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Negotiable Instruments Law 1

•Written contract for the payment of money, by its form intended as substitute for money
and intended to pass from hand to hand to give the holder in due course the right to hold
the same and collect the sum due

•unconditional promise in writing made by one person to another signed by the maker
•engaging to pay on demand, or at a fixed or determinable future time a sum certain in
money to order or to bearer
•where a note is drawn to the maker’s own order, it is not complete until indorsed by him
1. Maker—one who makes a promise and signs the instrument
2. Payee—party to whom the promise is made or the instrument is payable

•unconditional order in writing addressed by one person to another signed by the person
giving it
•requiring the person to whom it’s addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to order or to bearer
1. Drawer—one who gives the order to pay money to a 3rd party
2. Drawee—person to whom the bill is addressed and who is ordered to pay
3. Payee—party in whose favor the bill is drawn or is payable


1. Draft – a common term for all bills of exchange and they are used
N.B. In bank drafts, DRAWER and DRAWEE are liable to purchaser of
draft for not complying with his instructions.
2. Trade Acceptance – a bill of exchange payable to order and at a certain
maturity, drawn by a seller against the purchaser of goods as drawee, for a
fixed sum of money, showing on its face the acceptance of the purchaser of
the goods and that it has arisen out of a purchase by goods by the acceptor.
3. Banker’s Acceptance – a draft or a bill of exchange of which the acceptor is
a bank or banker engaged generally in the business of granting banker’s
acceptance credit. It is similar to a trade acceptance, the fundamental
difference being that the banker’s acceptance is drawn against a bank
instead of the buyer.
4. Trust Receipt – the written or printed document signed by the entrustee in
favor of the entruster containing terms and conditions substantially complying
with the provisions of PD 115 (Trust Receipt Law, which took effect on
January 21, 1973). No further formality of execution or authentication shall be
necessary to the validity of the trust receipt.

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

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

Negotiable Instruments Law 2

5. Treasury Warrants – a “treasury warrant” bearing on its face the words

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

Note: Money order is NOT negotiable.

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

“Documentary Bill of Exchange” is one to which are attached documents

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

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

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

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

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

Importance of the distinction:

The distinction is important in:

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

When bill may be treated as promissory note.

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

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

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

Person in possession of a bill/note payable to bearer

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


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


1. in writing and signed by maker or drawer
 no person liable on the instrument whose signature does not appear thereon
* A person signing in a trade or assumed name
* Principal is liable if a duly authorized agent signs in his own behalf
(Agent must be duly authorized; He adds words indicating that he
signs as an agent; He must disclosed his principal)
(Signature by procuration-operates as notice that the agent has
limited authority to sign and principal is bound if agent acted
beyond the limits of his authority)
* In case of forgery, the forger is liable even if his signature does not
appear on the instrument
* Where the acceptor makes his acceptance of a bill on a separate paper
* Where a person makes a written promise to accept a bill before it is
 one who signs in a trade or assumed name liable to the same extent as if he had
signed in his own name
 signature of any party may be made by a duly authorized agent, no particular form of
appt. necessary

2. unconditional promise or order to pay

Negotiable Instruments Law 4

 unqualified order or promise to pay is unconditional though coupled with

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

a sum certain in money

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

3. payable on demand,
 when expressed to be payable on demand, or at sight, or on presentation;
 when no time for payment expressed, or
 where an instrument is issued, accepted or indorsed when overdue, it is, as regards
the person so issuing, accepting, or indorsing it, payable on demand

or at a fixed or determinable future time

 when it’s expressed to be payable at a fixed period after date or sight, or
 on or before a fixed or determinable future time fixed therein, or
 on or at a fixed period after the occurrence of a specified event which is certain to
happen, though the time of happening be uncertain
 an instrument payable upon a contingency not negotiable, and happening of event
doesn’t cure it

4. payable to order
 where it is drawn payable to the order of a specified person or to him or his order.
May be drawn payable to order of ---
a. a payee not the maker/drawer/drawee, or
b. drawer or maker, or
c. drawee, or
d. two or more payees jointly, or
e. holder of an office for time being
 when the instrument is payable to order the payee must be named or otherwise
indicated therein with reasonable certainty

or bearer,
 when expressed to be so payable
 when payable to person named therein or bearer
 when payable to order or fictitious/non-existent person, and such fact known to the
person making it so payable, or
 when name of payee doesn’t purport to be the name of any person, or
 when the only/last indorsement is in blank
Negotiable Instruments Law 5

5. where addressed to drawee: such drawee named/ indicated therein with

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


1. restrictively indorsed
2. discharged by payment or otherwise


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

Other Instances when negotiability not affected

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

Sec. 17. Construction where instrument is ambiguous.

