary that the acceptor for honor MUST APPEAR before a notary public and
declare that he accepts the protested bill in honor of the drawer or indorser, as the
case may be, and that he will pay it at the appointed time.
The LIABILITY OF THE ACCEPTOR FOR HONOR is SECONDARY – NOT primary or absolute.
ACCEPTOR FOR HONOR agrees to pay if:
1. presentment for payment has been made;
2. the drawee does not pay;
3. the bill is protested for non-payment; and
4. notice of dishonor is given to him.
MATURITY OF A BILL PAYABLE AFTER SIGHT – which has been accepted for honor: Maturity is
calculated from the date of NOTING of the NON-ACCEPTANCE and NOT from the date of the
acceptance for honor.
Bills which MUST BE PROTESTED FOR NON-PAYMENT before it will be presented for payment:
1. Where a dishonored bill has been accepted for honor supra protest; or
2. Where a dishonored bill contains a referee in case of need.
Presentment for payment to acceptor for honor, how made:
1. It must be presented in the place where the protest for non-payment was made – it
must be presented NOT LATER than the day following its maturity;
13
2. If it is to be presented in some other place other than the place where it was protested,
then it must be forwarded within the time specified in Section 104.
Note: Delay in making presentment is excused when the delay was caused by events which are
BEYOND HIS CONTROL and NOT IMPUTABLE TO DEFAULT, MISCONDUCT or NEGLIGENCE.
 When a bill is DISHONORED by the ACCEPTOR FOR HONOR – it must be protested for non-
payment by him.
Reason: In order to fix the liability of the indorsers.
 PAYMENT FOR HONOR
Requisites for payment for honor:
1. The bill has been protested for non-payment;
2. ANY PERSON, even a party thereto may pay supra protest.
NOTE:
As distinguished from acceptance for honor – the acceptor for honor MUST BE A
STRANGER. In payment for honor – the PAYOR SUPRA PROTEST – may even be a
PARTY to the instrument.
Form for payment for honor:
1. The payment must be attested by notarial act appended to the protest, or form an
extension to it; and
2. The notarial act must be based in a declaration by the payer for honor.
Procedure for payment for honor:
1. The payer or his agent goes to a notary public and declares his intention to pay the bill
and for whose honor he pays.
2. The notary then records the declaration in the protest or in a separate paper attached to
it.
3. The payor then notifies the person for whose honor he pays within reasonable time.
Purpose of payment for honor:
Instead of simple negotiation to the person desiring to pay, payment for honor may be
availed of when the holder does not want to indorse the bill and thereby incur the liabilities of an
indorser or of one negotiating by mere delivery.
Preference of parties offering to pay for honor:
- The person WHOSE PAYMENT will DISCHARGE MOST PARTIES to the bill is to be given the
preference.
Effects on subsequent parties where bill is paid for honor:
 Negotiable Instruments Law 14

1. All parties subsequent to the party for whose honor it is paid are discharged.
2. The payer 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.
Effect if the holder REFUSES to receive payment supra protest?
He loses his right of recourse against any party who would have been discharged by such
payment.
Payment by acceptor of bills drawn in sets:
- 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 thereof.
Effect of discharging one of a set:
- Where ONE PART OF A BILL DRAWN in a set is discharged by payment or otherwise – THE
WHOLE BILL is DISCHARGED – except as otherwise provided.

Rights of payer for honor:

