Negotiable Instruments Law

Negotiable Instruments; Definition, Purpose & Functions Negotiable Instrument; definition. A negotiable instrument is a special contract which on its face is signed by the maker or drawer, making an unqualified promise or order to pay on demand or at a fixed or determinable future time, a sum certain in money, to order or bearer, and when it is addressed to a drawee, the latter must be named or otherwise indicated therein with reasonable certainty. Or simply stated: It is a special contract which complies with the requirements laid down under Section of the !egotiable Instruments "aw. Purpose of the Instruments Law enactment of the Negotiable

1unconditional order in writing addressed by one person to another signed by the person gi'ing it 1requiring the person to whom it3s 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. Drawerone who gives the order to pay money to a 3rd party 2. Draweeperson to whom the bill is addressed and who is ordered to pay 3. Payeeparty in whose favor the bill is drawn or is payable ")PE% !F $ILL !F E*+,#N E. Draft 4 a common term for all bills of exchange and they are used synonymously. !.5. In bank drafts, 60A270 and 60A277 are liable to purchaser of draft for not complying with his instructions. *. Trade Acceptance 4 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. +. Bankers Acceptance 4 a draft or a bill of exchange of which the acceptor is a bank or banker engaged generally in the business of granting banker3s acceptance credit. It is similar to a trade acceptance, the fundamental difference being that the banker3s acceptance is drawn against a bank instead of the buyer. -. Trust Receipt 4 the written or printed document signed by the entrustee in fa'or of the entruster containing terms and conditions substantially complying with the pro'isions of 86 9 %#rust 0eceipt "aw, which took effect on :anuary * , ;<+.. !o further formality of execution or authentication shall be necessary to the 'alidity of the trust receipt. !ote: It is the 7!#0=S#77 !O# the 7!#0=S#70 is the real owner of the trust receipt. #he liability of the entrustee to the entruster is 7> (O!#0A(#= not ex delicto. 9. Treasury Warrants 4 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 !O# =!(O!6I#IO!A", and does not fulfill the one of the essential requirements of a negotiable instrument. %Abubakar '. Auditor Aeneral. B. oney !rder 4 a species of draft drawn by the postCoffice upon another for an amount of

#he !egotiable Instruments "aw was enacted for the purpose of facilitating, not hindering or hampering transactions in commercial paper. #hus, the said statute should not be tampered with hapha$ardly or lightly. !or should it be brushed aside in order to meet the necessities in a single case. %Osme&a 's. (itibank, )arch *+, *,,-. Functions of a Negotiable Instrument. . Substitute for money/merchants often do not want to carry cash for fear of loss or theft *. (redit de'ice/some forms of negotiable instruments extend credit from one party to another. +. 0ecordkeeping de'ice/these records are used for financial statements, tax returns, and the like.

NE !"I#$LE IN%"&'(EN" 12ritten contract for the payment of money, by its form intended as substitute for money and intended to pass from hand to hand to gi'e the holder in due course the right to hold the same and collect the sum due P&!(I%%!&) N!"E 1unconditional promise in writing made by one person to another signed by the maker 1engaging to pay on demand, or at a fixed or determinable future time a sum certain in money to order or to bearer 1where a note is drawn to the maker3s own order, it is not complete until indorsed by him Parties: 1. Makerone who makes a promise and signs the instrument 2. Payeeparty to whom the promise is made or the instrument is payable $ILL !F E*+,#N E

Negotiable Instruments Law

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. !ote: )oney order is !O# negotiable. <. "lean and Documentary Bills of #$chan%e 4 "lean bill of e$chan%e is one to which are not attached to documents of title to be deli'ered to the person against whom the bill is drawn when he either accepts or pays the bill. Documentary Bill of #$chan%e is one to which are attached documents of title to be deli'ered and surrendered to the drawee when he accepts or pays the bill. D. D&A and D&P Bills of #$chan%e C ?Documents A%ainst Payment Bill 4 ?6E8 5ill@ is a sight or time bill to which are attached documents to be deli'ered and surrendered to the drawee when he has paid the corresponding bill. .Documents #gainst #cceptance $ill/ ' ?6EA 5ill@ is a time bill to which are attached documents to be deli'ered and surrendered to the drawee when he accepts the bill. ;. (i%ht bills are bills which are payable upon presentation or at sight or on demand. ,. Time or usance bills 4 are bills which are payable at a fixed future time or at a determinable future time. )nland Bill of #$chan%e 4 is a bill which is or on its face purports to be 5O#F drawn and payable within the 8hilippine Islands. *orei%n Bill of #$chan%eC is a bill which is, or on its face purports to be, drawn or payable outside the 8hilippine Islands. a. to be drawn in the 8hilippines but payable outside thereofG or b. to be payable in the 8hilippines but drawn outside thereof. Importance of the distinctionThe distin tion is important in! . #hat foreign bills are required to be protested. Hailure to protest foreign bills will discharge persons secondarily liable thereon. *. #he distinction is also important for the determination of the law applicable. 0hen bill ma1 be treated as promissor1 note. . 2here 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. *. 2here the drawee is a fictitious person. +. 2here the drawee has no capacity to contract.

&eferee in case of need 4 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 4 that is in case the bill is dishonored by nonCacceptance or by nonCpayment. !ote: It is the option of the holder to resort to the referee in case of need or not as he may see fit. $E#&E& 8erson in possession of a billEnote payable to bearer ,!LDE& 8ayee or indorsee of a bill or note who is in possession of it, or the bearer thereof. ",E LIFE !F # NE !"I#$LE IN%"&'(EN"- 2INP#D3 PD3N3PD4 . issue *. negotiation +. presentment for acceptance in certain bills -. acceptance 9. dishonor by on acceptance B. presentment for payment <. dishonor by nonpayment D. notice of dishonor ;. protest in certain cases ,. discharge NE !"I#$ILI") &E5'I%I"E% 2%'D!+4 6. in writing and signed b1 ma7er or drawer no person liable on the instrument whose signature does not appear thereon "# eptions! I A person signing in a trade or assumed name I 8rincipal is liable if a duly authori$ed agent signs in his own behalf %Agent must be duly authori$edG Fe adds words indicating that he signs as an agentG Fe must disclosed his principal. %(i%nature by procuration+operates as noti e that the agent has limited authority to sign and prin ipal is bound if agent a ted beyond the limits of his authority$ I In case of forgery, the forger is liable e'en if his signature does not appear on the instrument I 2here the acceptor makes his acceptance of a bill on a separate paper I 2here 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 authori$ed agent, no particular form of appt. necessary

8. unconditional promise or order to pa1

Negotiable Instruments Law

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 gi'es rise to the instrument an order or promise to pay out of a particular fund is not unconditional a sum certain in mone1 e'en if stipulated to be paidCCC a. with interest, or b. by stated installments, or c. by stated installments with a pro'ision that upon default in payment of any installmentEinterest, 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 attorney3s fee, in case payment not made at maturity

when payable to order or fictitiousEnonCexistent person, and such fact known to the person making it so payable, or when name of payee doesn3t purport to be the name of any person, or when the onlyElast indorsement is in blank

