COMPARATIVE STUDY: NEGOTIABLE INTRUMENTS

LAW OF THE PHILIPPINES (R.A ACT NO. 2031) AND

NEW ZEALAND (BILLS OF EXCHANGE ACT OF 1908)

SUBMITTED BY:

MA. CARIZA L. ALMORADIE

LS 401

SUBMITTED TO:

ATTY. JANICE KRISTINE RAMOS

September 30, 2014

1
INTRODUCTION
Negotiable Instruments play a vital and definite role in facilitating the trading and
commerce in every country. It gives sanctity to the instruments of credit which could be deemed
to be convertible into money and easily passable from one person to another.1 In the absence of
such instruments, the trade and commerce activities were likely to be adversely affected as it was
not practicable for the trading community to carry on with bulk of currencies. 2 Such instruments
also represent money’s worth.

The advent of paperless and online transactions, so far, does not slay the use and essence
of negotiable instruments. Despite of the continuous and fast evolution of e-commerce system,
traders and businessmen still give regard to the benefits and uses of negotiable instruments.
Basically, negotiable instruments are being referred to as a written contract for the payment of
money which is intended as a substitute for money and passes from one person to another, in
such a manner, as to give the holder in due course the right to hold the instrument free from
defenses available to prior parties.3

Countries in every part of the globe may have different governing laws for negotiable
instruments. Notwithstanding the differences, one fact still remains the same – negotiable
instruments for every country has same functions such as: 1) substitute for money 2) serve as a
medium of exchange 3) serve as a credit transactions which increases credit circulation 4)
increase purchasing power in circulation and 5) operate as a proof of transactions. 4 In addition to
these, without negotiable instruments, more money either in a form of coins or bills will be
circulated to facilitate everyday business transactions, which may result to economic deficiency.
Not all times, man has to have handful of cash.

Negotiable instruments have two major features: 1) Negotiability and 2) Accumulation of

Secondary Contracts. Negotiability refers to the ability of the instrument to be transferred from
one person to another, who is free from personal defenses. Secondary contracts are otherwise
accumulated because the indorsers became secondarily liable not only to their immediate
transferees but also to any holder.5

The subjects of this comparative study are the laws governing negotiable instruments in
the Philippines and New Zealand. Philippines prevailing law for negotiable instruments is the
Republic Act No. 2031, which was enacted on February 3, 1911. It was patterned on the United
States Uniform Commercial Code.6 Meanwhile, a negotiable instrument in New Zealand is
governed by the Bills of Exchange Act of 1908. It is a codified law relating to negotiable
instruments. Other countries, which have commonwealth jurisdictions like United Kingdom,
Australia and Mauritius also codified their laws on negotiable instruments.7 New Zealand’s law
was derived from United Kingdom’s Bills of Exchange Act of 18828

1
Institute of Chartered Accountants In India, Negotiable Intsruments Act of 1881: Chapter 2, pg. 1;
2
Ibid
3
Austria and Aquino, Negotiable Instruments Law (2001)
4
Ibid
5
Ibid
6
Ibid
7
Negotiable Instruments Law(2011) Available at http://en.wikipedia.org/wiki/Negotiable_instrument (Last Visited
September 20, 2014)
8
United Nations Convention on International Bills of Exchange and International Promissory Notes Available at
http://www.nzlii.org/nz/other/nzlc/sp/SP5/SP5-5.html (Last Visited September 20, 2014)

2
TYPES OF NEGOTIABLE INSTRUMENTS
Promissory Note

Section 184 of RA 2031and 3(1) of BOEA provided the same definition of promissory
notes as “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 to bearer.” The parties to a promissory note are: 1) maker and 2) payee. The
maker is the one who promises to pay the stated amount in the instrument. On the other hand,
the payee is the one who is supposed to be paid by the maker. 9 Promissory Notes are rampant in
the school setting especially when the major exams schedule comes near. Students who were not
able to settle their accounts early have to secure promissory notes, in exchange of their
examination permits.

Bill of Exchange

Bill of Exchange was defined both by Sec. 26 of R.A 2031 and 3(1) of BOEA as “an
unconditional order in writing addressed by one person to another, signed by the person giving
it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable
future time a sum certain in money to order or to bearer. “ The parties to a bill of exchange are:
1) drawer 2) drawee and 3) payee. The drawer is the one who draws and signs the instrument.
The drawee upon acceptance is the one who is being ordered to pay. Usually, a drawee is a bank.
Meanwhile, payee refers to the person to whom payment is made. 10

PRESUMPTIONS AS TO NEGOTIABLE INSTRUMENTS

R.A 2031 and BOEA lay down several provisions with regard to what the court presumes
on negotiable instruments. Such need not to be proven until a contrary position appears. The
burden of proof lies on the one rebutting the presumptions.

