UP Negotiable Instruments

8/11/2019 UP Negotiable Instruments

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Negotiable Instruments Law

NEGOTIABLE INSTRUMENTS, IN GENERAL

Function and importance of negotiable instruments

• Although they do not constitute legal tender, they are used as a substitute for

money.

• Negotiable papers, particularly checks, constitute, at present, the media of

exchange for most commercial transactions.

• Negotiable instruments also serve as a medium of credit transactions.

• Negotiable instruments shall produce the eect of payment only when they

have been encashed or when through the fault of the creditor they have been

impaired. [Article 1!", #ivil #ode$

Characteristics of negotiable instruments

• Negotiability% &hat 'uality or attribute whereby a bill, note or check passes or

may pass from hand to hand, similar to money, so as to give the holder in

due course the right to hold the instrument and collect the sum payable for

himself free from defenses.

• &he most important feature of negotiable instruments is the accumulation of

secondary contracts as they are transferred from one person to another.

Common forms of negotiable instruments

1. (ill of exchange

. )romissory note

*. #heck

Bill of exchange

• A bill of exchange is an unconditional order in writing addressed by one

person to another, signed by the person giving it, re'uiring the person to



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NEGOTIABLE INSTRUMENTS LAW

whom it is addressed to pay on demand or at a +xed or determinable future

time a sum certain in money to order or to bearer. [ection 1-, Negotiable

nstruments /aw$

Promissory note

• A negotiable 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 +xed or determinable future time a sum certain in money to order or to

bearer. [ection 10!, Negotiable nstruments /aw$

Check

• A check is a bill of exchange drawn on a bank and payable on demand.

[ection 10, Negotiable nstruments /aw$

Kinds of bill of exchange

1. 2raft

. &rade acceptance

*. #heck

Inland v. foreign bill of exchange

• An inland bill of exchange is one which, on its face, purports to be both drawn

and payable in the )hilippines. Any other bill is a foreign bill.

Kinds of promissory notes

1. #erti+cate of deposit

. (ond

*. (ank note

!. 2ue bill

. 3ortgage note

-. &itle4retaining note

BER!O"E ALES OMMERIALOMMERIAL LLAWAW MABU!A# E$ITION 2%%%



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5. 6udgment note




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Bill of exchange v. promissory note

• 7nconditional order v. unconditional promise

• &hree 8*9 parties in bill while only two 89 in note

• 2rawer in a bill is only secondarily liable while maker in a promissory is

primarily liable

• A bill drawn payable to drawer:s own order is complete without indorsement

while a note drawn payable to maker:s own order is not complete until

indorsed by him

• A bill must be presented for acceptance in some cases while there is no need

of presentment for note

• ;easonable time from last negotiation v. reasonable time from issue

(orm an) Inter*retation

Form of negotiable instruments

1. t must be in writing and signed by the maker or drawer.

. t must contain an unconditional promise or order to pay a sum certain in

money.

*. t must be payable on demand, or at a +xed or determinable future time.

!. t must be payable to order or to bearer.

. <here the instrument is addressed to a drawee, he must be named or

otherwise indicated therein with reasonable certainty. [ection 1, Negotiable

nstruments /aw$

Terms !hen su"cient

• &he instrument need not follow the language of this Act, but any terms are

su=cient which clearly indicate an intention to conform to the re'uirements

hereof. [ection 1>, Negotiable nstruments /aw$




+






#hat constitutes certainty as to sum

• &he sum payable is a sum certain within the meaning of this act, although it

is to be paid%

1. <ith interest? or

. (y stated installments? or

*. (y stated installments, with a provision that, upon default in payment

of any installment or of interest, the whole shall become due? or

!. <ith exchange, whether at a +xed rate or at the current rate? or

. <ith costs of collection or an attorney:s fee, in case payment shall not

be made at maturity. [ection , Negotiable nstruments /aw$

#hen promise is unconditional

• An un'uali+ed order or promise to pay is unconditional.

• t is still unconditional though coupled with%

1. An indication of a particular fund out of which reimbursement is to be

made or a particular account to be debited with the amount? or

. A statement of the transaction which gives rise to the instrument.

#hen promise is not unconditional

• An order or promise to pay out of a particular fund is not unconditional.

[ection *, Negotiable nstruments /aw$

$missions% seal% particular money

• &he validity and negotiable character of an instrument are not aected by the

fact that%

1. t is not dated? or

. 2oes not specify the value given, or that any value had been given

therefor? or




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*. 2oes not specify the place where it is drawn or the place where it is

payable? or

!. (ears a seal? or

. 2esignates a particular kind of current money in which payment is to

be made.

• (ut nothing in this section shall alter or repeal any statute re'uiring in certain

cases the nature of the consideration to be stated in the instrument.

#hen payable on demand

1. <hen it is so expressed to be payable on demand, or at sight, or on

presentation

. n which no time for payment is expressed

*. <here an instrument is issued, accepted, or indorsed when overdue, it is, as

regards the person so issuing, accepting, or indorsing it, payable on demand


&eterminable future time% !hat constitutes

• An instrument is payable at a determinable future time, within the meaning

of this Act, which is expressed to be payable%

1. At a +xed period after date or sight? or

. @n or before a +xed or determinable future time speci+ed therein? or

*. @n or at a +xed period after the occurrence of a speci+ed event which

is certain to happen, though the time of happening be uncertain.

• An instrument payable upon a contingency is not negotiable, and the

happening of the event does not cure the defect. [ection !, Negotiable

nstruments /aw$

#hen payable to order

• &he instrument is payable to order where it is drawn payable to the order of a

speci+ed person or to him or his order. [ection 0, Negotiable nstruments

/aw$




.


• <here the instrument is payable to order, the payee must be named or

otherwise indicated therein with reasonable certainty.

To !hom may it be dra!n payable to

• t may be drawn payable to the order of

1. A payee who is not a maker, drawer, or drawee? or

. &he drawer or maker? or

*. &he drawee? or

!. &wo or more payees Bointly? or

. @ne or some of several payees? or

-. &he holder of an o=ce for the time being.

Bearer

• (earer means the person in possession of a bill or a note which is payable to

bearer. A person who steals an instrument payable to bearer is a "bearer."

#hen payable to bearer

1. <hen it is expressed to be so payable

. <hen it is payable to a person named therein or bearer

*. <hen it is payable to the order of a +ctitious or non4existing person, and such

fact was known to the person making it so payable

!. <hen the name of the payee does not purport to be the name of any person

. <hen the only or last indorsement is an indorsement in blank [ection ",Negotiable nstruments /aw$

'egotiation of instrument payable to order and to bearer

• An instrument payable to order is negotiated by indorsement and delivery? an

instrument payable to bearer, by mere delivery.




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(ome notes on date

• 2ate is not an essential element for negotiability

• <here the instrument or an acceptance or any indorsement thereon is dated,

such date is deemed prima facie to be the true date of the making, drawing,

acceptance, or indorsement, as the case may be. [ection 11, Negotiable

nstruments /aw$

• &he instrument is not invalid for the reason only that it is ante4dated or post4

dated, provided this is not done for an illegal or fraudulent purpose. &he

person to whom an instrument so dated is delivered ac'uires the title thereto

as of the date of delivery. [ection 1, Negotiable nstruments /aw$

• <here an instrument expressed to be payable at a +xed period after date is

issued undated, or where the acceptance of an instrument payable at a +xed

period after sight is undated, any holder may insert therein the true date of

issue or acceptance, and the instrument shall be payable accordingly. &he

insertion of a wrong date does not avoid the instrument in the hands of a

subse'uent holder in due course? but as to him, the date so inserted is to be

regarded as the true date. [ection 1*, Negotiable nstruments /aw$

Importance of the date of the instrument

• 2etermining when instrument, indorsement or acceptance is due 8authority9

• 2etermining prescription of cause of action

)dditional provisions not a*ecting negotiability

• An instrument which contains an order or promise to do any act in addition to

the payment of money is not negotiable. &hus, an instrument embodying an

obligation that is subBect to a condition is non4negotiable.

• (ut the negotiable character of an instrument otherwise negotiable is not

aected by a provision which%

1. AuthoriCes the sale of collateral securities in case the instrument be

not paid at maturity? or

. AuthoriCes a confession of Budgment if the instrument be not paid at

maturity? or




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*. <aives the bene+t of any law intended for the advantage or protection

of the obligor? or

!. Dives the holder an election to re'uire something to be done in lieu of

payment of money.

• (ut nothing in this section shall validate any provision or stipulation

otherwise illegal. [ection , Negotiable nstruments /aw$

• 7nder ection ", however, a condition in the indorsement would not destroy

the negotiability of the instrument.

