III. Negotiable Instruments Law A. FORMS AND INTERPRETATION 1.

Requisites of Negotiability

3.

An instrument to be negotiable, must conform to the following requirements: W (a) It must be in writing and signed by the maker or drawer; U(b) Must contain an unconditional promise or order to pay a certain sum in money; P (c) Must be payable on demand, or at a fixed or determinable future time; O (d) Must be payable to order or to bearer; and Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. (Sec. 1) 2. Kinds of Negotiable Instruments

4.

Bankers Acceptance a draft or a bill of exchange of which the acceptor is a bank or banker engaged generally in the business of granting bankers acceptance credit. It is similar to a trade acceptance, the fundamental difference being that the bankers acceptance is drawn against a bank instead of the buyer. 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. 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)

5.

a. Promissory notes Unconditional promise to pay in writing made by one person to another, signed by the maker, engaging to pay on demand or a fixed determinable future time a sum certain in money to order or bearer. When the note is drawn to makers own order, it is not complete until indorse by him. (Sec. 184 NIL) b. Bills of Exchange Unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer. (Sec. 126 NIL) TYPES OF BILL OF EXCHANGE: 1. Draft a common term for all bills of exchange and they are used synonymously.

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 negotiable. order is NOT

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.

NOTE: 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.

8.

D/A and D/P Bills of Exchange Documents Against Payment Bill D/P Bill is a sight or time bill to which are attached documents to be delivered and surrendered to the drawee when he has paid the corresponding bill. Documents Against Acceptance Bill D/A Bill is a time bill to which are attached documents to be delivered and

surrendered to the drawee when he accepts the bill. 9. Sight bills are bills which are payable upon presentation or at sight or on demand. 10. Time or usance bills are bills which are payable at a fixed future time or at a determinable future time. 11. Inland Bill of Exchange is a bill which is or on its face purports to be BOTH drawn and payable within the Philippine Islands. 12. 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. B. COMPLETION AND DELIVERY 1. Insertion of Date Where an instrument expressed to be payable at a fixed period after date is issued undated, or where the acceptance of an instrument payable at a fixed period after sight is undated, any holder may insert therein the true date of issue or acceptance, and the instrument shall be payable accordingly. The insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in due course; but as to him, the date so inserted is to be regarded as the true date. (Sec. 13) The holder may put a date in an instrument when: a. b. an instrument expressed to be payable at a fixed period after date is issued undated where acceptance of an instrument payable at a fixed period after sight is undated

Blanks, when may be filled. Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. (Sec. 14) a. Authority to fill up the blanks

The law speaks of material particular. It may be defines as any particular proper to be inserted in a negotiable instrument to make it complete. Thus, blanks for date, due date, name of payee, amount, or rate of interest may be filled in.

b.

Authority to put any amount

A signature on a blank paper delivered in order that may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount.

c.

Right against party prior to completion

The instrument may be enforced only against a PARTY PRIOR to completion if filled up strictly in accordance with the authority given and within a reasonable time.

d.

Right of holder in due course

Effect of insertion of wrong date: 1. The insertion of a wrong ate in an undated instrument by one having knowledge of the true date of issue or acceptance will avoid the instrument as to him But not as to a subsequent holder in due course who may enforce the same notwithstanding the improper date. In the hands of a holder in due course, the date inserted, even if wrong, is to be regarded as the true date.

The defense that the instrument had not been filled up in accordance with the authority given is NOT available as against a holder in due course. Sec. 14 merely raises a personal defense.

2.

3. Incomplete Instruments

and

Undelivered

2. Completion of Blanks

Where an incomplete instrument has not been delivered, it 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. (Sec. 15) a. Defense even against a holder in due course b. Defense available to parties prior to delivery The invalidity of the above instrument is only with reference to the parties whose signature appear on the instrument BEFORE and not after delivery. 4. Complete Instruments but Undelivered

g.

If delivery was made, it may be shown to have been conditional, or for a special purpose only and not for transferring title.

C. SIGNATURE 1. Signing in Trade Name No person liable on the instrument whose signature does not appear thereon, except as herein otherwise provided. But one who signs in a trade name will be liable to the same extent as if he signed in his own name. (Sec. 18) 2. Signature of Agent The signature of any party may be made by a duly authorized agent. No particular form of appointment is necessary for this purpose and the authority of the agent may be established as in other cases of agency. (Sec. 19) Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal, or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability. (Sec.20) When agent may escape liability: a. b. He is duly authorized; He adds words to his signature indicating that he signs as an agent, that is , for or on behalf of a principal, or in a representative capacity; and He discloses his principal

Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties, and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting, or indorsing, as the case may be; and in such case the 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. But where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. And 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. (Sec. 16) a. Even if it is completely written it is incomplete and revocable until its delivery. Delivery means transfer of possession, actual or constructive, from one person to another. (Sec. 191) If a complete instrument is found in the possession of an immediate or remote party OTHER THAN a holder in due course, there is a prima facie presumption until the contrary is proved. Immediate in the sense of having or being held to know of the conditions or limitations placed upon the delivery of the instrument. Remote parties are those who are not in direct contractual relation to each other. If it is in the hands of a holder in due course, a valid delivery by all parties prior to him is conclusively presumed.

b.

c.

