Académique Documents
Professionnel Documents
Culture Documents
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 makers 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 its 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.
Draft 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.
Bankers Acceptance a draft or a bill of exchange of which the acceptor is a bank or banker engaged generally in the
business of granting bankers acceptance credit. It is similar to a trade acceptance, the fundamental difference being that the
bankers 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.
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.
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.
b.
NEGOTIABILITY
REQUISITES (SUDOC)
1.
in writing and signed by maker or drawer
no person liable on the instrument whose signature does not appear thereon
Exceptions:
*
A person signing in a trade or assumed name
*
Principal is liable if a duly authorized agent signs in his own behalf (Agent must be duly authorized; He adds words
indicating that he signs as an agent; He must disclosed his principal)
(Signature by procuration-operates as notice that the agent has limited authority to sign and principal is bound if
agent acted beyond the limits of his authority)
*
In case of forgery, the forger is liable even if his signature does not appear on the instrument
*
Where the acceptor makes his acceptance of a bill on a separate paper
*
Where a person makes a written promise to accept a bill before it is drawn
one who signs in a trade or assumed name liable to the same extent as if he had signed in his own name
signature of any party may be made by a duly authorized agent, no particular form of appt. necessary
2.
payable on demand,
when expressed to be payable on demand, or at sight, or on presentation;
when no time for payment expressed, or
where an instrument is issued, accepted or indorsed when overdue, it is, as regards the person so issuing, accepting, or
indorsing it, payable on demand
on or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of happening be
uncertain
an instrument payable upon a contingency not negotiable, and happening of event doesnt cure it
4.
payable to order
where it is drawn payable to the order of a specified person or to him or his order. May be drawn payable to order of --a.
a payee not the maker/drawer/drawee, or
b.
drawer or maker, or
c.
drawee, or
d.
two or more payees jointly, or
e.
holder of an office for time being
when the instrument is payable to order the payee must be named or otherwise indicated therein with reasonable certainty
or bearer
when payable to order or fictitious/non-existent person, and such fact known to the person making it so payable, or
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
restrictively indorsed
discharged by payment or otherwise
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
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
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 of a HDC, presumption conclusive)
NEGOTIATION
When an instrument is transferred from one person to another as to constitute the transferee the holder thereof.
If payable to BEARER, negotiated by delivery; if payable to ORDER, negotiated by indorsement of holder + delivery
INDORSEMENT
It is the writing of the name of the indorser on the instrument with the intent either to transfer the title to the same, or to
strengthen the security of the holder by assuming a contingent liability for its future payment.
The indorsement must be written on the instrument itself or upon a paper attached thereto. The signature of the indorser is
sufficient. (Sec. 31)
Indorsement must be of entire instrument. (cant be indorsement of only part of amount payable, nor can it be to two or more
indorsees severally. But may be indorsed as to the residue of partially paid instrument) [Sec. 32]
KINDS OF INDORSEMENT
A.
As to manner of future method of negotiation
1.
Special specifies the person to whom/to whose order the instrument is to be payable; indorsement of such
indorsee is necessary to further negotiation.
2.
Blank specifies no indorsee, instrument so indorsed is payable to bearer, and may be negotiated by delivery
B.
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 (Sec. 35)
As to kind of title transferred
1.
restrictive
prohibits further negotiation of instrument,
constitutes indorsee as agent of indorser, or
vests title in indorsee in trust for another
rights of indorsee in restrictive indorsement:
transfer his rights as such indorsee, but all subsequent indorsees acquire only title of first indorsee under restrictive
indorsement
2.
non-restrictive
C.
D.
As to presence/absence of express limitations put by indorser upon primary obligors privileges of paying the holder
1.
conditional additional condition annexed to indorsers liability.
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 fulfilled or not
Any person to whom an instrument so indorsed is negotiated will hold the same/proceeds subject to rights of person
indorsing conditionally
2.
unconditional
Where an instrument payable to bearer is indorsed specially, it may nevertheless be further negotiated by delivery
Person indorsing especially liable as indorser to only such holders as make title through his indorsement
INDORSEMENT WHERE INSTRUMENT PAYABLE TO TWO OR MORE PERSONS WHO ARE NOT PARTNERS (Sec.41)
All must indorse unless the one indorsing has authority to indorse for others
INSTRUMENT DRAWN OR INDORSED TO A PERSON AS CASHIER (Sec.42)
Presumed to be payable to the bank or corporation
INDORSEMENT WHERE NAME MISSPELLED (Sec. 43)
May continue indorsing through the misspelled name, or he may add his proper signature
Presumption as to time of Indorsement before instrument is overdue, except where indorsement bears date which is after maturity.
