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Bills - Chapter V - Liability of Parties, 13. Protest - Not incluided in…

- - - - c. Status of drawee prior to acceptance or payment; effect of stop order (127, 189)
        
        d. Liability of acceptor (62)
        
        Warranties - The acceptor, by accepting engages that he will pay it according to the tenor of his acceptance and admits the following:
        
        The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; and
        
        The existence of the payee and his then capacity to indorse.
        
        Tenor of Acceptance - Divulging views.
        
        Majority View - If the alteration raises the amount payable, the acceptor is liable only as to the original amount.
        
        Minority View - Liable to the full amount.
        
        Recovery of the Acceptor [Section 124, NIL] -
        
        If he pays before the knowledge of the alteration, he may recover the excess of the original amount
        
        If the person who received payment is not a holder in due course, the acceptor would be able to recover the whole amount paid, because the entire instrument was avoided.
        
        Charging to the Drawer's Account - ONLY if HIDC. Drawee bank may charge the drawer's account to the extent of the original amount if, the person who received the payment is a holder in due course. Excess is reimbursed from the last holder.
        
        Presumptions upon Acceptance (Raborg v. Peyton) -
        
        Presumption of Sufficient Funds - The acceptor guarantees that the drawer’s funds are sufficient to fulfill the amount in the bill of exchange
        
        Presumption of Appropriation - The drawer’s funds have already been appropriated for the payment of the holder
        
        Effect of Acceptance - Drawee becomes primarily liable on the instrument, for then he engages to pay it according to the tenor of his acceptance, subject to no condition whatever.
        
        Personal Defenses - Precluded. The drawee cannot also refuse to pay a holder in due course on the ground of absence of consideration or other personal defenses existing between the acceptor and the drawee.
        
        Liability of the Drawee - Generally, a bill alone does not assign the funds in the hands of the drawee. The drawee is not liable until he accepts the bill.
        
        Check as an Assignment - A check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder, unless and until it accepts or certifies the check.
        
        Acceptance of a BoE - Once a bill is accepted, the acceptor becomes primarily liable on the instrument pursuant to Section 62, NIL. The presumption is that every BoE is drawn on account of some indebtedness from the drawee to the drawer, and that the acceptance is an appropriation of the funds of the latter in the hands of the former.
        
        Drawee Banks - Same for BoEs. drawee bank not liable on the check until acceptance or certification.
        
        Stop Payment Orders - - Before payment or certification by the bank, the drawer may countermand the order. Any payment after such order to the payee is wrongful, because a check is not an assignment of the drawer’s fund. This is true unless the payment discharged a legitimate obligation of the drawer.
        
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      - Basis of Liability - The maker of a negotiable instrument by making it engages that:
        
        PAY - he will it according to its tenor,
        
        ADMITS - the existence of the payee and
        
        CAPACITY - his then capacity to indorse, Thus named payee can transfer good and valid title to the note.
        
        Warranties of the Maker -
        
        The Payee is Existing - Maker cannot assert the fact that he issued the PN knowing that the payee does not exist
        
        Payee has capacity to indorse - Maker cannot defend that payee is incapacitated to transfer a good and valid title to the note.
    - - Primary - one who is unconditionally and absolutely required to pay the instrument when it falls due.
        
        Who are Primary Parties
        
        Promissory Note - The maker.
        
        Bill of Exchange - No one, UNLESS the drawee accepts the order of the drawer to pay. Acceptance makes him an ACCEPTOR, absolutely bound to pay on the date specified on the bill.
        
        No need to comply with the procedural and substantial requirements under the NIL.
      - Secondary - Liability is conditioned on:
        
        Demand - or presentment be made on the primary part
        
        Dishonor - the primary party dishonors or fails to pay/accept the instrument with a notice of dishonor be given to secondarily liable party.
        
        Who are Secondary Parties
        
        Bill of Exchange - Drawer
        
        Note or Bill - Indorser
        
        Here, liability depends on compliance with the NIL.
  - - - a. Constructive acceptance (136, 137, 150)
        
        Time Allowed Drawee to Accept. (136) - The drawee is allowed twenty- four hours after presentment in which to decide whether or not he will accept the bill; but the acceptance, if given, dates as of the day of presentation.
        
