1 PART I THE NEGOTIABLE INSTRUMENTS LAW (ACT NO. 2031.) INTRODUCTION Historical background of our Negotiable Instruments Law. (1) U.S. Uniform Negotiable Instruments Act. — Our law is patterned with very slight modifications after the Uniform Negotiable Instruments Act of the United States of 1896 drafted by the National Conference of Commissioners on Uniform State Laws. The Conference was appointed in 1895 to revise and codify the law merchant in the United States as there was much confusion and lack of uniformity then in the court decisions on the subject resulting from the variety of statutes pertaining to commercial paper enacted by various state legislatures. This law, in turn, is based upon and largely copied from the English Bill of Exchange Act of 1882, a codification of the laws in England governing bills of exchange, promissory notes and checks. Most state legislatures adopted the Act as the main law for regulating commercial paper. (2) U.S. Uniform Commercial Code. — The Uniform Negotiable Instruments Act has been replaced in part by Article 3 and in part by other articles of the Uniform Commercial Code (U.C.C.) prepared under the auspices of the National Conference of Commissioners on Uniform State Law and the American Law
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PART I
THE NEGOTIABLEINSTRUMENTS LAW
(ACT NO. 2031.)
INTRODUCTION
Historical background of our Negotiable Instruments Law. (1) U.S. Uniform Negotiable Instruments Act. — Our law is patterned with very slight modifi cations after the Uniform Negotiable Instruments Act of the United States of 1896 drafted by the National Conference of Commissioners on Uniform State Laws. The Conference was appointed in 1895 to revise and codify the law merchant in the United States as there was much confusion and lack of uniformity then in the court decisions on the subject resulting from the variety of statutes pertaining to commercial paper enacted by various state legislatures. This law, in turn, is based upon and largely copied from the English Bill of Exchange Act of 1882, a codifi cation of the laws in England governing bills of exchange, promissory notes and checks. Most state legislatures adopted the Act as the main law for regulating commercial paper. (2) U.S. Uniform Commercial Code. — The Uniform Negotiable Instruments Act has been replaced in part by Article 3 and in part by other articles of the Uniform Commercial Code (U.C.C.) prepared under the auspices of the National Conference of Commissioners on Uniform State Law and the American Law
THE NEGOTIABLE INSTRUMENTS LAW2
Institute. Proposed for adoption by the legislatures of the states, the fi rst draft of the Code was fi nished in 1952 although the Code is revised periodically. (see 11 Am. Jur. 2d 64.) The Code seeks to simplify and modernize the law of commercial transactions. Each state has adopted part or all of the Code. (3) Act No. 2031. — Our Negotiable Instruments Law was enacted as Act No. 2031 on February 3, 1911. It took effect 90 days after its publication on March 4, 1911 in the Offi cial Gazette of the Philippine Islands was completed. (Sec. 198.) The Act, therefore, took effect on June 2, 1911. Since then, our Congress has not seen fi t to amend any of its provisions. The evident purpose of the Act is to facilitate transactions in commercial paper and to promote free fl ow of credit. Since then, our Congress has not seen fi t to amend any of its provisions. (4) Code of Commerce. — Prior to the passage of Act No. 2031, the law then existing and in force as to negotiable instruments could be found in Book II of the Code of Commerce, from Articles 443 to 556. All these articles, with the exception of those on crossed checks, have been repealed. (Sec. 197.)
Application and purpose of the Negotiable Instruments Law. (1) The Act applies only to negotiable instruments (Arnold vs. Jordan, 215 Ala. 693, 112 So. 305.) or to those instruments which meet the requirements laid down in Section 1 of the law. It is designed to describe fully the law of negotiable instruments. It “covers the entire subject of negotiable instruments and must be treated as a complete body of law upon the subject and controlling in all cases to which it is applicable.” (Bank of Italy, etc. vs. Symmes, 118 Cal. App. 716, 5 P. [2d] 956.) It is decisive as to all matters comprehended within its terms. (2) Any case not provided for by the Act shall be governed by the provisions of existing legislation or in default thereof, by the rules of the law merchant. (Sec. 196.) The Civil Code has no effect on its provisions except to supply any defi ciency in cases not covered by the Act. (see Art. 18, Civil Code.)
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(3) The law was enacted for the purpose of facilitating, not hindering or hampering transactions in commercial paper. Thus, the said statute should not be tampered with haphazardly or lightly nor should it be brushed aside in order to meet the necessities in a single case. (State Investment House, Inc. vs. Court of Appeals, 217 SCRA 32 [1993].)
Function and importance of negotiable instruments. Negotiable instruments play an important role in the business world. (1) As a substitute for money. — Although they do not constitute legal tender (Art. 1249, ibid.), and are not money, they are used as a substitute for money. One of the distinctive characteristics of a negotiable instrument is its negotiability which allows it to pass freely from hand to hand in the commercial markets and to take the place of money in commercial transactions free from all personal defenses (see Secs. 57-58.) available against the original owner. A negotiable instrument differs from money, however, in that the former is valuable or worthless depending upon the fi nancial ability of the parties to them. The purpose of the law is to place negotiable instruments on such footing that it would be freely accepted without question in commercial transactions and thereby facilitate trade. (2) As a medium of exchange for most commercial transactions. — Negotiable papers, particularly checks, constitute, at present, the media of exchange for most commercial transactions. They thus increase the purchasing medium in circulation. Without them circulating among business houses and individuals, more money either in coins or bank bills would be needed in circulation to take care of the ever increasing everyday business transactions. It would be very diffi cult for the economy to prosper. (3) As a medium of credit transactions. — Negotiable instru-ments also serve as a medium of credit transactions. “A man does not always have property, or valuable property rights which he can turn into cash at any moment. These things, however, mea-sure his credit and he avails himself of his credit by executing
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PREFACE
Upon fi rst impression, the Negotiable Instruments Law may appear to be complex and abstruse. However, it is believed that the subject may be presented in a simplifi ed and concise manner without sacrifi cing the proper scope, so that it may be easily understood by a wide range of readers. It is with this aim in mind that this modest work which is now on its seventh edition has been prepared.