(a) Where the sum payable is expressed in words and also in figures and there is a
discrepancy between the two, the sum denoted by the words is the sum payable; but if
the words are ambiguous or uncertain, reference may be had to the figures to fix the
(b) Where the instrument provides for the payment of interest, without specifying the
date from which interest is to run, the interest runs from the date of the instrument,
and if the instrument is undated, from the issue thereof;
(c) Where the instrument is not dated, it will be considered to be dated as of the time it
was issued;
(d) Where there is a conflict between the written and printed provisions of the
instrument, the written provisions prevail;
(e) Where the instrument is so ambiguous that there is doubt whether it is a bill or
note, the holder may treat it as either at his election;
(f) Where a signature is so placed upon the instrument that it is not clear in what
capacity the person making the same intended to sign, he is to be deemed an
(g) Where an instrument containing the word "I promise to pay" is signed by two or
more persons, they are deemed to be jointly and severally liable thereon.
Negotiable Instruments Law 6


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

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

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

When date may be inserted?

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

DELIVERY (Sec. 16)

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

• NI incomplete and revocable until delivery for the purpose of giving effect thereto. As
a. immediate parties
b. a remote party other than holder in due course
delivery, to be effectual, must be made by or under the authority of the party
• in such case delivery may be shown to have been conditional, or for a special purpose
only, and not for the purpose of transferring the property in the instrument

Where the instrument is no longer in the possession of a party whose signature appears
thereon, a valid and intentional delivery by him is presumed until the contrary is proved
(*if in the hands of a HDC, presumption conclusive)

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

 It is the writing of the name of the indorser on the instrument with the intent either to
transfer the title to the same, or to strengthen the security of the holder by assuming a
contingent liability for its future payment.
 The indorsement must be written on the instrument itself or upon a paper attached
thereto. The signature of the indorser is sufficient. (Sec. 31)
Negotiable Instruments Law 7

 Indorsement must be of entire instrument. (can’t be indorsement of only part of

amount payable, nor can it be to two or more indorsees severally. But may be indorsed
as to the residue of partially paid instrument) [Sec. 32]

A. As to manner of future method of negotiation
1. Special – specifies the person to whom/to whose order the instrument is to be
payable; indorsement of such indorsee is necessary to further negotiation.
2. Blank – specifies no indorsee, instrument so indorsed is payable to bearer, and may
be negotiated by delivery

• The holder may convert a blank indorsement into a special indorsement by writing
over the signature of the indorser in blank any contract consistent with the character of
the indorsement (Sec. 35)

B. As to kind of title transferred

1. restrictive
• prohibits further negotiation of instrument,
• constitutes indorsee as agent of indorser, or
• vests title in indorsee in trust for another

• Rights of indorsee in restrictive indorsement:

• receive payment of instrument
• Bring any action thereon that indorser could bring
• Transfer his rights as such indorsee, but all subsequent indorsees acquire only title of
first indorsee under restrictive indorsement

2. non-restrictive

C. As to kind of liability assumed by indorser

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

D. As to presence/absence of express limitations put by indorser upon primary

obligor’s privileges of paying the holder
1. conditional – additional condition annexed to indorser’s liability.
• Where an indorsement is conditional, a party required to pay the instrument may
disregard the condition, and make payment to the indorsee or his transferee, whether
condition has been fulfilled or not
• Any person to whom an instrument so indorsed is negotiated will hold the
same/proceeds subject to rights of person indorsing conditionally

2. unconditional


• Where an instrument payable to bearer is indorsed specially, it may nevertheless be
further negotiated by delivery
• Person indorsing specially liable as indorser to only such holders as make title through
his indorsement
Negotiable Instruments Law 8


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

 Presumed to be payable to the bank or corporation


 May continue indorsing through the misspelled name, or he may add his proper

Presumption as to time of Indorsement—before instrument is overdue, except where

indorsement bears date which is after maturity.

