review questions on negotiable instruments law

8/9/2019 Review Questions on Negotiable Instruments Law

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Review Questions on Negotiable Instruments Law

. What is a Negotiable Instrument?

. What are the requisites for the negotiability of theinstrument? WU !"

. What $oes negotiation means? %

. When Negotiability 'n$s? %

. What L"W governs the Negotiability of the instrument?

. What L"W that will govern if the instrument is notnegotiable?

. What *ountries in whi*h the +u$i*ial $e*isions of their*ourts *an be a,,lie$ in the hili,,ines in so far as it*on*erns on NIL?

. What are the fun*tions of the Negotiable Instrument?! /I

. Ito,erates as the substitute for money0

. It is ameans *reating an$ transferring *re$it0

. It fa*ilitates the sale of goo$s0

. It in*reases the ,ur*hasing me$ium in *ir*ulation.

. Is Negotiable Instrument a Legal en$er?3. What is a Legal en$er? It a *urren*y that is vali$ for the

,ayment of a $ebt whi*h must a**e,te$ by the *re$itor.1. Un$er hili,,ine Law4 what are vali$ legal ten$ers?2. 5ive the *orres,on$ing amount of the *oins that are

*onsi$ere$ legal ten$er in the hili,,ines.#. What are the 2 im,ortant features of a Negotiable

instrument? -&. What are the 6in$s of Negotiable Instruments?

(. What is a 7ILL !/ '89:"N5'?%. What is a R! I;!R< N! '?). What are the 6in$s of 7ills of '=*hange?


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. >raft is synonymously refers to a 7ill of '=*hange4although4 it normally refers to a 7ill of '=*hange use$ in$o*umentary e=*hange li6e Letters of 9re$it transa*tions.

. Inlan$ an$ /oreign 7ill

. ime $raft

. ;ight or >eman$ >raft is a 7ill ,ayable u,on,resentment.

. ra$e "**e,tan*e 7ill that is use$ in *ontra*ts of sale

where the seller as a $rawer or$ers the buyer @as $raweeAto ,ay a sum *ertain to sai$ seller.7an6ers "**e,tan*e a time $raft whi*h a*ross the fa*ethereof4 the wor$ Ba**e,te$C is written by the ban6.

. 9he*6-. What are the 6in$s of romissory Notes?. 9ertifi*ate of >e,osit a form of ,romissory note whi*h a

written a*6nowle$gment of a ban6 of its re*ei,t of *ertainsum with a ,romise to re,ay the same.

. 7on$s is a *ertifi*ate of in$ebte$ness whereby the*om,any or the government bo$y ,romises to ,ay thebon$hol$ers a s,e*ifie$ amount of interest for s,e*ifie$length of time4 an$ to re,ay the loan at the e=,iration$ate.

. >ebenture is a ,romissory note or bon$ ba*6e$ by thegeneral *re$it of a *or,oration an$ usually not se*ure$ bya mortgage or lien on any s,e*ifi* ,ro,erty

. What are the instan*es when a bill maybe regar$e$ as a,romissory note? >>>I

3. >istinguish romissory note from a 7ill of '=*hange."0what *ontains4 b0 number of ,arties *0 who is ,rimarilyliable $0 number of ,resentment


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1. >istinguish 7ill of '=*hange from a 9he*6."0 where it is$rawn or fun$s to the $rawee b0 In a 7ill of '=*hange>eath of the $rawer of a bill with 6nowle$ge of the ban64

$oes not revo6e the authority of the ban6er to ,ay whereas a in a *he*64 >eath of the $rawer4 with6nowle$ge to the ban6 revo6es the authority of the ban6erto ,ay *0 when maybe ,resente$?

2. "re the following *ommer*ial ,a,ers Negotiable?. 9rosse$ 9he*60. ra$e a**e,tan*e0. oney !r$er0 an or$er for s,e*ifi* sum of money4 usually

,ur*hase$ with *ash at a ban6 or ,ost offi*e that *an be

use$ for ,ayment.. " warehouse re*ei,t0. " ,awn ti*6et re,resent an arti*le reasury warrant0 ,ayable out of a ,arti*ular fun$.. 7ill of la$ing0. rust re*ei,t0 evi$en*e$ of ownershi, of goo$s#. Who are the ,ersons involve$4. /or romissory Note0. /or 7ill of e=*hange.&. Who is a referee?" erson who may be $esignate$ in

the instrument as the ,erson who may be resorte$ to bythe ,arties in *ase of $is,ute.