&elivery

• 2elivery means the transfer of the possession of instrument by the maker or

drawer, with intent to transfer title to the payee and recogniCe him as the

holder thereof.

• Every contract on negotiable instrument is incomplete and revocable until

delivery of the instrument for the purpose of giving eect thereto.

• ssue is the +rst delivery of the instrument, complete in form, to a person who

takes it as a holder.

Incomplete instrument but delivered

• <here the instrument is wanting in any material particular, the person in

possession thereof has a prima facie authority to complete it by +lling up the

blanks therein.

• A signature on a blank paper delivered by the person making the signature in

order that the paper may be converted into a negotiable instrument operates

as a prima facie authority to +ll it up as such for any amount.

• n order, however, that any such instrument when completed may be

enforced against any person who became a party thereto prior to itscompletion, it must be +lled up strictly in accordance with the authority given

and within a reasonable time.

• (ut if any such instrument, after completion, is negotiated to a holder in due

course, it is valid and eectual for all purposes in his hands, and he may




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enforce it as if it had been +lled up strictly in accordance with the authority

given and within a reasonable time. [ection 1!, Negotiable nstruments

/aw$. n this sense, ection 1! gives only a personal, not a real, defense

Incomplete instrument not delivered

• <here an incomplete instrument has not been delivered, it 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 delivery. [ection 1, Negotiable nstruments /aw$

• n this sense, it gives a real defense, not Bust personal.

&elivery% !hen e*ectual% !hen presumed

• Every contract on a negotiable instrument is incomplete and revocable until

delivery of the instrument for the purpose of giving eect thereto.

• As between immediate parties and as regards a remote party other than a

holder in due course, the delivery, in order to be eectual, must be made

either by or under the authority of the party making, drawing, accepting, or

indorsing, as the case may be? and, in such case, the 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.

• (ut where the instrument is in the hands of a holder in due course, a valid

delivery thereof by all parties prior to him so as to make them liable to him is

conclusively presumed. And 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. [ection

1-, Negotiable nstruments /aw$

Construction !here instrument is ambiguous

• <here the language of the instrument is ambiguous or there are omissions

therein, the following rules of construction apply%

1. <here the sum payable is expressed in words and also in +gures 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 +gures to +x the amount?




02


. <here 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?

*. <here the instrument is not dated, it will be considered to be dated as

of the time it was issued?

!. <here there is a conFict between the written and printed provisions of

the instrument, the written provisions prevail?

. <here 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?

-. <here 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?

5. <here an instrument containing the word "I promise to pay" is signed

by two or more persons, they are deemed to be Bointly and severally

liable thereon. [ection 15, Negotiable nstruments /aw$

+iability of person signing in trade or assumed name

• No person is liable on the instrument whose signature does not appear

thereon, except as herein otherwise expressly provided. (ut one who signs in

a trade or assumed name will be liable to the same extent as if he had signed

in his own name. [ection 10, Negotiable nstruments /aw$

,ules on signature of agent

• &he signature of any party may be made by a duly authoriCed agent. No

particular form of appointment is necessary for this purpose? and the

authority of the agent may be established as in other cases of agency.

[ection 1", Negotiable nstruments /aw$

•

<here the instrument contains or a person adds to his signature wordsindicating that he signs for or on behalf of a principal or in a representative

capacity, he is not liable on the instrument if he was duly authoriCed? but the

mere addition of words describing him as an agent, or as +lling a

representative character, without disclosing his principal, does not exempt

him from personal liability. [ection >, Negotiable nstruments /aw$




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(ignature by procuration% e*ect of

• A signature by "procuration" operates as notice that the agent has but a

limited authority to sign, and the principal is bound only in case the agent in

so signing acted within the actual limits of his authority. [ection 1,

Negotiable nstruments /aw$

-*ect of indorsement by infant or corporation

• &he contract of indorsement of an infant is not void, and that his indorsee has

the right to enforce payment from all parties prior to the infant indorser? the

incapacity of the infant cannot be availed of by prior parties. Gowever, it does

not destroy the right of such an infant indorser to disa=rm under the rules of

infancy.

• &he indorsement or assignment of the instrument by a corporation or by an

infant passes the property therein, notwithstanding that from want of

capacity, the corporation or infant may incur no liability thereon. [ection ,


• n both instances, the indorsements are voidable H until annulled H so that

they pass food title. &herefore, parties prior to the minor or corporation

cannot escape liability by setting up as defense the incapacity of the

indorsers.

Forged signature% e*ect of

• <hen a signature is forged or made without the authority of the person

whose signature it purports to be, it is wholly inoperative, and no right to

retain the instrument, or to give a discharge therefor, or to enforce payment

thereof against any party thereto, can be ac'uired through or under such

signature, unless the party against whom it is sought to enforce such right is

precluded from setting up the forgery or want of authority. [ection *,


#ho are precluded from setting up the forgery or !ant of authority

1. &hose who warrant or admit the genuineness of the signature in 'uestion

8indorsers, persons negotiating by delivery, and acceptors of bills of

exchange9.

. &hose who, by their acts, silence or negligence, are estopped from setting up

the defense of forgery. 8estoppel9




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*. <hen the forged signature is unnecessary to the title of the holder as when

the indorsement is forged on an instrument payable to bearer.

Iorgery in Deneral p. 45

Iorgery in )romissory Notes pp 540

Iorgery in (ills pp 0 4 *>

Associated (ank v. #A pp * 4 *!

onsi)eration

Presumption of consideration

• Every negotiable instrument is deemed prima facie to have been issued for a

valuable consideration? and every person whose signature appears thereon to

have become a party thereto for value. [ection !, Negotiable nstruments

/aw$

/alue !hat constitutes

•

Jalue is any consideration su=cient to support a simple contract.

• An antecedent or pre4existing debt constitutes value? and is deemed such

whether the instrument is payable on demand or at a future time. [ection

, Negotiable nstruments /aw$

#hat constitutes holder for value

• <here value has at any time been given for the instrument, the holder is

deemed a holder for value in respect to all parties who become such prior to

that time. [ection -, Negotiable nstruments /aw$

• <here the holder has a lien on the instrument arising either from contract or

by implication of law, he is deemed a holder for value to the extent of his lien.





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-*ect of !ant of consideration

• Absence or failure of consideration is a matter of defense as against any

person not a holder in due course? and partial failure of consideration is a

defense pro tanto, whether the failure is an ascertained and li'uidated

amount or otherwise. [ection 0, Negotiable nstruments /aw$

• Absence or failure of consideration is a personal defense available only

against a holder not in due course.

• Absence or failure should be distinguished from inade'uate consideration.

• Essentially, a person who signs as maker, drawer, acceptor or indorser

without receiving any consideration, signs as an accommodation party

merely for the purpose of lending the credit of his name. uch

accommodation party cannot set up lack of consideration against any holder,

even as to one who is not a holder in due course.

• After paying on the instrument, the accommodation party shall have a right

to obtain reimbursement from the party accommodated since the relation

between them is in eect that of principal and surety, the accommodation

party being the surety.

+iability of accommodation party

•

An accommodation party is one who has signed the instrument as maker,drawer, acceptor, or indorser, without receiving value therefor, and for the

purpose of lending his name to some other person.

• uch a person is liable on the instrument to a holder for value,

notwithstanding such holder, at the time of taking the instrument, knew him

to be only an accommodation party. [ection ", Negotiable nstruments /aw$

Negotiation

Three types of transfers

1. (y assignment H Denerally for non4negotiable instruments. n assignment,

the assignee is merely placed in the position of the assignors and ac'uires




0


the instrument subBect to all the defenses that might have been set up

against the original payee.

. (y operation of law H uch as by succession or insolvency.

*. (y negotiation

#hat constitutes negotiation

• An instrument is negotiated when it is transferred from one person to another

in such manner as to constitute the transferee the holder thereof.

• A holder means the payee or indorsee of a bill or note who is in possession of

it or the bearer thereof. [ection 1"1, Negotiable nstruments /aw$

• f payable to bearer, it is negotiated by delivery? if payable to order, it is

negotiated by the indorsement of the holder completed by delivery. [ection

*>, Negotiable nstruments /aw$

Indorsement% ho! made

• &he indorsement must be written on the instrument itself or upon a paper

attached thereto.

a. ndorsement is usually written at the back of the instrument.

b. <here the instrument is written in an allonge, the same must be

tacked or pasted on the instrument so as to become part of it.

c. &he indorsement may be made in any form, as long as it is meant to

be an indorsement.