Effect of signature by procuration A signature by procuration operates as notice that the agent has but a limited authority to sign, and his principal is bound only in case the agent in so signing acted within the actual limits of his authority. (Sec. 21) 3. Indorsement by Minor or Corporation The indorsement or assignment of the instrument by a corporation or by an infant passes the property therein, notwithstanding that from the want of capacity, the corporation or infant may incur no liability thereon. (Sec. 22) 4. Forgery When a signature is forged or made without the authority of the person whose signature it

c.

d.

e. f.

purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. a. Section 23 applies only to forged signatures or signatures made without authority; b. Alterations such as to amounts or the like fall under section 124; c. Forms of forgery are a) fraud in factum; b) duress amounting to fraud; c) fraudulent impersonation d. Only the signature forged or made without authority is inoperative, the instrument or other signatures which are genuine are not affected e. The instrument can be enforced by holders to whose title the forged signature is not necessary f. Persons who are precluded from setting up the forgery are a) Those who warrant or admit the genuineness of the signature b) Those who are estopped. g. Persons who are precluded by warranting are: a) Indorsers; b) Persons negotiating by delivery; c) Acceptors. h. Drawee bank is conclusively presumed to know the signature of its drawer i. If endorsers signature is forged, loss will be borne by the forger and parties subsequent thereto j. Drawee bank is not conclusively presumed to know the signature of the indorser. The responsibility falls on the bank which last guaranteed the indorsement and not the drawee bank k. Where the payees signature is forged, payments made by the drawee bank to the collecting bank are ineffective. No debtor/creditor relationship is created. An agency to collect is created between the person depositing and the collecting bank. The drawee bank may recover from collecting bank who may, in turn, recover from the person depositing. Rules on Liabilities of Parties on a Forged Instrument

In a PN: 1. A party whose indorsement is forged on a note payable to order and all parties prior to him including the maker cannot be held liable by any holder 2. A party whose indorsement is forged on a note originally payable to bearer and all parties prior to him including the maker may be held liable by a holder in due course provided that it was mechanically complete before the forgery 3. A maker whose signature was forged cannot be held liable by any holder In a BOE: 1. The drawers account cannot be charged by the drawee where the drawee paid; 2. The drawer has no right to recover from the collecting bank; 3. The drawee bank can recover from the collecting bank; 4. The payee can recover from the drawer; 5. The payee can recover from the recipient of the payment, such as the collecting bank; 6. The payee cannot collect from the drawee bank; 7. The collecting bank bears the loss but can recover from the person to whom it paid; 8. If payable to bearer, the rules are the same as in PN; 9. If the drawee has accepted the bill, the drawee bears the loss and his remedy is to go after the forger; 10. If the drawee has not accepted the bill but has paid it, the drawee cannot recover from the drawer or the recipient of the proceeds, absent any act of negligence on Forgery is the counterfeiting of any their part. writing, consisting of the signing of anothers name with intent to defraud, is forgery. The bank which allows the payment on a check where the signature is forged is liable to the depositor-drawer. When one of two persons suffers the wrongful act of a third person, he whose negligence was the proximate cause of the loss must bear the loss. Pursuant to its prime duty to ascertain well the genuineness of the signatures of its client depositors, the drawee-bank is expected to use reasonable business prudence. In the performance of that obligation, it is bound by its internal banking rules and regulation that form part of the contract it enters into with its depositors. A drawee bank must restore to the account of the drawer the amounts of checks on which the signature of its president was forged even of the forger was the independent auditor of the drawer, who was in charge

An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder and completed by delivery (sec 30) 1. D. CONSIDERATION Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration, and every person whose signature appears thereon to have become a party thereto for value. (Sec. 24) Consideration - an inducement to a contract, that is, the cause, price or impelling influence which induces a contracting party to enter into the contract NOTE: It is not necessary that the consideration be expressly stated in the instrument. A valuable consideration need not be adequate. It is sufficient if it is valuable one. E. ACCOMMODATION PARTY A person who has signed the instrument as maker, drawer, acceptor or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. The relationship between an accommodation party and the accommodated party is one of principal and surety---the accommodation party being the surety. (Note: the suretys liability to the creditor is immediate, primary and absolutehe is directly and equally bound with the principal. [Ang v. Associated Bank (2007)] 2. Distinguished from Assignment ASSIGNMENT - a method of transferring a negotiable or non-negotiable instrument whereby the assignee is merely placed in the position of the assignor and acquires the instrument subject to all defenses that might have been set up against the original payee. Modes of Negotiation (how negotiation takes place) a. Negotiation - the transfer of the instrument from one person to another so as to constitute the transferee a holder thereof: i) by indorsement completed by delivery (in case of order instrument); ii) by mere delivery (in case of bearer Instrument) Effect: Makes the transferee the holder of the instrument b. By Operation of Law The full title to a bill may pass without assignment, indorsement, or delivery, i.e. by operation of law: i. by the bankruptcy of the holder, where the title vests in his assignee or trustee; ii. by the death of holder, where the title vests in his personal representatives; iii. upon the death of a joint payee or indorsee, in which case the title vests in the surviving payee or indorsee in general (Agbayani, Commercial law of the Phils) 3. Kinds of Indorsements: A. Special - it qualifies the person to whom or to whose order the instrument is payable, and the indorsement of such endorsee is necessary to the further negotiation of the instrument (Sec 34) e.g Pay to X. (sgd) A Note: if X, the endorsee, wants to further negotiate the instrument, he must sign it at the back. HOWEVER, when the instrument is originally payable to bearer, it can further be negotiated by mere delivery, even if the original bearer negotiated it by special endorsement (Sec 40) B. Blank - it specifies NO endorsee, and the instrument so endorsed is payable to bearer and may be negotiated by mere delivery (Sec. 34).

a.

b.

c.

ACCOMMODATION - a legal arrangement under which a person called the accommodation party lends his name and credit to another called the accommodated party, without any consideration. LIABILITY OF ACCOMMODATION PARTY - such a person is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party. LIABILITY OF AN ACCOMMODATED PARTY when the accommodation party makes payment to the holder of the notes, they have the right to sue the accommodated party for reimbursement since the relation between them is in effect of a principal and sureties, the accommodation parties being the sureties.