Presumption as to place of Indorsement—At the place where instrument dated

Striking Out Indorsements, Effect:

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


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


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


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

2. holder became such before it was overdue, without notice of any previous
• sec. 53 (instrument payable on demand negotiated after unreasonable length of
time: holder is not HDC)
• sec. 12 (effect antedating/postdating)
Negotiable Instruments Law 9

3. taken in good faith and for value

• sec. 24 (presumption of consideration)
• sec 25 (Value: is any consideration sufficient to support a simple contract)
• sec. 26 (Holder for value: one who has given a valuable consideration for the
instrument issued or negotiated to him )
• sec. 27 (When a holder has lien on the instrument, by contract or implication he is
deemed a holder for value to the extent of the lien)

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

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

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


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


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


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

1. real defense – attaches to instrument; on the principle that the right sought to be
enforced never existed/there was no contract at all. Available to all parties both
immediate and remote including HDC.
2. personal defense – growing out of agreement; renders it inequitable to be enforced
against defendant. Available to prior parties among themselves but w/c are not good
against a HDC.
Negotiable Instruments Law 10

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

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

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

Good Forgery—requires examination of signature if it was forged

Effect when Signature is forged or made without authority of person whose

signature it purports to be.
General Rule:
a. wholly inoperative
b. no right to retain instrument, or give discharge, or enforce payment vs. any party, can
be acquired through or under such signature (unless forged signature unnecessary to
holder’s title)
unless the party against whom it is sought to enforce such right is precluded from setting
up forgery/want of authority

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

• Where NI materially altered w/o assent of all parties liable thereon, avoided, except as
1. party who has himself made, authorized or assented to alteration
2. and subsequent indorsers

• But when an instrument has been materially altered and is in the hands of a HDC not a
party to the alteration, HDC may enforce payment thereof according to orig. tenor

*material alteration a personal defense when used to deny liability according to org.
tenor of instrument, but real defense when relied on to deny liability according to altered

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


• Personal defense (sec. 16)
• If instrument not in possession of party who signed, delivery prima facie presumed
• If holder is HDC, delivery conclusively presumed
Negotiable Instruments Law 11


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

• Personal defense (sec. 14)
• 2 Kinds of Writings:
1. Where instrument is wanting in any material particular: person in possession has
prima facie authority to complete it by filing up blanks therein
2. Signature on blank paper delivered by person making the signature in order that the
paper may be converted into a NI: prima facie authority to fill up as such for any amount

• In order that any such instrument, when completed, may be enforced against any
person who became a party thereto prior to its completion:
1. must be filled up strictly in accordance w/ authority given
2. within a reasonable time
• but if any such instrument after completion is negotiated to HDC, it's valid for all
purposes in his hands, he may enforce it as if it had been filled up properly

Real Defenses Personal Defenses

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


• Person primarily liable: person who by the terms of the instrument is absolutely
required to pay the same.

1. Liability of Maker
a. Promises to pay it according to its tenor
b. admits existence of payee and his then capacity to indorse

2. Status of drawee prior to acceptance or payment

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

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

1. Liability of Drawer
a. Admits existence of payee and his then capacity to endorse
b. Engages that on due presentment instrument will be accepted, or paid, or both,
according to its tenor and that
c. If it be dishonored, and the necessary proceedings on dishonor be duly taken, he
will pay the amount thereof to the holder or to an subsequent indorser who may be
compelled to pay it

• drawer may insert in the instrument an express stipulation negativing / limiting his
own liability to holder

2. Liability of Indorsers:

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

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

• Liability of a General or Unqualified Indorser

a. instrument genuine, good title, capacity of prior parties
b. instrument is at time of indorsement valid and subsisting
c. on due presentment, it shall be accepted or paid, or both, according to tenor
Negotiable Instruments Law 13

d. if it be dishonored, and necessary proceedings on dishonor be duly taken, he will

pay the amt. To holder, or to any subsequent indorser who may be compelled to pay it