9. where addressed to drawee: such drawee named< indicated therein with reasonable certaint1 bill may be addressed to two or more drawees Jointly, whether partners or not, but not to two or more drawees in the alternati'e or in succession bill may be treated as a 8!, at option of holder, where a. drawer and drawee are same person b. drawee is fictitiousEincapacitated "!,T),-AT)!, !* ,#.!T)AB/# "0ARA"T#R =ntil: . restricti'ely indorsed *. discharged by payment or otherwise EFFE+" !F #DDI"I!N#L P&!=I%I!N% 2%ec.>4 en. &ule- orderEpromise to do any act in addition to the payment of money renders instrument nonC negotiable. E:ception- negotiability not affected by pro'isions wEc . authori$e sale of collateral security if instrument not paid at maturity *. authori$e confession of JudgmentK +. wai'es benefit of any law intended for ad'antageEprotection of obligor -. gi'e holder election to require something to be done in lieu of money !ther Instances when negotiabilit1 not affected 2%ec. ?4 a. !ot dated b. 6oes not specify the 'alue gi'en or that any 'alue has been gi'en therefore c. 6oes not specify the place where it is drawn or the place where it is payable d. 5ears a seal e. 6esignates a particular kind of current money in wEc payment is to be made %ec. 6@. +onstruction where instrument is ambiguous. %a. 2here the sum pa1able 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 payableG but if the words are ambiguous or uncertain, reference may be had to the figures to fix the amountG %b. 2here the instrument pro'ides 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 thereofG %c. 2here the instrument is not dated, it will be considered to be dated as of the time it was issuedG

9. pa1able on demand, when expressed to be payable on demand, or at sight, or on presentationG when no time for payment expressed, or where an instrument is issued, accepted or indorsed when o'erdue, it is, as regards the person so issuing, accepting, or indorsing it, payable on demand or at a fi:ed or determinable future time when it3s 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 e'ent which is certain to happen, though the time of happening be uncertain an instrument payable upon a contingency not negotiable, and happening of e'ent doesn3t cure it

;. pa1able to order where it is drawn payable to the order of a specified person or to him or his order. )ay be drawn payable to order of CCC a. a payee not the makerEdrawerEdrawee, 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

Negotiable Instruments Law

%d. 2here there is a conflict between the written and printed proAisions of the instrument, the written pro'isions pre'ailG %e. 2here 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 electionG %f. 2here a signature is so placed upon the instrument that it is not clear in what capacit1 the person ma7ing the same intended to sign, he is to be deemed an indorserG %g. 2here an instrument containing the word BI promise to pa1B is signed by two or more persons, they are deemed to be Jointly and se'erally liable thereon. D#"E IN #N IN%"&'(EN" Presumption as to date: %aid date is the date when it was made by the maker& drawn by the drawer& a epted by the drawee or indorsed by the payee. '%e . 11$ #ffect of ante+datin% or Post+datin%: (nstrument is not invalid& provided not done for an illegal or fraudulent purpose. '%e . 12$ 1 Ante+datin%: Ai'ing an instrument a date that is earlier than the date it was issued 1 Post+datin%: Ai'ing an instrument a date that is later than the date it was issued When date may be inserted2 a. )here an instrument is payable at a fi#ed period after date but is issued undated b. )here an instrument is payable at a fi#ed period after sight but the a eptan e is undated DELI=E&) 2%ec. 6?4 Issuance3the first deli'ery of the instrument complete in form to a person who takes it as a holder. (teps: . )echanical Act of writing, complying with requirements of Sec. *. 6eli'ery with intention to gi'e effect thereto. 1 !I incomplete and re'ocable until deli'ery for the purpose of gi'ing effect thereto. As between: a. immediate parties b. a remote party other than holder in due course deli'ery, to be effectual, must be made by or under the authority of the party makingEdrawingEacceptingEindorsing 1 in such case deli'ery may be shown to ha'e been conditional, or for a special purpose only, and not for the purpose of transferring the property in the instrument P&E%'(P"I!N !F DELI=E&) 2here the instrument is no longer in the possession of a party whose signature appears thereon, a 'alid and intentional deli'ery by him is presumed until the contrary is pro'ed %Iif in the hands of a F6(, presumption conclusi'e.

NE !"I#"I!N 1 2hen an instrument is transferred from one person to another as to constitute the transferee the holder thereof. 1 If payable to 57A070, negotiated by deli'eryG if payable to O0670, negotiated by indorsement of holder L deli'ery IND!&%E(EN" 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. #he indorsement must be written on the instrument itself or upon a paper attached thereto. #he signature of the indorser is sufficient. %Sec. + . Indorsement must be of entire instrument. %can3t be indorsement of only part of amount payable, nor can it be to two or more indorsees se'erally. 5ut may be indorsed as to the residue of partially paid instrument. MSec. +*N CIND% !F IND!&%E(EN" #. #s to manner of future method of negotiation . Special 4 specifies the person to whomEto whose order the instrument is to be payableG indorsement of such indorsee is necessary to further negotiation. *. 5lank 4 specifies no indorsee, instrument so indorsed is payable to bearer, and may be negotiated by deli'ery 1 #he holder may con'ert a blank indorsement into a special indorsement by writing o'er the signature of the indorser in blank any contract consistent with the character of the indorsement %Sec. +9. $. #s to 7ind of title transferred . restricti'e 1 prohibits further negotiation of instrument, 1 constitutes indorsee as agent of indorser, or 1 'ests title in indorsee in trust for another 3 Ri%hts of indorsee in restricti4e indorsement: 1 recei'e payment of instrument 1 5ring any action thereon that indorser could bring 1 #ransfer his rights as such indorsee, but all subsequent indorsees acquire only title of first indorsee under restricti'e indorsement *. nonCrestricti'e +. #s to 7ind of liabilit1 assumed b1 indorser . qualifiedC constitutes indorser as mere assignor of title %eg. ?without recourse@. *. unqualified D. #s to presence<absence of e:press limitations put b1 indorser upon primar1 obligorDs priAileges of pa1ing the holder . conditional 4 additional condition annexed to indorser3s liability.