Presumption as to place of Indorsement at the place where instrument dated
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: holder is not HDC)
sec. 12
(effect antedating/postdating)
3.
4.
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
KINDS OF DEFENSES
1.
real defense attaches to instrument; on the principle that the right sought to be enforced never existed/there was no
contract at all. Available to all parties both immediate and remote including HDC.
2.
personal defense growing out of agreement; renders it inequitable to be enforced against defendant. Available to prior
parties among themselves but w/c are not good against a HDC.
DEFENSES
1.
2.
FORGERY: REAL: Definition: the counterfeit-making or fraudulent alteration of any writing, and may consist in the signing of
anothers name or the alteration of an instrument in the name, amount, description of the person and the like, with intent
thereby to defraud.
MATERIAL ALTERATION:
Where NI materially altered w/o assent of all parties liable thereon, avoided, except as against
1.
party who has himself made, authorized or assented to alteration
2.
and subsequent indorsers
But when an instrument has been materially altered and is in the hands of a HDC not a party to the alteration, HDC may
enforce payment thereof according to orig. tenor
material alteration a personal defense when used to deny liability according to org. tenor of instrument, but real defense when
relied on to deny liability according to altered terms.
4.
a.
b.
FRAUD
fraud in execution: real defense (didnt know it was a Negotiable Instrument)
fraud in inducement: personal defense (knows its Negotiable Instrument but deceived as to value/terms)
5.
6.
7.
INCOMPLETE, DELIVERED
Personal defense (sec. 14)
2 Kinds of Writings:
1.
Where instrument is wanting in any material particular: person in possession has prima facie authority to complete
it by filing up blanks therein
2.
Signature on blank paper delivered by person making the signature in order that the paper may be converted into a
NI: prima facie authority to fill up as such for any amount
In order that any such instrument, when completed, may be enforced against any person who became a party thereto prior to
its completion:
1.
must be filled up strictly in accordance w/ authority given
2.
within a reasonable time
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
Real Defenses
1.
Material Alteration
2.
Want of delivery of incomplete instrument
3.
Duress amounting to forgery
4.
Fraud in factum or Fraud in esse contractus
5.
Minority (available to the minor only)
6.
Marriage in the case of a wife
7.
Insanity where the insane person has a guardian
appointed by the court
8.
Ultra Vires acts of corporation
9.
Want of authority of agent
10.
Execution of instrument b/w public enemies
11.
Illegalityif declared void for any purpose
12.
Forgery
Personal Defenses
1.
Absence or failure of consideration whether partial
or total
2.
Want of delivery of complete instrument
3.
Insertion of wrong date in an instrument
4.
Filling up of blank contrary to authority given or not
w/in reasonable time
5.
Fraud in inducement
6.
Acquisition of instrument by force, duress or fear
7.
Acquisition of instrument by unlawful means
8.
Acquisition of the instrument for an illegal
consideration
9.
Negotiation in breach of faith
10.
Negotiation under circumstances that amount to
fraud
11.
Mistake
12.
Intoxication
13.
Ultra Vires Acts of corporations where the
corporation has the power to issue negotiable paper
but the issuance was not authorized for the
particular purpose for which it was issued
LIABILITIES OF PARTIES
A.
PRIMARY PARTIES
Person primarily liable: person who by the terms of the instrument is absolutely required to pay the same.
1.
Liability of Maker
a.
Promises to pay it according to its tenor
b.
admits existence of payee and his then capacity to indorse
2.
sec. 189 (when check does not operate as assignment until bank certifies or accepts it)
3.
Liability of Acceptor
B.
SECONDARY PARTIES
1.
Liability of Drawer
a.
Admits existence of payee and his then capacity to endorse
b.
Engages that on due presentment instrument will be accepted, or paid, or both, according to its tenor and that
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
drawer may insert in the instrument an express stipulation negating / limiting his own liability to holder
2.
Liability of Indorsers:
In case of negotiation by delivery only, warranty only extends in favor of immediate transferee
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
Accommodation Party liable on the instrument to holder for value even if holder, at time of taking instrument, knew he was
only an Accommodation Party
Some Terms:
Accommodation Bill or Noteone to which the accommodation party has put his name, w/o consideration, for the purpose of
accommodating some other party who is to use it and is expected to pay it.