• &he signature of the indorser, without additional words, is a su=cient

indorsement. [ection *1, Negotiable nstruments /aw$

)llonge

• t is a piece of paper that is attached permanently to an instrument for the

purpose of accommodating or allowing additional indorsements. &he maBority

rule is that an allonge is allowed only when the back portion of the

instrument is already +lled up with indorsements.




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Indorsement must be of entire instrument

• &he indorsement must be an indorsement of the entire instrument.

• An indorsement which purports to transfer to the indorsee a part only of the

amount payable, or which purports to transfer the instrument to two or more

indorsees severally, does not operate as a negotiation of the instrument. (ut

where the instrument has been paid in part, it may be indorsed as to the

residue. [ection *, Negotiable nstruments /aw$

,ule re0 continuing negotiability

• General rule1 An instrument which is negotiable in origin continues to be

negotiable until it has been%

1. restrictively indorsed? or

paid at or after maturity.

Kinds of indorsement

1. pecial or in blank

. ;estrictive or 'uali+ed or conditional [ection **, Negotiable nstruments

/aw$

(pecial indorsement v. indorsement in blank

• A special indorsement speci+es the person to whom, or to whose order, the

instrument is to be payable, and the indorsement of such indorsee is

necessary to the further negotiation of the instrument

• An indorsement in blank speci+es no indorsee, and an instrument so indorsed

is payable to bearer, and may be negotiated by delivery. [ection *!,


Blank indorsement% ho! changed to special indorsement

• &he 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. [ection *, Negotiable nstruments

/aw$




0.


#hen indorsement restrictive

• An indorsement is restrictive which either%

1. )rohibits the further negotiation of the instrument? or

. #onstitutes the indorsee the agent of the indorser? or

*. Jest the title in the indorsee in trust for or to the use of some other

persons.

• (ut the mere absence of words implying power to negotiate does not make

an indorsement restrictive. [ection *-, Negotiable nstruments /aw$

-*ect of restrictive indorsement% rights of indorsee

• A restrictive indorsement confers upon the indorsee the right%

1. &o receive payment of the instrument?

. &o bring any action thereon that the indorser could bring?

*. &o transfer his rights as such indorsee, where the form of the

indorsement authoriCes him to do so.

• (ut all subse'uent indorsees ac'uire only the title of the +rst indorsee under

the restrictive indorsement. [ection *5, Negotiable nstruments /aw$

1uali2ed indorsement

• A 'uali+ed indorsement constitutes the indorser a mere assignor of the title

to the instrument.

• t may be made by adding to the indorser:s signature the words "without

recourse" or any words of similar import.

•

uch an indorsement does not impair the negotiable character of theinstrument. [ection *0, Negotiable nstruments /aw$

• &he 'uali+ed indorser guarantees only the genuineness of the instrument but

does not guarantee its payment. Ge will be liable only of the signature of the

maker turns out to be a forgery. Ge will not be liable if the maker refuses to

pay.




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#ithout recourse

• "Without recourse" means without resort to a person who is secondarily liable

after the default of the person who is primarily liable.

+imited liability of 3uali2ed indorser

• Ge is liable only if the instrument is dishonored by non4acceptance or non4

payment due to%

1. Iorgery

. /ack of good title on the part of the indorser

*. /ack of capacity to indorse on the part of the prior parties

!. &he fact that at the time of the indorsement, the instrument was

valueless or not valid, and he knew of that fact.

Conditional indorsement

• <here an indorsement is conditional, the party re'uired to pay the

instrument may disregard the condition and make payment to the indorsee or

his transferee whether the condition has been ful+lled or not. (ut any person

to whom an instrument so indorsed is negotiated will hold the same, or the

proceeds thereof, subBect to the rights of the person indorsing conditionally.

[ection *", Negotiable nstruments /aw$

Indorsement of instrument payable to bearer

• <here an instrument, payable to bearer, is indorsed specially, it may

nevertheless be further negotiated by delivery? but the person indorsing

specially is liable as indorser to only such holders as make title through his

indorsement. [ection !>, Negotiable nstruments /aw$

Indorsement !here payable to t!o or more persons

• <here an instrument is payable to the order of two or more payees or

indorsees who are not partners, all must indorse unless the one indorsing has

authority to indorse for the others. [ection !1, Negotiable nstruments /aw$

-*ect of instrument dra!n or indorsed to a person as cashier




2%


• <here an instrument is drawn or indorsed to a person as KcashierK or other

+scal o=cer of a bank or corporation, it is deemed prima facie to be payable

to the bank or corporation of which he is such o=cer, and may be negotiated

by either the indorsement of the bank or corporation or the indorsement of

the o=cer. [ection !, Negotiable nstruments /aw$

Indorsement !here name is misspelled and so forth

• <here the name of a payee or indorsee is wrongly designated or misspelled,

he may indorse the instrument as therein described adding, if he thinks +t,

his proper signature. [ection !*, Negotiable nstruments /aw$

Indorsement in representative capacity

• <here any person is under obligation to indorse in a representative capacity,

he may indorse in such terms as to negative personal liability. [ection !!,


Time of indorsement% presumption

• Except where an indorsement bears date after the maturity of the

instrument, every negotiation is deemed prima facie to have been eected

before the instrument was overdue. [ection !, Negotiable nstruments /aw$

Place of indorsement% presumption

• Except where the contrary appears, every indorsement is presumed prima

facie to have been made at the place where the instrument is dated. [ection

!-, Negotiable nstruments /aw$

Continuation of negotiable character

• An instrument negotiable in its origin continues to be negotiable until it has

been restrictively indorsed or discharged by payment or otherwise. [ection

!5, Negotiable nstruments /aw$

(triking out indorsement

• &he holder may at any time strike out any indorsement which is not

necessary to his title. &he indorser whose indorsement is struck out, and all

indorsers subse'uent to him, are thereby relieved from liability on the

instrument. [ection !0, Negotiable nstruments /aw$




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,ight of holder to sue% payment

• &he holder of a negotiable instrument may sue thereon in his own name? and

payment to him in due course discharges the instrument. [ection 1,


#hat constitutes a holder in due course

• A holder in due course is a holder who has taken the instrument under the

following conditions%

1. &hat it is complete and regular upon its face?

. &hat he became the holder of it before it was overdue, and without

notice that it has been previously dishonored, if such was the fact?

*. &hat he took it in good faith and for value?

!. &hat at the time it was negotiated to him, he had no notice of any

in+rmity in the instrument or defect in the title of the person

negotiating it. [ection , Negotiable nstruments /aw$

#ho is deemed holder in due course

• Every holder is deemed prima facie to be a holder in due course.

• Gowever, when it is shown that the title of any person who has negotiated

the instrument was defective, the burden is on the holder to prove that he or

some person under whom he claims ac'uired the title as holder in due

course. (ut the last4mentioned rule does not apply in favor of a party who

became bound on the instrument prior to the ac'uisition of such defective

title. [ection ", Negotiable nstruments /aw$

#hen person not deemed holder in due course

• <here an instrument payable on demand is negotiated on an unreasonable

length of time after its issue, the holder is not deemed a holder in due course.[ection *, Negotiable nstruments /aw$

• &o determine what constitutes "reasonable time," regard must be had to the

nature of the instrument, the usage of trade or business 8if any9 with respect

to such instrument, and the facts of the particular case.




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'otice before full amount paid

• <here the transferee receives notice of any in+rmity in the instrument or

defect in the title of the person negotiating the same before he has paid the

full amount agreed to be paid therefor, he will be deemed a holder in due

course only to the extent of the amount therefor paid by him. [ection !,


#hen title defective

• &he title of a person who negotiates an instrument is defective within the

meaning of this Act when he obtained the instrument, or any signature

thereto, by fraud, duress, or force and fear, or other unlawful means, or for an

illegal consideration, or when he negotiates it in breach of faith, or under

such circumstances as amount to a fraud. [ection , Negotiable

nstruments /aw$

#hat constitutes notice of defect

• &o constitutes notice of an in+rmity in the instrument or defect in the title of

the person negotiating the same, the person to whom it is negotiated must

have had actual knowledge of the in+rmity or defect, or knowledge of such

facts that his action in taking the instrument amounted to bad faith. [ection

-$

,ights of holder in due course

1. &o sue on the instrument

. &o receive payment on the instrument, and payment in due course discharges

the instrument

*. &o hold the instrument free from any defect of title of prior parties

!. &o hold the instrument free from defenses available to prior parties among

themselves

. &o enforce payment on the instrument to the full amount against all parties

liable thereon [ection 5, Negotiable nstruments /aw$

• &he defenses referred to are personal defenses or e'uities. ;eal defenses are

available even against a holder in due course.




2'


&efenses

• A holder in due course receives the instrument free from any defect which it

may have had in the past. @nly real defenses may be set up against a holder

in due course. )ersonal defenses may not be set up against such a holder.