It will be noticed that the authors did not limit themselves to merely explaining the law, giving illustrations, and citing or quoting judicial decisions and opinions of well-known writers on bills and notes. In many instances, they expressed their own opinions especially where there is a confl ict of views. Needless to say, they do not pretend to speak with authority.
This book also discusses at some length the Civil Code provisions on documents of title and the Warehouse Receipts Law. The authors have deemed it fi t to include as appendices important specialized laws in the mercantile fi eld.
While this volume is intended primarily to serve as a text-book for law students, it may conveniently be used by lawyers, judges, and business executives as a handy reference.
The authors acknowledge their grateful appreciation to former Justice Catalino R. Castañeda, Jr. of the Sandiganbayan, a classmate in the U.P. College of Law and co-author of “Comprehensive Review of Business Law” of the fi rst author of this work, for his valued comments and suggestions.
HECTOR S. DE LEON
HECTOR M. DE LEON, JR.
June 2010
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TABLE OF CONTENTS
PART I
THE NEGOTIABLEINSTRUMENTS LAW
(ACT NO. 2031.)
Preface ................................................................................................................ iii
INTRODUCTION
1. Historical background of our Negotiable Instruments Law .......... 12. Application and purpose of the Negotiable Instruments Law ...... 23. Function and importance of negotiable instruments ...................... 34. Characteristics or features of negotiable instruments ..................... 45. The theory of negotiable instruments ............................................... 66. Forms of negotiable instruments ........................................................ 67. Doubt resolved in favor of negotiability ........................................... 78. Contracts and negotiable instruments compared ............................ 79. Commercial papers with limited negotiability ................................ 8
1. Commercial paper defi ned ............................................................. 112. Formal requirements of negotiability in general ........................ 123. Negotiable instrument defi ned ..................................................... 124. Formal requirements explained .................................................... 125. Non-negotiable instrument defi ned ............................................. 166. Money defi ned ................................................................................. 167. Money not governed by Act .......................................................... 178. Promissory note defi ned ................................................................ 179. Original parties to a promissory note .......................................... 17
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10. Bill of exchange defi ned ................................................................. 2111. Original parties to a bill of exchange ........................................... 2112. Idea and purpose of a bill of exchange ........................................ 23
Sec. 2 .................................................................................................................. 24
1. Certainty of sum payable ............................................................... 242. Sum to be paid with interest .......................................................... 253. Sum to be paid by stated installments ......................................... 274. Extension clauses ............................................................................. 285. Sum to be paid with exchange ...................................................... 286. Sum to be paid with costs of collection and/or attorney’s fee .................................................................................... 29
Sec. 3 .................................................................................................................. 31
1. When promissory note contains a promise to pay ..................... 312. When bill of exchange contains an order to pay ........................ 323. When promise or order to pay unconditional ............................ 334. Indication of a particular fund out of which reimbursement is to be made ................................................... 345. Indication of a particular fund out of which payment is to be made .............................................................. 346. Indication of a particular account to be debited with the amount ......................................................................... 357. Statement of transaction which gives rise to instrument .......... 36
Sec. 4 .................................................................................................................. 37
1. Certainty of time of payment ........................................................ 382. Payable “when able,” etc.; within reasonable time .................... 42
Sec. 5 .................................................................................................................. 42
Acts in addition to payment of money ................................................ 42
Sec. 6 .................................................................................................................. 46
1. Effect of omission of date ............................................................... 462. Effect of omission of value ............................................................. 473. Effect of omission of place ............................................................. 484. Effect of presence of seal ................................................................ 485. Effect of designation of particular kind of current money payable ........................................................................... 48
Sec. 7 .................................................................................................................. 49
When instrument payable on demand ................................................ 49
Sec. 8 .................................................................................................................. 52
1. When instrument payable to order .............................................. 522. Effect where payee not named or described ............................... 54
Sec. 9 .................................................................................................................. 55
When instrument payable to bearer ..................................................... 55
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Sec. 10 ................................................................................................................ 61
Substance criterion of negotiability ...................................................... 61
Sec. 11 ................................................................................................................ 61
1. Presumption as to date ................................................................... 612. Date in instrument payable at a fi xed future date ...................... 623. Date in instrument payable on demand ...................................... 63
Sec. 12 ................................................................................................................ 63
1. Meaning of ante-dating and post-dating ..................................... 632. Effect of ante-dating and post-dating .......................................... 643. Date when instrument takes effect ............................................... 65
Sec. 13 ................................................................................................................ 65
1. When date may be inserted ........................................................... 652. Effect of insertion of wrong date ................................................... 66
Sec. 14 ................................................................................................................ 67
1. Steps in issuance of negotiable instrument ................................. 672. Application of Sections 14, 15, and 16 .......................................... 683. Rules where instrument incomplete but delivered .................... 68
Sec. 15 ................................................................................................................ 71
Rules where instrument incomplete and undelivered ...................... 71
Sec. 16 ................................................................................................................ 72
Rules where instrument mechanically complete ................................ 73
Sec. 17 ................................................................................................................ 77
Rules of construction in case of ambiguity or omission .................... 78
Sec. 18 ................................................................................................................ 82
Persons liable on an instrument ............................................................ 82
Sec. 19 ................................................................................................................ 83
Signature by an authorized agent ......................................................... 83
Sec. 20 ................................................................................................................ 84
1. When agent may escape personal liability .................................. 852. Disclosure by agent of principal ................................................... 863. Use of descriptive words without disclosure of principal ........ 87
Sec. 21 ................................................................................................................ 88
1. Meaning of procuration ................................................................. 882. Effect of signature by procuration ................................................ 88
Sec. 22 ................................................................................................................ 89
1. Effect of indorsement by incapacitated persons ......................... 892. Effect of indorsement by a corporation ....................................... 91
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Sec. 23 ................................................................................................................ 91
