Law 2: The Negotiable Instruments Law

CHAPTER IX: BILLS OF EXCHANGE (SECTIONS 126 TO 131)

A. Definition (Sec. 126 in relation to Sec. 1)

Sec. 126.
1. unconditional order;
2. in writing;
3. addressed by one person to another, signed by the person giving it;
4. 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.

In relation to Sec. 1 which states that it is a negotiable instrument which complies with the following requisites:

1. It is in writing signed by the drawer;

2. Contains an unconditional order to pay a sum certain in money;
3. It must be payable on demand or at a fixed or determinable future time;
4. It must be payable to bearer or order;
5. The drawee must be named of identified with reasonable certainty.

B. Bill of Exchange vs.Promissory note

Promissory Note Bill of Exchange

1 Contains an unconditional PROMISE Contains an unconditional ORDER
2 Three parties only, namely: maker, Four parties, namely: drawer, drawee/acceptor,
payee/indorser, holder payee/indorser, holder
3 Maker ISSUES the note Drawer DRAWS the bill
4 No prior presentment for acceptance is required, Prior presentment for acceptance is required, then,
only presentment for payment followed by presentment for payment, unless payment
upon presentment for acceptance
5 If payable on demand, must be presented for If payable on demand, must be presented for payment
payment within a reasonable time from the date within a reasonable time from the last negotiation
of issue

a) A bill MAY be treated as a note under the following instances (Sec. 130)
i. Drawer and drawee are the same person;
ii. drawee is fictitious;
iii. drawee has no capacity to contract;

C. Classes of bills
1. Inland bills as opposed to foreign bills

Inland bill is, on its face, both DRAWN and PAYABLE within the Philippines.
Foreign bill is one drawn in the Philippines but payable outside the Philippines, or, drawn outside the Philippines and payable
within the Phililppines.

2. Drafts – a bill of exchange which is payable on demand (demand draft); or at sight (sight draft) or at some future
determinable time (time draft)
Classes of drafts:
a. Bank draft – if drawn by a bank against its branch or another bank;
b. Domestic draft – drawn and payable in one and the same country;
c. International draft – drawn in one country and payable in another country

3. Trade Acceptances – a bill of exchange drawn by the seller on the purchaser of goods and accepted by the purchaser by
signing it as a drawee
4. Orders
5. Checks - see chapter on checks

D. Nature of Bills of Exchange (See Sec. 127)

The drawing of bills of exchange does not mean automatic transfer of funds by the drawee to the payee of the bill. The drawee
does not become liable on the bill unless he accepts the bill, in which case, he becomes an acceptor thereof.

E. Referee in case of need (Sec. 131)

Person named by the drawer or indorser as the one to whom the holder may resort in case of need, that is, in case the bill is
dishonored by non-acceptance or non-payment.

CHAPTER XI: PRESENTMENT FOR ACCEPTANCE (143-151)

A. Definition
Production or exhibition of a bill of exchange to the drawee for his acceptance or payment, it may include presentment for
payment also

B. Necessity
GR: (143, last par.) Not required
 EXC: (143)
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;
2. Where the bill 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.

Presentment is excused (Sec. 148)

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.

Effect if presentment is excused: bill may be treated as dishonored and, therefore, necessary proceedings in giving notice of
dishonor must be done

C. Manner (Sec. 145)

a. By the holder
b. Before the bill is overdue
c. To the drawee of his agent
d. If 2 or more drawees not partners: to all of them
e. If 2 or more who are partners: to any of them
f. If drawee is dead: to the representative
g. If drawee is bankrupt or insolvent: to the drawee himself, his trustee or assignee

D. When/Time/Period (Sec. 146 in rel. to Sec. 71, 72)

a. Term: Maturity date
b. Demand:
i. Note: within a reasonable time from the date of issue
ii. Bill: within a reasonable time from the date of last negotiation

E. Dishonor (Sec. 149, 150)

1. When it is duly presented for acceptance and such an acceptance as is prescribed by this Act is refused or can not be
obtained; or
2. When presentment for acceptance is excused and the bill is not accepted.
3. If after presented for acceptance, drawee does not accept the same within the prescribed time

F. Right of holder if bill not accepted (151): holder has immediate right of recourse against the secondary parties, namely: the
drawer and the indorsers

CHAPTER X: ACCEPTANCE (SECTION 132-142)

A. Definition (Sec. 132)

Acceptance is the signification by the drawee of his assest to the order of the drawer; done by wring across the face of the bill
the word “accepted” followed by the drawee’s signature, or equivalent words such as “honored”, “seen”, “presented”, “good”, “I would
pay”, or just the signature of the drawee.