• Order of Liability among Indorsers

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

Liability of Accomodation Party

• Definition: one who signed instrument as maker/drawer/acceptor/ indorser w/o
receiving value thereof, for the purpose of lending his name to some other person
• Accomodation Party liable on the instrument to holder for value even if holder, at
time of taking instrument, knew he was only an Accomodation Party
Some Terms:
 Accommodation Bill or Note—one to which the accommodation party has put his
name, w/o consideration, for the purpose of accommodating some other party who
is to use it and is expected to pay it.
 Accomodated Party—is one in whose favor a person, w/o receiving value
therefore, signs an instrument for the purpose of lending his credit and enabling
said party to raise money upon it.

Liability of Irregular Indorser

• Where a person not otherwise a party to an instrument, places thereon his signature
in blank before delivery, he’s liable as an indorser, in accordance w/ these rules:

1. Instrument payable to order of 3rd person: liable to payee and to all subsequent
2. Instrument payable to the order of maker/drawer, or payable to bearer: liable to all
parties subsequent to maker/drawer
3. Signs for accommodation of payee, liable to all parties subsequent to payee

Liability of an Agent
• Signature of any party may be made by duly authorized agent, establish as in ordinary
• Where instrument contains or a person adds to his signature words indicating that he
signs for or on behalf of a principal, he is not liable on the instrument if he was duly
authorized, but the mere addition of words describing him as an agent without disclosing
his principal, does not exempt from personal liability.
• Signature per procuration operates as notice that the agent has but a limited authority
to sign, and the principal is bound only in case the agent in so signing acted within the
actual limits of his authority
• Where a broker or agent negotiates an instrument without indorsement, he incurs all
liabilities in Sec. 65, unless he discloses name of principal and fact that he’s only acting
as agent
Negotiable Instruments Law 14

A. In Promissory Notes
Not necessary to make the maker liable, but is necessary to make the secondary parties
For a valid presentment for payment of a promissory note, the following are necessary:
a. made within a reasonable time after issue;
b. by the holder or his agent;
c. to the party liable under it;
d. at a reasonable hour on a business day; and
e. at the proper place.
***The holder must exhibit the instrument to the debtor and should deliver it to said
debtor if the latter pays.

When NOT required/excused

Presentment is NOT required:
1. when after due diligence presentment cannot be made;
2. when presentment is waived, and
3. when the indorser is an accommodated party.

B. In Bills of Exchange

Acceptance is the signification by the drawee of his assent to the order of the drawer.

How made:
- The acceptance may be on the bill, on a separate paper (allonge), and may even be in
writing before the bill is drawn.
- The drawee, if he wants to dishonor, must do so expressly within twenty-four
(24) hours from presentment to him. If he refuses to act, tears the bill, or refuses
to return the bill within said period of twenty-four hours, he is deemed to have
accepted the bill – implied acceptance.
- A sight draft (usually accompanying a letter of credit in importations) is payable
on demand and needs no acceptance by the drawee.

Classes of Acceptance
1. General and Qualified
General Acceptance – a general acceptance assents without qualification to the order of
the drawer.
Qualified Acceptance – it varies the effect of the bill as drawn. The acceptance is
qualified if it is:
a. Conditional;
b. Partial;
c. Local;
d. Qualified as to time;
e. Accepted by some or more of the drawees but not by all.
Negotiable Instruments Law 15

2. Express and Constructive

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


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


- It is usually done by writing across the face of the bill the word “ACCEPTED” or words
of similar import, e.g. “HONORED”, “I WILL PAY THE BILL”, “SEEN” followed by the
signature of the drawee.

- The drawee must sign because without his signature he would not be bound – See
Section 18, NIL.

- Acceptance by telegram has been held sufficient.

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

Upon acceptance, the drawee becomes liable on the bill. The bill becomes in effect a
note, the acceptor standing in the place of the maker, and the drawer, in the place of the
first indorser.
But should the drawee refuse to accept, the payee or the holder has no recourse
against him but only against the drawer and indorsers, if any.