Negotiable Instruments Law

1 2here 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 1 Any person to whom an instrument so indorsed is negotiated will hold the sameEproceeds subJect to rights of person indorsing conditionally *. unconditional IND!&%E(EN" !F $E#&E& IN%"&'(EN" 2%ec. ;E4 1 2here an instrument payable to bearer is indorsed specially, it may ne'ertheless be further negotiated by deli'ery 1 8erson indorsing specially liable as indorser to only such holders as make title through his indorsement IND!&%E(EN" 0,E&E IN%"&'(EN" P#)#$LE "! "0! !& (!&E PE&%!N% 0,! #&E N!" P#&"NE&% 2%ec.;64 All must indorse unless the one indorsing has authority to indorse for others IN%"&'(EN" D&#0N !& IND!&%ED "! # PE&%!N #% +#%,IE& 2%ec.;84 8resumed to be payable to the bank or corporation IND!&%E(EN" 0,E&E N#(E (I%%PELLED 2%ec. ;94 )ay continue indorsing through the misspelled name, or he may add his proper signature Presumption as to time of IndorsementF before instrument is o'erdue, except where indorsement bears date which is after maturity. Presumption as to place of IndorsementF At the place where instrument dated %tri7ing !ut Indorsements, EffectI #he indorser whose indorsement is struck out and all indorsers subsequent to him relie'ed from liability. 'NIND!&%ED IN%"&'(EN"% 2%ec. ;G4 . transfer 'ests in transferee such title as transferor had therein *. right of transferee to ha'e indorsement of transferor for purposes of determining F6( negotiation effecti'e upon actual indorsement P&I!& P#&") 0,! NE !"I#"E% IN%"&'(EN", effects 2%ec. >E4 !ot entitled to enforce payment against any inter'ening party to whom he is personally liable ,!LDE& IN D'E +!'&%E &E5'I%I"IE% . complete and regular upon its face

1 sec. *- %effect of material alteration/not defense against F6(. aterial Alteration: any hange in the instrument whi h affe ts or hanges the liability of the parties. (poliation+ * material alteration made by a stranger 1 sec. *9 what constitute material alterations: a. 6ate b. Sum 8ayable, either for principal or interest c. #ime or place of payment d. !umber or relations of the parties e. )edium of currency or which adds a place of payment *. holder became such before it was oAerdue, without notice of an1 preAious dishonor 1 sec. 9+ %instrument payable on demand negotiated after unreasonable length of time: holder is not F6(. 1 sec. * %effect antedatingEpostdating. +. ta7en in good faith and for Aalue 1 sec. *- %presumption of consideration. 1 sec *9 %5alue: is any onsideration suffi ient to support a simple ontra t. 1 sec. *B %0older for 4alue! one who has given a valuable onsideration for the instrument issued or negotiated to him . 1 sec. *< %)hen a holder has lien on the instrument& by ontra t or impli ation he is deemed a holder for value to the e#tent of the lien. -. at time negotiated to him, he had no notice of 33 a.infirmit1 in instrument b.defect in title of person negotiating2hat defect constitutes %Sec.99. . instrumentEsignature obtained through fraud, etc., illegal considerationEmeans, or *. instrument negotiated in breach of faith, or fraudulent circumstances !otice Sec. 9-Cnoti e before full amt. paid: deemed F6( only to the extent of the amount paid by him Sec. 9BCnoti e of defe t! Actual knowledge necessary R).0T( !* 0!/D#R ), D-# "!-R(# . sue thereon in his own name *. payment to him in due course discharges instrument +. holds the instrument free from any defect of title of prior parties and free from personal defenses a'ailable to parties among themsel'es -. may enforce payment of the instrument for the full amount thereof against all parties liable thereon &I ,"% !F P'&+,#%E& F&!( ,!LDE& IN D'E +!'&%E eneral &ule- in the hands of any holder other than a F6(, !I is subJect to same defenses as if it were nonC negotiable. %Sec. 9D.

Negotiable Instruments Law

E:ception- holder who deri'es title through F6( 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. 0,! DEE(ED ,D+ 2%ec. >G4 1 prima facie presumption in fa'or of holder 1 but when shown that title of any person who has negotiated instrument was defecti'e, presumption is re'ersed, burden is now with holder to pro'e 1 but no re'ersal if party being made liable became bound prior to acquisition of defecti'e title CIND% !F DEFEN%E% 6. real defense H attaches to instrumentG on the principle that the right sought to be enforced ne'er existedEthere was no contract at all. A'ailable to all parties both immediate and remote including F6(. 8. personal defense H growing out of agreementG renders it inequitable to be enforced against defendant. A'ailable to prior parties among themsel'es but wEc are not good against a F6(. DEFEN%E% 6. IN+#P#+I")- &E#L: indorsementEassignment by corporationEinfant passes property but corpEinfant no liability 8. F!& E&)- &eal6efinition: the ounterfeit+making or fraudulent alteration of any writing& and may onsist in the signing of another,s name or the alteration of an instrument in the name& amount& des ription of the person and the like& with intent thereby to defraud. Bad *or%ery6forgery whi h is apparent or naked to the eye .ood *or%eryre-uires e#amination of signature if it was forged #ffect 7hen (i%nature is for%ed or made 7ithout authority of person 7hose si%nature it purports to be8 eneral &ule: a. wholly inoperati'e b. no right to retain instrument, or gi'e discharge, or enforce payment 's. any party, can be acquired through or under such signature %unless forged signature unnecessary to holder3s title. E:ceptionunless the party against whom it is sought to enforce such right is precluded from setting up forgeryEwant of authority Precludeda. parties who make certain warranties, like a general indorser or acceptor b. estoppedEnegligent parties 9. (#"E&I#L #L"E&#"I!N

I 2here !I materially altered wEo assent of all parties liable thereon, a'oided, except as against . party who has himself made, authori$ed or assented to alteration *. and subsequent indorsers 1 5ut when an instrument has been materially altered and is in the hands of a F6( not a party to the alteration, F6( may enforce payment thereof according to orig. tenor Imaterial 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. ;. F&#'D a. fraud in e:ecution- real defense %didn3t know it was a !egotiable Instrument. b. fraud in inducement- personal defense %knows it3s !egotiable Instrument but decei'ed as to 'alueEterms. >. +!(PLE"E, 'NDELI=E&ED IN%"&'(EN" 1 8ersonal defense %sec. B. 1 If instrument not in possession of party who signed, deli'ery prima facie presumed 1 If holder is F6(, deli'ery conclusi'ely presumed ?. IN+!(PLE"E, 'NDELI=E&ED IN%"&'(EN" I 0eal defense %sec. 9. I Instrument will not, if completed and negotiated without authority, be a 'alid contract in the hands of any holder, as against any person whose signature was placed thereon before deli'ery @. IN+!(PLE"E, DELI=E&ED I 8ersonal defense %sec. -. I 8 Cinds of 0ritings. 2here instrument is wanting in any material particular: person in possession has prima facie authority to complete it by filing up blanks therein *. Signature on blank paper deli'ered by person making the signature in order that the paper may be con'erted into a !I: prima facie authority to fill up as such for any amount I In order that any such instrument, when completed, may be enforced against any person who became a party thereto prior to its completion: . must be filled up strictly in accordance wE authority gi'en *. within a reasonable time 1 but if any such instrument after completion is negotiated to F6(, itOs 'alid for all purposes in his hands, he may enforce it as if it had been filled up properly &eal Defenses . )aterial Alteration *. 2ant of deli'ery of incomplete instrument +. 6uress amounting to forgery -. Hraud in factum or Personal Defenses . Absence or failure of consideration whether partial or total *. 2ant of deli'ery of complete instrument +. Insertion of wrong date