        Liability of Drawee Retaining or Destroying Bill (137) - The drawee is deemed he will be deemed to have accepted the same. If he either:
        
        INTENTIONAL DESTROYS - if accidental or, non-intentional, no acceptance.
        
        REFUSES - within 24-hrs after delivery to return the bill accepted or nonaccepted to the holder
        
        REFUSES - Within such other period as the holder may allow, to return the bill accepted or non-accepted to the holder,
        
        Duty of Holder Where Bill Not Accepted (150) - Where a bill is duly presented for acceptance and is not accepted within the prescribed time, the person presenting it must treat the bill as dishonored by non-acceptance or he loses the right of recourse against the drawer and indorsers.
        
        This applies when the drawee return it before the 24-hour period, and fails to accept within such period or within such other period as the holder may allow, the holder must treat the bill as dishonored or else he will lose his right against prior parties.
        
        Demand Within Period - If demand is made on him to return the bill within the prescribed period and he refuses to return it, there is also a constructive acceptance.
        
        Lack of Demand - If there is no demand for the return of the bill and there is retention of the bill after the 24-hour period, there are two views.
        
        Minority - mere failure to accept within the prescribed time even without previous demand for the return of the bill constitutes constructive acceptance 🡪 Wisner v. FNBG
        
        Majority - non-return as a dishonor of the bill. NOTE: Section 137, NIL uses the word “refuses” which clearly implies a previous demand for the return of the bill. Furthermore, Section 150, NIL declares that if no acceptance is given within the prescribed time, it is the duty of the holder to consider it as dishonored. 🡪 Westberg v. Chicago Lumber
      - Definition of Acceptance (191) - Means an acceptance completed by delivery or notification.
        
        Scope & Purpose - Acceptance applies only to Bills of Exchange (BoE) and its object is to bind the drawee and make him an actual and bound party to the instrument.
        
        Right of Holder to Acceptance on Face of Bill (133) - The holder of a bill presenting the same for acceptance may require that the acceptance be written on the bill, and, if such request is refused, may treat the bill as dishonored.
      - Acceptance of incomplete bill (138) - A bill may be accepted before it has been signed by the drawer, or while otherwise incomplete, or when it is overdue, or after it has been dishonored by a previous refusal to accept, or by non payment.
        
        But when a bill payable after sight is dishonored by non-acceptance and the drawee subsequently accepts it, the holder, in the absence of any different agreement, is entitled to have the bill accepted as of the date of the first presentment.
        
        Does not render transferee of an incomplete bill an HIDC.
    - - 4. Kinds of Acceptance
        
        a. General acceptance (139, 140) - Acceptance without qualificaiton to the order of the drawer.
        
        b. Qualified acceptance (141, 142)
        
        Conditional - Payment by the acceptor dependent on the fulfillment of a condition
        
        Partial - Acceptance to pay part only of the amount for which the bill is drawn
        
        Local - Acceptance to pay only at a particular place
        
        As to time
        
        As to drawee - If the is addressed to three drawees and only one of bill them should accept, it is treated as qualifiedly accepted
        
        Conditional Acceptance - Does not impair the negotiability of the instrument as the nature of acceptance only affects the kinds of liabilities of the parties are involved.
        
        Partial Acceptance - Similarly, does not affect the negotiability of the instrument as it does not negotiate the instrument. Unlike a partial indorsement under NIL 32 which does affect negotiability.
        
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        c. Trade Acceptance - A draft/BoE with a definite maturity, drawn by a seller on a buyer for the purchase price of goods, with the acceptance of the buyer on its face. Usually, payable to order.
        
        d. Banker’s acceptance - A negotiable time draft or bill of exchange drawn on and accepted by a commercial bank. It is more versatile and more popular than the trade acceptance as it is used not only in domestic transactions, but even more so in international trade for financial, import, and export transactions.
        
        Distinguished from Trade Acceptance - Unlike trade acceptance, which is accepted by the buyer, a banker's acceptance is drawn on and accepted by a bank. Like the trade acceptance, it differs from other bills in that it specifies the transaction which gave rise to it.
        