F. NEGOTIATION

Holder may convert a blank indorsement into a special indorsement by writing over the signature of the endorser in blank any contract consistent with the character of the endorsement. C. Absolute - One by which endorser binds himself to pay, upon no other condition than the failure of prior parties to do so, and of due notice to him of such failure. D. Conditional - Party required to pay the instrument may disregard condition and make payment to the endorsee or his transferee whether condition has been fulfilled or not. But any person to whom an instrument so endorsed is negotiated will hold the same, or the proceeds thereof, subject to the rights of the person indorsing conditionally. (sec. 39) Pay to X 500 if it rains on March 31, 2013. (Sgd, B) If presented before said date, B may tell X to: wait for March 31, 2013; or Pay X 500 X 500 but if does not rain on said date, X must return the money on the principle of solutio indebiti. E. Restrictive - such indorsement either: i. Prohibits further negotiation of instrument; ii. Constitutes endorsee the agent of endorser; iii. Vest title in endorsee in trust for or to the use of some other person. Note: mere absence or words implying power to negotiate does not make an indorsement restrictive (Sec 36) Effect of Restrictive Indorsement - confers upon endorsee the right: a. To receive payment of the instrument; b. To bring any action thereon that the endorser could bring; c. To transfer his rights as such endorsee, where the form of the indorsement authorizes him to do so. (sec 37) But all subsequent indorsees acquire only the title of the first indorsee under the restrictive indorsement. F. Qualified - constitute the endorser a mere assignor of the title to the instrument. It may be made by adding to the endorsers signature the words without recourse or sans recourse or other terms of similar import. (sec 38) i. without recourse - means without resort to a person who is secondarily liable after the default of person who is primarily liable. ii. Qualified endorser has limited liability, i.e., he is liable if the instrument is dishonored by nonacceptance or non-payment due to

the ff: Forgery; Lack of good title on the part of the endorser; Lack of capacity to endorse on the part of the prior parties; the fact that at the time of the endorsement, the instrument was valueless or not valid, and he knew of that fact. G. Joint - where an instrument is payable to the order of two or more payees or indorsees who are not partners, ALL must endorse, unless the one indorsing has authority to endorse for the others (sec 41) H. Irregular - where a person, not otherwise a party to an instrument, places thereon his signature in blank before delivery, he is liable as endorser. (sec 64) G. RIGHT OF HOLDERS Holder - payee or indorsee of a bill or note who is in possession of it or the bearer thereof entitled to receive the sum for which it calls Classes: 1. Holder in Due Course one who has taken the instrument under the conditions of Sec 52 and holds the instrument free from personal defenses available to prior parties 2. Simple Holder or Holder Not in Due Course one who became a holder without any, some or all of the requisites under Sec 52. He holds the instrument subject to the same defenses as if it were non-negotiable. 3. Holders for Value where value has at anytime been given for the instrument, the holder is deemed a holder for value in respect to all parties who become such prior to that time.

1. Holder in Due Course (HDC) A Holder who has taken the instrument under the following conditions: key: COVN 1. That the instrument is Complete and regular upon its face; It is incomplete when it is wanting in any material particular or particular proper to be inserted in a negotiable instrument The common type of irregularity is alteration upon the face of the instrument. It must be apparent on the face of the instrument, otherwise, the matter is governed sole by Sec 124, which renders the instrument void. Absence of the required documentary stamp will not make the instrument incomplete. Omissions of date and place of payment and no consideration mentioned

considered complete and regular upon its face. That he has become a holder of it before it was Overdue and without notice that it has been previously dishonored, if such was the fact; Instrument is overdue after the date of maturity If it is payable on demand, the date of maturity is determined by the date of presentment, which must be made within a reasonable time after its issue, if it is a note, or after the last negotiation thereof, if it is a bill of exchange If payable on demand and is negotiated after an UN reasonable length of time after its issue, the holder if not deemed a HDC o What constitutes reasonable time, regard is to be had to the nature of the instrument, usage of trade or business (if any) with respect to such instrument, and the facts of the particular case (Sec 193) An overdue instrument carries the strong indication that it has been dishonored. However, it is still negotiable, but it is subject to defenses existing at the time of transfer. Where transferee receives notice of any infirmity in instrument or defect in the title of the person negotiating the same before he had paid the full amount agreed to be paid therefor, he will be deemed a HDC only to the extent of the amount therefor paid by him (Sec 54) That he has taken it in good faith and for Value; Good faith refers to the good faith of the indorsee or transferee and not the seller of the instrument. Bad faith does not require actual knowledge of the exact truth; it is sufficient that the facts within the knowledge tend to show that there was something wrong with the transaction. Value is any consideration sufficient to support a simple contract. But Love and affection do not constitute value within the meaning of the law. Adequacy of consideration is not required (1355 civ code) Purchase of the instrument at a discount does not prevent the holder from being HDC. However, where the discount is usually large, this fact together with other facts, may be material on determining whether the holder was in good faith. That at the time of its negotiation to him, he has No Notice of any infirmity in the instrument or defect in the title of the person negotiating it.

notice to holder covers only situation where the holder had actual or chargeable knowledge of the infirmity or defect or must have acted in bad faith. Knowledge of the agent is constructive knowledge to the principal and will render the principal not a HDC Title is defective when the instrument is obtained or any signature thereto by fraud, duress, or force and fear, other unlawful means, or for an illegal consideration Or when it is negotiated in breach of faith, or under such circumstances as amount to a fraud. The holder of a cashiers check as indorsed by the person who stole it cannot or refuses to say how and why it was passed to him is not a HDC.

RIGHTS OF HDC: 1. 2. 3. 4. To sue on the instrument To receive payment on the instrument and payment in due course discharges the instrument. To hold the instrument free from any defect of title of prior parties. To hold it free from defenses available to prior parties among themselves The defenses referred to are personal defenses or equities. REAL DEFENSES are available even against an HDC To enforce payment on the instrument to the full amount against all parties liable thereon. (sec 57)

5.

2. Defenses Against the Holder The right of the holder to enforce payment of a negotiable instrument may be defeated by the defenses that may be raised by the person primarily or secondarily liable. Real Defenses NATURE: Those that attach to the instrument itself and are available against all holders, whether in due course or not, but only by the parties entitled to raise them. STATUS OF CONTRACT: Void AVAILABLE AGAINST HDC: Available against HDC DEFENSES: Key: (PAID-WIFI-MUDFEM) 1.Presciption 2.Material Alteration 3.Illegality if declared void for any purpose 4.Duress amounting to forgery Personal Defenses Those which are available only against a person not an HDC or a subsequent holder who stands in privity with him

2.

Voidable Not HDC available against

3.