• A holder in due course holds the instrument free from any defect of title of

prior parties, and free from defenses available to prior parties among

themselves, and may enforce payment of the instrument for the full amount

thereof against all parties liable thereon. [ection 5, Negotiable nstruments

/aw$

#hen sub5ect to original defense

• n the hands of any holder other than a holder in due course, a negotiable

instrument is subBect to the same defenses as if it were non4negotiable.

• (ut a holder who derives his title through a holder in due course, and who is

not himself a party to any fraud or illegality aecting the instrument, has all

the rights of such former holder in respect of all parties prior to the latter.


,eal defense

• ;eal defenses are those available against all holders. &hey attach to the res

regardless of the merits or demerits of the holder.

• ;eal defenses do not render the instrument valueless. <ith real defenses, the

instrument is unenforceable only against the party entitled to set up the

defense but not against those whom such a defense is not available as such,

as in the case of forgery which is not available to persons estopped.

Kinds of real defenses

1. Iorgery

. llegality 8if law so provides9

*. Alteration 8deliberate9

!. 2ischarge after maturity

. ncompleteness




2+


-. Iraud in factum

5. ncapacity

0. nsolvency

Personal defenses

• )ersonal defenses are those which grow out of the agreement or conduct of a

particular person in regard to the instrument which renders it ine'uitable for

him, though holding the legal title, to enforce it against the party sought to

be made liable but which are not available against a holder in due course.

Kinds of personal defenses

1. 2uress

. llegality

*. 2ischarge before maturity

!. Alteration 8unintentional9

. Iraud in inducement

-. ncompleteness 8delivered9

5. No consideration

0. et o

peci+c discussions of defense

)age 04-

Liabilities o3 4arties

#ho are primarily liable

1. 3aker




2


. Acceptor

(econdarily liable

1. 2rawer

. ndorser

+iability of maker

1. &he maker of a negotiable instrument warrants that%

a. Ge will pay it according to its tenor?

b. &he payee exists? and

c. &he payee has capacity to indorse. [ection ->, Negotiable nstruments

/aw$

. #onse'uently, the maker is precluded from setting up the following defenses%

a. &hat the payee is a +ctitious person? or

b. &hat the payee was insane, a minor or a corporation acting ultra vires.

*. &he liability of the maker is primary and unconditional. Neither can the maker

escape liability by virtue of the non4bene+t to him of the proceeds of the note

since that is of no concern to the payee.

+iability of dra!er

• &he drawer by drawing the instrument admits the existence of the payee and

his then capacity to indorse? and engages that, on due presentment, the

instrument will be accepted or paid, or both, according to its tenor, and that if

it be dishonored and the necessary proceedings on dishonor be duly taken,

he will pay the amount thereof to the holder or to any subse'uent indorser

who may be compelled to pay it. (ut the drawer may insert in the instrumentan express stipulation negativing or limiting his own liability to the holder.

[ection -1, Negotiable nstruments /aw$

+iability of acceptor

• &he acceptor, by accepting the instrument%




2.


• &here is no oral aval.

• &he person who guarantees payment in writing is called the avalista.

+iability of indorser

#hen a person deemed indorser

• A person placing his signature upon an instrument other than as maker,

drawer, or acceptor, is deemed to be indorser unless he clearly indicates by

appropriate words his intention to be bound in some other capacity. [ection

-*, Negotiable nstruments /aw$

+iability of irregular indorser

• <here a person, not otherwise a party to an instrument, places thereon his

signature in blank before delivery, he is liable as indorser, in accordance with

the following rules%

1. f the instrument is payable to the order of a third person, he is liable

to the payee and to all subse'uent parties.

. f the instrument is payable to the order of the maker or drawer, or is

payable to bearer, he is liable to all parties subse'uent to the maker or

drawer.

*. f he signs for the accommodation of the payee, he is liable to all

parties subse'uent to the payee. [ection -!, Negotiable nstruments

/aw$

#arranty !here negotiation by delivery or 3uali2ed indorsement

• Every person negotiating an instrument by delivery or by a 'uali+ed

indorsement warrants%

1. &hat the instrument is genuine and in all respects what it purports tobe?

. &hat he has a good title to it?

*. &hat all prior parties had capacity to contract?




2/


!. &hat he has no knowledge of any fact which would impair the validity

of the instrument or render it valueless.

• (ut when the negotiation is by delivery only, the warranty extends in favor of

no holder other than the immediate transferee.

• &he provisions of subdivision 8*9 of this section do not apply to a person

negotiating public or corporation securities other than bills and notes.

[ection -, Negotiable nstruments /aw$

+iability of general indorser

• Every indorser who indorses without 'uali+cation, warrants to all subse'uent

holders in due course%

1. &hat the instrument is genuine and in all respects what it purports to

be?

. &hat he has a good title to it?

*. &hat all prior parties had capacity to contract?

!. &hat the instrument is, at the time of his indorsement, valid and

subsisting? and

. n addition, he engages that, on due presentment, it shall be accepted

or paid, or both, as the case may be, according to its tenor, and that if

it be dishonored and the necessary proceedings on dishonor be duly

taken, he will pay the amount thereof to the holder, or to any

subse'uent indorser who may be compelled to pay it. [ection --,


+iability of indorser !here paper negotiable by delivery

• <here a person places his indorsement on an instrument negotiable by

delivery, he incurs all the liability of an indorser. [ection -5, Negotiable

nstruments /aw$

$rder in !hich indorsers are liable

• As respects one another, indorsers are liable prima facie in the order in which

they indorse? but evidence is admissible to show that, as between or among

themselves, they have agreed otherwise.




&%


• 6oint payees or Boint indorsees who indorse are deemed to indorse Bointly and

severally. [ection -0, Negotiable nstruments /aw$

• &he foregoing rule does not apply to a holder in due course to whom the

indorsers are liable in any order.

• Every indorser is liable to all indorsers subse'uent to him, but not those

indoresers prior to him.

• (efore dishonor, the obligation of the indorser is only subsidiary.

• After dishonor by non4payment, ec. 0! provides that an immediate right of

recourse to all parties secondarily liable thereto accrues to the holder. &hus,

the liability of indorsers becomes principal and solidary.

+iability of an agent or broker

• <here a broker or other agent negotiates an instrument without indorsement,

he incurs all the liabilities prescribed by ection - of this Act, unless he

discloses the name of his principal and the fact that he is acting only as

agent. [ection -", Negotiable nstruments /aw$

4resentation 3or 4a5ment

-*ect of !ant of demand on principal debtor

• )resentment for payment is not necessary in order to charge the person

primarily liable on the instrument? but if the instrument is, by its terms,

payable at a special place, and he is able and willing to pay it there at

maturity, such ability and willingness are e'uivalent to a tender of payment

upon his part. (ut except as herein otherwise provided, presentment for

payment is necessary in order to charge the drawer and indorsers. [ection

5>, Negotiable nstruments /aw$

Presentment !here instrument is not payable on demand and !here

payable on demand

• <here the instrument is not payable on demand, presentment must be made

on the day it falls due.




&0


• <here it is payable on demand, presentment must be made within a

reasonable time after its issue, except that in the case of a bill of exchange,

presentment for payment will be su=cient if made within a reasonable time

after the last negotiation thereof. [ection 51, Negotiable nstruments /aw$

#hat constitutes a su"cient presentment

• )resentment for payment, to be su=cient, must be made%

1. (y the holder, or by some person authoriCed to receive payment on his

behalf?

. At a reasonable hour on a business day?

*. At a proper place as herein de+ned?

!. &o the person primarily liable on the instrument, or if he is absent or

inaccessible, to any person found at the place where the presentment

is made. [ection 5, Negotiable nstruments /aw$

Place of presentment

• )resentment for payment is made at the proper place%

1. <here a place of payment is speci+ed in the instrument and it is there

presented?

. <here no place of payment is speci+ed but the address of the person

to make payment is given in the instrument and it is there presented?

*. <here no place of payment is speci+ed and no address is given and

the instrument is presented at the usual place of business or residence

of the person to make payment?

!. n any other case if presented to the person to make payment

wherever he can be found, or if presented at his last known place ofbusiness or residence. [ection 5*, Negotiable nstruments /aw$

Instrument must be exhibited




&2


• &he instrument must be exhibited to the person from whom payment is

demanded, and when it is paid, must be delivered up to the party paying it.