1. Forgery explained ........................................................................... 912. Application of Section 23 ............................................................... 923. Cases of forgery in general ............................................................ 934. Extent of the effect of forgery ........................................................ 935. Exceptions to the general rule ....................................................... 956. Persons precluded from setting up the defense of forgery ....... 957. Right of drawee to recover payment made where drawer’s signature was forged ............................................... 1138. Right of drawee to recover payment where payee’s or indorser’s signature was forged ......................................... 1209. Rights of parties in cases of forged indorsements ...................... 123
Chapter II. — Consideration
Sec. 24 ................................................................................................................ 131
1. Meaning of consideration in general ............................................ 1312. Presumption of consideration ....................................................... 131
Sec. 25 ................................................................................................................ 132
1. Valuable consideration in general ................................................ 1322. Adequacy of consideration ............................................................ 1333. Antecedent or pre-existing debt .................................................... 134
Sec. 26 ................................................................................................................ 135
What constitutes a holder for value ..................................................... 135
Sec. 27 ................................................................................................................ 136
Where a holder has lien on instrument ................................................ 136
Sec. 28 ................................................................................................................ 138
1. Meaning of absence or want of consideration ............................ 1382. Meaning of failure of consideration ............................................. 138
Sec. 29 ................................................................................................................ 139
1. Defi nition of terms .......................................................................... 1392. Parol evidence to prove accommodation .................................... 1413. Liability of accommodation party to a holder ............................ 1414. Rights of accommodation party .................................................... 1455. Meaning of “without receiving value therefor’’ ......................... 1456. Kinds of accommodation party ..................................................... 1467. Accommodation party and regular party distinguished .......... 146
Chapter III. — Negotiation
Sec. 30 ................................................................................................................ 148
1. Modes of transfer of bill or note, in general ................................ 1482. Three methods of transferring a negotiable instrument............. 148
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3. Meaning of negotiation .................................................................. 1494. Methods of negotiation .................................................................. 1505. Payment of instrument by drawee not negotiation ................... 1516. Meaning of assignment .................................................................. 1517. Effect of delivery of order instrument without indorsement ... 1518. Negotiation and assignment distinguished ................................ 1529. When distinction not material ....................................................... 153
10. Payment by means of instrument merely conditional ............... 15311. Can there be a negotiation to a payee? ........................................ 15312. Delivery of negotiable instrument ................................................ 15413. Where delivery conditional ........................................................... 155
Sec. 31 ................................................................................................................ 156
1. Meaning and nature of indorsement ............................................ 1562. Indorsement and assignment distinguished ............................... 1573. Necessity of indorsement ............................................................... 1574. Form of indorsement ...................................................................... 1575. Place of indorsement ...................................................................... 1596. Use of allonge for indorsement ..................................................... 159
Sec. 32 ................................................................................................................ 159
1. Indorsement must be of entire instrument .................................. 1602. Indorsement to multiple payees or indorsees .............................. 1603. When partial indorsement allowed .............................................. 161
Sec. 33 ................................................................................................................ 161
Classifi cation of indorsement ................................................................ 161
Sec. 34 ................................................................................................................ 162
Sec. 35 ................................................................................................................ 164
Conversion of blank indorsement to special indorsement ............... 164
Sec. 36 ................................................................................................................ 166
1. Restrictive indorsement explained ............................................... 1662. Effect of absence of words of negotiability .................................. 168
Sec. 37 ................................................................................................................ 168
Rights of indorsee in restrictive indorsement ..................................... 169
Sec. 38 ................................................................................................................ 169
1. Qualifi ed indorsement explained ................................................. 1692. Effect of qualifi ed indorsement ..................................................... 170
Sec. 39 ................................................................................................................ 172
1. Absolute and conditional indorsements explained ................... 1722. Different combinations of indorsements ..................................... 173
Sec. 40 ................................................................................................................ 173
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1. Effect of special indorsement where instrument originally payable to bearer ........................................................... 1742. Application of Section 40 ............................................................... 175
Sec. 41 ................................................................................................................ 175
1. Indorsement where instrument payable to two or more joint payees or indorsees ................................................. 1762. When joint indorsement by all payees or indorsees not required ...................................................................................... 176
Sec. 42 ................................................................................................................ 177
Indorsement where instrument drawn or indorsedto a person as cashier ............................................................................. 177
Sec. 43 ................................................................................................................ 178
Indorsement where name misspelled, etc. .......................................... 179
Sec. 44 ................................................................................................................ 179
Indorsement in representative capacity ............................................... 179
Sec. 45 ................................................................................................................ 179
Presumption as to time of indorsement ............................................... 179
Sec. 46 ................................................................................................................ 180
Presumption as to place of indorsement ............................................. 180
Sec. 47 ................................................................................................................ 181
1. Continuation of negotiable character of originally negotiable instrument .................................................................... 1812. Conversion from non-negotiable to negotiable instrument ..... 181
Sec. 48 ................................................................................................................ 182
When holder may strike out indorsement .......................................... 182
Sec. 49 ................................................................................................................ 184
1. Effect of transfer without indorsement ........................................ 1842. Effect of indorsement after transfer .............................................. 186
Sec. 50 ................................................................................................................ 186
1. Right of prior party to negotiate ................................................... 1862. Limitations on renegotiation ......................................................... 188
Chapter IV. — Rights of the Holder
Sec. 51 ................................................................................................................ 189
1. Classes of holders ............................................................................ 1892. Rights of holder in general ............................................................ 1903. Right of transferee of unindorsed instrument to sue ................. 191
Sec. 52 ................................................................................................................ 191
1. What constitutes a holder in due course ..................................... 1912. Payee as holder in due course ....................................................... 193
