Spectra Notes - Negotiable Instruments Law Compilation

Negotiable
Instruments Law
Compilation
Based on the outlined discussion of Atty. Eduardo V. Soleng, Jr.

Updated as of: AY: 2014 - 2015
Societas Spectra Legis

Negotiable Instruments Law Compilation
TABLE OF CONTENTS
THE NEGOTIABLE INSTRUMENTS LAW: (Act No. 2031) .................................................................................................. 8
INTRODUCTION ............................................................................................................................................................. 8
PHILIPPINE EDUCATION CO vs MAURICIO SORIANO ..........................................................................................................................................................................................11
I. FORM AND INTERPRETATION ....................................................................................................................................13

SECTION 1.Form of Negotiable Instruments .......................................................................................................................................................................... 13
CALTEX vs CA..........................................................................................................................................................................................................................................................14
SESBREO vs CA ....................................................................................................................................................................................................................................................16
METROBANK vs CA ................................................................................................................................................................................................................................................17
FIRESTONE TIRE & RUBBER COMPANY vs LUZON DEVELOPMENT BANK .........................................................................................................................................................22
SECTION 2. Certainty as to Sum; What Constitutes. .............................................................................................................................................................. 23

SECTION 3.When Promise is Unconditional ........................................................................................................................................................................... 24
SECTION 4.Determinable Future Time; What Constitutes .................................................................................................................................................... 26
SECTION 5.Additional Provision Not Affecting Negotiability ................................................................................................................................................ 29
SECTION 6.Omission; Seal; Particular Money......................................................................................................................................................................... 31
SECTION 7.When Payable on Demand ................................................................................................................................................................................... 32
SECTION 8.When Payable to Order ......................................................................................................................................................................................... 32
SECTION 9.When Payable to Bearer ....................................................................................................................................................................................... 34
ANG TEK LIAN vs CA ..............................................................................................................................................................................................................................................36
SECTION 10.Terms, When Sufficient ....................................................................................................................................................................................... 37

SECTION 11.Date, Presumption As To .................................................................................................................................................................................... 37
SECTION 12.Antedated and Postdated ................................................................................................................................................................................... 38
SECTION 13.When Date May Be Inserted .............................................................................................................................................................................. 38
SECTION 14.Blanks; When May Be Filled ............................................................................................................................................................................... 39
SECTION 15.Incomplete Instrument Not Delivered ............................................................................................................................................................... 43
SECTION 16.Delivery; When Effectual; When Presumed ...................................................................................................................................................... 44
DBR vs SIMA WEI ...................................................................................................................................................................................................................................................44
SEC 17. Construction where instrument is ambiguous.......................................................................................................................................................... 48

SEC 18. Liability of person signing in trade or assumed name .............................................................................................................................................. 49
SEC 19. Signature by agent; authority; how shown. .............................................................................................................................................................. 49
SEC 20. Liability of person signing as agent ............................................................................................................................................................................ 50
PHILCOM vs ARUEGO ............................................................................................................................................................................................................................................50
FRANCISCO vs. CA..................................................................................................................................................................................................................................................51
SEC 21. Signature of Procuration ............................................................................................................................................................................................ 51

SEC 22. Effect of indorsement by infant or corporation........................................................................................................................................................ 51
SECTION 23.Forged Signature; Effect of ................................................................................................................................................................................. 52
JAI-ALAI VS BPI .......................................................................................................................................................................................................................................................52
REPUBLIC VS EBRADA:...........................................................................................................................................................................................................................................52
MWSS vs CA ...........................................................................................................................................................................................................................................................53
BDO vs EQUITABLE ................................................................................................................................................................................................................................................60
GEMPESAW vs CA ..................................................................................................................................................................................................................................................61
ASSOCIATED BANK vs CA ......................................................................................................................................................................................................................................61
METROPOLITAN BANK vs FIRST NATIONAL CITY BANK 24 hour notice ............................................................................................................................................................62
REPUBLIC BANK vs CA 24 hour notice..................................................................................................................................................................................................................63
PCIB vs CA 50-50 ....................................................................................................................................................................................................................................................63
RAMON ILUSORIO vs CA proximate cause ..........................................................................................................................................................................................................64
University of San Carlos School of Law and Governance | Based on the outlined discussion of EVS
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SAMSUNG CONSTRUCTION vs CA ........................................................................................................................................................................................................................64
II. CONSIDERATION.......................................................................................................................................................65
SECTION 24.Presumption of Consideration............................................................................................................................................................................ 65
SECTION 25.Value, What Constitutes ..................................................................................................................................................................................... 65
SECTION 26.What Constitutes Holder for Value .................................................................................................................................................................... 66
SECTION 27.When Lien on Instrument Constitutes Holder for Value .................................................................................................................................. 66
SECTION 28. Effect of Want of Consideration ........................................................................................................................................................................ 67
SECTION 29.Liability of Accommodation Party ...................................................................................................................................................................... 68
SADAYA vs SEVILLA ................................................................................................................................................................................................................................................69
CRISOLOGO-JOSE vs CA .........................................................................................................................................................................................................................................69
STELCO MARKETING vs CA....................................................................................................................................................................................................................................70
TRAVEL-ON vs CA...................................................................................................................................................................................................................................................70
BPI vs CA .................................................................................................................................................................................................................................................................71
AGRO-CONGLOMERATE vs CA..............................................................................................................................................................................................................................71
III. NEGOTIATION..........................................................................................................................................................72
SECTION 30.What Constitutes Negotiation ............................................................................................................................................................................ 72
SECTION 31.Endorsement; How Made ................................................................................................................................................................................... 73
SECTION 32.Endorsement Must Be of Entire Instrument ..................................................................................................................................................... 73
SECTION 33.Kinds of Endorsement ......................................................................................................................................................................................... 74
SECTION 34.Special Endorsement; Endorsement in Blank.................................................................................................................................................... 74
SECTION 35.Blank Endorsement; How Changed to Special Endorsement ........................................................................................................................... 75
SECTION 36.When Endorsement Restrictive .......................................................................................................................................................................... 75
SECTION 37.Effect of Restrictive Indorsement; Rights of Indorsee ...................................................................................................................................... 76
SECTION 38.Qualified Indorsement ........................................................................................................................................................................................ 76
SECTION 40.Indorsement of Instrument Payable to Bearer ................................................................................................................................................. 77
SECTION 41.Indorsement Where Payable to Two or More Persons .................................................................................................................................... 78
SECTION 42.Effect of Instrument Drawn or Indorsed to a Person as Cashier ..................................................................................................................... 78
SECTION 43.Indorsement Where Name is Misspelled, and So Forth ................................................................................................................................... 78
SECTION 44.Indorsement in Representative Capacity........................................................................................................................................................... 78
SECTION 45.Time of Indorsement; Presumption ................................................................................................................................................................... 79
SECTION 46.Place of Indorsement; Presumption .................................................................................................................................................................. 79
SECTION 47.Continuation of Negotiable Character ............................................................................................................................................................... 79
SECTION 48. Striking Out Indorsement................................................................................................................................................................................... 79
SECTION 49.Transfer Without Indorsement; Effect of .......................................................................................................................................................... 80
SECTION 50.When Prior Party May Negotiate Instrument ................................................................................................................................................... 80
IV. RIGHTS OF A HOLDER ..............................................................................................................................................80

SECTION 51.Right of Holder to Sue; Payment ........................................................................................................................................................................ 80
SECTION 52.What Constitutes a Holder in Due Course ......................................................................................................................................................... 80
DE OCAMPO vs GATCHALIAN Exception..............................................................................................................................................................................................................82
MESINA vs IAC .......................................................................................................................................................................................................................................................83
SECTION 53.When Person Not Deemed Holder in Due Course ............................................................................................................................................ 83

SECTION 54.Notice Before Full Amount Paid ......................................................................................................................................................................... 83
SECTION 55.When Title Defective ........................................................................................................................................................................................... 84
SECTION 56.What Constitutes Notice of Defect .................................................................................................................................................................... 84
SECTION 57.Rights of Holder in Due Course........................................................................................................................................................................... 84
SECTION 58.When Subject to Original Defenses.................................................................................................................................................................... 84
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SECTION 59.Who is Deemed Holder in Due Course .............................................................................................................................................................. 85
V. LIABILITIES OF PARTIES .............................................................................................................................................85

LIABILITY OF MAKER ................................................................................................................................................................................................................. 85
LIABILITY OF DRAWER .............................................................................................................................................................................................................. 86
LIABILITY OF ACCEPTOR ........................................................................................................................................................................................................... 88
WHEN PERSON DEEMED INDORSER ....................................................................................................................................................................................... 90
LIABILITY OF IRREGULAR INDORSER ....................................................................................................................................................................................... 90
WARRANTY WHERE NEGOTIATION BY DELIVERY AND SO FORTH ........................................................................................................................................ 91
LIABILITY OF GENERAL INDORSER ........................................................................................................................................................................................... 93
METROPOL vs. SAMBOK MOTORS CO. ................................................................................................................................................................................................................93
MARALIT vs. IMPERIAL ..........................................................................................................................................................................................................................................94
SAPIERA vs. CA .......................................................................................................................................................................................................................................................95
BPI vs. CA and NAPIZA ...........................................................................................................................................................................................................................................95
LIABILITY OF INDORSER WHERE PAPER NEGOTIABLE BY DELIVERY ..................................................................................................................................... 98

ORDER IN WHICH INDORSERS ARE LIABLE ............................................................................................................................................................................. 98
LIABILITY OF AN AGENT OR BROKER ....................................................................................................................................................................................... 99
VI. PRESENTATION FOR PAYMENT ................................................................................................................................99

EFFECT OF WANT OF DEMAND ON PRINCIPAL DEBTOR ....................................................................................................................................................... 99
PRESENTMENT WHERE INSTRUMENT IS NOT PAYABLE ON DEMAND AND WHERE PAYABLE ON DEMAND ................................................................. 101
PRUDENTIAL BANK vs. CA ...................................................................................................................................................................................................................................102
WONG vs CA ........................................................................................................................................................................................................................................................102
ICB vs Sps GUECO ................................................................................................................................................................................................................................................104
WHAT CONSTITUTES A SUFFICIENT PRESENTMENT ............................................................................................................................................................ 106

PLACE OF PRESENTMENT ....................................................................................................................................................................................................... 106
INSTRUMENT MUST BE EXHIBITED ....................................................................................................................................................................................... 107
PRESENTMENT WHERE INSTRUMENT PAYABLE AT BANK .................................................................................................................................................. 107
PRESENTMENT WHERE PRINCIPAL DEBTOR IS DEAD .......................................................................................................................................................... 108
PRESENTMENT TO PERSONS LIABLE AS PARTNERS ............................................................................................................................................................. 108
PRESENTMENT TO JOINT DEBTORS ...................................................................................................................................................................................... 108
WHEN PRESENTMENT NOT REQUIRED TO CHARGE THE DRAWER .................................................................................................................................... 108
WHEN PRESENTMENT NOT REQUIRED TO CHARGE THE INDORSER .................................................................................................................................. 109
WHEN DELAY IN MAKING PRESENTMENT IS EXCUSED ....................................................................................................................................................... 109
WHEN PRESENTMENT MAY BE DISPENSED WITH ............................................................................................................................................................... 109
WHEN INSTRUMENT DISHONORED BY NON-PAYMENT ...................................................................................................................................................... 110
LIABILITY OF PERSON SECONDARILY LIABLE, WHEN INSTRUMENT DISHONORED............................................................................................................ 111
TIME OF MATURITY ................................................................................................................................................................................................................ 111
TIME; HOW COMPUTED ........................................................................................................................................................................................................ 111
RULE WHERE INSTRUMENT PAYABLE AT BANK ................................................................................................................................................................... 112
WHAT CONSTITUTES PAYMENT IN DUE COURSE................................................................................................................................................................. 112
VII. NOTICE OF DISHONOR ..........................................................................................................................................113

TO WHOM NOTICE OF DISHONOR MUST BE GIVEN ............................................................................................................................................................ 113
BY WHOM GIVEN.................................................................................................................................................................................................................... 114
NOTICE GIVEN BY AGENT ....................................................................................................................................................................................................... 115
EFFECT OF NOTICE GIVEN ON BEHALF OF HOLDER ............................................................................................................................................................. 115
EFFECT WHERE NOTICE IS GIVEN BY PARTY ENTITLED THERETO ....................................................................................................................................... 115
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WHEN AGENT MAY GIVE NOTICE .......................................................................................................................................................................................... 116
WHEN NOTICE SUFFICIENT .................................................................................................................................................................................................... 116
FORM OF NOTICE ................................................................................................................................................................................................................... 116
TO WHOM NOTICE MAY BE GIVEN ....................................................................................................................................................................................... 117
SECTION 98.Notice Where Party is Dead .............................................................................................................................................................................. 117
NOTICE TO PARTNERS ............................................................................................................................................................................................................ 118
NOTICE TO PERSONS JOINTLY LIABLE ................................................................................................................................................................................... 118
NOTICE TO BANKRUPT ........................................................................................................................................................................................................... 118
TIME WITHIN WHICH NOTICE MUST BE GIVEN.................................................................................................................................................................... 118
WHERE PARTIES RESIDE IN SAME PLACE .............................................................................................................................................................................. 119
WHERE PARTIES RESIDE IN DIFFERENT PLACES ................................................................................................................................................................... 119
WHEN SENDER DEEMED TO HAVE GIVEN DUE NOTICE ...................................................................................................................................................... 120
DEPOSIT IN POST-OFFICE; WHAT CONSTITUTES .................................................................................................................................................................. 121
NOTICE OF SUBSEQUENT PARTY; TIME OF ........................................................................................................................................................................... 121
WHERE NOTICE MUST BE SENT ............................................................................................................................................................................................. 121
WAIVER OF NOTICE ................................................................................................................................................................................................................ 121
WHOM AFFECTED BY WAIVER .............................................................................................................................................................................................. 122
WAIVER OF PROTEST.............................................................................................................................................................................................................. 122
WHEN NOTICE IS DISPENSED WITH ...................................................................................................................................................................................... 122
DELAY IN GIVING NOTICE; HOW EXCUSED ........................................................................................................................................................................... 123
WHEN NOTICE NEED NOT BE GIVEN TO DRAWER ............................................................................................................................................................... 123
WHEN NOTICE NEED NOT BE GIVEN TO INDORSER............................................................................................................................................................. 124
NOTICE OF NON-PAYMENT WHERE ACCEPTANCE REFUSED .............................................................................................................................................. 124
EFFECT OF OMISSION TO GIVE NOTICE OF NON-ACCEPTANCE .......................................................................................................................................... 125
WHEN PROTEST NEED NOT BE MADE; WHEN MUST BE MADE .......................................................................................................................................... 125
VIII. DISCHARGE OF NEGOTIABLE INSTRUMENTS........................................................................................................126

INSTRUMENT; HOW DISCHARGED ........................................................................................................................................................................................ 126
WHEN PERSONS SECONDARILY LIABLE ON, DISCHARGED .................................................................................................................................................. 129
RIGHT OF PARTY WHO DISCHARGES INSTRUMENT ............................................................................................................................................................. 130
RENUNCIATION BY HOLDER .................................................................................................................................................................................................. 131
CANCELLATION; UNINTENTIONAL; BURDEN OF PROOF...................................................................................................................................................... 132
ALTERATION OF INSTRUMENT; EFFECT OF .......................................................................................................................................................................... 132
PNB vs CA .............................................................................................................................................................................................................................................................132
MONTINOLA V. PNB ............................................................................................................................................................................................................................................135
WHAT CONSTITUTES A MATERIAL ALTERATION .................................................................................................................................................................. 136
IX. BILLS OF EXCHANGE: FORM AND INTERPRETATION...............................................................................................137

BILL OF EXCHANGE, DEFINED ................................................................................................................................................................................................ 137
BILL NOT AN ASSIGNMENT OF FUNDS IN HANDS OF DRAWEE .......................................................................................................................................... 137
BILL ADDRESSED TO MORE THAN ONE DRAWEE ................................................................................................................................................................. 137
INLAND AND FOREIGN BILLS OF EXCHANGE ........................................................................................................................................................................ 138
WHEN BILL MAY BE TREATED AS PROMISSORY NOTE......................................................................................................................................................... 138
REFEREE IN CASE OF NEED..................................................................................................................................................................................................... 139
X. ACCEPTANCE ..........................................................................................................................................................139
ACCEPTANCE; HOW MADE, AND SO FORTH ........................................................................................................................................................................ 139
HOLDER ENTITLED TO ACCEPTANCE ON FACE OF BILL ........................................................................................................................................................ 140
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ACCEPTANCE BY SEPARATE INSTRUMENT ........................................................................................................................................................................... 141
PROMISE TO ACCEPT; WHEN EQUIVALENT TO ACCEPTANCE ............................................................................................................................................. 141
TIME ALLOWED DRAWEE TO ACCEPT ................................................................................................................................................................................... 141
LIABILITY OF DRAWEE RETAINING OR DESTROYING BILL .................................................................................................................................................... 142
ACCEPTANCE OF INCOMPLETE BILL ...................................................................................................................................................................................... 143
KINDS OF ACCEPTANCE .......................................................................................................................................................................................................... 143
WHAT CONSTITUTES A GENERAL ACCEPTANCE ................................................................................................................................................................... 143
QUALIFIED ACCEPTANCE........................................................................................................................................................................................................ 143
RIGHTS OF PARTIES AS TO QUALIFIED ACCEPTANCE ........................................................................................................................................................... 144
XI. PRESENTMENT FOR ACCEPTANCE..........................................................................................................................144

WHEN PRESENTMENT FOR ACCEPTANCE MUST BE MADE ................................................................................................................................................. 144
WHEN FAILURE TO PRESENT RELEASES DRAWER AND INDORSER ..................................................................................................................................... 145
PRESENTMENT; HOW MADE ................................................................................................................................................................................................. 145
ON WHAT DAYS PRESENTMENT MAY BE MADE .................................................................................................................................................................. 147
PRESENTMENT WHERE TIME IS INSUFFICIENT .................................................................................................................................................................... 147
WHERE PRESENTMENT IS EXCUSED ...................................................................................................................................................................................... 147
WHEN DISHONORED BY NON-ACCEPTANCE ........................................................................................................................................................................ 147
DUTY OF HOLDER WHERE BILL NOT ACCEPTED ................................................................................................................................................................... 147
RIGHT OF HOLDER WHERE BILL NOT ACCEPTED .................................................................................................................................................................. 148
XII. PROTEST ...............................................................................................................................................................148

IN WHAT CASES PROTEST NECESSARY .................................................................................................................................................................................. 148
PROTEST; HOW MADE ........................................................................................................................................................................................................... 149
PROTEST; BY WHOM MADE................................................................................................................................................................................................... 149
PROTEST; WHEN TO BE MADE .............................................................................................................................................................................................. 150
PROTEST; WHERE MADE ........................................................................................................................................................................................................ 150
PROTEST BOTH FOR NON-ACCEPTANCE AND NON-PAYMENT ........................................................................................................................................... 150
PROTEST BEFORE MATURITY WHERE ACCEPTOR INSOLVENT ............................................................................................................................................ 150
WHEN PROTEST DISPENSED WITH ........................................................................................................................................................................................ 151
PROTEST WHERE BILL IS LOST, AND SO FORTH.................................................................................................................................................................... 151
XIII. ACCEPTANCE FOR HONOR ...................................................................................................................................151

WHEN BILL MAY BE ACCEPTED FOR HONOR ........................................................................................................................................................................ 151
ACCEPTANCE FOR HONOR; HOW MADE .............................................................................................................................................................................. 152
WHEN DEEMED TO BE AN ACCEPTANCE FOR HONOR OF THE DRAWER ........................................................................................................................... 152
LIABILITY OF THE ACCEPTOR FOR HONOR ............................................................................................................................................................................ 152
AGREEMENT OF ACCEPTOR FOR HONOR ............................................................................................................................................................................. 153
MATURITY OF BILL PAYABLE AFTER SIGHT; ACCEPTED FOR HONOR ................................................................................................................................. 153
PROTEST OF BILL ACCEPTED FOR HONOR, AND SO FORTH ................................................................................................................................................ 153
PRESENTMENT FOR PAYMENT TO ACCEPTOR FOR HONOR, HOW MADE ......................................................................................................................... 153
WHEN DELAY IN MAKING PRESENTMENT IS EXCUSED ....................................................................................................................................................... 153
DISHONOR OF BILL BY ACCEPTOR FOR HONOR ................................................................................................................................................................... 154
XIV. PAYMENT FOR HONOR ........................................................................................................................................154

WHO MAY MAKE PAYMENT FOR HONOR ............................................................................................................................................................................ 154
PAYMENT FOR HONOR; HOW MADE .................................................................................................................................................................................... 154
DECLARATION BEFORE PAYMENT FOR HONOR ................................................................................................................................................................... 154
PREFERENCE OF PARTIES OFFERING TO PAY FOR HONOR .................................................................................................................................................. 155
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EFFECT ON SUBSEQUENT PARTIES WHERE BILL IS PAID FOR HONOR ................................................................................................................................ 155
WHERE HOLDER REFUSES TO RECEIVE PAYMENT SUPRA PROTEST ................................................................................................................................... 156
RIGHTS OF PAYER FOR HONOR ............................................................................................................................................................................................. 156
XV. BILLS IN A SET .......................................................................................................................................................156

BILLS IN SETS CONSTITUTE ONE BILL .................................................................................................................................................................................... 156
RIGHTS OF HOLDERS WHERE DIFFERENT PARTS ARE NEGOTIATED ................................................................................................................................... 156
LIABILITY OF HOLDER WHO INDORSES TWO OR MORE PARTS OF A SET TO DIFFERENT PERSONS ................................................................................. 156
ACCEPTANCE OF BILLS DRAWN IN SETS ............................................................................................................................................................................... 157
PAYMENT BY ACCEPTOR OF BILLS DRAWN IN SETS ............................................................................................................................................................. 157
EFFECT OF DISCHARGING ONE OF A SET .............................................................................................................................................................................. 157
XVI. PROMISSORY NOTES AND CHECKS ......................................................................................................................157

PROMISSORY NOTE, DEFINED ............................................................................................................................................................................................... 157
CHECK, DEFINED ..................................................................................................................................................................................................................... 159
STATE INVESTMENT HOUSE VS COURT OF APPEALS ........................................................................................................................................................................................161
BATAAN CIGAR VS COURT OF APPEALS .............................................................................................................................................................................................................162
CITYTRUST BANKING CORP VS INTERMEDIATE APPELLATE COURT ................................................................................................................................................................162
TAN VS. COURT OF APPEALS ..............................................................................................................................................................................................................................163
WITHIN WHAT TIME A CHECK MUST BE PRESENTED .......................................................................................................................................................... 165

PAPA vs. AU VALENCIA AND CO. ........................................................................................................................................................................................................................165
CERTIFICATION OF CHECK; EFFECT OF .................................................................................................................................................................................. 167

EFFECT WHERE THE HOLDER OF CHECK PROCURES IT TO BE CERTIFIED ........................................................................................................................... 167
WHEN CHECK OPERATES AS AN ASSIGNMENT .................................................................................................................................................................... 168
XVII. GENERAL PROVISIONS ........................................................................................................................................168

REASONABLE TIME, WHAT CONSTITUTES ............................................................................................................................................................................ 168
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THE NEGOTIABLE INSTRUMENTS LAW: (Act No. 2031)

INTRODUCTION
Discuss briefly the history of Negotiable Instruments Law: The Negotiable Instruments Law of the Philippines
was patterned after the draft approved by the Commissioners on Uniform State laws in the United States which
was patterned after the Bills of Exchange Act of England which was codified in that country in 1882.
Prior to the Bills of Exchange Act in 1882, from what law did the English people patterned the said act? From
the law of merchants. The English copied this law and codified it under the Bills of Exchange Act. Then it was
copied by the United States of America until such time that they decided a unified Negotiable Instruments Law.
Since the Philippines was under the dominion of the USA at that time, we patterned our NIL from their unified
NIL.
What are the governing laws of Negotiable Instruments in the Philippines?
(1) Act No. 2031 (which was enacted on February 3, 1911 and took effect 90 days after its publication was
completed. This was on March 4, 1911 and therefore, the Act took effect on June 2, 1911.)
(2) The Code of Commerce (those provisions which were not repealed by the passage of the New Civil Code)
(2) New Civil Code (applied suppletorily to the NIL)
Why is it important for us to determine the origin of the NIL?
It is important because in interpreting our NIL, the courts, particularly our Supreme Court, may consult English
or American jurisprudence, in instances where there are vague provisions in our NIL. The English and American
NIL laws are our main sources of the NIL.
What are the common forms or kinds of negotiable instruments? These are: (1) promissory notes, (2) bills of
exchange, and (3) checks, which are a special kind of a bills of exchange.
*What is a negotiable promissory note? It 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.
Give an example of a promissory note:
P10,000
Cebu City, Philippines
December 1, 2013
For value received, I promise to pay to the order of Jo Black the sum of Ten Thousand Pesos (P10,000) on or
before December 31, 2014 at the River Bank, Cebu City.
(Sgd.) Chris Brown
What are the general characteristics of a promissory note:
(1) The promise, I promise to pay consists of an absolute promise to pay. It is not subject to the fulfillment of a
condition.
(2) The words to the order of means that the promise is to pay as ordered or commanded by the payee. But an
instrument may be payable to bearer.
(3) The name Jo Black is the person whose order of command the money is promised to be paid. He is known
as the payee.
(4) The signature Chris Brown is made by the maker of the note. He is the one who promised to pay it at the
first instance.
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(5) The amount Ten Thousand Pesos indicates, as the figures do, the sum to be promised to be paid. As it is
written in words, it cannot be easily altered and since it takes longer to write in words than the figures, the
words are more likely to be accurate.
What are the elements of negotiability? 1) It must be in writing and signed by the maker or drawer; 2) Must
contain an unconditional promise or order to pay a sum certain in money; 3) Must be payable on demand, or
at a fixed or determinable future time; 4) Must be payable to order or to bearer; and 5) Where the instrument
is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.
What are the special kinds of promissory notes? Bank notes, Bonds, certificate of deposit, due bills.
What are bank notes? They are promissory notes of the issuing bank payable to bearer on demand and
intended to circulate as money. They are regarded as cash and pass from hand to hand without any evidence of
title in the holder than that which arises from possession. However, they are not money.
What is a bond? It is promise, under seal, to pay money. It may also be defined as a series of instruments
representing unites of indebtedness regarded as parts of one entire debt. The bond certifies that the issuing
company is indebted to the bondholder for the amount specified on the face of the bond and contains an
agreement of the company to pay a specified interest on the principal amount at regular intervals. Bonds are
negotiable if they conform with Section 1 of the NIL.
Is it the same bond you issue to NLRC in order to perfect an appeal? No because the purpose of that bond is to
pay the claims of the workers in case your appeal is dismissed while the bond in the concept of negotiable
instrument is a promise, under seal, to pay money.
What is a certificate of deposit? It is a 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. It is not ipso facto a
negotiable instrument. To be such, it must conform to Section 1 of the NIL.
What is a due bill? It is an instrument whereby one person acknowledges his indebtedness to another. If it
conforms with Section 1 of the NIL, a due bill is considered a negotiable promissory note.
Give an example of a due bill: Due B, P200, payable to his order. (Sgd.) A
*What is a bill of exchange?
It 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.
Give an example of a bill of exchange:
P10,000
Cebu City, Philippines
December 1, 2013
Thirty days after sight, pay to the order of Pedro Alamban, the sum of Ten Thousand Pesos (P10,000). Value
received and charge the same to the account of
(Sgd.) Ernesto Reyes
To Augusto Tolentino
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What are the characteristics of a bill of exchange?
(1) The order or command to pay Pay to. This is an order or command to pay.
(2) The signature, Ernesto Reyes. He is the drawer.
(3) The name Augusto Tolentino. He is the drawee, i.e., the one ordered or commanded to pay a sum certain
in money.
Distinguished between a bill of exchange and a promissory note:
Bill of Exchange
As to the number of parties:
3 (drawer, drawee, payee)
As to the unconditional thing to It is an unconditional order or a
do
command
As to the person who executes
The drawer
the written order or promise:
As to whose primarily liable:
The drawee
As to the number of
2 (presentment for acceptance,
presentments:
presentment for payment)
Promissory Note
2 (maker, payee)
It is an unconditional promise
The maker
The maker
1 (presentment for payment)
What are the special types of bills of exchange?

(1) bankers acceptance
(2) draft
(3) money orders
(4) trade acceptance
(5) treasury warrants
(6) clean bill of exchange
What is a bankers acceptance? It is a bill of exchange of which the acceptor is a bank or banker engaged
generally in the business of granting bankers acceptance credit. It is similar to a trade acceptance, the
fundamental difference being that the bankers acceptance is drawn against the bank instead of the buyer.
What is a money order? A species of draft drawn by the post-office upon another for an amount of money
deposited at the first office by the person purchasing the money order and payable at the second office to payee
named in the order.
Is a money order negotiable? Postal money orders are not negotiable instruments because in establishing and
operating a postal money order system, the government is not engaging in commercial transactions but merely
exercises a governmental power for the public benefit.
What is a draft? It is a common term for all bills of exchange and they are used synonymously.
What is a trade acceptance? It is a bill of exchange drawn by the seller on the buyer of goods sold and
accepted by such buyer. It is a negotiable instrument because it complies with the requisites under the
Negotiable Instruments Law.
What is a treasury warrant? It is actually an order for payment out of a particular fund and is not unconditional
and does not fulfill one of the essential requirements of a negotiable instrument, i.e, the unqualified order or
promise to pay must be unconditional and an order or promise to pay out of a particular fund is not
unconditional. Treasury warrants are paid out of a particular fund, i.e., Fund 501 which makes it not
unconditional. This is a non-negotiable instrument.
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What is a clean bill of exchange? Is one to which are not attached documents of title to be delivered to the
person against whom the bill is drawn when he either accepts or pays the bill.
PHILIPPINE EDUCATION CO vs MAURICIO SORIANO
FACTS: Enrique Montinola sought to purchase from Manila Post Office ten money orders. He managed to steal
such checks and a message was sent to instruct all banks that it must not pay for the money order stolen.
Philippine Education Co received one of the above mentioned money orders as part of its sales receipts. The
following day it deposited the same with the Bank of America, and one day thereafter the latter (BA) cleared it.
After learning that the money order had been irregulary issued, the Money Order Division deducted BAs
clearing and the latter, in turn, debited appellants account.
ISSUE: Whether or not the postal money order in question is a negotiable instrument.
HELD: Postal money orders are not negotiable instruments, the reason behind this rule being that, in
establishing and operating a postal money order system, the government is not engaging in commercial
transactions but merely exercises a governmental power for the public benefit.
Moreover, there are provisions in the postal money order law of the Philippines which are not in consonance
with our Negotiable Instruments Law. For instance, such laws and regulations usually provide for not more than
one endorsement. While under our NIL, endorsements are allowed for a number of times.
What is a time bill? It is a bill which is payable at a fixed future time or at a determinable future time.
What is an inland bill? It is a bill of exchange which is both drawn and payable within the Philippines.
What is a foreign bill? A bill which on its face purports to be drawn and payable outside the Philippines. Any bill
which does not fit the specification of an inland bill.
What if it is drawn in the Philippines but payable outside the Philippines? It is still a foreign bill.
What if it is drawn outside the Philippines but payable in the Philippines? It is still a foreign bill.
What is a check? A bill of exchange drawn on a bank payable on demand.
What are the general characteristics of a check?
1) There is an order or command to pay;
2) There is a signature of the drawer;
3) The name of the Bank who is ordered or commanded to pay a sum certain in money.
What are the special types of checks? The following are special types of checks:
1) cashiers check
2) managers check
3) memorandum check
4) certified check
5) crossed check
What is a cashiers check? It is one drawn by the cashier of a bank in the name of the bank against the bank
itself payable to a third person or order. There is an assurance that the check is funded.
Page 11

What is a managers check? It is a check drawn by the manager of a bank in the name of the bank against the
bank itself. It is similar to the cashiers check as to effect and use. It is negotiable because it complies with the
requisites on forms under the Negotiable Instruments Law.
What is a memorandum check? A check on which is written the word memorandum, memo and mem,
signifying that the drawer engages to pay the bona fide holder absolutely and not upon a condition to pay
upon presentment and non-payment. It is given by the borrower to the lender as evidence of his indebtedness.
What is the purpose of a memorandum check? It is one of the securities given to the lender by the borrower. It
is not supposed to be presented for payment. It is simply an evidence of the borrowers indebtedness.
Can the lender still present it for payment? Yes, it can be presented for payment.
Can the borrower, as a matter of defense in a BP 22 case, say that is it just a memorandum check, that it is not
supposed to be presented for payment? No, it is not a matter of defense. He can still be held liable under BP 22.
What is the purpose of BP 22? The purpose is to punish those who issue checks with insufficient fund.
What is a certified check? A check on which the drawee bank has written an agreement whereby it undertakes
to pay the check at any future time when presented for payment such as, by stamping on the check the word
certified and underneath it is written the signature of the cashier.
What is cross check? It is a check where there is stamped across the face of the check the name of a certain
banker through whom it must be presented for payment, and if presented by any one else, it will not be
honored.
How is the crossing of check done? Crossing of the check is usually done by drawing parallel lines transversally
on the face of the check. A check may be crossed 1) specially or 2) generally.
What is the purpose of crossing the check For security reasons, it gives assurance to the drawer that it will be
paid to the rightful owner especially when it is to be forwarded by mail or when it is entrusted to any agent.
Is a cross-check a negotiable instrument? Yes, because such complies with the requirements on negotiable
instrument under Section 1 of the NIL.
How about a warehouse receipt, is it a negotiable instrument? No, it is not a negotiable instrument because a
warehouse instrument represent goods, not money.
What about pawn tickets (papel de agencia)? No, it is not a negotiable instrument because pawn tickets
represent the pawned item(s), not the money.
What about a bill of lading? No, it is not a negotiable instrument because a bill of lading represents goods, not
money.
What about trust receipt? No, it is not a negotiable instrument because it is an evidence of ownership.
Page 12