Key: (CUBIC-RAIN-WIFIMICU) 1.Non-delivery of Complete instrument (sec 16) 2.Ultra vires acts of corporation where the corpo has the power

5.Want of authority of agent 6.Non-delivery of Incomplete instrument 7.Forgery 8.Insanity where the insane person has a guardian appointed by the court 9.Minority (available only to the minor) 10. Ultra Vires Act of Corpo 11. Discharge in Insolvency 12. Fraud in Factum or Esse contractus or Fraud in Execution 13. Execution of instrument between public enemies 14. Marriage in the case of a wife Note: an instrument subject to real defense cannot be enforced against the person to whom the defense is available but it can be enforced against those who such defense is not available such as under sec. 23.

to issue negotiable paper but the issuance was not authorized for the particular purpose for which it was issued 3.Negotiation in Breach of faith (sec 55) 4.Insertion of wrong date in an instrument (sec 13) 5.Conditional delivery of compete instrument 6.Filling up blank beyond Reasonable time (sec14) 7.Absence or failure of consideration, whether partial or total (sec28) 8.Illegal consideration (sec55) 9.Filling up blank Not within authority (sec 14) 10. Want of authority of agent where he has apparent authority 11. Fraud in Inducement 12. Acquisition by Force, duress or fear (sec55) 13. Intoxication 14. Mistake 15. Insanity where there is no notice of insanity on the part of the one contracting with the insane person 16. Negotiation under Circumstances that amount to fraud (sec55) 17. Acquisition of the instrument by Unlawful means (sec55)

such age (estoppel); 2) the minor kept the fruits or benefits; and 3) the minor spent the money in good faith (art 1427, NCC) 2. Fraud a. Fraud In Factum (real defense) The person who signs the instrument lacks knowledge of or essential terms of the instrument. But the defense is not available if the party involved had reasonable opportunity to obtain such knowledge. An essential element is that the maker or indorser must have exercised ordinary diligence and in no manner contributed negligently to the imposition. b. Fraud in Inducement (personal defense) The person who signs the instrument intends to sign the same as a Negotiable Instrument (NI) but was induced by fraud. 3. Incomplete but Delivered NI (sec 14)

a. Prima Facie Authority to Complete the Instrument Requisites: a) Want of a material particular in the instrument (note: it includes the matters stated in Sec 125 of the NIL) b) Possession thereof by a person; c) That such person had authority to fill up the blank: 1. strictly in accordance with the authority given; and 2. within a reasonable time b. Prima Facie Authority to Fill up for Any Amount Requisites: a) Signature on a blank paper b) Person signing in blank delivers it to another c) Delivery was for the purpose of converting it into a negotiable instrument. If the holder of the instrument, after it was filled up, is a HDC, the holder may enforce the instrument as if it has been filled up strictly in accordance with the authority given and within a reasonable time. (Aquino, Notes and Cases on Banks, Negotiable Instruments and other Commercial Documents, 2006ed) 4. Incomplete and Undelivered NI (sec 15) Two steps in the execution of a negotiable instrument: 1. The act of writing the instrument completely and in accordance with Sec. 1; and 2. The delivery of the instrument with the intention of giving effect thereto.

Effects of Certain Defenses 1. Minority

Negotiation by a minor passes title to the instrument (sec 22). Furthermore, under Secs 60, 61, 62, the maker, drawer and acceptor, by making, drawing and accepting the instrument, admits the capacity of the payee to indorse. But the minor is not liable and the defense is personal to him. Thus, other parties who are capacitated cannot invoke such defense. However, the minor shall be liable under the ff exceptions: 1) the minor actively misrepresents his age and it appears that he is physically of

Note: if completed and negotiated without authority, not a valid contract against a person who has signed before delivery of the contract even in the hands of HDC but subsequent indorsers are liable. This is REAL defense which belongs to the drawer (or parties, if any, prior to the delivery of the instrument to the payee) against any holder Reason: The law does not make any distinction between a HDC and one who is not a HDC. NOTE: Where an INCOMPLETE and UNDELIVERED instrument I sin the hands of HDC, there is a PRIMA FACIE presumption of delivery which the maker may rebut by proof of non-delivery

a) When a signature is forged or made without the authority of the person, the signature (not the instrument itself and the genuine signatures) is wholly inoperative. b) No right to retain the instrument, or to give discharge therefore, or to enforce payment thereof against any party thereto, can be acquired. Exception: UNLESS the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. (sec23) H. LIABILITIES OF PARTIES Primary Liability AS TO THE MAKER, the unconditional promise attaches the moment the maker makes the instrument AS TO THE ACCEPTOR, the acceptors assent to the unconditional order attaches the moment he accepts the instrument. No further act is necessary in order for the liability to accrue. What is necessary only is for the holder to enforce such liability by presenting it for payment. Secondary Liability 1. Indorser; and 2. Drawer Their liability cannot be immediately enforced. There are necessary steps which should be taken in order to charge these persons. 1. Liability of Maker: a. Maker of the negotiable promissory note warrants that: He will pay according to the tenor of the promissory note; The payee exists; and The payee has capacity to endorse. b. Consequently, maker is precluded from setting-up the following defenses: that payee is a fictitious person; that payee was insane, a minor, or a corporation acting ultra vires. c. Makers liability is primary and unconditional. Therefore, he cannot shift his liability to any person without the payees consent. NOTE: neither can the maker escape liability by virtue of the non-benefit to him of the proceeds of the note since that is of no concern to the payee. [Araneta vs Perez, (1965)] d. Solidary liability of Joint Makers

5. Complete but Undelivered (sec 15) Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. 6. Absence or Failure of Consideration (sec 28) Personal defense to the prejudice of a party and available against any person not HDC Partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise (sec 29) 7. Prescription Refers to extinctive prescription and may be raised even against a holder in due course. Under the civil code, the prescriptive period of an action based on a written contract is 10 years from accrual or cause of action. 8. Material Alteration. It is a partial real defense because a HDC can enforce it according to its original tenor. An alteration is said to be material if it alters the effect of the instrument. In other words, a material alteration is one which changes the items which are required to be stated under Sec 1 of the NIL 8. Forgery Counterfeiting or fraudulent alteration of any writing, which may consist of: a. Signing of anothers name with intent to defraud; or b. Alteration of an instrument in the name, amount, name of payee, etc. with intent to defraud. Effects:

As a co-maker, he binds himself to be jointly and severally liable with the principal debtor in case the latter defaults in the payment of the loan, such undertaking is deemed to be that of a surety as an insurer of the debt, and not as a guarantor who warrants the solvency of the debtor. The creditors right to proceed against the surety exists independently of his right to proceed against the principal.

compelled to pay the instrument on account of Sec 66. Irregular Indorser usually they are accommodation parties. To be considered as an irregular indorser: 1. A person must not be a party to the instrument 2. He must have signed it in blank; and 3. He must have signed before delivery. irregular or anomalous indorser because he indorses in an unusual, singular, or peculiar manner. His name appears where we naturally expect another name. He is liable as a general indorser because he indorses without qualification. 5. Warranties

2. Liability of Drawer a. Drawer, by merely signing his name on the bill as drawer, admits that: Payee exists Payee has capacity to endorse Drawee will accept or pay or according to tenor of bill. in case of non-acceptance or payment, drawer will pay

both nonbill be its of

a.

b. Drawer does not engage to pay the absolutely. He engages that the bill will accepted or paid or both, according to tenor, and that he will pay only when: i. it is dishonored; and ii. the necessary proceedings dishonor are duly taken.

b.

NOTE: There is a contractual relation between the drawer and the drawee; a drawer may not unilaterally discharge himself from liability on checks issued by him as security and not for value and negotiated to a holder in due course by the mere expediency of withdrawing his funds from the drawee bank (State Investment House Inc v. CA, 93); when the holder deposits his check with the collecting bank, the nature of relationship created is one of agency, i.e., the bank is to collect from the drawee of the check the corresponding proceeds. Thus, the privity of contract is between the holder-depositor and the collecting bank. There is no privity of contract between the drawer and the collecting bank. 3. Liability of Acceptor engages to pay acc to the tenor of his acceptance admits the existence of the drawer, the genuineness of his signature and his capacity and authority to draw the instrument; and admits the existence of the payee and his capacity to indorse

c.

Maker: he warrants that: a) He will pay according to the tenor of the promissory note; b) The payee exists; and c) The payee has capacity to indorse Acceptor: he warrants that: a) The existence of the drawer; b) Genuineness of drawers signature; c) Capacity and authority of drawer to draw the instrument d) Existence of payee and his then capacity to indorse. One who negotiates by delivery and qualified indorsement (completed by delivery) warrants (Sec. 65): a) That the instrument is genuine and in all respects what it purports to be; b) That he has a good title to it; c) That all prior parties had capacity to contract; d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. NOTE: But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee. The provisions of subdivision (c) of this section do not apply to a person negotiating public or corporation securities other than bills and notes.(sec 65)

d.

4. Liability of Indorser General Indorser - indorses the instrument without any qualification; secondarily liable to the holder or any subsequent indorser who may be

General Indorser: every indorser who indorses without qualification warrants to all subsequent holders in due course: The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section 65 and that the instrument is, at the time of his indorsement, valid and subsisting. And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if be dishonored and the necessary proceedings on dishonor

be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it. c) I. PRESENTMENT FOR PAYMENT 1. Necessity of presentment for payment The presentment and demand for payment is not necessary in order to charge the persons primarily liable (maker or acceptor) since his liability is absolute. However, if the instrument is not presented to such persons, the persons secondarily liable (drawer and the indorsers) are discharged from their secondary liability unless such presentment is excused or dispensed with. The persons secondarily liable undertake to pay only if the instrument is dishonored. ( de Leon, see Secs. 61 and 66 ) 2. Parties to whom presentment payment should be made for

Reason: If the drawee is fictitious, there is no one to whom presentment is to be mad By waiver of presentment, express or implied

d) Presentment for payment is not required in order to charge the drawer where he has no right to expect or require that the drawee or acceptor will pay the instrument e) Presentment for payment is not required in order to charge an indorser where the instrument was made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented NOTE: In the last two exceptions, only the drawer or indorser referred to is not discharged but all other parties secondarily liable are relieved unless presentment for payment is made to hold such parties liable. (Agbayani). 4. When the instrument is dishonored by non payment a) When it is duly presented for payment and payment is refused or cannot be obtained Requisites: 1. 2. that the instrument is duly presented to the person primarily liable thereon the payment is either refused or cannot be obtained

The presentment for payment must be made to the person primarily liable on the instrument: maker in case of promissory note acceptor in case of an accepted bill

If the bill of exchange or check is payable on demand, the presentment must be made to the drawee although he is not liable on the bill. (De Leon, see Sec. 61, 66, and 70) If the person primarily liable on the instrument is absent or inaccessible, the presentment must be made to any person of sufficient discretion found at the proper place of presentment. (Sec. 72)

NOTE: The instrument is dishonored by nonpayment as long as it is not paid although the person primarily liable may be willing to pay (de Leon) b) When presentment is excused instrument is overdue and unpaid Requisites: 1. Presentment is excused Where the drawer has no right to expect or require that the drawee or acceptor will pay the instrument (Sec. 79) Where the instrument is made or accepted for the accommodation of the indorser and he has no reason to expect that the instrument will be paid if presented (Sec. 80) Where the presentment may be dispensed with (Sec. 82) and the

If the person primarily liable on the instrument is dead, presentment for payment must be made to his personal representative (his executor or administrator), if any, and if, with the exercise of reasonable diligence, he can be found. If the persons primarily liable on the instrument are liable as partners, presentment for payment to any one of them, even if there has been dissolution of the firm. (Sec. 77) 3. When presentment may be dispensed with a) Where after the exercise of reasonable diligence, presentment cannot be made b) Where the drawee is a fictitious person

2.

The instrument is overdue

3.

