PRESENTMENT
FOR PAYMENT
à is
the presentation of the instrument to the persons primarily liable for the
purpose of demanding and receiving payment
[Sec
70]
When
necessary: to charge persons secondarily liable (drawer/indorsers)
BUT:
presentment first to persons primarily liable
EFFECT IF NOT PRESENTED:
drawer/indorsers are DISCHARGED from their secondary liability. (Gen Rule)
Exceptions: (1) drawer has no right to expect
or require that the drawee/acceptor will pay the instrument(ex. He has no
fund/account with the drawee/acceptor) [Sec. 79];
(2) instrument
was made or accepted for the indorser’s accommodation (indorser is the
accommodated party and at the same time the principal debtor) [Sec 80];
(3) after
exercise of reasonable diligence presentment as required by this Act cannot be
made [Sec 82(a)];
(4) drawee is a
fictitious person [Sec 82(b)];
(5) Express or implied Waiver of presentment [Sec
82(c)]
(6)
Bill is dishonored by non-acceptance [Sec 151]
Note:
Sec 79, 80 : presentment excused
Sec 82, 151 : presentment dispensed
with
When
NOT necessary: to charge persons primarily liable (maker/acceptor)
(1) Liability is absolute on date for
payment; therefore, the holder can sue the maker as soon as the date for
payment has passed without the instrument being paid.
(2) Instrument payable at a special place
and he is able and willing to pay it there; equivalent to a tender and offer of
payment; effect: he is not considered in delay (in case the instrument is
unpaid and overdue), therefore he is not liable for costs and interests
subsequently accruing.
(3) Even if it is required by terms of the
instrument.
[Sec 71]
Instrument
NOT payable on demand: presentment on the day it falls due;
Instrument
payable on demand:
a. (Promissory
Note): presentment within a reasonable time after its issue;
b. (Bills
of Exchange): presentment within reasonable
time after the last negotiation of the instrument.
[Sec 72]
What constitutes sufficient
payment (all elements must concur)
1. Made
by the holder/person authorized to RECEIVE payment;
2. At
a reasonable hour within a business day;
3. At
a proper place as herein defined; AND
4. To
the person primarily liable/if absent or inaccessible, to any person found at
the place where presentmade is made.
[Sec 73]
What constitutes proper
place (in order)
1. Place
specified in the instrument, and it is there presented; or if none
2. Address
of the person to make payment; or if none;
3. Usual
place of business or residence of the person to make payment; or if none
4. Wherever
he can be found, or at his last known address.
[Sec 74]
Valid
presentment requires personal or face-to-face demand, at the proper
place, exhibiting the instrument to the maker/acceptor from whom payment is
demanded.
When
paid, the instrument must be delivered up to the party paying it.
[Sec 81)
When delay of presentment
excused(also for acceptance for honor)
è When
caused by circumstances beyond the control of the holder; AND
è Without
his default, misconduct, or negligence
Note: When reason for delay ceases to operate, presentment must be made within
a reasonable time.
Summary Rules as to
Presentment for Payment
1. Not
necessary-PML; necessary-PSL [Sec 70]
2. Not
necessary-PSL under Secs 79, 80,82,151
[Sec 83]
When instrument is
dishonored by non-payment
a. Duly
presented but REFUSED of PAYMENT CANNOT BE OBTAINED
b. (1)
EXCUSED and instrument is (2) OVERDUE and (3) UNPAID à all 3 must concur.
Note: if
the presentmade is not made and it is not excused, there is no dishonor even
though the instrument is overdue and unpaid.
[Sec 89]
What constitute PAYMENT IN DUE COURSE? (all 3 must
concur)
1. Made
at maturity, or after maturity to the holder
thereof;
2. In
good faith(of the maker/acceptor); AND
3. Without
notice that his title is defective
NOTICE
OF DISHONOR
[Sec
89]
To
whom must be given?