Accommodated Partyis 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 money upon it.
Liability of Irregular Indorser
Where a person not otherwise a party to an instrument, places thereon his signature in blank before delivery, hes liable as an
indorser, in accordance w/ these rules:
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 subsequent to
maker/drawer
3.
Signs for accommodation of payee, liable to all parties subsequent to payee
Liability of an Agent
Signature of any party may be made by duly authorized agent, establish as in ordinary agency
Where instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal, he is
not liable on the instrument if he was duly authorized, but the mere addition of words describing him as an agent without
disclosing his principal, does not exempt from personal liability.
Signature per 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
Where a broker or agent negotiates an instrument without indorsement, he incurs all liabilities in Sec. 65, unless he discloses
name of principal and fact that hes only acting as agent
PRESENTMENT
A.
In Promissory Notes
Purpose:
Not necessary to make the maker liable, but is necessary to make the secondary parties liable.
Requisites:
For a valid presentment for payment of a promissory note, the following are necessary:
a.
made within a reasonable time after issue;
b.
by the holder or his agent;
c.
to the party liable under it;
d.
at a reasonable hour on a business day; and
e.
at the proper place.
***The holder must exhibit the instrument to the debtor and should deliver it to said debtor if the latter pays.
When NOT required/excused
Presentment is NOT required:
1.
when after due diligence presentment cannot be made;
2.
when presentment is waived, and
3.
when the indorser is an accommodated party.
B.
In Bills of Exchange
Acceptance is the signification by the drawee of his assent to the order of the drawer.
How made:
The acceptance may be on the bill, on a separate paper (allonge), and may even be in writing before the bill is drawn.
The drawee, if he wants to dishonor, must do so expressly within twenty-four (24) hours from presentment to him. If he
refuses to act, tears the bill, or refuses to return the bill within said period of twenty-four hours, he is deemed to have accepted
the bill implied acceptance.
A sight draft (usually accompanying a letter of credit in importations) is payable on demand and needs no acceptance by the
drawee.
CLASSES OF ACCEPTANCE
1.
2.
It is usually done by writing across the face of the bill the word ACCEPTED or words of similar import, e.g. HONORED, I
WILL PAY THE BILL, SEEN followed by the signature of the drawee.
The drawee must sign because without his signature he would not be bound See Section 18, NIL.
N.B. Acceptance is NOT required for CHECKS for the same are payable on demand.
EFFECT OF ACCEPTANCE:
Upon acceptance, the drawee becomes liable on the bill. The bill becomes in effect a note, the acceptor standing in the place of the maker,
and the drawer, in the place of the first indorser.
But should the drawee refuse to accept, the payee or the holder has no recourse against him but only against the drawer and indorsers, if
any.
Is payment equivalent to acceptance? NO, - the payment of a check does not include or imply its acceptance in the sense that this word is
used in Section 62, NIL.
WHERE BILL MAY BE WRITTEN:
If the bill is non-existent, the acceptance on a separate paper must comply 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 promise is written; and
iii.
That the holder shall take the bill upon the credit of the promise.
Section 136
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.
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.
by him.
In all the foregoing, the drawee will be deemed to have accepted the bill even if there is NO ACTUAL WRITTEN ACCEPTANCE
The holder of the bill has the right to require GENERAL ACCEPTANCE thus he may REFUSE to take qualified acceptance and
if he DOES NOT obtain an unqualified acceptance he may treat the bill as dishonored.
Effect of taking qualified acceptance: Where a qualified acceptance is taken THE DRAWER and INDORSERS are discharged
from liability on the bill unless they have expressly or impliedly authorized the holder to take qualified acceptance or
subsequently assents thereto.
When the drawer or indorser receives notice of qualified acceptance he must within a REASONABLE TIME express his
dissent to the holder or he will be deemed to have assented thereto.
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 nonacceptance.
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 agent Sec. 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
a.
b.
a.
b.
c.
TO WHOM GIVEN
Nonacceptance (bill) to persons secondarily liable, namely, the drawer and indorsers as the case may be
Nonpayment (bill and note) indorsers
BY WHOM GIVEN
The holder
Another, on behalf of the holder
Any party to the instrument who may be compelled to pay it to the holder, and who would have a right of reimbursement from
the party to whom notice is given
3.
1.
2.
3.
4.
5.
1.
