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Negotiable Instruments Law 1

•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 th e sum due

•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
•where a note is drawn to the maker’s own order, it is not complete until indorsed by him
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

•unconditional order in writing addressed by one person to another signed by the person giving it
•requiring the person to whom it’s addressed to pay on demand or at a fixed or determinable future time a sum
certain in money to order or to bearer
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


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
3. Banker’s Acceptance – a draft or a bill of exchange of which the acceptor is a bank or banker
engaged generally in the business of granting banker’s acceptance credit. It is similar to a trade
acceptance, the fundamental difference being that the banker’s acceptance is drawn against a bank
instead of the buyer.
4. Trust Receipt – the written or printed document signed by the entrustee in favor of the entruster
containing terms and conditions substantially complying with the provisions of PD 115 (Trust Receipt
Law, which took effect on January 21, 1973). No further formality of execution or authentication shall
be necessary to the validity of the trust receipt.

Note: It is the ENTRUSTEE NOT the ENTRUSTER is the real owner of the trust receipt.

The liability of the entrustee to the entruster is EX CONTRACTU not ex delicto.

5. Treasury Warrants – a “treasury warrant” bearing on its face the words “payable from the
appropriation for food administration” is actually an order for payment out of a particular fund
and is NOT UNCONDITIONAL, and does not fulfill the one of the essential requirements of a
negotiable instrument. (Abubakar v. Auditor General)
6. Money Order – a species of draft drawn by the post-office upon another for an amount of money
deposited at the first post office by the person purchasing the money order and payable at the
second office to a payee named in the order.

Note: Money order is NOT negotiable.

7. Clean and Documentary Bills of Exchange – “Clean bill of exchange” is one to which are not
attached to documents of title to be delivered to the person against whom the bill is drawn when he
either accepts or pays the bill.

“Documentary Bill of Exchange” is one to which are attached documents of title to be delivered
and surrendered to the drawee when he accepts or pays the bill.
8. D/A and D/P Bills of Exchange -
“Documents Against Payment Bill” – “D/P Bill” is a sight or time bill to which are attached documents
to be delivered and surrendered to the drawee when he has paid the corresponding bill.
“Documents Against Acceptance Bill” – “D/A Bill” is a time bill to which are attached documents to
be delivered and surrendered to the drawee when he accepts the bill.
9. “Sight bills” are bills which are payable upon presentation or at sight or on demand.
10. “Time or usance bills” – are bills which are payable at a fixed future time or at a determinable
future time.

 Inland Bill of Exchange – is a bill which is or on its face purports to be BOTH drawn and payable within the
Philippine Islands.

 Foreign Bill of Exchange- is a bill which is, or on its face purports to be, drawn or payable outside the
Philippine Islands.

a. to be drawn in the Philippines but payable outside thereof; or

Negotiable Instruments Law 2

b. to be payable in the Philippines but drawn outside thereof.

Importance of the distinction:

The distinction is important in:

1. That foreign bills are required to be protested. Failure to protest foreign bills will discharge persons
secondarily liable thereon.
2. The distinction is also important for the determination of the law applicable.

When bill may be treated as promissory note.

1. Where the drawer and the drawee are the person such as, in a draft drawn by an agent on his principal
by authority of the principal.
2. Where the drawee is a fictitious person.
3. Where the drawee has no capacity to contract.

Referee in case of need – is the person whose name was inserted by the drawer of the bill and any indorser to
whom the holder may resort in case of need – that is in case the bill is dishonored by non-acceptance or by non-

Note: It is the option of the holder to resort to the referee in case of need or not as he may see fit.

Person in possession of a bill/note payable to bearer

Payee or indorsee of a bill or note who is in possession of it, or the bearer thereof.


1. issue
2. negotiation
3. presentment for acceptance in certain bills
4. acceptance
5. dishonor by on acceptance
6. presentment for payment
7. dishonor by nonpayment
8. notice of dishonor
9. protest in certain cases
10. discharge


1. in writing and signed by maker or drawer
• no person liable on the instrument whose signature does not appear thereon
* 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
(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
* 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. unconditional promise or order to pay

• unqualified order or promise to pay is unconditional though coupled with
a. an indication of a particular fund out of which reimbursement to be made, or a particular account to
be debited with amount, or
b. a statement of the transaction which gives rise to the instrument
• an order or promise to pay out of a particular fund is not unconditional

a sum certain in money

• even if stipulated to be paid---
a. with interest, or
b. by stated installments, or
c. by stated installments with a provision that upon default in payment of any installment/interest, the
whole shall become due, or
d. with exchange, whether at a fixed rate or at the current rate, or
e. with costs of collection or an attorney’s fee, in case payment not made at maturity
Negotiable Instruments Law 3