Distinctions between a check and a bill of exchange. (add as to)
CHECK
BILL OF EXCHANGE
A check is always drawn upon a bank or banker
An ordinary bill may or may not be drawn against a
bank.
A check is always payable on demand
An ordinary bill may be payable on demand or at a
fixed or determinable future time.
A check is not necessarily presented for acceptance.
An ordinary bill must be presented for acceptance.
Not to be accepted but presented at once for
payment. (However, if the holder requests, and the
banker desires, he may accept.)
A check is drawn on a deposit. The drawer must have An ordinary bill is not drawn on a deposit. In other
funds in the hands of the drawee, otherwise it would
words, it is not necessary that a drawer of a bill of
be fraud.
exchange should have funds in the hands of a drawee.
The death of the drawer of a check, with knowledge
The death of a drawer of a bill of exchange, with
by the banks, revokes the authority of the banker to
knowledge by the banks, does not revoke the
pay.
authority of the banker to pay.
A check must be presented for payment within a
A bill of exchange may be presented for payment
reasonable time after its issue.
within a reasonable time after its last negotiation.
What is a negotiable instrument? It is a written contract for a payment of money which is intended as a
substitute for money in such a way as to make the holder, as a holder in due course, free from personal
defenses.
What is negotiation? It is such transfer of an instrument from one person to another as to constitute the
transferee the holder of the instrument.
What is negotiability? It is an attribute or property whereby a bill, note or check passes or may pass from hand
to hand similar to money, so as to give the holder in due course the right to hold the instrument and collect the
sum payable for himself free from defense.
What is the purpose of negotiability? The primary purpose of negotiability of a negotiable instrument is to
allow bills and notes the effect which money, in the form of government bills or notes, supplies in the
commercial world.
What is a holder? A holder is the payee or endorsee of a bill or note who is in possession of it or the bearer
thereof.
I. FORM AND INTERPRETATION

SECTION 1.Form of Negotiable Instruments. An instrument to be negotiable must conform to the following
requirements:
1) It must be in writing and signed by the maker or drawer;
2) Must contain an unconditional promise or order to pay a sum certain in money;
3) Must be payable on demand, or at a fixed or determinable future time;
4) Must be payable to order or to bearer; and
5) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.
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How do you determine the negotiability of an instrument The negotiability of an instrument is to be
determined: 1) by the provisions of the Negotiable Instruments Law, particularly Section 1 thereof; 2) by
considering the whole of the instrument; and 3) by what appears on the face of the instrument and not
elsewhere.
Is there a need for you to consider external documents in determining the negotiability of an instrument? No
need to trace other documents. You only limit you examination on the negotiability on the face of the document
itself. We use negotiable instruments in lieu of using money, for example in a promissory note we need look into
or inquire into the loan agreement. In fact you cannot demand from the person issuing the negotiable
instrument any documents to prove the validity of sufficiency of the negotiable instrument.
CALTEX vs CA
FACTS: On various dates, Security Bank and Trust Co issued 280 certificates of time deposit (CTD) in favor of one
Angel dela Cruz who deposited with the bank the aggregate amount of P1.12 million. Anger de la Cruz delivered
the CTDs to Caltex in connection with his purchase of fuel products from the latter. Subsequently, dela Cruz
informed the bank that he lost all the CTDs, and thus executed an affidavit of loss to facilitate the issuance of the
replacement CTDs. De la Cruz was able to obtain a loan of P875,000 from the bank, and in turn, he executed a
notarized Deed of Assignment of Time Deposit in favor of the bank. Thereafter, Caltex presented for verification
the CTDs (which were declared lost by de la Cruz) with the bank. Caltex formally informed the bank of its
possession of the CTDs and its decision to preterminate the same. The bank rejected Caltex claim and demand,
after Caltex failed to furnish copy of the requested documents evidencing the guarantee agreement, etc. In
1983, de la Cruz loan matured and the bank set-off and applied the time deposits as payment for the loan.
Caltex filed the complaint, but which was dismissed.
ISSUE 1: Whether or not the Certificate of Time Deposits in question are negotiable
ISSUE 2: Whether the CTDs negotiation require delivery only.
HELD: ISSUE 1: Yes, the CTDs in question are negotiable instruments. Section 1 of NIL enumerates the requisites
for an instrument to become negotiable and the CTDs in question undoubtedly meet the requirements of the
law for negotiability. The negotiability or non-negotiability of an instrument is determined from the writing,
that is, from the face of the instrument itself. In the construction of a bill or note, the intention of the parties is
to control, if it can be legally ascertained. The duty of the court in such case is to ascertain, not what the
parties may have secretly intended as contradistinguished from what their words express, but what is the
meaning of the words they have used.
ISSUE 2: Although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and
agreement between it (Caltex) and de la Cruz requires both delivery and indorsement; as the CTDs were
delivered to it as security for dela Cruz purchases of its fuel products, and not for payment. Herein, there was
no negotiation in the sense of a transfer of title, or legal title, to the CTDs in which situation mere delivery of the
bearer CTDs would have sufficed. The delivery thereof as security for the fuel purchases at most constitutes
Caltex as a holder for value by reason of his lien.
Is a Certificate of Time Deposit negotiable? It depends. In the case of Caltex vs CA, the court held the CTD as
negotiable.
What are the governing laws on negotiable instruments? Act No 2031 (Negotiable Instruments Law); Code of
Commerce whose provisions are not conflict with the Negotiable Instruments Law; Civil Code (suppletory)
Distinguished ordinary check from memorandum check
Page 14

Ordinary check
As to form and appearance
As to purpose
For payment
As to the steps taken before the

holder can maintain an action
against the drawer
Demand for payment and a

refusal on the part of the
bank
Memorandum check
The word memorandum written upon
the check describes the nature of the
contract
Does not differ from an ordinary check
except the word memorandum, mem
or memo is written upon its face.
Given by the drawer to the payee as
memorandum of indebtedness
The drawer may be sued the same as
upon a promissory note
What are the FUNCTIONS of negotiable instruments?

1) They are a substitute for money.
2) They increase the purchasing medium in circulation.
3) They facilitate the sale of goods.
4) They operate to supplement the currency of the government.
5) They are a means of creating and transferring credit.
Is giving and taking of negotiable instrument or managers check considered as absolute payment as in case of
money? No, because a negotiable instrument is not a legal tender, it is merely a prima facie conditional
payment. The delivery of promissory notes payable to order or bills of exchange shall produce the effect of
payment only when they have been cashed or when through the fault of the creditor, they have been
impaired. In the meantime, the action derived from the original obligation shall be held in abeyance.
What is legal tender? That kind of money which the law compels a creditor to accept in payment for his debt
when tendered by the debtor in the right amount.
What are the two principal FEATURES of negotiable instrument?
1) Negotiability
2) Accumulation of secondary contracts as they are transferred from one person to another.
What is the concept of negotiability? It is that attribute or property whereby a bill, note or check passes from
hand to hand similar to money, so as to give the holder in due course the right to hold the instrument and
collect the sum payable for himself free from defense. The defenses from which a holder in due course is free
are personal defenses but he is not free from real defenses.
What is the purpose of negotiability? The primary purpose of negotiability of negotiable instrument is to allow
bills and notes the effect which money, in the form of government bills or notes, supplies in the commercial
world.
Illustration of negotiability. (1) A induces B by fraud to make a promissory note payable to the order of A in the
sum of P1000.00 payable on demand. This is fraud in inducement which is a personal defense. If A files an
action against the maker B for the amount, B can interpose the defense that he was induced to make the note
by fraud and that he did not receive any valuable consideration for it. (2) But suppose that instead of trying to
collect from B, A transfers the note to C, who pays P1000.00 and acquires the note under circumstances that
make him a holder in due course. And then C files an action against B for P1000.00. If the note were not
negotiable, B can still interpose the same defense that he could interpose against A. But if the note is
Page 15

negotiable, B cannot interpose the personal defense of fraud, because C as a holder in due course has the
right to hold the instrument and collect the sum payable regardless of defenses which might obtain between
the original parties.
What is accumulation of secondary contracts A characteristic of a negotiable instrument in which secondary
contracts are picked and carried along with them as they are negotiated from one person to another. This
attribute is just as essential as negotiability, if they are to serve as substitute for money. The party to whom it is
offered may not know anything about the original parties on their solvency and can afford to take the paper only
if the party with whom he is dealing with adds his credit.
A B CD; B to C and C to D are the secondary contracts. From whom should D collect the amount? D
must present the instrument to A, the maker, who is primarily liable. If, however, A cannot pay, who shall D
make liable? First with C, where a secondary contract was created between them. If however, C cannot pay, C
can enforce the instrument against B whom C created a secondary contract with.
What is the advantage of accumulation of secondary contracts? The negotiable instruments improve as they
pass from hand to hand, as more debtors are added. There are as many secondary contracts and debtors as the
endorsements. The more endorsements, the more debtors there will be, and the more debtors there are, the
greater the chances that the holder has to collect the amount payable on the instrument.
Differentiate negotiability from assignability.
Negotiability
negotiability pertains only to a special class of
contracts, namely, to negotiable instruments.
a person who takes an instrument by negotiation takes
it free from the personal defenses available among the
parties.
The endorser is not liable on his endorsement unless
there be presentment for payment at maturity and
prompt notice of dishonor in case of dishonor. When
these steps are taken, he becomes immediately liable
on the instrument. The general endorser is secondarily
liable for any cause which the party primarily liable on
a negotiable instrument does not or cannot pay. He
warrants the solvency of the party primarily liable. The
qualified endorser and the person negotiating by mere
delivery have a limited secondary liability.
Assignability
Assignability is a more comprehensive term than
negotiability and pertains to contracts in general.
A person who takes an instrument by assignment takes
the instrument subject to the defenses obtaining
among the original parties
The assignor in good faith, does not warrant the
solvency of the debtor unless it has been expressly
stipulated or unless the insolvency was prior to the
assignment and of common knowledge. He merely
warrants the existence and legality of the credit
assigned at the time of the assignment.
SESBREO vs CA
FACTS: Raul Sesbreo made a money market placement in the amount of P300,000.00 with Philfinance.
Philfinance delivered to Raul Sesbreo a Denominated Custodian Receipt, issued by Pilipinas Bank, indicating
both their custody of the Delta Motors promissory note and to undertake the physical delivery of the promissory
note upon its maturity.
However when Raul Sesbreo made demands to Pilipinas Bank for the physical delivery of the promissory note,
the latter allowed Raul to examine the note which on its face has the stamp NON-NEGOTIABLE, but did not
release the the same as the note has yet to mature. When Raul made demand after the note matured, Pilipinas
Bank simply referred the matter to Philfinance for written instructions. Raul also made demands to Delta Motors
Page 16

for the partial satisfaction of the promissory note, but the latter denied any liability claiming that it had
previously agreed with Philfinance to offset its promissory note against another issued by Philfinance in favor of
Delta Motors.
ISSUE 1: Whether or not negotiability is the same as assignability.
ISSUE 2: Whether or not Pilipinas Bank is liable.
HELD: ISSUE 1: No. Only an instrument qualifying as a negotiable instrument may be negotiated either by
endorsement coupled with delivery, or by delivery alone where the negotiable instrument is in bearer form. A
negotiable instrument may, instead of being negotiated, also be assigned or transferred. The legal
consequences of negotiation as distinguished from assignment of a negotiable instrument are, of course,
different. A non-negotiable instrument may, obviously, not be negotiated; but it may be assigned or transferred,
absent an express prohibition against assignment or transfer written in the face of the instrument.
In the instant case while the Delta Motors promissory note is marked "non-negotiable," was not at the same
time stamped "non-transferrable" or "non-assignable." It contained no stipulation which prohibited Philfinance
from assigning or transferring, in whole or in part, that Note. The assignment effected by Philfinance in favor of
Raul Sesbreo was a valid one and that Raul accordingly became owner of the Delta Motor promissory note to
the extent of the portion thereof assigned to him.
ISSUE 2: Yes. While there is nothing in the Denominated Custodian Receipt that establishes an obligation on the
part of Pilipinas to pay Raul, Pilipinas had breached its undertaking under the DCR to Sesbreo. A contract of
deposit was constituted by the act of Philfinance (who assigned such rights to Raul) in designating Pilipinas as
custodian or depositary bank. The depositary in a contract of deposit is obliged to return the security or the
thing deposited upon demand of the depositor (or, in the present case, of the beneficiary) of the contract, even
though a term for such return may have been established in the said contract.
In the instant case, Pilipinas bank refused to deliver the security deposited with it when Sesbreo first
demanded physical delivery. Therefore, Pilipinas bank must respond to petitioner for damages sustained by him
arising out of its breach of duty. This is without prejudice to such right of reimbursement as Pilipinas may have
vis-a-vis Philfinance.
What was the reason given by the Delta Motors in refusing to honor the promissory note? The promissory
note was not intended to be negotiated as manifested by the word "non-negotiable" stamp across the face of
the Note and because Delta and Philfinance intended the note to be offset against the outstanding obligation of
Philfinance represented by a promissory note issued to Delta as payee;
Who was held to be liable in this case? Pilipinas Bank for damages. Ultimately, according to the Supreme
Court, who should be made liable? Philfinance.
METROBANK vs CA
FACTS: Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38
treasury warrants with a total value of P1,755,228.37. All these warrants were subsequently endorsed by Gloria
Castillo as Cashier of Golden Savings and deposited to its Savings Account in the Metrobank. Due to the
repeated inquiries of Gloria and as an accomodation for a valued client, Metrobank allowed Golden Savings to
withdraw from the proceeds of the warrants before the same was cleared. Golden Savings subsequently allowed
Gomez to make withdrawals from his own account. Metrobank informed Golden Savings that 32 of the warrants
had been dishonored by the Bureau of Treasury and demanded the refund by Golden Savings of the amount it
Page 17

had previously withdrawn, to make up the deficit in its account. The demand was rejected. Metrobank then
sued Golden Savings.
ISSUE 1: Whether or not treasury warrants are negotiable instruments.
ISSUE 2: Whether or not Metrobank can demand refund from Golden Savings
HELD: ISSUE 1: No. The treasury warrants in question are not negotiable instruments. Clearly stamped on their
face is the word "non-negotiable." Moreover, and this is of equal significance, it is indicated that they are
payable from a particular fund, to wit, Fund 501. Under the NIL law, an instrument to be negotiable must
contain an unconditional promise or order to pay a sum certain in money; But an order or promise to pay out of
a particular fund is not unconditional.
The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order
or promise to pay "not unconditional" and the warrants themselves non-negotiable.
ISSUE 2: The amount Gomez has withdrawn must be charged not to Golden Savings but to Metrobank, which
must bear the consequences of its own negligence. But the balance should be debited to Golden Savings, as
obviously Gomez can no longer be permitted to withdraw this amount from his deposit because of the dishonor
of the warrants. To also credit the balance to Golden Savings would unduly enrich it at the expense of
Metrobank, let alone the fact that it has already been informed of the dishonor of the treasury warrants.
Distinctions between a negotiable instrument and a non-negotiable instrument
NEGOTIABLE INSTRUMENT
NON-NEGOTIABLE INSTRUMENT
May be negotiated either by endorsement thereof
A non-negotiable instrument may not be negotiated;
coupled with delivery, or by delivery alone where the
May be assigned or transferred, absent an express
negotiable instrument is in bearer form. A negotiable
prohibition against assignment or transfer written in
instrument may also be assigned or transferred.
the face of the instrument.
A person who takes an instrument by negotiation
A party who takes an instrument by assignment takes
takes it free from the personal defenses available
the instrument subject to the defenses obtaining
among the parties.
between the original parties.
The general endorser is secondarily liable for any
The assignor does not warrant the solvency of the
cause for which the party primarily liable on a
debtor unless it has been expressly stipulated or
negotiable instrument does not or cannot pay. He
unless the insolvency was prior to the assignment and
warrants the solvency of the party primarily liable.
of common knowledge. He merely warrants the
The qualified endorser and the person negotiating by
existence and legality of the credit assigned at the
mere delivery have a limited secondary liability.
time of the assignment.
A negotiable instrument is governed by the The
A non-negotiable instrument is governed by the
Negotiable Instruments Law (Act No. 2031)
provisions on contracts under the New Civil Code.
A holder of a negotiable instrument may be a holder
The assignee is merely substituted in the place of the
in due course who takes an instrument free from
assignor and that the assignee acquires his rights
personal defenses.
subject to the equities i.e., the defenses which
the debtor could have set up against the original
assignor before notice of the assignment was given to
the debtor.
The negotiable instrument must be in writing, is that correct? Yes, the instrument must be in writing. The
writing may be in ink, print, or pencil. It may be upon parchment, cloth, leather, or any other substitute of
paper.
Page 18

The instrument must be signed by the maker or drawer. The full name may be written. At least , the surname
should appear and generally the signature usually is by writing the signers name. But it may consist of mere
initials or even numbers such as 1,2, 8. But where the name is not the signed, the holder must prove that what
is written is intended as a signature of the person sought to be charged.
What is the important in affixing your signature? That the person making the signature is identified as the
maker or the drawer and such person intends it to be his own signature. stressed by Atty. Soleng
Where is the location of thesignature? The signature of the maker or drawer is usually written at the bottom
right hand corner. The location of the signature is not material. What is important is that it appears therefrom
that the person intended to make it his own.
Should the word order appear in the bill of exchange? Yes, it must contain an order to pay. A bill is something
more than the mere asking of a favor. It is an instrument demanding right. However, it is not necessary that
the word order should be used. Any words which are equivalent to an order or which show the drawers will
that the money should be paid are sufficient to make the instrument a bill of exchange.
I hereby authorize X or order to pay P1000 on account, is this instrument negotiable? It is not negotiable
because it is not an order to pay. It is a mere authorization to pay. By its term, the bill gives a discretion to the
drawee to pay or not to pay.
Please let Ms. Gaviola or order have P700 from my account and you will oblige, is this instrument negotiable?
This bill is not negotiable because it does not contain an order to pay. It is nothing but a mere request to pay.
Effect of mere words of civility. For example: Mr.Y will oblige Mr. X by paying Ms. Gaviola or order P1000 on
his account. This instrument is negotiable. The mere fact that is contains words of civility or courtesy does not
make it non-negotiable, as long as the bill still contains an order to pay. The words by paying are held
sufficient to import an order to pay.
Words of equivaIent meaning: I agree to pay to the sum of P1000 to X or order on demand, is that negotiable?
Yes, instead of the promise, the following words may be used: agree, will pay, shall pay and the like. In
the example, although it does not use the word promise, still the word agree means a promise to pay.
Effect of mere acknowledgment of debt: Due X P1000, (Sgd.) Y, is this a valid promissory note? No it is not a
promissory note, a mere admission that the debt is due is not sufficient because is it nothing but an
acknowledgement of a debt. As such, it evidences only the existence of a debt, is is a due bill.
When acknowledgement of debt is a promise: I do acknowledge myself to be indebted to X or order in the
sum of P1000 to be paid on demand. Is that negotiable? Yes, because in addition to the acknowledgement of
indebtedness, there must be other words expressing the intention to pay. In the example the words to be
paid imply a promise to pay.
Example: Due X or order on demand P1000. (Sgd.) Y. Is this negotiable? The following may be held to be a
promise because the sense requires the words to be paid to be supplied before the words on demand.
Effect of words of negotiability: Due X or order, value received. Is this negotiable? Yes, the word order has
been held to imply a promise to pay.
Due X or bearer P100, for value with interest. Is this negotiable? Yes, the word bearer has been held to imply
a promise.
Page 19

The promise or order to pay must be unconditional. It is not enough that there be a promise or an order. The
promise or order must also be unconditional or absolute. This means it must not be subject to a condition.
Under the Civil Code, a condition is: (1) a future event that may or may not happen, or (2) a past event which is
unknown to the parties. It is to be distinguished from an event that is certain to happen even though the time of
the happening is not known.
Illustration of condition: I promise to pay X or order the sum of P10 million pesos, if he marries Z. Is this
negotiable? This is not a negotiable instrument because the order to pay is subject to the condition that X
marries Z. It is a condition because X may or may not marry Z. In other words, the marriage is uncertain.
Illustration of event certain to happen: I promise to pay Ms. Gaviola or order the sum of P1000 ten days after
her birthday. Is this negotiable? Yes, because the event is certain to happen. In effect it is determinable. The
promise to pay is subject to the happening of such an event.
Sum payable must be definite and certain. The amount of money to be paid must be determinable by
inspection and must be stated plainly on the face of the instrument, and the denomination of the money must
be stated in the body of the instrument.
I promise to pay X or order P1000 thirty (30) days from this date at %6 interest. Is that negotiable? Yes,
because the sum is certain and by mere mathematical computation, the amount to be paid on the maturity is
ascertainable, namely, P1000 plus 6% interest for 30 days. All that is required is that the principal shall be
certain.
Where sum is not certain: I promise to pay X or order P1000 plus all the account of my family that is due him
on sight. Is that negotiable? No, because the sum is not certain. P1000 is not only the principal amount due. It
also includes all the account of his family. How much those sums are is not stated and unknown. Consequently,
this instrument is not negotiable as the sums to be paid are not sums certain.
Why is it that the sum payable must be in money only? It is only payable in money because money is the one
standard of value in actual business. All other commodities may rise and fall in value but in theory, money
always measures this rise and fall and remains the same. The chattel which is used as means of payment may
fluctuate in value.
What is a legal tender? That kind of money which the law compels a creditor to accept in payment of his debt
when tendered by the debtor in the right amount. Is one which is issued by the Bangko Central ng Pilipinas.
Is check considered a legal tender? A check is not legal tender because a check, even if good, does not meet the
requirements of a legal tender. According to Section 60 of the New Central Bank Act, checks representing
demand deposits do not have legal tender power and their acceptance in the payment of debts, both public
and private, is at the option of the creditor.
Suppose I pay you P1 million pesos through a check. Upon acceptance, does it mean that payment was
already effected? No, as a check is not a legal tender, it only produces the effect of payment only when they
have been cashed or when through the fault of the creditor, they have been impaired. In the meantime, the
action derived from the original obligation shall be held in abeyance.
Is coin a legal tender? Yes, all notes and coins issued by the Central Bank are legal tender in the Philippines for
all debts, both public and private.
Page 20

