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1- PAYMENT FOR HONOR A bill drawn by R payable to the order of P with W, as the

drawee, and A, B, C, and D as successive indorsers, and E as

Sec. 171. Who may make payment for honor. - Where a bill holder. W does not pay and E has duly protested for non-
has been protested for non-payment, any person may intervene payment.
and pay it supra protest for the honor of any person liable
thereon or for the honor of the person for whose account it was If T offers to pay supra protest for the honor of C while S, for
drawn. A, S is to be preferred as his payment will discharge B, C, and
D whereas payment by T will discharge only D.
Payment for honor- payment made by a person, whether a
party to a bill or not, after it has been protested for non- Sec. 175. Effect on subsequent parties where bill is paid for
payment, for the benefit of the person for whose account it honor. - Where a bill has been paid for honor, all parties
was drawn. subsequent to the party for whose honor it is paid are
discharged but the payer for honor is subrogated for, and
Also called PAYMENT SUPRA PROTEST because prior succeeds to, both the rights and duties of the holder as regards
protest for non-payment is required. Applicable only to the party for whose honor he pays and all parties liable to the
Bill of Exchange latter.
Purpose: May be availed when the holder, knowing that the Effects where bill is paid for honor
bill has been dishonored for non-payment, does not want to
indorse the bill and incur liabilities of an indorser. All parties subsequent to the party whose honor it is paid
is discharged; and
Who may make payment for honor
The payer for honor is subrogated for, and succeeds to,
Payment for honor may be made by a party to the bill or both the rights and duties of the holder as regards the
by a stranger. Thus, it may be made by the drawee after he party for whose honor he pays and all parties liable to the
has refused to pay the bill. latter.
Sec. 172. Payment for honor; how made. - The payment for Example:
honor supra protest, in order to operate as such and not as a
mere voluntary payment, must be attested by a notarial act of In the example in the preceding section, the payment
honor which may be appended to the protest or form an supra protest by S for the honor of A will discharge B, C, and
extension to it. D, and S is subrogated to the rights of the holder E, with
respect to W, R, P, and A. Of course, the right of S against W,
Notarial Act- Refers to an individual belonging to the notary R, and P will depend on whether or not they are liable to A.
exercising his official authority.
If S pays for the honor of all parties to the bill,
W,R,P,A,B,C, and D, then he may recover against all of them.
Sec. 173. Declaration before payment for honor. - The notarial
act of honor must be founded on a declaration made by the Sec. 176. Where holder refuses to receive payment supra
payer for honor or by his agent in that behalf declaring his protest. - Where the holder of a bill refuses to receive payment
intention to pay the bill for honor and for whose honor he supra protest, he loses his right of recourse against any party
pays. who would have been discharged by such payment.
Requisites of valid payment for honor Effect of holders refusal to receive payment
1. The bill has been dishonored by non-payment;
2. It has been protested for non-payment; In payment for honor, the holder cannot refuse the
3. Payment supra protest is made by any person, even a payment. If he refuses, he cannot recover from the parties
party thereto; who would have been discharged had he accepted the
4. The payment is attested by a notarial act of honor which same. In acceptance for honor, the holders consent is
must be appended to the protest or form an extension of it; necessary.
5. The notarial act must be based on the declaration made by
Example: If D refuses to receive payment supra protest from S
the payer for honor or his agent of his intention to pay the
for the honor of A, he loses his right of recourse against B, C,
bill for honor and for whose honor he pays.
and D who would have been discharged by such payment.
If the above formalities are not followed, the payment Sec. 177. Rights of payer for honor. - The payer for honor, on
will operate as a mere voluntary payment and the payer paying to the holder the amount of the bill and the notarial
acquires no right to full reimbursement against the party for expenses incidental to its dishonor, is entitled to receive both
whose honor he pays. the bill itself and the protest.