3. 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

or at a fixed or determinable future time

• when it’s expressed to be payable at a fixed period after date or sight, or
• on or before a fixed or determinable future time fixed therein, or
• 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 doesn’t 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 expressed to be so payable
• when payable to person named therein or bearer
• when payable to order or fictitious/non-existent person, and such fact known to the person making it so
payable, or
• when name of payee doesn’t purport to be the name of any person, or
• when the only/last indorsement is in blank

5. where addressed to drawee: such drawee named/ indicated therein with reasonable certainty
• bill may be addressed to two or more drawees jointly, whether partners or not, but not to two or more
drawees in the alternative or in succession
• bill may be treated as a PN, at option of holder, where
a. drawer and drawee are same person
b. drawee is fictitious/incapacitated


1. restrictively indorsed
2. discharged by payment or otherwise


(Sec.5) Gen. Rule: order/promise to do any act in addition to the payment of money renders instrument non-
Exception: negotiability not affected by provisions w/c
1. authorize sale of collateral security if instrument not paid at maturity
2. authorize confession of judgment…
3. waives benefit of any law intended for advantage/protection of obligor
4. give holder election to require something to be done in lieu of money

Other Instances when negotiability not affected

(Sec. 6) a. Not dated
b. Does not specify the value given or that any value has been given therefore
c. Does not specify the place where it is drawn or the place where it is payable
d. Bears a seal
e. Designates a particular kind of current money in w/c payment is to be made

Sec. 17. Construction where instrument is ambiguous.

(a) Where the sum payable is expressed in words and also in figures and there is a discrepancy between the
two, the sum denoted by the words is the sum payable; but if the words are ambiguous or uncertain, reference
may be had to the figures to fix the amount;
(b) Where the instrument provides for the payment of interest, without specifying the date from which
interest is to run, the interest runs from the date of the instrument, and if the instrument is undated, from the
issue thereof;
(c) Where the instrument is not dated, it will be considered to be dated as of the time it was issued;
(d) Where there is a conflict between the written and printed provisions of the instrument, the written
provisions prevail;
(e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may
treat it as either at his election;
Negotiable Instruments Law 4

(f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person
making the same intended to sign, he is to be deemed an indorser;
(g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are
deemed to be jointly and severally liable thereon.


Presumption as to date: Said date is the date when it was made by the maker, drawn by the drawer,
accepted by the drawee or indorsed by the payee. (Sec. 11)

Effect of ante-dating or Post-dating: Instrument is not invalid, provided not done for an illegal or fraudulent
purpose. (Sec. 12)

* Ante-dating: Giving an instrument a date that is earlier than the date it was issued
* Post-dating: Giving an instrument a date that is later than the date it was issued

When date may be inserted?

a. Where an instrument is payable at a fixed period after date but is issued undated
b. Where an instrument is payable at a fixed period after sight but the acceptance is undated

DELIVERY (Sec. 16)

Issuance-the first delivery of the instrument complete in form to a person who takes it as a holder.
1. Mechanical Act of writing, complying with requirements of Sec. 1
2. Delivery with intention to give effect thereto.

• NI incomplete and revocable until delivery for the purpose of giving effect thereto. As between:
a. immediate parties
b. a remote party other than holder in due course
delivery, to be effectual, must be made by or under the authority of the party
• 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

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

• When an instrument is transferred from one person to another as to constitute the transferee the holder
• If payable to BEARER, negotiated by delivery; if payable to ORDER, negotiated by indorsement of holder +

 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
 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. (can’t 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]

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

• 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)

B. 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:

• receive payment of instrument
• Bring any action thereon that indorser could bring
Negotiable Instruments Law 5

• Transfer his rights as such indorsee, but all subsequent indorsees acquire only title of first indorsee under
restrictive indorsement

2. non-restrictive

C. As to kind of liability assumed by indorser

1. qualified- constitutes indorser as mere assignor of title (eg. “without recourse”)
2. unqualified

D. As to presence/absence of express limitations put by indorser upon primary obligor’s privileges

of paying the holder
1. conditional – additional condition annexed to indorser’s 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
• Person indorsing specially liable as indorser to only such holders as make title through his indorsement

 All must indorse unless the one indorsing has authority to indorse for others

 Presumed to be payable to the bank or corporation


 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

Striking Out Indorsements, Effect:

* The indorser whose indorsement is struck out and all indorsers subsequent to him relieved from liability.