[ection 5!, Negotiable nstruments /aw$

Presentment !here instrument payable at bank

• <here the instrument is payable at a bank, presentment for payment must

be made during banking hours, unless the person to make payment has no

funds there to meet it at any time during the day, in which case presentment

at any hour before the bank is closed on that day is su=cient. [ection 5,


Presentment !here principal debtor is dead

• <here the person primarily liable on the instrument is dead and no place of

payment is speci+ed, presentment for payment must be made to his personal

representative, if such there be, and if, with the exercise of reasonable

diligence, he can be found. [ection 5-, Negotiable nstruments /aw$

Presentment to persons liable as partners

• <here the persons primarily liable on the instrument are liable as partners

and no place of payment is speci+ed, presentment for payment may be made

to any one of them, even though there has been a dissolution of the +rm.


Presentment to 5oint debtors

• <here there are several persons, not partners, primarily liable on the

instrument and no place of payment is speci+ed, presentment must be made

to all of them. [ection 50, Negotiable nstruments /aw$

#hen presentment not re3uired to charge the dra!er

• )resentment for payment is not re'uired in order to charge the drawer where

he has no right to expect or re'uire that the drawee or acceptor will pay the

instrument. [ection 5", Negotiable nstruments /aw$

#hen presentment not re3uired to charge the indorser

• )resentment is not re'uired in order to charge an indorser where the

instrument was made or accepted for his accommodation and he has no




&&


reason to expect that the instrument will be paid if presented. [ection 0>,


#hen delay in making presentment is excused

• 2elay in making presentment for payment is excused when the delay is

caused by circumstances beyond the control of the holder and not imputable

to his default, misconduct, or negligence.

• <hen the cause of delay ceases to operate, presentment must be made with

reasonable diligence. [ection 01, Negotiable nstruments /aw$

#hen presentment for payment is excused

• )resentment for payment is excused%

1. <here, after the exercise of reasonable diligence, presentment, as

re'uired by this Act, cannot be made?

. <here the drawee is a +ctitious person?

*. (y waiver of presentment, express or implied. [ection 0, Negotiable

nstruments /aw$

#hen instrument dishonored by non6payment

• &he instrument is dishonored by non4payment when%

1. t is duly presented for payment and payment is refused or cannot be

obtained? or

. )resentment is excused and the instrument is overdue and unpaid.

[ection 0*, Negotiable nstruments /aw$

+iability of person secondarily liable !hen instrument dishonored

•

ubBect to the provisions of this Act, when the instrument is dishonored bynon4payment, an immediate right of recourse to all parties secondarily liable

thereon accrues to the holder. [ection 0!, Negotiable nstruments /aw$

Time of maturity




&'


• Every negotiable instrument is payable at the time +xed therein without

grace. <hen the day of maturity falls upon unday or a holiday, the

instruments falling due or becoming payable on aturday are to be presented

for payment on the next succeeding business day except that instruments

payable on demand may, at the option of the holder, be presented for

payment before twelve o:clock noon on aturday when that entire day is not

a holiday. [ection 0, Negotiable nstruments /aw$

Time0 ho! computed

• <hen the instrument is payable at a +xed period after date, after sight, or

after that happening of a speci+ed event, the time of payment is determined

by excluding the day from which the time is to begin to run, and by including

the date of payment. [ection 0-, Negotiable nstruments /aw$

,ule !here instrument payable at bank

• <here the instrument is made payable at a bank, it is e'uivalent to an order

to the bank to pay the same for the account of the principal debtor thereon.


#hat constitutes payment in due course

• )ayment is made in due course when it is made at or after the maturity of the

instrument to the holder thereof in good faith and without notice that his title

is defective. [ection 00, Negotiable nstruments /aw$

Noti6e o3 $isonor

To !hom notice of dishonor must be given

• Except as herein otherwise provided, when a negotiable instrument has been

dishonored by non4acceptance or non4payment, notice of dishonor must be

given to the drawer and to each indorser, and any drawer or indorser to

whom such notice is not given is discharged. [ection 0", Negotiablenstruments /aw$

By !hom given




&+


• &he notice may be given by or on behalf of the holder, or by or on behalf of

any party to the instrument who might be compelled to pay it to the holder,

and who, upon taking it up, would have a right to reimbursement from the

party to whom the notice is given. [ection ">, Negotiable nstruments /aw$

'otice given by agent

• Notice of dishonor may be given by any agent either in his own name or in

the name of any party entitled to give notice, whether that party be his

principal or not. [ection "1, Negotiable nstruments /aw$

-*ect of notice on behalf of holder

• <here notice is given by or on behalf of the holder, it inures to the bene+t of

all subse'uent holders and all prior parties who have a right of recourse

against the party to whom it is given. [ection ", Negotiable nstruments

/aw$

-*ect !here notice is given by party entitled thereto

• <here notice is given by or on behalf of a party entitled to give notice, it

inures to the bene+t of the holder and all parties subse'uent to the party to

whom notice is given. [ection "*, Negotiable nstruments /aw$

#hen agent may give notice

• <here the instrument has been dishonored in the hands of an agent, he may

either himself give notice to the parties liable thereon, or he may give notice

to his principal. f he gives notice to his principal, he must do so within the

same time as if he were the holder, and the principal, upon the receipt of

such notice, has himself the same time for giving notice as if the agent had

been an independent holder. [ection "!, Negotiable nstruments /aw$

#hen notice su"cient

• A written notice need not be signed and an insu=cient written notice may be

supplemented and validated by verbal communication. A misdescription ofthe instrument does not vitiate the notice unless the party to whom the

notice is given is in fact misled thereby. [ection ", Negotiable nstruments

/aw$

Form of notice




&


• &he notice may be in writing or merely oral and may be given in any terms

which su=ciently identify the instrument, and indicate that it has been

dishonored by non4acceptance or non4payment. t may in all cases be given

by delivering it personally or through the mails. [ection "-, Negotiable

nstruments /aw$

To !hom notice may be given

• Notice of dishonor may be given either to the party himself or to his agent in

that behalf. [ection "5, Negotiable nstruments /aw$

'otice !here party is dead

• <hen any party is dead and his death is known to the party giving notice, the

notice must be given to a personal representative, if there be one, and if with

reasonable diligence, he can be found. f there be no personal representative,

notice may be sent to the last residence or last place of business of the

deceased. [ection "0, Negotiable nstruments /aw$

'otice to partners

• <here the parties to be noti+ed are partners, notice to any one partner is

notice to the +rm, even though there has been a dissolution. [ection "",


'otice to persons 5ointly liable

• Notice to Boint persons who are not partners must be given to each of them

unless one of them has authority to receive such notice for the others.

[ection 1>>, Negotiable nstruments /aw$

'otice to bankrupt

• <here a party has been adBudged a bankrupt or an insolvent, or has made an

assignment for the bene+t of creditors, notice may be given either to the

party himself or to his trustee or assignee. [ection 1>1, Negotiable

nstruments /aw$

Time !ithin !hich notice must be given

• Notice may be given as soon as the instrument is dishonored and, unless

delay is excused as hereinafter provided, must be given within the time +xed

by this Act. [ection 1>, Negotiable nstruments /aw$




&-


#here parties reside in same place

• <here the person giving and the person to receive notice reside in the same

place, notice must be given within the following times%

1. f given at the place of business of the person to receive notice, it must

be given before the close of business hours on the day following.

. f given at his residence, it must be given before the usual hours of rest

on the day following.

*. f sent by mail, it must be deposited in the post o=ce in time to reach

him in usual course on the day following. [ection 1>*, Negotiable

nstruments /aw$

#here parties reside in di*erent places

• <here the person giving and the person to receive notice reside in dierent

places, the notice must be given within the following times%

1. f sent by mail, it must be deposited in the post o=ce in time to go by

mail the day following the day of dishonor, or if there be no mail at a

convenient hour on last day, by the next mail thereafter.

. f given otherwise than through the post o=ce, then within the time

that notice would have been received in due course of mail, if it had

been deposited in the post o=ce within the time speci+ed in the last

subdivision. [ection 1>!, Negotiable nstruments /aw$

#hen sender deemed to have given due notice

• <here notice of dishonor is duly addressed and deposited in the post o=ce,

the sender is deemed to have given due notice, notwithstanding any

miscarriage in the mails. [ection 1>, Negotiable nstruments /aw$

&eposit in post o"ce% !hat constitutes

• Notice is deemed to have been deposited in the post4o=ce when deposited in

any branch post o=ce or in any letter box under the control of the post4o=ce

department. [ection 1>-, Negotiable nstruments /aw$




&.


'otice to subse3uent party% time of

• <here a party receives notice of dishonor, he has, after the receipt of such

notice, the same time for giving notice to antecedent parties that the holder

has after the dishonor. [ection 1>5, Negotiable nstruments /aw$

#here notice must be sent

• <here a party has added an address to his signature, notice of dishonor must

be sent to that address? but if he has not given such address, then the notice

must be sent as follows%

1. Either to the post4o=ce nearest to his place of residence or to the post4

o=ce where he is accustomed to receive his letters? or

. f he lives in one place and has his place of business in another, notice

may be sent to either place? or

*. f he is soBourning in another place, notice may be sent to the place

where he is so soBourning.