2.
(a)
(b)
(c)
1.
2.
3.
1.
2.
3.
Good faith refers to the maker or acceptor and not to the holder.
DISCHARGE OF NEGOTIABLE INSTRUMENT
A release of all the parties liable from obligations arising thereunder. It renders the instrument without force and
effect and, consequently, it can no longer be negotiated.
WHEN A NEGOTIABLE INSTRUMENT IS DISCHARGED
1.
2.
3.
4.
5.
Cancellation: it includes the act of tearing, erasing, obliterating or burning. It is not limited by writing the word cancelled or paid or
drawing criss-cross lines across the instrument. It may be made by any other means by w/c the intention to cancel the instrument may
be evident.
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 supported by a consideration
>
Holder may expressly renounce his rights against any party to the instrument before, at or after its maturity
>
If renunciation is absolute and unconditional in favor of the principal debtor, instrument is discharged
>
Notice is required to affect rights of HDC
>
Renunciation must be in writing unless instrument is delivered up to the person primarily liable thereon
PROTEST
It is a formal statement in writing made by a notary under his seal of office at the request of the holder of a bill or note, in which it is
declared that the same was on a certain day presented for payment (or acceptance as the case may be), and such payment (or
acceptance) 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 steps or acts accompanying the dishonor of a bill or note
necessary to charge an indorser
Necessity of Protest: Protest is required only for FOREIGN BILLS, but not for inland bills or notes. HOWEVER, they may also be protested
if desired. OMISSION OF PROTEST, where protest is required, will DISCHARGE the DRAWER and the INDORSERS.
Instances when protest is required:
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 non-acceptance;
3.
Where the bill has been accepted for honor, it must be protested for non-payment to the acceptor for honor; or
4.
Where the bill contains a referee in case of need, it must be protested for non-payment before it is presented for payment to
the referee in case of need.
Protest, how made:
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:
1.
The time and place of presentment;
2.
The fact that presentment was made and the manner thereof;
3.
The cause or reason for protesting the bill;
4.
The demand made and the manner given, it any, or the fact that the drawee or acceptor could not be found.
Reason for requiring protest:
1.
for uniformity in international transactions because most countries require it and
2.
in order to furnish authentic and satisfactory evidence of the dishonor to the drawer who, from his residence abroad, may
experience difficulty in verifying the matter and may be forced to rely on the representation of the holder.
Protest may be made by
a.
A notary public or
b.
By any respectable resident of the place where the bill is dishonored, in the presence of two or more credible witnesses.
Protest, when made:
*
Protest MUST be made on the day of its dishonor UNLESS delay is excused.
*
When a bill has been DULY NOTED the protest may be subsequently extended as of the date of the noting.
DULY NOTED means that a notary public jots down on a note on the bill or an paper attached thereto, or in his registry book,
consisting of his initials or signature and those matters required to be stated in Section 153.
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 nonpayment;
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:
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.
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, this 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:
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.
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.
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.
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 makers own order, it is NOT complete until indorsed by him.
Special types of promissory notes:
1.
2.
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.
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.
2.
3.
4.
5.
6.
7.
8.
9.
Mortgage bonds
Equipment Bonds
Collateral trust bonds
Guaranteed bonds
Debentures
Income bonds
Convertible bonds
Redeemable Bonds
Registered Bonds
10.
Coupon Bonds those which are attached a sheet of dated, numbered and similarly printed coupons which the bondholder
may cut off when due or thereafter. Such coupons may be served and deposited in a bank, negotiated before the maturity of
the interest they represent, and transferred just like any commercial paper. They are negotiable if it the requisites in Section 1,
NIL are complied with.
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 from
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.
c.
In case of redemption
Kinds of Checks:
1.
2.
Ordinary Check
the most common check issued by a bank to a client who opens a checking account
Cashiers 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.
Managers 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 cashiers check as to effect and use.
4.
Gift Check-Similar to a cashiers or managers 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.
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.
Travelers Check
one issued by a bank to a holder, usually a traveler, who must put his signature upon purchase of the check and
countersign with the same signature on the 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 travelers 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 especially 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.
2.
3.
Under crossed check the payee has the duty to ascertain the holders title to checks.
Drawee should not encash a crossed check but merely the same for deposit.
Where other than payee of crossed checks presented it for payment, there is no proper presentment and drawer is not liable
thereon.
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
4. Amount in words
II.
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.
Form of Certification:
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:
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.