1. To
the drawer; AND
2. To
each indorser
Effect
if not given: Discharges one of liability but he is still liable for breach of
warranties pertaining to the instrument [Sec 65 and 66]
When instrument is considered
dishonored
1. If
it is not accepted when presented for acceptance;
2. If
it is not paid when presented for payment;
3. If
presentment is excused or waived and the instrument is past due and unpaid.
[Sec 90,91,92]
Notice
may be given by:
1. The
holder;
2. On behalf
of the holder;
Effect: it inures to the
benefit of all subsequent holders and all prior parties who have a right of
recourse against the party to whom notice is given [Sec 92]
3. Any
party to the instrument who might be compelled to pay the holder, and upon
taking it up, would have a right to reimbursement from the party to whom notice
is given.
Effect: Inures to the
benefit of the holder and all parties subsequent to the party to whom notice is
given.
4. By an
agent either in his own name or in the name of the party entitled to give
notice. [Sec 91]
Note:
AGENTàauthority
to receive
notice NECESSARY
àauthority
to give
notice NOT NECESSARY
Notice to Partnersàany
one of them
Notice to Joint Partiesàeach of them
Notice to Bankruptàparty
himself or his trustee ot assignee
TIME
FIXED FOR GIVING NOTICE(also for presentment for payment to acceptor for
honor-103,104)
[Sec 103, 104, 107]
(Sec
103) When parties reside in the same place and notice is given at the:
1. business
placeà
before the close of the business hour on the day following
2. residenceà before the usual hours of
rest on the day
3. mailà deposited in the post
office in time to reach him in the usual course on the day following.
(Sec
104) Different place:
1. by
mailà
must be deposited in time to go by mail the day following the day of dishonor
àif there be no mail at a convenient hour on
that day, by the next mail thereafter
2. otherwise
than by mail(ex.personal messenger)à
recipient shall receive the notice not later than the time he would receive it
had it been mailed.
(Sec
107) Time of Notice to Subsequent Parties:
à
same time as that of antecedent parties
What constitute Due Notice [Sec
106]
1. The
notice of dishonor is DULY ADDRESSED; AND
2. DEPOSITED
IN THE POST OFFICE
àpost
office
àany
branch of post office
àany
letter box under the control of the post office
PLACE
WHERE NOTICE MUST BE GIVEN
1. Address
added in his signature;
2. If
none, either to post office nearest his place or that where he is accustomed to
receive his letters;
3. Either
at his residence or business place(if both are not in the same place);
4. Place
where he is sojourning
Note:
When protest is waived, presentment and notice of dishonor are also deemed
waived
When delay of giving notice
is excused [same as Sec 81]
When Notice to Drawer Not
Required
1. Drawer
and drawee are the same person;
2. Drawee
is a fictitious person;
3. Drawee
is a person not having capacity to contract;
4. Drawer
is the person to whom the instrument is presented for payment;
5. Drawer
has no right to expect or require that the drawee or acceptor will honor the
instrument;
6. Drawer
has countermanded payment.
When Notice to Indorser Not
Required
1. Indorser
was aware of #2 and #3 above;
2. The
indorser is the person to whom the instrument was presented;
3. Indorser
is the accommodated party(and the principal debtor)
Effect where notice of
non-acceptance already given
1.
If subsequently accepted, holder must
present the instrument for payment upon maturity;
2.
If not paid, holder must give the subsequent
notice of dishonor.
Effect of omission to give
notice of non-acceptance by the previous holder
è A
holder in due course(subsequent holder) is not prejudiced. He may still present
the instrument to the drawee for acceptance and notify the drawer and indorsers
if acceptance is refused.
When Protest Required
1. Foreign
bills of exchange
2.
SUMMARY OF RULES AS TO NOTICE OF DISHONOR
1. Like
presentment for payment, notice of dishonor is not necessary to charge the
persons primarily liable but is necessary to charge persons secondarily liable;
2. When
notice of dishonor NOT necessary:
a. Notice
is waived;
b. Protest
is waived;
c. Notice
is dispensed with;
d. As
to drawer under Sec 114;
e. As
to indorser under Sec 115;
f. Where
due notice of dishonor by non-acceptance has been given under Sec 116; and
g. As
to holder in due course, without notice of dishonor by non-acceptance,
subsequent to the omission to give notice under Sec 117.