• (ut where the notice is actually received by the party within the time

speci+ed in this Act, it will be su=cient, though not sent in accordance with

the re'uirement of this section. [ection 1>0, Negotiable nstruments /aw$

#aiver of notice

• Notice of dishonor may be waived either before the time of giving notice has

arrived or after the omission to give due notice, and the waiver may be

expressed or implied. [ection 1>", Negotiable nstruments /aw$

#hom a*ected by !aiver

• <here the waiver is embodied in the instrument itself, it is binding upon all

parties? but, where it is written above the signature of an indorser, it binds

him only. [ection 11>, Negotiable nstruments /aw$

#aiver of protest

• A waiver of protest, whether in the case of a foreign bill of exchange or other

negotiable instrument, is deemed to be a waiver not only of a formal protest

but also of presentment and notice of dishonor. [ection 111, Negotiable

nstruments /aw$




&/


#hen notice is dispensed !ith

• Notice of dishonor is dispensed with when, after the exercise of reasonable

diligence, it cannot be given to or does not reach the parties sought to be

charged. [ection 11, Negotiable nstruments /aw$

&elay in giving notice% ho! excused

• 2elay in giving notice of dishonor is excused when the delay is caused by

circumstances beyond the control of the holder and not imputable to his

default, misconduct, or negligence.

• <hen the cause of delay ceases to operate, notice must be given with

reasonable diligence. [ection 11*, Negotiable nstruments /aw$

#hen notice need not be given to dra!er

• Notice of dishonor is not re'uired to be given to the drawer in either of the

following cases%

1. <here the drawer and drawee are the same person?

. <hen the drawee is +ctitious person or a person not having capacity to

contract?

*. <hen the drawer is the person to whom the instrument is presented

for payment?

!. <here the drawer has no right to expect or re'uire that the drawee or

acceptor will honor the instrument?

. <here the drawer has countermanded payment. [ection 11!,


#hen notice need not be given to indorser

• Notice of dishonor is not re'uired to be given to an indorser in either of the

following cases%

1. <hen the drawee is a +ctitious person or person not having capacity to

contract, and the indorser was aware of that fact at the time he

indorsed the instrument?




'%


. <here the indorser is the person to whom the instrument is presented

for payment?

*. <here the instrument was made or accepted for his accommodation.


'otice of non6payment !here acceptance refused

• <here due notice of dishonor by non4acceptance has been given, notice of a

subse'uent dishonor by non4payment is not necessary unless in the

meantime the instrument has been accepted. [ection 11-, Negotiable

nstruments /aw$

-*ect of omission to give notice of non6acceptance

• An omission to give notice of dishonor by non4acceptance does not preBudice

the rights of a holder in due course subse'uent to the omission. [ection 115,


#hen protest need not be made% !hen must be made

• <here any negotiable instrument has been dishonored, it may be protested

for non4acceptance or non4payment, as the case may be? but protest is not

re'uired except in the case of foreign bills of exchange. [ection 110,


$is6arge o3 Negotiable Instruments

&ischarge

• t is the release of all parties, whether primary or secondary, from the

obligation on the instrument.

•t renders the instrument non4negotiable.

Instrument% ho! discharged

1. (y payment in due course by or on behalf of the principal debtor




'0


. (y payment in due course by the party accommodated, where the instrument

is made or accepted for his accommodation

*. (y the intentional cancellation thereof by the holder

!. (y any other act which will discharge a simple contract for the payment of

money

. <hen the principal debtor becomes the holder of the instrument at or after

maturity in his own right [ection 11", Negotiable nstruments /aw$

#hen persons secondarily liable on the instrument are discharged

1. (y any act which discharges the instrument

. (y the intentional cancellation of his signature by the holder

*. (y the discharge of a prior party

!. (y a valid tender or payment made by a prior party

. (y a release of the principal debtor unless the holder:s right of recourse

against the party secondarily liable is expressly reserved

-. (y any agreement binding upon the holder to extend the time of payment or

to postpone the holder:s right to enforce the instrument unless made with the

assent of the party secondarily liable or unless the right of recourse against

such party is expressly reserved. [ection 1>, Negotiable nstruments /aw$

,ight of party !ho discharges instrument

• <here the instrument is paid by a party secondarily liable thereon, it is not

discharged? but the party so paying it is remitted to his former rights as

regard all prior parties, and he may strike out his own and all subse'uent

indorsements and again negotiate the instrument, except%

1. <here it is payable to the order of a third person and has been paid bythe drawer? and

. <here it was made or accepted for accommodation and has been paid

by the party accommodated. [ection 11, Negotiable nstruments

/aw$




'&


*. &he time or place of payment%

!. &he number or the relations of the parties?

. &he medium or currency in which payment is to be made?

-. @r which adds a place of payment where no place of payment is

speci+ed, or any other change or addition which alters the eect of the

instrument in any respect, is a material alteration. [ection 1,


Bills o3 E76ange 8 (orm an) Inter*retation

Bill of exchange de2ned

• A bill of exchange is an unconditional order in writing addressed by one

person to another, signed by the person giving it, re'uiring the person to

whom it is addressed to pay on demand or at a +xed or determinable future

time a sum certain in money to order or to bearer. [ection 1-, Negotiable

nstruments /aw$

Types of bills of exchange

1. 2raft

. &rade Acceptance

*. (anker:s Acceptance

!. #heck

&raft

• &his is the common term of a bill of exchange and used synonymously.

• A bank draft is a bill of exchange drawn by a bank, issued at the solicitation

of a stranger who purchases and pays therefor.

Trade acceptance




''


• A draft or bill of exchange drawn by the seller on the buyer of goods sold and

accepted by such purchaser of goods. t is payable to order and with certain

maturity.

Banker7s acceptance

• A draft or bill of exchange of which the acceptor is a bank or banker engaged

generally in the business of granting banker:s acceptance credit. #hieFy

used for international trade +nancing.

Bill not an assignment of funds in hands of dra!ee

• 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. [ection 15, Negotiable

nstruments /aw$

Bill addressed to more than one dra!ee

• A bill may be addressed to two or more drawees Bointly, whether they are

partners or not? but not to two or more drawees in the alternative or in

succession. [ection 10, Negotiable nstruments /aw$

Inland and foreign bills of exchange

• An inland bill of exchange is a bill which is, or on its face purports to be, both

drawn and payable within the )hilippines. Any other bill is a foreign bill.

7nless the contrary appears on the face of the bill, the holder may treat it as

an inland bill. [ection 1", Negotiable nstruments /aw$

#hen bill may be treated as promissory note

1. <here in a bill the drawer and drawee are the same person

. <here the drawee is a +ctitious person

*. <here the drawee is a person not having capacity to contract, i.e., minor[ection 1*>, Negotiable nstruments /aw$

,eferee in case of need

• &he drawer of a bill and any indorser may insert thereon the name of a

person to whom the holder may resort in case of need? that is to say, in case




'+


the bill is dishonored by non4acceptance or non4payment. uch person is

called a referee in case of need. t is in the option of the holder to resort to

the referee in case of need or not as he may see +t. [ection 1*1, Negotiable

nstruments /aw$

A66e*tan6e

)cceptance% ho! made by and so forth

• &he acceptance of a bill is the signi+cation by the drawee of his assent to the

order of the drawer.

•

&he acceptance must be in writing and signed by the drawee. t must notexpress that the drawee will perform his promise by any other means than

the payment of money. [ection 1*, Negotiable nstruments /aw$

8anner of acceptance

• &he acceptance must be communicated or delivered to the holder.

• &he holder of a bill presenting the same for acceptance may re'uire that the

acceptance be written on the bill, and, if such re'uest is refused, may treat

the bill as dishonored. [ection 1**, Negotiable nstruments /aw$

• <here 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. [ection 1*!, Negotiable

nstruments /aw$

Promise to accept% !hen e3uivalent to acceptance

• An unconditional promise in writing to accept a bill before it is drawn is

deemed an actual acceptance in favor of every person who, upon the faith

thereof, receives the bill for value. [ection 1*, Negotiable nstruments /aw$

Time allo!ed dra!ee to accept

• &he drawee is allowed twenty4four 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. [ection 1*-, Negotiable nstruments /aw$




'


+iability of dra!ee retraining or destroying bill

• <here a drawee to whom a bill is delivered for acceptance destroys the

same, or refuses within twenty4four hours after such delivery or within such

other period as the holder may allow, to return the bill accepted or non4

accepted to the holder, he will be deemed to have accepted the same.

