Sec. 126. Bill of exchange, defined.

- A bill of exchange is an unconditional order in

writing addressed by one person to another, signed by the person giving it, requiring the
person to whom it is addressed to pay on demand or at a fixed or determinable future
time a sum certain in money to order or to bearer.

Sec. 184. Promissory note, defined. - A negotiable promissory note within the meaning
of this Act is an unconditional promise in writing made by one person to another, signed
by the maker, engaging to pay on demand, or at a fixed or determinable future time, a
sum certain in money to order or to bearer. Where a note is drawn to the maker's own
order, it is not complete until indorsed by him.

- A promissory note is an unconditional promise in writing made by one person to

another, signed by the maker, engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money to order or to bearer.

Sec. 185. Check, defined. - A check is a bill of exchange drawn on a bank payable on
demand. Except as herein otherwise provided, the provisions of this Act applicable to a
bill of exchange payable on demand apply to a check.

- A check is a bill of exchange drawn on a bank payable on demand.

Other bills of exchange include the following:

(1) Clean Bill of Exchange - a bill to which no document is attached when
presentment for payment or acceptance is made.
(2) Documentary Bill of Exchange - a bill of exchange to which a document/s is/are
attached when presented for payment or acceptance.

A certificate of deposit is a form of promissory note which is a written acknowledgment

of a bank of its receipt of a certain sum with a promise to repay the same. A certificate of
deposit is defined as a written acknowledgment by a bank or banker of the receipt of a
sum of money on deposit which the bank or banker promises to pay to the depositor, to
the order of the depositor, or to some other person or his order, whereby the relation of
debtor and creditor between the bank and the depositor is created.

A bond is defined as a certificate or evidence of a debt on which the issuing company or

governmental body promises to pay the bondholders a specified amount of interest for a
specified length of time, and to repay the loan on the expiration date.

Debenture is a promissory note or bond backed by the general credit of a corporation and
usually not secured by a mortgage or lien on any specific property.

Bank notes are promissory notes of the issuing bank which are payable to bearer on
demand.

Kinds of Bonds.
(1) Bottomry bonds - bonds secured by mortgage of ships.
(2) Chattel mortgage bonds - bonds secured by mortgage on chattels of business.
(3) Collateral trust bonds – bonds secured by collateral deposited with a trustee.
(4) Convertible bonds – bonds that can, at the option of the holder, be converted into
stocks.
(5) Coupon bonds - bonds with interest coupons attached.
(6) Guaranteed bond – a bond which has interest or principal or both guaranteed by a
company other than the issuer.
(7) Income bond - bond on which interest is payable only when earned after payment
of interest upon prior mortgages.
 (8) Joint and several bond - a bond the principal and interest of which is guaranteed
by two or more persons.
(9) Joint bond - bond secured by two or more obligors who must be joined in any
action on such bond.
(10) Mortgage bond - bond secured by a mortgage on a property

“Indorsers” are persons who transfer or negotiate an instrument by indorsement

completed by delivery.

"Holder" means the payee or indorsee of a bill or note who is in possession of it or the
bearer thereof.

“Bearer" means the person in possession of a bill or note which is payable to bearer.

Condition is a future and uncertain event, or a past event unknown to the parties, the
happening (positive) or non-happening (negative) of which may either give rise to an
obligation or may extinguish existing ones.
- condition is suspensive if the happening or non happening of the event will give
rise to an obligation
- condition is resolutory if the happening or non-happening of the event will
extinguish existing obligations.

A letter of credit is a written instrument where by a person (for example a buyer) requests
another (bank) and the latter agrees to advance money or give credit to a third person (for
example a seller) and promises to repay the person making the advancement.

A certificate of stock is the written evidence of shareholdings of a person in a

corporation.

A bill of lading is a form of document of title issued by the carrier whereby receipt of
goods is acknowledged and the carrier promises to deliver the goods to whoever is
validly holding it and who can present the bill of lading.

A warehouse receipt is a document is sued by a warehouseman acknowledging receipt of

goods that were deposited by another promising to deliver to whoever is validly holding
it and who can present the same.

An aval is a guarantee for the payment of drafts that were already accepted by the
drawee.

Money includes whatever is lawfully and actually current in buying and selling, of the
value and as the equivalent of coin.

"Acceptance" means an acceptance completed by delivery or notification;

"Action" includes counterclaim and set-off;

"Bank" includes any person or association of persons carrying on the business of

banking, whether incorporated or not;

"Bearer" means the person in possession of a bill or note which is payable to bearer ;

"Bill" means bill of exchange, and "note" means negotiable promissory note;
"Delivery" means transfer of possession of the instrument by the maker or the drawer
with the intention to transfer title to the payee and recognize him as holder thereof; final
act essential to the consummation of the instruments as an obligation

"Holder" means the payee or indorsee of a bill or note, who is in possession of it, or the
bearer thereof;

"Indorsement" means an indorsement completed by delivery;

"Instrument" means negotiable instrument;

"Issue" means the first delivery of the instrument, complete in form, to a person who
takes it as a holder;

"Person" includes a body of persons, whether incorporated or not;

"Value" any consideration sufficient to support a simple contract;

"Written" includes printed, and "writing" includes print.