1. transfer vests in transferee such title as transferor had therein
2. right of transferee to have indorsement of transferor for purposes of determining HDC negotiation effective
upon actual indorsement


Not entitled to enforce payment against any intervening party to whom he is personally liable


1. complete and regular upon its face
• sec. 124 (effect of material alteration—not defense against HDC)
Material Alteration: any change in the instrument which affects or changes the liability of the parties.
Spoliation- A material alteration made by a stranger
• sec. 125 what constitute material alterations:
a. Date
b. Sum Payable, either for principal or interest
c. Time or place of payment
d. Number or relations of the parties
e. Medium of currency or which adds a place of payment

2. holder became such before it was overdue, without notice of any previous dishonor
• sec. 53 (instrument payable on demand negotiated after unreasonable length of time: holder is not HDC)
• sec. 12 (effect antedating/postdating)

3. taken in good faith and for value

• sec. 24 (presumption of consideration)
• sec 25 (Value: is any consideration sufficient to support a simple contract)
• sec. 26 (Holder for value: one who has given a valuable consideration for the instrument issued or
negotiated to him )
Negotiable Instruments Law 6

• sec. 27 (When a holder has lien on the instrument, by contract or implication he is deemed a holder for
value to the extent of the lien)

4. at time negotiated to him, he had no notice of --

a.infirmity in instrument
b.defect in title of person negotiating:
What defect constitutes (Sec.55)
1. instrument/signature obtained through fraud, etc., illegal consideration/means, or
2. instrument negotiated in breach of faith, or fraudulent circumstances

Sec. 54-notice before full amt. paid: deemed HDC only to the extent of the amount paid by
Sec. 56-notice of defect: Actual knowledge necessary


1. sue thereon in his own name
2. payment to him in due course discharges instrument
3. holds the instrument free from any defect of title of prior parties and free from personal defenses available to
parties among themselves
4. may enforce payment of the instrument for the full amount thereof against all parties liable thereon


General Rule: in the hands of any holder other than a HDC, NI is subject to same defenses as if it were non-
negotiable. (Sec. 58)
Exception: holder who derives title through HDC and who is not himself a party to any fraud or illegality has all
rights of such former holder in respect to all parties prior to the latter.


• prima facie presumption in favor of holder
• but when shown that title of any person who has negotiated instrument was defective, presumption is
reversed, burden is now with holder to prove
• but no reversal if party being made liable became bound prior to acquisition of defective title

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.

1. INCAPACITY: REAL: indorsement/assignment by corporation/infant passes property but corp/infant no

2. FORGERY: Real:
Definition: the counterfeit-making or fraudulent alteration of any writing, and may consist in the signing of
another’s name or the alteration of an instrument in the name, amount, description of the person and the like,
with intent thereby to defraud.

Bad Forgery—forgery which is apparent or naked to the eye

Good Forgery—requires examination of signature if it was forged

Effect when Signature is forged or made without authority of person whose signature it purports to
General Rule:
a. wholly inoperative
b. no right to retain instrument, or give discharge, or enforce payment vs. any party, can be acquired through or
under such signature (unless forged signature unnecessary to holder’s title)
unless the party against whom it is sought to enforce such right is precluded from setting up forgery/want of

a. parties who make certain warranties, like a general indorser or acceptor
b. estopped/negligent parties

• 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
Negotiable Instruments Law 7

*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.

a. fraud in execution: real defense (didn’t know it was a Negotiable Instrument)
b. fraud in inducement: personal defense (knows it’s Negotiable Instrument but deceived as to value/terms)


• Personal defense (sec. 16)
• If instrument not in possession of party who signed, delivery prima facie presumed
• If holder is HDC, delivery conclusively presumed


• Real defense (sec. 15)
• Instrument will not, if completed and negotiated without authority, be a valid contract in the hands of any
holder, as against any person whose signature was placed thereon before delivery

• 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 Personal Defenses

1. Material Alteration 1. Absence or failure of consideration
2. Want of delivery of incomplete whether partial or total
instrument 2. Want of delivery of complete
3. Duress amounting to forgery instrument
4. Fraud in factum or Fraud in esse 3. Insertion of wrong date in an
contractus instrument
5. Minority (available to the minor only) 4. Filling up of blank contrary to authority
6. Marriage in the case of a wife given or not w/in reasonable time
7. Insanity where the insane person has a 5. Fraud in inducement
guardian appointed by the court 6. Acquisition of instrument by force,
8. Ultra Vires acts of corporation duress or fear
9. Want of authority of agent 7. Acquisition of instrument by unlawful
10. Execution of instrument b/w public means
enemies 8. Acquisition of the instrument for an
11. Illegality—if declared void for any illegal consideration
purpose 9. Negotiation in breach of faith
12. Forgery 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