Sec. 174. Preference of parties offering to pay for honor. - The payer for honor is given the right to receive both the
Where two or more persons offer to pay a bill for the honor of bill and the protest to enable him to enforce his rights
different parties, the person whose payment will discharge against the parties who are liable to him under Section
most parties to the bill is to be given the preference. 175.
Example: Payment for honor
Protest must be for non-payment Protest must be-Aforholder is liable toofeach
non-acceptance personsecurity
for better whom he has indorsed a part
of a bill.
The bill is overdue The bill must not be overdue
-Any indorsees who indorsed their respective parts of the bill
would be liable on the part that he indorsed as if it was a
The consent of the holder is not required nor can the separate
Consent of the holder is bill.
holder refuse -Drawee is not liable for more than one part since his order is
Notarial act of honor is necessary to accept or pay only one part (Section 183)
It is not necessary

There can only be one payer for honor Sec.

There may be several 181. Acceptance
acceptors for honor of bill drawn in sets. - The
acceptance may be written on any part and it must be
Effects of payment for honor under Sections 175 and written
Effects of payment for on one under
acceptance part only. If the164
Sections drawee accepts more than
177 and 165 one part and such accepted parts negotiated to different
holders in due course, he is liable on every such part as if
it were a separate bill.
General rule: The drawee is required to accept only one part
2- BILLS IN SET of a bill drawn in a set and such acceptance must be written on
one part only.
Section 178. Bills in set constitute one bill. - Where a bill
is drawn in a set, each part of the set being numbered and Exception: If the drawee accepts more than one part, and
containing a reference to the other parts, the whole of the these parts are negotiated to different holders in due course, he
parts constitutes one bill. is liable as if it were a separate bill.

Definition: Bill in a set- is one composed of several parts, Sec. 182. Payment by acceptor of bills drawn in sets. -
each part being numbered and containing a reference to the When the acceptor of a bill drawn in a set pays it without
other parts, the whole of the parts constituting but one bill. requiring the part bearing his acceptance to be delivered
up to him, and the part at maturity is outstanding in the
Purpose: It is usually done in cases where a bill has to be sent hands of a holder in due course, he is liable to the holder
to a distant place through some conveyance. Each part is sent thereon.
by different means of conveyance so that there is a greater
assurance that it will reach its destination. Its purpose is to Notes:
avoid the difficulties which arise in case of loss or miscarriage The drawee does not warrant every part of the bill in a set that
on the way of bill. is indorsed but only the part accepted by him.
Section 179. Right of holders where different parts are Upon payment, the acceptor must require surrender of the part
negotiated. - Where two or more parts of a set are bearing his acceptance. If he failed to do so, he would still be
negotiated to different holders in due course, the holder liable to a holder in due course of such part.
whose title first accrues is, as between such holders, the
true owner of the bill. But nothing in this section affects Sec. 183. Effect of discharging one of a set. - Except as
the right of a person who, in due course, accepts or pays herein otherwise provided, where any one part of a bill
the parts first presented to him. drawn in a set is discharged by payment or otherwise, the
whole bill is discharged.
Note: Each part of a bill may be negotiated but the payee is
not supposed to do that. General rule: As far as the drawer is concerned, the entire bill
is discharged by payment or otherwise because the bill
However, if the payee opts to negotiate it to different persons, constitutes only one bill.
he is liable on each part. (Section 180)
General rule: As between several holders in due course, the Section 180- Indorsees who subsequently indorsed their parts
owner of the bill is the holder whose title first accrues; the Section 181- If the drawee accepts more than one part
holder whom a part is first negotiated. Section 182- If the drawee failed to require surrender of the
Exception: If a drawee, in good faith, accepts or pays the part part bearing his acceptance
first presented to him, he is protected and can refuse to accept
or pay the bill presented by the true owner. 3- PROMISSORY NOTES AND CHECKS

Sec. 180. Liability of holder who indorses two or more Section 184. Promissory note, defined. - A negotiable
parts of a set to different persons. - Where the holder of a promissory note within the meaning of this Act is an
set indorses two or more parts to different persons he is unconditional promise in writing made by one person to
liable on every such part, and every indorser subsequent another, signed by the maker, engaging to pay on demand,
to him is liable on the part he has himself indorsed, as if or at a fixed or determinable future time, a sum certain in
such parts were separate bills. money to order or to bearer. Where a note is drawn to the
maker's own order, it is not complete until indorsed by
Notes: him.