SIR: Last time we discussed that according to Section 52 of Republic Act No. 7653, that, unless otherwise fixed by
the Monetary Board, coins shall be legal tender in amounts not exceeding Fifty pesos (P50.00) for
denominations of Twenty-five centavos and above, and in amounts not exceeding Twenty pesos (P20.00) for
denominations of Ten centavos or less. Now, there is this Circular No. 537 issued by the Monetary Board,
increasing the amount up to which our coins will be considered legal tender:
1) One thousand pesos (P1,000.00) for denominations of 1-Piso, 5-Piso and 10-Piso coins
2) One hundred pesos (P100.00) for denominations of 1-sentimo, 5-sentimo, 10-sentimo, and 25-sentimo
coins.
Is a managers check a legal tender? No, a managers check is not legal tender because it does not meet the
requirements of a legal tender.
I borrowed money from you amounting to P1 million pesos and I told you that I will pay you at the end of the
month. The end of the month comes, you come to me to collect my indebtedness amounting to P1 million
pesos. For purposes of facility, I do not bring cash so I went to my bank and purchased a managers check in
the amount of P1 million pesos. In effect the check was funded. In fact, I paid additional sum for
administrative cost. So I deliver to you the managers check, you refused to accept on the ground that this is
not a legal tender. Are you correct? Yes
Suppose after your refusal to accept the managers check, I did not pay you anymore. So you went to the
court and ask the court to compel me to pay. One of my defenses is that I already delivered and tendered
payment to you in managers check worth P1 million pesos and you refused. Should the court agree with my
defense? No, a managers check or a cashiers check is not legal tender. A creditor is not bound to accept a
check in satisfaction of his demand because a check, even if good when offered, does not meet the
requirements of a legal tender. However, if I were you, I should accept the managers check knowing for a fact
that such managers check is funded. So if someone delivers to you this managers check, this is good as cash,
although not a legal tender.
What if the negotiable note is payable in dollars, is there an effect on its negotiability? No, there is no effect
on its negotiability. A bill or note may be made payable in denominations of foreign money, currency or coins.
Where a note is made payable in a country in the money or coins of another country which money or coins have
value fixed by law of the country where note is payable and which value can by a simple mathematical
calculation, be expressed in the value of the lawful money of the latter country, such note is negotiable.
Payment in foreign currency is now valid. Before, when an instrument is payable in dollars, you have to convert
that amount into pesos. But now, according to Section 1 of Republic Act No 8183, the parties may agree that
the obligation or transaction shall be settled in any other currency at the time of payment.
I promise to pay Mr. Ong or order the sum of 1000 upon demand. Is this negotiable? No, this is not negotiable,
because the sum payable must be definite and certain. Therefore, the denomination or currency of money to
paid determinable by inspection and must be stated in the body of the instrument.
What if the instrument does not specify a year: I promise to pay Mr. Ong or order the sum of P1000 on or
before December 25. Is this negotiable? The note is not negotiable as the time of payment is not determinable
as the year is not stated. Neither is it payable on demand as it is to be paid at a certain time, December 25.
The instrument is payable to a specified person or his assigns: I promise to pay Mr. Ong or his assigns P1000
on 25 December 2013. Is that negotiable? Yes, the instrument is negotiable because it is payable to order. The
reason is that the word assigns is equivalent to the word order.
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Where payable to the order of bearer: I promise to pay to the order of bearer P1000 upon demand. Is that
negotiable? This is held to be payable to bearer. The payee of such an instrument is the bearer and it can be
negotiated only by his endorsement.
Pay to X P5000. Is that negotiable? No, because it is neither made payable to order or to bearer as required
by subsection (d) of Section 1.
Pay to X P5000 upon demand. Is that negotiable? No, again because it is neither made payable to order or to
bearer as required by subsection (d) of Section 1.
Where payable to a specified person or his agent: I promise to pay to B or his agent the sum of P1000. Is that
negotiable? No, this is not a negotiable instrument as this is payable to a specified person. An agent or a
collector is the same as the principal and they merely take the place of the principal. Consequently, the
instrument is actually payable only to a specified person.
What if names included are two alternative drawees: To A or B, Pay to X or order the sum of P1 million,
payable on demand.(Sgd.) Y. Does it affect the negotiability of the instrument? Yes it affects the negotiability
of the instrument because under Section 1 of the NIL, where the instrument is addressed to a drawee, he must
be named or otherwise indicated therein with reasonable certainty, and in the example, there is NO CERTAINTY
as to who will pay the instrument considering that there are two alternative drawees.
FIRESTONE TIRE & RUBBER COMPANY vs LUZON DEVELOPMENT BANK
FACTS: Fojas-Arca maintains a special savings account with Luzon Development Bank, the latter authorized and
allowed withdrawals of funds therefrom through the medium of special withdrawal slips. Fojas-Arca entered
into a special agreement with Firestone whereby Fojas-Arca has the privilege to purchase on credit and sell
Firestone's products. Fojas-Arca purchased on credit products from Firestone. In payment of these purchases,
Fojas-Arca delivered to Firestone six (6) special withdrawal slips drawn upon the Luzon Development Bank. In
turn, these were deposited by the Firestone with its current account with the Citibank. All of them were
honored and paid by the defendant LDB.
Relying on such confidence and belief and as a direct consequence thereof, Firestone extended to Fojas-Arca
other purchases on credit of its products. Later, however, Firestone was informed by Citibank that 2 special
withdrawal slips were dishonored and not paid for the reason 'NO ARRANGEMENT.' As a consequence, the
Citibank debited Firestone's account for the total sum representing the aggregate amount of the two special
withdrawal slips.
ISSUE 1: Whether or not withdrawal slips are negotiable
ISSUE 2: Whether or not Luzon Development Bank should be held liable for damages suffered by Firestone, due
to its allegedly belated notice of non-payment of the subject withdrawal slips.
HELD:
ISSUE 1: No. The withdrawal slips in question were non-negotiable. Hence, the rules governing the giving of
immediate notice of dishonor of negotiable instruments do not apply.
Citibank should have known that withdrawal slips were not negotiable instruments. It could not expect these
slips to be treated as checks by other entities. Payment or notice of dishonor from respondent bank could not
be expected immediately, in contrast to the situation involving checks. Citibank could not have missed the nonnegotiable nature of the withdrawal slips. The essence of negotiability which characterizes a negotiable paper
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as a credit instrument lies in its freedom to circulate freely as a substitute for money. The withdrawal slips in
question lacked this character.
ISSUE 2: No. The withdrawal slips in question were non-negotiable, the rules governing the giving of immediate
notice of dishonor of negotiable instruments do not apply. The withdrawal slips deposited with Firestones
current account with Citibank were not checks, as petitioner admits. Citibank was not bound to accept the
withdrawal slips as a valid mode of deposit. But having erroneously accepted them as such, Citibank and
petitioner as account-holder must bear the risks attendant to the acceptance of these instruments. Petitioner
and Citibank could not now shift the risk and hold private respondent liable for their admitted mistake.
What is the importance of formalities in the negotiable instruments law? They are essential in determining
whether the instrument is negotiable or not. If it is negotiable, we can ascertain the rights of the parties such as
the maker, the drawer, the holder in due course. When you follow the formalities, you can distinguish the rights
of the parties. If it is non-negotiable instrument, then you can determine what are the rights of the assignees,
the original parties, etc.
SECTION 2. Certainty as to Sum; What Constitutes. The sum payable is a sum certain within the meaning of
this Act, although it is to be paid
(a)With interest; or
(b)By stated installments; or
(c)By stated installments, with a provision that upon default in payment of any installment or of interest the
whole shall become due; or
(d)With exchange, whether at a fixed rate or at the current rate; or
(e)With costs of collection or an attorney's fee, in case payment shall not be made at maturity.
I promise to pay X or order P1000 upon demand with 5% interest per annum. Is that negotiable? Yes, because
the sum would still be certain because the principal sum of P1000 is certain.
What if the promissory note stipulates for payment of interest but fails to specify the rate: I promise to pay
Ms. Abejo or order the sum of P5000 with interest payable in demand? When the interest is stipulated but not
specified, the interest shall be the legal rate which is 6% for loans or forbearance of money.
What is the legal rate? According to Circular No. 799, the rate of interest for the loan or forbearance of any
money, goods, or credits and the rate allowed in judgment, in the absence of an express contracts as to such
rate of interest, shall be six percent (6%) per annum. This circular took effect on July 1, 2013 and abrogated the
ruling in Eastern Shipping.
Can an interest be collected even if it is not stipulated? Yes, where interest is not stipulated, legal interest will
be paid when the debtor incurs delay. A debtor incurs delay from the time the obligee judicially or
extrajudicially demands from him the payment of the instrument.
What is an escalation clause and deescalation clause? A stipulation in the agreement that the rate of interest
agreed upon may be increased in the event that the applicable maximum rate of interest is increased by law or
by the Monetary Board. A deescalcation clause is a stipulation in the agreement that the rate of interest agreed
upon shall be reduced if the maximum rate of interest is decreased by law or by the Monetary Board. The
escalation clause is valid if there is also a deescalation clause.
Today, is there a ceiling on the maximum interest rate? No, as the Monetary Board has suspended the Usury
Law. So in effect only creditors will impose the interest rate for as long as the parties agree to such interest
rates.
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So the parties may agree to 100% interest rate? No, parties may agree to any interest rate as long as it is not
usurious or unconscionable.
By stated installments, what does it mean or what are the requisites? The installments must: (1) must be
stated and (2) the maturity of each installment must be fixed or determinable. This last qualification is required
in order to comply with the requisite that the instrument, if not payable on demand, must be payable at a fixed
or determinable future time.
The sum payable is a sum certain although it is to be paid by stated installments: I promise to pay B or order
P1000 in installment. Is that negotiable? This is not negotiable because the installments are not stated and
therefore the sum payable for each installment is uncertain. The same is true when the instrument is payable in
two installments without more.
The sum payable is a sum certain although it is to be paid by stated installments, with a provision that upon
default in payment of any installment or of interest the whole shall become due: I promise to pay B or order
the amount of P1000 paid in installment for 5 months to be paid on the 1 st of each month. However, in case of
default in any of the installment period, the entire note shall be payable. Is that negotiable? Yes, the note is
negotiable. The last sentence is called the acceleration clause. It hastens the payment of the whole note.
The sum payable is a sum certain although it is to be paid with exchange, whether at a fixed rate or at the
current rate: While the rate of exchange between two places at a particular date is a matter of common
commercial knowledge, or at least easily ascertained by any one so that the parties can always, without
difficulty, ascertain the exact amount necessary to discharge the paper.
What is an exchange? Exchange is the difference in value of the same amount in different countries. The
exchange may be at the (1) current rate or at a (2) fixed rate.
Give an example: Pay to B or order P1000 with exchange at 1.2%.
When does the provision on payment of exchange apply? The provision on payment with exchange applies
only to instruments drawn in one country and payable in another.
The sum payable is a sum certain although it is to be paid with costs of collection or an attorney's fee: What if
the instrument provides for additional payment for costs and attorneys fees? Such a stipulation would not
render the instrument non-negotiable as it is expressly recognized in the Negotiable Instruments law and
impliedly in the New Civil Code.
I promise to pay Mr. Garcia or order the sum of P1 million pesos payable on demand and failure to pay upon
demand will make me liable for attorneys fees in the sum of P10 million pesos. Is that negotiable? Yes, even
though the stipulation on attorneys fees is not reasonable. In this case we simply ignore the stipulation
regarding the attorneys fees and the rest of the instrument remains valid.
SECTION 3.When Promise is Unconditional. An unqualified order or promise to pay is unconditional within
the meaning of this Act, though coupled with
(a)An indication of a particular fund out of which reimbursement is to be made, or a particular account to be
debited with the amount; or
(b)A statement of the transaction which gives rise to the instrument.
But an order or promise to PAY out of a particular fund is not unconditional.
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What is a promise in a promissory note? It is an undertaking to pay a particular sum.
What is meant by order in a bill of exchange? It is a command from the drawer to the drawee to pay the payee
upon demand or at a fixed or determinable future time.
Does the negotiability of an instrument affected if there is an indication of a particular fund out of which
reimbursement is to be made? No, it does not affect the negotiability of the instrument because the particular
fund indicated is not the direct source of payment. It is only the source of reimbursement.
What if there is a particular account to be debited with said amount? Such stipulation does not render the
instrument as non-negotiable because the instrument is to be paid first, and afterwards, the particular account
indicated will be debited. Hence, the payment is not subject to the sufficiency or adequacy of the particular
account to be debited.
What if there is a statement of the transaction which gives rise to the instrument? Such stipulation will not
render the instrument as non-negotiable because instruments are not issued without any transaction upon
which they are based. And the mere fact that the purchase and sale which gives rise to the instrument is stated
in the instrument will not make the promise or order conditional.
Particular fund for reimbursement vs particular fund for payment: In the first there are two acts: (1) the
drawee pays the payee from his own funds; afterwards, (2) the drawee pays himself from the particular fund
indicated. In the second, however, there is only one act: (1) the drawee pays directly from the particular fund
indicated.
Give an example of an instrument which contains an indication of a particular fund out of which
reimbursement is to be made: Pay to B or order P100 and reimburse yourself out of my money in your hands.
(Sgd. A)
Is that negotiable? Yes according to Section 3 of the NIL, an unqualified order or promise to pay is unconditional
though coupled with an indication of a particular fund out of which reimbursement is to be made.
Give an example of an instrument which contains an indication of a particular fund for payment: Pay to B or
order P100 from my bank account. (Sgd. A)
Is that negotiable? No, because according to Section 3 of the NIL, an order or promise to pay out of a particular
fund is not unconditional. Thus, the instrument is non-negotiable.
Reason why one is unconditional while the other is conditional: In a particular fund for reimbursement, the
fund is merely for the purpose of subsequent reimbursement, the order or promise is not subject to the
sufficiency of the funds. The order or promise is upon the general credit of the drawee or maker. On the other
hand, in a particular fund for payment, instrument becomes non-negotiable because the payment is subject to a
condition that the funds indicated therein are sufficient. But the funds indicated may or may not be sufficient.
Pay to order of X the sum of P1 million pesos to be taken from my share in the sale transaction of our house.
Is that negotiable? No, it is non-negotiable because they payment is subject to a condition and since it is subject
to a condition, it is unconditional and under Section 1, in order for the instrument to be considered as
negotiable, it should be unconditional.
Class, today is? November 25.
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I promise to pay B or order the sum of P1000 out of my salary from the University of San Carlos: It is nonnegotiable as the promise is to pay out of a particular fund. Thus it is conditional and non-negotiable.
I promise to pay B or order the sum of P1000 in payment for his books which I lost after borrowing the same:
The instrument is negotiable because according to the law, an unqualified order or promise to pay is
unconditional though coupled with a statement of the transaction which gives rise to the instrument.
I promise to pay B or order the sum of P1000 subject to the terms and conditions of our memorandum of
agreement: The instrument is non-negotiable because the obligation to pay is burdened with the condition of
the contract.
Is negotiability of the instrument affected if the words As per contract indicated in the instrument itself?
No, according to the great weight of authority, it does not affect the negotiability of the instrument.
What if the instrument makes a reference to a mortgage? It does not affect the negotiability of the instrument
as long as the provision in a mortgage securing a negotiable promissory note is not made part of the note. Thus
where a note contains the words this note is secured by a mortgage and the mortgage contains clauses
promising to do many other acts the payment of money, it was held that the note is negotiable.
When does a reference to a mortgage renders the instrument non-negotiable? When such provisions become
part of the note, even though they are not in the note itself. Thus where the note contains a stipulation that it
was secured by a mortgage, and that the payee agreed to look at the mortgage security for its payment, the
mortgage provisions became part of the note and rendered it non-negotiable. The same is true where the note
contains the following: This note is secured by a mortgage and subject to the provisions of such a mortgage.
I promise to pay B or order the sum of P1000 payable on demand. This instrument is secured by a mortgage. Is
that negotiable? Yes, the instrument is negotiable because by the terms of the instrument, it simply indicated
that such is secured by a mortgage. The instrument does not bind itself to the terms and conditions of the
mortgage contract.
I promise to pay B or order the sum of P1000 payable on demand. This instrument is subject to the terms and
conditions of the mortgage which I executed with B: This instrument is non-negotiable because the provisions
of the mortgage became part of the note itself.
SIR: One of the tests you can use to determine the negotiability is whether or not in using the face of the
instrument, you can determine all its essential elements, i.e., there is no need for you to look for some other
documents. If the instrument will provide that this is subject to the terms and conditions our mortgage
agreement, then there is a need for you to look for that document to determine the negotiability of the
instrument itself. If you can determine all the essential elements of a negotiable instrument just by looking at
the face of the instrument, then more or less that document is considered as negotiable. However, if the
instrument starts referring to other papers, documents or agreements, you can doubt on the negotiability of
such instrument.
SECTION 4.Determinable Future Time; What Constitutes. An instrument is payable at a determinable future
time, within the meaning of this Act, which is expressed to be payable
(a)At a fixed period after date or sight; or
(b)On or before a fixed or determinable future time specified therein; or
(c)On or at a fixed period after the occurrence of a specified event, which is certain to happen, though the
time of happening be uncertain.
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An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure
the defect.
When is an instrument payable at a determinable future time? According to Section 4 of the NIL, an instrument
is payable at a determinable future time which is expressed to be payable (1) At a fixed period after date or
sight; (2) on or before a fixed or determinable future time specified therein; (3) on or at a fixed period after the
occurrence of a specified event, which is certain to happen, though the time of happening be uncertain.
Give an example of an instrument which is payable at a determinable future time which is expressed to be
payable at a fixed period after date or sight: 60 days after sight, pay to the order of Jose Soriano the sum of
P1000. (Sgd.) A; To C
Give an example of an instrument which is expressed to be payable on or before a fixed or determinable
future time specified therein: I promise to pay Mr. Erojo or order P1000 on or before January 31, 2014. (Sgd.)
Kyle.
Whats the difference between the 1st example and the 2nd example? The difference is that in the 2nd example,
it has an acceleration clause in which payment can be made on or before the date indicated.
Give an example of an instrument which is payable on or at a fixed period after the occurrence of a specified
event, which is certain to happen, though the time of happening be uncertain: I promise to pay Mr. Erojo or
order the sum of P1000 upon the death of his grandpa. (Sgd.) Kyle.
What if the document states I promise to pay X or order the sum of P1 million 20 days after sight? That is an
instrument is payable at a determinable future time.
I promise to pay X or order the sum of P1 million 20 days after date? That is an instrument is payable at a
determinable future time.
I promise to pay X or order the sum of P1 million 10 days after the death of my mother-in-law? That is an
instrument is payable at a determinable future time because it is payable on or at a fixed period after the
occurrence of a specified event, which is certain to happen, though the time of happening be uncertain.
I promise to pay X or order the sum of P1 million 10 days before the death of my mother-in-law? This is not
negotiable because the word used is before and the date of the maturity of the instrument can be determined
only after the note has become overdue. Consequently the time for payment is uncertain.
What are acceleration notes? These are notes which contain provisions which make it possible for the maker to
pay the instrument at an earlier date or make it possible for the holder to require payment of the instrument at
an earlier date.
Give an example of an acceleration clause: I promise to pay B or his order P1000 in four equal monthly
payments, the first to be paid within the first five days of the month and the other within the first five days of
every month thereafter. Upon default in the payment of any installment, the whole sum payable under this note
shall become due.
Give an example of an instrument where the holder requires payment of the instrument at an earlier date:
those instruments:
1) that contain acceleration clauses on the makers default in payment of installments or of interest, or on the
happening of an extrinsic event;
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2) or contain, in notes secured by collateral, a provision that the maker shall supply additional collateral in case
of depreciation in the value of the original deposit, with the holders right to declare the note due immediately
on failure to make good the depreciation; or
3) contain provisions for acceleration where holder deems himself insecure.
In the books, there are two views on notes secured by collateral containing provision that the maker would
supply additional collateral in case of depreciation, what are those two views? (1) Those that maintain that
such a stipulation renders the instrument non-negotiable argue that the time for payment becomes uncertain
and indefinite. If the maker fails when demanded to furnish additional security to the satisfaction of the holder,
the note matures at once. It is argued that the maturity of the note is to be accelerated by the failure of the
maker to do something in addition to the payment of money and both contingencies are made dependent upon
something which he has no absolute control. It is within the power of the holder by refusing assent to what the
maker has done to make the note due at any time. If the holder is not satisfied with the additional security, the
note matures at once, the time at which the holder declared himself dissatisfied with the security delivered by
the maker. The effect of such stipulation is to leave the time when payable uncertain and indefinite. (2) Those
who maintain that the stipulation does not render the instrument non-negotiable argue that from the
standpoint of expendiency as encouraging circulation and of business custom on account of their common
acceptance by the commercial world, such clauses should be interpreted as not affecting negotiability. This
appears to be the better view.
What is an insecurity clause? Insecurity clause provides that if the holder becomes insecure, he may declare the
note as due and payable before maturity.
Does an insecurity clause make the document non-negotiable? There is a conflict of authority. Thus: (1) It has
been held that a note is rendered non-negotiable where it is payable at a fixed future time, but with an option
on the part of the holder to declare it due and payable before maturity, whenever he deems it insecure. (2)
However, it is submitted that these cases holding an instrument payable but accelerable at the option of the
payee or holder non-negotiable are directly contrary to the plain meaning of the section. Such instruments are
certainly payable or on before a fixed time specified therein, and to hold them non-negotiable is certainly
spurious construction of the Act. This appears to be the better view.
Pay to B or order the sum of P1000 payable at the time of his marriage: This note is non-negotiable because
according to the last paragraph of Section 4 of the NIL, an instrument payable upon a contingency is not
negotiable, and the happening of the event does not cure the defect.
Pay to B or order the sum of P1000 payable on his 18th birthday: This note is negotiable because ones birthday
is certain to happen.
Pay to B or order the sum of P1000 10 days before his birthday: This note is negotiable because ones birthday
is certain to happen and the date is determinable.
Pay to B or order the sum of P1 million on the 200 th birthday of his son: This note is negotiable because ones
birthday is certain to happen.
What are extension clauses? Is where an instrument is payable at definite time, if by its term it is payable at a
definite time, subject to extension, at the option of the holder; or to the extension to a further definite time at
the option of the maker or acceptor, or automatically upon or after a specified act or event.
Does it affect the negotiability of the instrument? Generally, it does not affect the negotiability of the
instrument
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Payable two years from date, subject to extension for another year, at the option of the maker: This note is
negotiable because the instrument is payable at a fixed or determinable date.
SECTION 5.Additional Provision Not Affecting Negotiability. An instrument which contains an order or
promise to do any act in addition to the payment of money is not negotiable. But the negotiable character of
an instrument otherwise negotiable is not affected by a provision which
(a)Authorizes the sale of collateral securities in case the instrument be not paid at maturity; or
(b)Authorizes a confession of judgment if the instrument be not paid at maturity; or
(c)Waives the benefit of any law intended for the advantage or protection of the obligor; or
(d)Gives the holder an election to require something to be done in lieu of payment of money.
But nothing in this section shall validate any provision or stipulation otherwise illegal.
What is the effect on the negotiability of the instrument if the maker is given the option to deliver something
in lieu of money? Even if there is an additional act, the instrument remains negotiable provided that the right to
choose between payment or money or the performance of the additional act is in the hands of the holder.
I promise to pay Ms. Maligmat or order the sum of P1000 or 10 kilograms of beef at my option. Is that
negotiable? No, the instrument is non-negotiable because in this case, the drawee, not the holder, has the
choice of paying either money or the 10 kilograms of beef.
I promise to pay Ms. Maligmat or order the sum of P1000 or 10 kilograms of beef, at the option of the holder.
Is this negotiable? Yes, the instrument is negotiable because in this case, the holder, not the drawee, has the
choice of paying either money or the 10 kilograms of beef.
Is it considered as sum certain in money, even if there is an option? Yes, you can still consider it as sum certain
in money because you are the holder and you have the right to choose, you can opt to treat it as a money and
ask the maker for the equivalent money or you can choose the alternative option. Furthermore, you can still
negotiate it as money. Consequently it serves it function as a substitute for money.
I promise to pay X or order the sum of P1000 and deliver him house and lot: This note is non-negotiable
because as stated in the first sentence of this section, an instrument which contains an order or promise to do
any act in addition to the payment of money is not negotiable.
What is the effect if the maker furnishes additional collateral? This will render the note non-negotiable, as that
would be an additional act to the promise to pay. However, they are to be distinguished from those instruments
in which the holder may demand collateral and, failure to furnish it accelerates the instrument which are clearly
negotiable, being merely accelerable on the non-performance of an optional act.
What are the exceptions to the rule that an instrument which contains an order or promise to do any act in
addition to the payment of money is not negotiable? These are provisions which: (a) authorizes the sale of
collateral securities in case the instrument be not paid at maturity; or (b) authorizes a confession of judgment if
the instrument be not paid at maturity; or (c) waives the benefit of any law intended for the advantage or
protection of the obligor; or (d) gives the holder an election to require something to be done in lieu of payment
of money.
Give an example of the 1st exception: I promise to pay to B or order P1000 on December 2013, provided
however, that if this note is no paid at the date of maturity, the ring which I deliver to B by way of pledge to
secure the payment of my indebtedness to him may be sold by B and the proceeds thereof applied to the value
of this note. (Sgd.) A
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I promise to pay to B or order the sum of P1000 payable on December 30, 2013. This promissory note comes
with a security which is my Rolex watch and B may sell the same prior to December 30, 2013 to effect
payment of my indebtedness: This note is non-negotiable because it under the law, the additional act to be
performed is to be executed after the date of maturity, when the instrument ceases to be negotiable. Before
the date of maturity, no additional act is to be performed except the payment of money. Hence, before and until
the date of maturity, the promise to pay is to pay money only. In this example, B may execute the additional act
before the date of maturity. Consequently, the note is not negotiable.
Give an example of the 2nd exception: I promise to pay Ms. Tamayo or order P1million and upon default I
authorize any attorney of any court of record to appear for me in said court, in term time or in vacation, at any
time hereafter, and confess a judgment without process in favor of the holder of this note, for such amount as
may appear to be unpaid thereon, with costs and attorneys fees and to waive all errors in any such proceedings
and consent to immediate execution upon such judgment, hereby ratifying and confirming all that said attorney
may do by virtue hereof.
What is a confession of judgment? A written agreement in which the defendant in a lawsuit admits liability and
accepts the amount of agreed-upon damages he must pay to plaintiff, and agrees that the statement may be
filed as a court judgment against him if he does not pay or perform as agreed. This avoids further legal
proceedings and may prevent a legal judgment being entered (made) if the terms are fulfilled by defendant.
What is cognovit actionem? It is a written confession of an action by a defendant, but not sealed, and
irrevocably authorizing any attorney of any court of record to confess judgment and issue execution usually for a
sum named. It is given in order to save expense and differs from a warrant of attorney which is given to an
expressly designated attorney before the commencement of any action and is under seal.
What is a confession relicta verificatione? A confession of judgment made after plea is pleaded, such as
cognovit actionem, accompanied by a withdrawal of the plea.
What is a warrant of attorney? An instrument in writing addressed to one or more attorneys name therein,
authorizing them to appear in any court to appear in behalf of the person giving it and to confess judgment in
favor of some particular person therein named in an action of debt.
What is the effect of confession of judgment before maturity? A note which contains such provision is not
negotiable. It has been held by overwhelming weight of authority that a power of attorney to confess judgment
at any time before maturity renders the note non-negotiable.
What is the effect of judgment of confession in the Philippines? They have been declared as against public
policy: (1) because they enlarge the field for fraud; (2) because under this instrument, the promisor bargains
away his right to a day in court; and (3) because the effect of the instrument is to strike down the right to appeal
accorded by statute.
Does the provision on judgment of confession affect the negotiability of the instrument? It does not affect the
negotiability of the instrument. Only the provision or stipulation regarding the confession of judgment is
avoided, but the main obligation remains valid and subsisting.
I hereby authorize any attorney in the Philippines, in case this note is not paid at maturity, to appear in the
name and confess judgment to the above sum with interest: Will it affect the negotiability of the instrument?
The negotiability of the instrument is not affected. Only the provision or stipulation regarding the confession of
judgment is avoided, but the main obligation remains valid and subsisting.
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Give an example of a provision which waives the benefit of any law intended for the advantage or protection
of the obligor: Six months after date, I promise to pay B or order P1000, waiving the right to appeal and all of
valuation, appraisement, stay and exemption of laws. (Sgd.) A
What about the election of holder to require some act, does it affect the negotiability of the instrument? This
does not affect the negotiability of the instrument, provided that the right to choose between payment of
money or the performance of the additional act is in the hands of the holder.
Give an example of an instrument which contains such provision: I promise to pay B or order P10000 or 2
carabaos, at Bs election. (Sgd.) A
SECTION 6.Omission; Seal; Particular Money. The validity and negotiable character of an instrument are not
affected by the fact that
(a)It is not dated; or
(b)Does not specify the value given, or that any value has been given therefor; or
(c)Does not specify the place where it is drawn or the place where it is payable; or
(d)Bears a seal; or
(e)Designates a particular kind of current money in which payment is to be made.
But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the
consideration to be stated in the instrument.
What if the instrument is not dated? The validity and negotiable character of an instrument is not affected by
the fact that it is not dated. Generally, the instrument is not rendered non-negotiable. However, there are cases
where the date is necessary to fix the date of maturity.
Can a bill of exchange or a promissory note qualify as a negotiable instrument if its not dated? Yes, because
under Section 6 of the NIL, the validity and negotiable character of an instrument is not affected by the fact that
it is not dated.
What if the instrument does not specify the value given, or that any value has been given therefor? This does
not affect the negotiability of the instrument. Usually, all that is stated in the instrument is that it is being issued
for value received, without specifying what the value is. It is not even necessary to state that value has been
received.
Why does it not affect the negotiability of the instrument? The reason is that consideration is presumed.
What if the instrument does not specify the place where it is drawn or where it is made payable? The validity
and negotiable character of an instrument is not affected by the fact that it does not specify the place where it
is drawn or the place where it is payable.
What if the instrument bears a seal? The validity and negotiable character of an instrument is not affected.
Why? Because it is expressly allowed under Section 6 of the NIL.
SIR: Your NIL is an old law. People before the like Europeans or the Chinese always used a personal seal when
dealing with documents or in order to show that, on top of his signature, he is assenting to whatever is the
content of the said document. Under your NIL, just because the instrument bears a seal, it does not mean that
such instrument is non-negotiable.
What if the instrument designates a particular kind of current money in which payment is to be made? The
validity and negotiable character of an instrument is not affected.
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I promise to pay Ms. Maligmat or order the sum of 1000 Ringgit on or before December 30, 2013: Is that
negotiable? Yes the note is negotiable because as already stated under Section 1, even if the money in which
the instrument is to be payable is not legal tender, provided that it is current money or foreign money which has
a fixed value in relation to the money of the country in which the instrument is payable. Such instrument is still
considered payable in money.
SECTION 7.When Payable on Demand. An instrument is payable on demand
(a)Where it is expressed to be payable on demand, or at sight, or on presentation; or
(b)In which no time for payment is expressed.
Where an instrument is issued, accepted, or endorsed when OVERDUE, it is, as regards the person so issuing,
accepting, or endorsing it, payable on demand.
What does the phrase payable on demand mean? It means an instrument is expressed to be payable on
demand, or at sight, or on presentation. Instead of on demand the words on sight or on presentation may
be used. The words at sight however, are not ordinarily used in promissory notes.
Under what circumstances can we treat the instrument as payable on demand/When is the instrument
considered payable on demand? Under Section 7 of the NIL, an instrument is payable on demand: (1) where it is
expressed to be payable on demand, or at sight, or on presentation; (2) where no time for payment is
expressed; or (3) where an instrument is issued, accepted, or endorsed when overdue, it is, as regards the
person so issuing, accepting, or endorsing it, payable on demand.
Pay to X or order the sum of P1000 _______ after date: Is it payable on demand? Yes the note is held to be
payable on demand. However, it may properly be considered an incomplete instrument and may fall under the
provision of Section 14, 15 or 16, depending upon how the instrument is delivered.
For value received, I promise to pay Ms. Geonzon or order the sum of P1000. (Sgd.) Soleng: Is it payable on
demand? Yes the instrument is payable on demand as no time for payment is expressed.
Give me an example of an instrument where it is expressed to be payable on demand, or at sight, or on
presentation: I promise to pay P1000 to the order of Mr. Erojo on demand. (Sgd.) Kyle
Give me an example of an instrument where no time for payment is expressed: I promise to pay P1000 to the
order of Mr. Erojo. (Sgd.) Kyle
Give me an example where an instrument is issued, accepted, or endorsed when overdue, it is, as regards the
person so issuing, accepting, or endorsing it, payable on demand: I promise to pay P1000 to B or order on
January 31, 2013. (Sgd.) A; A then keeps the instrument and then issues the instrument only February 28, 2013.
As to A, the person so issuing, the instrument is payable on demand.
SECTION 8.When Payable to Order. The instrument is payable to order where it is drawn payable to the
order of a specified person or to him or his order. It may be drawn payable to the order of
(a)A payee who is not maker, drawer, or drawee; or
(b)The drawer or maker; or
(c)The drawee; or
(d)Two or more payees jointly; or
(e)One or some of several payees; or
(f)The holder of an office for the time being.
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Where the instrument is payable to order the payee must be named or otherwise indicated therein with
When is the instrument payable to order? The instrument is payable to order where it is drawn payable to the
order of a specified person or to him or his order.
The instrument may be made payable to the order of WHOM/To whose order may the instrument be made or
drawn payable to? It may be drawn payable to the order of:
(1) A payee who is not maker, drawer, or drawee
(2) The drawer or maker
(3) The drawee
(4) Two or more payees jointly
(5) One or some of several payees
(6) The holder of an office for the time being.
What is the meaning of payable to order? Suppose A makes the following note: I promise to pay to B or order
P1000 on December 30, 2013. (Sgd.) A; This means that A promises to pay to B or if not to B, to anybody
designated by B to whom A must pay or to anybody designated by the person designated by B, and so on. The
designation is made by endorsement.
To X (drawee): Pay to B (payee) or order P1000 . (Sgd.) A (drawer); Suppose A issued the note to B and the
following endorsements appear on the back of the note: Pay to C (Sgd.) B Pay to D (Sgd.) C Pay to E
(Sgd.) D. Can E enforce the note against B? Yes E can enforce the note against B because he promised to pay C
or to anybody designated by C, who happens to be D; or to anybody designated by D, who happens to be E, to
whom B is to pay the note.
SIR: This is the beauty of negotiable instruments, as they are used as substitute for money. You simply endorse it
from one hand to another hand, and the person holding the same may enforce it against the original drawee,
the original payee or the original maker. In effect, payable to order means that even if your name is not
indicated in the instrument, for as long as the instrument was properly endorsed to you, you may enforce it
against the drawee.
Give an example of an instrument drawn payable to the order of a payee who is not maker: I promise to pay
to the order of B P100. (Sgd.) A
Give an example of an instrument drawn payable to the order of a payee who is not a drawer, or drawee: To
X, Pay to the order of B P100. (Sgd.) A
Give an example of an instrument where the drawer is the payee: To B, Pay to the order of ourselves P100.
(Sgd.) A; In this example the instrument is payable to the order of the drawer and it is accepted by the drawee.
The instrument is equivalent to a promissory note made by the acceptor in favor of the drawer.
Give an example of an instrument where the maker is the payee: I promise to pay to the order of myself P100.
(Sgd.) A; Under Section 184 of the NIL, the instrument is not complete until it is endorsed by the maker.
Can you think of a particular situation where you can use this particular example? SIR: Say for example at this
moment, I need P1 million, and I do not know if a lending institution or someone will lend me money. So I will
just draft a negotiable promissory note, promising to pay myself such amount, without regard to any creditor
because I do not know who this creditor is. So Ill try to deliver it to A, if A accepts, then good, if not, I can deliver
the same instrument to B or C. The point here is I do not have to draft several negotiable instruments, otherwise
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If I draft an instrument addressed to Bank A, and the latter refuses, then I would have to draft another
instrument to be addressed to Bank B; Try not to read it literally because it is kind of pathetic. Any person
endorsing such instrument may later on go to the maker who signed it and ask for the equivalent money stated
in the instrument.
Give an example of an instrument where the drawee is the payee: To Y, Pay to yourself or order P1000. (Sgd.)
A; The effect of this bill is to authorize the drawee to pay himself from the funds belonging to the drawer
which are in the possession of the drawee.
Give an example of an instrument where there are two or more payees jointly: I promise to pay A and B or
order P1000. (Sgd.) C.
Give an example of an instrument where there are one or some of several payees: I promise to pay to the
order of X or Y P1000. (Sgd.) C
Give an example of an instrument where the payee is holder of office for the time being: Pay to the order of
the cashier of the University of San Carlos in the amount of P1000. (Sgd.) A
SECTION 9.When Payable to Bearer. The instrument is payable to bearer
(a)When it is expressed to be so payable; or
(b)When it is payable to a person named therein or bearer; or
(c)When it is payable to the order of a fictitious or non-existing person, and such fact was known to the
person making it so payable; or
(d)When the name of the payee does not purport to be the name of any person; or
(e)When the only or last endorsement is an endorsement in blank.
When is the instrument payable to bearer? According to Section 9 of the NIL, the instrument is payable to
bearer
(1) When it is expressed to be so payable,
(2) When it is payable to a person named therein or bearer,
(3) When it is payable to the order of a fictitious or non-existing person, and such fact was known to the person
making it so payable,
(4) When the name of the payee does not purport to be the name of any person,
(5) When the only or last endorsement is an endorsement in blank.
Pay to bearer the sum of P1000, payable on demand. (Sgd.) A: Is that a bearer instrument, i.e., payable to
bearer? Yes this is payable to bearer as it is expressed to be so payable.
Pay to B or bearer the sum of P1 million, payable on demand: This note is payable to bearer as it is payable to a
person named therein, B, or bearer.
What are the requisites of an instrument payable to the order of a fictitious or non-existing person, and such
fact was known to the person making it so payable? The requisites are:
(1) the payee named must be fictitious or non-existent; and
(2) the one making the instrument so payable must know him to be fictitious or non-existing.
Who is a fictitious person? The words fictitious persons mean to be a person who has no right to the
instrument, because the drawer or maker of it so INTENDED, and therefore, it does not matter whether the
name of the payee used by the drawer or maker be that of one living or dead, or one who has never existed. The
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name is fictitious when it is feigned or pretended and a non-existent person is one who does not exist in the
sense that he was not INTENDED to be the payee by the drawer.
To Denise, Pay to the order of Obama the sum of P500, payable on demand. (Sgd) Sheila Licup: Although a
person beaing the name by which the payee designated in the paper is in actual existence, the paper is payable
to a fictitious payee and by legal intendment to bear, where the person drawing it, does not intend that he shall
receive its proceeds, or that it be paid to him or upon his endorsement. It follows that the mere fact that the
payee named was an existing person does not preclude the application to the rule as to fictitious payee, where,
although the existence of the payee was known to or believed by the maker, such maker did not intend that he
should receive the paper or have any interest therein. Thus an existing payee may be a fictitious payee.
I promise to pay Teodora Alonso y Realonda the sum of P1000, payable on demand. (Sgd.) Shiela Licup: Since
Teodora Alonso is no longer existing in the sense that she already died, theres a possibility that when the maker
made the instrument she knew that Teodora Alonso already died and she does not intend Teodora Alonso to
receive note or have any interest therein. In this case the instrument payable to the order of a fictitious or nonexisting person, and such fact was known to the person making it so payable. Thus, the note is payable to
bearer.
What if the person knew that Teodora Alonso already died and yet that person really intend to pay to the
order of Teodora Alonso? Where the instrument is made payable to the name of a non-existing person, or of a
person having no interest in the transaction, but the maker believes that such person exists and has interest in
the transaction and intends that he shall receive the same or its proceeds, it is not payable to a fictitious person
or to bearer.
How do you call that person who despite such knowledge still wants to pay it to the order of Teodora Alonso?
Crazy!
PAYABLE TO BEARER
Existing payee not intended to receive proceeds
Non-existing payee, known or believed non-existing
not intended to receive proceeds
NOT PAYABLE TO BEARER

Existing payee intended to receive proceeds
Non-existing payee, but believed existing and intended
to receive proceeds
What will govern in this particular situation? The intention of the person drawing or making such note.
Pay to Dean Largo or bearer the sum of P500,000 payable upon demand. (Sgd.) Shiela Licup: Is the document
payable to bearer? Yes this is payable to bearer as it is expressed to be so payable.
Pay to Dean Largo or order the sum of P1000 payable upon demand. (Sgd.) Shiela Licup: Is the document
payable to bearer? No, the document is not payable to bearer as Dean Largo is an existing payee and the maker
intended that she receives the said amount.
What if the maker does not intend to pay Dean Largo the said amount? The document is payable to bearer
because although Dean Largo is an existing person, the maker does not intend that she receives the proceeds
of such instrument. Thus an existing payee may be a fictitious payee.
SIR: Class, you have to know by heart the requisites because this particular provision is a usual suspect during
the Bar Exams. Even if the payees are existing persons, if the maker or drawer does not intend such person to
receive the proceeds, you may treat them as fictitious persons and the note becomes payable to bearer.
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Whoever bears the instrument may collect the amount stated in the instrument. Is this clear? Yes Sir, clear as a
puddle of mud.
Suppose a clerk drafted a promissory note for his boss, and the boss is the maker of the instrument. The clerk
told the boss that, We owe this entity X this much so I prepared a note. So, the boss, as the maker, signed
the same. The fact, however, is that there was not purchase at all and X is a fictitious person:
If an instrument is made or drawn by a clerk but signed by the boss, whose intention must govern? The better
view would seem to be that the signer, because in the subsequent sections of the NIL, the law provides that you
are not liable if your name does not appear on the instrument and since the person signing his name on the
instrument is liable, therefore it should also be him who determines who should own the instrument.
In the same scenario, if the person signing the instrument really intended that this particular payment should
be paid to X, who is a fictitious person, should the instrument be considered as payable to bearer? No,
because the intent of the signer is to a specific person, who to him is not a fictitious person. In effect, it is the
intent of the person drawing or signing the instrument which will govern and not the intention of the person
who drafted or prepared such instrument.
What if the document provides: Pay to the order of money or Pay to the order of cash? In these cases, the
name of the payee does not purport to be the name of any person. Hence, the instrument would be payable to
bearer. Under the NIL, a check drawn payable to the order of cash is a check payable to bearer, and the bank
may pay it to the person presenting it for payment without the drawers endorsement.
ANG TEK LIAN vs CA
FACTS: It appears that, knowing he had no funds therefor, Ang Tek Lian drew a check upon the China Banking
Corporation for the sum of P4,000, payable to the order of "cash". He delivered it to Lee Hua Hong in exchange
for money which the latter handed in the act. The next business day, the check was presented by Lee Hua Hong
to the drawee bank for payment, but it was dishonored for insufficiency of funds, the balance of the deposit of
Ang Tek Lian on both dates being P335 only.
Lee Hua Hong filed a complaint for estafa against Ang Tek Lian. Ang Tek argued that as the check had been made
payable to "cash" and had not been endorsed by him, he is not guilty of the offense charged.
ISSUE: Whether or not Ang Tek Lian is liable for estafa.
HELD: Yes. Under the Negotiable Instruments Law (sec. 9 [d]), a check drawn payable to the order of "cash" is a
check payable to bearer, and the bank may pay it to the person presenting it for payment without the drawer's
endorsement.
Of course, if the bank is not sure of the bearer's identity or financial solvency, it has the right to demand
identification and/or assurance against possible complications, for instance, (a) forgery of drawer's signature,
(b) loss of the check by the rightful owner, (c) raising of the amount payable, etc. It is significant, and conclusive,
that the form of the check was totally unconnected with its dishonor. The Court of Appeals declared that it was
returned unsatisfied because the drawer had insufficient funds not because the drawer's endorsement was
lacking.
A 15 year old high school student saw a check payable to cash in the amount of P5 million. He brought the
check to the drawee bank and presented it for payment. May the bank refuse? Yes, the bank may refuse if the
bank is not sure of the bearer's identity or financial solvency. It has the right to demand identification and/or
assurance against possible complications. It is entirely reasonable for the bank to insist that the holder give
Page 36