It is unpaid

NOTE: Although presentment may be excused, the indorser is still entitled to notice of dishonor of instrument by its being overdue and unpaid. But where there has been no presentment for payment, and the presentment is not excused, the instrument is not dishonored although it is overdue and unpaid (Carter v. Jennings, 98 So. 687, as cited in de Leon) J. NOTICE OF DISHONOR 1. Parties to be notified Except as otherwise provided in the Negotiable Instruments Law, when a negotiable instrument is dishonored by nonacceptance or non-payment, notice of dishonor must be given to: 1. 2. the drawer and each indorser

the holder and all parties subsequent to the party to whom notice is given including parties subsequent to the holder who gave notice

4. Form of notice Notice of dishonor may be a) in writing or b) merely oral NOTE: Thus, notice may be given by telephone provided that it is clearly shown that the party notified was really communicated with, that is fully identified as the party at the receiving end of the line. (American National Bank v. Nat. Fertilizer Co., 143 S.W. 597) Contents of notice (written or oral) 1. 2. 3. the identity of the instrument the fact that it has been dishonored by nonacceptance or by non-payment and a statement that the notice of dishonor party giving notice intends to look to the party addressed for payment

NOTE: Any drawer or indorser to whom such notice is not given is discharged. However, the holder is not required to notify all the indorsers although the law says each indorser. He may select to hold only one or some of the indorsers and any party to whom such notice is not given is discharged. Although the latter is discharged, he is still liable for breach of warranties pertaining to the instrument (de Leon). 2. Parties who may give notice of dishonor The notice may be given: 1. by the holder or 2. another in behalf of the holder or 3. by a party to the instrument who may be compelled to pay it to the holder and who, upon taking it up, would have a right to reimbursement from the party to whom notice is given or 4. another person in behalf of such party 3. Effect of notice a) When notice of dishonor is given by or on behalf of the holder, it inures to the benefit of all holders subsequent to the holder who has given notice, and all parties prior to the holder but subsequent to the party to whom the notice has been given and against whom they have a right of recourse

How notice is given a) by personal delivery or b) by mail 5. Waiver

Waiver of notice of dishonor Waiver the intentional abandonment of a known right; with reference to a notice of dishonor, it is the willingness on the part of the drawer or the indorser concerned to be bound as such even without due notice of dishonor it may be made before the time of giving notice or after the omission to give notice express waiver made orally or in writing (ex. when notice of dishonor waived appears above the indorsers signature) implied waiver inferred from act or language and it usually takes place after there has been tan omission to give notice

Who are affected by an express waiver? If the waiver is embodied in the instrument itself (i.e.,it appears in the body or on the face of the instrument), it binds all parties If it is written above the signature of an indorser, it binds only him

Effect of waiver of protest Protest the formal instrument executed usually by a notary public certifying that the legal steps necessary to fix the liability of the drawee and the indorsers have been taken

b) When notice of dishonor is given by or on behalf of the party entitled to give notice, it inures to the benefit of

Where protest is waived, the following are also deemed waived a) presentment and b) notice of dishonor NOTES: Where presentment for payment is waived, notice of dishonor is also waived, but waiver of the latter does not include waiver of the former When an indorser waives presentment and notice of dishonor, he thereby enlarges his liability and his indorsement is known as facultative indorsement 6. Dispensation with notice a) Notice of dishonor is dispensed with when, after the exercise of reasonable diligence, it cannot be given or does not reach the parties sought to be reached.(Sec. 112) Note: Reasonable diligence implies active search and depends upon the circumstances of each cases. b) When no notice need not be given to drawer (Sec. 114): 1) Where the drawer and the drawee are the same person 2) When the drawee is a fictitious person or a person not having capacity to contract 3) When the drawer is the person to whom the instrument is presented for payment 4) Where the drawer has no right to expect or require the drawer has countermanded payment c) When notice need not be given to the indorser (Sec. 115): i. When the drawee is a fictitious person or a person not having capacity to contract, and the indorser was aware of the fact at the time he indorsed the instrument Where the indorser is the person to whom the instrument is presented for payment Where the instrument is made or accepted for his accommodation

the instrument to the drawee for acceptance and notify the drawer and indorsers is acceptance is refused (Sec.117) K. DISCHARGE OF NEGOTIABLE INSTRUMENT Discharge of an instrument release of all parties, whether primary or secondary, from the obligations arising thereunder; it renders the instrument without force and effect, consequently, it can no longer be negotiated 1. Discharge of a negotiable instrument (Sec. 119): a) By payment in due course by or on behalf of the principal debtor Principal debtor the person ultimately bound to pay the debt and not necessarily the person primarily liable on the instrument Requisites: a. b. c. d. it must be made by or on behalf of the principal debtor at or after its maturity to the holder thereof in good faith and without notice that the holders title is defective

b) By payment in due is course by the party accommodated, where the instrument is made or accepted for his accommodation

c)

By the intentional cancellation thereof by the holder Cancellation may be done by writing the word cancelled or paid on the face of the instrument or by tearing, burning, mutilating or destroying the instrument (de Leon)

ii. iii.

d) By any other act which will discharge simple contract for the payment of money Obligations are extinguished by (Article 1231 New Civil Code): a. b. c. By payment or performance By the loss of the thing due By the condonation or remission of the debts

d) When it is waived expressly or impliedly (Sec. 109) 7. Effect of failure to give dishonor by non-acceptance notice of

Failure of a previous holder to give a notice of dishonor by non-acceptance cannot prejudice a holder in due course who may still present

d. e. f.

By the confusion or merger of the rights of creditor and debtor By compensation By novation

recourse against such party is expressly reserved (Sec. 120) agreement binding on the holder means agreement binding on the holder made with the principal debtor Agreement must be supported by a valuable consideration and for a definite period g) By failure to give notice of dishonor to him unless excused (Sec. 89) NOTE: Generally, a discharge of a party secondarily liable does not effect a discharge of the instrument itself 3. Right instrument of a party who discharged

e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right Requisites: a. b. c. Reacquisition must be by the principal debtor In his own right (not representative capacity) in a

at or after the date of maturity

2. Discharge of parties secondarily liable (Sec. 120): a) By any act which discharges the instrument (any of those acts mentioned in Sec. 119) b) By the intentional cancellation of his signature by the holder The holders right to cancel an indorsers signature is subject to the limitation that the indorsement is not necessary to the holders title c) By the discharge of a prior party Applies only to discharge by a holder and not to discharge by operation of law d) By a valid tender of payment made by a prior party Tender of Payment the act by which one produces and offers a person holding a claim or demand against him the amount of money which he considers and admits to be due, in satisfaction of such claim or demand without any stipulation or condition An accepted valid tender of payment made by a prior party discharges the latter and all parties subsequent to him e) By a release of the principal debtor, unless the holders right of recourse against the party secondarily liable is expressly reserved The release of the principal debtor discharges the instrument, thus, all the secondary parties are also discharged The release of the principal debtor must be by the act of the holder and not by operation of law f) By any agreement binding upon the holder to extend the time of payment, or to postpone the holders right to enforce the instrument, unless made with the assent of the party secondarily liable, or unless the right of