Notes: Always drawn on a bank or banker May or may not
A note payable to the makers order is not complete until Always payable on demand Either payable
indorsed by him. future time (Sec
In the absence of delivery, the maker is not liable to any holder Drawn against previous deposit of funds Need not be dra
where his indorsement is forged (Sections 14 and 15) Does not need acceptance Required to be p
Same applies for a bill of exchange; no obligation arises until Ordinarily intended for immediate payment For circulation a
the drawer indorses or delivers it to another person. But Death of a drawer of a check revokes authority of Does not revoke
principle does not apply after acceptance. Acceptance makes bank to pay
the bill complete. A check must be presented within a reasonable time Must be present
after its issue after its last neg
Special types of promissory notes If not presented within a reasonable time, drawer is Drawer is totally
discharged from liability to the extent of loss caused
1. Certificate of deposit- It is a written
acknowledgement by the bank of the receipt of by delay (Section 186)
money on deposit which the bank promises to pay When check is accepted or certified, drawer and They remain lia
repay to the depositor, bearer, some other person, or indorsers are discharged from their liability (Sec 188)
order of the depositor, or to him or his order, at a later Types of Check
date or on demand.
1. Memorandum check- A check in which is written the word
- It may be negotiable or non-negotiable.
"memorandum," "memo" and "mem" signifying that the
Negotiable if it has the requisites of section 1.
drawer engages to pay the bona fide holder absolutely,
2. Bond- It is an evidence of indebtedness issued by a
and not upon a condition to pay upon presentment of
public or private corporation, promising to pay a sum
maturity and if due notice of presentment and non-
of money on a determinable future time.
payment should be given. It is a check given by a
- Its negotiability is controlled by the same rules
borrower to a lender for the amount of a short loan, with
governing promissory notes. the understanding that it is not to be presented at the bank,
a. Registered bond but will be redeemed by the maker himself when the loan
b. Coupon bond falls due.
3. Bank note- instrument issued by a bank for 2. Cashier's check- One drawn by the cashier of a bank in
circulation as money payable to bearer on demand the name of the bank against the bank itself payable to a
4. Due Bill- It is a promissory note which shows on its third person or order. A cashier's check is a primary
face an acknowledgement by a person of his obligation of the issuing bank and accepted in advance by
indebtedness to another. its mere issuance.
5. Mortgage note- promissory note secured by a 3. Manager's check- A check drawn by the manager of a
mortgage loan bank in the name of the bank against the bank itself
a. Chattel mortgage note- secured by personal payable to a third person. It is similar to the cashier's
property check as to effect and use.
b. Real estate mortgage note- secured by real 4. Travelers Check- It is one upon which the holders
property signature must appear twice, one to be affixed by him at
6. Title-retaining note- This type is secured by a the time it is issued and the second or counter-signature to
conditional sales contract which ordinarily provides be affixed by him in the presence of the payee before it is
that title to the goods shall remain in the payees paid. Otherwise, it is incomplete.
name until the note is paid in full. 5. Certified check- A certification is an agreement whereby
7. Collateral note- It is used when the marker pledges the bank against whom a check is drawn undertakes to
securities to the payee to secure the payment of the pay it on any future time when presented for payment.