satisfactory proof of his identity. The bank may therefore require, for its protection, that the endorsement of the
drawer or of some other person known to it be obtained. However, it is a bearer instrument and the
person who holds such instrument may present it for payment. That person has the right to present it for
payment.
SIR: Your Supreme Court expects bank to be prudent enough to ask for verification and certain documents.
When you transact with the bank, you should expect that the bank will ask for some identification from you. So
if there is this check payable to cash in the amount of P5 million being presented for payment by this barely
legal kid, of course this should raise suspicion on the part of the bank. There is no clear cut policy on this but if
its very apparent that the person presenting the check has no right at all to such instrument, then the bank may
therefore require, for its protection, that the endorsement of the drawer or of some other person known to it
be obtained. At least, the bank may call the drawer of such instrument for verification, as he is a client of the
bank. Otherwise, the bank may be held liable by the Supreme Court for negligence. However, it is a bearer
instrument and the person who holds such instrument may present it for payment. That person has the right to
present it for payment.
Pay to the order of coin/Pay to the order of monkey: The instrument is payable to bearer when the name of
the payee does not purport to be the name of any person.
What if the instrument is payable to cash. Can it be considered as negotiable? Yes, the note is negotiable.
Under Section 9 of the NIL, an instrument is payable to bearer when the name of the payee does not purport to
be the name of any person.
Please explain what only or last endorsement in bank means: For example, I promise to pay to X or his order
the sum P100. (Sgd.) Denise Dueas; When X received the instrument, he simply signed his name at the back.
Thats an endorsement in blank, and the note becomes a bearer instrument.
SECTION 10.Terms, When Sufficient. The instrument need not follow the language of this Act, but any
terms are sufficient which clearly indicate an intention to conform to the requirements hereof.
In drafting a negotiable instrument, do you have to use the exact words of the law? No, although it is advisable
to use the words of the law in order to avoid uncertainty and doubt. However, under this provision, it is not
necessary to use the exact words of the law. Thus, instead of promise, the word agree may be used. Instead
of bearer, holder may be used. An instrument may be valid and negotiable though written in a foreign
language.
I agree to pay Mr. Asoque the sum of P1 million payable on demand. (Sgd.) Soleng: Is the instrument
negotiable? No because the instrument is payable to a specified person only. Thus, the note is not payable to
bearer or order.
I agree to pay Mr. Asoque or order the sum of P1 million payable on demand: Is the instrument negotiable?
Yes, because instead of promise, the word agree may be used. Thus, the note is payable to order and
negotiable.
SECTION 11.Date, Presumption As To. Where the (1) instrument or (2) an acceptance or (3) any
endorsement thereon is dated, such date is deemed prima facie to be the true date of the making, drawing,
acceptance, or endorsement, as the case may be.
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2 December 2013. I agree to pay Mr. Asoque or order the sum of P1000. Payable 30 days from the date. (Sgd.)
Soleng: The date placed thereon is deemed prima facie the true date of the making or drawing of the
instrument. So the instrument becomes due 30 days after December 2, 2013.
What is a prima facie presumption? It means a fact presumed to be true unless it is disputed. Applied in the
example above, if you can present evidence that the document was not made or drawn on December 2, 2013,
the presumption may be struck down.
SIR: Starting today, as a matter of prudence, you have to make it a habit that when you sign any document, at
least put a date beside or near your signature. So that later on, you can note when you received or signed the
said document.
SECTION 12.Antedated and Postdated. The instrument is not invalid for the reason only that it is antedated
or postdated, provided this is not done for an illegal or fraudulent purpose. The person to whom an
instrument so dated is delivered acquires the title thereto as of the date of delivery.
What is the rule on antedating and postdating? The instrument is not invalid for the reason only that it is
antedated or postdated, provided this is not done for an illegal or fraudulent purpose. The intention of the
person antedating or postdating the instrument is material. So if a person antedating or postdating an
instrument to defraud another person, then the act of antedating or postdating will invalidate such instrument
as to the person who made the antedating or postdating.
Give an example of ante-dating: December 1, 2013, I promise to pay to B or order P1000. (Sgd.) A; Suppose that
the instrument is really issued or delivered by A to B, on December 15, 2013. The instrument is ante-dated
because the date written thereon is earlier than the true date of its issuance or delivery.
Give an example of post-dating: In the same example given, if A delivers or issues the instrument to the payee
on November 15, 2013, a date earlier than December 1, 2013, which appears on the instrument, the instrument
is post-dated.
SIR: In commercial transactions, there are times that you would have to ante-date or post-date your documents
because they anticipate, say for example, that they may not have any funds on this particular period, so they
need a period of 30 days from today. So even if I deliver a check on December 2, I would put a date of December
30 on the instrument.
Can the holder of the instrument present it for payment? No. If the instrument is dated December 30 but was
issued on December 2, you cannot simply go to the bank with the post-dated check and present it for payment.
The bank will tell you to keep that check and come back on December 30. But you cannot come back on
December 30 because December 30 is a holiday.
SECTION 13.When Date May Be Inserted. Where an instrument expressed to be payable at a fixed period
after date is issued undated, or where the acceptance of an instrument payable at a fixed period after sight is
undated, any holder may insert therein the true date of issue or acceptance, and the instrument shall be
payable accordingly. The insertion of a wrong date does not avoid the instrument in the hands of a
subsequent holder in due course; but as to him, the date so inserted is to be regarded as the true date.
Can you insert date on an instrument? Yes, as expressly provided for in Section 13 of the NIL.
In what instances can you insert a date on the instrument? (1) Where an instrument expressed to be payable
at a fixed period after date is issued undated, or (2) where the acceptance of an instrument payable at a fixed
Page 38

period after sight is undated, any holder may insert therein the true date of issue or acceptance, and the
instrument shall be payable accordingly.
Who may insert the date on the instrument? Any holder may insert therein the true date of issue or
acceptance.
What is the effect of a wrongful insertion of a wrong date? It will avoid it as to the party who knowingly
inserted the wrong date.
What if it is already negotiated to a holder in due course? The insertion of a wrong date does not avoid the
instrument in the hands of a subsequent holder in due course. Furthermore, the wrong date inserted will be
regarded as the true date.
When is date necessary? The date may be necessary:
(1) to determine the date of maturity;
(2) where interest is stipulated, to determine when interest is to run;
(3) to determine whether a party has acted within a reasonable time.
I promise to pay B or order the sum of P1000, 60 days after date: Can you insert a date on the said
instrument? Yes, the holder may insert the true date of issue because the date of the instrument is necessary to
determine the date of maturity.
To C, Pay to B or order the sum of P1000, 60 days after sight. (Sgd.) A: Can you insert a date on the said
instrument? Yes, the holder may insert the true date of acceptance because the bill cannot be determined
unless the acceptance is dated.
What if the instrument provides for the day or the month but not the year: I promise to pay Mr. Erojo or order
the sum of P1 million. Payable on 5 December. (Sgd.) X? The note is not negotiable because the instrument is
neither payable on demand nor payable on a fixed or determinable future time.
SECTION 14.Blanks; When May Be Filled. Where the instrument is wanting in any material particular, the
person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a
signature on a blank paper delivered by the person making the signature in order that the paper may be
converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount.
In order, however, that any such instrument when completed may be enforced against any person who
became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority
given and within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in
due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled
up strictly in accordance with the authority given and within a reasonable time.
Does any person have the right to complete an instrument which is wanting in any material particular? Only a
person in possession thereof has a prima facie authority to complete it by filling up the material particular
wanting on such instrument therein.
What is this prima facie authority? This prima facie authority is a presumption by law from the following facts:
(1) want of a material particular in the instrument.
(2) possession thereof by a person;
(3) that such a person had authority to fill up the blanks.
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A signature on blank paper delivered by the person making the signature in order to convert the paper into a
negotiable instrument: What is the effect? It operates as a prima facie authority to fill it up as such for any
amount.
Should it be filled up strictly in accordance with the authority given by the person who delivered it? Yes, in
order that a subsequent holder may enforce the instrument against any person who became a party thereto
prior to its completion.
When should the insertion be made? The insertion should be made within a reasonable time.
What is reasonable time? In order to determine what is a reasonable time, regard is had:
(1) to the nature of the instrument;
(2) usage of trade or business with respect to such instrument and
(3) the facts of the particular case.
What if the instrument is given to you by the maker, with instruction to fill up the blank. You fill up the
instrument after a period of (1) one year because you are from Zamboanga and the city was under sieged by
the rebels. Can you still consider that as filling up the instrument within a reasonable time? Yes, because of
the fact that the delay in filling up the said instrument was caused by a fortuitous event and such delay may be
considered reasonable.
What is the effect of an insertion of a wrong amount with respect to a holder in due course? If any such
instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in
his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and
within a reasonable time.
I promise to pay Y or order the sum of ___________ payable on demand. (Sgd.) X; He delivered the instrument
to Y. The instruction is that Y should put in the blank only P1 million. However, Y believed the bigger, the
better, so he inserted in the instrument the amount of P2 million. The instrument was endorsed by Y to A, A
to B, B to C. C, being a holder in due course. May C enforce the instrument against X, the maker? Yes because
where the instrument is incomplete and delivered, but completed contrary to the authority given, or not
completed within a reasonable time, and the holder is a holder in due course, he can enforce the instrument, as
if it had been filled up strictly in accordance with the authority given and within a reasonable time, against
parties prior or subsequent to the completion.
Why can a holder in due course claim against a party even prior to its wrongful insertion? The personal
defense of parties prior to the completion, such as A, is that it is not filled up strictly in accordance with the
authority given or that it is not filled up within a reasonable time, is not available against a holder in due
course because under the law, in the hands of such holder, the complete but delivered instrument is valid and
effective for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance
with the authority given and within a reasonable time.
Supposing C is not a holder in due course, may he enforce the said instrument against the maker? Yes, but in
order that a subsequent holder who is not a holder in due course may enforce the instrument against a party
prior to the completion of the note: (1) the blank must be filled up strictly in accordance with the authority given
and (2) it must be filled up within a reasonable time.
In the example, who are liable to C, who is not a holder in due course? Y the payee; A and B, the endorsers.
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Why are they liable? As to Y, he is liable because (1) he was the one who placed the amount and (2) as
endorser, he warrants that the instrument is in all respects what it purports to be and (3) if he is a general
endorser, that it is valid and subsisting. A and B are also liable because (1) they parties subsequent to the
completion and (2) as endorsers, they warrant that the instrument is in all respects what it purports to be and
(3) if they are general endorsers, that it is valid and subsisting.
What are the warranties that endorsers make? An endorser warrants that the instrument is:
(1) in all respects what it purports to be; and in addition, if he is a general endorser,
(2) that it is valid and subsisting.
What are the steps in the execution of negotiable instruments?
1) Writing a complete instrument in accordance with Section 1 of the NIL.
2) Delivery of the instrument, i.e, transfer of possession with the intent to transfer title.
Bills of exchange or promissory note executed in blank and delivered to another to fill in and negotiate on
behalf of the maker of the instrument. How do you call this instrument? It is an incomplete but delivered
instrument.
What does material particular refer to? Material particular may be:
(1) a particular the omission of which will render the instrument non-negotiable, such as, the name of the
payee or the name of the drawer; or
(2) ) a particular the omission of which will not render the instrument non-negotiable such as the date, the rate
of interest, place of payment.
A makes a note and the name of the payee is not written, and the note is in possession of B. May B write his
name as a payee? Yes, under Section 14 of the NIL, where the instrument is wanting in any material particular,
the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein.
Is the instrument wanting in a material particular, and why? Yes, it is wanting in a material particular, because
in our example, the name of the payee is not stated in the instrument.
Is B in possession of the instrument? If so, what is the authority of B to fill out the instrument? Yes, B is in the
possession of the instrument and being such, has a prima facie authority to complete it by filling up the blanks
therein.
What are the requisites before a person can insert a material particular in an instrument?
(1) that the instrument is wanting in any material particular;
(2) that he in possession of such instrument;
(3) you are the prima facie authorized to complete the instrument by filling in the material particular which is
wanting in the said instrument.
In the first instance under Section 14, is it required that the said instrument must be delivered with intent to
convert it to a negotiable instrument? No, it is not required. The law merely requires that it be in (1) possession
of a person other than the drawer or maker and (2) that the instrument is wanting in a material particular.
When is it required that the instrument must be delivered with intent to convert it to a negotiable
instrument? It is required when the person only placed his signature on a blank paper.
What are the requisites in order for a person to fill the instrument up to any amount? The requisites are:
(1) a signature on a blank paper
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(2) that the person signing in blank delivers it in order that the paper may be converted into a negotiable
instrument.
Mere possession is not enough.
What if I make an instrument and deliver it to another person without such intent to make it a negotiable
instrument. Does the person who received it have the authority to fill the instrument up to any amount? No,
because the intent to convert it to a negotiable instrument is not present.
Is mere possession enough? No, mere possession is not enough.
A signs a paper in blank and delivers it to B. May B fill in with the said paper any amount? It depends on the
intention of A.
*What are the requisites before any such instrument when completed may be enforced against any person
who became a party thereto prior to its completion?
(1) it must be filled up strictly in accordance with the authority given and
(2) within a reasonable time.
I promise to pay B or order the sum of __________ on demand. (Sgd.) A; A delivers it to B with the authority
to fill the instrument up to P1 million. B fills up P1 million and negotiates it with C. May C enforce it against A?
It depends. Even if B fills up the instrument in accordance with the authority given, we still have to determine
whether the instrument was fill up by B within a reasonable time. Otherwise, if it was not fill up within a
reasonable time, C may not enforce the instrument against A. Except if C is a holder in due course.
In the same example given above, instead of putting in P1 million, B puts in P2 million. B then negotiated it to
C, C to D, D to E. E is not a holder in due course. May E enforce it against A, the maker? There are two views on
this point:
(1) The first view is that the one who is not a holder in due course cannot enforce the instrument against a party
prior to the completion of the instrument, such as A, if the instrument is not filled up strictly in accordance with
the authority given or within a reasonable time.
(2) The second view is that, in such a case, the holder can enforce the instrument according to the authorized
tenor. In other words, E can collect from A the amount of P1 million.
The better view seems to be the first one. The law provides that in order that one who is not a holder in due
course may enforce mechanically incomplete but delivered instrument, the two requisites must exist. The
implication is that when one or both of the requisites are absent, the instrument may not be enforced.
In the same example given above, may E enforce the instrument against B, the person who caused the
wrongful insertion, and against the subsequent endorsers? Yes, E may enforce the instrument against B
because (1) the latter was the one who placed the amount, and because (2) as endorser, he warrants that the
instrument is in all respects what it purports to be and (3) if he is a general endorser, that it is valid and
subsisting.
May E enforce the instrument against C and D? E may also enforce the instrument against C and D because (1)
they are parties subsequent to the completion and because (2) as endorsers, they warrant that the instrument
is in all respects what it purports to be and (3) if they are general endorsers, that it is valid and subsisting.
In what ways or instances can B be held liable? He can be held liable for:
(1) inserting the wrong amount on the instrument
(2) as an endorser, B warranted that the instrument is in all respects what it purports to be and
(3) if B is a general endorser, he also warranted that the instrument is valid and subsisting.
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When you endorse an instrument, what are the warranties you guarantee?
(1) as an endorser, you warrant that the instrument is in all respects what it purports to be and
(2) if you are also an general endorser, you warrant that the instrument is valid and subsisting.
Suppose, however, that E is a holder in due course, may he enforce the instrument against A, the maker? Yes,
under the law, if any such instrument, after completion, is negotiated to a holder in due course, it is valid and
effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance
with the authority given and within a reasonable time.
In our example, what are the defenses of A, the maker of the instrument? The personal defenses of parties
prior to the completion, such as A, is (1) that it is not filled up strictly in accordance with the authority given or
(2) that it is not filled up within a reasonable time.
What is the difference between real defense and personal defense? Real defense is a defense which you can
put up even against a holder in due course while a personal defense cannot be raised against a holder in due
course.
Give us a summary of the rule where the instrument is incomplete but delivered: In the case of an instrument
that is incomplete but completed contrary to the authority given, or not completed within a reasonable time:
(1) where the holder is a holder in due course, he can enforce the instrument as complete against parties prior
or subsequent to the completion.
(2) where the holder is not a holder in due course, he can enforce the instrument as completed only against
parties subsequent to the completion, but not against those prior thereto.
Is it already time class? Yes Sir. You want to continue? [insert here the sound of crickets chirping]
I promise to pay X or order the sum of _____________ 30 days after date. (Sgd.) A. Supposing this was
delivered by A to X: How do you classify this kind of instrument? This is an undated instrument. It is also an
incomplete because there is a blank, but it is a delivered instrument.
Will the filling up the blanks with any date, avoid the note in the hands of a holder in due course? The
insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in due course.
Furthermore, the wrong date inserted will be regarded as the true date.
SECTION 15.Incomplete Instrument Not Delivered. Where an incomplete instrument has not been
delivered, it will not, if completed and negotiated without authority, be a valid contract in the hands of any
holder, as against any person whose signature was placed thereon before delivery.
Suppose A signed a blank check which was subsequently stolen by B who filled in the amount and a fictitious
name as payee. B then endorsed the payees name and passed the check to C, C to D, D to E, and E to F. Can E
enforce the instrument against A? No, because an incomplete and undelivered instrument, will not, if
completed and negotiated without authority, be a valid contract in the hands of any holder, as against any
person, such as A, whose signature was placed thereon before delivery.
Suppose that F is a holder in due course, can he now enforce the said instrument against A? No, the nondelivery of an incomplete instrument of an incomplete instrument is a valid defense, not only between the
original parties but also against a holder in due course. The law uses the phrase any holder which includes a
holder in due course.
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Does it mean that F cannot enforce the instrument as against any party? No, the invalidity of the instrument is
only with reference to the parties whose signature appears on the instrument prior to delivery. As to parties
whose signature appear on the instrument after the delivery, the instrument may be valid.
In the example given above, who are liable against F, or who can F enforce the said instrument? F can enforce
the instrument against B, C, D, and E. The instrument is valid as to B because he was the one responsible for the
negotiation of the instrument, its theft and filling up, and because he is an endorser and as such he warrants
that the instrument is in all respect what it purports to be, and as to C, D, and E, also because they are
endorsers.
What is the defense of a party whose signature appears on an instrument prior to delivery? The possible
defense of such party is that against him, the instrument is not valid for having been incomplete and
undelivered. Such a defense can be interposed not only against one who is not a holder in due course but also
against a holder in due course, as the law uses the term any holder. It is, therefore, a real defense.
Is delivery conclusively presumed where the instrument is incomplete? No, delivery is not conclusively
presumed where the instrument is incomplete. There is however, a prima facie presumption of delivery which
the maker may rebut by proof of non-delivery.
What is meant by conclusive presumption? It is a presumption wherein contrary proof is barred.
As to deliveries:
WHERE THE INSTRUMENT IS
Incomplete and undelivered
Complete and undelivered
Incomplete and delivered
AS TO A:
Holder in due course
THE PRESUMPTION IS:

Prima facie
Conclusive
Conclusive
Suppose A makes or draws an incomplete instrument and entrusts it to B for safekeeping or custody. B instead
completes the instrument and negotiates it to C, who is a holder in due course. May C enforce the note
against A? Yes, delivery to the agency or custodian is a sufficient delivery to bind the maker or drawer.
SECTION 16.Delivery; When Effectual; When Presumed. Every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto.
As between immediate parties, and as regards a remote party other than a holder in due course, the
delivery, in order to be effectual, must be made either by or under the authority of the party making,
drawing, accepting, or endorsing, as the case may be; and in such case the delivery may be shown to have
been conditional, or for a special purpose only, and not for the purpose of transferring the property in the
instrument.
But where the instrument is in the hands of a holder in due course, a valid delivery thereof by all
parties prior to him so as to make them liable to him is conclusively presumed. And where the instrument is
no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by
him is presumed until the contrary is proved.
Suppose A makes a complete instrument: I promise to pay B or order the sum of P1000. (Sgd.) A. Later on, A
tore up the instrument without delivering the note to B. Did B acquire any right to the said instrument? No did
not acquire any right because no rights arise in respect to an instrument until it is delivered.
DBR vs SIMA WEI
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FACTS: Sima Wei issued two crossed checks payable to petitioner Bank drawn against China Banking
Corporation. The said checks were allegedly issued in full settlement of the drawer's account evidenced by the
promissory note. These two checks were not delivered to Development Bank Of Rizal or to any of its authorized
representatives. For reasons not shown, these checks came into the possession of respondent Lee Kian Huat,
who deposited the checks without Development Bank Of Rizal's endorsement (forged or otherwise) to the
account of respondent Plastic Corporation in Producers Bank.
Development Bank of Rizal now filed a complaint for a sum of money against respondents Sima Wei and/or Lee
Kian Huat, Mary Cheng Uy, Samson Tung, Asian Industrial Plastic Corporation and the Producers Bank.
ISSUE 1: Whether or not DBR has acquired any rights to the two crossed checks?
ISSUE 2: Whether petitioner Bank has a cause of action against any or all of the defendants.
HELD:
ISSUE 1: No. Under the NIL, Every contract on a negotiable instrument is incomplete and revocable until delivery
of the instrument for the purpose of giving effect thereto. Thus, the payee of a negotiable instrument acquires
no interest with respect thereto until its delivery to him. Delivery of an instrument means transfer of
possession, actual or constructive, from one person to another. Without the initial delivery of the instrument
from the drawer to the payee, there can be no liability on the instrument. Moreover, such delivery must be
intended to give effect to the instrument. In the instant case, the instrument was not delivered to DBR.
ISSUE 2: Without the delivery of said checks to DBR, the former did not acquire any right or interest therein and
cannot therefore assert any cause of action, founded on said checks, whether against the drawer Sima Wei or
against the Producers Bank or any of the other respondents. It does not necessarily follow that the drawer Sima
Wei is freed from liability to petitioner Bank under the loan evidenced by the promissory note agreed to by her.
These checks were never delivered to petitioner Bank. And even granting, without admitting, that there was
delivery to petitioner Bank, the delivery of checks in payment of an obligation does not constitute payment
unless they are cashed or their value is impaired through the fault of the creditor.
Unless respondent Sima Wei proves that she has been relieved from liability on the promissory note by some
other cause, petitioner Bank has a right of action against her for the balance due thereon.
However, insofar as the other respondents are concerned, petitioner Bank has no privity with them. Since
petitioner Bank never received the checks on which it based its action against said respondents, it never owned
them (the checks) nor did it acquire any interest therein. Thus, anything which the respondents may have done
with respect to said checks could not have prejudiced petitioner Bank.
Give us the outline of rules on delivery of negotiable instruments under Section 15 and 16:
(1) Delivery is essential to the validity of any negotiable instrument.
(2) As between immediates parties, delivery must be coupled with the intention of transferring title to the
instrument.
(3) An instrument signed by the drawer or maker but not completed by him and retained in his custody is invalid
as to him for want of delivery even though stolen and negotiated to a holder in due course.
(4) When a mechanically complete by undelivered instrument is in the hands of a holder in due course, there is
prima facie presumption of delivery.
(5) Where the custody of the incomplete instrument has been entrusted to another, who wrongfully completes
and negotiates it to a holder in due course, delivery to the agent or custodian is sufficient delivery to bind the
drawer or maker.
(6) A completed instrument in the possession of a holder not in due course, there is a prima facie presumption
of delivery but subject to rebuttal.
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(7) Where a complete but undelivered instrument is in the hands of a holder in due course, there is a conclusive
presumption of delivery.
(8) Delivery of the instrument may be made on a parol condition or for a special purpose consistent with its
written terms.
Can the maker or drawer revoke or tear out an instrument? Yes, before delivery, the maker or drawer can
revoke, cancel or tear up the instrument.
What is the significance if the instrument is not yet delivered to the payee? The payee named in the
instrument acquires no right until the instrument is delivered to him.
What is an immediate party?
Literal meaning the drawer and the payee are immediate parties to each other. So are the maker and
the payee to each other. So also are the indorser and indorsee to each other. (p178, 446)
Broader meaning an immediate party is confined to those who are immediate, in the sense of knowing or
being held to know the conditions or limitations placed upon delivery of the instrument. (p179, 447)
What is a remote party?
Literal meaning the drawer or maker to the indorsee is a remote party. (p178, 446)
Broader meaning the criterion is whether or not the party in question knows of the conditins or limitations
placed upon delivery or the fact that the instrument was not delivered but stolen.
If the party knows, he is an immediate party even though he is physically remote.
If he does not know, he is a remote party even though he is the next party physically. (p179, 447)
M made a promissory note, kept it inside his drawer. It was stolen by B. A knew that B got the
promissory note from the latter M. Is A considered an immediate party? Yes, even if A is physically
remote from M, A is an immediate party as far as M is concerned because he knows of the lack of delivery.
(p179, 448)
What is conditional delivery? It is delivery to another, with a condition.
Ex: A makes a complete note in favor of B, with the understanding that it is not to become binding on A
until it is also signed by C. (p180, 451)
A made a promissory note and then delivered to B, subject to the condition that B could not negotiate
the same promissory until B passes the bar exam? Is that an example of a conditional delivery? Why? (p180,
452)
Yes, what is conditional here is the delivery, not the promise or order to pay.
Does conditional delivery affect the negotiability of the instrument? No, it is still negotiable because the
condition was set on the delivery and not on the promise or order to pay.
Did the promissory note itself provide that it will be made payable only if B passes the bar exam? No, if it
did then it would be rendered non-negotiable because a negotiable instrument must be an unconditional order
or promise to pay.
What is delivery for special a purpose? Delivery for purposes of (1) safekeeping or (2) for collection only.
Ex: A delivers a complete note payable to bearer signed by him to B for (1) safekeeping or (2) for collection
only. (p180, 453)
A completed a note which was stolen by B. Note was endorsed to C, C to D, D to E. E is now a
Page 46

holder in due course. May A raise the defense that the note was stolen? What type of defense is it? No,
where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties to him is
conclusively presumed. (p181, 454) It is a personal defense, it cannot be raised against a holder in due course.
(455)
What if the instrument was delivered but was not authorized, is it a personal defense? It is just a personal
defense, it cannot be raised against a holder in due course.
What if the instrument was delivered on a condition or special purpose? personal? It is just a personal
defense, it cannot be raised against a holder in due course.
What is the duty of a holder of a lost instrument? As soon as the owner discovers that he has lost a negotiable
instrument, he should instantly give notice of the loss to all the parties on such paper and inform them not to
pay the amount to any except to the loser or his order. (p182, 458)
What are the rights of a finder of a lost instrument? No title to a lost bill or note vests in the finder and, the
owner, when he has identified it, may maintain trover against the finder. (p182, 459) The rules in the Civil Code
in finding something does not apply in a lost negotiable instrument.
What is a trover? It is a common law concept. It is an action to recover the value of goods.
May an owner file an action for replevin for his instrument? Yes, the owner may likewise maintain an action for
replevin against the finder. (459) Replevin an action to recover goods from one who has wrongfully acquired
such.
What if a finder of the note received payment for the note. May an action for money be filed against him?
Why?
Yes, because the finder acquired no rights when he found the lost instrument, likewise he acquired no right to
receive payment for the note.
What if the party liable to the instrument pays the same. May the party of the said instrument be discharged
of his liabilities? Ex. Maker > Payee > A > B (lost the instrument) > C (found the lost instrument)
C collected the amount from the Maker, is the Maker discharged from his liability? It depends, a party
will not be discharged if he pays the amount to the holder of the lost instrument before maturity, as such
payment is not made in the usual course of business. (460)
Ex. A promissory note dated Jan 10, 2014, on Jan 6, C went to Maker to collect 1M. Is the Maker
discharged from his liability? No, because he paid the 1M before the maturity of the promissory note. Also if
B already informed the Maker of the loss and despite being notified he still paid C, the maker is still not
discharged. Otherwise if the maker was not notified by B of the loss, and the maker paid C upon the
maturity of the promissory note, then the maker is discharged of his liability.
A made a note and placed it on his table and was taken by B. May B be criminally liable? Yes, Any
person who with intent to gain, but without violence against or intimidation of persons nor force upon things,
shall take the a negotiable instrument belonging to another without the latters consent is guilty of the crime of
theft. (461)
The instrument was placed inside a locked compartment. The same was destroyed by B and took the
instrument. May B be criminally liable? Yes, but not theft anymore since the taking with intent to gain was
done with force upon things, the offender is now guilty of the crime of robbery.
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What if the person with intent to defraud another, removed, concealed or destroyed the said instrument.
What crime is he liable? What provision of the RPC? Yes, any person who shall defraud another by removing,
concealing or destroying in whole or in part a negotiable instrument is guilty of the crime of estafa under Art 315
of the RPC.
SEC 17. Construction where instrument is ambiguous
When do you construe an instrument? When the language of the instrument is ambiguous or there are
omissions therein.
When do you apply the rules of construction? It is only applicable when the instrument in question is
ambiguous, doubtful or obscure, or when there are omissions therein. (p183, 463)
The instrument provides for interest without specifying the date. When should interest commence? The note
will earn interest from the date of the note, or the date of its issue, at the legal rate. (p184, 466)
What if there is discrepancy between the sum written in words and the sum written in figures. Which should
govern?
The sum written in words should govern first.
Ex. Where a promissory note reads twelve pesos (in words), in its body and Php 12,000 (in figures) at the
margin. The note is only good for Php 12 only. (p184, 464)
Reason: it is easier to change the figures or to commit a mistake in regards to them than when the sum is
written out in words.
What if the words are ambiguous? When the words are ambiguous or uncertain, reference may be had to the
figures to fix the amount. (465)
What if the instrument is not dated? Under Sec 17, if the instrument is not dated, the date of its issue will be
considered its date.
What is the difference between this rule and the rule under section 11? Under Sec 11, the instrument is dated
it will be presumed to be its true date. However the presumption is prima facie, or rebuttable, between the
immediate parties (but not against a holder in due course). Under Sec 17, the instrument is not dated, and the
date of its issue will be considered its date.
What if there is a conflict between written and printed provisions? The handwritten words would prevail.
(p185, 468)
Which will govern?
Ex. Written
Printed
Eight hundred
Three hundred
A: Written governs
Q: Which will govern?
Ex. Written
Printed
300
Eight hundred
A: SIR: Printed governs, lets first follow the first rule of construction because the first construction is very
specific pertaining to figures and words. With respect to figures and words there is a specific rule that words
should govern. When there is a particular rule on words and figures we must first follow it. In this case where
there is an issue between figures and words, follow the first construction where the words governs even though
Page 48

it was printed and the figures were written. The rule where written governs over printed applies only when
there is no issue between words and figures, like the first example.
What if the bill is so ambiguous to be considered as a bill or note? The payee or the holder may treat it as a bill
or note at the election of the holder. (p185, 469)
Ex: I promise to pay to the order of B Php 1,000 at the PNB.
(Sgd) A
To the PNB
Accepted, (Sgd) PNB
What if the signature is placed upon the instrument making it unclear as to what capacity said person signing
it. What is the rule? If the capacity of the person signing is so unclear, he shall be treated as a mere indorser.
(470)
What if a person signed in the place of the makers name? Is he deemed as a maker? One who signed in the
place of the makers name is not an indorser. Sec 17 applies only to cases of doubt arising out of the location of
the signature.
Instrument says I promise to pay but signed by 2 or more persons. What is the rule? They are deemed to be
jointly and severally liable, not merely jointly liable. The holder of the instrument can collect the whole amount
of the instrument from either of them.
SEC 18. Liability of person signing in trade or assumed name
A persons signature is not found in the instrument, may he be held liable?
General Rule: A person whose signature does not appear on the instrument is not liable. (p186, 473)
Exceptions: (p187, 474)
1. When a duly authorized agent signs for a person, that person is liable;
2. Where a person sought to be charged forges the signature of another person, the forger is liable even if
his signature does not appear thereon;
3. Where a person sought to be charged signs on a paper separate from the instrument itself, as in an
allonge or where an acceptance is written on a paper other than the bill itself under Sec 134 and 135;
4. Where the person uses an assumed name or trade name. (ex. Partners under the law firm TGGT. A note
was given for firm purposes signed by TGGT by WG a partner in the firm. All partners here are liable
for the note because used an assumed name or trade name)
What is an Allonge? An allonge is a piece of paper annexed to a negotiable promissory note in which to write an
endorsement where there is no room on the instrument itself. It must be firmly affixed thereto as to become a
part thereof. So if your signature is not found on the instrument itself but written on an allonge firmly affixed
thereto, you can still be held liable.
Where do you usually find an endorsement? At the back of the instrument
What do you call an additional attachment included in the instrument? An allonge.
SEC 19. Signature by agent; authority; how shown.
May the signature of the maker be signed by another person? Yes, as long as it is made by a duly authorized
agent or representative
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What if the agency is merely constituted orally? Is that allowed? The agency may be oral or written. There is no
particular from required by the law and the agency may be proved by oral or written evidence, unless specific
provisions of the general law, such as, the statute of frauds, require otherwise. (p188, 477)
X was made an agent to collect payment and received a check from the debtor. May X now endorse the
check?
No, the agents authority to collect does not include the authority to indorse the instrument. (p188, 477)
SEC 20. Liability of person signing as agent
What are the requisites for an agent to escape liability? (p188, 478)
1. Must be duly authorized;
2. Add words to his signature indicating that he signs as an agent, that is, for and in behalf of a principal, or in a
representative capacity; and
3. Disclose his principal.
How do you sign as an agent?
Ex. If Pedro Vega is the agent and Jose Cruz is the principal.
(1) Jose Cruz
By Pedro Vega
(2) Pedro Vega
For Jose Cruz
(3) Pedro Vega
As agent of Jose Cruz
What if the principal is not disclosed? Then the agent is personally liable on the instrument even if he is duly
authorized. (p189, 480)
PHILCOM vs ARUEGO
FACTS: To facilitate payment of the printing of a periodical called World Current Events., Aruego, its publisher,
obtained a credit accommodation from the Philippine Bank of Commerce. For every printing of the periodical,
the printer collected the cost of printing by drawing a draft against the bank, said draft being sent later to
Aruego for acceptance. As an added security for the payment of the amounts advanced to the printer, the bank
also required Aruego to execute a trust receipt in favor of the bank wherein Aruego undertook to hold in trust
for the bank the periodicals and to sell the same with the promise to turn over to the bank the proceeds of the
sale to answer for the payment of all obligations arising from the draft. The bank instituted an action against
Aruego to recover the cost of printing of the latters periodical. Aruego however argues that he signed the
supposed bills of exchange only as an agent of the Philippine Education Foundation Company where he is
president.
ISSUES: Whether Aruego can be held liable by the petitioner although he signed the supposed bills of exchange
only as an agent of Philippine Education Foundation Company.
HELD: For failure to disclose his principal, Aruego is personally liable for the drafts he accepted, pursuant to
Section 20 of the NIL which provides that when 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 filing a representative character,
without disclosing his principal, does not exempt him from personal liability.
Page 50

FRANCISCO vs. CA
FACTS: A. Francisco Realty & Development Corporation (AFRDC), of which petitioner Francisco is the president,
entered into a Land Development and Construction Contract with private respondent Herby Commercial &
Construction Corporation (HCCC), represented by its President and General Manager private respondent Ong.
Under the contract, HCCC was to be paid on the basis of the completed houses and developed lands delivered to
and accepted by AFRDC and the GSIS. Sometime in 1979, Ong discovered that Diaz and Francisco, the VicePresident of GSIS, had executed and signed seven checks of various dates and amounts payable to HCCC for
completed and delivered work under the contract. Ong, however, claims that these checks were never delivered
to HCCC. It turned out that Francisco forged the indorsement of Ong on the checks and indorsed the checks for
a second time by signing her name at the back of the checks, petitioner then deposited said checks in her
savings account. A case was brought by private respondents against petitioner to recover the value of said
checks. Petitioner however claims that she was authorized to sign Ong's name on the checks by virtue of the
Certification executed by Ong in her favor giving her the authority to collect all the receivables of HCCC from the
GSIS, including the questioned checks.
ISSUE: Whether petitioner cannot be held liable on the questioned checks by virtue of the Certification executed
by Ong giving her the authority to collect such checks from the GSIS.
HELD: Petitioner is liable. The Negotiable Instruments Law provides that where any person is under obligation
to indorse in a representative capacity, he may indorse in such terms as to negative personal liability. An agent,
when so signing, should indicate that he is merely signing in behalf of the principal and must disclose the name
of his principal; otherwise he shall be held personally liable. Even assuming that Francisco was authorized by
HCCC to sign Ong's name, still, Francisco did not indorse the instrument in accordance with law. Instead of
signing Ong's name, Francisco should have signed her own name and expressly indicated that she was signing as
an agent of HCCC. Thus, the Certification cannot be used by Francisco to validate her act of forgery.
Should the disclosure of principals be in the signature portion of the instrument? The disclosure of the
principal in order to relieve the agent from liability need not be in the signature. (481)
SEC 21. Signature of Procuration
What is the effect by a signature of procuration? It constitutes as a warning that the agent has but limited
authority, and therefore, a person who takes the instrument so signed is bound at his peril to inquire into the
extent and nature of the agents authority, and this applies to every person. (p190, 484)
SEC 22. Effect of indorsement by infant or corporation
What is the effect if the endorsement is made by an infant? A minor cannot give consent to contracts and a
contract entered into by him is voidable. Nevertheless, if a minor or corporation indorses an instrument, the
indorser acquires title to it and can enforce it against the maker or acceptor or other parties prior to the minor.
(485)
To whom can an endorsee go after? against the maker or acceptor or other parties prior to the minor
What about a lunatic? Sec 22 applies also to indorsements by lunatics, imbeciles, and other incapacitated
persons. (p191, 487)
Page 51