        Purpose - Used in transactions where the goods are bought from a wholesaler and the latter, instead of taking the buyer’s promissory note, executes a time bill on the buyer, who writes “Accepted” across the bill’s face and signs it. Its use is generally limited to domestic transactions
        
        Rights of the Parties - The holder may refuse to take a qualified acceptance and if he does not obtain an unqualified acceptance, he may treat the bill as dishonored by non-acceptance. Where a qualified acceptance is taken, the drawer and indorsers are discharged from liability on the bill unless they have expressly or impliedly authorized the holder to take a qualified acceptance, or subsequently assent thereto. When the drawer or an indorser receives notice of a qualified acceptance, he must, within a reasonable time, express his dissent to the holder or he will be deemed to have assented thereto.
        
        Acceptance as to Place (140) - An acceptance to pay at a particular place is a general acceptance, unless it expressly states that the bill is to be paid there only and not elsewhere
        
        5. Checks (185, 63 (Central Bank Act))
        
        a. In general
        
        b. Certification and its effects (187, 188, 189) - Certification is an agreement whereby a bank promises to pay the check at any time it is presented for payment.
        
        c. Distinction between surrender of check upon payment and negotiation
        
        d. Clearing of checks - This is the check collection process.
        
        If a check drawn against the collecting bank was presented, the amount would just be credited to the holder’s account.
        
        On the other hand, if a check was drawn against another bank, the check would have to be forwarded to the respective drawee banks for payment
        
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        Surrender to Drawee Bank - Here, the holder surrenders the check to the drawee bank upon the payment of the check. This extinguishes the check as a negotiable instrument. This requires the signature of the holder as acknowledgment of receipt of payment.
        
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        Holder procures check to certify - The drawer and all indorsers are discharged from liability.
        
        When Check becomes Assignment (189) - A check of itself
        does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder, unless and until it accepts or certifies the check-
        
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        Whom Released- Releases secondary parties AT THE TIME of certification. If subsequent indorsement, still bound.
        
        Form of Certification - As in acceptance, certification must be in writing, but may be made on the check itself or on another instrument. No particular words are necessary and the word â€œcertifiedâ€ followed by the date and signature of the proper bank officer is sufficient.
        
        Definition - A BoE drawn on a bank payable on demand. Unnless otherwise provided, BoE provisions payable on demand apply to a check.
        
        Nature - A BoE that is always payable on demand & drawn on a bank.
        
        Payment by Check - Only conditional. becomes absolute when the check has been honored by the bank, either through: (a) PAYMENT or; (b) CERTIFICATION.
        
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        Liability of secondary parties (70) - The parties secondarily liable are (a) the drawers and; (b) the indorsers.
        
        When Arising (NIL 70) - The liabilities of the secondary parties arises upon:
        
        Presentment - Instrument is presented at maturity tot he party primarily liable for the purpose of obtaining payment.
        
        Notice of Dishonor
        
        a. Liability of drawer (61) - Liable only upon the happening of certain conditions:
        
        Presentment
        
        Dishonor of the instrument
        
        The taking of the necessary proceedings for dishonor
        
        b. Criminal liability for bouncing checks
        
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        Necessary Proceedings - Refers to either:
        
        Notice of Dishonor
        
        Protest - In case of foreign bills.
        
        Effect of Warranties - The drawer cannot avail of defenses of incapacity/lack of personality of the payee to bar secondary liability.
        
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        7. Liability of accommodation party (29, 63, 64)
        
        8. Liability of an agent (19, 20, 21 and 69)
        
        9. Signature by trade name (18) - No person is liable on the instrument whose signature does not appear thereon, except as herein otherwise expressly provided. But one who signs in a trade or assumed name will be liable to the same extent as if he had signed in his own name.
        
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        Liability of an Agent (20) - Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability.
        
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        Accomodation Party (29) - one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person
        
        Liability (29) - Such a person is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party. In effect, acts a surety for the accomodated party.
        
        Extent of Liability - This liability, whether primary or secondary is conditioned in which capacity the AP signed.
        
        Indorser - entitled to a notice of dishonor before they can be held liable.
        
        Drawee-Acceptor - Primarily liable.
        
        Maker - If signing as a maker alone, instrument has no consideration. Thus, because holder is not an HIDC defense of lack of consideration present.
        