Negotiable Instruments Law

Hraud in esse contractus )inority %a'ailable to the minor only. )arriage in the case of a wife Insanity where the insane person has a guardian appointed by the court =ltra Pires acts of corporation 2ant of authority of agent 7xecution of instrument bEw public enemies Illegality/if declared 'oid for any purpose Horgery in an instrument -. Hilling up of blank contrary to authority gi'en or not wEin reasonable time 9. Hraud in inducement B. Acquisition of instrument by force, duress or fear <. Acquisition of instrument by unlawful means D. Acquisition of the instrument for an illegal consideration ;. !egotiation in breach of faith ,. !egotiation under circumstances that amount to fraud . )istake *. Intoxication +. =ltra Pires Acts of corporations where the corporation has the power to issue negotiable paper but the issuance was not authori$ed for the particular purpose for which it was issued

9. B. <.

$. %E+!ND#&) P#&"IE% 6. Liabilit1 of Drawer a. Admits existence of payee and his then capacity to endorse b. 7ngages 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 1 drawer may insert in the instrument an express stipulation negati'ing E limiting his own liability to holder 8. Liabilit1 of Indorsers-

D. ;. ,. . *.

1 5ualified Indorser and one Negotiating b1 DeliAer1 2%ec ?>4 a. Instrument genuine, in all respects what it purports to be b. Fe has good title c. all prior parties had capacity to contract d. he had no knowledge of any fact wEc would impair 'alidity of instrument or render it 'alueless 1 in case of negotiation by deli'ery only, warranty only extends in fa'or of immediate transferee 1 Liabilit1 of a eneral or 'nJualified Indorser a. instrument genuine, good title, capacity of prior parties b. instrument is at time of indorsement 'alid 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. #o holder, or to any subsequent indorser who may be compelled to pay it 1 !rder of Liabilit1 among Indorsers . among themsel'es: liable prima facie in the order they indorse, but proof of another agreement admissible *. but holder may sue any of the indorsers, regardless of order of indorsement +. Joint payeesEindorsees deemed to indorse Jointly and se'erally Liabilit1 of #ccomodation Part1 1 Definition- one who signed instrument as makerEdrawerEacceptorE indorser wEo recei'ing 'alue thereof, for the purpose of lending his name to some other person 1 Accomodation 8arty liable on the instrument to holder for 'alue e'en if holder, at time of taking instrument, knew he was only an Accomodation 8arty %ome Terms! * ommodation .ill or /oteone to whi h the a ommodation party has put his name& w0o onsideration& for the purpose of a ommodating

LI#$ILI"IE% !F P#&"IE% #. P&I(#&) P#&"IE% 1 8erson primarily liable: person who by the terms of the instrument is absolutely required to pay the same. 6. Liabilit1 of (a7er a. 8romises to pay it according to its tenor b. admits existence of payee and his then capacity to indorse 8. %tatus of drawee prior to acceptance or pa1ment 1 sec. *< %bill not an assignment of funds in hands of drawee. 1 sec. D; %when check does not operate as assignment until bank certifies or accepts it. 9. 1 1 a. b. c. d. Liabilit1 of #cceptor 8romises to pay instrument according to its tenor Admits the following: existence of drawer genuineness of his signature his capacity and authority to draw the instrument existence of payee and his then capacity to indorse

Negotiable Instruments Law

some other party who is to use it and is e#pe ted to pay it. * omodated Partyis one in whose favor a person& w0o re eiving value therefore& signs an instrument for the purpose of lending his redit and enabling said party to raise money upon it. Liabilit1 of Irregular Indorser 1 2here a person not otherwise a party to an instrument, places thereon his signature in blank before deli'ery, he3s liable as an indorser, in accordance wE these rules: . Instrument payable to order of +rd person: liable to payee and to all subsequent parties *. Instrument payable to the order of makerEdrawer, or payable to bearer: liable to all parties subsequent to makerEdrawer +. Signs for accommodation of payee, liable to all parties subsequent to payee Liabilit1 of an #gent 1 Signature of any party may be made by duly authori$ed agent, establish as in ordinary agency 1 2here instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal, he is not liable on the instrument if he was duly authori$ed, but the mere addition of words describing him as an agent without disclosing his principal, does not exempt from personal liability. 1 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 1 2here a broker or agent negotiates an instrument without indorsement, he incurs all liabilities in Sec. B9, unless he discloses name of principal and fact that he3s only acting as agent

When ,!T re9uired&e$cused 8resentment is !O# required: . when after due diligence presentment cannot be madeG *. when presentment is wai'ed, and +. when the indorser is an accommodated party. $. In $ills of E:change #cceptance is the signification by the drawee of his assent to the order of the drawer. ,ow madeC #he acceptance may be on the bill, on a separate paper %allonge., and may e'en be in writing before the bill is drawn. C #he drawee, if he wants to dishonor, must do so expressly within twentyCfour %*-. hours from presentment to him. If he refuses to act, tears the bill, or refuses to return the bill within said period of twentyCfour hours, he is deemed to ha'e accepted the bill 4 implied a eptan e. C A sight draft %usually accompanying a letter of credit in importations. is payable on demand and needs no acceptance by the drawee. 1lasses of * eptan e . 2eneral and 3ualified Aeneral Acceptance H a general acceptance assents without qualification to the order of the drawer. Qualified Acceptance 4 it 'aries the effect of the bill as drawn. #he acceptance is qualified if it is: a. (onditionalG b. 8artialG c. "ocalG d. Qualified as to timeG e. Accepted by some or more of the drawees but not by all.

PR#(#,T #,T #. In Promissor1 Notes Purpose!ot necessary to make the maker liable, but is necessary to make the secondary parties liable. &eJuisitesHor a 'alid presentment for payment of a promissory note, the following are necessary: a. made within a reasonable time after issueG b. by the holder or his agentG c. to the party liable under itG d. at a reasonable hour on a business dayG and e. at the proper place. III#he holder must exhibit the instrument to the debtor and should deli'er it to said debtor if the latter pays.

*. "#press and 1onstru tive C Acceptance is e:press if written on the instrument by the draweeG and constructiAe, 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. &E5'I%I"E% !F #+"'#L #++EP"#N+E. in writing, and *. signed by the drawee, +. it must not express that the drawee will perform his promise by another means than the payment of money, and -. it must be communicated or deli'ered to the holder.