• 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
Negotiable Instruments Law 8

2. Status of drawee prior to acceptance or payment

• sec. 127 (bill not an assignment of funds in hands of drawee)
• sec. 189 (when check does not operate as assignment until bank certifies or accepts it)

3. Liability of Acceptor
• Promises to pay instrument according to its tenor
• Admits the following:
a. existence of drawer
b. genuineness of his signature
c. his capacity and authority to draw the instrument
d. existence of payee and his then capacity to indorse

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
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 negativing / limiting his own liability to holder

2. Liability of Indorsers:

• Qualified Indorser and one Negotiating by Delivery (Sec 65)

a. Instrument genuine, in all respects what it purports to be
b. He has good title
c. all prior parties had capacity to contract
d. he had no knowledge of any fact w/c would impair validity of instrument or render it valueless
• in case of negotiation by delivery only, warranty only extends in favor of immediate transferee

• Liability of a General or Unqualified Indorser

a. instrument genuine, good title, capacity of prior parties
b. instrument is at time of indorsement valid and subsisting
c. on due presentment, it shall be accepted or paid, or both, according to tenor
d. if it be dishonored, and necessary proceedings on dishonor be duly taken, he will pay the amt. To holder, or
to any subsequent indorser who may be compelled to pay it

• Order of Liability among Indorsers

1. among themselves: liable prima facie in the order they indorse, but proof of another agreement admissible
2. but holder may sue any of the indorsers, regardless of order of indorsement
3. joint payees/indorsees deemed to indorse jointly and severally

Liability of Accomodation Party

• 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
• Accomodation Party liable on the instrument to holder for value even if holder, at time of taking instrument,
knew he was only an Accomodation Party
Some Terms:
 Accommodation Bill or Note—one 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
 Accomodated Party—is one in whose favor a person, w/o receiving value therefore, signs an instrument
for the purpose of lending his credit and enabling said party to raise 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, he’s 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
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 he’s only acting as agent
Negotiable Instruments Law 9

A. In Promissory Notes
Not necessary to make the maker liable, but is necessary to make the secondary parties liable.
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
- 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. General and Qualified
General Acceptance – a general acceptance assents without qualification to the order of the drawer.
Qualified Acceptance – it varies the effect of the bill as drawn. The acceptance is qualified if it is:
a. Conditional;
b. Partial;
c. Local;
d. Qualified as to time;
e. Accepted by some or more of the drawees but not by all.

2. Express and Constructive

- Acceptance is express if written on the instrument by the drawee; and constructive, if drawee, within twenty
four hours from presentment to him of the instrument, destroys the same, or refuses or fails to return the bill
accepted or unaccepted.


1. in writing, and
2. signed by the drawee,
3. it must not express that the drawee will perform his promise by another means than the payment
of money, and
4. it must be communicated or delivered to the holder.


- 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.

- Acceptance by telegram has been held sufficient.

N.B. Acceptance is NOT required for CHECKS for the same are payable on demand.

Negotiable Instruments Law 10

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.


- Acceptance may be made
1. on the bill itself, or
2. on a separate paper; and if on a separate paper
a. it may be acceptance as to an existing bill; or
b. it may be acceptance as to a non-existing bill.

- If the bill is non-existent, the acceptance on a separate paper must comply with following
i. That the contemplated drawee shall describe the bill to be drawn and promise to accept
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

Constructive Acceptance: - this class of acceptance is NOT in writing.

1. Where the drawee to whom the bill is delivered for acceptance, destroys it; or
2. Where the drawee refuses, within 24 hours after such delivery or within such time as is given him, to
return the bill accepted or not accepted.

- 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.

- In all the foregoing, the drawee will be deemed to have accepted the bill even if there is NO

Instances when a bill may be accepted:

1. Before the bill has been signed by the drawer;
2. Even when the bill is otherwise incomplete;
3. Even when the bill is overdue;
4. Even after it has been dishonored by non-acceptance or by non-payment.
- 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

 Presentment for Acceptance

Definition: It is the production or exhibition of a bill of exchange to the drawee for his acceptance.

Presentment for acceptance is NOT NECESSARY to render any party to the bill liable.