General Rule: Where the instrument is paid by a party secondarily liable thereon, it is not discharged but the party paying is remitted to his former rights as regards all prior parties, and he may strike out his own and all subsequent indorsement, and renegotiate the instrument. Exceptions: a) Where it is payable to the order of a third person and has been paid by the drawer b) Where it is made or accepted for his accommodation and has been paid by the party accommodated 4. Renunciation by the holder

How it is made: a) Renunciation must be in writing unless the instrument is delivered up to the person primarily liable thereon, or b) in oral accompanied by a surrender of the instrument to the person primarily liable thereon Effect of renunciation a) If it is in favor of a secondary party made by the holder before, at or after the maturity of the instrument, it discharges the such secondary party and all parties subsequent to him but the instrument remains in force b) If in favor a the principal debtor, made at or after maturity, it discharges the instrument and all parties thereto, provided, renunciation is made absolutely and unconditionally c) In either case, the renunciation does not affect the rights of a holder in due course without notice L. MATERIAL ALTERATION 1. Concept Material alteration is defined to be any change in the instrument which affects or changes the liability of the parties in any way. Any other alteration is immaterial

and, therefore, inoperative to affect the liability of any party to the instrument prior to the alteration. It is any alteration which changes a) The date b) The sum payable, either for principal or interest c) The time or place of payment d) The number or relations of the parties e) The medium or currency in which payment is to be made f) or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect (Sec.125)

refused, may treat the bill as dishonored. (Sec. 133) Where an acceptance is written on a paper other than the bill itself, it does not bind the acceptor except in favor of a person to whom it is shown and who, on the faith thereof, receives the bill for value. (Sec. 134)

Types of Acceptance 1. Actual (a) In writing (b) Signed by the drawee (c) Must not express that the drawee will perform his promise by any other means than payment of money (d) Communicated or delivered to the holder 2. Constructive Where the drawee: (a) destroys the bill, or (b) refuses within 24hrs or such other period as the holder may allow, to return the bill accepted or non-accepted to the holder (c) Under the clearing house rules, the drawee banks failure to return within the prescribed time will be deemed payment or acceptance of the check. (d) If there is not demand for the return of the bill and the drawee keeps it until after the expiration of said period without expressly accepting or refusing it; two views: i. Constitutes constructive notice ii. Constitutes dishonor because Sec.137, NIL uses the word "refuses" d. Acceptance, if given, will retroact to date of presentation. 3. General A general acceptance assents without qualification to the order of the drawer.

2.

Effects of material alteration

a) If done by a holder discharges the instrument and all prior parties thereto who did not give their consent to the alteration Exceptions: a. b. c. It does not discharge the instrument as against a party who has made the alteration, and A party who has authorized or assented to the alteration, and Indorsers who indorsed subsequent to the alteration

b) If done by a stranger (spoliation) has no effect upon the instrument if the original meaning can be ascertained (Brooks v. Allen 62 Ind. 401; Singer Sewing Machine Co. v. Bayer B9 N.W. 741) c) Material alteration avoids the instrument in the hands of a person who is not a holder in due course as against any prior party who has not assented to the alteration

d) If an altered instrument is negotiated to a holder in due course, he may enforce payment thereof according to its original tenor regardless of whether the alteration was innocent or fraudulent M. ACCEPTANCE 1. Definition - the signification by the drawee of his assent to the order of the drawer. It is an act by which a person on whom the BOE is drawn assents to the request of the drawer to pay it 2. Manner must be holder. communicated or

An acceptance to pay at a particular place is a general acceptance unless it expressly states that the bill is to be paid there only and not elsewhere. (Sec. 140) 4. Qualified A qualified acceptance in express terms varies the effect of the bill as drawn. Types: (a) Conditional; that is to say, which makes payment by the acceptor dependent on the fulfillment of a condition therein stated

The acceptance delivered to the -

The holder of a bill presenting the same for acceptance may require that the acceptance be written on the bill, and, if such request is

(b) Partial; that is to say, an acceptance to pay part only of the amount for which the bill is drawn; (c) Local; that is to say, an acceptance to pay only at a particular place; (d) Qualified as to time;

and is not accepted within prescribed time, the person presenting it must treat the bill as dishonored by nonacceptance or he loses right of recourse against the drawer and indorsers. (Sec. 150, NIL) Constructive Acceptance Sec. 137. Where a drawee to whom a bill is delivered for acceptance destroys the same, or refuses within twenty-four hours after such delivery, or within such other period as the holder may allow, to return the bill accepted or non-accepted to the holder, he will be deemed to have accepted the same. N. PRESENTMENT FOR ACCEPTANCE 1. Time/Place/Manner of Presentment When presentment for acceptance must be made (a) bill payable after sight, or in other cases where presentment for acceptance necessary to fix maturity (b) where bill expressly stipulates that it shall be presented for acceptance (c) where bill is drawn payable elsewhere than at residence or place of business of drawee (d) In no other case is presentment for acceptance necessary in order to render any party to the bill liable.

3. Time for Acceptance 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. (Sec. 136)

4. Rules Governing Acceptance A holder has a right to: 1. require that acceptance be written on the bill and if refused, treat it as if dishonored (Sec.133) 2. refuse to accept a qualified acceptance and may treat it as dishonored (Sec. 142)

Acceptance of an INCOMPLETE bill 1. A bill may be accepted: a) before it has been signed by the drawer, or b) while otherwise incomplete, or c) when it is overdue, or d) after it has been dishonored by a previous refusal to accept, or by non payment 2. But when a bill payable after sight is dishonored by nonacceptance and drawee subsequently accepts it, the holder, in the absence of different agreement, is entitled to have the bill accepted as of the date of the last presentment. a) Sec. 138, NIL allows acceptance to be made while the bill is incomplete b) The bill may be accepted even after it is overdue or dishonored, since an instrument does not lose its negotiability by the mere fact that its maturity date has passed or the drawees refusal to accept or pay it.