The following are some of the prima facie presumptions made in all negotiable
instruments:

a) CONSIDERATION

The Philippine law explicitly provides that very 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 value11.” Value refers to any consideration sufficient
to support a simple contract. An antecedent or pre-existing debt constitutes value.12 The
presumption of consideration may be rebutted if it would be proven that such was obtained with
the use of fraud or undue influence. This presumption applies to both a promissory note and bill
of exchange.

In New Zealand, the presumption as to consideration is expressly provided only for bills
of exchange. Valuable consideration for a bill may be constituted by: (a) Any consideration
sufficient to support a simple contract; (b) An antecedent debt or liability. Such a debt or liability

9
Austria and Aquino, Negotiable Instruments Law, (2001)
10
Ibid
11
Rep. Act 2031, Ch.II, Sec. 24 (1911)
12
Rep. Act 2031, Ch.II, Sec. 24 (1911)

3
 13
is deemed valuable consideration whether the bill is payable on demand or at a future time.
However, the same rules apply for promissory notes, in accordance to Sec. 9014 of the said act.

b) DATE

Under the Philippine law, where 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.15

The law of New Zealand no longer provides the same, but same assumptions apply
perhaps.

NEGOTIABILITY
As to the requirements for negotiability, both countries (Philippines and New Zealand)
exhibited a slight difference.

The Philippine Law enumerates the following requisites for negotiability: a) must be in
writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order
to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable
future time; (d) Must be payable to order or to bearer; and (e) Where the instrument is addressed
to a drawee, he must be named or otherwise indicated therein with reasonable certainty.16 The
lacking of any of the mentioned requirements would render the instrument non-negotiable.

Meanwhile, in New Zealand, negotiability is determined based on the following

requirements:17

(1) Where a bill contains words prohibiting transfer, or indicating an intention that it is
not transferable, it is valid as between the parties to it, but is not negotiable.

(2) A negotiable bill may be payable either to order or to bearer.

(3) A bill is payable to bearer if it is expressed to be so payable, or if the only or the last
indorsement thereon is an indorsement in blank.

(4) A bill is payable to order if it is expressed to be so payable, or if it is expressed to be

payable to a particular person, and does not contain words prohibiting transfer or indicating an
intention that it is not transferable.

13
Bill of Exchange Act, Part I 27(1) (1908)
14
Application of Part 1 to notes
(1) Subject to this Part the provisions of this Act relating to bills of exchange apply, with the necessary
modifications, to promissory notes.
(2) In applying those provisions the maker of a note shall be deemed to correspond with the acceptor of a
bill, and the first indorser of a note shall be deemed to correspond with the drawer of an accepted bill payable to
drawer’s order.
(3) The following provisions as to bills do not apply to notes –
(a) Presentment for acceptance;
(b) Acceptance;
(c) Acceptance supra protest;
(d) Bills in a set.
(4) Where a foreign note is dishonoured, protest of it is unnecessary.
15
Rep. Act 2031, Ch.I Sec. 11 (1911)
16
Rep. Act 2031, Ch. I, Sec. 1 (1911)
17
Bill of Exchange Act, Part I 8 (1908)

4
 (5) Where a bill, either originally or by indorsement, is expressed to be payable to the
order of a specified person, and not to him or his order, it is nevertheless payable to him or his
order at his option.

Such provisions also apply to promissory notes, pursuant to 90 (1)18 of the Bill of
Exchange Act. Unlike in New Zealand, the Philippine law does not mention about the
prohibition of transfer as a requirement for negotiability. Such prohibition, in New Zealand,
renders the instrument non-negotiable and it will only valid between two parties.

HOLDERS IN COURSE
R. A 2031 under Sec. 5219 and Bill of Exchange Act 1908, under 29 (1) 20provide the
same requisites to become a Holder in Due Course. The wordings used are different but it
reflects the same thoughts. Both impart that a holder in due course shall: 1) have taken the
instrument complete and regular, upon its face; 2) be a holder before overdue 3) not receive any
actual notice of prior dishonor; 4) not be aware of any notice of infirmities and defects in the
title; 5) be in good faith;and 6) be a Holder for Value.

LIABILITIES OF PARTIES
A. Persons Primarily Liable
1. Maker - Under the Republic Act No. 2031, Sec. 6021, the maker is liable upon making
and signing the instrument. The nature of his liability is absolute. He further engages to
pay the instrument according to its tenor. In addition, the maker warrants the existence of
the payee, and capacity of the payee to indorse.