(. >istinguish Negotiable Instrument from Non NegotiableInstrument4 as to0

. What law govern?

. "s to the manner of transfer0. Rule on assigneeDhol$er0%. >istinguish Negotiability from "ssignability.


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. In assignment4 the transferee *an have no better rightthan his transferor sim,ly be*ause he merely ste,s intothe shoes of the latter4 while in negotiation4 the transferee

may have a better right than the transferor es,e*ially if heis a hol$er in $ue *ourse.

. In assignment4 the transferee has no right of re*ourseagainst interme$iate ,arties while in negotiation4 thehol$er *an hol$ the $rawer an$ the in$orsers liable if the,arty ,rimarily liable $oes not ,ay.

). >istinguish Negotiable >o*ument of itle from Negotiable>o*ument. "s to sub+e*t matter4 as the ,ro,erty itself4 asto e=isten*e of the requisites enun*iate$ in ;e*.14 NIL4 as

to liability of interme$iateDse*on$ary ,arty4 as to thenature of hol$er.

-. 5ive the form of Negotiable Instrument.;e*. 1 NIL. What is the rule on signature? he signature nee$ not be

the usual signature of the ma6erD$rawerDin$orser4 butenough if the letter or symbol is inten$e$ by the latter toauthenti*ate the instrument.

3. What are the wor$s equivalent to B,romiseC or Bor$erC?. B,ayable on $eman$C. B$ue E.. BI a*6nowle$ge myself to be in$ebte$ to the or$er of Fuan

the amount GGG to be ,ai$ on $eman$CE.1. "s a rule4 the Bor$erC or B,romiseC must be un*on$itional

What are the instan*es when the same is

9!N>I I!N"L? When ,ayable out of a ,arti*ular fun$0 When ,ayable u,on a *ontingen*y.


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2. What are those instan*es that although4 they are ,resent4but the instrument remains to be un*on$itional?

When there is an in$i*ation of a ,arti*ular fun$4 out of

whi*h a reimbursement is ma$e. " statement of transa*tion whi*h gives rise to the

instrument.#. >istinguish in$i*ation of a ,arti*ular fun$ for ,ayment

against /un$ for reimbursement

/UN> /!RR'I 7UR;' 'N

IN>I9" IN5"R I9UL"R /UN>

". @1A he $rawee ,ays

the ,ayee from his ownfun$s afterwar$s the$rawee ,ays himselffrom the ,arti*ular fun$

here is only one a*t

the $rawee ,ays $ire*tlyfrom the ,arti*ular fun$in$i*ate$.

7. arti*ular fun$in$i*ate$ is not the$ire*t sour*e of,ayment

he ,arti*ular fun$in$i*ate$ is the $ire*tsour*e of ,ayment.

&. What are the instan*es that although there are a$$itional

,rovisions inserte$ in the instrument but still it retains thenegotiability of the instrument an$ the sum remains to be*ertain in money?;e*. (4 NIL

. "uthoriHes the sale of *ollateral se*urities in *ase theinstrument is not ,ai$ u,on maturity

. "uthoriHes a *onfession of +u$gment in *ase theinstrument be not ,ai$ at maturity0


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. Waives the benefit of any law inten$e$ for the a$vantageor ,rote*tion of the obligor0 or

. 5ives the hol$er an ele*tion to require something to be

$one in lieu of the ,ayment of money.(. What are the instan*es that although there are a$$itional

un$erta6ings or wor$s inserte$ but the instrumentremains to be ,ayable in the sum *ertain in money?;e*.24 NIL

. with interest

. by ;tate$ instalment

. by state$ instalment4 with the ,rovision that u,on $efaultin ,ayment of instalment or interest4 the whole amountshall be*ome $ue @a**eleration *lauseA0

. With e=*hange4 whether fi=e$ rate or a the *urrent rate0

. With *osts of *olle*tion or an attorneys fee in *ase,ayment is not ma$e at maturity.