amount of the note. Certification is equivalent to acceptance and operates as
8. Judgement note- This is a note to which is added a an assignment of a part of the funds to the creditors.
power of the attorney enabling the payee to take 6. Crossed check- Under accepted banking practice, crossing
judgement against the maker without the formality of a check is done by writing two parallel lines diagonally on
a trial if a note is not paid on its due date. the left top portion of the checks. The crossing is special
9. Installment note-It is a note payable in specified or where the name of the bank or a business institution is
periodic installments at predetermined times such as written between the two parallel lines, which means that
for payment of refrigerator over a 12-month period. the drawee should pay only with the intervention of that
Section 185. Check defined. - A check is a bill of
exchange drawn on a bank payable on demand. Except as Effects of crossed checks
herein otherwise provided, the provisions of this Act
applicable to a bill of exchange payable on demand apply 1. The check may not be encashed but only deposited in
to a check. the bank.
2. The check may be negotiated only onceto one who
Check and Ordinary Bill of Exchange Distinguished has an account with a bank.
3. The act of crossing the check serves as a warning to the
holder OFthe
check has been issued for a definite
purpose, so that he must inquire if he has received the Exceptions: When presentment is excused or
check pursuant to that purpose; otherwise, he is not a dispensed with
holder in due course.
A check may be crossed either Reason for difference in the liability of drawer and indorser: In
case of dishonour, drawer is not probably or necessarily
a. Specially- name of a particular bank appears between prejudiced thereby, while an indorser is, actually or by legal
the parallel lines. The drawee bank will pay the check presumption.
upon presentment of such bank.
b. Generally- contain the words and Co. and the Sec. 187. Certification of check; effect of. - Where a check is
drawee bank will pay the check upon intervention of certified by the bank on which it is drawn, the certification is
some bank. equivalent to an acceptance.

Stale check- One which is not presented for payment Certification- is, in effect, an agreement by the bank against
within a reasonable time after its issue. It is valueless and, whom a check is drawn that the check will be paid when
therefore, should not be paid. (Section 71 and 186) presented for payment.

Banking practices presently regards as stale a check Effects:

outstanding for more than six months. 1. It is equivalent to acceptance, making the bank primarily
Banks will not normally pay such check without 2. It discharges secondarily liable parties if procured by the
consulting the depositor (drawer). holder.
3. It operates as an assignment of the funds of the drawer in
The drawer is not discharged by the mere delay in the the hands of the drawee bank.
presentation of the check for payment if he does not suffer 4. The payee, or holder, for all intents and purposes becomes
from any loss from delay. (Sec 126) the depositor of the drawee bank, with rights and duties of
Section 186. Within what time a check must be one in such a situation
5. The drawer may not issue a stop payment order on the
presented. - A check must be presented for payment
certified check.
within a reasonable time after its issue or the drawer will
be discharged from liability thereon to the extent of the Object: Enable the holder to use it as money.
loss caused by the delay.
Sec. 188. Effect where the holder of check procures it to be
When drawer is discharged from liability certified. -Where the holder of a check procures it to be
1. Requisites in order that the drawer may be discharged accepted or certified, the drawer and all indorsers are
from liability discharged from liability thereon.
a. The check is not presented within a reasonable
time after its issue; Effect where holder procures certification of check: It has the
b. The drawer suffers loss; and same effect as if the holder had drawn the money, redeposited
c. The loss suffered by the drawer is attributable to it and taken a certificate of deposit
the delay Effect where certification obtained by others: Secondary
2. Even if check is presented for payment within a parties are not discharged as when it is obtained by the drawer
reasonable time after its issue, the drawer will be even at the request of the payee.
discharged altogether from liability thereon if he is
not given notice of dishonour within prescribed time. Sec. 189. When check operates as an assignment. - A check of
(See sec 89, 103, and 104) itself does not operate as an assignment of any part of the
funds to the credit of the drawer with the bank, and the bank is
Discharge of drawer and indorser in case presentment not liable to the holder unless and until it accepts or certifies
is delayed the check.