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3. Drawee as holder in due course .................................................... 1944. Instrument complete and regular upon its face .......................... 1955. Holder before instrument is overdue ........................................... 1966. Where instrument is part overdue and in part not .................... 1977. Holder without notice of dishonor ............................................... 1998. Holder in good faith ....................................................................... 2009. Effects of crossing a check ............................................................... 201
10. Holder for value .............................................................................. 20311. Holder without notice of infi rmity in instrument or defect of title ............................................................................... 203
Sec. 53 ................................................................................................................ 204
Holder in due course in instrument payable on demand ................. 204
Sec. 54 ................................................................................................................ 205
1. Effect of notice before full payment ............................................. 2052. When Section 54 not applicable .................................................... 206
Sec. 55 ................................................................................................................ 208
1. Defective title in general ................................................................ 2082. When title of a person defective ................................................... 2083. Good faith of taker and negotiator ............................................... 208
Sec. 56 ................................................................................................................ 217
What constitutes notice of infi rmity or defect .................................... 217
Sec. 57 ................................................................................................................ 221
1. Rights of a holder in due course ................................................... 2212. Importance and foundation of due course holding ................... 2213. Real defenses available against a holder in due course ............. 222
Sec. 58 ................................................................................................................ 222
1. Defenses in general ......................................................................... 2232. Immediate, remote, and prior parties explained ........................ 2263. Defenses available against a holder not a holder in due course .................................................................................... 2264. Defenses subject to estoppel .......................................................... 2275. Fraud in factum and fraud in inducement distinguished .......... 2276. Rights of holder not in due course ............................................... 2287. Right of holder not in due course to receive payment .............. 2288. Rights of purchaser from a holder in due course ....................... 229
Sec. 59 ................................................................................................................ 231
When holder presumed a holder in due course ................................. 232
Chapter V. — Liabilities of Parties
Sec. 60 ................................................................................................................ 234
1. Classifi cation of parties according to liability ............................. 2342. Primary party and secondary party distinguished .................... 235
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3. Liability of maker ............................................................................ 235
Sec. 61 ................................................................................................................ 236
1. Liability of drawer .......................................................................... 2372. Drawer distinguished from maker ............................................... 238
Sec. 62 ................................................................................................................ 239
1. Liability of acceptor ........................................................................ 2392. Liability depends on tenor of acceptance .................................... 2403. Effect of acceptance of an altered bill ........................................... 2414. Warranties of the acceptor ............................................................. 2435. Payment without acceptance ......................................................... 243
Sec. 63 ................................................................................................................ 245
1. When a person deemed an indorser ............................................ 2452. When a person liable as guarantor or surety .............................. 2463. Liability of agent bank for collection ............................................. 247
Sec. 64 ................................................................................................................ 248
1. Irregular or anomalous indorsement explained ......................... 2482. When a person an irregular or anomalous indorser .................. 2483. Rules as to liability of irregular or anomalous indorser ............ 2494. Warranties of irregular indorser ................................................... 250
Sec. 65 ................................................................................................................ 250
1. Negotiation by delivery/qualifi ed indorsement ........................ 2512. Warranty liability of one negotiating by delivery and of qualifi ed indorser ...................................................................... 2513. Liability of collecting/issuing book .............................................. 2524. Sale of public or corporate securities ........................................... 253
Sec. 66 ................................................................................................................ 253
1. Warranty liability of general or unqualifi ed indorser ................ 2542. Right of holder not in due course to enforce warranties of general indorser ......................................................................... 2563. Conditions precedent to make indorser liable ............................ 2574. Indorser’s liability as warrantor distinct from his liability to pay ........................................................................... 2575. Indorser and drawer distinguished .............................................. 2586. General indorser and irregular indorser distinguished ............ 258
Sec. 67 ................................................................................................................ 259
Liability of indorser of bearer instrument ........................................... 259
Sec. 68 ................................................................................................................ 259
1. Order of liability among indorsers ............................................... 2592. Liability of joint payees or joint indorsees who indorse ........... 2603. Successive negotiations contemplated ......................................... 261
Sec. 69 ................................................................................................................ 261
1. Liability of an agent or broker ....................................................... 261
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Chapter VI. — Presentment for Payment
Sec. 70 ................................................................................................................ 262
1. Meaning of presentment for payment ......................................... 2622. Presentment for payment to person primarily liable not necessary ................................................................................... 2623. Presentment for payment to persons secondarily liable necessary ............................................................................... 264
Sec. 71 ................................................................................................................ 264
Date of presentment of instrument ....................................................... 264
Sec. 72 ................................................................................................................ 266
Requisites for a suffi cient presentment for payment ......................... 266
Sec. 73 ................................................................................................................ 267
Place of presentment ............................................................................... 268
Sec. 74 ................................................................................................................ 268
1. Mode of presentment for payment ............................................... 2692. Exhibition of the instrument ........................................................... 269
Sec. 75 ................................................................................................................ 270
Presentment where instrument payable at a bank ............................. 270
Sec. 76 ................................................................................................................ 271
Presentment where principal debtor is dead ...................................... 271
Sec. 77 ................................................................................................................ 272
Presentment to persons liable as partners ........................................... 272
Sec. 78 ................................................................................................................ 272
Presentment to joint debtors .................................................................. 272
Sec. 79 ................................................................................................................ 273
When presentment not required to charge drawer ............................ 273
Sec. 80 ................................................................................................................ 274
When presentment not required to charge indorser .......................... 274
Sec. 81 ................................................................................................................ 274
When delay in making presentment excused ..................................... 274
Sec. 82 ................................................................................................................ 275