Negotiable Instruments Law

#++EP"#N+E, ,!0 (#DEK C It is usually done by writing across the face of the bill the word ?A((78#76@ or words of similar import, e.g. ?FO!O076@, ?I 2I"" 8AR #F7 5I""@, ?S77!@ followed by the signature of the drawee. C #he drawee must sign because without his signature he would not be bound 4 See Section D, !I". C Acceptance by telegram has been held sufficient. !.5. Acceptance is !O# required for (F7(SS for the same are payable on demand. EFFE+" !F #++EP"#N+E=pon acceptance, the drawee becomes liable on the bill. #he 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. 5ut 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. )s payment e9ui4alent to acceptance2 !O, C the payment of a check does not include or imply its acceptance in the sense that this word is used in Section B*, !I". 0,E&E $ILL (#) $E 0&I""ENC Acceptance may be made . on the bill itself, or *. on a separate paperG and if on a separate paper a. it may be acceptance as to an existing billG or b. it may be acceptance as to a nonCexisting bill. If the bill is nonCexistent, the acceptance on a separate paper must comply with following requirements: i. #hat the contemplated drawee shall describe the bill to be drawn and promise to accept it. ii. #hat the bill shall be drawn within a reasonable time after such promise is writtenG and iii. #hat the holder shall take the bill upon the credit of the promise. #he drawee is allowed twent13four hours after presentment in which to decide whether or not he will accept the billG the acceptance if gi'en, dates as of the day of presentation. !O#7: #he time allowed begins from the time of deli'ery and not after demand for a return of the bill and the time for returning

9
the bill to the holder does not begin to run from the demand for its return but from the date of its deli'ery.

C 6rawee bank is !O# entitled to *- hours to decide whether for payment !O# acceptance. 5ut, if the check is presented for certification, this ruling will not apply, as certification is equi'alent to acceptance. +onstructiAe #cceptance: C this class of acceptance is !O# in writing. . 2here the drawee to whom the bill is deli'ered for acceptance, destroys itG or *. 2here the drawee refuses, within *- hours after such deli'ery or within such time as is gi'en him, to return the bill accepted or not accepted. C (f the holder should demand its return before twenty+four hours& the drawee would be re-uired to omply on pain of being held as an a eptor4 but return within twenty+four hours una epted would not be a dishonor. In all the foregoing, the drawee will be deemed to ha'e accepted the bill e'en if there is !O A(#=A" 20I##7! A((78#A!(7 by him.

Instances when a bill ma1 be accepted. 5efore the bill has been signed by the drawerG *. 7'en when the bill is otherwise incompleteG +. 7'en when the bill is o'erdueG -. 7'en after it has been dishonored by nonC acceptance or by nonCpayment. - #he holder of the bill has the ri%ht to re9uire .#,#RA/ A""#PTA,"# 4 thus he may 07H=S7 to take qualified acceptance and if he 6O7S !O# obtain an unqualified acceptance 4 he may treat the bill as dishonored. #ffect of takin% 9ualified acceptance: 2here a qualified acceptance is taken 4 #F7 60A270 and I!6O0S70S are discharged from liability on the bill unless they ha'e expressly or impliedly authori$ed the holder to take qualified acceptance or subsequently assents thereto. 2hen the drawer or indorser recei'es notice of qualified acceptance 4 he must 4 within a 07ASO!A5"7 #I)7 4 express his dissent to the holder or he will be deemed to ha'e assented thereto.

%ection 69?. -

Negotiable Instruments Law

Presentment for #cceptance DefinitionIt is the production or exhibition of a bill of exchange to the drawee for his acceptance. ENE&#L &'LE8resentment for acceptance is !O# !7(7SSA0R to render any party to the bill liable. E*+EP"I!N%. 2here 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 instrumentG or *. 2here the bill is expressly stipulates that it shall be presented for acceptanceG or +. 2here the bill is drawn payable elsewhere than at the residence or place of business of the drawee. N!"E- In those instances found in Section -+ 4 it is !7(7SSA0R 4 in order to charge persons secondarily liable %%ection 6;;.: i. to make presentment for acceptance or ii. to negotiate the bill within a reasonable time. Presentment, how madeC8resentment )=S# be made by or on behalf of the holder: Re9uisites: . It must be presented at a reasonable hourG *. It must be presented on a business dayG and +. It must be presented before the bill is o'erdue. "o 0,!( will it be presentedK . #o the 60A277 or some person authori$ed to A((78# or 07H=S7 A((78#A!(7 on his 57FA"HG and *. 2here a bill is addressed to two or more drawees who are not partnersG 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 onlyG +. 2here the drawee is dead presentment may be made to his personal representati'eG -. 2here the drawee has been adJudged a bankrupt or an insol'ent or has made an assignment for the benefit of creditors, presentment may be made to him or to his trustee or assignee.

10

Days 7hen presentment may be made: A bill may be presented for acceptance on A!R 6AR on which negotiable instruments may be presented for payment. 2hen SA#=06AR is !O# O#F70 2IS7 A FO"I6AR 4 presentment for A((78#A!(7 may be made before twel'e o3clock noon on that day. !ote: #he only difference between Section <* and D9 is that under Section -B there is no distinction between the instruments payable at a fixed or determinable future time and instruments payable on demand. 2here the holder of a bill drawn payable elsewhere other than the place of business or the residence of the drawee 4 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 4 #F7 67"AR (A=S76 5R 807S7!#I!A #F7 5I"" HO0 A((78#A!(7 57HO07 807S7!#I!A I# HO0 8AR)7!# IS 7>(=S76 A!6 D!E% N!" 6IS(FA0A7 #F7 60A270S A!6 I!6O0S70S.

Instances when P&E%EN"(EN" F!& #++EP"#N+E I% E*+'%ED and # $ILL (#) $E "&E#"ED #% DI%,!N!&ED $) N!N3#++EP"#N+E. 2here the drawee is dead, or has absconded, or is a fictitious person or a person not ha'ing capacity to contract by billG *. 2here, after the exercise of reasonable diligence, presentment can not be madeG +. 2here, although presentment has been irregular, acceptance has been refused on some other ground. Dut1 of the holder where bill is not accepted. 2here a bill is duly presented for acceptance and is not accepted within the prescribed time, the person presentin% it must treat the bill as dishonored by non+ acceptance or he loses the ri%ht of recourse a%ainst the dra7er and indorsers8 ,!0K 5y gi'ing !O#I(7 OH 6ISFO!O0 or by making a 80O#7S# when required. Presentment For Pa1ment !f #ccepted $ill Purpose- #he purpose of presentment for payment of an accepted bill is to collect from the acceptorG and if refused, to collect from the secondary parties. &eJuisites-

Negotiable Instruments Law

. #he accepted bill must be presented for payment within a reasonable time from the last negotiation by the holder or his agent *. to the acceptor or his agent +. at a reasonable hour on a business day -. at the proper place as defined. #he bill must be exhibited to the acceptor and surrendered to him when he pays. When Presentment for payment is e$cused: a. when after due diligence, it cannot be made b. when the drawee is a fictitious person c. where there is a wai'er of presentment. DI%,!N!& 1 .(n P56M(%%657 /6T" C In a promissory note, dishonor b1 non3pa1ment takes place when it is duly presented for payment and payment is refused or cannot be obtainedG or if presentment is excused, the instrument is o'erdue and unpaid. Effect- #here is an immediate right of recourse by the holder against persons secondarily liable, which requires notice of dishonor %Sec. D-. 2. (n .(88% 69 ":1;*/2" C 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 b1 non3acceptance. C#here is a dishonor b1 non3pa1ment 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 b1 Non3acceptance- An immediate right of recourse against the drawer and indorsers accrues to the holder and !O 807S7!#)7!# for payment is necessary. %Sec. 9 . /ote! %ame effe t in Dishonor by /on+payment is Promissory /ote N!"I+E !F DI%,!N!& 33bringing either 'erbally 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. &E5'I%I"E%. Ai'en by a holder or his agent%S8A necessary., or by any party who may be compelled by the holder to pay. %Sec. ;,. *. Ai'en to a secondarily liable party or his agentSec. ;<. C!otice to one partner is notice to all e'en though there has been dissolution