%. What is meant by state$ instalment?). When may an instrument ,ayable on $eman$? ;e*. )4 NIL

When it is so e=,resse$ to be ,ayable on $eman$ or atsight4 or on ,resentation0 or

When no time of ,ayment is e=,resse$0 Where the instrument is issue$4 a**e,te$4 or in$orse$

when over$ue4 it is4 as regar$s the ,erson so issuing4a**e,ting4 or in$orsing it4 ,ayable on $eman$.

-. When is an instrument ,ayable at a fi=e$ or $eterminablefuture time?;e*. &4 NIL

. "t a fi=e$ ,erio$ after $ate or sight0

. !n or before a fi=e$ or $eterminable future time s,e*ifie$therein0


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. !n or at a fi=e$ ,erio$ after the ha,,ening of thes,e*ifie$ event whi*h is *ertain to ha,,en4 although thetime of ha,,ening be un*ertain.

. What are a**eleration4 inse*urity an$ e=tension *lauses?What ha,,en to the instrument if they are inserte$thereto?

"**eleration *lause when there is state$ instalment an$there is a$$itional ,rovision that ,rovi$es that in *ase of$efault for the ,ayment of instalment or interest4 the wholeamount shall be $eeme$ $ueE.the instrument remains tobe negotiable

Inse*urity *lause is an a$$itional ,rovision that allows the

hol$er to a**elerate ,ayment on the instrument if he$eems himself inse*ureE.the instrument is ren$ere$ nonnegotiable.

'=tension *lause the instrument is ,ayable at a $efinitetime sub+e*t to e=tension at the o,tion of the ma6er ora**e,torE.the instrument is still negotiable

3. What is the effe*t if the instrument is ,ayable to s,e*ifie$,erson or entity?

1. When is the instrument ,ayable to 7earer? ;e*. 4 NIL

. When it is e=,resse$ to be so ,ayable to bearer0. When it is ,ayable to ,erson name$ therein or bearer0

. When it is ,ayable to the or$er of a fi*titious or none=isting ,erson0

. When the name of the ,ayee $oes not ,ur,ort to be the

name of a ,erson0. When only or the last in$orsement is an in$orsement inblan6.


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2. What are the two @2A ways by whi*h the instrument *an be,ayable to or$er? ;e*. -4 NIL

When the instrument is ,ayable to the or$er of the

s,e*ifie$ ,erson0 or When the instrument is ,ayable to the s,e*ifie$ ,erson or

his or$er#. When the instrument is ,ayable to *ash or or$er4 what

$oes it *onnotes? he instrument is ,ayable to bearer.&. If there are 2 or more $rawees4 what shoul$ be $one in

or$er that the instrument remains to be negotiable? hebill shoul$ be a$$resse$ to them +ointly not as inalternative.

(. What are the omissions an$ ,rovisions that $o not affe*tthe negotiability of the instrument?;e*. %4 NIL E.>7>"he vali$ity an$ negotiable *hara*ter of the instrumentare not affe*te$ by the fa*t that0

. It is not $ate$0

. >oes not s,e*ify the value given0

. >oes not s,e*ify the ,la*e where it is $rawn or the ,la*e where it is ,ayable0

. 7ears a seal0

. >esignates a ,arti*ular 6in$ of *urrent money in whi*h,ayment is to be ma$e0

. "$$resse$ to more than one $rawee +ointly%. What is an instan*e when $ate shoul$ be inserte$ by the

hol$er? .2&). What are the two ways to transfer a negotiable

instrument?


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he ,ayee or in$orsee of a bill or a note who is in,ossession of it or the bearer thereof.

(. 5ive the requisites of a :ol$er in $ue *ourse. ;e*. (24

NIL%. What is the effe*t if an instrument ,ayable on $eman$ is

negotiate$ after unreasonable length of time? he hol$eris not $eeme$ the hol$er in $ue *ourse. ;e*. (#4 NIL.