B. Applicability

Required in bills of exchange, EXCEPT checks which are demand instruments

C. Requisites: (Sec. 132)

a. Must be in writing
b. Signed by the drawee
c. Express promise to pay money
d. Delivered to the holder

D. Manner:
GR: must be made on the face of the bill (Sec. 133)

Effect if not written on the bill: the holder may treat the bill as dishonored, in which case, the proceedings for dishonor
must be duly taken, but may be treated as valid by the person to whom it is shown and who, on the faith thereof, receives
the bill for value (Sec. 134)
Example: acceptance through correspondence/mail

EXC: if there is an unconditional promise in writing to accept the bill before it is drawn
(Sec. 135)
E. Forms:
a. Express (Sec. 132)
b. Implied/Constructive (137)
i. Bill not returned within 24 hours
ii. Bill is destroyed by drawee

F. When
a. within 24 hours after presentment (136)
- before maturity date
- after maturity date
b. when bill is incomplete (Sec. 138)
 G. Kinds (139-141)
a. General Acceptance – acceptance to pay at a particular place

b. Qualified Acceptance

i. Conditional – acceptance subject to fulfillment of condition (future & uncertain)

ii. Partial – acceptance to pay part of the amount only
iii. Local – acceptance to pay only at a particular place (vs. general – particular place, but if for a particular
place ONLY, its local)
iv. Qualified as to time
v. Acceptance of some or more of the drawees but not all

Effect of Qualified Acceptance: (141) – holder may treat the bill as dishonored and must, therefore, take the
necessary steps in giving notice of dishonor

CHAPTER XII: PROTEST (Sections 152-158)

A. Definition
It is a formal instrument executed by a notary public or other competent person certifying that the facts necessary to the
dishonor of the instrument by non-acceptance or non-payment have taken place.

It is similar to a notice of dishonor, hence, it has a two-fold purpose:

a. Inform secondary parties of the fact of dishonor of the FOREIGN BILL
b. Demand from secondary parties the payment

B. Applicability (Sec. 152): Foreign bills only

C. Manner (Sec. 153)

a. It must be in writing setting forth
i. the fact of dishonor
ii. demand to pay
iii. time and place of presentment
iv. reason or cause of protest

b. The bill must be attached to the protest

c. Executed by a notary public or by any respectable resident of the place where it is executed (Sec. 154)
d.
D. When/Time/Period (Sec. 155): on the day of the dishonor (as opposed to notice of dishonor which is to be done within 24
hours)

E. Where (Sec. 156): where the instrument is dishonored

F. Protest vs. Notice of Dishonor

Protest Notice of Dishonor

1 Only for foreign bills, as a rule Any bill or note
2 Always in writing Any form – verbal or written
3 Requires statement of prior presentment, Mere notice of dishonor and demand is
notice of dishonor, etc sufficient
4 To be done by a notary public To be done by the holder
5 To be done at the place where the foreign Where the secondary party/ies can be
bill is dishonored found
6 To be done on the day of dishonor Within 24 hours from the time of dishonor
(the day following)

CHAPTER XIII: ACCEPTANCE FOR HONOR (ACCEPTANCE SUPRA PROTEST) (SECTION 162-170)

A. Acceptance for honor, defined. (Section 162,Act 2031)

It is an undertaking by a stranger to a bill after protest for the benefit of any party liable thereon or for the honor of th e person
for whose account the bill is drawn which acceptance inures also to the benefit of all parties subsequent to the person for whose honor it is
accepted, and conditioned to pay the bill when it becomes due if the original drawee does not pay it.