SECTION 23.Forged Signature; Effect of . When a signature is forged or made without the authority of the
person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to
give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through
or under such signature, unless the party against whom it is sought to enforce such right is precluded from
setting up the forgery or want of authority.
What is forgery? It is the counterfeit making or fraudulent alteration of any writing, and may consist in the
signing of anothers name, or the alteration of the instrument in the name, amount, description of the person
and the like, with intent to defraud.
Is it limited to only signature? No, it also includes forged indorsements.
JAI-ALAI VS BPI
FACTS: Petitioner deposited 10 checks in its current account with BPI. The checks which were acquired by
petitioner from Ramirez, a sales agent of the Inter-Island Gas were all payable to Inter-Island Gas Service, Inc. or
order. After the checks had been submitted to Inter-bank clearing, Inter-Island Gas discovered that all the
indorsements made on the checks purportedly by its cashiers were forgeries. BPI thus debited the value of the
checks against petitioner's current account and forwarded to the latter the checks containing the forged
indorsements which petitioner refused to accept.
ISSUE: Whether BPI had the right to debit from petitioner's current account the value of the checks with the
forged indorsements.
HELD: BPI acted within legal bounds when it debited the petitioner's account. Having indorsed the checks to
respondent bank, petitioner is deemed to have given the warranty prescribed in Section 66 of the NIL that every
single one of those checks "is genuine and in all respects what it purports to be." Respondent which relied upon
the petitioner's warranty should not be held liable for the resulting loss.
**The depositor of a check as indorser warrants that it is genuine and in all respects what it purports to be.
Having indorsed the checks to respondent bank, petitioner is deemed to have given the warranty prescribed in
Section 66 of the NIL that every single one of those checks " is genuine and in all respects what it purports to be."
As against the collecting bank and the drawee bank, who should suffer the loss? It is the collecting bank
REPUBLIC VS EBRADA:
FACTS: Ebrada encashed a Back Pay Check issued by the Bureau of Treasury at the Republic Bank in Escolta
Manila. The Bureau of Treasury advised the Republic Bank that the instrument was forged. It informed the bank
that the original payee of the check died 11 years before the check was issued. Therefore, there was a forgery of
his signature.
This is the sequence:
Martin Lorenzo The deceased person, original payee, where the forgery happened
Ramon Lorenzo
Delia Dominguez
Mauricia Ebrada Defendant-appelant
Ebrada refuses to return the proceeds of the check claiming that she already gave it to Delia Dominguez. She
also claims that she is a HDC (holder in due course) and that the bank is already estopped.
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HELD: Ebrada should return the proceeds of the check to Republic Bank. As an indorser of the check, she was
supposed to have warranted that she has good title to said check. See Section 65.
It is only the negotiation based on the forged or unauthorized signature which is inoperative. Therefore:
Martin Lorenzo Signature inoperative
Ramon Lorenzo To Dominguez: operative
Delia Dominguez To Ebrada: operative
Mauricia Ebrada
Drawee bank can collect from the one who encashed the check. If Ebrada performed the duty of ascertaining
the genuiness of the check, in all probability, the forgery wouyld have been detected and the fraud defeated.
Does the existence of a forged signature in the instrument render void all the negotiations of the check in
respect to other parties? No, it does not. Only the forged signatures are rendered inoperative.
What distinguishes forgery from innocent alteration? The intent to defraud.
What is meant by intent to defraud? It is the intention to deceive others causing financial loss to such party. It
is more than bad faith.
MWSS vs CA
FACTS: Metropolitan Waterworks and Sewerage System (MWSS) had an account with PNB. When it was still
called
NAWASA, MWSS made a special arrangement with PNB so that it may have personalized checks to be printed
Mesina Enterprises. These personalized checks are the ones being used by MWSS in its business transactions.
From March to May 1969, MWSS issued 23 checks to various payees in the aggregate amount of P320,636.26.
During the same months, another set of 23 checks containing the same check numbers earlier issued were
forged. The aggregate amount of the forged checks amounted to P3,457,903.00. This amount was distributed to
the bank accounts of three persons: Arturo Sison, Antonio Mendoza, and Raul Dizon. MWSS then demanded
PNB to restore the amount of P3,457,903.00. PNB refused. The trial court ruled in favor of MWSS but the Court
of Appeals reversed the trial courts decision.
ISSUE: Whether or not PNB should restore the said amount.
HELD: No. MWSS is precluded from setting up the defense of forgery. It has been proven that MWSS has been
negligent in supervising the printing of its personalized checks. It failed to provide security measures and
coordinate the same with PNB. Further, the signatures in the forged checks appear to be genuine as reported by
the National Bureau of Investigation so much so that the MWSS itself cannot tell the difference between the
forged signature and the genuine one. The records likewise show that MWSS failed to provide appropriate
security measures over its own records thereby laying confidential records open to unauthorized persons. Even
if the twenty-three (23) checks in question are considered forgeries, considering the MWSSs gross negligence, it
is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law.
The Supreme Court further emphasized that forgery cannot be presumed. It must be established by clear,
positive, and convincing evidence. This was not done in the present case.
What is the effect if the signature is forged or made without the authority of the person whose signature it
purports to be?
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1) It is wholly inoperative
2) No right to retain the instrument
3) To give a discharge therefor
4) To enforce payment thereof against any party thereto
What is the exception to this? When the party against whom it is sought to enforce such right is precluded from
setting up the forgery or want of authority.
What are the forms of forgery?
1) Ordinary forgery
2) Fraud in factum
3) Duress amounting to forgery
4) Fraudulent impersonation
Give an example of an ordinary forgery: 1) B makes a promissory note, making himself the payee, and forges
the signature of A, making it appear that A made the note; 2) A draws a bill of exchange against X, payable to the
order of B. Y fraudulently gets hold of the bill and signs the name of B, payee, endorsing the bill to himself.
What is fraud in factum? It is a fraud wherein the signature in a purported negotiable instrument was made
without any intention to issue an instrument.
Give an example of an fraud in factum: X obtains the signature of John Lloyd Cruz by telling the latter it is only
for autograph purposes. Then X writes above the signature a negotiable instrument. Although that is really the
signature of JLC, but there is really no intention on his part to convert the paper into a promissory note. As it
amounts to forgery, it has the effect of forgery such that it is a real defense.
X informed Y that he is in need of money and in fact he promised Y that he will bring the jewelry box which
contain several valuable jewelries. Because of that representation, Y issued a check amounting to P5 million
payable to order of X. It turned out that the jewelry box contained no jewelry. May Y claim forgery? Y may not
claim forgery because this is not the type of forgery contemplated under Section 23. This is a fraud in
inducement wherein X induces Y to issue the check, which does not amount to forgery and which is only a
personal defense (which may not be raised against a holder in due course).
Give an example of duress amounting to forgery: A points a gun against B and forces him to sign his name on a
negotiable instrument.
Give an example of fraudulent impersonation: X represents himself to be Juan Cruz, when in fact he is not. By
this misrepresentation, X obtains from Y a note payable to the order of Juan Cruz. Then X endorses the note,
signing as Juan Cruz
Can this be considered as forgery? It depends upon whom Y intends to pay. If Y intends that proceeds of the
note will go to X, the person dealing with him, named at the time Juan Cruz, then Xs signature of the name
Juan Cruz is not a forgery. But if Y intends that the proceeds of the note will go to the REAL Juan Cruz and not
X, but whom Y issued the notes on the belief that X was Juan Cruz, Xs signature of Juan Cruz would be a
forgery.
Intent of the drawer/maker of the instrument that the Proceeds of the
note will go to the:
person physically present before him.
Not a forgery
Page 54

person whom he believes the stranger to be.
Forgery
What is the difference between the two? In the first case, X is the intended payee, regardless of his name. In
the second, Juan Cruz is the intended payee, not X.
What is double intent in fraudulent impersonation? First, he intends to make the instrument payable to the
person physically present before him or to the person writing at the other end of the line, in case the
negotiation is by correspondence. Second, he intends to make the instrument payable to the person whom he
believes the stranger to be.
*Which is controlling? The first is the controlling intent except where the name of the payee was already
known to the maker or drawer, or was more particularly identified in some manner, e.g., by some designation,
description or title.
In our example does Xs signature of Juan Cruz constitute a forgery? No because X is the intended payee and
therefore, Xs signature of Juan Cruz would ordinarily not constitute a forgery but a signature of an assumed
name.
Macario Davide went to C and represented himself as Hilario Davide III. Because of such representation, C
issued a check payable to the order of Hilario Davide III, Governor of Cebu, the sum of P1 million, payable on
demand. Thereafter, the instrument was negotiated by Macario Davide to D. D wants to enforce the said
amount to C. Can he do that? No because the name of the payee was particularly described by some
designation. Therefore the second intent, i.e., the drawer intends to make the instrument payable to the person
whom he believes the stranger to be,
is controlling. This amounts to forgery and therefore, D cannot enforce the instrument against C.
SIR: Its already part of the exception. If X misrepresents in front of you passing off as Y, and you acted on such
misrepresentation, the rule is that forgery may not be present because you always go to the first intent, i.e., the
person who issued the check intends pay to the person who is physically present before him. However, this rule
admits of an exception, i.e., where the person or the name of the payee was already known to the maker or
drawer, or was more particularly identified in some manner, e.g., by some designation, description or title. In
our example, the payee was particularly identified in the instrument by some designation as the Governor of
Cebu. Even if C, did not know the physical appearance of the Governor of Cebu, C also made sure that he is well
protected by stating therein that he is paying Hilario Davide III, the Governor of Cebu, and not some other
person. Thus in the example: 1) there is forgery and 2) falls under the exception, therefore, D cannot enforce
the instrument against C.
What is the theory of actual intent? The drawer, among all other parties, in entertaining that person before
him, should be the one to discover or detect the forgery, because it is the drawer who directly transacted with
that person. The drawer is duty-bound to ascertain the identity of such person by asking for any personal
identification (Government issued IDs, Passport, Company ID) from that person before him or the former could
try to compare the signature of the latter using said IDs, and not entirely believe on the representation made by
that person, unless you know that person personally. Considering that it was the drawer who entertained that
person, then the law gives the obligation on your part and in fact the law would make that document issued as a
valid and binding negotiable instrument. It will never be considered by the law as forgery. Therefore, the first
intent is controlling, i.e., the drawer really intended to pay the person before him.
Given another reason for the rule: theory of estoppel or negligence. As between two innocent persons, the one
whose act was the cause of the loss should bear the consequence.
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What if the impostor did not represent as the payee but as the agent of the payee? In the absence of
negligence on the part of the drawer that as between the drawer and drawee, or between the drawer and a
holder in due course, the loss falls on the drawee or the purchaser.
X files a case against Y to collect the sum of P1 million under a promissory note. Y did not sign such promissory
note. In fact, Y did not know that such note existed. The copy of the promissory note was attached to the
complaint. How should Y deny such promissory note? Y should deny specifically under oath, otherwise the
genuineness and due execution of the instrument shall be deemed admitted.
What is the meaning of genuineness and due execution? Is meant that the party whose signature it bears
admits that:
(1) he signed it, or it was signed by another for him, with his authority
(2) the words and figures in such document are exactly as set out in the pleading of the party relying upon it
(3) any formal requisites required by law are waived by him.
What are the defenses that are considered waived?
(1) that the signature is a forgery
(2) that it was unauthorized, as in the case of an agent signing for his principal or on behalf of a corporation
(3) that the party signed the instrument in some other capacity.
Is coercion, imbecility, illegality considered waived? No because these are matters which are not inconsistent
with the execution and genuineness of the instrument.
A (maker) makes a note payable to the ORDER of B (payee). C (forger) got hold of the instrument and forged
the signature of B and passed himself as B. C then endorses it to D (endorser), D endorses it to E(holder). May
E enforce the note against the A (maker)? No because as the signature of B is forged or made without the
authority of the B, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor,
or to enforce payment thereof against any party prior to the forgery, such as A. Considering that it is an order
instrument, the endorsement is necessary.
SIR: Take note this is an order instrument. When A makes such promissory note, he promised to B or his order.
So he bound himself to pay B or his order. In this case, B did not order C or D or E, for that matter, to get hold of
the instrument and present it for payment to A. In effect, C, D and E have no rights to the instrument because
the signature of B is important being an order instrument. So, E cannot enforce such instrument against A.
May E (holder) make B (payee) liable? No because his signature is forged. Therefore the instrument is wholly
inoperative as to B, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against B (payee), can be acquired through or under such forged signature.
May E (holder) make C (forger) liable? Yes, as a forger and endorser, C is liable to E.
May E (holder) make D (endorser) liable? Yes, as an endorser, D warrants that the instrument is in all respects
what it purports to be.
What if the instrument is a BEARER document: A (maker) makes a note payable to B (payee) or BEARER. C
(forger) got hold of the instrument and forged the signature of B and passed himself as B. C then endorses it
to D (endorser), D endorses it to E(holder in due course). May E enforce the note against the A (maker)? Yes, E
may enforce the note against A because as a bearer instrument, the endorsement of the instrument is not
Page 56

necessary to pass title to the document to subsequent parties, such as E. Thus, E as a holder in due course, he
may enforce the note even to parties prior to the forgery.
How do you negotiate a bearer instrument? By mere delivery.
In the same example, is the signature of B necessary? No.
Why is it that only a HDC (holder in due course) can make A (maker) liable in the same example? Yes, under
Section 16 of the NIL, want of delivery of a mechanically complete instrument cannot be interposed against a
HDC because where the instrument is in the hands of a HDC, a valid delivery thereof by all parties prior to him
so as to make them liable to him is conclusively presumed.
SIR: Forgery can never be a defense here because this is just a bearer instrument which can be negotiated by
mere delivery. When you can negotiate by mere delivery, those forged signature are taken as mere surplusage,
i.e., they are not necessary in order for the subsequent parties to a forgery can acquire title or right over such
instrument. What is necessary here is deliver. Take note this is a mechanically complete instrument but
undelivered.
What if E is not a HDC? Under Section 16 of the NIL, where the instrument is no longer in the possession of a
party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is
proved. Thus, E may not enforce the note against the party whose endorsement is forged. In such cases, the
defense of want of delivery is available against E as there is only prima facie presumption of delivery of a
mechanically complete instrument, which A (maker) or B (payee) may controvert.
Can E (holder) enforce the note against C (forger)? Yes, as a forger and an endorser, he is liable to E.
May E (holder) enforce the note against D (endorser)? Yes, as an endorser, D warrants that the instrument is
genuine and in all respects what it purports to be. By mere delivery you are also making a warranty.
Can we extend class? Do you have a class? Yes Are you sure?!? Yes!!! Is you teacher here? Not yet Ah, not yet
thank you very much.
If the instrument contains a forged signature, does it render the whole instrument inoperative? No, it does
not. Only the forged signatures are rendered inoperative.
What are the two general classes of persons that are precluded from setting up the defense of forgery?
(1) those who warrant or admit the genuineness of the signature in question
(2) those who by their declaration, acts, silence or negligence are estopped from setting up the defense of
forgery.
What is being warranted by the endorsers? He warrants that the instrument is genuine and in all respects what
it purports to be.
Who are included under the classs of warrantors of genuineness?
(1) endorsers
(2) persons negotiating by delivery
(3) acceptors/warrantors
Who are those persons estopped or precluded from raising forgery? It includes persons who ratify such
instrument.
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Give an example of those who by their acts, silence or negligence are estopped from setting up the defense of
forgery: As signature on a note is forged. B is the payee. C wants to buy the note but before buying it, he asks A
if the signature is As signature, and A says, It is all right. C can collect from A who is estopped from setting up
the defense of forgery. Other examples are: 1) unreasonable delay in giving notice of forgery and 2) negligence
in delivery.
What are the rights of parties in forgery of endorsement in a note payable to order? The party whose
endorsement is forged and parties prior to him including the maker cannot be held liable by the holder,
whether that holder is a HDC or not.
Why?
1) Inasmuch as the endorsement is forged, it is inoperative. It cannot effect any transfer of any rights to the
holder.
2) The law provides that no right to retain the note, give discharge therefor, or enforce payment, could be
acquired through and under the forged signature.
3) A forger acquires no right to the note. As he is the transferor to the holder or the predecessor of the holder,
the transferee acquires whatever rights the forger has in the note, but as the forger has no rights to the note,
the transferee likewise acquires no rights against such prior parties.
In the same example of a bearer instrument, what if its the signature of the A (maker) that is forged: May E
enforce the note against the maker? Where the makers signature is forged, he cannot be held liable by any
holder, whether the holder is a holder in due course or not.
Order instrument: A - drawer, B payee, D drawee bank, C collecting bank, F forger; The check was
issued by A drawn against D worth P1 million payable to B. F, fraudulently gets hold of the check and forges
the signature of B. F then deposits the check in C collecting bank. C bank endorses the check to D drawee bank
and collects from D bank through the clearing house. Then, F, forger withdraws from C bank the proceeds of
the check and disappears:
May As drawer account be charged by D the drawee bank? As account cannot be charged by the drawee B for
the amount paid and if his account is charged, A can recover the amount from D, because as an order
instrument the depositary owes to the depositor an absolute and contractual duty to pay the check only to
the person to whom it is made payable or upon his genuine endorsement. The drawee bank has no legal right
to pay the money of the drawer on deposit with it to anyone except the drawer or its order. In this case, the
signature of B is forged, therefore, there was no genuine endorsement.
May the drawer collect from the collecting bank? No, the drawer has not right to collect from the collecting
bank, as the duty of the collecting bank to exercise care in collection is due only to the payee.
May drawee bank recover from the collecting bank? Yes, it may recover from the recipient of the payment such
as the collecting bank under a forged endorsement because the collecting bank, as an endorser, warranted that
the instrument is genuine and in all respects what it purports to be, and it has breached that warranty.
May the payee collect the amount due him from the drawer? Yes, the payee can collect from the drawer on
the basis of his claim of debt upon which the check in the first place had been issued. SIR: because there was no
payment.
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May payee recover from the recipient (collecting bank) of payment? Yes, as a general rule, a bank, corporation
or an individual who has obtained possession of a check upon an unauthorized or forged endorsement of the
payees signature and who collects the amount of the check from the drawee is liable for the proceeds to the
payee (rightful owner) or other owner, notwithstanding that they have been paid to the person (forger) whom
the check was obtained.
Is the collecting bank liable to payee? Yes because the possession of the check on the forged or unauthorized
endorsement is wrongful and the proceeds are held for the rightful owners of the payment and may be
recovered by them.
May payee recover it from the drawee bank? No, as a general rule, B payee cannot recover it from D bank
unless the check has been certified or accepted by the bank. Without such certification or acceptance, there is
no privity of contract between the drawee bank and the payee.
Who bears the loss? C collecting bank bears the loss but can recover from the person to whom it has paid the
check, F.
What is the duty of the collecting bank? It is bound to scrutinize checks deposited with it to determine
genuiness and regularity. The collecting bank holds itself out to the public as the expert and the law holds it to a
high standard of conduct.
Supposing it was the drawers signature that was forged, who among the parties can ultimately be held
liable? It is the drawee bank who is liable because as the drawer is its client, it has all the specimen signature of
the drawee and it is bound to scrutinize such signature to determine its genuiness and regularity.
Whose signature is
forged
Payee
Who is ultimately held