[ection 1*5, Negotiable nstruments /aw$

)cceptance of incomplete bill

• A bill may be accepted before it has been signed by the drawer, or while

otherwise incomplete, or when it is overdue, or after it has been dishonored

by a previous refusal to accept, or by non payment. (ut when a bill payable

after sight is dishonored by non4acceptance and the drawee subse'uently

accepts it, the holder, in the absence of any dierent agreement, is entitled

to have the bill accepted as of the date of the +rst presentment. [ection 1*0,


Kinds of acceptance

• An acceptance is either general or 'uali+ed.

• A general acceptance assents without 'uali+cation to the order of the drawer.

• A 'uali+ed acceptance in express terms varies the eect of the bill as drawn.

[ection 1*", Negotiable nstruments /aw$

#hat constitutes a general acceptance

• An acceptance to pay at a particular place is a general acceptance unless it

expressly states that the bill is to be paid there only and not elsewhere.

[ection 1!>, Negotiable nstruments /aw$

1uali2ed acceptance

•

An acceptance is 'uali+ed which is%

1. #onditional? that is to say, which makes payment by the acceptor

dependent on the ful+llment of a condition therein stated?

. )artial? that is to say, an acceptance to pay part only of the amount for

which the bill is drawn?




'-


*. /ocal? that is to say, an acceptance to pay only at a particular place?

!. Luali+ed as to time?

. &he acceptance of some, one or more of the drawees but not of all.

[ection 1!1, Negotiable nstruments /aw$

,ights of parties as to 3uali2ed acceptance

• &he holder may refuse to take a 'uali+ed acceptance and if he does not

obtain an un'uali+ed acceptance, he may treat the bill as dishonored by non4

acceptance.

• <here a 'uali+ed acceptance is taken, the drawer and indorsers are

discharged from liability on the bill unless they have expressly or impliedly

authoriCed the holder to take a 'uali+ed acceptance, or subse'uently assent

thereto.

• <hen the drawer or an indorser receives notice of a 'uali+ed acceptance, he

must, within a reasonable time, express his dissent to the holder or he will be

deemed to have assented thereto. [ection 1!, Negotiable nstruments /aw$

4resentment 3or A66e*tan6e

#hen presentment for acceptance must be made

• )resentment for acceptance must be made%

1. <here the bill is payable after sight, or in any other case, where

presentment for acceptance is necessary in order to +x the maturity of

the instrument? or

. <here the bill expressly stipulates that it shall be presented for

acceptance? or

*. <here the bill is drawn payable elsewhere than at the residence or

place of business of the drawee.




'.


• n no other case is presentment for acceptance necessary in order to render

any party to the bill liable. [ection 1!*, Negotiable nstruments /aw$

#hen failure to present releases dra!er and indorser

• Except as herein otherwise provided, the holder of a bill which is re'uired by

the next preceding section to be presented for acceptance must either

present it for acceptance or negotiate it within a reasonable time. f he fails to

do so, the drawer and all indorsers are discharged. [ection 1!!, Negotiable

nstruments /aw$

Presentment% ho! made

• )resentment for acceptance must be made by or on behalf of the holder at a

reasonable hour, on a business day and before the bill is overdue, to the

drawee or some person authoriCed to accept or refuse acceptance on his

behalf? and

1. <here a bill is addressed to two or more drawees who are not partners,

presentment must be made to them all unless one has authority to

accept or refuse acceptance for all, in which case presentment may be

made to him only?

. <here the drawee is dead, presentment may be made to his personal

representative?

*. <here the drawee has been adBudged a bankrupt or an insolvent or

has made an assignment for the bene+t of creditors, presentment may

be made to him or to his trustee or assignee. [ection 1!, Negotiable

nstruments /aw$

$n !hat days presentment may be made

• A bill may be presented for acceptance on any day on which negotiable

instruments may be presented for payment under the provisions of ections

5 and 0 of this Act. <hen aturday is not otherwise a holiday, presentment

for acceptance may be made before twelve o:clock noon on that day. [ection1!-, Negotiable nstruments /aw$

Presentment !here time is insu"cient

• <here the holder of a bill drawn payable elsewhere than at the place of

business or the residence of the drawee has no time, with the exercise of




'/


reasonable diligence, to present the bill for acceptance before presenting it

for payment on the day that it falls due, the delay caused by presenting the

bill for acceptance before presenting it for payment is excused and does not

discharge the drawers and indorsers. [ection 1!5, Negotiable nstruments

/aw$

#here presentment is excused

• )resentment for acceptance is excused and a bill may be treated as

dishonored by non4acceptance in either of the following cases%

1. <here the drawee is dead, or has absconded, or is a +ctitious person

or a person not having capacity to contract by bill.

. <here, after the exercise of reasonable diligence, presentment can not

be made.

*. <here, although presentment has been irregular, acceptance has been

refused on some other ground. [ection 1!0, Negotiable nstruments

/aw$

#hen dishonored by non6acceptance

• A bill is dishonored by non4acceptance%

1. <hen it is duly presented for acceptance and such an acceptance as is

prescribed by this Act is refused or can not be obtained? or

. <hen presentment for acceptance is excused and the bill is not

accepted. [ection 1!", Negotiable nstruments /aw$

&uty of holder !here bill not accepted

• <here 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

non4acceptance or he loses the right of recourse against the drawer and

indorsers. [ection 1>, Negotiable nstruments /aw$

,ights of holder !here bill not accepted

• <hen a bill is dishonored by non4acceptance, an immediate right of recourse

against the drawer and indorsers accrues to the holder and no presentment

for payment is necessary. [ection 11, Negotiable nstruments /aw$




+%


4rotest

Protest

• t is a formal statement in writing made by a notary under his seal of o=ce,

at the re'uest of the holder of a bill, in which it is declared that the same was

on a certain day presented for payment 8or acceptance, as the case may be9,

and such payment 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.

#hen protest re3uired

1. <here a foreign bill appearing on its face to be such is dishonored by non4

acceptance, it must be duly protested for non4acceptance.

. <here a foreign bill which has not previously been dishonored for non4

acceptance is dishonored by non4payment, it must be duly protested for non4

payment. f it is not so protested, the drawer and indorsers are discharged.


#hen protest not necessary

• <here a bill does not appear on its face to be a foreign bill, protest thereof in

case of dishonor is unnecessary. [ection 1, Negotiable nstruments /aw$

-xceptions !hen protest necessary even if bill is not a foreign bill

1. <here the bill has been accepted for honor, it must be protested for non4

payment before it is presented for payment to the acceptor for honor.

. <here the bill contains a referee in case of need, it must be protested for

non4payment before it is presented for payment to the referee in case of

need.

Protest% ho! made

• &he 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%




+0


1. &he time and place of presentment?

. &he fact that presentment was made and the manner thereof?

*. &he cause or reason for protesting the bill?

!. &he demand made and the answer given, if any, or the fact that the

drawee or acceptor could not be found. [ection 1*, Negotiable

nstruments /aw$

Protest by !hom made

• )rotest may be made by%

1. A notary public? or

. (y any respectable resident of the place where the bill is dishonored, in

the presence of two or more credible witnesses. [ection 1!,


Protest% !hen to be made

• <hen a bill is protested, such protest must be made on the day of its

dishonor unless delay is excused as herein provided.

• <hen a bill has been duly noted, the protest may be subse'uently extended

as of the date of the noting. [ection 1, Negotiable nstruments /aw$

• "Duly noted" is when the notary public Bots down a note on the bill, or paper

a=xed thereto, or in his registry book, consisting of his initials or signature

and those matters re'uired to be stated in ection 1*.

Protest% !here made

• A bill must be protested at the place where it is dishonored, except that when

a bill drawn payable at the place of business or residence of some personother than the drawee has been dishonored by non4acceptance, it must be

protested for non4payment at the place where it is expressed to be payable,

and no further presentment for payment to, or demand on, the drawee is

necessary. [ection 1-, Negotiable nstruments /aw$




+2


Protest both for non6acceptance and non6payment

• A bill which has been protested for non4acceptance may be subse'uently

protested for non4payment. [ection 15, Negotiable nstruments /aw$

Protest before maturity !here acceptor insolvent

• <here the acceptor has been adBudged a bankrupt or an insolvent or has

made an assignment for the bene+t of creditors before the bill matures, the

holder may cause the bill to be protested for better security against the

drawer and indorsers. [ection 10, Negotiable nstruments /aw$

#hen protest dispensed !ith

• )rotest is dispensed with by any circumstances which would dispense with

notice of dishonor. 2elay in noting or protesting is excused when delay is

caused by circumstances beyond the control of the holder and not imputable

to his default, misconduct, or negligence. <hen the cause of delay ceases to

operate, the bill must be noted or protested with reasonable diligence.