11

C!otice to persons Jointly liable who are not partners must be gi'en to each of them unless one of them has authority to recei'e such notice for others C!otice to bankrupt may be gi'en to his trustee or assignee +. Ai'en as soon as the instrument is dishonored and within the periods pro'ided by law. %Sec. ,*. -. Ai'en at the proper place %Secs. ,+ T ,-. "! 0,!( I=EN a. !onCacceptance%bill./to persons secondarily liable, namely, the drawer and indorsers as the case may be b. !onCpayment %bill and note./indorsers $) whom iAen a. #he 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 ha'e a right of reimbursement from the party to whom notice is gi'en

0,EN N!"I+E !F DI%,!N!& I% DI%PEN%ED 0I",. 2hen the party to be notified knows about the dishonor, actually or constructi'ely *. If wai'ed %either before the time of gi'ing notice has arri'ed or after the omission to gi'e due notice. %Sec. ,;. CCIf wai'er embodied in instrument itself it binds all parties, but if written abo'e the signature of an indorser, the latter is only bound +. 2hen after due diligence, it cannot be gi'en %Sec. *. 0,EN N!"I+E !F DI%,!N!& NEED N!" $E I=EN "! D&#0E& . 6rawer and drawee are the same person *. 6rawee is a fictitious person or a person not ha'ing capacity to contract +. 6rawer is the person to whom the instrument is presented for payment -. 6rawer has no right to expect or require that the drawee or acceptor will honor the instrumentG 9. 6rawer has countermanded payment. 0,EN N!"I+E !F DI%,!N!& NEED N!" $E I=EN "! IND!&%E& %a. 2hen the drawee is a fictitious person or person not ha'ing capacity to contract, and the indorser was aware of that fact at the time he indorsed the instrument %b. 2here the indorser is the person to whom the instrument is presented for payment %c. 2here the instrument was made or accepted for his accommodation (#"'&I") !F NE !"I#$LE IN%"&'(EN"-

Negotiable Instruments Law

. 7'ery negotiable instrument is payable at the time fixed therein without grace. *. 2hen the day of maturity falls on a Sunday or a Foliday, the instrument is payable on the next succeeding business day. +. 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 *:,, noon on Saturday when the entire day is not a holiday. %Sec. D9. &E5'I%I"E% !F P#)(EN" IN D'E +!'&%E . )ade at of after maturity. *. )ade to the holder. +. In good faith and without notice that the holder3s title is defecti'e. %Sec. DD. Aood faith refers to the maker or acceptor and not to the holder. DI%+,#& E !F NE !"I#$LE IN%"&'(EN" 3 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. %a. 5y any act which discharges the instrument %b. 5y the intentional cancellation of his signature by the holder %c. 5y the discharge of a prior party %d. 5y a 'alid tender or payment made by a prior party %e. 5y a release of the principal debtor unless the holderOs right of recourse against the party secondarily liable is expressly reser'ed %f. 5y any agreement binding upon the holder to extend the time of payment or to postpone the holderOs 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 reser'ed. +ancellation- it in ludes the a t of tearing& erasing& obliterating or burning. (t is not limited by writing the word < an elled= or <paid= or drawing riss+ ross lines a ross the instrument. (t may be made by any other means by w0 the intention to an el the instrument may be evident. &enunciation 2%ec. 6884C#he act of surrendering a right or claim wEo recompense, but it can be applied wE equal propriety to the relinquishing of a demand upon an agreement supported by a consideration L Folder may expressly renounces his rights against any party to the instrument before, at or after its maturity. L If renunciation is absolute and unconditional in fa'or of the principal debtor, instrument is discharged L !otice is required to affect rights of F6( L 0enunciation must be in writing unless instrument is deli'ered up to the person primarily liable thereon.

12

0,EN # NE !"I#$LE IN%"&'(EN" I% DI%+,#& ED . 5y payment in due course by or on behalf of the principal debtor

Payment in Due "ourse8 Re9uisites a. 8ayment must be made at or after maturity b. 8ayment must be made to the holder c. 8ayment must be made in good faith and wEo notice that the holder3s title is defecti'e $1 0hom (adea. 5y maker or acceptor b. Surety, if a primary party or c. 5y an agent on behalf of the principal *. 8ayment by accommodated party +. Intentional cancellation by the holder -. 5y any act which will discharge a simple contract for the payment of money. 9. 2hen the principal debtor becomes the holder of the instrument at or after maturity in his own right. 0,EN PE&%!N% DI%+,#& ED %E+!ND#&IL) LI#$LE

P&!"E%" ?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,@ Necessit1 of Protest- 8rotest is required only for HO07IA! 5I""S, but not for inland bills or notes. FO27P70, they may also be protested if desired. O)ISSIO! OH 80O#7S#, where protest is required, will 6IS(FA0A7 the 60A270 and the I!6O0S70S. Instances when protest is reJuired. 2here the foreign bill is dishonored by nonC acceptanceG *. 2here the foreign bill is dishonored by nonC payment, it not ha'ing been dishonored by nonC acceptanceG +. 2here the bill has been accepted for honor, it must be protested for nonCpayment to the acceptor for honorG or -. 2here the bill contains a referee in case of need, it must be protested for nonCpayment before it is presented for payment to the referee in case of need.

Negotiable Instruments Law

Protest, how made#he protest must be annexed to the bill or must contain a copy thereof, and must be under the FA!6 A!6 S7A" of the !O#A0R making it and must specify: . #he time and place of presentmentG *. #he fact that presentment was made and the manner thereofG +. #he cause or reason for protesting the billG -. #he demand made and the manner gi'en, it any, or the fact that the drawee or acceptor could not be found. &eason for reJuiring protest. for uniformity in international transactions because most countries require it and *. in order to furnish authentic and satisfactory e'idence of the dishonor to the drawer who, from his residence abroad, may experience difficulty in 'erifying the matter and may be forced to rely on the representation of the holder. Protest ma1 be made b1 H a. A notary public or b. 5y any respectable resident of the place where the bill is dishonored, in the presence of two or more credible witnesses. Protest, when madeI 8rotest )=S# be made on the day of its dishonor =!"7SS delay is excused. I 2hen a bill has been 6="R !O#76 4 the protest may be subsequently extended as of the date of the noting. ?6="R !O#76@ 4 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 9+. Protest where madeENE&#LL) 4 the protest must be made at the place 7here the instrument is dishonored8 E*+EP"I!N- C 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 nonC acceptance 4 I# )=S# 57 80O#7S#76 HO0 !O!C 8AR)7!# A# #F7 8"A(7 2F707 I# IS 7>807SS76 #O 57 8ARA5"7, A!6 !O H=0#F70 807S7!#)7!# HO0 8AR)7!# #O, O0 67)A6!! O!, #F7 60A277 IS !7(7SSA0R. # bill (#) $E P&!"E%"ED $EF!&E (#"'&I") H aka ?80O#7S# HO0 57##70 S7(=0I#R@