1. Only to the extent of loss caused by delay in case of Cases when bank may refuse payment
- Only loss which would be sustained by the 1. The bank is insolvent
drawer in case of presentment was not made 2. The drawers deposit is insufficient or he has no
within a reasonable time would be caused by account, or account was closed
insolvency of the bank subsequent to the delivery 3. The drawer is insolvent and proper notice is received
and prior to presentment of check. by the bank
- Drawer is discharged only to the extent of the 4. The drawer dies and proper notice is received by the
loss caused by delay of presentment bank
- Burden of proving loss is on the drawer 5. The drawer has countermanded payment
6. Holder refuses to identify himself
2. Wholly discharged in case of indorser 7. The bank believes that the check is a forgery
- An indorser is wholly discharged irrespective of 8. The check is stale or post-dated
any question of loss by delay in presentment
Sec. 119. Instrument; how discharged. - A negotiable party secondarily liable or unless the right of recourse
instrument is discharged: against such party is expressly reserved.
a) By payment in due course by or on behalf of the
principal debtor; The methods for the discharge of the secondarily liable on
b) By payment in due course by the party the instruments are the following:
accommodated, where the instrument is made or
accepted for his accommodation; A. Any act which discharges the instrument- if the
c) By the intentional cancellation thereof by the holder; instrument is discharged in Section 119, it ceases to have
d) By any other act which will discharge a simple force and effect. Hence, all parties are discharged.
contract for the payment of money; B. Intentional cancellation of signature- if the holder
e) When the principal debtor becomes the holder of the intentionally strikes out the signature of a secondary party,
instrument at or after maturity in his own right. the secondary party will discharge him to the liability .
C. Discharge of prior party by act of holder- Upon striking
Discharge of an instrument- means the release of all parties out of the secondary party by the holder as stated in
whether primary or secondary, from obligations arising under subsection (b), it also discharges subsequent parties
the instrument rendering it without force and effect, and because these subsequent parties will lose their right of
consequently, no longer negotiable. recourse against the party discharged by the holder.
Applies only to the discharge by the act of the holder not
The methods for the discharge of negotiable instruments are by the law.
the following: D. Valid tender of payment- valid payment of a prior party, if
accepted, will discharge the said party and all parties
A. Payment in due course by principal debtor- payment subsequent to him.
must be made by the principal debtor or by someone in E. Release of the principal debtor by the act of holder-
behalf of the principal debtor. The holder is also not Release of the debtor discharges the instrument, thus all
bound to accept payment by check or another negotiable secondary parties are also discharged. However, the
instrument because it does not fall to the requirement s of holder may reserve his right of recourse against a party.
a legal tender. This reservation of right of recourse must be expressed.
B. Payment by accommodated party- Since the F. Extension of Payment- Agreement binding on holder
accommodated party is infact the principal or real debtor, made with the principal debtor to extend time of payment
its payment discharges the instrument. discharges a party secondary liable. However, this case
C. Intentional cancellation of instrument by holder- will not discharge the secondary parties:
Cancellation may be done by writing such as writing the The extension of time is consented by such party.
words cancelled or paid or it may because the
The right of recourse against such party is expressly
instrument is torn up, burned or mutilated. Cancellation is
presumed to be intentional unless disputed. reserved.
D. Any act which discharges a contract- Or the ways in Sec. 121. Right of party who discharges instrument. - Where
which obligation is extinguished such as: by payment, the instrument is paid by a party secondarily liable thereon, it
loss of the thing due, condonation or remission of debt, is not discharged; but the party so paying it is remitted to his
confusion or merger of the rights of debtor and creditor, former rights as regard all prior parties, and he may strike out
by compensation and novation. his own and all subsequent indorsements and against negotiate
E. Reacquisition by principal debtor on his own right- In the instrument, except:
order to discharge an instrument, it must be acquired at or a) Where it is payable to the order of a third person and has
after maturity. The principal debtor becomes the holder of been paid by the drawer; and
the instrument and the characters of the creditor and b) Where it was made or accepted for accommodation and
debtor are merged in his persona. has been paid by the party accommodated.