liable
Collecting bank
Drawer
Drawee bank
Why
The collecting bank warrants the genuineness and
regularity of all the signatures of the previous
endorsers contained in the said instrument, including
the payees, which turned out to be forged.
The law places to the drawee bank the obligation to
determine the genuineness of the signature because
it is the latter who knows the signatures of its
depositors as all his specimen signature are with it.
May a holder of a bill of exchange payable to bearer recover from the drawee if the endorsement turns out to
be a forgery? Yes provided the instrument is complete and such holder is a holder in due course, since
endorsement is not necessary to his title because in a bearer instrument, endorsement is made by mere
delivery, and in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to
make them liable to him is conclusively presumed.
What is the legal effect if the drawee already accepted the bill and it was found out that the signature of the
drawer was forged?
1) The drawee bank, by principle of estoppel, cannot set up the defense of forgery because when he accepted
the bill, he admitted the genuineness of the signature of the drawer.
2) The drawer is not liable as his signature is inoperative and therefore he is not a party to the bill.
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What is the principle of estoppel? It is a principle which bars a party from denying or alleging a certain fact
owing to that party's previous conduct, allegation, or denial.
A drawer, F forger, D drawee, H holder. F endorses it to H: If the D drawee paid the amount of the
check, may the drawee recover the amount the holder H? No, because under our law, if the drawers signature
is forged and the pays the amount of the check upon presentment, he is considered to be constructively
negligent in his obligation to ascertain the genuineness of the signature of the drawer. As such, he cannot
recover from the holder.
What is the doctrine of comparative negligence? Where a loss must be borne by one of two innocent parties
alike innocent of forgery, can be traced to the neglect or fault of either, it is reasonable that the one through
whose means it has succeeded, must bear the loss.
it would be borne by him, even if innocent of any intentional fraud, through whose means it has succeeded or
who put into the power of the third person to perpetuate the wrong.
In our example who are the two innocent persons and who is liable? The drawee bank and the holder. The
former should bear the loss since it has the obligation to ascertain the genuineness of the signature of the
drawer and it was negligent in performing such obligation which allowed the forger to perpetuate the wrong.
What if both the drawers and payees signature is forged, how will you ascertain the liabilities of the parties?
Under the NIL, the endorser warrants the genuineness of prior endorsements, and if the endorsement of the
payee is forged, the endorser is laible on his warranty to all whom it runs. But the drawee is held not to be a
holder in course, and therefore is not entitled to the benefit of the endorsers warranty. The result is that, so
far as the drawee is concerned, the situation is much the same as though the paper bore no endorsements, but
was payable to bearer (the payment depends whether the holder is a HDC or not). If the drawee bank is a holder
in due course, then it is entitled to an endorsers warrantties
SIR: If both signatures are forged, then last entity who can examine the validity of the signatures by comparing
them with the specimen signatures of the drawer, must be held liable, which in our example is the drawee bank.
The drawee bank has the last clear chance to examine the validity of the signatures. A collecting bank, on the
other hand, upon endorsement, may not know the signature of the drawee and the previous endorsers, but is
likewise is obligated by law to warrant the genuineness of the signatures of the instruments previous endorsers,
including the payees.
What is the criminal liability of the person who forges a signature on an instrument? He may be charge with
falsification of private documents under the RPC.
What about the person who defrauds another by post-dating a check when such person had no or insufficient
funds in the bank? He may be charge with swindling or estafa through post-dating a check.
How about a person who represents to his victim that the check is in fact the check of the person whose
signature is forged and by reason of that representation, the victim was induced to receive the check and pay
the person the value of the instrument? He may be charged with estafa by falsification of signature.
BDO vs EQUITABLE
FACTS: BDO drew checks payable to member establishments. Subsequently, the checks were deposited in
Trencios account with Equitable. The checks were sent for clearing and was thereafter cleared. Afterwards, BDO
discovered that the indorsements in the back of the checks were forged. It then demanded that Equitable credit
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its account but the latter refused to do so. This prompted BDO to file a complaint against Equitable and PCHC.
The trial court and RTC held in favor of the Equitable and PCHC.
ISSUE: Who is ultimately liable
HELD: The collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering that the act of presenting the check for payment to the
drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of
the endorsements. The collecting bank being primarily engaged in banking holds itself out to the public as the
expert and the law holds it to a high standard of conduct. If the drawee-bank discovers that the signature of the
payee was forged after it has paid the amount of the check to the holder thereof, it can recover the amount paid
from the collecting bank. In the instant case, Equitable bank as collecting bank breached its warranty. Hence, it
ultimately bears the loss.
GEMPESAW vs CA
FACTS: Gempesaw was the owner of many grocery stores. She paid her suppliers through the issuance of checks
drawn against her checking account with respondent bank. The checks were prepared by her bookkeeper
Galang. In the signing of the checks prepared by Galang, Gempensaw did not bother in verifying to whom the
checks were being paid and if the issuances were necessary. She did not even verity the returned checks of the
bank when the latter notifies her of the same. During her two years in business, there were incidents shown that
the amounts paid for were in excess of what should have been paid. It was also shown that even if the checks
were crossed, the intended payees did not receive the amount of the checks. This prompted Gempesaw to
demand the bank to credit her account for the amount of the forged checks. The bank refused to do so and this
prompted her to file the case against the bank.
ISSUE: W/N the drawer precluded from setting up forgery or want of authority as a defense?
HELD: Yes. AS a general rule forgery is a defense. The applicable rule is found under Sec. 23 of NIL. A party
whose signature was forged was never a party and never gave his consent to the instrument. The instrument
can not even be enforced against him even by a holder in due course. The drawee bank can not charge the
account of the drawer whose signature was forged because he never gave the bank the order to pay. However,
the petitioner Gempesaw falls under the exception. Gempesaw was guilty of such gross negligence which causes
the bank to honor such checks and such negligence precludes her from setting up the defense of forgery or want
of authority. In the case at bar, the agent (Galang) was the one who perpetrated the series of forgeries. Had the
petitioner been more prudent under the circumstances, she could have discovered the fraud earlier. Drawee
bank which contributed to the loss incurred by the drawer by its own violation of internal rules adjudged liable
to share the loss.
Was there forgery in this case? Yes, forgery in the payees signature
ASSOCIATED BANK vs CA
FACTS: The province of Tarlac maintains an account with PNB-Tarlac. Part of its funds is appropriated for the
benefit of Concepcion Emergency Hospital. During a post-audit done by the province, it was found out that 30 of
its checks werent received by the hospital. Upon further investigation, it was found out that the checks were
encashed by Pangilinan who was a former cashier and administrative officer of the hospital through forged
indorsements. This prompted the provincial treasurer to ask for reimbursement from PNB and thereafter, PNB
from Associated Bank. As the two banks didn't want to reimburse, an action was filed against them.
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ISSUE: Where thirty checks bearing forged endorsements are paid, who bears the loss, the drawer, the drawee
bank or the collecting bank?
HELD: A collecting bank, as an indorser, warrants "that the instrument is genuine and in all respects what it
purports to be; that he has a good title to it; that all prior parties had capacity to contract; and that the
instrument is at the time of his indorsement valid and subsisting." Even if the indorsement on the check
deposited by the banks' client is forged, the collecting bank is bound by his warranties as an indorser and cannot
set up the defense of forgery as against the drawee bank.
The drawee bank, is under strict liability to pay the check to the order of the payee. The drawer's instructions
are reflected on the face and by the terms of the check. Payment under a forged indorsement is not to the
drawer's order. The general rule then is that the drawee bank may not debit the drawer's account and is not
entitled to indemnification from the drawer. The risk of loss must perforce fall on the drawee bank. If at the
same time the drawee bank was also negligent to the point of substantially contributing to the loss, then such
loss from the forgery can be apportioned between the negligent drawer and the negligent bank.
In cases involving a forged check, where the drawer's signature is forged, the drawer can recover from the
drawee bank. No drawee bank has a right to pay a forged check. In cases involving checks with forged
indorsements, the chain of liability does not end with the drawee bank. The drawee bank can seek
reimbursement or a return of the amount it paid from the collecting/presentor bank or person. The loss falls on
the party who took the check from the forger, or on the forger himself.
In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee bank (PNB). The
former will necessarily be liable to the latter for the checks bearing forged indorsements. If the forgery is that of
the payee's or holder's indorsement, the collecting bank is held liable, without prejudice to the latter proceeding
against the forger. Since a forged indorsement is inoperative, the collecting bank had no right to be paid by the
drawee bank. The former must necessarily return the money paid by the latter because it was paid wrongfully.
The failure of the Province of Tarlac to exercise due care contributed to a significant degree to the loss
tantamount to negligence. Hence, the Province of Tarlac should be liable for part of the total amount paid on
the questioned checks. The drawee bank PNB also breached its duty to pay only according to the terms of the
check. Hence, it cannot escape liability and should also bear part of the loss. The Philippine National Bank shall
pay fifty percent (50%) of the total amount to the Province of Tarlac. Associated Bank shall pay fifty percent
(50%) of the total amount to the Philippine National Bank, likewise
METROPOLITAN BANK vs FIRST NATIONAL CITY BANK 24 hour notice
FACTS: August 25, 1964: Check dated July 8, 1964 for P50,000.00, payable to CASH, drawn by Joaquin Cunanan
& Company on First National City Bank (FNCB) was deposited with Metropolitan Bank and Trust Company
(Metro Bank) by Salvador Sales. Metro Bank immediately sent the cash check to the Clearing House of the
Central Bank with the following words stamped at the back of the check: All prior endorsements and/or Lack of
endorsements Guaranteed. Private respondent paid petitioner through clearing the amount of P50,000.00, and
Sales was credited with the said amount in his deposit with Metro Bank. August 26-31, 1964: Sales withdrew all
the amount in his account. September 3, 1964: FNCB returned cancelled Check to drawer Joaquin Cunanan &
Company, together with the monthly statement of the company's account with FNCB. The company notified
FNCB that the check had been altered as the actual amount of P50.00 was raised to P50,000.00 and the name of
the payee, Manila Polo Club, was superimposed the word CASH. Sep 10, 1964: FNCB wrote Metro Bank asking
for reimbursement June 29, 1965: FNCB filed for recovery.
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ISSUE: Which bank is liable for the payment of the altered checks, the drawee bank (FNCB) or the collecting
bank (Metrobank)
HELD: Both banks are bound by the 24-hour clearing house regulation of the Central Bank which requires the
drawee bank receiving the check for clearing from the Central Bank Clearing House to return the check to the
collecting bank within the 24-hour period if the check is defective for any reason.
In this case, the check was not returned to Metro Bank, the collecting bank, in accordance with the 24-hour
clearing house period, but was cleared by FNCB, the drawee bank. Failure of FNCB, therefore, to call the
attention of Metro Bank to the alteration of the check in question until after the lapse of nine days, negates
whatever right it might have had against Metro Bank in the light of the said Central Bank Circular. Its remedy lies
not against Metro Bank, but against the party responsible for changing the name of the payee.
REPUBLIC BANK vs CA 24 hour notice
FACTS: San Miguel Corporation issued a dividend check for P240 in favor of J. Roberto Delgado, a stockholder.
Delgado altered the amount of the check to P9,240. The check was indorsed and deposited by Delgado with
Republic Bank. Republic Bank endorsed the check to First National City Bank (FNCB), the drawee bank, by
stamping on the back of the check all prior and / or lack of indorsements guaranteed. Relying on the
endorsement, FNCB paid the amount to Republic Bank. Later on, San Miguel informed FNCB of the material
alteration of the amount. FNCB recredited the amount to San Miguels account, and demanded refund from
Republic Bank. Republic Bank refused. Hence, the present action.
ISSUE: Who shall bear the loss resulting from the altered check.
HELD: When an indorsement is forged, the collecting bank or last indorser, as a general rule, bears the loss. But
the unqualified indorsement of the collecting bank on the check should be read together with the 24-hour
regulation on clearing house operation. Thus, when the drawee bank fails to return a forged or altered check to
the collecting bank within the 24-hour clearing period (as provided by Section 4c of Central Bank Circular 9, as
amended), the collecting bank is absolved from liability. The drawee bank, FNCB, should bear the loss for the
payment of the altered check for its failure to detect and warn Republic Bank of the fraudulent character of the
check within the 24-hour clearing house rule.
PCIB vs CA 50-50
FACTS: Ford Philippines drew and issued Citibank Check. No. SN 04867 on October 19, 1977, Citibank Check No.
SN 10597 on July 19, 1978 and Citibank Check No. SN-16508 on April 20, 1979, all in favor of the Commissioner
of Internal Revenue (CIR) for payment of its percentage taxes. The checks were crossed and deposited with the
IBAA, now PCIB, BIR's authorized collecting bank. The first check was cleared containing an indorsement that "all
prior indorsements and/or lack of indorsements guaranteed." The same, however, was replaced with two (2)
IBAA's managers' checks based on a call and letter request made by Godofredo Rivera, Ford's General Ledger
Accountant, on an alleged error in the computation of the tax due without IBAA verifying the authority of Rivera.
These manager's checks were later deposited in another bank and misappropriated by the syndicate. The last
two checks were cleared by the Citibank but failed to discover that the clearing stamps do not bear any initials.
The proceeds of the checks were also illegally diverted or switched by officers of PCIB members of the
syndicate, who eventually encashed them. Ford, which was compelled to pay anew the percentage taxes, sued
in two actions for collection against the two banks on January 20, 1983, barely six years from the date the first
check was returned to the drawer.
ISSUE: W/N Ford can recover from the collecting bank and the drawee bank.
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HELD: 1st check: The collecting bank's negligence in its responsibility to make sure that the check in question is
deposited in Payee's account only, is the proximate cause of the loss, we conclude that PCIBank is liable in the
amount corresponding to the proceeds of Citibank Check No. SN-04867.
2nd set of checks: The general rule is that a bank is liable for the fraudulent acts or representations of an officer
or agent acting within the course and apparent scope of his employment or authority. And if an officer or
employee of a bank, in his official capacity, receives money to satisfy an evidence of indebtedness lodged with
his bank for collection, the bank is liable for his misappropriation of such sum. But in this case, responsibility for
negligence does not lie on PCIBank's shoulders alone. Citibank as drawee bank was likewise negligent in the
performance of its duties. Citibank, as the drawee bank breached its contractual obligation with Ford and such
degree of culpability contributed to the damage caused to the latter. For its part, Ford contends that Citibank as
the drawee bank owes to Ford an absolute and contractual duty to pay the proceeds of the subject check only to
the payee thereof, the CIR. PCIBank and Citibank are adjudged liable for and must share the loss, on a fifty-fifty
ratio.
RAMON ILUSORIO vs CA proximate cause
FACTS: Ramon Ilusorio was a prominent businessman who, because of different business commitments,
entrusted to then secretary the handling of his credit cards and checkbooks. For a material period of time, the
secretary was able to encash and deposit in her personal account money from the account of the petitioner.
Upon knowledge of her acts, she was fired immediately and criminal actions were filed against her. Thereafter,
petitioner requested the bank to restore his money but the bank refused to do so.
ISSUE: Whether or not petitioner is entitled to recover the amount from Manila Bank.
HELD: No. It is true that Sec. 23 of NIL provides that a forged check is inoperative and would give no authority to
the drawee bank to pay the forged check. It is also a rule that when a signature is forged or made without the
authority of the person whose signature it purports to be, the check is wholly inoperative. No right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof against any party, can be acquired
through or under such signature. However, the rule does provide for an exception, namely: "unless the party
against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority."
In the instant case, it is the exception that applies. In our view, petitioner is precluded from setting up the
forgery, assuming there is forgery, due to his own negligence in entrusting to his secretary his credit cards and
checkbook including the verification of his statements of account. He failed to examine his bank statements and
this was the proximate case of his own damage.
Is there forgery in this case? Forgery was never established as petitioner he did not submit his specimen
signature. It was just assumed by the supreme court.
Why is it that SC ruled Ilusorio is liable?
1) petitioner failed to submit additional specimen signatures as requested by the NBI
2) petitioner accorded his secretary unusual degree of trust and unrestricted access to his credit cards,
passbooks, check books, bank statements.
3) petitioner's failure to examine his bank statements.
SAMSUNG CONSTRUCTION vs CA
FACTS: Samsung Construction held an account with Far East Bank. One day a check worth 900,000, payable to
cash, was presented by one Roberto Gonzaga in the Makati Branch of Far East Bank. The check was certified to
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be true by Jose Sempio, the assistant accountant of Samsung, who was also present during the time the check
was cashed. Later however it was discovered that no such check was ever approved by the Samsungs head
accountant, the president of the company also never signed any such check.
ISSUE: Whether or not Far East Bank is liable to reimburse Samsung for cashing out the forged check, which was
drawn from the account of Samsung
HELD: Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable Instrument Law states that a forged
signature makes the instrument wholly inoperative. If payment is made the drawee (Far East) cannot charge it
to the drawers account (Samsung). The fact that the forgery is clever is immaterial. The forged signature may so
closely resemble the genuine as to defy detection by the depositor himself. And yet, if the bank pays the check,
it is paying out with its own money and not of the depositors. This rule of liability can be stated briefly in these
words: A bank is bound to know its depositors signature. The accusation of negligence on the part of Samsung
was not clearly proven. Absence of proof to the contrary, the presumption is that the ordinary course of
business was followed.
II. CONSIDERATION
SECTION 24.Presumption of Consideration. Every negotiable instrument is deemed prima facie to have
been issued for a valuable consideration; and every person whose signature appears thereon to have become
a party thereto for value.
X issued a promissory note naming Y as payee. The note does not state whether X got a valuable
consideration. Is the negotiability of the note affected? No, because our law, there is prima facie presumption
that consideration was given.
Is the presumption disputable? Yes, you can present contrary proof.
X filed a case against Y arising from a promissory note without alleging the consideration for such note. Will it
affect the case and if so, who will prove that there was no consideration? No, because consideration is
presumed. The person who alleges that there was no consideration given has the burden of proving such
allegation.
What is the effect of lack of consideration? The promissory note is without effect and the payment of such
note is not demandable.
SECTION 25.Value, What Constitutes. Value is any consideration sufficient to support a simple contract. An
antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument is payable on
demand or at a future time.
What is value? It is any consideration sufficient to support a simple contract.
What is consideration? It is the cause, price or motive which induces a contracting party to enter into a
contract.
What is valuation consideration? An obligation to give, to do, not to do, in favor of a party who makes a
contract, such as the maker or endorser.
Give an example of a consideration in an obligation to give: To sell land or to deliver goods.
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Give an example of a consideration in an obligation to do: To teach, to smoke mow the grass.
Give an example of a consideration in an obligation not to do: Not to compete in a business.
What if there is already a pre-existing debt? It is a sufficient consideration.
Take note of this class, suppose that A, widow, issues a note for a pre-existing debt of her deceased husband
whose estate is insolvent. Is that a valuable consideration? No, because after the death of the husband, there
is no more pre-existing debt as the estate is insolvent.
A issues a note to B, and B in return for the note, issues a check in favor of A. Is there a consideration? Yes,
there is a sufficient consideration.
X is the gay benefactor of Y, and because Y loves X so much, he issued a check worth P1 million payable to X.
Is there a consideration? There is good consideration but does not constitute valuable consideration as
sufficient of itself to support the obligation of a bill or note.
What if it was issued as a consideration of the illicit relationship? All the more there is no consideration.
What if X issued a check in favor as a sign of gratitude for his loyalty? There is good consideration but does
not constitute valuable consideration as sufficient of itself to support the obligation of a bill or note.
What if the promissory note is issues for the establishment of public institution as churches, schools and
hospitals? These are supported by sufficient consideration.
SECTION 26.What Constitutes Holder for Value. Where value has at any time been given for the
instrument, the holder is deemed a holder for value in respect to all parties who became such prior to that
time.
What constitutes a holder for value? One who gives a valuable consideration for an instrument issued or
negotiated to him.
Two concepts of holder for value:
Concept 1: D endorses a note to E, and E gives valuable consideration to D for the endorsement of the note, E
would be a holder for value.
Concept 2: A maker, B is the payee, B endorses it to C, C to D, D to E, now holder and last endorsee. B gives to
A no valuable consideration for the note. C is known to have given valuable consideration to B. Whether D or
E gave valuable consideration is not known: Is E considered a holder for value? Under the law, as to A, B, and
C, E is considered a holder for value because at Cs time valuable consideration was given, and A, B, and C
became parties to the instrument before that time when value was given. As to D, however, it is unknown.
SECTION 27.When Lien on Instrument Constitutes Holder for Value. Where the holder has a lien on the
instrument, arising either from contract or by implication of law, he is deemed a holder for value to the extent
of his lien.
A holder has a lien on the instrument arising from the contract or by implementation of law, what extent is he
deemed a holder for value? He is deemed a holder for value to the extent of his lien.
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Suppose that A makes a note in the sum of P1000 payable to the holder of B. B owes C P600. B endorses the
note to C to secure the payment of his debt of P600 to C. Up to what extent is the lien of C on the note? C is
said to have a lien on the note to the extent of P600 and to that extent, he is a holder for value.
Can C being an endorsee collect the entire amount from A? It depends. If A maker, has defenses against B
endorser, such as absence of consideration (personal defense), C even if a holder in due course, can collect from
A only P600, the extent of his lien. If A has a real defense like he already paid his debt, C even if a holder in due
course, cannot recover any payment from A. If A has no available defense, C can collect the whole amount of
P1000. However, C has the obligation to hold the balance of P400 for the benefit of B, the endorsee.
SECTION 28. Effect of Want of Consideration. Absence or failure of consideration is matter of defense as
against any person not a holder in due course; and partial failure of consideration is a defense pro tanto,
whether the failure is an ascertained and liquidated amount or otherwise.
What is the effect of want of consideration? Absence or failure of consideration is matter of defense as against
any person not a holder in due course.
When is there an absence of consideration? When there is total lack of valid consideration.
Give an example: Tara issues to note payable to Tantoy purportedly for the sale of a land. It turned out that
there was no land that was sold. Thus there is absence of consideration in the transaction between them.
Give other examples of absence of consideration: 1) a note given for a future illicit cohabitation; 2) note by
husband to his wife, upon promise of the wife to withdraw all opposition for divorce;
When is there a failure of consideration? It is where there is neglect or failure of one of the parties to give, to
do, or to perform the consideration agreed upon.
Give us an example: Ms. Licup issued a bill payable to Mr. Salcedo, in order for him to bungie jump in some
place where bungie jumping is legally allowed (Take that professor!). Overcome by fear, Mr. Salcedo did not
jump. So there was a failure of consideration.
What is the difference between absence and failure of consideration? Absence or want of consideration
embraces transactions where no consideration was intended to pass, while failure of consideration implies that
the giving of valuable consideration was contemplated but that it failed to pass.
Suppose A is the maker of a note for P1000 issued by him to B for and inconsideration of 10 forged shares of
stock. Here, there is an absence of consideration. B endorses the note to C who knows of the want of
consideration. May C enforce the note against A? Yes, because C is not a holder in due course. Therefore, A can
interpose the defense of want of consideration against C. But if C were a holder in due course, A cannot
interpose the defense and C can collect.
Suppose the extent of the absence of consideration is only P600, so B payee gave to A maker, valuable
consideration to the extent of P400. What is the effect of partial failure of consideration? A can interpose
want of consideration only pro tanto or proportionate, that is only to the extent of P600. If C were not a holder
in due course, he can only collect from A P400. But if C, were a holder in due course, he can collect the P1000
because failure or absence of consideration whether full or partial is not available against a holder in due course.
What is the effect of the want of consideration between drawer and acceptor as to the holder? The drawee by
accepting unconditionally the bill, is bound by the terms of such instrument and becomes liable to the holder,
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and cannot allege want of consideration between him and the drawer. The holder is a stranger as regards the
transaction between the drawer and the drawee. The principle of estoppel applies in this instance.
SECTION 29.Liability of Accommodation Party. An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or endorser, without receiving value therefor, and for the purpose of
lending his name to some other person. 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.
Who is an accommodation party? An accommodation party is one who has signed the instrument as maker,
drawer, acceptor, or endorser, without receiving value therefor, and for the purpose of lending his name to
some other person.
What is his liability? 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.
What are the requisites in order for you to be considered as an accommodation party? 1) he must be a party
to the instrument, signing as maker, drawer, acceptor or endorser; 2) he must not receive any value therefor; 3)
he must sign for the purpose of lending his name or credit.
What is the liability of the accommodation acceptor? He is primarily liable.
X received a consideration for signing the instrument itself but he signed as mere accommodation party,
B approached A, asking the latter to sign the promissory note. A refused to sign until B gives him P1000
because A is planning to eat a steak later (Sa Davids kay tag P999 ilang Eat-all-you-can U.S. ribeye steak!). Is A
still considered an accommodation party? Yes, he would still be an accommodation party. The phrase used
under Sec. 29 without receiving value therefor means without receiving value by virtue of the instrument
and not to mean without receiving payment for lending his name.
Suppose the instrument itself contains the word value received, does it negative the note as an
accommodation paper? No, it will not.
What are the rights and legal position of the accommodation party? 1) Regarded as a surety for the
accommodated party; 2) Right to sue the accommodated party for reimbursement.
A made a note in accommodation to B as payee, May B collect the amount of note from A? No, an
accommodated party cannot recover from the accommodation party because as between them, absence of
consideration is a defense.
May want of consideration be interposed against a holder for value? Yes, because the law provides that 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. Therefore, the holder for value may collect the said
amount as stated in the instrument from the accommodation party.
X Corporation issued a note in accommodation of Y, who is the president of X Corporation. Y endorsed the
note to A. May A collect the said amount in the instrument from the Corporation? No, this is because the issue
or endorsement of negotiable paper by a corporation without consideration and for the accommodation of
another is ultra vires. Hence, one who has taken the instrument with knowledge of the accommodation nature
thereof cannot recover against a corporation where it is only an accommodation party. Since such
accommodation paper cannot thus be enforced against the corporation, the signatories thereof shall be
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personally liable therefor. By way of exception, an officer or agent of a corporation shall have the power to
execute or endorse a negotiable paper in the name of the corporation for the accommodation of a third person
only if specifically authorized to do so.
What is ultra vires? It means that such act is beyond one's legal power or authority.
Should the holder be a holder in due course for Section 29 to apply? Yes, otherwise the defense of want of
consideration can be interposed against such holder.
SADAYA vs SEVILLA
FACTS: Sadaya, Sevilla and Varona signed solidarily a promissory note in favor of the bank. Varona was the only
one who received the proceeds of the note. Sadaya and Sevilla both signed as co-makers to accommodate
Varona. Thereafter, the bank collected from Sadaya. Varona failed to reimburse. Consequently, Sevilla died and
intestate estate proceedings were established. Sadaya filed a creditors claim on his estate for the payment he
made on the note. The administrator resisted the claim on the ground that Sevilla didn't receive any proceeds
of the loan. The trial court admitted the claim of Sadaya though this was reversed by the CA.
ISSUE: Whether or not Sadaya is entitled to reimbursement from the intestate of Sevilla.
HELD: Under the law, a joint and several accommodation maker of a negotiable promissory note may demand
from the principal debtor reimbursement for the amount that he paid to the payee; and a joint and several
accommodation maker who pays on the said promissory note may directly demand reimbursement from his coaccommodation maker without first directing his action against the principal debtor provided that (a) he made
the payment by virtue of a judicial demand or (b) the principal debtor is insolvent.
Sadaya's payment to the bank "was made voluntarily and without any judicial demand," and that "there is an
absolute absence of evidence showing that Varona is insolvent". This combination of fact and lack of fact
epitomizes the fatal distance between payment by Sadaya and Sadaya's right to demand of Sevilla "the share
which is proportionately owing from him."
CRISOLOGO-JOSE vs CA
FACT: Plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc.; and the president of the
said corporation was Atty. Oscar Z. Benares. Atty. Benares, in accommodation of his clients, the spouses Jaime
and Clarita Ong, issued check against Traders Royal Bank, payable to defendant Ernestina Crisologo-Jose. Since
the check was under the account of Mover Enterprises, Inc., the same was to be signed by its president, Atty.
Oscar Z. Benares, and the treasurer of the said corporation. However, since at that time, the treasurer of Mover
Enterprises was not available, Atty. Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign the
aforesaid check. The check was issued to defendant Ernestina Crisologo-Jose in consideration of the waiver or
quitclaim by said defendant over a certain property which the Government Service Insurance System (GSIS)
agreed to sell to the spouses Jaime and Clarita Ong, with the understanding that upon approval by the GSIS of
the compromise agreement with the spouses Ong, the check will be encashed accordingly. Since the
compromise agreement was not approved within the expected period of time, the aforesaid check was replaced
by Atty. Benares. This replacement check was also signed by Atty. Oscar Z. Benares and by the plaintiff Ricardo S.
Santos, Jr. When defendant deposited this replacement check with her account at Family Savings Bank, Mayon
Branch, it was dishonored for insufficiency of funds. The petitioner filed an action against the corporation for
accommodation party.
ISSUE: May a corporation acting as an accommodation be held liable
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HELD: The provisions under the NIL which holds an accommodation party liable on the instrument to a holder
for value, although such holder at the time of taking the instrument knew him to be only an accommodation
party, does not include nor apply to corporations which are accommodation parties. This is because the issue or
indorsement of negotiable paper by a corporation without consideration and for the accommodation of another
is ultra vires. Since such accommodation paper cannot thus be enforced against the corporation, especially since
it is not involved in any aspect of the corporate business or operations, the inescapable conclusion in law and in
logic is that the signatories thereof shall be personally liable therefor. By way of exception, an officer or agent of
a corporation shall have the power to execute or indorse a negotiable paper in the name of the corporation for
the accommodation of a third person only if specifically authorized to do so.
The instant case falls squarely within the purview of the aforesaid decisional rules. If we indulge petitioner in her
aforesaid postulation, then she is effectively barred from recovering from Mover Enterprises, Inc. the value of
the check.
STELCO MARKETING vs CA
FACTS: Stelco Marketing Corporation sold steel bars and GI wires to RYL Construction Inc. worthP126,859.61.
RYL gave Stelcos sister corporation, Armstrong Industries, a MetroBank check fromSteelweld Corporation
(The check was issued apparently by Steelwelds President Peter Rafael Limson toRomeo Lim, President of RYL
and Limson friend, by way of accommodation, as a guaranty and not inpayment of an obligation). When
Armstrong deposited the check at its bank, it was dishonored because it wasdrawn against insufficient funds.
When so deposited, the check bore 2 indorsements, i.e. RYL and Armstrong.A criminal case was instituted
against Limson, etc. for violation of BP 22, Subsequently, Stelco filed a civilcase against RYL and Steelweld to
recover the value of the steel products.
ISSUE:Whether Stelco was a holder in due course of the check issued by Steelweld.
HELD: There is no evidence whatever that STELCO's possession of check ever dated back to any time before the
instrument's presentment and dishonor. There is no evidence whatsoever that the check was ever given to it, or
indorsed to it in any manner or form in payment of an obligation or as security for an obligation, or for any other
purpose before it was presented for payment. The records do not show any intervention or participation by
Stelco in any manner or form whatsoever in the transaction involving the check, or any communication of any
sort between Steelweld and Stelco, or between either of them and Armstrong Industries, at any time before the
dishonor of the check. The record does show that after the check was deposited and dishonored, Stelco came
into possession of it in some way. Stelco cannot thus be deemed a holder of the check for value as it does not
meet two essential requisites prescribed by the statute, i.e. that it did not become the holder of it before it was
overdue, and without notice that it had been previously dishonored, and that it did not take the check in good
faith and for value.
TRAVEL-ON vs CA
FACTS: Petitioner Travel-On Inc. is a travel agency from which Arturo Miranda procured tickets on behalf of
airline passengers and derived commissions therefrom. Miranda was sued by petitioner to collect on the six
postdated checks he issued which were all dishonored by the drawee banks. Miranda, however, claimed that he
had already fully paid and even overpaid his obligations and that refunds were in fact due to him. He argued that
he had issued the postdated checks not for the purpose of encashment to pay his indebtedness but for purposes
of accommodation, as he had in the past accorded similar favors to petitioner. Petitioner however urges that
the postdated checks are per se evidence of liability on the part of private respondent and further argues that
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even assuming that the checks were for accommodation, private respondent is still liable thereunder
considering that petitioner is a holder for value.
ISSUE: Whether Miranda is liable on the postdated checks he issued even assuming that said checks were issued
for accommodation only.
HELD: There was no accommodation transaction in the case at bar. In accommodation transactions recognized
by the Negotiable Instruments Law, an accommodating party lends his credit to the accommodated party, by
issuing or indorsing a check which is held by a payee or indorsee as a holder in due course, who gave full value
therefor to the accommodated party. The latter, in other words, receives or realizes full value which the
accommodated party then must repay to the accommodating party. But the accommodating party is bound on
the check to the holder in due course who is necessarily a third party and is not the accommodated party. In the
case at bar, Travel-On was payee of all six (6) checks, it presented these checks for payment at the drawee bank
but the checks bounced. Travel-On obviously was not an accommodated party; it realized no value on the checks
which bounced. Miranda must be held liable on the checks involved as petitioner is entitled to the benefit of
the statutory presumption that it was a holder in due course and that the checks were supported by valuable
consideration.
BPI vs CA
FACTS: Benjamin Napiza maintains an account with the Bank of the Philippine Islands (BPI). In 1987, Napiza was
approached by Henry Chan and the latter gave him a $2,500 Continental Bank Managers check. Chan asked if
Napiza can deposit the check to his (Napizas BPI account) by way of accommodation and for the purpose of
clearing the said check. Napiza agreed and so he deposited the check on September 3, 1987. Napiza then
delivered a signed blank withdrawal slip to Chan with the condition that the $2,500.00 may only be withdrawn if
the check cleared. For some reason, the withdrawal slip ended up in the hands of one Ruben Gayon who went
to BPI and successfully withdrew the $2,500.00. At the time of the withdrawal, the check was not yet cleared.
Then days later, BPI was notified by the drawee bank named in the check that the check is actually a counterfeit.
ISSUE: Whether or not Napiza may be held liable to refund the amount of the check.
HELD: No. The Supreme Court ruled that ordinarily, Napiza would have been liable because he is an
accommodation indorser. But due to the attendant circumstances, Napiza is discharged from liability.
The withdrawal slip indicates as well as the rules promulgated by BPI that withdrawal from the bank should be
accompanied by the presentment of the account holders (Napizas) savings bankbook. This was not done so in
the case at bar because Gayon was able to withdraw without it. Further, BPI allowed the withdrawal even before
the check cleared. BPI already credited the $2,500.00 to Napizas account even without the drawee bank
clearing the check. This is contrary to common banking practices and because of such negligence and lack of
diligence, BPI, as the collecting bank, shall suffer the loss.
What was the proximate cause of the loss? The collecting banks negligence in allowing such withdrawal in
disregard of its own rules and the clearing requirement in the banking system.
AGRO-CONGLOMERATE vs CA
FACTS: Petitioner sold to Wonderland Food Industries two parcels of land. They stipulated under a
Memorandum of Agreement that the terms of payment would be P1,000,000 in cash, P2,000,000 in shares of
stock, and the balance would be payable in monthly installments. Thereafter, an addendum was executed
between them, qualifying the cash payment. Instead of cash payment, the vendee authorized the vendor to
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obtain a loan from the financier on which the vendee bound itself to pay for. This loan was to cover for the
payment of P1,000,000. This addendum was not notarized.
Petitioner Soriano signed as maker the promissory notes payable to the bank. However, the petitioners failed to
pay the obligations as they were due. During that time, the bank was in financial distress and this prompted it to
endorse the promissory notes for collection. The bank gave ample time to petitioners then to satisfy their
obligations.
The trial court held in favor of the bank. It didn't find merit to the contention that Wonderland was the one to
be held liable for the promissory notes.
ISSUE: Whether or not agro would be held as an accommodation party
HELD: Petitioners became liable as accommodation party. An accommodation party is a person who has signed
the instrument as maker, acceptor, or indorser, without receiving value therefor, and for the purpose of lending
his name to some other person and is liable on the instrument to a holder for value, notwithstanding such
holder at the time of taking the instrument knew (the signatory) to be an accommodation party. He has the
right, after paying the holder, to obtain reimbursement from the party accommodated, since the relation
between them has in effect become one of principal and surety, the accommodation party being the surety. The
surety's liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other
words, he is directly and equally bound with the principal. And the creditor may proceed against any one of the
solidary debtors.
What about the issue on novation? The court ruled that there was no novation by "substitution" of debtor
because there was no prior obligation which was substituted by a new contract. It will be noted that the
promissory notes, which bound the petitioners to pay, were executed after the addendum. The addendum
modified the contract of sale, not the stipulations in the promissory notes which pertain to the surety contract.
What is the relationship between the accommodating party and the accommodated party? Principal debtorsurety
If the surety is held liable, can he go against the principal? Yes, has the right to collect.
III. NEGOTIATION
SECTION 30.What Constitutes Negotiation. An instrument is negotiated when it is transferred from one
person to another in such manner as to constitute the transferee the holder thereof. If payable to bearer, it is
negotiated by delivery; if payable to order, it is negotiated by the endorsement of the holder completed by
delivery.
What is negotiation? Negotiation is such transfer of an instrument from one person to another as to constitute
the transferee the holder of the instrument.
How is an instrument negotiated? If payable to bearer, it is negotiated by delivery; if payable to order, it is
negotiated by the endorsement of the holder completed by delivery.
What are the methods of transfer? 1) by assignment; 2) by operation of law; 3) by negotiation (either
endorsement completed by delivery or by mere delivery)
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What is assignment? It is a method of transferring a non-negotiable instrument whereby the assignee is merely
placed in the position of the assignor and acquires the instrument subject to all defenses that might have been
set up against the original payee.
What is the effect of assignment of non-negotiable instrument? The assignee is substituted in place of the
assignor subject to all defenses that might have been set up against the latter.
Can a negotiable instrument be assigned? Yes subject to the rules applying to assignment
What is meant by transfer by operation of law? It means full title to a bill or note may pass without either
assignment, endorsement or delivery and instead by operation of law: 1) by the death of the holder where the
title vests in his personal representative; 2) bankruptcy of the holder, where title vests in his assignee or
trustee or 3) upon the death of a joint payee or endorsee, where title vest in the surviving payee or endorsee.
Is delivery to payee considered as negotiation? There are two views on this question. The first view is that
issuance or delivery of an instrument to the payee it no negotiation because negotiation refers to an existing
negotiable instrument and before delivery to payee, the instrument is not complete. The second view is that
under Section 30, an instrument is negotiated when it is delivered to the holder and under Section 191, a
holder is a payee or endorsee of a bill or note who is in possession of it. This is the better view.
SECTION 31.Endorsement; How Made. The endorsement must be written on the instrument itself or upon a
paper attached thereto. The signature of the endorser, without additional words, is a sufficient endorsement.
How do you endorse an instrument? By affixing your signature on the at the back of the instrument.
Where do you write your endorsement? 1) at the back of the instrument itself or 2) upon a paper attached
thereto (allonge)
SIR: Allonge, it must be attached on the instrument itself so as to derive a conclusion that that additional paper
containing such signature are also part of the negotiable instrument.
SECTION 32.Endorsement Must Be of Entire Instrument. The endorsement must be an endorsement of the
entire instrument. An endorsement which purports to transfer to the endorsee a part only of the amount
payable, or which purports to transfer the instrument to two or more endorsees severally, does not operate
as a negotiation of the instrument. But where the instrument has been paid in part, it may be endorsed as to
the residue.
May endorsement be made partially? No, the endorsement must be an endorsement of the entire instrument.
What is the effect of partial endorsement when unauthorized? It does not operate as an endorsement. But it
may constitute a valid assignment binding the parties and the assignee takes the note subject to defenses
available between the original parties.
Is there an exception? Yes, where the instrument has been paid in part, it may be endorsed as to the residue.
Can an instrument be endorsed to two or more endorsees severally? No, such endorsement does not operate
as a negotiation of the instrument.
Pay to X 500 and Y 500. (Sgd.) B. Is this a valid endorsement? No it does not does not operate as a negotiation
of the instrument as it purports to transfer the instrument to two or more endorsees severally.
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Pay to X and Y. (Sgd.) B. Is this a valid endorsement? Yes, because the endorsement is made to a joint person.
It is not paid severally. It is made jointly.
SECTION 33.Kinds of Endorsement. An endorsement may be either special or in blank; and it may also be
either restrictive or qualified, or conditional.
What are the kinds of endorsement? An endorsement may be
1) special
2) conditional
3) restrictive
4) absolute
5) qualified
6) facultative
7) in blank
8) joint
9) irregular
10) successive
SECTION 34.Special Endorsement; Endorsement in Blank. A special endorsement specifies the person to
whom, or to whose order, the instrument is to be payable; and the endorsement of such endorsee is
necessary to the further negotiation of the instrument. An endorsement in blank specifies no endorsee, and
an instrument so endorsed is payable to bearer, and may be negotiated by delivery.
What is a special endorsement? A special endorsement specifies the person to whom, or to whose order, the
instrument is to be payable; and the endorsement of such endorsee is necessary to the further negotiation of
the instrument.
What about endorsement in blank? An endorsement in blank specifies no endorsee, and an instrument so
endorsed is payable to bearer, and may be negotiated by delivery.
In an order instrument: A (maker), B (payee), C (holder). B specially endorsed the instrument to C. How should
it be negotiated by C to D? Where the instrument is originally payable to order, it can be further negotiated by
endorsement completed by delivery. Therefore, C can either endorse it in blank or specially endorse such
instrument.
?? In the same order instrument, B endorsed the instrument to C in blank. How should it be negotiated by C?
It can be further negotiated by C: 1) by mere delivery because the effect of a blank endorsement is to make the
instrument payable to bearer; 2) by specially endorsing the instrument
?? May C endorsed the instrument to D by endorsing it in blank? Yes. C may also specially endorse the
instrument.
In a bearer instrument: A (maker), B (payee), C (holder). B specially endorsed the instrument to C. How should
it be negotiated by C to D? Where the instrument is originally payable to bearer, it can be further negotiated by
mere delivery, even if the original bearer negotiated it by special endorsement. C may also endorse it in blank
or specially endorse the note.
SIR: Once a bearer, always a bearer.
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SECTION 35.Blank Endorsement; How Changed to Special Endorsement. The holder may convert a blank
endorsement into a special endorsement by writing over the signature of the endorser in blank any contract
consistent with the character of the endorsement.
May a blank endorsement changed to a special endorsement? Yes by writing over the signature of the
endorser in blank any contract consistent with the character of the endorsement. (Endorsement in blank)
(Sgd.) B above the signature of B Pay to C. (Sgd.) B.
SECTION 36.When Endorsement Restrictive. An endorsement is restrictive which either
(a)Prohibits the further negotiation of the instrument; or
(b)Constitutes the endorsee the agent of the endorser; or
(c)Vests the title in the endorsee 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 endorsement restrictive.
When is the endorsement considered restrictive? An endorsement is restrictive which either
(a)Prohibits the further negotiation of the instrument; or
(b)Constitutes the endorsee the agent of the endorser; or
(c)Vests the title in the endorsee in trust for or to the use of some other persons.
Give an example of an instrument which prohibits the further negotiation of the instrument: Pay to TJ and no
other person. (Sgd.) B.
Give an example of an instrument which constitutes the endorsee the agent of the endorser: Pay to C for
collection. (Sgd.) B
Give an example of an instrument which vests the title in the endorsee in trust for or to the use of some other
persons: Pay to X in trust for C.
Is the indorsee subject to the defenses of the indorser? There are two views on the question: The first view
holds such indorsement restrictive under Section 47 of the NIL, making the indorsee subject to the defenses of
the endorser. The second view declares that such restrictive indorsement only gives notice of this trust to
subsequent purchasers, but it does not give notice of defenses obtaining between prior parties. The second
view is the better one.
Is there presumption of consideration in restrictive indorsement? It would depend on the kind of indorsement,
if the endorsement constitutes the endorsee the agent of the endorser, then there is no presumption of
consideration as they are not intended to pass the title but merely to enable the endorsee to collect for the
benefit of the endorser.
SIR: If you restrictively endorse the instrument to another person and purpose of such restrictive endorsement
is to make that person as your own agent (for collection or deposit) then there is no intent to pass the title to
such agent but merely to enable the endorsee to collect for the your benefit. In effect, we also cannot presume
consideration.
What about a restrictive endorsement which vests the title in the endorsee in trust for or to the use of some
other persons? Yes there is a presumption of consideration because here the endorser parts his whole title to
the bill and the presumption is that he does so for a consideration. The only effect such endorsement, by way of
restriction, is to give notice of the rights of the beneficiary named in the endorsement and protect him against
a misappropriation.
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Suppose the endorser simply endorse to C by putting: Pay to C, without putting the words order. Is there
any effect? The mere absence of words implying power to negotiate does not make an endorsement restrictive
but such omission in the body will render the instrument non-negotiable.
SECTION 37.Effect of Restrictive Indorsement; Rights of Indorsee. A restrictive indorsement confers upon
the indorsee the right
(a)To receive payment of the instrument;
(b)To bring any action thereon that the indorser could bring;
(c)To transfer his rights as such indorsee, where the form of the indorsement authorizes him to do so.
But all subsequent indorsees acquire only the title of the first indorsee under the restrictive indorsement.
What are the rights conferred on the endorsee of a restrictive endorsement?
(a)To receive payment of the instrument;
(b)To bring any action thereon that the indorser could bring;
(c)To transfer his rights as such indorsee, where the form of the indorsement authorizes him to do so.
What are the rights acquired by the subsequent endorsees? All subsequent indorsees acquire only the title of
the first indorsee under the restrictive indorsement.
SECTION 38.Qualified Indorsement. 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. Such an indorsement does not impair the negotiable character of the instrument.
[you do not warrant their financial responsibility/solvency of the parties]
What is the effect of qualified endorsement? It constitutes the indorser a mere assignor of the title to the
instrument.
How do you make a qualified endorsement? By adding to the endorsers signature the words without
recourse, sans recours; indorser not holden or with intent to transfer title only and not to incur liability as
endorser
A (maker), B (payee). B endorses the note thus: Sans recours, Pay to C, (Sgd.) B. It was found out that As
signature is forged. Is B liable to pay C? Yes, 1) as an endorser under Section 65, B warrants the genuineness of
the As signature and 2) the ground relied upon by C is not the insolvency of A. Furthermore a qualified endorser
is liable if the instrument is dishonored by non-acceptance or non-payment due to forgery.
A (maker), B (payee). B qualifiedly endorsed the instrument to C. It was found out later that A is insolvent.
May C collect the amount from B? It depends. If B did not know of that fact at the time of negotiation, B
cannot be held liable because his endorsement is merely qualified one such that he merely guarantees that he
holds title to it but he does not guarantee the financial responsibility of the prior parties on that paper.
What is meant by absolute endorsement? One by which the endorser binds himself to pay upon no other
condition than the failure of prior parties to do so and upon due notice to him of such failure.
What is conditional endorsement? An endorsement subject to the happening of a contingent event, i.e., an
event that may or may not happen, or at least a past event unknown to the parties.
Suppose A issued a note for P1000 to B. B endorsed it to C as follows: Pay to C, if he passes the bar
examinations. (Sgd.) B May A disregard the condition and pay C? Yes, A can disregard the condition and to C
even if C has not passed the bar examinations.
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Is A discharged from his liability if he pays C? Yes such a payment will discharge him from liability on the
instrument.
May A refuse to pay due to the non-fulfillment of the condition? Yes A may refuse to pay on such ground.
What is the obligation of the C, the conditional indorsee if A disregards the condition and pays C even before
the result of the bar examinations? Y must hold it in trust for B while the condition is not fulfilled.
What if C flunks on the bar exams? C must turn over the P1000 to B, the conditional indorser.
Does a conditional endorsement affect negotiability? No it does not render the instrument non-negotiable.
SECTION 40.Indorsement of Instrument Payable to Bearer. Where an instrument, payable to bearer, is
indorsed specially, it may nevertheless be further negotiated by delivery; but the person indorsing specially is
liable as indorser to only such holders as make title through his indorsement.
Bearer instrument: A (maker), B (bearer). B specially endorsed it to C. C specially endorsed it to D. How should
D endorsed such instrument? As it is originally a bearer instrument, it may be further negotiated by
endorsement plus delivery or negotiate the instrument by delivery.
Can D endorsed it in blank? Yes.
Bearer instrument: A (maker), B (bearer). B delivered it to C. C specially endorsed it to D. D specially endorsed
it to E. E delivered it to F. Is C liable to F? No because F did not take title through Ds endorsement but through
delivery of E.
To whom is C liable? To D and E because they acquired their title over the instrument through Cs
endorsement as D and E can trace their title through a series of unbroken endorsement from D, special
endorser. Had E endorsed the note to F, instead of merely delivery it, C would be liable also to G for the same
reason.
Order instrument: A (maker) B (payee). B endorses it in blank to C. C specially endorsed it to D specially
endorsed it to E. Can E endorsed the said instrument to F by mere delivery? No because as instrument is
originally payable to order, E can negotiate it only by endorsement plus delivery.
SIR: Do not be confuse endorsement and delivery. You go back to negotiation. When you negotiate you, you
either:
1) endorse plus delivery (order instrument);
endorsement can be:
special endorsement
endorsement in blank
2) delivery (bearer instrument).
In our example, when B endorsed the instrument in blank to C. Did it convert the instrument into a bearer
instrument? Yes such endorsement in blank converted the order instrument into a bearer instrument.
How may C endorse the instrument to D? At this point, C has two options, he can either negotiate:
1) by endorsement completed by delivery;
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C can either endorse by:
a. special endorsement
b. endorsement in blank
2) by mere delivery.
SECTION 41.Indorsement Where Payable to Two or More Persons. Where an instrument is payable to the
order of two or more payees or indorsees who are not partners, all must indorse, unless the one indorsing has
authority to indorse for the others.
How should endorsement be made when the instrument is made to two or more payees or indorsees? All
payees must each sign or endorse in order to negotiate the instrument.
Are there exceptions? 1) where the payee or indorsee indorsing has authority to indorse of the others, and 2)
where the payees or indorsees are partners.
SECTION 42.Effect of Instrument Drawn or Indorsed to a Person as Cashier. Where an instrument is drawn
or indorsed to a person as "cashier" or other fiscal officer of a bank or corporation, it is deemed prima facie to
be payable to the bank or corporation of which he is such officer; and may be negotiated by either the
indorsement of the bank or corporation, or the indorsement of the officer.
What is the effect if the instrument is drawn or endorsed to a person as cashier or other fiscal officer of a
bank or corporation? It is deemed prima facie to be payable to the bank or corporation of which he is such
officer;
Who may negotiate in such instant? It may be negotiated by either the indorsement of the bank or
corporation, or the indorsement of the officer.
What if the payment is made to the City Treasurer of Cebu. May the City Treasurer of Cebu endorse the said
instrument? No because corporation in Section 42 does not include cities and towns.
Are municipalities and cities corporation? Yes they are public corporations.
SECTION 43.Indorsement Where Name is Misspelled, and So Forth. Where the name of a payee or indorsee
is wrongly designated or misspelled, he may indorse the instrument as therein described, adding, if he thinks
fit, his proper signature.
How should the instrument be endorse if the designated name of a payee or indorsee is misspelled? He may
indorse the instrument as therein described, adding, if he thinks fit, his proper signature.
SECTION 44.Indorsement in Representative Capacity. Where any person is under obligation to indorse in a
representative capacity, he may indorse in such terms as to negative personal liability.
How should an agent of an endorsee endorse such instrument? He must endorse in such terms as to escape
personal liability.
What are the requisites in order for him to escape liability as an endorse?
1) he must add words describing himself as an agent;
2) he must disclose his principal
3) he must be duly authorized.
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SECTION 45.Time of Indorsement; Presumption. Except where an indorsement bears date after the
maturity of the instrument, every negotiation is deemed prima facie to have been effected before the
instrument was overdue.
If the indorsement does not bear a date, what is the presumption? Every negotiation is deemed prima facie to
have been effected before the instrument was overdue.
SECTION 46.Place of Indorsement; Presumption. Except where the contrary appears, every indorsement is
presumed prima facie to have been made at the place where the instrument is dated.
Is there a presumption of place of endorsement if in such endorsement the place is not disclosed? Every
indorsement is presumed prima facie to have been made at the place where the instrument is dated.
SECTION 47.Continuation of Negotiable Character. An instrument negotiable in its origin continues to be
negotiable until it has been restrictively indorsed or discharged by payment or otherwise.
When is a negotiable instrument rendered non-negotiable? When it has been restrictively indorsed or
discharged by payment or otherwise. Restrictive endorsement
Does it apply to all to types of restrictive endorsement? No, only to restrictive endorsement which prohibits
the further negotiation of the instrument.
What if the instrument is negotiated after the date of maturity? There are two views on this question.
1) The first view is that negotiability ceases in the full commercial sense after maturity or after the default of the
maker in his payment.
2) The second view that negotiability continues even after maturity.
How can they be reconciled? Yes, The mercantile character of the instrument as a negotiable paper and of the
contracts of the parties to it, continues after its maturity and until it is paid except that and indorsee or
transferre after maturity takes the instrument subject to defenses between original parties because such
indorsee or transferee are not holder in due course.
What is the effect if the person took the instrument after its maturity? Such person is no longer considered a
holder in due course because there is already a notice on his part.
May a holder not in due course recover the said amount of the instrument from a maker or drawer? Yes if
such maker or drawer has no valid excuse for refusing payment, then such holder may collect said amount,
notwithstanding the fact that is not a holder in due course.
SECTION 48. Striking Out Indorsement. The holder may at any time strike out any indorsement which is not
necessary to his title. The indorser whose indorsement is struck out, and all indorsers subsequent to him, are
thereby relieved from liability on the instrument.
May a holder strike out any indorsement? Yes, the holder may at any time strike out any indorsement which is
not necessary to his title.
What is the effect of striking out an indorsement? The indorser whose indorsement is struck out, and all
indorsers subsequent to him, are thereby relieved from liability on the instrument.
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?? Bearer instrument: A (maker) B (bearer). B delivered it to C. C specially endorsed it to D. D specially
endorsed it to E. E delivered it to F. Whose indorsement may F strike out? F may strike out C and D because F
did not acquire his title from C and Ds endorsement but through delivery of E.
SECTION 49.Transfer Without Indorsement; Effect of . Where the holder of an instrument payable to his
order transfers it for value without indorsing it, the transfer vests in the transferee such title as the transferor
had therein, and the transferee acquires, in addition, the right to have the indorsement of the transferor. But
for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect
as of the time when the indorsement is actually made.
What is the effect if the holder of the instrument transfers such instrument payable to his order transfers it
for value without indorsing it? The transfer vests in the transferee such title as the transferor had therein, and
the transferee acquires, in addition, the right to have the indorsement of the transferor.
B fraudulently induced A to issue a note. Thereafter, B got the note. B transferred the note to C. May C claim
from A? No because C, as transferee, acquires only Bs right and B cannot collect from A as Bs title is defective
due to the fraudulent inducement.
May C be considered as a holder in due course? Yes, C may be considered a holder in due course if at the time
of B indorsed the instrument to C, C had no notice of any defects or infirmities.
What is the first step that C must do in order for him to be considered as a holder in due course? C must
enforce his right to require B to indorse the instrument.
SECTION 50.When Prior Party May Negotiate Instrument. Where an instrument is negotiated back to a
prior party, such party may, subject to the provisions of this Act, reissue and further negotiate the same. But
he is not entitled to enforce payment thereof against any intervening party to whom he was personally liable.
Bearer instrument: A (maker) B (bearer). B delivered it to C. C specially endorsed it to D. D specially endorsed
it to E. E delivered it to F. May F endorse the said instrument back to C? Yes. F may do so.
?? May C enforce the said instrument against F or D? No C cannot enforce the note against intervening parties
such as D and F, to whom he is liable. This is to avoid circuitry of suits.
IV. RIGHTS OF A HOLDER