13

C A protest for better security must be made: a. After acceptanceG b. 5ut before the date of maturityG and c. 2hen the acceptor has been adJudged bankrupt and insol'ent or has made an assignment for the benefit of creditors. N!"E- 8rotest is dispensed with by any circumstances which would dispense with notice of dishonor. When a + P&!"E%" (#) $E (#DE !N # +!P) !& 0&I""EN P#&"I+'L#&% ",E&E!F. . bill is lost or destroyed G or *. is wrongfully detained from the person entitled to hold it #++EP"#N+E F!& ,!N!& Acceptance of a bill made by a stranger to it before maturity, where the drawee of the bill refused to accept it, and the bill has been protested for nonCacceptance or where the bill has been protested for better security. Purpose for acceptance for honorAn acceptance for honor is done <to save the redit of the parties to the instrument or some party to it& as the drawer& drawee& or indorser& or somebody else.= &eJuisites for acceptance for honor. #he bill must ha'e been pre'iously protested %a. for nonCacceptance or %b. for better securityG *. #he bill is not o'erdue at the time of the acceptance for honorG +. #he acceptor for honor must be a stranger to the bill. -. #he holder must gi'e his consent. #cceptance for honor- 3 .acceptance supra protest/ H how made. It must be in writingG *. It must indicate that it is an acceptance for honorG and +. It must be signed by the acceptor for honor. !O#7: It is necessary that the acceptor for honor )=S# A887A0 before a notary public and declare that he accepts the protested bill in honor of the drawer or indorser, as the case may be, and that he will pay it at the appointed time. "he LI#$ILI") !F ",E #++EP"!& F!& ,!N!& is %E+!ND#&) H N!" primar1 or absolute. #++EP"!& F!& ,!N!& agrees to pa1 if. presentment for payment has been madeG *. the drawee does not payG +. the bill is protested for nonCpaymentG and -. notice of dishonor is gi'en to him.

&eJuisites for Protest for better securit1-

Negotiable Instruments Law

AT-R)T; !* A B)// PA;AB/# A*T#R ().0T ' 7hich has been accepted for honor: Maturity is al ulated from the date of /6T(/2 of the /6/+ *11"PT*/1" and /6T from the date of the a eptan e for honor. Bills 7hich -(T B# PR!T#(T#D *!R ,!,+ PA; #,T before it 7ill be presented for payment: . 2here a dishonored bill has been a epted for honor supra protestG or *. 2here a dishonored bill ontains a referee in ase of need. Presentment for pa1ment to acceptor for honor, how made. It must be presented in the place where the protest for nonCpayment was made 4 it must be presented !O# "A#70 than the day following its maturityG *. 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 ,-. /ote! Delay in making presentment is e# used when the delay was aused by events whi h are ."76/D ;(% 16/T568 and /6T (MP>T*.8" T6 D"9*>8T& M(%16/D>1T or /"28(2"/1". )hen a bill is D(%;6/65"D by the *11"PT65 965 ;6/65 ? it must be protested for non+payment by him. Reason: In order to fix the liability of the indorsers. P#)(EN" F!& ,!N!&

14

. #he payer or his agent goes to a notary public and declares his intention to pay the bill and for whose honor he pays. *. #he notary then records the declaration in the protest or in a separate paper attached to it. +. #he payor then notifies the person for whose honor he pays within reasonable time. Purpose of pa1ment for honorInstead of simple negotiation to the person desiring to pay, payment for honor may be a'ailed 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 deli'ery. Preference of parties offering to pa1 for honor+ The person );6%" P*7M"/T will D(%1;*52" M6%T P*5T("% to the bill is to be given the preferen e. Effects on subseJuent parties where bill is paid for honor. All parties subsequent to the party for whose honor it is paid are discharged. *. #he 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 &EF'%E% to receiAe pa1ment supra protestK Fe loses his right of recourse against any party who would ha'e been discharged by such payment. &ights of pa1er for honor.Fe acquires the rights of the holder under Section <9G and *.Fe has also the right to recei'e both the bill and the protest. $ILL% IN %E"

&eJuisites for pa1ment for honor. #he bill has been protested for nonCpaymentG *. A!R 870SO!, e'en a party thereto may pay supra protest. !O#7: As distinguished from acceptance for honor 4 the acceptor for honor )=S# 57 A S#0A!A70. In payment for honor 4 the 8ARO0 S=80A 80O#7S# 4 may e'en be a 8A0#R to the instrument. Form for pa1ment for honor. #he payment must be attested by notarial act appended to the protest, or form an extension to itG and *. #he notarial act must be based in a declaration by the payer for honor.

$ills in set 4 one composed of 'arious 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 setIn order to increase the probability of the bill reaching its destination, and to a'oid the difficulties which would arise in case of loss or miscarriage on the way of the bill. &ight of holders where different parts are negotiated2here two or more parts are negotiated to different FO"670S I! 6=7 (O=0S7 4 the FO"670 whose title HI0S# A((0=7S 4 AS 57#277! S=(F FO"670S 4 is the #0=7 O2!70 of the bill. /iability of holder 7ho indorses t7o or more parts of a set to different persons: - Fe is liable on 7P70R S=( F 8A0#G and

Procedure for pa1ment for honor-

Negotiable Instruments Law

7P70R I!6O0S70 S=5S7Q=7!# to him is "IA5"7 on the part he has himself indorsed 4 AS IH S=(F 8A0#S 2707 S78A0A#7 5I""S.