Is payment equivalent to acceptance? NO, - the payment of a check does not include
or imply its acceptance in the sense that this word is used in Section 62, NIL.


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

- If the bill is non-existent, the acceptance on a separate paper must

comply with following requirements:
i. That the contemplated drawee shall describe the bill to be drawn
and promise to accept it.
ii. That the bill shall be drawn within a reasonable time after such
promise is written; and
iii. That the holder shall take the bill upon the credit of the promise.
Negotiable Instruments Law 16

Section 136.
- The drawee is allowed twenty-four hours after presentment in which to
decide whether or not he will accept the bill; the acceptance if given,
dates as of the day of presentation.

- NOTE: The time allowed begins from the time of delivery and not after
demand for a return of the bill and the time for returning the bill to the
holder does not begin to run from the demand for its return but from the
date of its delivery.

- Drawee bank is NOT entitled to 24 hours to decide whether for payment

NOT acceptance. But, if the check is presented for certification, this ruling will
not apply, as certification is equivalent to acceptance.

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

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

- If the holder should demand its return before twenty-four hours, the
drawee would be required to comply on pain of being held as an
acceptor; but return within twenty-four hours unaccepted would not be a

- In all the foregoing, the drawee will be deemed to have accepted the bill
even if there is NO ACTUAL WRITTEN ACCEPTANCE by him.

Instances when a bill may be accepted:

1. Before the bill has been signed by the drawer;
2. Even when the bill is otherwise incomplete;
3. Even when the bill is overdue;
4. Even after it has been dishonored by non-acceptance or by non-payment.
- The holder of the bill has the right to require GENERAL ACCEPTANCE
– thus he may REFUSE to take qualified acceptance and if he DOES
NOT obtain an unqualified acceptance – he may treat the bill as

- Effect of taking qualified acceptance: Where a qualified acceptance is

taken – THE DRAWER and INDORSERS are discharged from liability on
the bill unless they have expressly or impliedly authorized the holder to
take qualified acceptance or subsequently assents thereto.

- When the drawer or indorser receives notice of qualified acceptance – he

must – within a REASONABLE TIME – express his dissent to the holder
or he will be deemed to have assented thereto.

 Presentment for Acceptance

Definition: It is the production or exhibition of a bill of exchange to the drawee for his
Negotiable Instruments Law 17

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

1. Where the bill is payable after sight, or in any other case, where presentment for
acceptance is necessary in order to fix the maturity of the instrument; or
2. Where the bill is expressly stipulates that it shall be presented for acceptance; or
3. Where the bill is drawn payable elsewhere than at the residence or place of
business of the drawee.

NOTE: In those instances found in Section 143 – it is NECESSARY – in

order to charge persons secondarily liable (Section 144):

i. to make presentment for acceptance or

ii. to negotiate the bill within a reasonable time.

 Presentment, how made:

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

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

To WHOM will it be presented?

1. To the DRAWEE or some person authorized to ACCEPT or REFUSE

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

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


4. Where the drawee has been adjudged a bankrupt or an insolvent or has

made an assignment for the benefit of creditors, presentment may be
made to him or to his trustee or assignee.

Days when presentment may be made:

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

instruments may be presented for payment.

When SATURDAY is NOT OTHER WISE A HOLIDAY – presentment for

ACCEPTANCE may be made before twelve o’clock noon on that day.
Negotiable Instruments Law 18

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

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


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

Duty of the holder where bill is not accepted.

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

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


 Presentment For Payment Of Accepted Bill

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

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

When Presentment for payment is excused;

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

- In a promissory note, dishonor by non-payment takes place when it is duly presented
for payment and payment is refused or cannot be obtained; or if presentment is excused,
the instrument is overdue and unpaid.
Negotiable Instruments Law 19

Effect: There is an immediate right of recourse by the holder against persons

secondarily liable, which requires notice of dishonor (Sec. 84)

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

Effect of Dishonor by Non-acceptance: An immediate right of recourse against the

drawer and indorsers accrues to the holder and NO PRESENTMENT for payment is
necessary. (Sec. 151)

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

--bringing either verbally or by writing, to the knowledge of the drawer or indorser of
an instrument, the fact that a specified negotiable instrument, upon proper proceedings
taken, has not been accepted or has not been paid and that the party notified is
expected to pay it.