Explanation: Payment at or after maturity by a secondarily
Sec. 120. When persons secondarily liable on the instrument party does not discharge the instrument, it only discharges his
are discharged. - A person secondarily liable on the instrument liability. The secondary party may strike out his own
is discharged: indorsement and may recover from prior parties the payment
a) By any act which discharges the instrument; he made.
b) By the intentional cancellation of his signature by the Sec. 122. Renunciation by holder. - The holder may expressly
holder; renounce his rights against any party to the instrument before,
c) By the discharge of a prior party; at, or after its maturity. An absolute and unconditional
d) By a valid tender or payment made by a prior party; renunciation of his rights against the principal debtor made at
e) By a release of the principal debtor unless the holder's or after the maturity of the instrument discharges the
right of recourse against the party secondarily liable is instrument. But a renunciation does not affect the rights of a
expressly reserved; holder in due course without notice. A renunciation must be in
f) By any agreement binding upon the holder to extend the writing unless the instrument is delivered up to the person
time of payment or to postpone the holder's right to primarily liable thereon.
enforce the instrument unless made with the assent of the
The effect of renunciation are the following:
a) Renunciation in favor of a secondary party may be made Other changes that alters the effect:
before, at or after maturity. The effect of this is to or bearer to or order
discharge such secondary party and all parties writing protest waived
subsequent to him. erasure of without recourse
b) Renunciation in favor of the principal debtor may be Eligibility for clearing of checks with alterations and/or
made at or after maturity. The effect of this is to deficiency: Effective January 4, 2016, all checks with erasures,
discharge the instrument and all parties thereto. alterations and/or deficiency, regardless of any signature or
Sec. 123. Cancellation; unintentional; burden of proof. - A initials that appear to indicate authorization of the alteration or
cancellation made unintentionally or under a mistake or erasure, shall no longer be eligible or acceptable for clearing
without the authority of the holder, is inoperative but where an (except PDCs bearing specified Bank Stamp)
instrument or any signature thereon appears to have been
cancelled, the burden of proof lies on the party who alleges 4- GENERAL PROVISIONS
that the cancellation was made unintentionally or under a Sec. 190. Short title. - This Act shall be known as the
mistake or without authority. Negotiable Instruments Law.
Explanation: If cancellation is made unintentionally, by
mistake or fraud and without authority, it is inoperative. The Sec. 191. Definition and meaning of terms. - In this Act, unless
burden of proof is on the holder claiming its ineffectiveness. the contract otherwise requires.
"Acceptance" means an acceptance completed by delivery or
Sec. 124. Alteration of instrument; effect of. - Where a notification;
negotiable instrument is materially altered without the assent "Action" includes counterclaim and set-off;
of all parties liable thereon, it is avoided, except as against a "Bank" includes any person or association of persons carrying
party who has himself made, authorized, or assented to the on the business of banking, whether incorporated or not;
alteration and subsequent indorsers. But when an instrument "Bearer" means the person in possession of a bill or note
has been materially altered and is in the hands of a holder in which is payable to bearer;
due course not a party to the alteration, he may enforce "Bill" means bill of exchange, and "note" means negotiable
payment thereof according to its original tenor. promissory note;
"Delivery" means transfer of possession, actual or
RIGHTS OF ONE NOT HOLDER IN DUE COURSE constructive, from one person to another;
Where an instrument has been materially altered, it is "Holder" means the payee or indorsee of a bill or note who is
avoided in the hands of one who is not a holder in due course in possession of it, or the bearer thereof;
as against a prior party who has not assented to the alteration "Indorsement" means an indorsement completed by delivery;
"Instrument" means negotiable instrument;
WHERE INSTRUMENT NOT AVOIDED AS TO "Issue" means the first delivery of the instrument, complete in
HOLDER NOT IN DUE COURSE form, to a person who takes it as a holder;
A party who has made the material alteration "Person" includes a body of persons, whether incorporated or
A party who has authorized the material alteration not;
A party who has assented to the material alteration "Value" means valuable consideration;
Any subsequent indorsers "Written" includes printed, and "writing" includes print.
