Sec. 171. Who may make payment for honor. - Where a bill has been protested for non-payment, any person may intervene and pay it supra protest for the honor of any person liable thereon or for the honor of the person for whose account it was drawn.
Sec. 172. Payment for honor; how made. - The payment for honor supra protest, in order to operate as such and not as a mere voluntary payment, must be attested by a notarial act of honor which may be appended to the protest or form an extension to it.
Sec. 173. Declaration before payment for honor. - The notarial act of honor must be founded on a declaration made by the payer for honor or by his agent in that behalf declaring his intention to pay the bill for honor and for whose honor he pays.
REQUISITES FOR PAYMENT FOR HONOR
1. The bill has been protested for non-payment
2. And any person even a party thereto, may pay supra protest FORM FOR PAYMENT FOR HONOR
1. The payment must be attested by notarial act appended to the protest or form an extension of it
2. The notarial act must be based on a declaration by the payer for honor
PROCEDURE FOR PAYMENT FOR HONOR
1. The payer or his agent goes to a notary public and declares his intention to pay the bill and for whose honor he pays
2. The notary then records the declaration in the protest or in a separate paper attached to it
3. The payer then notifies the person for whose honor he pays within reasonable time
PURPOSE FOR PAYMENT FOR HONOR
Instead of simple negotiation to the person desiring to pay, payment for honor may be availed of when the holder doesn’t want to indorse the bill and thereby incur the liabilities of an indorser or of one negotiating by mere delivery
Sec. 174. Preference of parties offering to pay for honor. - Where two or more persons offer to pay a bill for the honor of different
parties, the person whose payment will discharge most parties to the bill is to be given the preference.
Sec. 175. Effect on subsequent parties where bill is paid for honor.
- Where a bill has been paid for honor, all parties subsequent to the party for whose honor it is paid are discharged but the payer for honor is subrogated for, and succeeds to, both the rights and duties of the holder as regards the party for whose honor he pays and all parties liable to the latter.
ILLUSTRATION OF EFFECT OF PAYMENT FOR HONOR PAY TO B OR ORDER P1000.
SGD.A TO: X DRAWEE
BCDEF X REFUSES TO PAY.
F HAS DULY PROTESTED FOR NON-PAYMENT Y PAYS FOR THE HONOR OF C
D and E, being subsequent to C, for whose honor the payment is made, are discharged
Y acquires the rights of F, as against C, A, B and X parties who are liable to C but the payor for honor shall notify within reasonable time, the party for whose honor he pays.
Otherwise, the party is not bound to refund.
PREFERENCE OF PARTIES OFFERING TO PAY
If Z offers to pay for the honor of B, he is to be preferred as Z’s payment for the honor of B will discharge C, D, and E while Y’s payment for C would only discharge D and E
Sec. 176. Where holder refuses to receive payment supra protest. - Where the holder of a bill refuses to receive payment supra protest, he loses his right of recourse against any party who would have been discharged by such payment.
Sec. 177. Rights of payer for honor. - The payer for honor, on paying to the holder the amount of the bill and the notarial expenses incidental to its dishonor, is entitled to receive both the bill itself and the protest.
RIGHTS OF PAYER FOR HONOR
1. He acquires the rights of a holder under Section 175 and in addition
2. The payor for honor has also the right to receive both the bill and the protest. This is to enable him to enforce his rights against those who are liable to him.
Wednesday: 185 and 186 plus cases XV. BILLS IN SET
Sec. 178. Bills in set constitute one bill. - 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.
BILL IN SET
One composed of various parts, each part being numbered, and containing a reference to the other parts, all of which parts constitute one bill
ILLUSTRATION OF A BILL IN SET CONSISTING OF TWO PARTS First part
Exchange for P2000 First
Manila, Philippines September 24, 2007 30 days after sight of this First of Exchange (Second part unpaid), pay to the order of B P2000.
Sgd. A To X
48 Exchange Place New York City
Second part Exchange for P2000
Second
Manila, Philippines September 24, 2007 30 days after sight of this Second of Exchange (First part unpaid), pay to the order of B, P2000.
Sgd. A
To X
48 Exchange Place New York City
PURPOSE OF BILL IN SET
Bills in set are for the purpose of increasing the probability of the bill reaching its destination
For this reason, each part is sent by different conveyances
B, the payee, is supposed to negotiate only one part, or if he is paid on one, he cannot be paid on the second part
Sec. 179. Right of holders where different parts are negotiated. - 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.
ILLUSTRATION OF SECTION 179
B, payee, wants to raise P4000. In violation of his rights, he negotiates the first part of the bill to C and the second part to D, both of whom are holders in due course. Who is the true owner of the bill?