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

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

 BY whom Given
a. The holder
b. Another, on behalf of the holder
c. Any party to the instrument who may be compelled to pay it to the holder, and who
would have a right of reimbursement from the party to whom notice is given
Negotiable Instruments Law 20


1. When the party to be notified knows about the dishonor, actually or constructively
2. If waived (either before the time of giving notice has arrived or after the omission to
give due notice) (Sec. 109)
--If waiver embodied in instrument itself it binds all parties, but if written above the
signature of an indorser, the latter is only bound
3. When after due diligence, it cannot be given (Sec. 112)


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


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


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


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


- A release of all the parties liable from obligations arising thereunder. It renders the
instrument without force and effect and, consequently, it can no longer be negotiated.


1. By payment in due course by or on behalf of the principal debtor
Payment in Due Course. Requisites
a. Payment must be made at or after maturity
b. Payment must be made to the holder
c. Payment must be made in good faith and w/o notice that the holder’s title is
Negotiable Instruments Law 21

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

2. Payment by accommodated party

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


(a) By any act which discharges the instrument
(b) By the intentional cancellation of his signature by the holder
(c) By the discharge of a prior party
(d) By a valid tender or payment made by a prior party
(e) By a release of the principal debtor unless the holder's right of recourse against the
party secondarily liable is expressly reserved
(f) By any agreement binding upon the holder to extend the time of payment or to
postpone the holder's right to enforce the instrument unless made with the assent of the
party secondarily liable or unless the right of recourse against such party is expressly

Cancellation: it includes the act of tearing, erasing, obliterating or burning. It is not

limited by writing the word “cancelled” or “paid” or drawing criss-cross lines across
the instrument. It may be made by any other means by w/c the intention to cancel the
instrument may be evident.
Renunciation (Sec. 122)-The act of surrendering a right or claim w/o recompense,
but it can be applied w/ equal propriety to the relinquishing of a demand upon an
agreement supported by a consideration
> Holder may expressly renounces his rights against any party to the instrument
before, at or after its maturity.
> If renunciation is absolute and unconditional in favor of the principal debtor,
instrument is discharged
> Notice is required to affect rights of HDC
> Renunciation must be in writing unless instrument is delivered up to the
person primarily liable thereon.

“It is a formal statement in writing made by a notary under his seal of office at the
request of the holder of a bill or note, in which it is declared that the same was on a
certain day presented for payment (or acceptance as the case may be), and such
payment (or acceptance) was refused, whereupon the notary protests against all parties
to such instrument and declares that they will be held responsible for all loss or damage
arising from its dishonor.” It means all the steps or acts accompanying the dishonor of a
bill or note necessary to charge an indorser,”
Negotiable Instruments Law 22

Necessity of Protest: Protest is required only for FOREIGN BILLS, but not for inland
bills or notes. HOWEVER, they may also be protested if desired. OMISSION OF
PROTEST, where protest is required, will DISCHARGE the DRAWER and the

Instances when protest is required:

1. Where the foreign bill is dishonored by non-acceptance;

2. Where the foreign bill is dishonored by non-payment, it not having been
dishonored by non-acceptance;
3. Where the bill has been accepted for honor, it must be protested for non-
payment to the acceptor for honor; or
4. Where the bill contains a referee in case of need, it must be protested for non-
payment before it is presented for payment to the referee in case of need.

Protest, how made:

The protest must be annexed to the bill or must contain a copy thereof, and must be
under the HAND AND SEAL of the NOTARY making it and must specify:
1. The time and place of presentment;
2. The fact that presentment was made and the manner thereof;
3. The cause or reason for protesting the bill;
4. The demand made and the manner given, it any, or the fact that the drawee or
acceptor could not be found.

Reason for requiring protest:

1. for uniformity in international transactions because most countries require it and
2. in order to furnish authentic and satisfactory evidence of the dishonor to the
drawer who, from his residence abroad, may experience difficulty in verifying the
matter and may be forced to rely on the representation of the holder.

Protest may be made by –

a. A notary public or
b. By any respectable resident of the place where the bill is dishonored, in the
presence of two or more credible witnesses.