RIGHTS OF HOLDER IN DUE COURSE Sec. 192. Persons primarily liable on instrument. - The
He may enforce the instrument in its original tenor person "primarily" liable on an instrument is the person who,
He could recover the altered tenor to any party who has by the terms of the instrument, is absolutely required to pay
made, authorized or assented the alteration, or any subsequent the same. All other parties are "secondarily" liable.
indorser of the instrument
Sec. 193. Reasonable time, what constitutes. - In determining
NO DISTINCTION BETWEEN FRAUDULENT AND what is a "reasonable time" regard is to be had to the nature of
INNOCENT ALTERATION RIGHT TO COLLECT the instrument, the usage of trade or business with respect to
ORIGINAL CONSIDERATION such instruments, and the facts of the particular case.
When the alteration wasn't fraudulently done, the holder
may recover the original consideration Sec. 194. Time, how computed; when last day falls on
WHERE DRAWEE BANK PAYS ALTERED AMOUNT, holiday. - Where the day, or the last day for doing any act
DRAWER HAS THE RIGHT TO HAVE HIS ACCOUNT herein required or permitted to be done falls on a Sunday or on
DEBITED WITH CORRECT AMOUNT ONLY a holiday, the act may be done on the next succeeding secular
or business day.
Sec.125 What constitutes a material alteration. - Any alteration
which changes: (a) The date; (b) The sum payable, either for Sec. 195. Application of Act. - The provisions of this Act do
principal or interest; (c) The time or place of payment: (d) The not apply to negotiable instruments made and delivered prior
number or the relations of the parties; (e) The medium or to the taking effect hereof.
currency in which payment is to be made; (f) Or which adds a
place of payment where no place of payment is specified, or Sec. 196. Cases not provided for in Act. - Any case not
any other change or addition which alters the effect of the provided for in this Act shall be governed by the provisions of
instrument in any respect, is a material alteration.
existing legislation or in default thereof, by the rules of the law the same was properly dishonored for the reason written,
merchant. stamped or attached by the drawee on such dishonored check.
Sec. 197. Repeals. - All acts and laws and parts thereof Notwithstanding receipt of an order to stop payment, the
inconsistent with this Act are hereby repealed. drawee shall state in the notice that there were no sufficient
Sec. 198. Time when Act takes effect. - This Act shall take funds in or credit with such bank for the payment in full of
effect ninety days after its publication in the Official Gazette such check, if such be the fact.
of the Philippine Islands shall have been completed. Sec. 4. Credit construed. - The word "credit" as used herein
5- BATAS PAMBANSA BLG. 22 shall be construed to mean an arrangement or understanding
with the bank for the payment of such check.
Section 1. Checks without sufficient funds. - Any person who
makes or draws and issues any check to apply on account or Sec. 5. Liability under the Revised Penal Code. - Prosecution
for value, knowing at the time of issue that he does not have under this Act shall be without prejudice to any liability for
sufficient funds in or credit with the drawee bank for the violation of any provision of the Revised Penal Code.
payment of such check in full upon its presentment, which
check is subsequently dishonored by the drawee bank for Sec. 6. Separability clause. - If any separable provision of this
insufficiency of funds or credit or would have been dishonored Act be declared unconstitutional, the remaining provisions
for the same reason had not the drawer, without any valid shall continue to be in force.
reason, ordered the bank to stop payment, shall be punished by Sec. 7. Effectivity. - This Act shall take effect fifteen days after
imprisonment of not less than thirty days but not more than publication in the Official Gazette.