How made? (Sec. 145, NIL) (1) BY or ON BEHALF of the holder (2) AT a reasonable hour, (3) ON a business day and before the bill is overdue, (4) TO the drawee or some person authorized to accept or refuse acceptance on his behalf; and a. bill addressed to drawees not partners, MUST be made to them all unless one has authority to accept or refuse acceptance for all; drawee is dead, MAY be made to his personal representative; drawee has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors, MAY be made: i) to him or ii) to his trustee or assignee. When made? (Sec. 146, NIL)

b. c.

3. PERIOD within which to accept (a) The drawee is allowed 24 hours after presentment to decide WON he will accept the bill; the acceptance, if given, dates as of the day of presentation. (Sec. 136, NIL) (b) Effect of non-acceptance within the prescribed period Where bill is duly presented

(a) on any day on which NIs may be presented for payment at a reasonable hour on a business day if Instruments falling due or becoming payable on Saturday next succeeding business day EXCEPT instruments payable on demand [at the option of the holder before twelve o'clock noon on Saturday WHEN that entire

day is not a holiday. (b) at the time fixed therein without grace. (c) Where the holder has no time, with the exercise of reasonable diligence, to present the bill for acceptance before presenting it for payment, delay is excused and doesnt discharge the drawers and indorsers. (Sec. 147, NIL)

2. Effect of omission to give notice of nonacceptance any drawer or indorser to whom such notice is not given is discharged but does not prejudice the rights of a HDC subsequent to the omission. (Sec. 117, NIL) O. PROMISSORY NOTE Promissory note - a promise to pay money 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 makers own order, not complete until indorsed by him (Sec. 184, NIL).

When Excused Bill may be treated nonacceptance: as dishonored by

(a) Where the drawee 1. is dead 2. has absconded, 3. is fictitious, 4. does not have capacity to contract by bill. (b) Where, after the exercise of reasonable diligence, presentment cannot be made. (c) Where, although presentment has been irregular, acceptance has been refused on some other ground.

P. CHECKS 1. Definition A bill of exchange drawn on a bank and payable on demand. (Sec. 185) 2. Kinds

a. Cashier's or manager's - drawn by a bank on itself and its issuance has the effect of acceptance; since the drawer and drawee are the same, the holder may treat it is either a BE or PN. b. Memorandum check - where the word "memorandum" or "memo" is written across its face, signifying that the drawer will pay the holder absolutely, without need of presentment. c. Traveler's check - upon which the holder's signature must appear twice -- first when it is issued, and again when it is cashed. d. Crossed when the name of a particular banker or a company is written between the parallel lines drawn.

2. Effect of Failure to make presentment Failure to present releases drawer and indorser the holder of a bill which is required by the next preceding section to be presented for acceptance must either present it for acceptance or negotiate it within a reasonable time. If he fails to do so, the drawer and all indorsers are discharged. (Sec. 144)

3. Dishonor by Non-Acceptance 1. When duly presented for acceptance and such acceptance is refused or cannot be obtained; or 2. When presentment for acceptance is excused and the bill is not accepted. (Sec. 149, NIL) NON ACCEPTANCE of the bill 1. Duty of holder: must treat the bill as dishonored by nonacceptance or he loses the right of recourse against the drawer and indorsers. (Sec. 150, NIL)

Crossed check should put the payee on inquiry to ascertain the holders title to the check or the nature of his possession. Failing this, the payee is declared guilty of gross negligence to the effect that the holder of the check is not a holder in good faith. Effects of a crossed check: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once to one who has an account with the bank; and (c) the act 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 received the check pursuant to that purpose, otherwise, he is not a HDC. (Statement Investment v IAC)

2. Right of holder: immediate right of recourse against the drawer and indorsers and no presentment for payment is necessary. (Sec. 151NIL) NOTICE OF DISHONOR 1. Recipient- (Sec.89, NIL) Except as herein otherwise provided, to the drawer and to each indorser,

The negotiability of a check is not affected by its being crossed, whether specially or generally. It may

legally be negotiated as long as the one who encashes the check with the drawee bank is another bank, or if it is especially crossed, by the bank mentioned between the parallel lines. ( Bataan Cigar & Cigarette v. FAC)

drawer will be discharged from liability thereon to the extent of the loss caused by the delay. (Sec. 186) (b) Effect of Delay The drawer will be discharged from liability thereon to the extent of the loss caused by the delay. (Sec. 186)

Demand drafts have not been presented either for acceptance or for payment, thus the bank never had any chance of accepting or rejecting them; as such, these cannot be subject of escheat. Cashier's check is the substantial equivalent of a certified check and is thus subject to escheat. Telegraphic transfers are likewise subject to escheat because upon making payment complete the transaction insofar as he is concerned, though insofar as the remitting bank is concerned, the contract is executory until the credit is established. (RP V PNB, 1961)

A check, whether a manager's check or ordinary check, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. The issuance of the check to a person authorized to receive it operates to release the judgment debtor from any further obligations on the judgment. (PAL V CA, 1990)

A managers check is one drawn by the banks manager upon the bank itself. It is similar to a cashiers check both as to effect and use. A cashiers check is a check of the banks cashier on his own or another check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance by the act of its issuance. It is really the banks own check and may be treated as a promissory note with the bank as a maker. The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is considered an acceptance thereof. If treated as promissory note, the drawer would be the maker and in which case the holder need not prove presentment for payment or present the bill to the drawee for acceptance. (INTERNATIONAL CORPORATE BANK v GUECO ,2001)

A managers check is an order of the bank to pay, drawn upon itself, committing in effect its total resources, integrity and honor behind its issuance. By its peculiar character and general use in commerce, a managers check is regarded substantially to be as good as the money it represents. (EPCIB V. ONG, 2006)

3. Presentment for Payment (a) Time A check must be presented for payment within a reasonable time after its issue or the