Protest, when made:

* Protest MUST be made on the day of its dishonor UNLESS delay is excused.

* When a bill has been DULY NOTED – the protest may be subsequently extended
as of the date of the noting.

“DULY NOTED” – means that a notary public jots down on a note on the bill or an
paper attached thereto, or in his registry book, consisting of his initials or signature
and those matters required to be stated in Section 153.

Protest where made:

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

EXCEPTION: - where that when the bill drawn payable at the place of business or
residence of some person other than the drawee has been dishonored by non-
Negotiable Instruments Law 23





Requisites for Protest for better security:

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

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


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


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

Purpose for acceptance for honor:

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

Requisites for acceptance for honor:

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

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

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

It is necessary that the acceptor for honor MUST APPEAR before a notary
public and declare that he accepts the protested bill in honor of the drawer or
indorser, as the case may be, and that he will pay it at the appointed time.
Negotiable Instruments Law 24


or absolute.

ACCEPTOR FOR HONOR agrees to pay if:

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

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

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

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

Presentment for payment to acceptor for honor, how made:

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

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

 When a bill is DISHONORED by the ACCEPTOR FOR HONOR – it must be

protested for non-payment by him.
Reason: In order to fix the liability of the indorsers.


Requisites for payment for honor:

1. The bill has been protested for non-payment;
2. ANY PERSON, even a party thereto may pay supra protest.
As distinguished from acceptance for honor – the acceptor for honor MUST
BE A STRANGER. In payment for honor – the PAYOR SUPRA PROTEST –
may even be a PARTY to the instrument.

Form for payment for honor:

1. The payment must be attested by notarial act appended to the protest, or form an
extension to it; and
2. The notarial act must be based in a declaration by the payer for honor.
Negotiable Instruments Law 25

Procedure for payment for honor:

1. The payer or his agent goes to a notary public and declares his intention to pay the
bill and for whose honor he pays.
2. The notary then records the declaration in the protest or in a separate paper
attached to it.
3. The payor then notifies the person for whose honor he pays within reasonable

Purpose of payment for honor:

Instead of simple negotiation to the person desiring to pay, payment for honor
may be availed of when the holder does not want to indorse the bill and thereby incur the
liabilities of an indorser or of one negotiating by mere delivery.

Preference of parties offering to pay for honor:

- The person WHOSE PAYMENT will DISCHARGE MOST PARTIES to the bill is to be
given the preference.

Effects on subsequent parties where bill is paid for honor:

1. All parties subsequent to the party for whose honor it is paid are discharged.
2. The payer for honor is subrogated for and succeeds to both the rights and duties of
the holder as regards the party for whose honor he pays and all parties liable to the

Effect if the holder REFUSES to receive payment supra protest?

He loses his right of recourse against any party who would have been discharged by
such payment.

Rights of payer for honor:

1. He acquires the rights of the holder under Section 175; and
2. He has also the right to receive both the bill and the protest.


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

Purpose of bill in set:

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

Right of holders where different parts are negotiated:

Where two or more parts are negotiated to different HOLDERS IN DUE COURSE – the
TRUE OWNER of the bill.

Liability of holder who indorses two or more parts of a set to different persons:
- He is liable on EVERY SUC H PART; and
- EVERY INDORSER SUBSEQUENT to him is LIABLE on the part he has himself
Negotiable Instruments Law 26

Acceptance of bills in set:

- The acceptance may be written on any part and it must be written on ONE PART

Effect if the drawee accepts more than one part:

- If the drawee ACCEPTS MORE THAN ONE PART and such accepted parts are
negotiated to different holders in due course he is liable on every part as if it were a
separate bill.

Payment by acceptor of bills drawn in sets:

- When the acceptor of a bill drawn in a set pays it without requiring the part bearing
his acceptance to be delivered up to him, and the part at maturity is outstanding in
the hands of a holder in due course – he is liable to the holder thereof.

Effect of discharging one of a set:

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


Promissory Note – is an unconditional promise in writing made by one person to

another, signed by the maker, engaging to pay on demand, or at a fixed or determinable
future time, a sum certain in money to order or bearer.