one (1) year or by a fine of not less than but not more than
double the amount of the check which fine shall in no case 6- NEW MODES OF PAYMENT
exceed Two Hundred Thousand Pesos, or both such fine and
imprisonment at the discretion of the court. There are four main types of online interfaces that use virtual
The same penalty shall be imposed upon any person who,
having sufficient funds in or credit with the drawee bank when Online Gaming
he makes or draws and issues a check, shall fail to keep Social Networking. A few examples are Facebook, MySpace,
sufficient funds or to maintain a credit to cover the full amount Flickr, YouTube
of the check if presented within a period of ninety (90) days Virtual Worlds. Users interact in a simulated environment
from the date appearing thereon, for which reason it is through the use of avatars
dishonored by the drawee bank. Online Communities. Are a group of people that interact with
others in that community through mediums other than face to
Where the check is drawn by a corporation, company or entity, face such as instant messages, email, newsletters etc.
the person or persons who actually signed the check in behalf
of such drawer shall be liable under this Act. Some risks associated with virtual currencies:

Sec. 2. Evidence of knowledge of insufficient funds. - The High volatility

making, drawing and issuance of a check payment of which is Misuse for criminal activities (Money laundering, drug
refused by the drawee because of insufficient funds in or credit trafficking and exploitation of children)
with such bank, when presented within ninety (90) days from Acceptance is uncertain
the date of the check, shall be prima facie evidence of Convertibility into legal tender
knowledge of such insufficiency of fu nds or credit unless Information security
such maker or drawer pays the holder thereof the amount due Consumer protection
thereon, or makes arrangements for payment in full by the
drawee of such check within (5) banking days after receiving At a minimum, risk mitigation should be focused on:
notice that such check has not been paid by the drawee. Placing limits on transaction size, frequency, or volume per
customer or group of customers and users,
Sec. 3. Duty of drawee; rules of evidence. - It shall be the duty Monitoring of licensed money service businesses executing
of the drawee of any check, when refusing to pay the same to transfers and exchanges, and
the holder thereof upon presentment, to cause to be written, Customer or user identification
printed, or stamped in plain language thereon, or attached
thereto, the reason for drawee's dishonor or refusal to pay the
same: Provided, That where there are no sufficient funds in or
credit with such drawee bank, such fact shall always be
explicitly stated in the notice of dishonor or refusal. In all
There are three different types of mobile payment options:
prosecutions under this Act, the introduction in evidence of
any unpaid and dishonored check, having the drawee's refusal Digital Wallets. Users link their bank accounts, debit cards
to pay stamped or written thereon or attached thereto, with the and credit cards directly to one online account. Some
reason therefor as aforesaid, shall be prima facie evidence of examples include PayPal, Payzen, Google Wallet. Digital
the making or issuance of said check, and the due presentment wallets have all of the users payment information
to the drawee for payment and the dishonor thereof, and that conveniently available in one place. This provides extra
security in that the vendor they are buying from never receives Various risks have been associated to Mobile Payments,
their credit card information. including:
Mobile Wallets. Offer the same security and convenience of BSA/AML. Resulting in failure to satisfy recordkeeping,
digital wallets. Users must first create a digital wallet with one screening and reporting requirements are common
of the providers then activate their mobile wallet on their
mobile device by downloading the providers corresponding Credit/Liquidity. Resulting in possible loss from a failure to
app. This allows users to use their smartphones to make collect on a credit obligation or otherwise meet a payments-
payments at any merchant with a near-field communication related contractual commitment
reader available at checkout. Fraud. As a result of failure to prevent or deter unauthorized
Mobile Credit Card Payments. There are many mobile credit transactions, the interception of confidential information, or
card readers that attach directly to a smartphone and work just other fraudulent activity
like in-store credit card machines, but are portable and require Compliance. As a result from failure to comply with
only a corresponding app. iZettle, Square, PayWave, and applicable consumer protection laws, disclosure requirements,
PayPass are some examples. and supervisory guidance