Meanwhile, the maker, under (89)22 of the Bill of Exchange Act is also liable
upon making the instrument. Like the maker in the Philippines, he engages that he will

18
(1) Subject to this Part the provisions of this Act relating to bills of exchange apply, with the necessary
modifications, to promissory notes.
19
Sec. 52. What constitutes a holder in due course. - A holder in due course is a holder who has taken the
instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it has been previously
dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect
in the title of the person negotiating it.
20
(29) Holder in due course
(1) A holder in due course is a holder who has taken a bill, complete and regular on the face of it, under the
following conditions, namely:
(a) That he became the holder of it before it was overdue, and without notice that it had been
previously dishonoured, if such was the fact;
(b) That he took the bill in good faith and for value, and that at the time the bill was negotiated to
him he had no notice of any defect in the title of the person who negotiated it.
21
Sec. 60. Liability of maker. - The maker of a negotiable instrument, by making it, engages that he will pay it
according to its tenor, and admits the existence of the payee and his then capacity to indorse.
22
89 Liability of maker
The maker of a promissory note, by making it –
(a) Engages that he will pay it under is tenor;
(b) Is precluded from denying to a holder in due course the existence of the payee and his then capacity to
indorse.

5
 pay under its tenor. The maker’s warranties in New Zealand are the same that of
Philippine laws.

2. Acceptor – In the Philippine setting, the acceptor is liable upon making the instrument.
His nature of liability depends upon his acceptance. His engagement is to pay according
to the tenor of the acceptance. Compared to the maker, an acceptor which is usually bank
has more warranties. The warranties are: 1) Existence of the drawer; 2) Genuineness of
the drawer’s signature ; 3) Capacity of the drawer to draw the bill; 4) Existence of the
payee, and 5) Capacity of the payee to indorse.23

In the meantime, the liabilities, engagement and warranties of the acceptor, in

New Zealand are the same with the Philippine laws. Such are stated under the Bill of
Exchange Act (54).24

B. Persons Secondarily Liable

1. Drawer- In the Philippines, he becomes liable when the person primarily liable fails or
refuses to pay, and when the necessary proceeding for dishonor has been undertaken. The
drawer engages to pay or accept or both the instrument by the drawee; and if not, he will
pay the amount to the holder or subsequent holders. His warranties are exactly the same
as that of the maker: 1) existence of the payee and 2) capacity to the payee to indorse.25

The drawer, in New Zealand, by drawing it engages that on due presentation it

shall be accepted and paid under its tenor, and that if it is dishonored he will compensate
the holder or any indorser who is compelled to pay it, provided that the requisite
proceedings on dishonor are duly taken. He is precluded from denying to a holder in due
course the existence of the payee and his then capacity to indorse.26

2. Indorsers – Under, R.A 2031, indorsers possess the same liabilities as that of the drawer.
Only qualified indorsers are able to transfer title without secondary liability. The
engagement of indorsers varies according to what kind of indorsers are they. An irregular
indorser engages that he is not a party to the instrument, and that he affixes his signature
prior to delivery. 27On the other hand, a general indorser engages that he indorses without
qualifications, and is secondarily liable to Holders in Due Course or subsequent holders
who may be compelled to pay. On due presentment, a general indorser engages to accept,
pay or both according to the tenor of the instrument by the maker or drawee. If not paid,
the general indorser will pay the amount to the holder or subsequent holder.28

23
Rep. Act 2031, Ch. V, Sec.62 (1911)
24
54 Liability of acceptor
The acceptor of a bill, by accepting it –
(a) Engages that he will pay it under the tenor of his acceptance;
(b) Is precluded from denying to a holder in due course –
(i) the existence of the drawer, the genuineness of his signature, and his capacity and authority to
draw the bill;
(ii) in the case of a bill payable to drawer’s order, the then capacity of the drawer to indorse, but
not the genuineness or validity of his indorsement;
(iii) in the case of a bill payable to the order of a third person, the existence of the payee and his
then capacity to indorse, but not the genuineness or validity of his indorsement.
25
Rep. Act 2031, Ch. V, Sec.61 (1911)
26
Bill of Exchange Act, Part I ,55 (1908)
27
Rep. Act 2031, Ch. V, Sec.64 (1911)
28
Rep. Act 2031, Ch. V, Sec.66 (1911)

6
 A general indorser warrants that the instrument: 1) is genuine in all what it
purports to be; 2) has good title; 3) prior parties have capacity to enter contracts; and 4) is
valid and subsisting at the time of the indorsement.29 A qualified indorser possesses the
same warranties as that of a general indorser, except for the last. He further warrants that
he has no knowledge of any fact which would impair the validity of the instrument or
render it valueless.30

On the other hand, in New Zealand, an indorsers accountabilities and liabilities

are also being quantified depending on what kind of indorser is he. A general indorser,
under 55(2)31 has the same liabilities, engagement and warranties like that of a general
indorser in the Philippines. An irregular indorser, in New Zealand is called as a stranger.
He incurs all the liabilities of a holder in due course upon signing the instrument.32

PRESENTMENT FOR PAYMENT

Majority of the provisions contained in RA 2031 and Bill of Exchange, pertaining to
presentment for payment are the same. Both countries bestows that presentment must be made
by the holder or some person authorized to receive payment on his behalf or an agent. The proper
places for the presentment for payment are as follows: 1) place specified in the instrument
2)when there is no place specified in the instrument, but the address of the drawee or acceptor is
given, it must be presented to the said address; 3)when there is no place of payment specified,
and no address is given, it must be made in either of the drawee or acceptor’s place of business,
or known residence of the person to make payment and 4) to any place wherever the drawee or
acceptor can be found.