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

Special types of promissory notes:

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

Classes of Bonds:
1. Mortgage bonds 5. Debentures
2. Equipment Bonds 6. Income bonds
3. Collateral trust bonds 7. Convertible bonds
4. Guaranteed bonds 8. Redeemable Bonds
Negotiable Instruments Law 27

9. Registered Bonds
10. Coupon Bonds – those which are attached a sheet of dated, numbered and
similarly printed coupons which the bondholder may cut off when due or
thereafter. Such coupons may be served and deposited in a bank, negotiated
before the maturity of the interest they represent, and transferred just like any
commercial paper. They are negotiable if it the requisites in Section 1, NIL are
complied with.

11. Bank Notes

- Are promissory notes of the issuing bank payable to bearer on demand and
intended to circulate as money. They are regarded as cash and pass from
hand to hand without any evidence of titled in the holder than that which
arises form possession. However, they are not money.

12. Due Bills

- is an instrument whereby one person acknowledges his indebtedness to

 CHECK – is a bill of exchange drawn on a bank payable on demand. It is a written

order on a bank, purporting to be drawn against a deposit of funds for the payment of
all events, of a sum of money to a certain person therein named or to his order or to
cash and payable on demand.

- Acceptance is NOT required for checks for the same are PAYABLE ON

 Check is not Legal Tender, but produces the effect of payment when:
a. The check was encashed. (Encashment is not limited to physical
encashment over the counter of the drawee bank. A check can be considered
encashed through the clearing house, or when the check had been credited to the
account of the creditor)
b. When through the fault of the creditor the check is impaired
c. In case of redemption

Kinds of checks:
1. Ordinary Check—The most common check issued by a bank to a client who
opens a checking account
2. Cashier’s check – it is a check drawn by the cashier of a bank in the name of the
bank against the bank itself payable to a third person or order.
3. Manager’s Check – a drawn by the manager of a bank in the name of the bank
against the bank itself payable to a third person. It is similar to the cashier’s check
as to effect and use.
4. Gift Check-Similar to a cashier’s or manager’s check and may be signed either by
the cashier or manager. It is indicated as a “Gift Check”, so as to be used as a gift
for birthdays, weddings, graduations and similar occasions.
5. Memorandum Checks – a check on which is written the word “memorandum”,
“memo”, and “mem”, signifying that the drawer engages to pay the bona fide holder
absolutely and not upon a condition to pay upon presentment and non-payment.
- If it bounces – the drawer can be charged for violation of BP 22.
Negotiable Instruments Law 28

6. Certified Checks – a check on which the drawee bank has written an agreement
whereby it undertakes to pay the check at any future time when presented for
payment, such as, by stamping on the check the word “certified” or “Good For
Payment” and underneath it is written the signature of the cashier.
7. Traveler’s Check- one issued by a bank to a holder, usually a traveller, who must
put his signature upon purchase of the check and countersign with the same
signature on the space indicated on its face or back when using the check as a
mode of payment in his travel. When these checks are lost or stolen, the purchaser
can notify the agent of the seller anywhere in the world and prevent the use of the
lost or stolen traveller’s check.
8. Crossed check –One which has two parallel lines, usually on the upper left hand
How is crossing of check done:
-it is usually done by drawing two parallel lines transversally on the face of
the check. A check may be crossed (1) specially or (2) generally.

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

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

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

Effects of Crossing a check

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

Advantages of crossing check:

- it is a good precaution when it is to be forwarded by mail or when it is entrusted to an
agent and the drawer wants to be sure that it will be paid to the rightful owner.
Negotiable Instruments Law 29

Features of the Check

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

II. Dorsal Side/Back of the Check

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

Check – when should it be presented for payment:

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

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

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

A check is a bill of exchange payable on demand – is intended for immediate use

and not to circulate as a promissory note.

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

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

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

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

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

- The letters “O.K.”, with the initials of the cashier of a bank do not constitute a
sufficient certification under modern banking practice.
Negotiable Instruments Law 30

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

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

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

- Indorsers subsequent to the certification are not discharged.

When check operates as an assignment.

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

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

Requisites for Stop Payment Order

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

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

Cases when Bank May Refuse Payment

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