1. Where the bill is payable after sight, or in any other case, where presentment for acceptance is
necessary in order to fix the maturity of the instrument; or
2. Where the bill is expressly stipulates that it shall be presented for acceptance; or
Negotiable Instruments Law 11

3. Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee.

NOTE: In those instances found in Section 143 – it is NECESSARY – in order to charge persons
secondarily liable (Section 144):

i. to make presentment for acceptance or

ii. to negotiate the bill within a reasonable time.

 Presentment, how made:

-Presentment MUST be made by or on behalf of the holder:

1. It must be presented at a reasonable hour;
2. It must be presented on a business day; and
3. It must be presented before the bill is overdue.

To WHOM will it be presented?

1. To the DRAWEE or some person authorized to ACCEPT or REFUSE ACCEPTANCE on his BEHALF;

2. Where a bill is addressed to two or more drawees who are not partners; presentment must be
made to them all unless one has authority to accept or refuse acceptance for all, in which case
presentment may be made to him only;

3. Where the drawee is dead presentment may be made to his personal representative;

4. Where the drawee has been adjudged a bankrupt or an insolvent or has made an assignment for
the benefit of creditors, presentment may be made to him or to his trustee or assignee.

Days when presentment may be made:

A bill may be presented for acceptance on ANY DAY on which negotiable instruments may be presented
for payment.

When SATURDAY is NOT OTHER WISE A HOLIDAY – presentment for ACCEPTANCE may be made before
twelve o’clock noon on that day.

Note: The only difference between Section 72 and 85 is that under Section 146 there is no distinction
between the instruments payable at a fixed or determinable future time and instruments payable on

 Where the holder of a bill drawn payable elsewhere other than the place of business or the residence of
the drawee – has no time, with the exercise of reasonable diligence to present the bill for acceptance
before presenting it for payment on that day it falls due – THE DELAY CAUSED BY PRESENTING THE BILL

1. Where the drawee is dead, or has absconded, or is a fictitious person or a person not having capacity to
contract by bill;
2. Where, after the exercise of reasonable diligence, presentment can not be made;
3. Where, although presentment has been irregular, acceptance has been refused on some other ground.

Duty of the holder where bill is not accepted.

Where a bill is duly presented for acceptance and is not accepted within the prescribed time, the
person presenting it must treat the bill as dishonored by non-acceptance or he loses the right of
recourse against the drawer and indorsers.

HOW? By giving NOTICE OF DISHONOR or by making a PROTEST when required.

 Presentment For Payment Of Accepted Bill

Purpose: The purpose of presentment for payment of an accepted bill is to collect from the acceptor; and if
refused, to collect from the secondary parties.

1. The accepted bill must be presented for payment within a reasonable time from the last negotiation by the
holder or his agent
2. to the acceptor or his agent
3. at a reasonable hour on a business day
4. at the proper place as defined.
 The bill must be exhibited to the acceptor and surrendered to him when he pays.
Negotiable Instruments Law 12

When Presentment for payment is excused;

a. when after due diligence, it cannot be made
b. when the drawee is a fictitious person
c. where there is a waiver of presentment.

- 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)

- In bills of exchange, where the bill is presented for acceptance and is returned dishonored, or within twenty
four hours from presentment, is not returned accepted or unaccepted, or when presentment for acceptance is
excused and the bill is not accepted
there is a dishonor by non-acceptance.
-There is a dishonor by non-payment if the bill, after it has been accepted is not paid when presented for
payment, or presentment being excused, is not paid on the date of maturity.

Effect of Dishonor by Non-acceptance: An immediate right of recourse against the drawer and indorsers
accrues to the holder and NO PRESENTMENT for payment is necessary. (Sec. 151)

Note: Same effect in Dishonor by Non-payment is Promissory Note

--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.

1. Given by a holder or his agent(SPA necessary), or by any party who may be compelled by the holder to pay.
(Sec. 90)
2. Given to a secondarily liable party or his agentSec. 97)
-Notice to one partner is notice to all even though there has been dissolution
-Notice to persons jointly liable who are not partners must be given to each of them unless one of them has
authority to receive such notice for others
-Notice to bankrupt may be given to his trustee or assignee
3. Given as soon as the instrument is dishonored and within the periods provided by law. (Sec. 102)
4. Given at the proper place (Secs. 103 & 104)

a. Non-acceptance(bill)—to persons secondarily liable, namely, the drawer and indorsers as the case may be
b. Non-payment (bill and note)—indorsers

 BY whom Given
a. The holder
b. Another, on behalf of the holder
c. Any party to the instrument who may be compelled to pay it to the holder, and who would have a right of
reimbursement from the party to whom notice is given


1. When the party to be notified knows about the dishonor, actually or constructively
2. If waived (either before the time of giving notice has arrived or after the omission to give due notice) (Sec.
--If waiver embodied in instrument itself it binds all parties, but if written above the signature of an indorser,
the latter is only bound
3. When after due diligence, it cannot be given (Sec. 112)


1. Drawer and drawee are the same person
2. Drawee is a fictitious person or a person not having capacity to contract
3. Drawer is the person to whom the instrument is presented for payment
4. Drawer has no right to expect or require that the drawee or acceptor will honor the instrument;
5. Drawer has countermanded payment.