). What is Bunreasonable timeC with regar$ to negotiation ofthe instrument? It is a question of fa*t4 whi*h shoul$ beinter,rete$ with $ue regar$ to the usage of tra$e orbusiness with res,e*t to the instrument.

-. What is meant by infirmities in the instrument?. 5ive the instan*es where there are $efe*ts in the

instrument.Where there is noti*e of alteration in the instrument whi*his a,,arent0Noti*e of forgery in the ma6er or the $rawerJs signature.

3. When is there $efe*tive title in the instrument?1. What is the rule on goo$ faith in ta6ing the instrument?5oo$ faith is ,resume$. It is $estroye$ when the hol$era*quires it un$er *ir*umstan*es that woul$ ,ut him toinquiry as to the title of the transferor.

2. What is value4 with regar$ to the instrument?It is a*onsi$eration suffi*ient to su,,ort a sim,le *ontra*t.hese in*lu$e ante*e$ent $ebts an$ lien on theinstrument.

#. Who is a hol$er for value?!ne who hol$s the instrumentin e=*hange of valuable *onsi$eration suffi*ient to su,,ortthe e=e*ution of the instrument.

&. What are the rights of the :!L>'R IN >U' 9!UR;'?


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:e hol$s the instrument free $efe*t of title of ,rior ,arties0 :e hol$s the instrument free from ,ersonal $efen*es of

,rior ,arties0 :e *an enfor*e the instrument u, to its full amount

against all ,arties liable thereto.(. ay one who fails to inquire as to an infirmity in a

negotiable instrument an$ $efe*t in the hol$erJs title4 be ahol$er in $ue *ourse?

%. 'numerate the Real an$ ersonal $efen*es in theinstrument.

R'"L >'/'N;'; 'R;!N"L >'/'N;';

1. inority @available only tothe minorA

1. /ailure or absen*e of*onsi$eration

2. /orgery 2.Illegal 9onsi$eration#. In*om,lete Un$elivere$instrument

#.9om,lete un$elivere$instrument

&. aterial "lteration &.9on$itional $elivery of*om,lete instrument

(. Ultra ires "*t of9or,oration

(./rau$ in in$u*ement

%. /rau$ in fa*tum or esse*ontra*tus

%. /illing u, blan6 not withinauthority

). Illegality if $e*lare$ voi$for any ,ur,ose

). >uress or intimi$ation

-. i*ious for*e or violen*e -. /illing u, blan6 beyon$

reasonable time. Want of authority . ransfer in brea*h offaith


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13. res*ri,tion 13. ista6e11. >is*harge in insolven*y 11. Insertion of wrong $ate

12. "nte $ating or ost

$ating for illegal orfrau$ulent ,ur,ose.

). >istinguish real $efense from ,ersonal $efense.-. When is there forgery?. 5ive the effe*t in *ase of forgery in the signature of the

ma6er or in$orser of the instrument.3. What are the rules with res,e*t to forgery of instrument?

!nly the forge$ signature is wholly ino,erative4 not theinstrument itself an$ not the genuine signatures

arties ,rior to forgery *an also avail the real $efense offorgery0

>es,ite of forgery4 the following ,arties are ,re*lu$e$from setting u, the real $efense of forgery0

. hose who warrant the instrument0

. hose who ratify the forgery0. hose who are negligent.1. >is*uss the meat of ;e*tion 1& of NIL.. he ,erson who hol$s the instrument wanting in material

,arti*ular has the ,rima fa*ie authority to *om,lete it0

. he ,erson who is in ,ossession of a ,a,er *ontaining ablan6 signature $elivere$ by the ,erson ma6ing su*hsignature with the intention of *onverting it to a NI4 has the,rima fa*ie authority to fill it u, for any amount0

. In both of the foregoing4 in or$er that the instrument

maybe enfor*e$ against ,arties ,rior to the *om,letionmust be fille$ u, stri*tly in a**or$an*e with the authoritygiven.


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-. What is B/rau$ in in$u*ementC?he ,erson who signe$the instrument 6nows that it is a negotiable instrument4only that4 he was in$u*e$ to sign it through frau$. In

otherwor$s4 his *onsent to sign the NI was vitiate$ byfrau$. :I; I; " 'R;!N"L >'/'N;' only.