        Co-Maker - There is consideration, but not HIDC, nevertheless can recover as no defense of lack of consideration.
        
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        Receipt of Value - an accommodation party loses his status only when he receives value not for lending his
        name, but for the instrument itself.
        
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      - Forms of Separate Acceptance - May be acceptance of an existing bill or, acecptance of a future bill. But, these share the same requisites of:
        
        Incomplete Instrument (135) - Promise to Accept; When Equivalent to Acceptance. — An unconditional promise in writing to accept a bill before it is drawn is deemed an actual acceptance in favor of every person who, upon the faith thereof, receives the bill for value.
        
        Physical Exhibition - No such requirement here. Instead, the unconditional promise in writing to accept is an acceptance in favor of every person who relies on the acceptance and receives the bill for value.
        
        Effect of Lack of Reliance (58,49) - Any person who has no knowledge of the acceptance means that these subsequent holders acquires the rights of the relying party from whom they take the instrument. (Shelter Principle)
        
        How Accepted - An acceptance of a future bill must be unconditional. Otherwise, it does not constitute an acecptance. This is in contrast to acceptance of a bill which may be conditional.
        
        Complete Instrument (134) - Binds the acceptor ONLY if there is RELIANCE i.e., the purchaser relies on the acceptance when they advanced money.
        
        The acceptance is shown;
        
        The purchaser takes the bill for value on the faith of such acceptance.
        
        Physical Exhibition - not a strict requirement, sufficient that the purchaser knew of the acceptance and relied on it.
- - - - 17. Instruments payable at a bank (87) - Where the instrument is made payable at a bank, it is equivalent to an order to the bank to pay the same for the account of the principal debtor thereon.
        
        18. Bills in set (178, 179, 180, 181, 182, 183) - All of the parts of the set form only one bill. All rules applicable to bills of exchange are generally applicable to bills in set. But there are special rules rendered necessary because of the nature of bills so issued.
        
        Liability of transferors or assignors of negotiable instruments [Art. 1628 (Civil Code)]
        
        Effect of Set (178) - Where a bill is drawn in a set, each part of the set being numbered and containing a reference to the other parts, the whole of the parts constitutes one bill.
        
        Negotiation of Different Parts (179) - Where two or more parts of a set are negotiated to different holders in due course, the holder whose title first accrues is, as between such holders, the true owner of the bill. But nothing in this section affects the right of a person who, in due course, accepts or pays the parts first presented to him.
        
        Liability of holder who indorses two or more parts of a set to different person (180) - Where the holder of a set indorses two or more parts to different persons he is liable on every such part, and every indorser subsequent to him is liable on the part he has himself indorsed, as if such parts were separate bills.
        
        Acceptance of a Bill in Set (181) - The acceptance may be written on any part and it must be written on one part only. If the drawee accepts more than one part and such accepted parts negotiated to different holders in due course, he is liable on every such part as if it were a separate bill.
        
        Payment by Acceptor (182) - When the acceptor of a bill drawn in a set pays it without requiring the part bearing his acceptance to be delivered up to him, and the part at maturity is outstanding in the hands of a holder in due course, he is liable to the holder thereon.
        
        Discharge of One of a Set (183) - Except as herein otherwise provided, where any one part of a bill drawn in a set is discharged by payment or otherwise, the whole bill is discharged.
        
        • Although an instrument payable at a bank is similar to a check, the liability of the maker or acceptor of such instrument is PRIMARY.
        o The effect of Sec. 87 on the instrument DOES NOT convert the maker or acceptor into a drawer.
        
        Therefore, presentment for payment is not necessary to charge the maker or acceptor.
        
        The weight of authority is that Sec. 186 [check should be presented for payment within a reasonable time after its issue or the drawer will be discharged to the extent of the loss caused by the delay] does not apply to instruments payable at a bank.
    - - Meaning - Payment made by a person, whether a party to the bill or not, after it has been protested for nonpayment, for the benefit of any party liable thereon or for die benefit of the person for whose account it was drawn
      - Who Makes Payment -
        
        A party to the bill or a stranger
        
        May be made by the drawee after he has refused to accept the bill
        
        May also be made by the drawer of the check which has been dishonored and protested in order to protect his honor
        
        Effect -
        
        Discharges all parties subsequent to party for whose honor it was paid
        
        Holder who refuses such payment loses his right of recourse against any party who would’ve been discharged.
        