1. When presentment may be dispensed with ................................ 2752. Summary of rules as to presentment for payment ..................... 276
Sec. 83 ................................................................................................................ 276
When instrument dishonored by non-payment ................................. 277
Sec. 84 ................................................................................................................ 277
Effect of dishonor by non-payment ...................................................... 277
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Sec. 85 ................................................................................................................ 278
1. Time of maturity of instrument ..................................................... 2782. Instruments falling due or becoming payable on Saturday ..... 279
Sec. 86 ................................................................................................................ 280
Computation of time of maturity ......................................................... 280
Sec. 87 ................................................................................................................ 281
Rule where instrument payable at a bank ........................................... 281
Sec. 88 ................................................................................................................ 281
Requisites of payment in due course ................................................... 281
Chapter VII. — Notice of Dishonor
Sec. 89 ................................................................................................................ 283
1. When instrument considered to be dishonored ......................... 2832. Meaning of notice of dishonor ...................................................... 2833. Object of notice of dishonor ........................................................... 2844. Effect of failure to give notice of dishonor .................................. 2845. Burden on holder to prove notice given ……………… .............. 2846. Indorser entitled to notice of dishonor ........................................ 2857. When notice of dishonor not necessary ....................................... 286
Sec. 90 ................................................................................................................ 288
By whom notice of dishonor given ....................................................... 288
Sec. 91 ................................................................................................................ 289
Authority to give notice not necessary ................................................ 289
Sec. 92 ................................................................................................................ 289
Effect of notice given by holder ............................................................ 289
Sec. 93 ................................................................................................................ 290
Effect of notice given by party entitled thereto .................................. 290
Sec. 94 ................................................................................................................ 291
When and to whom agent may give notice ......................................... 291
1. Form of notice .................................................................................. 2922. Contents of notice ........................................................................... 2933. How notice given ............................................................................ 2934. Defect in notice ................................................................................ 293
Sec. 97 ................................................................................................................ 294
Person to be given notice ....................................................................... 294
Sec. 98 ................................................................................................................ 294
1. Notice where party is dead ............................................................ 2952. When notice to personal representative not required ............... 295
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Sec. 99 ................................................................................................................ 296
Notice to partners .................................................................................... 296
Sec. 100 .............................................................................................................. 296
Notice to joint parties ............................................................................. 296
Sec. 101 .............................................................................................................. 297
Notice to bankrupt .................................................................................. 297
Sec. 102 .............................................................................................................. 297
Time within which notice must be given ............................................. 297
Sec. 103 .............................................................................................................. 298
Notice where parties reside in same place .......................................... 298
Sec. 104 .............................................................................................................. 300
Notice where parties reside in different places ................................... 300
Sec. 105 .............................................................................................................. 301
When sender deemed to have given due notice ................................. 301
Sec. 106 .............................................................................................................. 302
When notice deemed to have been deposited .................................... 302
Sec. 107 .............................................................................................................. 302
Time of notice to subsequent party ...................................................... 303
Sec. 108 .............................................................................................................. 303
1. Place where notice must be given ................................................. 3042. Receipt, not manner, of notice essential ........................................ 305
Sec. 109 .............................................................................................................. 305
1. Waiver of notice of dishonor ......................................................... 3052. Form of Waiver ................................................................................. 305
Sec. 110 .............................................................................................................. 306
Persons affected by waiver .................................................................... 306
Sec. 111 .............................................................................................................. 307
Effect of waiver of protest ...................................................................... 307
Sec. 112 .............................................................................................................. 308
When notice dispensed with ................................................................. 308
Sec. 113 .............................................................................................................. 309
When delay in giving notice excused .................................................. 309
Sec. 114 .............................................................................................................. 309
When notice to drawer not required .................................................... 309
Sec. 115 .............................................................................................................. 311
When notice to indorser not required .................................................. 311
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Sec. 116 .............................................................................................................. 312
Effect where notice of non-acceptance already given ........................ 312
Sec. 117 .............................................................................................................. 313
Effect of omission to give notice of non-acceptance .......................... 313
Sec. 118 .............................................................................................................. 314
1. When protest required and not required ..................................... 3142. Summary of rules as to notice of dishonor .................................. 314
Chapter VIII. — Discharge of Negotiable Instrument
Sec. 119 .............................................................................................................. 316
1. Meaning and effect of discharge of instrument .......................... 3162. Concept of discharge ...................................................................... 3163. Methods for discharge of instrument ........................................... 317
Sec. 120 .............................................................................................................. 319
Methods of discharge of secondary parties ......................................... 320
Sec. 121 .............................................................................................................. 322
1. Effect of reacquisition by prior party ........................................... 3222. Negotiation by prior party ............................................................. 323
Sec. 122 .............................................................................................................. 324
1. Meaning of renunciation ................................................................ 3242. How renunciation by holder made .............................................. 3243. Effect of renunciation ...................................................................... 325
Sec. 123 .............................................................................................................. 325
When cancellation inoperative .............................................................. 326
Sec. 124 .............................................................................................................. 326