. N! 'K "bsen*e or failure of *onsi$eration is only a,ersonal $efense while illegal *onsi$eration is a real$efense if the statute $e*lares the instrument voi$ for any,ur,ose

3. What is the effe*t to the instrument if there is failure4absen*e or illi*itDillegal *onsi$eration?If there is absence of consideration in the instrument

issued, the same would avoid the instrument, however, it is only a personal defense. With respect to illegality of consideration, it is a real defense if the statute would declare the instrument illegal or void for any purpose.

1. What is the effe*t4 in *ase of minority4 in*a,a*ity or wantof authority?Minority or incapacity is a real defense, but only minorsand incapacitated person can avail said defense.Capacitated persons cannot invoke the defense of minority or incapacity because such defense is personal to minors and incapacitated persons.

Instruments issued as an ultra vires act of thecorporation is a real defense.

2. What 6in$ of $efense is the ;tatute of

limitationsD,res*ri,tion? When $oes the right to file *laimarising from the instrument ,res*ribe$?


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rescription is a real defense, that is, available even toholder in due course. !he prescriptive period to file claimsarising from the negotiable instrument is the "#$% from the

cause of action accrues.PERSONS primarily andSECONDARILY LIABLE TO THEINSTRUMENT

#. 5ive the *lassifi*ation of the ,arties a**or$ing to theirliabilitiesKPRIMARILY LIABLE:a.!he maker of the promissory note&b.!he acceptor of a bill&

c. !he certifier of a checkSECONDARILY LIABLE a.!he drawer of a bill&b.!he indorser of a note or bill.NOT LIABLE:

-THE DRAWEE UNTIL HE ACCEPTS THE INSTRUMENT IN WHICH CASE HE BECOMES AN ACCEPTOR.

&.What is the liability of the maker'Primarily liable0

1.'ngages to ,ay a**or$ing to the tenor of theinstrument0

2."$mits the e=isten*e of the ,ayee an$ his*a,a*ity to in$orse.

(. What is the liability of the (CC) !*+ "and the drawee

that pays the instrument without accepting it%' Primarily liable:


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1.'ngages to ,ay a**or$ing to the tenor of hisa**e,tan*e0

2."$mits the e=isten*e of the $rawer4 the

genuineness of his signature an$ his *a,a*ityan$ authority to $raw the instrument0

3."$mits the e=isten*e of the ,ayee an$ his*a,a*ity to in$orse

%.What is the liability of the $rawer?SECONDARILY LIABLE:

#.(dmits the e istence of the payee and hiscapacity to indorse&

-.)ngages that the instrument will beaccepted or paid by the party primarily liable&

.)ngages that if in case dishonoured and proper proceedings are brought, he will tothe party entitled to be paid.

Warranties). What are the warranties of a qualifie$ in$orser an$

,ersons negotiating by $elivery?#.!hat the instrument is genuine and in all respects

what it purports to be& -.that he has a good title to it&.!hat all prior parties had capacity to contract&&.!hat he has no knowledge of any fact which would

impair the validity of instrument or render it

valueless&-. What are the warranties of 5eneral In$orser?


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#.!hat the instrument is genuine and in all respectswhat it purports to be&

-. that he has a good title to it&

. !hat all prior parties had capacity to contract&/. !hat the instrument is, at the time of theendorsement, valid and subsisting.

. >efine a**ommo$ation an$ a**ommo$ate$ ,arty an$give the liability of the a**ommo$ation ,arty?

(n ACCOMMODATION PARYis one who signed theinstrument as maker, drawer, acceptor, or indoser without receiving any consideration and for the purpose of lending his to another party.

(n ACCOMMODATED PARTYis a party in whosefavour the instrument is issued

(n ACCOMMODATION PARTYis liable to holder for value, even if such holder knew that the party wasan accommodation party when he took theinstrument.

How to enforce liability:


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"a.% Where the bill is payable after sight, or inany other case, where presentment for acceptance is necessary in order to fi the

maturity of the instrument or,"b.% When the bill e pressly stipulates that it shall

be presented for acceptance& or "c.% When the bill is drawn payable elsewhere

than at the residence or place of business of the drawee.