[ection 1", Negotiable nstruments /aw$

Protest !here bill is lost and so forth

• <hen a bill is lost or destroyed or is wrongly detained from the person

entitled to hold it, protest may be made on a copy or written particulars

thereof. [ection 1->, Negotiable nstruments /aw$

A66e*tan6e 3or !onor

#hen bill may be accepted for honor

• <hen a bill of exchange has been protested for dishonor by non4acceptance

or protested for better security and is not overdue, any person not being a

party already liable thereon may, with the consent of the holder, intervene

and accept the bill supra protest for the honor of any party liable thereon orfor the honor of the person for whose account the bill is drawn. &he

acceptance for honor may be for part only of the sum for which the bill is

drawn? and where there has been an acceptance for honor for one party,

there may be a further acceptance by a dierent person for the honor of

another party. [ection 1-1, Negotiable nstruments /aw$




+&


)cceptance for honor% ho! made

• An acceptance for honor supra protest must be in writing and indicate that it

is an acceptance for honor and must be signed by the acceptor for honor.

[ection 1-, Negotiable nstruments /aw$

#hen deemed to be an acceptance for honor of the dra!er

• <here an acceptance for honor does not expressly state for whose honor it is

made, it is deemed to be an acceptance for the honor of the drawer. [ection

1-*, Negotiable nstruments /aw$

+iability of the acceptor for honor

• &he acceptor for honor is liable to the holder and to all parties to the bill

subse'uent to the party for whose honor he has accepted. [ection 1-!,


)greement of acceptor for honor

• &he acceptor for honor, by such acceptance, engages that he will, on due

presentment, pay the bill according to the terms of his acceptance provided it

shall not have been paid by the drawee and provided also that it shall have

been duly presented for payment and protested for non4payment and notice

of dishonor given to him. [ection 1-, Negotiable nstruments /aw$

8aturity of bill payable after sight% accepted for honor

• <here a bill payable after sight is accepted for honor, its maturity is

calculated from the date of the noting for non4acceptance and not from the

date of the acceptance for honor. [ection 1--, Negotiable nstruments /aw$

Protest of bill accepted for honor and so forth

• <here a dishonored bill has been accepted for honor supra protest or

contains a referee in case of need, it must be protested for non4paymentbefore it is presented for payment to the acceptor for honor or referee in case

of need. [ection 1-5, Negotiable nstruments /aw$

Presentment for payment to acceptor for honor ho!

made




+'


• )resentment for payment to the acceptor for honor must be made as follows%

1. f it is to be presented in the place where the protest for non4payment

was made, it must be presented not later than the day following its

maturity.

. f it is to be presented in some other place than the place where it was

protested, then it must be forwarded within the time speci+ed in

ection 1>!. [ection 1-0, Negotiable nstruments /aw$

#hen delay in making presentment is excused

• &he provisions of ection 01 apply where there is delay in making

presentment to the acceptor for honor or referee in case of need. [ection

1-", Negotiable nstruments /aw$

&ishonor of bill by acceptor for honor

• <hen the bill is dishonored by the acceptor for honor, it must be protested for

non4payment by him. [ection 15>, Negotiable nstruments /aw$

4a5ment 3or !onor

#ho may make payment for honor

• <here a bill has been protested for non4payment, any person may intervene

and pay it supra protest for the honor of any person liable thereon or for the

honor of the person for whose account it was drawn. [ection 151, Negotiable

nstruments /aw$

Payment for honor% ho! made

• &he payment for honor supra protest, in order to operate as such and not as

a mere voluntary payment, must be attested by a notarial act of honor which

may be appended to the protest or form an extension to it. [ection 15,Negotiable nstruments /aw$

&eclaration before payment for honor




++


• &he notarial act of honor must be founded on a declaration made by the

payer for honor or by his agent in that behalf declaring his intention to pay

the bill for honor and for whose honor he pays. [ection 15*, Negotiable

nstruments /aw$

Preference of parties o*ering to pay for honor

• <here two or more persons oer to pay a bill for the honor of dierent

parties, the person whose payment will discharge most parties to the bill is to

be given the preference. [ection 15!, Negotiable nstruments /aw$

-*ect on subse3uent parties !here bill is paid for

honor

• <here a bill has been paid for honor, all parties subse'uent to the party for

whose honor it is paid are discharged but 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. [ection

15, Negotiable nstruments /aw$

#here holder refuses to receive payment supra protest

• <here the holder of a bill refuses to receive payment supra protest, he loses

his right of recourse against any party who would have been discharged by

such payment. [ection 15-, Negotiable nstruments /aw$

,ights of payer for honor

• &he payer for honor, on paying to the holder the amount of the bill and the

notarial expenses incidental to its dishonor, is entitled to receive both the bill

itself and the protest. [ection 155, Negotiable nstruments /aw$

Bills in Set

Bills in set constitute one bill

• <here a bill is drawn in a set, each part of the set being numbered and

containing a reference to the other parts, the whole of the parts constitutes

one bill. [ection 150, Negotiable nstruments /aw$




+


,ight of holders !here di*erent parts are negotiated

• <here two or more parts of a set are negotiated to dierent holders in due

course, the holder whose title +rst accrues is, as between such holders, the

true owner of the bill. (ut nothing in this section aects the right of a person

who, in due course, accepts or pays the parts +rst presented to him. [ection

15", Negotiable nstruments /aw$

+iability of holder !ho indorses t!o or more parts of a set to di*erent

persons

• <here the holder of a set indorses two or more parts to dierent persons he

is liable on every such part, and every indorser subse'uent to him is liable on

the part he has himself indorsed, as if such parts were separate bills. [ection

10>, Negotiable nstruments /aw$

)cceptance of bill dra!n in sets

• &he acceptance may be written on any part and it must be written on one

part only. f the drawee accepts more than one part and such accepted parts

negotiated to dierent holders in due course, he is liable on every such part

as if it were a separate bill. [ection 101, Negotiable nstruments /aw$

Payment by acceptor of bills dra!n in sets

• <hen the acceptor of a bill drawn in a set pays it without re'uiring 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. [ection 10, Negotiable nstruments /aw$

-*ect of discharging one of a set

• Except as herein otherwise provided, where any one part of a bill drawn in a

set is discharged by payment or otherwise, the whole bill is discharged.

[ection 10*, Negotiable nstruments /aw$

4romissor5 Notes an) e69s

Promissory note de2ned




+.


*. 3emorandum check

A check in which is written the word "memorandum," "memo" and

"mem" signifying that the drawer engages to pay the bona +de holder

absolutely, and not upon a condition to pay upon presentment of maturity

and if due notice of presentment and non4payment should be given.

t is a check given by a borrower to a lender for the amount of a short

loan, with the understanding that it is not to be presented at the bank, but

will be redeemed by the maker himself when the loan falls due and which

understanding is evidenced by writing the word "memorandum," "memo" or

"mem" on the check.

!. #erti+ed check

A certi+cation is an agreement whereby the bank against whom a

check is drawn undertakes to pay it on any future time when presented for

payment.

#erti+cation is e'uivalent to acceptance and operates as an

assignment of a part of the funds to the creditors.

. #rossed check

7nder accepted banking practice, crossing a check is done by writing

two parallel lines diagonally on the left top portion of the checks.

&he crossing is special where the name of the bank or a business

institution is written between the two parallel lines, which means that the

drawee should pay only with the intervention of that company.

-*ects of crossed checks

1. &he check may not be encashed but only deposited in the bank.

. &he check may be negotiated only onceto one who has an account with a

bank.

*. &he act of crossing the check serves as a warning to the holder that the

check has been issued for a de+nite purpose, so that he must in'uire if he

has received the check pursuant to that purpose? otherwise, he is not a

holder in due course.




0


• <here the day, or the last day for doing any act herein re'uired or permitted

to be done falls on a unday or on a holiday, the act may be done on the next

succeeding secular or business day. [ection 1"!, Negotiable nstruments

/aw$

)pplication of )ct

• &he provisions of this Act do not apply to negotiable instruments made and

delivered prior to the taking eect hereof. [ection 1", Negotiable

nstruments /aw$

Cases not provided for in )ct

• Any case not provided for in this Act shall be governed by the provisions of

existing legislation or in default thereof, by the rules of the law merchant.

[ection 1"-, Negotiable nstruments /aw$

Ena6te) %& (ebruar5 0/00

UP Negotiable Instruments

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Transcript of UP Negotiable Instruments