Negotiable Instruments Law 13

(a) When the drawee is a fictitious person or person not having capacity to contract, and the indorser was aware
of that fact at the time he indorsed the instrument
(b) Where the indorser is the person to whom the instrument is presented for payment
(c) Where the instrument was made or accepted for his accommodation


1. Every negotiable instrument is payable at the time fixed therein without grace.
2. When the day of maturity falls on a Sunday or a Holiday, the instrument is payable on the next succeeding
business day.
3. Instruments falling due or payable on a Saturday are also to be presented for payment on the next
succeeding business day, except when the instrument is payable on demand where it may be the option of the
holder to present the instrument for payment before 12:00 noon on Saturday when the entire day is not a
holiday. (Sec. 85)


1. Made at of after maturity.
2. Made to the holder.
3. In good faith and without notice that the holder’s title is defective. (Sec. 88)
• Good faith refers to the maker or acceptor and not to the holder.


- 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.


1. By payment in due course by or on behalf of the principal debtor
Payment in Due Course. Requisites
a. Payment must be made at or after maturity
b. Payment must be made to the holder
c. Payment must be made in good faith and w/o notice that the holder’s title is defective

By Whom Made:
a. By maker or acceptor
b. Surety, if a primary party or
c. By an agent on behalf of the principal

2. Payment by accommodated party

3. Intentional cancellation by the holder

4. By any act which will discharge a simple contract for the payment of money.
5. When the principal debtor becomes the holder of the instrument at or after maturity in his own right.


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(a) By any act which discharges the instrument

(b) By the intentional cancellation of his signature by the holder
(c) By the discharge of a prior party
(d) By a valid tender or payment made by a prior party
(e) By a release of the principal debtor unless the holder's right of recourse against the
party secondarily liable is expressly reserved
(f) By 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

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 renounces 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.

“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.
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Reason for requiring protest:

1. for uniformity in international transactions because most countries require it
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.

Protest where made:

GENERALLY – the protest must be made at the place where the instrument is

EXCEPTION: - where that when the bill drawn payable at the place of business or
residence of some person other than the drawee has been dishonored by non-



Requisites for Protest for better security:

- A protest for better security must be made:
a. After acceptance;
b. But before the date of maturity; and
c. When the acceptor has been adjudged bankrupt and insolvent or has made an
assignment for the benefit of creditors.

NOTE: Protest is dispensed with by any circumstances which would dispense with notice
of dishonor.


1. bill is lost or destroyed ; or
2. is wrongfully detained from the person entitled to hold it


Acceptance of a bill made by a stranger to it before maturity, where the drawee of the
bill refused to accept it, and the bill has been protested for non-acceptance or where the
bill has been protested for better security.

Purpose for acceptance for honor:

Negotiable Instruments Law 16

An acceptance for honor is done “to save the credit of the parties to the instrument
or some party to it, as the drawer, drawee, or indorser, or somebody else.”

Requisites for acceptance for honor:

1. The bill must have been previously protested (a) for non-acceptance or (b)
for better security;
2. The bill is not overdue at the time of the acceptance for honor;
3. The acceptor for honor must be a stranger to the bill.
4. The holder must give his consent.

Acceptance for honor: - “acceptance supra protest” – how made:

1. It must be in writing;
2. It must indicate that it is an acceptance for honor; and
3. It must be signed by the acceptor for honor.

It is necessary that the acceptor for honor MUST APPEAR before a notary public
and declare that he accepts the protested bill in honor of the drawer or indorser,
as the case may be, and that he will pay it at the appointed time.



ACCEPTOR FOR HONOR agrees to pay if:

1. presentment for payment has been made;
2. the drawee does not pay;
3. the bill is protested for non-payment; and
4. notice of dishonor is given to him.

MATURITY OF A BILL PAYABLE AFTER SIGHT – which has been accepted for
honor: Maturity is calculated from the date of NOTING of the NON-ACCEPTANCE and NOT
from the date of the acceptance for honor.