1. Meaning of material alteration ...................................................... 3262. Effect of alteration of instrument .................................................. 3263. Reason for rule in relation to material alteration ....................... 329
Sec. 125 .............................................................................................................. 329
When alteration is material .................................................................... 329
TITLE II
BILLS OF EXCHANGE
Chapter IX. — Form and Interpretation
Sec. 126 .............................................................................................................. 333
1. Bill of exchange and promissory note distinguished ................. 3332. When a promissory note like a bill of exchange ......................... 334
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3. When a bill of exchange like a promissory note ......................... 3344. Other classes of bills of exchange ................................................. 334
Sec. 127 .............................................................................................................. 338
Status of drawee prior to acceptance or payment/after payment ............................................................................................ 338
Sec. 128 .............................................................................................................. 339
Bill addressed to several drawees ......................................................... 339
Sec. 129 .............................................................................................................. 339
1. Inland and foreign bills of exchange explained .......................... 3392. Importance of the distinction ........................................................ 3403. When foreign bill may be treated as inland bill .......................... 340
Sec. 130 .............................................................................................................. 340
When bill may be treated as a note ....................................................... 340
Sec. 131 .............................................................................................................. 341
Referee in case of need ........................................................................... 341
Chapter X. — Acceptance
Sec. 132 .............................................................................................................. 343
1. Meaning of acceptance ................................................................... 3432. Applicability .................................................................................... 3433. Object and effect of acceptance ..................................................... 3444. Formal requisites of acceptance .................................................... 3445. How acceptance made .................................................................... 345
Sec. 133 .............................................................................................................. 346
1. Where acceptance may be made ................................................... 3462. Right of holder to acceptance on face of bill ............................... 346
Sec. 134 .............................................................................................................. 346
1. Acceptance by separate instrument ............................................. 3462. Acceptance by telegram ................................................................. 347
Sec. 135 .............................................................................................................. 347
When promise to accept equivalent to acceptance ............................. 347
Sec. 136 .............................................................................................................. 348
Time allowed drawee to accept ............................................................. 348
Sec. 137 .............................................................................................................. 349
1. Constructive acceptance ................................................................. 3492. Effect of retention of bill ................................................................. 350
Sec. 138 .............................................................................................................. 351
When acceptance may be made ............................................................ 351
Kinds of acceptance ................................................................................ 352
Sec. 142 .............................................................................................................. 353
Right of holder to general acceptance .................................................. 353
Chapter XI. — Presentment for Acceptance
Sec. 143 .............................................................................................................. 354
1. Meaning of presentment for acceptance ...................................... 3542. When presentment for acceptance necessary ............................. 3543. When presentment for acceptance not necessary ....................... 355
Sec. 144 .............................................................................................................. 355
Necessity for presentment for acceptance ornegotiation within a reasonable time ................................................... 356
Sec. 145 .............................................................................................................. 356
How presentment for acceptance made .............................................. 356
Sec. 146 .............................................................................................................. 357
Days when presentment for acceptance may be made ..................... 357
Sec. 147 .............................................................................................................. 358
Where time for presentment for acceptance insuffi cient ................... 358
Sec. 148 .............................................................................................................. 359
When presentment for acceptance excused ........................................ 359
Sec. 149 .............................................................................................................. 360
When bill dishonored by non-acceptance ........................................... 360
Sec. 150 .............................................................................................................. 360
Duty of holder in case of non-acceptance ............................................ 360
Sec. 151 .............................................................................................................. 361
Rights of holder where bill not accepted ............................................. 361
Chapter XII. — Protest
Sec. 152 .............................................................................................................. 362
1. Meaning of protest .......................................................................... 3622. Necessity of protest ......................................................................... 3623. Reasons for requiring protest in case of foreign bills ................. 363
Sec. 153 .............................................................................................................. 364
1. Procedure for protest ...................................................................... 3642. Form and contents of certifi cate of protest .................................. 3653. Purpose of certifi cate of protest .................................................... 365
Sec. 154 .............................................................................................................. 365
By whom protest made .......................................................................... 365
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Sec. 155 .............................................................................................................. 366
When protest to be made ....................................................................... 366
Sec. 156 .............................................................................................................. 366
Where protest to be made ...................................................................... 367
Sec. 157 .............................................................................................................. 367
Protest both for non-acceptance and non-payment ........................... 367
Sec. 158 .............................................................................................................. 367
Protest for better security before maturity .......................................... 368
Sec. 159 .............................................................................................................. 368
When protest dispensed with ................................................................ 368
Sec. 160 .............................................................................................................. 368
1. Protest where bill is lost, etc. ......................................................... 3682. Protest and notice of dishonor distinguished ............................. 369
Chapter XIII. — Acceptance for Honor
Sec. 161 .............................................................................................................. 370
1. Meaning of acceptance for honor ................................................. 3702. Purpose of acceptance for honor ................................................... 3703. Requisites of acceptance for honor ............................................... 371
Sec. 162 .............................................................................................................. 371
Formal requisites of acceptance for honor .......................................... 371
Sec. 163 .............................................................................................................. 372
When an acceptance for honor deemed for honor of drawer ........... 372
Sec. 164 .............................................................................................................. 372
Rights and liability of acceptor for honor ............................................ 372
Sec. 165 .............................................................................................................. 373
Agreement of acceptor for honor .......................................................... 373
Sec. 166 .............................................................................................................. 374
