Professional Documents
Culture Documents
Other Forms of Negotiable Instruments 2. Must contain an unconditional promise or order to pay a
1. Certificate of deposit issued by banks, payable to the sum certain in money;
depositor or his order, or to bearer
2. Trade acceptance Certainty of sum payable.
3. Bonds, which are in the nature of promissory notes The sum payable is a sum certain although it is to be paid:
4. Drafts, which are bills of exchange drawn by one bank a. With interest; or
upon another b. By stated installments; or
All of these must comply with Sec. 1, NIL c. By stated installments, with a provision that, upon
Note: Letters of credit are not negotiable. default in payment of any installment or of interest,
the whole shall become due; or
Legal Tender d. With exchange, whether at a fixed rate or at the
That kind of money that the law compels a creditor to accept current rate; or
in payment of his debt when tendered by the debtor in the e. With costs of collection or an attorney's fee, in case
right amount. payment shall not be made at maturity. (sec. 2)
Acceleration clause - renders whole debt due and
Note: A negotiable instrument although intended to be a demandable upon failure of obligor to comply with certain
substitute for money, is generally not a legal tender. conditions.
b. To bring any action thereon that the b. Where the payee or indorsee indorsing
indorser could bring; has authority to indorse for the
others.
h. Irregular - a person who, not otherwise a party to 2. Where it was made or accepted for
an instrument, places thereon his signature in blank accommodation and has been paid by the
before delivery. party accommodated;
3. In other cases, where the instrument is
Rules on Indorsements: discharged when acquired by a prior party.
Protest - the formal instrument executed usually by a notary When persons secondarily liable on the instrument are
public certifying that the legal steps necessary to fix the discharged:
liability of the drawee and the indorsers have been taken. 1. By any act which discharges the instrument;
2. By the intentional cancellation of his signature by
Effect of waiver: where protest is waived, presentment the holder;
and notice of dishonor are also deemed waived. But 3. By the discharge of a prior party;
where the notice of dishonor is waived, presentment is 4. By a valid tender of payment made by a prior party;
not waived. 5. By the release of the principal debtor, unless the
holders right of recourse against the party
Applicability: protest is necessary only in case of foreign secondarily liable is expressly reserved;
bills of exchange which have been dishonored by non- 6. By any agreement binding upon the holder to extend
acceptance or non-payment, as the case may be. If it is the time of payment or to postpone the holders
not so protested, the drawer and indorsers are right to enforce the instrument.
discharged.
In the following cases, the agreement to extend the time
of payment does not discharge a party secondarily liable:
Foreign Bill of Exchange: 1. where the extension of time is consented to by such
1. Drawn in the Philippines but payable outside the party;
Philippines. 2. where the holder expressly reserves his right of
2. Payable in the Philippines but drawn outside the recourse against such party.
Philippines.
Payment at or after maturity by a party secondarily
Protest may be made by:: liable does not discharge the instrument. It only cancels
1. a notary public; or his own liability and that of the parties subsequent to
2. any respectable resident of the place where the bill him.
is dishonored, in the presence of 2 or more credible
witnesses. Effects of Renunciation:
1. A renunciation in favor of a secondary party may be
Protest for better security is one made by the holder of a bill made by the holder before, at or after maturity of
after it has been accepted but before it matures, against the the instrument. Effect: only such secondary party is
drawer and indorsers, where the acceptor has been adjudged discharged and all parties subsequent to him but the
a bankrupt or an insolvent, or has made an assignment for instrument itself remains in force.
the benefit of the creditors. 2. A renunciation in favor of the principal debtor may
be effected at or after maturity. Effect: the
instrument is discharged and all parties thereto
VIII. DISCHARGE provided the renunciation is made unconditionally
and absolutely.
Discharge of instrument - a release of all parties, whether
primary or secondary, from the obligations arising Note: In either case, renunciation does not affect the
thereunder. It renders the instrument without force and rights of a holder in due course without notice.
effect and, consequently, it can no longer be negotiated.
Cancellation of an instrument includes tearing, erasure,
Instances: obliteration, or burning. It is not limited to writing of
1. By payment in due course by or on behalf of the the word cancelled, or paid, or drawing of criss-
principal debtor; cross lines across the instrument.
2. Payment by accommodated party;
3. Intentional cancellation by the holder; Payment for Honor - payment made by a person, whether a
party to the bill or not, after it has been protested for non-
payment, for the benefit of any party liable thereon or for countermand by the payor after
the benefit of the person for whose account it was drawn. indorsement.
o The banks manager signs managers check
Requisites: while cashiers check is signed by the bank
1. the bill has been dishonored by non-payment; cashier.
2. it has been protested for non-payment;
3. payment supra protest (another term for payment 2. Certified Check one drawn by a depositor upon funds to
for honor because prior protest for non-payment is his credit in a bank which a proper officer of the bank
required) is made by any person, even by a party certifies will be paid when duly presented for payment
thereto;
4. the payment is attested by a notarial act of honor 3. Stale check one which has not been presented for
which must be appended to the protest or form an payment within a reasonable time after its issue
extension of it;
5. the notarial act must be based on the declaration 4. Crossed check when 2 parallel lines are drawn across
made by the payor for honor or his agent of his its face or across a corner thereof. If the name of a bank
intention to pay the bill for honor and for whose appears between the parallel lines, the check is said to
honor he pays. be specially crossed, and payment should be made only
if presented by the named bank. If no name appears
Note: If the above formalities are not complied with, between the parallel lines, the check is said to be
payment will operate as a mere voluntary payment and generally crossed, and payment should be made only
the payor will acquire no right to full reimbursement upon presentment by some bank.
against the party for whose honor he pays.
Effects of crossing a check:
In payment for honor, the payee cannot refuse payment. a. That the check may not be encashed but only be
If he refuses, he cannot recover from the parties who deposited in the bank;
would have been discharged had he accepted the same. b. That the check may be negotiated only once to one
In acceptance for honor, the holders consent is who has an account with a bank; and
necessary. c. That the act of crossing the check serves as a
warning to the holder that the check has been
The payor for honor is given the right to receive both the issued for a definite purpose so that he must inquire
bill and the protest obviously to enable him to enforce if he has received the check pursuant to that
his rights against the parties who are liable to him. purpose.
Kinds of checks:
1. Managers / Cashiers Check drawn by a bank on itself
and therefore, it is a primary obligation of the bank.
o It is accepted in advance by the act of its
issuance and is not subject to