1. When the instrument is payable not on demand – presentment must be made on the day it
falls due

RA 2031, Sec. 71.

Presentment where instrument is not payable on demand and where payable on
demand. - Where the instrument is not payable on demand, presentment must be made
on the day it falls due. xxxxx”

Bill of Exchange Act, 45(2) (a)

“Where the bill is not payable on demand, presentment must be made on the day it falls
due;”

29
Ibid
30
Rep. Act 2031, Ch. V, Sec.65 (1911)
31
55 Liability of drawer or indorser
(1) xxxxxxxx
(2) The indorser of a bill, by indorsing it –
(a) Engages that on due presentment it shall be accepted and paid according to its tenor, and that if it is
dishonoured he will compensate the holder or a subsequent indorser who is compelled to pay it, provided that the
requisite proceedings on dishonour are duly taken;
(b) Is precluded from denying to a holder in due course the genuineness and regularity in all respects of the
drawer’s signature and all previous indorsements;
(c) Is precluded from denying to his immediate or a subsequent indorsee that he bill was at the time of his
indorsement a valid and subsisting bill, and that he had then a good title to it
32
Bill of Exchange Act, Part I ,56 (1908)

7
 2. When the instrument is payable on demand – As a general rule,, presentment must be
made within a reasonable time after its issue

RA 2031, Sec. 71.

Presentment where instrument is not payable on demand and where payable on
demand. -
“xxxxx Where 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 sufficient if made within a reasonable time after the last negotiation thereof.”

Bill of Exchange Act, 45(2) (b) (i)

“Where the bill is payable on demand, then, subject to this Act, presentment must be
made within a reasonable time after its issue in order to render the drawer liable, and
within a reasonable time after its indorsement in order to render the indorser liable.”

Both the Philippine and New Zealand laws mention instances wherein presentment for
payment is excuse. Unsurprisingly, the provisions for such of both countries are almost exactly
alike.

Philippines
”When delay in making presentment is excused. – Delay 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. When the cause of delay ceases to operate,
presentment must be made with reasonable diligence. ”33

New Zealand
”Excuses for delay or non-presentment for payment
(1) a) Delay 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.
(b) When the cause of delay ceases to operate, presentment must be made with
reasonable diligence. ”34

When it comes to when presentment is dispensed, still, both countries have identical
provisions governing it. Such is embody under Sec. 82 of RA 203135 and 46(2) of the Bill of
Exchange Act of 1908.36

33
Rep. Act 2031, Ch. V, Sec.81 (1911)
34
Bill of Exchange Act, Part I ,46 (1908)
35
When presentment for payment is excused. - Presentment for payment is excused:
(a) Where, after the exercise of reasonable diligence, presentment, as required by this Act, cannot be made;
(b) Where the drawee is a fictitious person;
(c) By waiver of presentment, express or implied.
36
Presentment for payment is dispensed with –
(a) Where, after the exercise of reasonable diligence, presentment as required by this Act cannot be
effected: The fact that the holder has reason to believe that the bill will, on presentment, be dishonoured, does not
dispense with the necessity for presentment;
(b) Where the drawee is a fictitious person;

8
 One of the differences in the Philippines and New Zealand, as regard to presentment, is
that, in the Bill of Exchange Act no provision pertaining to the sufficiency of presentment has
been expressly stated. The Republic Act 2031 expressly enumerates the instances that constitute
a sufficient presentment. Presentment for payment, to be sufficient must be made: 1) by the
holder or by some person authorized to receive payment; 2) at a reasonable hour on a business
day 3) at a proper place 4) to 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. 37. These instances
are impliedly stated only in the BoE.

CONCLUSION
The governing laws in the Philippines and New Zealand, for negotiable instruments are
75-80% the same. There are minimal differences because both were based and copied on the Bill
of Exchange Act of 1882. Such laid the foundation of the rules to negotiable instruments.

(c) As regards the drawer, where the drawee or acceptor is not bound, as between himself and the drawer,
to accept or pay the bill, and the drawer has no reason to believe that the bill would be paid if presented;
(d) As regards an indorser, where the bill was accepted or made for the accommodation of that indorser,
and he has no reason to believe that the bill would be paid if presented;
37
Rep. Act 2031, Ch. V, Sec.72 (1911)