Maturity of bill payable after sight, accepted for honor .................... 374
Sec. 167 .............................................................................................................. 374
Protest for non-payment of bill accepted for honor ........................... 375
Sec. 168 .............................................................................................................. 375
When presentment for payment to acceptor for honor made .......... 375
Sec. 169 .............................................................................................................. 375
When delay in making presentment excused ..................................... 375
Sec. 170 .............................................................................................................. 375
1. Protest for non-payment by acceptor for honor ......................... 375
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2. Acceptance for honor and ordinary acceptance distinguished ................................................................................... 376
Chapter XIV. — Payment for Honor
Sec. 171 .............................................................................................................. 377
1. Meaning of payment for honor ..................................................... 3772. Who may make payment for honor ............................................. 3773. Purpose and function of payment for honor .............................. 378
1. Requisites of valid payment for honor ........................................ 3782. Procedure for payment for honor ................................................. 379
Sec. 174 .............................................................................................................. 379
Preference of parties offering to pay for honor ................................... 379
Sec. 175 .............................................................................................................. 379
Effects where bill is paid for honor ....................................................... 380
Sec. 176 .............................................................................................................. 380
Effect of holder’s refusal to receive payment ...................................... 380
Sec. 177 .............................................................................................................. 381
1. Rights of payer for honor ............................................................... 3812. Payment for honor and acceptance for honor distinguished ................................................................................... 381
Chapter XV. — Bills in Set
Sec. 178 .............................................................................................................. 382
1. Bill in a set defi ned .......................................................................... 3822. Purpose of bills in set ...................................................................... 383
Sec. 179 .............................................................................................................. 384
Rights of holders where different parts of a set are negotiated .......................................................................................... 384
Sec. 180 .............................................................................................................. 385
Liability of indorser of different parts of a set .................................... 385
Sec. 181 .............................................................................................................. 385
Liability of acceptor of different parts of a set .................................... 385
Sec. 182 .............................................................................................................. 386
Liability of acceptor who pays part of a set ........................................ 386
Sec. 183 .............................................................................................................. 387
Effect of discharging a part of a set ...................................................... 387
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TITLE III
Chapter XVI. — Promissory Notes and Checks
Sec. 184 .............................................................................................................. 388
1. Note payable to maker’s order ..................................................... 3882. Special types of promissory notes ................................................ 389
Sec. 185 .............................................................................................................. 392
1. Check defi ned .................................................................................. 3922. Distinctive characteristics of checks ............................................. 3923. Checks not mere contracts ............................................................. 3934. Check and ordinary bill of exchange distinguished .................. 3955. Bills payable in the future .............................................................. 3966. Nature of post-dated check............................................................. 3977. Special types of check ..................................................................... 3978. Stale check ........................................................................................ 4039. Check payable to bearer ................................................................. 404
10. Duty of depositor to reconcile bank’s statement with his own records .............................................................................. 405
Sec. 186 .............................................................................................................. 406
1. When drawer of check discharged from liability ....................... 4062. Checks intended for immediate use ............................................. 4073. Risk of loss for drawee’s insolvency ............................................ 4074. Discharge of drawer and indorser in case presentment delayed ............................................................................................. 4085. When presentment for payment of check within a reasonable time ............................................................................ 4126. The Bouncing Checks Law ............................................................ 413
Sec. 187 .............................................................................................................. 432
1. Right of holder to certifi cation ...................................................... 4322. Form of certifi cation ........................................................................ 4323. Effects of certifi cation of checks .................................................... 4334. Liability of certifying bank ............................................................ 4335. When check may be certifi ed and by whom ............................... 4346. Object of certifying checks ............................................................. 434
Sec. 188 .............................................................................................................. 435
1. Effect where certifi cation obtained by holder ............................. 4352. Effect where certifi cation obtained by others .............................. 435
Sec. 189 .............................................................................................................. 436
1. Right before acceptance or certifi cation of check ....................... 4362. Liability in case of non-payment or wrong payment ................ 4373. When check operates as an assignment of drawer’s funds ...... 4414. Payment and acceptance distinguished ....................................... 4425. Cases when bank may refuse payment ....................................... 4436. Relation between depositor and bank ......................................... 443
Defi nition of terms .................................................................................. 450Sec. 192 .............................................................................................................. 450
Persons liable on instrument ................................................................. 450
Sec. 193 .............................................................................................................. 450
Reasonable time ....................................................................................... 451
Sec. 194 .............................................................................................................. 452
Computation of time .............................................................................. 452
Sec. 195 .............................................................................................................. 452
Application of Act ................................................................................... 452
Sec. 196 .............................................................................................................. 452
1. Cases not covered by Act ............................................................... 4532. History and meaning of law merchant ........................................ 455
Sec. 197 .............................................................................................................. 456
1. Nature and function of documents of title .................................. 4572. Most common forms of documents of title ................................. 4573. Laws governing documents of title .............................................. 458
1. Defi nition of terms .......................................................................... 4592. Classes of documents of title ......................................................... 459
1. Transfer of order document without indorsement ..................... 4662. Rule where document subsequently indorsed ........................... 466
When negotiation not impaired by fraud, mistake, duress, etc. ................................................................................................ 468
1. Attachment or levy upon goods covered by a negotiable document ..................................................................... 4692. Where depositor not owner ........................................................... 470
Stipulation limiting common carrier’s liability to anagreed valuation ...................................................................................... 473
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B. THE WAREHOUSE RECEIPTS LAW
(Act No. 2137, as amended.)