15

Promissory ,ote 4 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. N!"E2here a note is drawn to the maker3s own order, it is !O# complete until indorsed by him. %pecial t1pes of promissor1 notes6. +ertificate 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 !O# ipso fa to negotiable ? it must first omply with the re-uirements provided under %e tion 1& /(8. 8. $onds C A promise, under seal, to pay money. C #he 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 inter'als, generally six months apart. #hey are negotiable if it the requisites in Section , !I" are complied with. +lasses of $ondsB. Income bonds <. (on'ertible bonds D. 0edeemable 5onds ;. 0egistered 5onds +,E+C 4 is a bill of exchange drawn on a bank payable on demand. It is a written order on a bank, purporting to be drawn against a deposit of funds for the payment of all e'ents, of a sum of money to a certain person therein named or to his order or to cash and payable on demand. N!"EC Acceptance is !O# required for checks for the same are 8ARA5"7 O! 67)A!6. "heck is not /e%al Tender< but produ es the effe t of payment when! a. The he k was en ashed. '"n ashment is not limited to physi al en ashment over the ounter of the drawee bank. * he k an be onsidered en ashed through the learing house& or when the he k had been redited to the a ount of the reditor$ b. )hen through the fault of the reditor the he k is impaired . (n ase of redemption

Acceptance of bills in set: - #he acceptance may be written on any part and it must be written on O!7 8A0# only. #ffect if the dra7ee accepts more than one part: - If the drawee A((78#S )O07 #FA! O!7 8A0# and such accepted parts are negotiated to different holders in due course he is liable on e'ery part as if it were a separate bill. Payment by acceptor of bills dra7n in sets: - 2hen the acceptor of a bill drawn in a set pays it without requiring the part bearing his acceptance to be deli'ered up to him, and the part at maturity is outstanding in the hands of a holder in due course 4 he is liable to the holder thereof. #ffect of dischar%in% one of a set: - 2here O!7 8A0# OH A 5I"" 60A2! in a set is discharged by payment or otherwise 4 #F7 2FO"7 5I"" is 6IS(FA0A76 4 except as otherwise pro'ided. P&!(I%%!&) N!"E% #ND +,E+C%

. *. +. -. 9. ,.

)ortgage bonds 7quipment 5onds (ollateral trust bonds Auaranteed bonds 6ebentures (oupon 5onds 4 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 ser'ed and deposited in a bank, negotiated before the maturity of the interest they represent, and transferred Just like any commercial paper. #hey are negotiable if it the requisites in Section , !I" are complied with.

. 5ank !otes C Are promissory notes of the issuing bank payable to bearer on demand and intended to circulate as money. #hey are regarded as cash and pass from hand to hand without any e'idence of titled in the holder than that which arises form possession. Fowe'er, they are not money. *. 6ue 5ills C is an instrument whereby one person acknowledges his indebtedness to another.

Negotiable Instruments Law

Cinds of chec7s. !rdinary "heck/#he most common check issued by a bank to a client who opens a checking account *. "ashiers check 4 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. +. ana%ers "heck 4 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 cashier3s check as to effect and use. -. .ift "heck+Similar to a cashier3s or manager3s check and may be signed either by the cashier or manager. It is indicated as a ?Aift (heck@, so as to be used as a gift for birthdays, weddings, graduations and similar occasions. 9. emorandum "hecks 4 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 nonCpayment. C If it bounces 4 the drawer can be charged for 'iolation of 58 **. B. "ertified "hecks 4 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 ?Aood Hor 8ayment@ and underneath it is written the signature of the cashier. <. Tra4eler3s "heck+ one issued by a bank to a holder, usually a tra'eller, 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 tra'el. 2hen these checks are lost or stolen, the purchaser can notify the agent of the seller anywhere in the world and pre'ent the use of the lost or stolen tra'eller3s check. D. "rossed check 4One which has two parallel lines, usually on the upper left hand corner. ,ow is crossing of chec7 doneCit is usually done by drawing two parallel lines trans'ersally on the face of the check. A check may be crossed % . specially or %*. generally. "rossin% specially 4 a check is crossed specially when the name of a particular banker or a company is written between the parallel lines drawn trans'ersally on the face of the check. Fere, the drawer is instructing the drawee bank not to honor the check unless the payee is identified by another bank "rossin% %enerally 4 a check is crossed generally when only the words <and ompany= are written between the parallel lines, or when nothing is written at all between the parallel lines. Fere, 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.

16

N!"E%. =nder crossed check 4 the payee has the duty to ascertain the holder3s title to checks. *. 6rawee should not encash a crossed check but merely the same for deposit. +. 2here other than payee of crossed checks presented it for payment, there is no proper presentment and drawer is not liable thereon. #ffects of "rossin% a check . #he check may not be encashed but only deposited in the bank *. #he check may be negotiated only once to one who has an account with a bank +. #he act of crossing the check ser'es 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. Ad4anta%es of crossin% check: C 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 +hec7 I. Hace. . 6ate *. 8ayee +. Amount in figures -. Amount in words 9. 6rawer %Account !ame. B. 6raweeC5ank <. Account !umber D. (heck !umber ;. )agnetic Ink (haracter 0ecognition (ode %)I(0. /a code designed to facilitate the clearing of checks among banks. ,. Space for signature of the drawer II. 6orsal SideE5ack of the (heck . Space for indorsement %signature T address of the indorser. +hec7 H when should it be presented for pa1mentA check )=S# 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 %B. months 4 otherwise it will become stale.

Negotiable Instruments Law

C a check under 58 ** must be presented for payment to the bank within ;, days from date so that the holder will enJoy the benefit of the prima fa ie presumption that the maker, drawer, or issuer knows at the time of issue that he does not ha'e sufficient funds in or credit with the drawee bank for payment of such check. A check is a bill of exchange payable on demand 4 is intended for immediate use and not to circulate as a promissory note. Effect if the chec7 was allowed to become staleK %Stale when not encashed wEin B months. C the drawer is discharged but only to the extent of the loss caused by the delay. Fence, if no loss or inJury is shown, the drawer is not discharged. "ertification of check 4 is an agreement whereby the bank against whom a check is drawn, undertakes to pay it at any future time when presented for payment. # ban7 is not obliged to the depositor to certif1 chec7s. #he certification of a check is 7Q=IPA"7!# to an A((78#A!(7.

17

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. Re9uisites for (top Payment !rder 1. (t must des ribe the he k with reasonable a ura y 2. (t must be given to an authori@ed offi er or employee of the drawee bank 3. (t must be positive and un-ualified A. (t must give the bank suffi ient time prior to a eptan e& ertifi ation or payment to enable the bank& in the e#er ise of reasonable diligen e to stop payment. )ron+"lad Rule: Prohibits the ountermanding of payment of ertified he ks. +ases when $an7 (a1 &efuse Pa1ment . #he bank is insol'ent *. #he drawer3s deposit is insufficient or he has no account with the bank or said account had been closed or garnished +. #he drawer is insol'ent and proper notice is recei'ed by the bank -. #he drawer dies and proper notice is recei'ed by the bank 9. #he drawer has countermanded payment B. #he holder refuses to identify himself <. #he bank has reason to belie'e that the check is forgery.

Form of certification- !o particular form is required 4 5=# I# )=S# 57 I! 20I#I!A. #he letters ?O.S.@, with the initials of the cashier of a bank do not constitute a sufficient certification under modern banking practice.

Effect of +ertification. It is equi'alent to acceptance and is the operati'e act that makes the drawee bank liableG *. It operates as an assignment of the funds of the drawer in the hands of the drawee bankG and +. If obtained by the holder, it discharges persons secondarily liable thereon. Effect where the holder of chec7 procures it to be certified. - 2here 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.

0hen chec7 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. %top Pa1ment !rderFan instruction by the drawer addressed to the drawee bank directing the latter not to