Bills which MUST BE PROTESTED FOR NON-PAYMENT before it will be presented

for payment:
1. Where a dishonored bill has been accepted for honor supra protest; or
2. Where a dishonored bill contains a referee in case of need.

Presentment for payment to acceptor for honor, how made:

1. It must be presented in the place where the protest for non-payment was made –
it must be presented NOT LATER than the day following its maturity;
2. If it is to be presented in some other place other than the place where it was
protested, then it must be forwarded within the time specified in Section 104.

Note: Delay in making presentment is excused when the delay was caused by events

 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.


Requisites for payment for honor:

1. The bill has been protested for non-payment;
2. ANY PERSON, even a party thereto may pay supra protest.
Negotiable Instruments Law 17

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

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

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 – one composed of various parts, each part being numbered and containing a
reference to the other parts, all of which parts constitute but one bill.

Purpose of bill in set:

In order to increase the probability of the bill reaching its destination, and to avoid the
difficulties which would arise in case of loss or miscarriage on the way of the bill.

Right of holders where different parts are negotiated:

Where two or more parts are negotiated to different HOLDERS IN DUE COURSE – the
of the bill.
Negotiable Instruments Law 18

Liability of holder who indorses two or more parts of a set to different persons:
- He is liable on EVERY SUC H PART; and
- EVERY INDORSER SUBSEQUENT to him is LIABLE on the part he has himself

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

Effect of discharging one of a set:

- Where ONE PART OF A BILL DRAWN in a set is discharged by payment or
otherwise – THE WHOLE BILL is DISCHARGED – except as otherwise provided.


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.

Where a note is drawn to the maker’s own order, it is NOT complete until indorsed
by him.

Special types of promissory notes:

1. Certificate of deposit
- is a written acknowledgment by a bank of the receipt of money on deposit
which the bank promises to pay to the depositor, bearer, or to some other
person or order.
- It is NOT ipso facto negotiable – it must first comply with the requirements
provided under Section 1, NIL.
2. Bonds
- A promise, under seal, to pay money.
- The bond certifies that the issuing company is indebted to the bondholder for the
amount specified on the face of the bond, and contains an agreement of the
company to pay the sum at a specified time in the future, and meanwhile to pay a
specified interest on the principal amount at regular intervals, generally six
months apart. They are negotiable if it the requisites in Section 1, NIL are
complied with.

Classes of Bonds:
1. Mortgage bonds 5. Debentures
2. Equipment Bonds 6. Income bonds
3. Collateral trust bonds 7. Convertible bonds
4. Guaranteed bonds 8. Redeemable Bonds
Negotiable Instruments Law 19

9. 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 form possession. However, they are not money.

12. Due Bills

- is an instrument whereby one person acknowledges his indebtedness to

 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.

- 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
b. When through the fault of the creditor the check is impaired
c. In case of redemption

Kinds of checks:
1. Ordinary Check—The most common check issued by a bank to a client
who opens a checking account
2. Cashier’s check – it is a check drawn by the cashier of a bank in the
name of the bank against the bank itself payable to a third person or order.
3. Manager’s Check – a drawn by the manager of a bank in the name of the
bank against the bank itself payable to a third person. It is similar to the cashier’s
check as to effect and use.
4. Gift Check-Similar to a cashier’s or manager’s check and may be signed
either by the cashier or manager. It is indicated as a “Gift Check”, so as to be used
as a gift for birthdays, weddings, graduations and similar occasions.
5. Memorandum Checks – a check on which is written the word
“memorandum”, “memo”, and “mem”, signifying that the drawer engages to pay
the bona fide holder absolutely and not upon a condition to pay upon presentment
and non-payment.
- If it bounces – the drawer can be charged for violation of BP 22.
6. Certified Checks – a check on which the drawee bank has written an
agreement whereby it undertakes to pay the check at any future time when
presented for payment, such as, by stamping on the check the word “certified” or
“Good For Payment” and underneath it is written the signature of the cashier.
7. Traveler’s Check- one issued by a bank to a holder, usually a traveller,
who must put his signature upon purchase of the check and countersign with the
Negotiable Instruments Law 20

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 traveller’s check.
8. Crossed check –One which has two parallel lines, usually on the upper
left hand corner.
How is crossing of check done:
-it is usually done by drawing two parallel lines transversally on the face of the
check. A check may be crossed (1) specially or (2) generally.