SECTION 51.Right of Holder to Sue; Payment. The holder of a negotiable instrument may sue thereon in his
own name; and payment to him in due course discharges the instrument.
What are the rights of the holder?
1) he may sue on the instrument in his own name
2) he may receive payment and if the payment is in due course, the instrument is discharged.
May a simple transferee of an unendorsed instrument sue in his own name? It depends on whether or not the
person whom he derive his title could have done so.
SECTION 52.What Constitutes a Holder in Due Course. 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;
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(b)That he became the holder of it before it was overdue, and without notice that it had 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.
What is meant by payment in due course? Payment made at or after the maturity of the instrument to the
holder thereof in good faith and without notice that his title is defective.
What constitutes a holder in due course? 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 had 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.
Is the holder considered a holder in due course if the instrument is altered on its face? It depends whether or
not the alteration is apparent or not.
SIR: A note which says Pay to X or order, PHP 50 USD 50 Million. (Sgd.) B: If you took an instrument under
some circumstances wherein you must have to make inquiry as to an infirmity in a negotiable instrument and
defect in the holders title, you have to do that.
What if the alteration is not apparent on the instrument? The instrument may be held as complete and
regular.
When an instrument is considered overdue? After the date of maturity.
What if the instrument is negotiated on the day of its maturity? It can still be negotiated because on the date
of maturity, the instrument is not due and the principal debtor has the whole day to pay.
What if the instrument contains an acceleration clause and the holder knew that one installment or interest is
unpaid. Is he considered as a holder in due course? No because such holder had notice that the instrument is
due and demandable already.
What if the interest is overdue? He may still be considered a holder in due course as long as he purchased it in
good faith. However, where by terms of the instrument, the principal was to become due upon default of the
payment of interest, such person is not a holder in due course.
What is meant by good faith? It means the holder does not take it in bad faith.
What is bad faith? Actual knowledge of infirmities in the instrument or defects in the title.
When is a holder considered a holder in good faith? When he is without knowledge or notice of equities of any
sort which could be set up against a prior holder of the instrument.
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What if the holder fails to inquire on the circumstances, is he barred from becoming a holder in due course?
Ordinarily such failure will not bar him from becoming a holder in due course. However, when circumstances
strongly indicate defect, such failure to make inquiry renders him the holder not a holder in due course.
DE OCAMPO vs GATCHALIAN Exception
FACTS: Matilde Gonzales was a patient of the De Ocampo Clinic. She incurred a debt amounting to P441.75. Her
husband, Manuel Gonzales designed a scheme in order to pay off this debt: In 1953, Manuel went to a certain
Anita Gatchalian. Manuel purported himself to be selling the car of De Ocampo. Gatchalian was interested in
buying said car but Manuel told her that De Ocampo will only sell the car if Gatchalian shows her willingness to
pay for it. Manuel advised Gatchalian to draw a check of P600.00 payable to De Ocampo so that Manuel may
show it to De Ocampo and that Manuel in the meantime will hold it for safekeeping. Gatchalian agreed and gave
Manuel the check. After that, Manuel never showed himself to Gatchalian. Meanwhile, Manuel gave the check
to his wife who in turn gave the check to De Ocampo as payment of her bills with the clinic. De Ocampo received
the check and even gave Matilde her change (sukli). On the other hand, since Gatchalian never saw Manuel
again, she placed a stop-payment on the P600.00 check so De Ocampo was not able to cash on the check.
Eventually, the issue reached the courts and the trial court ordered Gatchalian to pay de Ocampo the amount of
the check.
Gatchalian argued that De Ocampo is not entitled to payment because there was no valid indorsement. De
Ocampo argued tha he is a holder in due course because he is the named payee.
ISSUE: Whether or not De Ocampo is a holder in due course.
HELD: De Ocampo is not a holder in due course for his lack of good faith. De Ocampo should have inquired as to
the legal title of Manuel to the said check. The fact that Gatchalian has no obligation to De Ocampo and yet hes
named as the payee in the check hould have apprised De Ocampo; that the check did not correspond to Matilde
Gonzales obligation with the clinic because of the fact that it was for P600.00 more than the indebtedness;
that why was Manuel in possession of the check; that the check had two parallel lines (cross check) in the upper
left hand corner, which practice means that the check could only be deposited but may not be converted into
cash all these gave De Ocampo the duty to ascertain from the holder Manuel Gonzales what the nature of the
latters title to the check was or the nature of his possession.
Is the check a cross check? Yes.
What is the effect of inadequacy of consideration? Under the Civil Code, inadequacy of consideration shall note
invalidate a contract unless there has been fraud, mistake or undue influence.
A offered B a promissory note worth P1 million for an amount of P100,000. B purchased the said instrument.
Is B considered as a holder in due course? No, an amount paid for an instrument if a trifling sum, may of itself
establish notice and if taken without any inquiries, such holder is not a holder in due course.
Differentiate between defenses, infirmities and defects of title:
Defenses include common law defenses and matters outside the scope of Section 55 such as:
1) mistake
2) lack of consideration
3) minority and other forms of incapacity to contract
4) lack of authority of an agent.
Infirmities include things that are inherently wrong with the instrument itself such as:
1) wrong date inserted where the instrument is payable at a fixed period after sight is undated.
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2) lack of delivery
3) forgery
4) material alteration
Defects of title are equitable defenses discussed under Section 55. The defect of title of a person over an
instrument may result from the following acquisition of the instrument :
1) by fraud
2) by force, duress, fear
3) by unlawful means
4) for an illegal consideration
May a payee be considered a holder in due course? A payee may be a holder in due course under any
circumstances in which he meets all the requirements of Section 52.
May a drawee be considered a holder in due course? The drawee can never be considred a not a holder in due
course because principally he is not a holder and therefore cannot be a holder in due course.
MESINA vs IAC
FACTS: Jose Go maintains an account with Associated Bank. He needed to transfer P800,000.00 from Associated
Bank to another bank but he realized that he does not want to be carrying that cash so he bought a cashiers
check from Associated Bank worth P800,000.00. Associated Bank then issued the check but Jose Go forgot to get
the check so it was left on top of the desk of the bank manager. The bank manager, when he found the check,
entrusted it to Albert Uy for the later to safe keep it. The check was however stolen from Uy by a certain
Alexander Lim. Jose Go learned that the check was stolen son he made a stop payment order against the check.
Meanwhile, Associated Bank received the subject check from Prudential Bank for clearing. Apparently, the check
was presented by a certain Marcelo Mesina for payment. Associated Bank dishonored the check.When asked
how Mesina got hold of the check, he merely stated that Alfredo Lim, whos already at large, paid the check to
him for a certain transaction.
ISSUE: Whether or not Mesina is a holder in due course.
HELD: No. Admittedly, Mesina became the holder of the cashiers check as endorsed by Alexander Lim who stole
the check. Mesina however refused to say how and why it was passed to him. Mesina had therefore notice of
the defect of his title over the check from the start. The holder of a cashiers check who is not a holder in due
course cannot enforce such check against the issuing bank which dishonors the same. The check in question
suffers from the infirmity of not having been properly negotiated and for value by Jose Go who is the real owner
of said instrument.
SECTION 53.When Person Not Deemed Holder in Due Course. Where an instrument payable on demand is
negotiated an unreasonable length of time after its issue, the holder is not deemed a holder in due course.
What is the effect is an instrument payable on demand is negotiated an unreasonable length of time after its
issue? The holder is not deemed a holder in due course.
Why not? Because it is provided for by law.
When do you consider time to be unreasonable length of time? It depends upon circumstances of the case.
SECTION 54.Notice Before Full Amount Paid. Where the transferee receives notice of any infirmity in the
instrument or defect in the title of the person negotiating the same before he has paid the full amount agreed
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to be paid therefor, he will be deemed a holder in due course only to the extent of the amount theretofore
paid by him.
What is effect if the holder receives a notice of any infirmity in the instrument prior to the full payment of the
instrument? He will be deemed a holder in due course only to the extent of the amount theretofore paid by
him.
SECTION 55.When Title Defective. The title of a person who negotiates an instrument is defective within
the meaning of this Act when he obtained the instrument, or any signature thereto, by fraud, duress, or force
and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith,
or under such circumstances as amount to a fraud. equitable defenses
When is the title of the person who negotiates an instrument considered defective? When he obtained the
instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an
illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a
fraud.
SECTION 56.What Constitutes Notice of Defect. To constitute notice of an infirmity in the instrument or
defect in the title of the person negotiating the same, the person to whom it is negotiated must have had
actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument
amounted to bad faith.
When is there a notice of defect? When the person to whom it is negotiated must have had actual knowledge
of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad
faith.
What if its the agent who has actual knowledge? It would bind the principal because knowledge of the agent is
knowledge by principal.
SECTION 57.Rights of Holder in Due Course. A holder in due course holds the instrument free from any
defect of title of prior parties, and free from defenses available to prior parties among themselves, and may
enforce payment of the instrument for the full amount thereof against all parties liable thereon.
What are the rights of a holder in due course?
2) he may receive payment and if the payment is in due course, the instrument is discharged
3) holds the instrument free from any defect of title of prior parties, and free from defenses available to prior
parties among themselves,
4) he may enforce payment of the instrument for the full amount thereof against all parties liable thereon.
INSERT REAL DEFENSE AND PERSONAL DEFENSE, ETC. HERE
SECTION 58.When Subject to Original Defenses. In the hands of any holder other than a holder in due
course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. But a holder who
derives his title through a holder in due course, and who is not himself a party to any fraud or illegality
affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter.
What are the rights of a holder not due course?
2) he may receive payment and if the payment is in due course, the instrument is discharged
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3) he holds the instrument subject to the same defenses as if it were non-negotiable. GR: real and personal
defense can be interposed against a holder not in due course
4) A holder not in due course who derives his title through a holder in due course and who is not himself a party
to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all
parties prior to the latter.
A B C D E F. E is a holder in due course. F is not a holder in due course. F took this title from E who is a holder
in due course. May some acts of F be considered as a holder in due course? Yes, for as long as F is not himself a
party to any fraud or illegality affecting the instrument and he derives his title from a holder in due course.
SIR: Same example from above: When the instrument was transferred from A to B, there was fraud. The
instrument is then negotiated until it reached the hands of F, who is not a holder in due course. However, E is
not holder in due course because he has notice of fraud or lack of consideration. Nevertheless, for as long as he
derives his title from a holder in due course and he is not a party to the fraud or illegalities, E may still hold B C D
liable. While equitable defense cannot be interposed against by prior parties to the holder in due course, real
defenses can be interposed against him.
SECTION 59.Who is Deemed Holder in Due Course. Every holder is deemed prima facie to be a holder in due
course; but when it is shown that the title of any person who has negotiated the instrument was defective,
the burden is on the holder to prove that he or some person under whom he claims acquired the title as
holder in due course. But the last-mentioned rule does not apply in favor of a party who became bound on
the instrument prior to the acquisition of such defective title.
Is there a presumption of being a holder in due course? Yes, every holder is deemed prima facie to be a holder
in due course.
V. LIABILITIES OF PARTIES
LIABILITY OF MAKER The maker of a negotiable instrument by making it engages that he will pay it
according to its tenor, and admits the existence of the payee and his then capacity to indorse. [60]
What is the engagement made by the maker in making the instrument?
The maker engages that he will pay it according to its tenor.pr
What are the admissions made by the maker in making the instrument?
He admits the existence of the payee and his then capacity to indorse.
Who has this capacity to indorse in that admission made by the maker?
The payee.
A makes a note in the amount of P1 million. Subsequently the note was transferred from A to B to C to D to E.
During the said transfer, there was an alteration as to the amount. P1 million becomes P10 million and the
same is now in the hands of a holder in due course, F. What is the engagement on the part of the maker?
A, maker, engages to pay P10million as the engagement of the maker is to pay absolutely according to its tenor.
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Is the liability of the maker primary?
Yes, the makers liability is primarily and unconditional.
Why is his liability primary?
Because by engaging to pay it according to its tenor, the maker binds himself to be primarily liable on the said
instrument.
What is the liability of two or more makers?
Each of them is individually liable for the payment of the full amount of their obligation even if one of them did
not receive part of the value given therefor, as he would be considered an accommodation party.
If they signed jointly and severally, what is their liability?
They are solidarily liable, i.e., each of them is liable for the whole amount subject to reimbursement. (NCC)
What if the tenor of the liabilities of the parties is not expressed in the said note?
The are jointly liable only because under the New Civil Code, joint and several liability cannot be presumed, it
must be expressly stipulated.
A made a note payable to the order of Lapu-lapu. Coincidentally, the note came into the hands of someone
named Lapu-lapu, who wanted to enforce the instrument against A. May A refuse payment on the ground
that Lapu-lapu is just a product of his wild imagination?
No, A is precluded from setting up the defense that the payee is a fictitious person because by making the note,
A admits the existence of the payee.
What if Lapu-lapu turned out to be only fifteen (15) years old and he indorse it to C. Can A, as maker, raise it
as a defense that Lapu-lapu cannot indorse the instrument against C and therefore, there was no valid
transfer because Lapu-lapu was a minor at that time?
No, A, as maker is precluded from setting up the defense that the payee is a minor because by making the note,
he admits the then capacity of the payee to indorse.
LIABILITY OF DRAWER The drawer by drawing the instrument admits the existence of the payee and his
then capacity to indorse; and engages that on due presentment the instrument will be accepted or paid, or
both, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to
pay it. But the drawer may insert in the instrument an express stipulation negativing or limiting his own
liability to the holder. [61]
By signing a bill what is deemed admitted by the drawer?
The drawer admits the existence of the payee and his then capacity to indorse
Is the drawer primarily liable?
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No, because drawer does not engage to pay the bill absolutely.
What is the engagement made by the drawer upon signing the bill?
The drawer engages:
1) that on due presentment the instrument will be accepted or paid, or both, according to its tenor,
2) that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent indorser who may be compelled to pay it.
To whom is the drawer considered secondarily liable?
The drawer is secondarily to:
1) the holder
2) any of the subsequent indorsers who is compelled to pay by the holder.
Give an example:
A draws a bill against X, as drawee payable to B or order. B negotiates to C, C to D, D to E, and E to F.
1) A, drawer is liable to F, holder, if X dishonors the bill either by non-acceptance or non-payment and the
necessary proceedings of dishonor are duly taken.
2) If D, a subsequent indorser, is made to pay F, holder, D can recover what he has paid F from A, drawer.
Technically, when do you consider the drawer secondarily liable?
The drawer becomes secondarily liable only after acceptance. Thereafter, the burden of paying the bill is already
passed on to the acceptor.
Person primarily liable:

Person secondarily liable:
Prior to drawees acceptance

Drawer
After drawees acceptance

Drawee
Drawer
SIR: A, drawer, B, payee, C, drawee. When a drawer issues a bill, primarily he is the debtor. In order to pay his
obligation, he delivers a bill to B, the payee. In effect, A is indebted to B. Prior to the acceptance on the part of C,
the person primarily liable is A, the drawer. C is merely a third person in the transaction between A and B, and C
is not a liable. Once C, the drawee, accepts the said bill from the payee, the drawee now becomes the acceptor
and there is a change in the rights and obligations of the parties. However, under Section 61 of your NIL,
regardless of whether or not there is an acceptance on the part the drawee, the law considers the drawer as
secondarily liable. In its technical sense, prior to the acceptance on the part of the drawee, it is the drawer who
is primarily liable because he is the one indebted to the payee.
May the drawer include in the bill a statement like I shall not be liable in case of payment or nonacceptance?
Yes, the law allows the drawer to negative or limit his liability to the holder by express stipulation.
Will it affect the negotiability of the instrument?
No because all the requisites of Section 1 of the NIL are present
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Which element of Section 1 is appropriate in our study of Section 61?
Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
LIABILITY OF ACCEPTOR The acceptor by accepting the instrument engages that he will pay it according to
the tenor of his acceptance; and admits
(a)The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the
instrument; and
(b)The existence of the payee and his then capacity to indorse. [62]
What is the engagement made by the acceptor?
The acceptor engages that he will pay it according to the tenor of his acceptance.
What are the admission of an acceptor when he signs as an acceptor of a bill?
The acceptor admits:
1) the existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the
instrument; and
2) the existence of the payee and his then capacity to indorse.
What is the liability of the acceptor?
The acceptor is primarily liable because he engages to pay absolutely according to the tenor of his acceptance.
Who is acceptor?
An acceptor is a drawee who accepts the bill and engages to pay absolutely according to the tenor of his
acceptance.
Is an acceptor a party to the instrument?
Prior to his acceptance of the instrument, a drawee is not a party to the instrument. However, once a drawee
accepts the instrument by affixing his signature, he becomes an acceptor who is primarily liable on the
instrument.
To whom is the acceptor liable?
He is liable to the payee or his indorsee and also to the drawer himself.
X drew a bill payable to Y the amount of P1 million. A is the drawee. A accepted the bill indicating therein that
he will pay P100,000. Upon presentment for payment, may a holder require A to pay the whole amount of P1
million?
No because an acceptor engages to pay according to the tenor of his acceptance, not the tenor of the bill he
accepts. In this example A accepted to pay P100,000 not P1 million as stated in the bill.
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Can the acceptor vary the terms and conditions provided for in the instrument such that if the instrument is
drawn by a particular person in the amount of P100 million, the drawee may accept it and pay only P1?
Yes because the law allows an acceptor to accept the bill with qualification. In effect, the drawees liability is
limited to tenor of his acceptance and can never be compelled to pay the entire amount. The holder upon
presentment for payment cannot demand from the acceptor the whole amount as drawn by the drawer.
Suppose the bill is payable 30 days after sight. Then it was presented for acceptance to the drawee and the
drawee indicated therein that it will be payable one (1) year after sight. Is that allowed?
Yes because an acceptor engages to pay according to the tenor of his acceptance, not the tenor of the bill he
accepts.
X drawer. Y drawee. Z payee. Z altered the amount from P1 million to P10 million which was accepted by Y. Z
negotiated the bill to A, A to B, B to C. C is a holder in due course. Up to what extent may C enforce the note?
C may enforce the note up to P10 million since Y, an acceptor, engages to pay according to the tenor of his
acceptance, Y must pay to the subsequent holder the amount called for by the time Y accepted even though
larger than the original amount ordered by the drawer.
Do we have another view on this?
Yes, that the original tenor is the tenor of acceptance.
Which view should we apply?
The first view that the altered tenor is the tenor of acceptance since an acceptor engages to pay according to
the tenor of his acceptance. Therefore, he must pay to the subsequent holder the amount called for by the time
he accepted even though larger than the original amount ordered by the drawer.
What if he accepted it only for P10 million and it was negotiated by Z to A, A to B. B added an additional 0
to the amount changing the amount to P100 million. B negotiated it to C, who is a holder in due course. Can C
compel Y to whole amount of P100 million?
No because Y must only pay to the subsequent holder the amount called for by the time he accepted the note,
which in this case is only P10 million.
SIR: You have to relate this with Section 124 which provides that where an instrument has been materially
altered and is in the hands of a holder in due course, not a party to the alteration, he may enforce payment
thereof according to its original tenor.
Under the first view, what is the effect of Section 124 which provides that a holder in due course can recover
only the original tenor of the instrument?
This refers to the original tenor of the instrument taken from the standpoint of the person principally liable, Y,
the acceptor. In our example the original tenor of the instrument is P10 million, which the tenor of Ys
acceptance. If after his acceptance, a subsequent indorsee alters the bill to read P100 million, then Y could be
liable only for P10 million, the original tenor of his acceptance, even as to a holder in due course.
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What is the effect if its the drawers signature which is forged and eventually payment was made on such
forged signature?
The drawee bank is principally liable.
Can the drawee bank raise as a matter of defense that considering that the signature of the drawer was
forged, all the subsequent indorsements have no effect?
No because the drawee bank so impressed with public interests that it is bound to scrutinize the signatures of its
clients to determine genuiness and regularity. The drawee bank holds itself out to the public as the expert and
the law holds it to a high standard of conduct. Thus, when drawee bank is not able to detect forgery on their
part, it is held primarily liable.
What are the effects of an acceptors admission?
The acceptor is consequently precluded from setting up the defense that:
1) the drawer is non-existent or fictitious because of his admissions of the drawers existence.
2) the drawers signature is a forgery, because he admits the genuineness of the drawers signature.
3) there is want of consideration between him and the drawer because by accepting the bill, he admits the
capacity and authority of the drawer to draw the bill.
WHEN PERSON DEEMED INDORSER A person placing his signature upon an instrument otherwise than as
maker, drawer, or acceptor is deemed to be an indorser, unless he clearly indicates by appropriate words his
intention to be bound in some other capacity. [63]
When is a person deemed an indorser?
In the absence of any indication in what capacity a person whose signature is written on the instrument intends
to be bound, he shall be deemed an indorser.
Is there an exception?
Yes when such person clearly indicates by appropriate words his intention to be bound in some other capacity.
LIABILITY OF IRREGULAR INDORSER Where a person, not otherwise a party to an instrument, places
thereon his signature in blank before delivery, he is liable as indorser, in accordance with the following rules:
(a)If the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent
parties.
(b)If the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is liable to all
parties subsequent to the maker or drawer.
(c)If he signs for the accommodation of the payee, he is liable to all parties subsequent to the payee. [64]
Who is an irregular indorser?
A person who is not a party to an instrument, places thereon his signature in blank before delivery.
What are the requisites in order that a person may be considered as an irregular indorser?
1) he must not otherwise be a party to the instrument, i.e., he must not be a maker, drawer, acceptor or regular
indorser.
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2) he must sign the instrument in blank.
3) he must sign before delivery.
Why is such person considered irregular or anomalous indorser?
He indorses in an unsual, singular or peculiar manner.
Given an example of an irregular indorser?
An instrument is payable to B or order. Bs name should appear on the back of the instrument as the first
indorser, but instead, we find the name of say, Y as the first indorser. In such as case, Y is an irregular indorser.
What is the meaning of before delivery?
Delivery here includes not only the original delivery to the payee but also every delivery from the party
accommodated to a subsequent party.
What are the rules on irregular indorsement?
1) If the instrument is payable to the order of a third person, the irregular indorser is liable to the payee and to
all subsequent parties.
2) If the instrument is payable to the order of the maker or drawer, or is payable to bearer, the irregular indorser
is liable to all parties subsequent to the maker or drawer.
3) If the irregular indorser signs for the accommodation of the payee, he is liable to all parties subsequent to the
payee.
Give an example of an instrument payable to the order of a third person:
A makes a note payable to B or order. B is not willing to rely on the financial liability of A and is not willing to
take the instrument unless Ys credit was on the back of it. A secures the signature of Y in blank. A delivered it to
B who now takes it because of Ys signature. B negotiates the not to C, and C to D. Y here is an irregular indorser.
Y is liable to B, the payee, who is a third person, and to C and D, subsequent parties.
Give an example of an instrument payable to the order of maker or drawer or payable to bearer:
A draws a bill payable to his own order but he cannot circulate the bill without name of Y being indorsed
thereon. Y then signs at the back of the bill in blank. A, drawer and payee, negotiates to it to B, B to C, C to D. Y
here is an irregular indorser. Y is not liable to A, the drawer, but is liable to B, C, and D, subsequent parties to the
drawer.
Give an illustration of an irregular for accommodation of payee:
A makes a note payable to B or order. B wants to discount it with a bank but the bank is not willing to rely on the
financial liability of A and B alone. B obtains the signature of Y in blank, only for the purpose of lending his name
or credit to B. Y is an irregular indorser. Y is not liable to B, the payee, but to the bank and all subsequent parties
to B.
WARRANTY WHERE NEGOTIATION BY DELIVERY AND SO FORTH Every person negotiating an instrument by
delivery or by a qualified indorsement warrants
(a)That the instrument is genuine and in all respects what it purports to be;
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(b)That he has a good title to it;
(c)That all prior parties had capacity to contract;
(d)That he has no knowledge of any fact which would impair the validity of the instrument or render it
valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the
immediate transferee.
The provisions of subdivision (c) of this section do not apply to persons negotiating public or corporation
securities, other than bills and notes. [65]
What are the warranties made by a person negotiating an instrument by delivery or by qualified
indorsement?
1) that the instrument is genuine and in all respects what it purports to be;
2) that he has a good title to it;
3) that all prior parties had capacity to contract;
4) that he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.
If the negotiation is by mere delivery, to whom does the warranty extend?
The warranty extends only to the immediate transferee.
What if the person negotiates public or corporation securities other than bills and notes?
Such person makes the same warranties as those negotiating an instrument by delivery or by qualified indorser
except he does not warrant that all prior parties had capacity to contract.
A makes a note payable to B or bearer and delivers the same to B. B delivers the note to C. C delivers the note
to D. What are the warranties made by C?
C warrants all the matters and things mentioned in paragraphs (a), (b), (c) and (d) of Section 65.
When D, holder, enforce the said note against A, maker, A raise as a matter of defense the forgery of his own
signature. May D insist to collect the said amount from A?
No because As has a real defense, i.e., forgery of his signature. Thus, As signature is inoperative and therefore,
it did not operate to make A a party to the instrument nor bind him therein. As against A, D acquired no right to
retain, discharge, or enforce payment of the note.
May D enforce the said instrument against C?
Yes, because C, who negotiated by mere delivery is liable to the D, holder, because C warrants that the
instrument is genuine and in all respects what it purports to be.
May D collect the said amount from B?
No, because Bs (who negotiated by mere delivery) warranty extends only to his immediate transferee, C. In
effect, all the warranties mentioned in Section 65 is not true with respect to D. Thus, D cannot insist on
collecting the said amount from B.
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A made a note and delivered the same to B. B delivered it to C, C delivered it to D. It turned out that A is
insolvent and C knew that A is insolvent at the time C delivered the note to D. When D tries to collect the said
amount from C, may C raise the defense of insolvency?
No because C knew of As insolvency at the time C delivered the note to D and a party negotiating by delivery
warrants that he is ignorant of any fact that would render the instrument valueless. Therefore, C is liable on his
warranty and cannot raise the defense of insolvency.
Who is a qualified indorser?
An indorser who merely transfers or assigns title to the instrument by adding the words without recourse,
san recours, etc.
What is the nature of the liability of a qualified indorser or one who negotiates an instrument by mere
delivery?
They are secondarily liable.
LIABILITY OF GENERAL INDORSER. Every indorser who indorses without qualification, warrants, to all
subsequent holders in due course
(a)The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and
(b)That the instrument is at the time of his indorsement valid and subsisting.
And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may
be, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to
pay it. [66]
What are the warranties made by a general indorser?
1) that the instrument is genuine and in all respects what it purports to be;
2) that he has a good title to it;
3) that all prior parties had capacity to contract;
4) that the instrument is at the time of his indorsement valid and subsisting.
What is the engagement of a general indorser?
He engages that on due presentment, it shall be accepted or paid, or both, as the case may be, according to its
tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the
amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it.
METROPOL vs. SAMBOK MOTORS CO.
FACTS: Dr. Villareal issued a promissory note in favor of Sambok, which waspayable in monthly installments. The
promissory note was then indorsedto Metropol. Villareal defaulted payment and this prompted Metropol torun
after Sampol. Sampol alleged that it is not liable since it was a qualified indorser through the wordings it inserted
in its indorsementwith recourse.
ISSUE: Whether Sampol is a qualfified indorser
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HELD: A qualified indorsement constitutes the indorser a mere assignor of the titleto the instrument. It may be
made by adding to the indorser's signature the words "without recourse" or any words of similar import. Such
an indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of
the liability arising from warranties on the instrument as provided in Section 65 of the Negotiable Instruments
Law already mentioned herein. However, appellant Sambok indorsed the note "with recourse" and even waived
the notice of demand, dishonor, protest and presentment.
"Recourse" means resort to a person who is secondarily liable after the default of the person who is primarily
liable. Appellant, by indorsing the note "with recourse" does not make itself a qualified indorser but a general
indorser who is secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel fails to pay the
note, plaintiff-appellee can go after said appellant. The effect of such indorsement is that the note was indorsed
without qualification. A person who indorses without qualification engages that on due presentment, the note
shall be accepted or paid, or both as the case may be, and that if it be dishonored, he will pay the amount
thereof to the holder. Appellant Sambok's intention of indorsing the note without qualification is made even
more apparent by the fact that the notice of demand, dishonor, protest and presentment were an waived. The
words added by said appellant do not limit his liability, but rather confirm his obligation as a general indorser.
MARALIT vs. IMPERIAL
FACTS: Maralit filed three complaints for estafa through falsification of commercial documents through reckless
imprudence against respondent Imperial. Maralit alleged that she was assistant manager of the Naga City
branch of the Philippine National Bank (PNB); that on May 20, 1992, June 1, 1992, and July 1, 1992 respondent
Imperial separately deposited in her savings account at the PNB three United States treasury warrants and on
the same days withdrew their peso equivalent of P59,216.86, P130,743.60, and P130,326.00, respectively; and
that the treasury warrants were subsequently returned one after the other by the United States Treasury, on
the ground that the amounts thereof had been altered. Maralit claimed that, as a consequence, she was held
personally liable by the PNB for the total amount of P320,287.30.
Judgment of the MTC was rendered as follows: WHEREFORE, in view of the foregoing considerations, the Court
finds no ground to hold the accused criminally liable for which she is charged, hence Corazon Jesusa L. Imperial
is ACQUITTED of all the charges against her. The accused however is civilly liable as indorser of the checks which
is (sic) the subject matter of the
criminal action.
The decision having become final and executory, the MTC ordered the enforcement of the civil liability against
the accused arising from the criminal action. Imperial moved to quash the writ of execution on the that the
judgment did not order the accused to pay a specific amount of money to a particular person as it merely
adjudicated the criminal aspect but not the civil aspect hence there was no judgment rendered which can be the
subject of execution.
ISSUE: Whether Imperial liable to pay the amount in the treasury warrant.
HELD: Yes. The loss is chargeable to the accused who upon her indorsements warrant that the instrument is
genuine in all respect what it purports to be and that she will pay the amount thereof in case of dishonor. (Sec.
66 Negotiable Instrument Law)
It is argued that the decision of the MTC did not order respondent, as accused in the case, to pay a specific
amount of money to any particular person such that it could not be an adjudication of respondents civil liability.
However, the ambiguity can easily be clarified by a resort to the text of the decision or, what is properly called,
the opinion part. Doing so, it is clear that it can only be to petitioner that respondent was made liable as the
former was the offended party in the case. As for what amount respondent is liable, it can only be for the total
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amount of the treasury warrants subject of the case, determined according to their peso equivalent, in the
decision of the MTC.
What made the supreme court conclude that Imperial was a general indorser?
What is the defense raised by Imperial?
SAPIERA vs. CA
FACTS: Remedios Nota Sapiera, a sari-sari store owner, on several occasions, purchased from Monrico Mart
grocery items, mostly cigarettes and paid for them with checks issued by one Arturo de Guzman. These checks
were signed by Sapiera on the back. When they were presented for payment, the checks were dishonoured
because the drawers account was already closed. Respondent Ramon Samua informed Arturo de Guzman and
petitioner but both failed to pay. Hence, four charges of Estafa were filed against Sapiera while two counts of BP
22 was filed against Arturo de Guzman. These cases were consolidated. On December 27 1999, the RTC Dagupan
city acquitted Sapiera of all charges of Estafa but did not rule on the civil aspect of the case. Arturo de Guzman
was held liable for the 2 BP 22 cases and was ordered to pay Sua 167,150 Php as civil indemnity and was
sentenced for imprisonment of 6 months and 1 day. Respondent Sua appealed regarding the civil aspect of
Sapieras case but the court denied it saying that the acquittal of petitioner was absolute. Respondent filed a
petition for mandamus with the Court of Appeals praying that the appeal be given due course, this was granted.
On January 1996, CA rendered a decision ordering Sapiera to pay 335000 php to Sua. Sapiera filed a motion for
reconsideration. The CA the issued a resolution noting that the admission of both parties that Sua already
collected 125000 for the 2 check paid by De Guzman on the BP 22 cases. It appears that the payment should be
deducted on her liability as they involved the same two checks which Sapiera was involved in. the CA deducted
the liability to 210,000 Php. Hence this petition by Sapiera claiming that the CA erred in rendering such decision
because she was acquitted and the fact from which the civil liability exists did not exist.
ISSUE: Whether Sapiera could be held civilly liable when she was acquitted in the criminal charges against her.
HELD: Yes. Sec. 2 of rule 111 of the rules of court provides that extinction of the penal action does not carry with
it the extinction of the civil, unless this shows that the fact from which the civil liability is based is proven to not
have existed because of such acquittal. Civil liability is not extinguished where: (a) the acquittal is not based on
reasonable doubt. (b) Where the court expressly declares that the liability is not criminal but only civil, (c) where
the civil liability is not derived from or based on the criminal act. The decision of the case would show that the
acquittal was based on failure of the prosecution to present sufficient evidence showing conspiracy between her
and De Guzman. Since all checks were signed by Sapiera on the back, sec 17 of Negotiable instruments law says
that she would be considered an indorser of the bill of exchange and under section 66 thereof would be held
liable for breach of warranty and is held liable to pay the holder who may be compelled to pay the instrument.
BPI vs. CA and NAPIZA
FACTS: Benjamin Napiza maintains an account with the Bank of the Philippine Islands (BPI). In 1987, Napiza was
approached by Henry Chan and the latter gave him a $2,500 Continental Bank Managers check. Chan asked if
Napiza can deposit the check to his (Napizas BPI account) by way of accommodation and for the purpose of
clearing the said check. Napiza agreed and so he deposited the check on September 3, 1987. Napiza then
delivered a signed blank withdrawal slip to Chan with the condition that the $2,500.00 may only be withdrawn if
the check cleared. For some reason, the withdrawal slip ended up in the hands of one Ruben Gayon who went
to BPI and successfully withdrew the $2,500.00. At the time of the withdrawal, the check was not yet cleared.
Then days later, BPI was notified by the drawee bank named in the check that the check is actually a counterfeit.
Page 95