Negotiation is the transfer of the instrument from one person to another, so as to

constitute the transferee the holder therof.

Assignment implies the transfer of rights, by a person to another, for the purpose of
receiving the payment.

Transferee is an asignee who merely steps into the shoes of the transferor.

blank indorsement, no indorsee is specified and it is done by affixing the indorser's

signature.

A special indorsement designates the indorsee; the indorser identifies the person to whom
he intends to make the instrument payable.

A qualified indorsement constitutes the indorser a mere assignor of the title to the
instrument. It may be made by adding to the indorser's signature the words "without
recourse" or any words of similar import. The indorser disclaims his liability to any
holder or any subsequent party who might be compelled to pay another. Only liable to
breach of warranties.

Where an indorsement is conditional, the party required to pay the instrument may
disregard the condition and make payment to the indorsee or his transferee whether the
condition has been fulfilled or not. But any person to whom an instrument so indorsed is
negotiated will hold the same, or the proceeds thereof, subject to the rights of the person
indorsing conditionally.

An indorsement is restrictive which either: (a) Prohibits the further negotiation of the
instrument; or (b) Constitutes the indorsee the agent of the indorser; or (c) Vests the title
in the indorsee in trust for or to the use of some other persons. But the mere absence of
words implying power to negotiate does not make an indorsement restrictive.

Recourse means a resort to a person who is secondarily liable after the default of the
person who is primarily liable.

A holder in due course is a holder who has taken the instrument under the following
conditions: (a) That it is complete and regular upon its face; (b) That he became the
holder of it before it was overdue, and without notice that it has been previously
dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That
at the time it was negotiated to him, he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.

Accommodation party is one who has signed an instrument as maker, drawer, acceptor of
indorser without receiving value therefor, but is held liable on the instrument to a holder
for value although the latter knew him to be only an accommodation party.

The promise in a promissory note is the undertaking made by the maker to pay a sum
certain in money to the payee or the holder.

The "order" in a bill is a command made by the drawer addressed to the drawee ordering
the latter to pay the payee or the holder a sum certain in money.

Acceleration Clauses is a provision which contemplates that upon default in any

installment or of interest, the whole of the instrument shall become due.

Insecurity clauses are provisions in the contract which allow the holder to accelerate
payment "if he deems himself insecure." In other words, he can demand payment
whenever he feels that there is a danger that maker will not be able to pay on the due date
of the instrument.

Extension"clauses are clauses in instruments that extend the maturity dates.

Bearer instrument, the person in possession can demand payment from the persons who
are liable thereon.

Order instrument is one that is drawn payable to the order of a specified person or to him
or his order.

Cognovit actionem is a written confession by the defendant acknowledging his

indebtedness to the plaintiff after the action has been filed against him.

Relicta verificationem is a confession of judgment by withdrawal of the defense.

Joint Obligation, two or more debtors are bound to pay only their proportionate share in
the obligation

Solidary Liability, two or more persons are bound to and ca be made to comply with the
entire obligation.

NEGOTIATION ASSIGNMENT
applicable law Negotiable Instruments Law Civil Code of the
Philippines
type of transaction/ Negotiable instruments only Contracts in general or
instrument assignable rights.
nature of transferee The transferee is a holder The transferee is a mere
who may be a holder in due assignee.
course.
possibility of become a The transferee can be a The transferee can never be
holder in due course holder in due course in a holder in due course.
proper cases.
rights acquired The transferee-holder may The transferee cannot
acquire more rights than the acquire more rights than the
transferor if he is a holder in transferor because he
 due course. merely steps into the shoes
of the transferor.
availability of personal The transferee-holder may The transferee is always
defenses be free from personal personal defenses.
defenses if he is a holder in
due course.

PROMISSORY NOTE BILL OF EXCHANGE

It contains an unconditional promise It contains an unconditional order
There are two (2) parties on its face There are three (3) parties on its face
The person who signs it is the maker The person who signs it is the drawer.
The person who signs it, the maker, is The person who signs it, the drawer, is
primarily liable. secondarily liable.
The person primarily liable is the maker The person primarily liable is the drawee-
acceptor.
There is only one presentment for payment There are two presentments: a) for
acceptance and b) for payment

Negotioable non-negotiable
governed by the NIL NIL does not apply; Application of the NIL
is only by analogy
can be transferred by negotiation or by can be transferred only by assignment
assignment.
transferee can be a holder in due course if transferee can never be a holder in due
all the requirements under Section 52 are course but remains to be an assignee; all
complied with defenses available to prior parties may be
raised against the last transferee.