PROTEST
è Is
the formal instrument executed usually by
(1) a notary public, or
(2) by any respectable resident of the place where the
bill was dishonored, in the presence of two or more credible witness
à certifying that the legal steps necessary to
fix the liability of the drawee and the indorsers have been taken
è Made
on the day of its dishonor, unless delay is excused
è At
the place where the instrument is dishonored, if not thereat, at the place
where it is expressed to be payable
Protest for better security
è Protest
before maturity where acceptor has been adjudged a bankrupt or insolvent, or
has made an assignment for the benefit of his creditors
When necessary:
1. In
case of a foreign bill of exchange;
2.
Reasons for requiring
protest in case of a foreign bill of exchange
1.
It makes for uniformity in
international transactions because most countries require it;
2.
It furnishes authentic and satisfactory
evidence of dishonor to the drawer who, from his residence abroad, would
experience difficulty in verifying the matter and thus be compelled to rely on
the presentation of the holder.
How made:
1. Must
be annexed to the bill or must contain a copy thereof;
2. Must
be under the hand and seal of the notary making it;
3. Must
specify the matters enumerated as follows:
a. 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 cannot be found.
When protest is dispensed
with: same as that of presentment and notice of dishonor
DULY
NOTED- means written by the notary public on his logbook or on the instrument
Note:
formal paper may subsequently be prepared
after it has been duly noted as of the date of noting.
Protest and Notice of
Dishonor distinguished
|
PROTEST
|
NOTICE
OF DISHONOR
|
Where required
|
foreign bill
|
any
negotiable instrument
|
Form
|
Written
|
Verbal or written
|
Scope
|
Includes
presentment, notice of dishonor, and all the steps accompanying dishonor
|
Limited
to notice of dishonor only
|
Made
by
|
Notary public or any respectable resident where
the instrument was dishonored in the presence of two or more credible
witnesses
|
By a party or his agent
|
Where
made
|
At the
place of dishonor
|
Not
essential
|
When
made
|
On the day of dishonor
|
Within the time prescribed
|
DISCHARGE
Negotiable
Instruments are discharged by [Sec 119]:
a. Payment
in due course by or on behalf of the principal debtor;
b. Payment
in due course by the accommodated party;
c. Intentional
cancellation thereof by the holder;
àhow
cancellation is done:
1. By
writing the word “Cancelled” or “Paid” on the face of the instrument
2. Instrument
is torn up, burned, or mutilated
d. Any
act which discharges the instrument under Art. 1231 of the Civil Code:
1. Payment or
performance;
2. Loss of the thing due;
3. Remission of the debt
or condonation;
4. Merger of the rights
of the creditor and debtor or confusion;
5. Compensation;
6. Novation;
7. Others:
annulment, rescission, fulfillment of a resolutory condition and prescription
e.
The principal debtor reacquires the
instrument in his own right at or after the date of maturity
Note: If
reacquisition is made before maturity, the instrument can be re-negotiated.
Therefore, the reacquisition of the principal debtor before maturity does not
operate to discharge the instrument.
Methods of discharge of
secondary parties
1.
Under Sec 119 above;
2.
Holder
intentionally cancels the signature of parties secondarily
liable on the instrument as if he has never been a party thereto under Sec.48
àSec.48-When
holder may strike out indorsement not necessary to his title and the indorser
whose indorsement is struck out, and all indorsers subsequent to him, are
thereby relieved from liability on the instrument.
a. A
bearer instrument may be negotiated by mere delivery. In case it is indorsed,
it remains a bearer instrument and may be further negotiated by DELIVERY.
b. An
order instrument may be negotiated only by the indorsement of the payee
completed by delivery. Special Indorsement is necessary for further
negotiation. Blank Indorsement (the last indorsement) makes the order
instrument a bearer instrument and may be negotiated by mere delivery. Hence,
the Special Indorsements are not necessary to the holder’s title. He may
therefore strike out the signature of the special indorser. In effect, the
special indorser and all indorsers subsequent to him are relieved of their
liabilities to the instrument.