-.If dishonored by non5acceptance, the followingshall be observed2"i% 4otice of dishonor should be given to the

indorsers and drawer&"ii% If the bill is a foreign bill, there must be

protest for dishonor by non5acceptance.

.If the bill is accepted2

"i% resentment for payment to the acceptor should be made2a.If the bill is dishonored upon presentment

for payment.+.4otice of dishonor should be given to

party7parties secondarily liable.(. If the bill is a foreign bill, protest for

dishonor by non5payment must made.

13#. When to *harge the a**e,tor for honor an$

referee in *ase of nee$?rotest for non5payment by the drawee.Se(. 34. A#ree e"t $ a((e%t$r $r '$"$r.5


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!he acceptor for honor, by such acceptanceengages that he will, on due presentment, pay thebill according to the terms of his acceptance,

provided it shall not have been paid by the draweeand provided also that it shall have been duly presented for payment and protested for non5 payment and notice of dishonor given to him.

13&. 5ive the rules for ,resentment for ,ayment. 6ENERAL RULE: resentment for payment is

not necessary to charge persons primarily liable.8ut it is necessary to charge persons secondarily liable, e cept under the following

#. (s to thedrawer, under 0ection 9:, where he has noright to e pect or re3uire that the draweeor acceptor will pay the instrument&

-. (s toindorser, under section ;$ were theinstrument was made or accepted for hisaccommodation and he has no reason toe pect that the instrument will be paid if presented&


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13%. resentment for ,ayment of the instrument mustbe ma$e at a reasonable time. What is meant byreasonable time?

REASONABLE TIME-refers to time as areasonable, prudent and diligent man doconveniently , what the contact or duty re3uiresshould be done having a regard for the rightsand possibility of loss, if any, to the other party.

CHEC7S5 presentment for payment must bemade within 1 months or #;$ days.

13). When is ,resentment for a**e,tan*e man$atory? Where the bill is payable within fi ed period after

sight& or where acceptance is necessary to fi the maturity of the instrument.

Where the bill e pressly stipulates that it shall be presented for acceptance&

Where the bill is drawn payable elsewhere thanthe residence or place of business of thedrawee.

13-. What are the instan*es when ,resentment fora**e,tan*e is e=*use$?

Where the bill is drawn payableelsewhere than the residence or place of


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business of the drawee and the holder with thee ercise of reasonable diligence failed to present the instrument. What is e cuse here is

the delay in presenting the instrument caused by presentment for acceptance.

Where the drawee is dead, or hasabsconded, or is fictitious person or a person not having capacity to contract by bill.

Where after the e ercise of reasonable diligence, presentment cannot bemade.

Where, although presentment hasbeen irregular, acceptance has been refused onsome other ground.

13 . What is meant by a**e,tan*e?It is the signification of the drawee of his assent tothe order of the drawer.

113. What are the requisites of a**e,tan*e?

!he acceptance must be in writing&


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0igned by the drawee&

!he drawee assented to the promise to pay a sum certain in money and not by any other means.

111. In what form shoul$ the a**e,tan*e be ma$e?!he rule is that !=) (CC) !(4C) 0=*>?@

8) I4 !=) I40!+>M)4! I!0)?A *+ I40) (+(!) I40!+>M)4!. =owever, under section# , the holder may re3uire that the acceptance bemade on the bill itself, refusal by the drawee, theholder may treat the bill as dishonored.

112. When is there $eeme$ a**e,tan*e of the bill? !he drawee is deemed to have accepted the

instrument2 !he bill was delivered to the drawee and

the latter destroys the same.

!he bill was delivered to the drawee but the drawee refuses within twenty Bfour hours or within such other period as theholder may allow to return the bill accepted or non5accepted.8Se(. 19*NIL2


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NOTE:the drawee is allowed twenty5four hoursafter presentment in which to decide whether or not he will accept the bill& the acceptance, if given, dates as of the day of presentation.8Se(.13* NIL2Meaning the acceptance retroacts onthe day of presentation.

113. What is the effe*t of an

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