In case a foreign bill is dishonored by non-acceptance, the same may be accepted for honor. Acceptance supra protest must be
made by a person not a party to the bill. Therefore, he cannot be an indorser, considering that an indorser is a party alread y liable to the
bill. Naturally, the drawee refuses to accept the bill upon presentment for acceptance. Here, a third person accepts the bill FOR or ON
BEHALF of the drawee, and to protect the credit/interest of the drawee, drawer or indorsers (parties who are liable on the bill).

A-1: Purpose: A third person (not a party to the bill accepts the bill supra protest) in order to protect the credit (more like
the credibility) of parties who may be liable on the bill, but who refuse/s to accept the same.

B. Requisites

1. The bill must have been protested for dishonor by non-acceptance or for better security.
NB: A foreign bill may be protested in the following instances:
a. if it has been dishonored by non-acceptance (and/or non-payment)
 b. in case the drawee has been declared insolvent/backrupt or has made assignment of his properties (this takes
place before the maturity of the bill)
- letter b makes reference to the phrase FOR BETTER SECURITY

2. Acceptor for honor must be a stranger to the bill

3. Bill must not yet be overdue (because presentment for acceptance takes place before maturity considering that the bill
is to be presented for payment AT or AFTER maturity)
4. Acceptance for honor must be with the consent of the holder

B-1. Formal requisites

1. it must be in writing
2. expressly indicate that it is acceptance for honor
3. signed by the acceptor for honor (considering that he will be liable on the bill)
4. contain an express or implied promise to the holder (vis a vis number 3 above)
5. accepted bill be delivered to the holder.

C. Presumptions

1. In case the acceptance for honor does not state for whose honor the bill is accepted, it is presumed that it is accepted
for the honor of the drawer. (Section 163, Act 2031)

D. Liabilities
1. Acceptor for honor is liable to the following:
a. holder
b. subsequent parties to whose honor the bill is accepted
Example:
M - drawer
W - drawee

To: W
M - P - A - B - C

If the bill is dishonored in the hands of D, the holder, and duly protested thereby, and is subsequently accepted for the
honor of the drawer by X, X’s acceptance works for the benefit of P,A,B.

2. Acceptor for honor, upon so accepting, engages that on due presentment, he will pay the bill according to the terms of
his acceptance (See Sec. 165, Act 2031)

Requisites:
1. bill is duly presented for payment;
2. bill is not paid by the drawer;
3. protested for non-payment;
4. there is notice of dishonor given to the acceptor supra protest

CHAPTER XIV: PAYMENT FOR HONOR (PAYMENT SUPRA PROTEST) SECTION 171-177

A. Payment for Honor, defined.

Payment for honor is 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 the benefit of the person for whose account it was drawn
(can be made by a party to the bill, unlike in acceptance for honor which can be done only by one who is not a party to the bill)

B. Requisites
1. prior dishonor of the bill by non-payment
2. protested for non-payment
3. payment for honor is made by any person, whether or not a party
4. payment is attested by a notarial act of honor which must be attached to the protest (or may be an extension to the
protest)
5. notarial act (number 4 above) must be based on the declaration of the payer for honor or his agent

Absent these requisites, payment will operate as a mere voluntary payment and payer acquires no right to full reimbursement
(hence, no subrogation)

C. Rules
1. 174
D. Consequences
1. subsequent parties for whose honor the bill is paid are discharged (175)
2. where a holder refuses to receive payment for honor, he loses his right of recourse against any party who
would have been discharged by non-payment (parties subsequent to the party for whose honor the bill is paid
for honor) (176)
3. payer for honor acquires the right to receive the bill itself and the protest for him to enforce his right to
reimbursement against parties who are liable on the bill

Acceptance for Honor vs. Payment for honor (see De Leon)

Chapter XV
A. Bills in set,defined.
Several individual bills are issued, each of which makes reference to each other. It is composed of several parts, each part being
numbered and containing a reference to the other parts, all individual bills constitute a set (bills in set).