3.
By the discharge of a prior party by act of holder(
not by operation of law);
4.
Valid tender of payment made by a prior
party;
5.
By release of the principal debtor by the act of the holder( not by operation of law).
REASON: With the release of
the principal debtor, subsequent parties lose their right of recourse against
him.
SUBSEQUENT PARTIES ARE
RELEASED UNLESS: Holder reserved his
right of recourse against the said subsequent parties.
In effect, there is an
implied reservation by the subsequent parties of their right of recourse
against the principal debtor.
Effect of reacquisition by
prior party
1.
The reacquirer (who paid for the
instrument), for the most part, is remitted to his former position, and
consequently, he may strike out his own and all subsequent indorsements as they
are not necessary to his title under Sec 48.
2.
Payment at or after maturity by a party
secondarily liable does not discharges the instrument but only cancels his own liability
and that of parties subsequent to him.
3.
If the party so paying was formerly a
HDC, he may recover from prior parties as such a HDC even though at that time
he had already notice of defenses.
Effect of Renunciation
1. àMade before, at, or after maturity
àIn
favor of secondary party
àmade
by the holder
àeffect:discharge
of secondary party only, not the instrument which will remain in force
2. àMade at or after maturity
àin
favor of the principal debtor
àeffect:discharge
of PD and all parties prior thereto
Provided: renunciation is
absolute and unconditional.
When cancellation
inoperative
1.
Made unintentionally; or
2.
By mistake or through fraud; or
3.
Without authority
Material Alteration- refers
to any change in the instrument which affects the liability of the parties in
any way as specified in Sec 125, or changes the contract of the parties in any
respect.
Spoilation-
material alteration made by a stranger
Effect of alteration in the
instrument
1.
Regardless if the instrument is
innocently or fraudulently altered, the instrument is discharged/void but the
innocent party can sue upon the original debt for which it has been given;
BUT the instrument is not
discharged/void as against (1) the party who has made the alteration, and
(2)
a party who authorized or assented to the alteration, and
(3) indorsers who
indorsed subsequent to the alteration.
2. Spoilation has same effect as alteration, it
has no effect upon the instrument is the original meaning can be ascertained.
3. If an altered instrument is negotiated to a
HDC, he may enforce payment thereof according to its original tenor regardless
if innocently or fraudulently altered.
PAYMENT
FOR HONOR
è Payment
made by a person, whether a party to the bill
or not, after it has been protested for non-payment, for the benefit of any
party liable thereon or for the benefit of the person for whose account it was
drawn.
è “SINALO
LANG”
Who may make payment
1.
By a party to the bill;
2.
By a stranger;
3.
By the drawee after he has refused to
accept the bill
4.
Drawe of a check which has been
dishonored and protested has a right to intervene and pay it to protest his honor.
Requisites of a Valid Payment for Honor
1.
The bill has been dishonored by
non-payment;
2.
It has been protested for non-payment;
3.
Payment ‘supra protest’ is made by any
person, even a party thereto;
4.
The payment is attested by a notarial
act of honor which must be appended to the protest or form an extention of it;
5.
The notarial act must be based on the
declaration made by the payer for honor or his agent of his intention to pay
the bill for honor and for whose honor he pays.
Effect if the above formalities is not
followed
è Payment
will operate as a mere voluntary payment; AND
è The
payer has no right of full reimbursement against the party for whose honor he
pays.
Preference
of parties offering to pay for honor
è To
the person whose payment will discharge the greatest number of parties to the
bill.
è The
rule is different in acceptance for honor.
Effect
where bill is paid for honor
1.
Discharge of subsequent parties; and
2.