1. He acquires the rights of the holder under Section 175; and
2. He has also the right to receive both the bill and the protest.
 BILLS IN SET
Bills in set – one composed of various parts, each part being numbered and containing a
reference to the other parts, all of which parts constitute but one bill.
Purpose of bill in set:
In order to increase the probability of the bill reaching its destination, and to avoid the difficulties
which would arise in case of loss or miscarriage on the way of the bill.
Right of holders where different parts are negotiated:
Where two or more parts are negotiated to different HOLDERS IN DUE COURSE – the HOLDER
whose title FIRST ACCRUES – AS BETWEEN SUCH HOLDERS – is the TRUE OWNER of the bill.
Liability of holder who indorses two or more parts of a set to different persons:
- He is liable on EVERY SUC H PART; and
- EVERY INDORSER SUBSEQUENT to him is LIABLE on the part he has himself indorsed – AS
IF SUCH PARTS WERE SEPARATE BILLS.
Acceptance of bills in set:
- The acceptance may be written on any part and it must be written on ONE PART only.
Effect if the drawee accepts more than one part:
- If the drawee ACCEPTS MORE THAN ONE PART and such accepted parts are negotiated to
different holders in due course he is liable on every part as if it were a separate bill.
 PROMISSORY NOTES AND CHECKS
Promissory Note – 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 bearer.
NOTE:
Where a note is drawn to the maker’s own order, it is NOT complete until indorsed by
him.
Special types of promissory notes:
1. Certificate of deposit
- is a written acknowledgment by a bank of the receipt of money on deposit
which the bank promises to pay to the depositor, bearer, or to some other
person or order.
- It is NOT ipso facto negotiable – it must first comply with the requirements
provided under Section 1, NIL.
2. Bonds
- A promise, under seal, to pay money.
- The bond certifies that the issuing company is indebted to the bondholder for the
amount specified on the face of the bond, and contains an agreement of the company
to pay the sum at a specified time in the future, and meanwhile to pay a specified
interest on the principal amount at regular intervals, generally six months apart. They
are negotiable if it the requisites in Section 1, NIL are complied with.
Classes of Bonds:

1. Mortgage bonds 6. Income bonds

2. Equipment Bonds 7. Convertible bonds
3. Collateral trust bonds 8. Redeemable Bonds
4. Guaranteed bonds 9. Registered Bonds
5. Debentures
10. Coupon Bonds – those which are attached a sheet of dated, numbered and similarly interest they represent, and transferred just like any commercial paper. They are
printed coupons which the bondholder may cut off when due or thereafter. Such negotiable if it the requisites in Section 1, NIL are complied with.
coupons may be served and deposited in a bank, negotiated before the maturity of the
 Negotiable Instruments Law
11. Bank Notes
- Are promissory notes of the issuing bank payable to bearer on demand and
intended to circulate as money. They are regarded as cash and pass from hand to
hand without any evidence of titled in the holder than that which arises form
possession. However, they are not money.
12. Due Bills
- is an instrument whereby one person acknowledges his indebtedness to another.
 CHECK – is a bill of exchange drawn on a bank payable on demand. It is a written order on a
bank, purporting to be drawn against a deposit of funds for the payment of all events, of a
sum of money to a certain person therein named or to his order or to cash and payable on
demand.
NOTE:
- Acceptance is NOT required for checks for the same are PAYABLE ON DEMAND.
 Check is not Legal Tender, but produces the effect of payment when:
a. The check was encashed. (Encashment is not limited to physical encashment over
the counter of the drawee bank. A check can be considered encashed through the clearing
house, or when the check had been credited to the account of the creditor)
b. When through the fault of the creditor the check is impaired
c. In case of redemption
Kinds of checks:
1. Ordinary Check—The most common check issued by a bank to a client who opens a
checking account
2. Cashier’s check – it is a check drawn by the cashier of a bank in the name of the bank
against the bank itself payable to a third person or order.
3. Manager’s Check – a 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 the cashier’s check as to effect and
use.
4. Gif Check-Similar to a cashier’s or manager’s check and may be signed either by the
cashier or manager. It is indicated as a “Gift Check”, so as to be used as a gift for birthdays,
weddings, graduations and similar occasions.
5. Memorandum Checks – a check on 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 and non-payment.
- If it bounces – the drawer can be charged for violation of BP 22.
6. Certified Checks – a check on which the drawee bank has written an agreement whereby
it undertakes to pay the check at any future time when presented for payment, such as,
by stamping on the check the word “certified” or “Good For Payment” and underneath it
is written the signature of the cashier.
7. Traveler’s Check- one issued by a bank to a holder, usually a traveller, who must put his
signature upon purchase of the check and countersign with the same signature on the
15
space indicated on its face or back when using the check as a mode of payment in his
travel. When these checks are lost or stolen, the purchaser can notify the agent of the
seller anywhere in the world and prevent the use of the lost or stolen traveller’s check.
8. Crossed check –One which has two parallel lines, usually on the upper left hand corner.
How is crossing of check done:
-it is usually done by drawing two parallel lines transversally on the face of the
check. A check may be crossed (1) specially or (2) generally.
Crossing specially – a check is crossed specially when the name of a particular banker or a
company is written between the parallel lines drawn transversally on the face of the check. Here,
the drawer is instructing the drawee bank not to honor the check unless the payee is identified
by another bank
Crossing generally – a check is crossed generally when only the words “and company” are
written between the parallel lines, or when nothing is written at all between the parallel lines.
Here, the drawer is instructing the drawee bank not to honor the check unless the payee is
identified by the particular bank named in between the two parallel lines.
NOTES:
1. Under crossed check – the payee has the duty to ascertain the holder’s title to checks.
2. Drawee should not encash a crossed check but merely the same for deposit.
3. Where other than payee of crossed checks presented it for payment, there is no proper
presentment and drawer is not liable thereon.
Effects of Crossing a check
1. The check may not be encashed but only deposited in the bank
2. The check may be negotiated only once to one who has an account with a bank
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 secured the check pursuant to that
purpose.
Advantages of crossing check:
- it is a good precaution when it is to be forwarded by mail or when it is entrusted to an agent
and the drawer wants to be sure that it will be paid to the rightful owner.
Features of the Check
I. Face.
1. Date
2. Payee
3. Amount in figures
 Negotiable Instruments Law
4. Amount in words
5. Drawer (Account Name)
6. Drawee-Bank
7. Account Number
8. Check Number
9. Magnetic Ink Character Recognition Code (MICR)—a code designed to facilitate the
clearing of checks among banks.
10. Space for signature of the drawer
II. Dorsal Side/Back of the Check
1. Space for indorsement (signature & address of the indorser)
Check – when should it be presented for payment:
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.
must be presented within six (6) months – otherwise it will become stale.
- a check under BP 22 must be presented for payment to the bank within 90 days from date
so that the holder will enjoy the benefit of the prima facie presumption that the maker,
drawer, or issuer knows at the time of issue that he does not have sufficient funds in or
credit with the drawee bank for payment of such check.
A check is a bill of exchange payable on demand – is intended for immediate use and not to
circulate as a promissory note.
Effect if the check was allowed to become stale? (Stale when not encashed w/in 6 months)
- the drawer is discharged but only to the extent of the loss caused by the delay. Hence, if no loss
or injury is shown, the drawer is not discharged.
Certification of check – is an agreement whereby the bank against whom a check is drawn,
undertakes to pay it at any future time when presented for payment. A bank is not obliged to the
depositor to certify checks.
- The certification of a check is EQUIVALENT to an ACCEPTANCE.
Form of certification:
- No particular form is required – BUT IT MUST BE IN WRITING.
- The letters “O.K.”, with the initials of the cashier of a bank do not constitute a sufficient
certification under modern banking practice.
Effect of Certification:
16
1. It is equivalent to acceptance and is the operative act that makes the drawee bank
liable;
2. It operates as an assignment of the funds of the drawer in the hands of the drawee
bank; and
3. If obtained by the holder, it discharges persons secondarily liable thereon.
Effect where the holder of check procures it to be certified.
- Where the holder of a check procures it to be accepted or certified, the drawer and all
indorsers are discharged from liability thereon.
- Indorsers subsequent to the certification are not discharged.
When check operates as an assignment.
A check of itself does not operate as 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.
Stop Payment Order—an instruction by the drawer addressed to the drawee bank directing the
latter not to honor or pay the check. A drawer may stop payment of the check before the same is
accepted, certified or paid by the drawee bank.
Requisites for Stop Payment Order
1. It must describe the check with reasonable accuracy
2. It must be given to an authorized officer or employee of the drawee bank
3. It must be positive and unqualified
4. It must give the bank sufficient time prior to acceptance, certification or payment to
enable the bank, in the exercise of reasonable diligence to stop payment.
Iron-Clad Rule: Prohibits the countermanding of payment of certified checks.
Cases when Bank May Refuse Payment
1. The bank is insolvent
2. The drawer’s deposit is insufficient or he has no account with the bank or said account had
been closed or garnished
3. The drawer is insolvent and proper notice is received by the bank
4. The drawer dies and proper notice is received by the bank
5. The drawer has countermanded payment
6. The holder refuses to identify himself
7. The bank has reason to believe that the check is forgery.