        Payor subrogated to rights and duties of the holder
  - - - How Done - must be in writing and signed by the acceptor, PLUS it must indicate that it is an acceptance for honor
        
        • Where not indicated for whose acceptance it is, deemed to have been for the honor of drawer
    - - Requisites -
        
        Bill must have been protested for dishonor by non acceptance or for better security
        
        The acceptor for honor must be a person not a party already liable thereon that is a stranger to the bill
        
        The bill must not be overdue at the time of the acceptance for honor
        
        The acceptance for honor must be with the consent of the holder of the instrument
        
        Unlike in Payment for Honor, consent of the holder is needed here.
        
        Effects - Holder's rights against secondary parties are postponed until the ff. conditions take place:
        
        Presentment for payment to drawee
        
        Dishonor by drawee
        
        Notice of dishonor to acceptor for honor and secondary parties
        
        Protest
        
        Presentment to acceptor for honor
        
        Dishonor by acceptor for honor
        
        Notice of dishonor to secondary parties
- - - - e. By whom made (154) - By the following:
        
        (a) A notary public; or
        
        (b) By any respectable resident of the place where the bill is dishonored, in the presence of two or more credible witnesses.
        
        f. Time and place of protest (155, 156) -
        
        When Made (155) -
        
        GR - Protest must be made on the day of its dishonor
        
        XCPN - unless delay is excused as herein provided. When a bill has been duly noted, the protest may be subsequently extended as of the date of the noting.
        
        Where Made -
        
        GR - at the place where it is dishonored
        
        XCPN - except that when a bill drawn payable at the place of business or residence of some person other than the drawee has been dishonored by nonacceptance, it must be protested for non-payment at the place where it is expressed to be payable, and no further presentment for payment to, or demand on, the drawee is necessary.
        
        • No need to make the formal certificate of protest on same day the instrument is protested by him, if he makes a notation on the bill to show the instrument was dishonored and on what date.
        o The formal certificate may be made at any time before bringing an action against secondary parties, and its effect will retroact to the date of noting.
        
        g. Protest for better security (158) - Where the acceptor has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors before the bill matures, the holder may cause the bill to be protested for better security against the drawer and indorsers.
        
        h. When delay is excused and protest is dispensed with (159, 112)
        
        i. Waiver of protest (111) - A waiver of protest, whether in the case of a foreign bill of exchange or other negotiable instrument, is deemed to be a waiver not only of a formal protest but also of presentment and notice of dishonor.
        
        j. Protest in case of loss of instrument (160) - When a bill is lost or destroyed or is wrongly detained from the person entitled to hold it, protest may be made on a copy or written particulars thereof.
        
        General principle: loss of the instrument does not affect the rights and liabilities of the parties thereto; and the contents of the instrument may be proven as in other cases of lost documents.
        
        Notice of Dishonor (112) - Notice of dishonor is dispensed with when, after the exercise of reasonable diligence, it cannot be given to or does not reach the parties sought to be charged.
        
        Dispensation of Protest (159) - Protest is dispensed with by any circumstances which would dispense with notice of dishonor. Delay in noting or protesting is excused when delay is caused by circumstances beyond the control of the holder and not imputable to his default, misconduct, or negligence. When the cause of delay ceases to operate, the bill must be noted or protested with reasonable diligence.
        
        • Campos: This practice seems to be obsolete.
        • Merely to inform the drawer of the failure of the acceptor to enable the former to arrange for the payment of the bill at maturity.
      - How Made - The protest must be annexed to the bill or must contain a copy thereof, and must be under the hand and seal of the notary making it and must specify:
        
        (a) The time and place of presentment;
        
        (b) The fact that presentment was made and the manner thereof;
        
        (c) The cause or reason for protesting the bill;
        
        (d) The demand made and the answer given, if any, or the fact that the drawee or acceptor could not be found.
    - - Dual Protest (157) - A bill which has been protested for non-acceptance may be subsequently protested for non-payment.
      - Thus, Foreign bill is one which on its face purports to be either:
        
        Drawn within PH but payable without; OR
        
        Drawn without but payable in PH.