Subrogation
Right of payer for honor
àright
to receive the bill itself and the protest
Effect of holder’s refusal to receive
payment for honor
àhe
cannot recover from the parties who would have been discharged had he accepted
the same.
ACCEPTANCE
FOR HONOR
è An
undertaking by a stranger to a bill after protest for the benefit of any party
liable thereon, or for the honor of the person for whose account the bill is
drawn which acceptance inures to the benefit of all the parties subsequent to
the person for whose honor it is accepted, and conditioned to pay the bill when
it becomes due if the original drawee does not pay.
Purpose:
to preserve the credit of the parties to the instrument or some party to it for
whose honor the acceptance is made.
Requisites:
1.
The bill must have been protested for
dishonor by non-acceptance or for better security;
2.
The acceptor for honor must be a person
not a party already liable thereon;
3.
The bill must not be overdue at the
time of the acceptance for honor; and
4.
The acceptance must be with the consent
of the holder of the instrument.
5.
Must be in writing;
6.
Must indicate that it is an acceptance
for honor;
7.
Must be signed by the acceptor for
honor; and
8.
Must contain an express or implied
promise to pay money.
9.
Must be delivered (the accepted bill)
to the holder.
“Accepted for the honor of P”
“Accepted for the honor of P”
(Signed)
X
Agreement
of Acceptor for Honor
àengages
that he will, on due presentment, pay the bill according to the terms of his
acceptance, provided that the (1) bill was not paid by the drawer, (2) it shall
have been duly presented for payment and (3) protested for non-payment, and (4)
notice of dishonor was given to him.
Bill payable after sight:
the date of maturity is calculated from the date of the noting of
non-acceptance and not from the date of the acceptance for honor.
Protest
for non-payment by acceptor for honor
1.
Protest for dishonor by non-acceptance
or for better security
2.
Protest for non-payment by the drawee
in order to hold the acceptor for honor liable
3.
Protest for non-payment by the acceptor
for honor in order to hold the drawer and indorsers whose liabilities have not
yet become fixed because of the acceptance for honor.
Acceptance for Honor and
Ordinary Acceptance Distinguished
|
AFH
|
OA
|
As to protest
|
Previous
protest required
|
Protest
not required
|
Acceptor
|
Stranger
|
Drawee
|
Consent of holder
|
Required
|
Not
required
|
Liability
|
Secondary
|
Primary
|
No. of acceptors
|
May be
several AFH for different parties in the bill
|
No
acceptors in the alternative or in succession
|
When instruments is discharged
|
Not discharged even upon payment by the AFH
|
Discharged upon payment by the acceptor
|
BILLS
IN SET
PARTIES:
Payee (P)
Drawer (R)
Drawee (W)
BILSS: First Part---neg.by P to A on Sept 20—further
negotiated to D
Second Part---neg. by P to B on Sept
25---further negotiated to E
Third Part---neg. by P to C on Sept
30—further negotiated to F
Note:
1. Each
part may be negotiated by P although he’s not supposed to do that
2. A
is the true owner(the holder whose first title accrued)
3. If
W pays B in due course, he can refuse to accept and pay the true owner, A.
4. Where the bill is indorsed separately, the
holder is liable to that part, every indorser subsequent to him is liable on
that part that he himself has indorsed.
5. W
is required to accept only one part of a bill in set.
6. If
he accepts two or more, and those were negotiated to a HDC, W is liable to
every holder as if the parts were separate bills.
7. If
P, before negotiating to A,B and C, presented the 3 bills for acceptance to W,
then negotiates the parts to A,B and C(all HDCs), then…
W is liable to A,B,C for
each amount of the part.
8. If
P presented the 3 parts to W for acceptance but afterwhich does not negotiate
them, W is liable only the amount on one part to P.
9. W
must require the surrender of the bill upon his payment, otherwise, he will be
liable to that part not surrendered and to subsequent holder thereof.
10. If
part of the bill is discharged by payment, the whole bill is discharged, as far
as R is concerned. This is because a bill in a set constitute only one bill.