Crossing specially – a check is crossed specially when the name of a particular banker
or a company is written between the parallel lines drawn transversally on the face of the
check. Here, the drawer is instructing the drawee bank not to honor the check unless the
payee is identified by another bank

Crossing generally – a check is crossed generally when only the words “and company”
are written between the parallel lines, or when nothing is written at all between the
parallel lines. Here, the drawer is instructing the drawee bank not to honor the check
unless the payee is identified by the particular bank named in between the two parallel

1. Under crossed check – the payee has the duty to ascertain the holder’s title to
2. Drawee should not encash a crossed check but merely the same for deposit.
3. Where other than payee of crossed checks presented it for payment, there is no
proper presentment and drawer is not liable thereon.

Effects of Crossing a check

1. The check may not be encashed but only deposited in the bank
2. The check may be negotiated only once to one who has an account with a bank
3. The act of crossing the check serves as a warning to the holder that the check has
been issued for a definite purpose so that he must inquire if he has secured the check
pursuant to that purpose.

Advantages of crossing check:

- it is a good precaution when it is to be forwarded by mail or when it is entrusted to an
agent and the drawer wants to be sure that it will be paid to the rightful owner.

Features of the Check

I. Face.
1. Date
2. Payee
3. Amount in figures
4. Amount in words
5. Drawer (Account Name)
6. Drawee-Bank
7. Account Number
8. Check Number
9. Magnetic Ink Character Recognition Code (MICR)—a code designed to facilitate the
clearing of checks among banks.
10. Space for signature of the drawer
Negotiable Instruments Law 21

II. Dorsal Side/Back of the Check

1. Space for indorsement (signature & address of the indorser)

Check – when should it be presented for payment:

A check MUST be presented for payment within a reasonable time after its issue or
the drawer will be discharged from liability thereon to the extent of the loss caused by
the delay.

must be presented within six (6) months – otherwise it will become stale.

- a check under BP 22 must be presented for payment to the bank within 90 days
from date so that the holder will enjoy the benefit of the prima facie presumption that
the maker, drawer, or issuer knows at the time of issue that he does not have
sufficient funds in or credit with the drawee bank for payment of such check.

A check is a bill of exchange payable on demand – is intended for immediate use and
not to circulate as a promissory note.

Effect if the check was allowed to become stale? (Stale when not encashed w/in 6
- the drawer is discharged but only to the extent of the loss caused by the delay. Hence, if
no loss or injury is shown, the drawer is not discharged.

Certification of check – is an agreement whereby the bank against whom a check is

drawn, undertakes to pay it at any future time when presented for payment. A bank is
not obliged to the depositor to certify checks.

- The certification of a check is EQUIVALENT to an ACCEPTANCE.

Form of certification:
- No particular form is required – BUT IT MUST BE IN WRITING.

- The letters “O.K.”, with the initials of the cashier of a bank do not
constitute a sufficient certification under modern banking practice.

Effect of Certification:
1. It is equivalent to acceptance and is the operative act that makes the drawee
bank liable;
2. It operates as an assignment of the funds of the drawer in the hands of the
drawee bank; and
3. If obtained by the holder, it discharges persons secondarily liable thereon.

Effect where the holder of check procures it to be certified.

- Where the holder of a check procures it to be accepted or certified, the
drawer and all indorsers are discharged from liability thereon.

- Indorsers subsequent to the certification are not discharged.

When check operates as an assignment.

A check of itself does not operate as assignment of any part of the funds to the credit
of the drawer with the bank, and the bank is not liable to the holder unless and until it
accepts or certifies the check.
Negotiable Instruments Law 22

Stop Payment Order—an instruction by the drawer addressed to the drawee bank
directing the latter not to honor or pay the check. A drawer may stop payment of the
check before the same is accepted, certified or paid by the drawee bank.

Requisites for Stop Payment Order

1. It must describe the check with reasonable accuracy
2. It must be given to an authorized officer or employee of the drawee bank
3. It must be positive and unqualified
4. It must give the bank sufficient time prior to acceptance, certification or payment
to enable the bank, in the exercise of reasonable diligence to stop payment.

Iron-Clad Rule: Prohibits the countermanding of payment of certified checks.

Cases when Bank May Refuse Payment

1. The bank is insolvent
2. The drawer’s deposit is insufficient or he has no account with the bank or said account
had been closed or garnished
3. The drawer is insolvent and proper notice is received by the bank
4. The drawer dies and proper notice is received by the bank
5. The drawer has countermanded payment
6. The holder refuses to identify himself
7. The bank has reason to believe that the check is forgery.