INTRODUCTION
1. Scope of the law ............................................................................... 4742. Purposes of the law ......................................................................... 474
1. Who may issue receipts .................................................................. 4762. Meaning of warehouse ................................................................... 476
Sec. 2 .................................................................................................................. 476
1. Defi nition and nature of warehouse receipt ................................ 4772. Form and contents of the receipt .................................................. 4783. Effect of omission of any of essential terms ................................ 480
Sec. 3 .................................................................................................................. 481
1. Terms that cannot be included in a warehouse receipt ............. 481
1. Application of Sections 6 and 7 ..................................................... 4832. Effect of failure to mark “negotiable’’ or “non-negotiable” ............................................................................. 4833. Construction of warehouse receipts ............................................. 483
Chapter II. — Obligations and Rights of Warehousemen Upon their Receipts
Sec. 8 .................................................................................................................. 485
1. Principal obligations of the warehouseman ................................ 4852. Necessity of demand ...................................................................... 4863. Offer to satisfy warehouseman’s lien ........................................... 4864. Offer to surrender receipt .............................................................. 4865. Lawful excuses for refusal to deliver goods ................................ 486
Sec. 9 .................................................................................................................. 487
Person to whom goods must be delivered .......................................... 487
Sec. 10 ................................................................................................................ 488
Warehouseman’s liability for forged check ......................................... 489
Cancellation of receipts on delivery of goods ..................................... 490
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Sec. 13 ................................................................................................................ 490
Effects of alteration on liability of warehouseman ............................. 491
Sec. 14 ................................................................................................................ 492
Liability of warehouseman in case of lost or destroyed receipts ............................................................................. 492
Sec. 15 ................................................................................................................ 493
Liability of warehouseman as to duplicate ......................................... 493Sec. 16 ................................................................................................................ 493
Ownership not a defense for refusal to deliver .................................. 494Secs. 17-18 ......................................................................................................... 494
Duty of warehouseman where there are several claimants .............. 494
Sec. 19 ................................................................................................................ 495
Adverse title of third person not a defense for refusal to deliver ..................................................................................... 495
Sec. 20 ................................................................................................................ 495
Liability of warehouseman for non-existence or misdescription of goods .................................................................... 496
Sec. 21 ................................................................................................................ 496
Liability of warehouseman for loss due to lack of care ..................... 496
1. Enforcement of warehouseman’s lien .......................................... 5042. Acts for which warehouseman is liable ....................................... 504
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Chapter III. — Negotiation and Transfer of Receipts
1. Negotiation and transfer of receipts ............................................. 5072. Advantages of a negotiable warehouse receipt .......................... 507
Sec. 40 ................................................................................................................ 507
Persons who may negotiate a receipt ................................................... 507
1. Rights of indorsee or transferee of a receipt ................................ 5092. Ownership of goods covered by receipt negotiated or transferred .................................................................................. 509
1. Offenses criminally punishable by the Act .................................. 5152. Ingredients of offense punished by Section 54 ........................... 5153. Nature of criminal responsibility under Section 54 ................... 515
1. Letter of credit defi ned ................................................................... 5472. Contracts involved in a letter of credit.......................................... 5473. Parties to a letter of credit ............................................................... 5484. Nature of a letter of credit .............................................................. 5495. Purpose of a letter of credit ............................................................ 5506. Failure to open letter of credit within the period agreed upon ..................................................................................... 5517. Nature of legal relations arising from letter of credit ................ 5518. When letter of credit considered consummated contract ......... 552
1. Bill of Lading defi ned ..................................................................... 5852. Forms of air transportation ............................................................ 5853. Kinds of bill of lading ..................................................................... 5864. Functions of bill of lading .............................................................. 5875. Form, contents, and execution ...................................................... 5876. Tariff schedules ................................................................................ 5897. Manifest ............................................................................................ 5908. Duty of carrier to notify consignee of goods’ arrival ................. 590
1. Salient features of the Act .............................................................. 5952. Obligations of a bonded warehouseman ..................................... 5953. When bond not necessary .............................................................. 5964. Prohibition against the use of the word “bonded’’ .................... 5965. Annual license fee to be paid ........................................................ 5976. Deposit with ordinary receipt ....................................................... 5977. Palay received for milling purposes only .................................... 5988. Inadequacy of warehouse .............................................................. 598
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C. TRUST RECEIPTS LAW
(P.D. No. 115.)
PROVIDING FOR THE REGULATION OF TRUSTRECEIPTS TRANSACTIONS
1. Purpose of the law ........................................................................... 6032. Meaning of trust receipt ................................................................. 6043. Importance and character of trust receipts .................................. 6044. Trust receipt and letter of credit distinguished ........................... 608