If B negotiates to C on September 25 and to D on September 27, C is the true owner, as C’s title accrues first.
But if D succeeds in presenting his part of the bill for acceptance for payment and X the drawee, accepts or pays the second part in due course, X is protected and X can refuse to accept C’s part of the bill.
Sec. 180. Liability of holder who indorses two or more parts of a set to different persons. - 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.
LIABILITY OF HOLDER WHO INDORSES TWO OR MORE PARTS
B is liable on both parts as if there are two bills, on the first to C and on the second to D
In other words, as a result of his negotiation of the 2 parts, B is liable for a total of P4000
But A, the drawer, or X, the drawee, is liable only on one part or for P2000 unless the drawee accepts both parts
Suppose that C and D respectively negotiate the parts they have to E, the first part, and F, the second part. C is liable to E for the part he endorsed to E and D is liable to F for the part he indorsed to F.
Sec. 181. Acceptance of bill drawn in sets. - 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.
DRAWEE MUST ACCEPT ONLY ONE PART
The drawee X must accept only one part
But if he accepts both parts and they are negotiated to holders in due course, he is liable on every such part as if it were a separate bill, that is, for a total of P4000
But he can ask for reimbursement from A, drawer, on only one part, that is P2000, because the order of the drawer to him is to pay only one part, not both parts
Sec. 182. Payment by acceptor of bills drawn in sets. - 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.
ILLUSTRATION
Suppose that X accepts only the first part. Then he pays the second part without requiring the return of the first part.
On the date of maturity, X would still be liable to the holder of the first part on which it appears his acceptance
Sec. 183. Effect of discharging one of a set. - 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.
EFFECT OF DISCHARGE ON ONE PART
Subject to the exceptions in Section 180, 181, and 182, if one part is discharged, the whole bill is discharged
The reason is that the bill constitutes only one bill
Thus, suppose that in the illustration, X the acceptor pays the first part which he accepted.
The second and third parts are also discharged XVI. PROMISSORY NOTES AND CHECKS
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.
IS MAKER LIABLE AS INDORSER?
The maker of a note payabloe to himself who indorses it is not liable as indorser but only as maker.
Since the indorsement by the maker-payee isn’t part of a sale of the note, it should not give rise to any warranty.
In the absence of such warranties, it is immaterial whether the defendant is sued as an indorser or as maker since, in either event, he may set up the defense of fraud against the plaintiff unless the plaintiff is a holder in due course.
SPECIAL TYPES OF PROMISSORY NOTES 1. Certificate of deposit
2. Bonds 3. Bank notes 4. Due bills
CERTIFICATE OF DEPOSIT
Written acknowledgement by a bank of the receipt of money on deposit which the bank promises to pay to the depositor, bearer, or to some other person or order
BONDS
A promise, under seal to pay money
More formal in character
Runs for a longer period of time
Issued under different legal circumstances CLASSES OF BONDS
1. Mortgage bonds 2. Equipment bonds 3. Collateral trust bonds 4. Guaranteed bonds 5. Debentures 6. Income bonds 7. Convertible
8. Redeemable 9. Registered bonds 10. Coupon bonds
BANK NOTES
Bank notes are the promissory notes of the issuing bank payable to bearer on demand and intended to circulate as money
Regarded as cash and pass from hand to hand without any evidence of title in the holder than that which arises from possessession
However, they are not money DUE BILL
Instrument whereby one person acknowledges his indebtedness to another
CLEARING HOUSE DUE BILL
Device of clearing house associations to save inconvenience and labor incident to the settling of balances between the members of the association
The certificates or due bills are issued, instead of actual payment of money, by one member of the association to another
They are not merely certificates of deposit creating a contract of bailment but are negotiable as checks payable to bearer, or as promissory notes payable to order or 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.
CHECK, DEFINED
Bill of exchange drawn on a bank payable on demand
CHECK DISTINGUISHED FROM A PROMISSORY NOTE; USED AS SUBSTITUTE FOR MONEY; EFFECT OF WORTHLESS CHECKS ON TRADE CIRCLES AND BANKING COMMUNITY
A check is not a mere undertaking to pay an amount of money
It is an order addressed to a bank and partakes of a representation that the drawer has funds on deposit against which the check is drawn, sufficient to ensure payment upon its presentment to the bank
Element of assurance or certainity that the instrument will be paid upon presentation
ISSUING CHECK WITHOUT FUNDS AS ESTAFA
Issuing a check without sufficient funds in the drawee bank constitutes estafa if it is done as a means of obtaining money and merchandise but not if the check is given for a pre-existing debt