ISSUE: Whether Napiza may be held liable to refund the amount of the check.
HELD: No. The Supreme Court ruled that ordinarily, Napiza would have been liable because he is an
accommodation indorser. But due to the attendant circumstances, Napiza is discharged from liability. The
withdrawal slip indicates as well as the rules promulgated by BPI that withdrawal from the bank should be
accompanied by the presentment of the account holders (Napizas) savings bankbook. This was not done so in
the case at bar because Gayon was able to withdraw without it. Further, BPI allowed the withdrawal even before
the check cleared. BPI already credited the $2,500.00 to Napizas account even without the drawee bank
clearing the check. This is contrary to common banking practices and because of such negligence and lack of
diligence, BPI, as the collecting bank, shall suffer the loss.
Again what is the negligence on the part of the bank in this case?
Was Napiza considered a general indorser in this case?
What is the proximate cause of the loss?
What is the distinction between the fourth warranty provided for in Section 65 and Section 66?
The qualified indorser or person negotiating by delivery warrants that he is ignorant of any fact that will impair
the validity of the instrument or render it valueless while a general indorser warrants that the instrument he is
indorsing is valid and subsisting regardless whether he is ignorant of that fact or not. But the fourth warranty of
a general indorser does not run in favor of holders who are parties to illegal consideration.
A made a note payable to B. However, the consideration made by B on the note is illegal. B negotiated the
note to C. C negotiated the note to D. C in this case did not know of the illegality of the consideration. May D
hold C liable?
Yes because C, as a general indorser, warrants that the instrument is valid and subsisting, even if he did not
know of the illegality of the consideration.
What if in that example C is a qualified indorser?
C would not be liable because he does not warrant that the instrument is valid and subsisting but merely that he
does not know of any fact which impairs the validity of the instrument or render it valueless, and C, did not
know of the illegality of consideration.
Suppose C is a general indorser, may D make him liable at all times?
No not at all times. D may make C liable only when D is a/an:
1) subsequent holder in due course
2) person who derive his title from a holder in due course
3) immediate transferee, even when he is not a holder in due course.
What is your basis for the 2nd instance?
Section 58 of the NIL.
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SIR: Despite the fact that the law provides that the warranties are extended only to a holder in due course, still
we make some exceptions because the law does not provide that the general indorser warrants to a holder in
due course only.
Are the warranties provided under Section 66 extend to the genuineness of the drawers signature to the
drawee who pays it?
No because a drawee is not a holder in due course under Section 52 nor a holder under Section 191.
What is the type of liability of a general indorser?
Secondary liability.
Should the reason for dishonor be established before a general indorser can be made liable?
No because the law does not require that the reason for the dishonor be established. It is sufficient that there
was dishonor.
What is the liability of a general indorser if the person primarily liable is insolvent?
He is liable even though he neither knew nor concealed that fact because he engages to pay if the person
primarily liable cannot pay.
Make a summary of distinctions between liabilities of (1) persons negotiating by mere delivery, (2) qualified
indorsers, and (3) general indorsers:
As to whom the warranty

extend:
Party negotiating by
delivery
Only to immediate
transferee
Qualified Indorser
General Indorser
All subsequent parties

who acquire title through
his indorsement
regardless of whether
they are holders in due
course or not.
1) subsequent holders in
due course
2) persons who derive
their title from a holder in
due course
3) immediate transferees,
even if they are not
holders in due course.
That the instrument is at
the time of his
indorsement valid and
subsisting.
Engages to pay the holder
or any intervening party
who may be compelled by
the holder to pay the
instrument whether such
dishonor arises from the
warranties or from other
causes such as insolvency.
As to the fourth warranty:
That he has no knowledge of any fact which would

impair the validity of the instrument or render it
valueless.
As to their engagement:
Does not engage to pay the instrument if it is

dishonored by non-acceptance or non-payment except
when such dishonor arises from his four (4)
warranties. [limited secondary liability]
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If person primarily liable is insolvent, is a notice of dishonor a condition sine qua non in order to hold the
general indorser liable?
Yes because that is one way you can establish that such person primarily liable is insolvent unless his insolvency
is a public knowledge.
What are the liabilities of an assignor?
(1) He is responsible for the existence and legality of the credit at the time of the sale unless it should have been
sold as doubtful but not for the solvency of the debtor unless it has been expressly stipulated or unless the
insolvency was prior to the sale and of common knowledge.
(2) In case the assignor in good faith should have made himself responsible for the solvency of the debtor and
the contracting parties should not have agreed upon the duration of the liability, it shall last for one year only
from the time of the assignment if the period already expired.
(3) If the credit should be payable within a term or period which has not yet expired, the liability shall cease one
year after maturity.
(4) He is liable for the price received and for the expenses of the contract, and any other legitimate payments
made by reason of the sale.
(5) An assignor in bad faith shall always be answerable for the payment of all expenses, and damages.
A made a note to B or bearer. B negotiated it by mere delivery. What section governs his liability under the
NIL?
Section 65.
What if he indorses it plus delivery?
He is governed by Section 65 if he is a qualified indorser, and Section 66 if he is a general indorser.
LIABILITY OF INDORSER WHERE PAPER NEGOTIABLE BY DELIVERY Where a person places his indorsement
on an instrument negotiable by delivery he incurs all the liabilities of an indorser. [67]
ORDER IN WHICH INDORSERS ARE LIABLE As respects one another, indorsers are liable prima facie in the
order in which they indorse; but evidence is admissible to show that as between or among themselves they
have agreed otherwise. Joint payees or joint indorsees who indorse are deemed to indorse jointly and
severally. [68]
With respect to one another, what, if any, is the liability of the indorsers?
They are prima facie liable in the order in which they indorse.
A made a note making B as the payee. The note was negotiated to C. C to D. D to E. E to F. F to G. G wants to
enforce the note against A. However, A is unable to pay. G now wants to enforce the note against D. May D
raise it as a matter of defense that before G can go after him, the latter has to make E and F liable first?
No because the rules that indorsers are liable in the order they indorse is only as between or among the
indorsers themselves but not against a holder. As to the holder, they are liable in any order.
What is the presumption if a joint indorsees indorse an instrument?
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Joint payees or indorsees are deemed to indorse jointly and severally, i.e., their obligation is solidary in nature.
Thus, if one of the indorsees is made liable by the holder, he has the right to seek reimbursement from the other
indorsees.
Is it not contrary to the provisions of the Civil Code?
No because Section 68 of the NIL provides for such presumption.
Is there an exception to the right to seek reimbusement?
Yes when payment was made voluntarily and without any judicial demand and that there is an absolute absence
of evidence that the principal debtor is insolvent. (Sadaya vs Sevilla)
LIABILITY OF AN AGENT OR BROKER Where a broker or other agent negotiates an instrument without
indorsement, he incurs all the liabilities prescribed by section sixty-five of this Act, unless he discloses the
name of his principal and the fact that he is acting only as agent. [69]
What if the agent or broker negotiates an instrument without an indorsement?
He incurs all the liabilities prescribed by section sixty-five of this Act, unless he discloses the name of his
principal and the fact that he is acting only as agent.
VI. PRESENTATION FOR PAYMENT

EFFECT OF WANT OF DEMAND ON PRINCIPAL DEBTOR Presentment for payment is not necessary in order
to charge the person primarily liable on the instrument; but if the instrument is, by its terms, payable at a
special place, and he is able and willing to pay it there at maturity, such ability and willingness are equivalent
to a tender of payment upon his part. But, except as herein otherwise provided, presentment for payment is
necessary in order to charge the drawer and indorsers. [70]
What is presentment for payment?
Presentment for payment is the production of a bill of exchange to the drawee or acceptor for payment, or the
production of a promissory note to the party liable for payment.
Is presentment for payment necessary in order to charge the person primarily liable?
No.
A is the maker, B is the payee, C is the indorser. The note provides that it is payable at Shangri-la Mactan. Is it
necessary for C to present the note for payment in order to charge A liable?
No the rule is still the same.
Supposing A is able and willing to pay the note at Shangri-la Mactan. What is the effect of lack of presentment
for payment?
The only effect is that it is equivalent to a tender of payment on the part of A, and C, the holder, loses his right
to recover interest due subsequent to maturity and costs of collection but he cant still hold A liable.
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What is tender of payment?
Tender of payment is the manifestation by the debtor of a desire to comply with or pay an obligation.
SIR: Tender of payment is particularly used in the litigation process. When you pay an obligation and the creditor
refuses to accept such payment without just cause, the tender of payment will discharge the debtor of the
obligation to pay but only after a valid consignation of the sum due shall have been made with the proper court.
Is presentment for payment necessary in order to charge persons secondarily liable?
Yes because it is provided for under Section 68 of the NIL.
A is the drawer, B is the acceptor, C is the payee. D and E are the indorsers. F is the holder. F failed to make
presentment for payment to B, acceptor. Who among the can F hold liable?
Only B, the acceptor, would be left against whom F can enforce the bill because presentment for payment is not
necessary in order to charge the person primarily liable. (A, B, C, D are discharged)
What are the necessary steps to charge the person secondarily liable in a bill of exchange?
(1) In the three cases required by law presentment for acceptance to the drawee or negotiation within a
reasonable time after acquisition:
(a)Where the bill is payable after sight, or in any other case, where presentment for acceptance is necessary
in order to fix the maturity of the instrument; or
(b)Where the bill expressly stipulates that it shall be presented for acceptance; or
(c)Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. [143]
Except as herein otherwise provided, the holder of a bill which is required by the next preceding section to
be presented for acceptance must either present it for acceptance or negotiate it within a reasonable time.
If he fail to do so, the drawer and all indorsers are discharged. [144]
unless excused:
(a)Where the drawee is dead, or has absconded, or is a fictitious person or a person not having capacity to
contract by bill.
(b)Where, after the exercise of reasonable diligence, presentment cannot be made.
(c)Where, although presentment has been irregular, acceptance has been refused on some other ground.
[148]
In other cased aside from the three [143], there is no need for presentment for acceptance.
(2) If the bill is dishonored by non-acceptance,
(a) notice of dishonor by non-acceptance must be given to persons secondarily liable unless excused and, in
case of foreign bills,
(b) protest for dishonor by non-acceptance must be made unless excused.
(3) But if the bill is accepted or if the bill is not required to be presented for acceptance, it must be presented
for payment to the persons primarily liable, unless excused.
(4) If the bill is dishonored by non-payment,
(a) a notice of dishonor by non-payment must also be given to person secondarily liable unless excused, and
in case of foreign bills,
(b) a protest for dishonor by non-acceptance must be made unless excused.
What are the necessary steps to charge the person secondarily liable in a promissory note?
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(1) Presentment for payment must be made within the period required to the person primarily liable unless
excused; and
(2) if the note is dishonored by non-payment, notice of dishonor by non-payment must be given to the persons
secondarily liable unless excused.
PRESENTMENT WHERE INSTRUMENT IS NOT PAYABLE ON DEMAND AND WHERE PAYABLE ON DEMAND.
Where the instrument is not payable on demand, presentment must be made on the day it falls due. Where it
is payable on demand, presentment must be made within a reasonable time after its issue, except that in the
case of a bill of exchange, presentment for payment will be sufficient if made within a reasonable time after
the last negotiation thereof. [71]
When should presentment be made when the instrument is not payable on demand?
Presentment must be made on the day it falls due.
When should presentment be made when the instrument is payable on demand?
Presentment must be made within a reasonable time after its issue, except that in the case of a bill of exchange,
presentment for payment will be sufficient if made within a reasonable time after the last negotiation thereof.
Under Section 71, is this presentment for acceptance or presentment for payment?
Presentment for payment.
A drew a bill of exchange on Dec 31, 2010. B is the acceptor. C is the payee. C negotiated it to D. D to E. E
negotiated it to F on February 5, 2014. F is the present holder. On February 8, 2014, F wants to claim the
amount stated in the bill from the acceptor. May the acceptor deny payment?
No because in the case of a bill of exchange, presentment for payment will be sufficient if made within a
reasonable time after the last negotiation thereof.
Supposing E did not negotiate it to F but after finding that the bill is just inside his locker, E immediately went
to the acceptor. May the acceptor deny payment?
Yes because the bill was not presented for payment within a reasonable time after the last negotiation.
SIR: The holder may circumvent the provisions of the NIL by simply negotiating the instrument to some other
person. If you have a bill of exchange which is more than a year old already, what you do is look for a person
who takes it for value and negotiate such instrument to said person. Such person can go back to the acceptor to
claim payment because the law provides that presentment for payment will be sufficient if made within a
reasonable time after the last negotiation. But if you are the person whom the instrument is negotiated, there
must be a caveat. You should inquire or raise questions to the person who is negotiating the instrument to you
regarding the nature and circumstance on why the bill is not yet paid, etc.
What is meant by last negotiation?
Last transfer for value.
Supposing that E colluded with F. F did not give any valuable consideration to E. Can the acceptor raise it as a
matter of defense?
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No because an acceptor is required by the law to pay it according to the tenor of his acceptance. Unlike a maker
or an indorser who may raise the absence or failure of consideration as a matter of defense as against any
person not a holder in due course.
Why is it necessary that the last negotiation is the last transfer for value?
Because negotiation is a contract. In order to validly constitute a contract, there must be a value consideration.
Upon perfection, parties can compel other parties of the contract to perform their obligations.
PRUDENTIAL BANK vs. CA
FACTS:
ISSUE: Whether it is necessary for Philippine Rayon Mills to accept the drafts forwarded by the bank.
HELD: No need to accept
What is a letter of credit?
It is an engagement by a bank or other person made at the request of a customer that the issuer will honor
drafts or other demands for payment upon compliance with the conditions specified in the credit. Through a
letter of credit, the bank merely substitutes its own promise to pay for the promise to pay of one of its
customers who in return promises to pay the bank the amount of funds mentioned in the letter of credit plus
credit or commitment fees mutually agreed upon.
Is there a finding from the Supreme Court that the drafts here are not required to be presented for
acceptance?
Yes because they are sight drafts.
What are instruments that require presentment for acceptance?/What are the instances wherein there is a
need for an instrument to be presented for acceptance?
Presentment for acceptance must be made:
1) where the bill is payable after sight, or in any other case, where presentment for acceptance is necessary in
order to fix the maturity of the instrument; or
2) where the bill expressly stipulates that it shall be presented for acceptance; or
3) where the bill is drawn payable elsewhere than at the residence or place of business of the drawee.
WONG vs CA
FACTS: Wong is a collector of Limtong Press, Inc., a company which prints calendars. Wong was assigned to
collect check payments from LPI clients. One time, 6 of LPIs clients were not able to give the check payments to
Wong. Wong then made arrangement with LPI so that for the meantime, Wong can use his personal checks to
guarantee the calendar orders of the LPIs clients. LPI however has a policy of not accepting personal checks of
its agents. LPI instead proposed that the personal checks should be used to cover Wongs debt with LPI which
arose from unremitted checks by Wong in the past. Wong agreed. So he issued 6 checks dated December 30,
1985. Before the maturity of the checks, Wong persuaded LPI not to deposit the checks because he said hell be
replacing them within 30 days. LPI complied however Wong reneged on the payment. On June 5, 1986 or 157
days from date of issue, LPI presented the check to RCBC but the checks were dishonored (account closed). On
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June 20, 1986, LPI sent Wong a notice of dishonor. Wong failed to make good the amount of the checks within 5
banking days from his receipt of the notice. LPI then sued Wong for violations of Batas Pambansa Blg. 22. Among
others, Wong argued that hes not guilty of the crime of charged because one of the elements of the crime is
missing, that is, prima facie presumption of knowledge of lack of funds against the drawer. According to
Wong, this element is lost by reason of the belated deposit of the checks by LPI which was 157 days after the
checks were issued; that he is not expected to keep his bank account active beyond the 90-day period 90 days
being the period required for the prima facie presumption of knowledge of lack of fund to arise.
ISSUE: Whether or not Wong is guilty of the crime charged.
HELD: Yes. Wong is guilty of violating BP 22. The second element of violation of BP 22 pertinent is:
2) The knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or
credit with the drawee bank for the payment of such check in full upon its presentment; and
Under the second element, the presumption of knowledge of the insufficiency arises if the check is presented
within 90 days from the date of issue of the check. This presumption is lost, as in the case at bar, by failure of LPI
to present it within 90 days. But this does not mean that the second element was not attendant with respect to
Wong. The presumption is lost but lack of knowledge can still be proven, LPI did not deposit the checks because
of the reassurance of Wong that he would issue new checks. Upon his failure to do so, LPI was constrained to
deposit the said checks. After the checks were dishonored, Wong was duly notified of such fact but failed to
make arrangements for full payment within five (5) banking days thereof. There is, on record, sufficient evidence
that Wong had knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of
issuance of the checks.
The Supreme Court also noted that under Section 186 of the Negotiable Instruments Law, a check must be
presented for payment within a reasonable time after its issue or the drawer will be discharged from liability
thereon to the extent of the loss caused by the delay. By current banking practice, a check becomes stale after
more than six (6) months, or 180 days. LPI deposited the checks 157 days after the date of the check. Hence
said checks cannot be considered stale.
SIR: Under Section 71, a bill of exchange must be presented for payment within a reasonable time after the last
negotiation. With respect to notes, it should be presented for payment within a reasonable time after its issue.
A check is a bill of exchange drawn against a bank payable on demand. However, there is a separate rule on
when should a check be presented for payment. Under Section 186, a check must be presented for payment
within a reasonable time after its issue. Not after its last negotiation, despite the fact that a check is a bill of
exchange.
What is a stale check?
A stale check is one which has not been presented for payment within a reasonable time after its issue.
What if the check is not presented after seven (7) months?
Then the check is already stale.
What if there is a nuclear war and banks are closed?
Banking practices may be relaxed when the delay of presentment 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, presentment must be made with reasonable diligence. [Sec. 81]
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What is reasonable time?
In order to determine what is a reasonable time, regard is had:
What is the test of reasonableness with respect to time?
The test is whether the payee employed such diligence as a prudent man exercises in his own affair. That span of
time by which a diligent and prudent person may present said check for payment. If it is within that period of
time, then you are presenting the check within a reasonable time.
ICB vs Sps GUECO
FACTS: Respondent spouses, obtained a loan from petitioner bank for the purchase of a car secured by chattel
mortgage. Unable to pay the monthly amortizations, the bank sued for collection. Thru negotiations, the amount
was reduced and payment would release the car. Respondent spouses delivered a managers check in the said
amount but petitioner bank refused to release the car for respondents refusal to sign the joint motion to
dismiss. Unable to recover possession of the car, respondent filed an action for damages against petitioner
based on fraud. Respondents alleged that delivery of the check produced the effect of payment. They also
contend that since the check was not presented within a reasonable time, the same became stale. Petitioner,
however, did not encash the check because of the present case.
ISSUE: Whether the bank was negligent in opting not to deposit or use the managers check.
HELD: A check must be presented for payment within a reasonable time after its issue. In the case at bar, the
check involved is a manager's check and is accepted in advance by the act of issuance. It is really the banks own
check and may be treated as a promissory note with the bank as a maker. Assuming that presentment is
needed, failure to present on time will result to the discharge of the drawer only to the extent of the loss caused
by the delay. In the case at bar, respondents have not alleged damage or loss caused by the delay or nonpresentment.
Even assuming that presentment is needed, failure to present for payment within a reasonable time will result
to the discharge of the drawer only to the extent of the loss caused by the delay. Failure to present on time,
thus, does not totally wipe out all liability. In fact, the legal situation amounts to an acknowledgment of liability
in the sum stated in the check. In this case, the Gueco spouses have not alleged, much less shown that they or
the bank which issued the manager's check has suffered damage or loss caused by the delay or nonpresentment. Definitely, the original obligation to pay certainly has not been erased.
It has been held that, if the check had become stale, it becomes imperative that the circumstances that caused
its non-presentment be determined. In the case at bar, there is no doubt that the petitioner bank held on the
check and refused to encash the same because of the controversy surrounding the signing of the joint motion to
dismiss. We see no bad faith or negligence in this position taken by the Bank.
What is a managers check?
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It is a check drawn by the manager of a bank in the name of the bank against the bank itself. It is similar to the
cashiers check as to effect and use. There is an assurance that the check is funded. It is negotiable because it
complies with the requisites on forms under the Negotiable Instruments Law.
Is there a need for a managers check to be presented for acceptance?
No because it is not one of the instances mentioned under Sec. 143 and it is accepted in advance by the act of its
issuance.
What made the Supreme Court rule that the check did not become stale?
The check involved is a managers check which means it is already funded and it is accepted in advance by the
act of its issuance. Considering that there is already an acceptance made by the bank, it may be likened to a
promissory note with the bank as a maker. At the time of acceptance (upon issuance), the drawer becomes
primarily liable such that there is no more need to present the check for payment in order to charge the bank
liable.
SIR: Just because you are an acceptor it does not follow that you cannot raise any defense at all. If you want to
escape liability, it is up to you to show that you are a mere agent of the drawer or you have to allege and prove
any other defense which you have to the liability. (PNB vs CA) In effect, even if you are primarily liable as an
acceptor, it does not follow that you cannot claim defenses at all. Take note that under Sec. 71 provides that
presentment MUST be made. You correlate that with Sec. 62 where the acceptor engages to pay according to
the tenor of his acceptance and the last sentence of Sec. 71 . xxx presentment for payment will be sufficient if
made within a reasonable time after the last negotiation thereof. I submit that this can be used by the acceptor
to evade his liability such that if there is no presentment for payment within reasonable time after the last
negotiation, they acceptor may refuse payment on the ground that the law requires that it be presented for
payment within reasonable time after its last negotiation.
However, take note that Sec. 70 provides that presentment for payment is not necessary in order to charge the
person primarily liable (acceptor) on the instrument. You have to balance Secs. 70 & 71. Say for example, I have
with me a bill of exchange, and I kept such bill in the cabinet for 10 years. When I discovered that I have this bill
of exchange, I negotiate it to my friend to make it appear that the negotiation was for value. Even if the bill was
not negotiated within reasonable time after its issuance, for as long you present it for payment within a
reasonable time after the last negotiation, that person who took the instrument for value may go to the
acceptor and present it for payment.
Now what if the who person discovered the said instrument immediately went to the acceptor because he
wasnt able to study NIL, and present it for payment to the acceptor. Of course the acceptor may refuse
payment on the ground mentioned in Sec 71. But such person may say that under Sec. 70, presentment for
payment is not necessary in order to charge the person primarily liable on the instrument. What will the
acceptor say? If I were the acceptor, I would say that the acceptor has all the rights to present his defenses and I
submit that Sec. 71 is part of his defense.
In order for a check not to become stale:
GR: A check must be presented for payment within a reasonable time after its issue.
EXC: If it is a managers check or as cashiers check, the bank already accepted it in advance.
A check becomes stale after more than six (6) months, or 180 days. It would seem that the SC will not buy if the
acceptor later on say (for example, the bill was drawn in 1980 and it was not negotiated to some other person
and in 2014, the holder immediately presented it to the acceptor for payment) that it was not negotiated within
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a reasonable time so I should be absolved from my liability. It would seem that will be the contention of the
acceptor, it might not be given credence by the SC because of the Gueco case. Although it is not entirely in four
square w/ the Gueco case. But the principle laid down in the Gueco case is that if there already an acceptance,
even if the check became stale (not negotiated within reasonable time after its issue), the SC said that
considering that there was acceptance already, you cannot hide under the cloak that the check became stale.
That is why the SC said that this is already akin to a promissory note wherein you become a maker (a person
who is primarily liable), so even if the check already became stale, you cannot use it as a matter of defense.
Hence, you are still primarily liable. In fact, presentment for payment is not necessary in order to charge you.
WHAT CONSTITUTES A SUFFICIENT PRESENTMENT Presentment for payment, to be sufficient, must be
made
(a)By the holder, or by some person authorized to receive payment on his behalf;
(b)At a reasonable hour on a business day;
(c)At a proper place as herein defined;
(d)To the person primarily liable on the instrument, or if he is absent or inaccessible, to any person found at
the place where the presentment is made. [72]
What are the elements in order for presentment for payment to be considered sufficient?
Presentment for payment must be made
1) by the holder, or by some person authorized to receive payment on his behalf;
2) at a reasonable hour on a business day;
3) at a proper place as herein defined;
4)To the person primarily liable on the instrument, or if he is absent or inaccessible, to any person found at the
place where the presentment is made.
Supposing the person primarily liable is absent or inaccessible and the only person found at the place where
the presentment is to be made is an insane person, will you present it to such person?
No because what is contemplated by the law are persons with sound mind and judgment. A diligent person can
simply come back on the next business day.
What is a reasonable hour on a business day?
It depends on the general custom at the place of the particular transaction.
*Is it necessary to present the instrument personally to the person primarily liable?
No because the law provides that if such person is absent or inaccessible, presentment for payment can be
made to any person found at the place where the presentment is made.
PLACE OF PRESENTMENT Presentment for payment is made at the proper place
(a)Where a place of payment is specified in the instrument and it is there presented;
(b)Where no place of payment is specified, but the address of the person to make payment is given in the
instrument and it is there presented;
(c)Where no place of payment is specified and no address is given and the instrument is presented at the
usual place of business or residence of the person to make payment;
(d)In any other case if presented to the person to make payment wherever he can be found, or if presented at
his last known place of business or residence. [73]
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What is meant by the words proper place?
1) where a place of payment is specified in the instrument and it is there presented;
2) where no place of payment is specified, but the address of the person to make payment is given in the
instrument and it is there presented;
3) where no place of payment is specified and no address is given and the instrument is presented at the usual
place of business or residence of the person to make payment;
4) in any other case if presented to the person to make payment wherever he can be found, or if presented at
his last known place of business or residence.
If you see the maker in the spa having the time of his life, are you allowed to present it right there and then?
No you have to examine the instrument first in order to determine the proper place for payment. (You must
follow the first 3 instances before you may present the instrument for payment wherever he can be found.)
INSTRUMENT MUST BE EXHIBITED. The instrument must be exhibited to the person from whom payment is
demanded, and when it is paid must be delivered up to the party paying it. [74]
To whom should the instrument be exhibited?
The instrument must be exhibited to the person from whom payment is demanded.
To whom should the instrument be delivered?
It must be delivered up to the party paying it.
Why is there a need to exhibit the instrument?
1) to determine the genuineness of the instrument and the right of the holder to receive payment
2) to enable him to reclaim possession upon payment.
X wanted to collect an amount in the promissory note from his friend Y. X scanned the note and sent it to Y
through a private message on Koobface. Is that sufficient exhibition of the instrument?
No because the law requires that there must be actual exhibition.
When is exhibition excused?
1) when the debtor does not demand to see the instrument but refuses payment on some other grounds.
2) when the instrument is lost or destroyed.
PRESENTMENT WHERE INSTRUMENT PAYABLE AT BANK Where the instrument is payable at a bank,
presentment for payment must be made during banking hours, unless the person to make payment has no
funds there to meet it at any time during the day, in which case presentment at any hour before the bank is
closed on that day is sufficient. [75]
When an instrument is payable at a bank, when should presentment for payment be made?
During banking hours.
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Is there an exception?
Unless the person to make payment has no funds there to meet it at any time during the day, in which case
presentment at any hour before the bank is closed on that day is sufficient.
PRESENTMENT WHERE PRINCIPAL DEBTOR IS DEAD Where the person primarily liable on the instrument is
dead, and no place of payment is specified, presentment for payment must be made to his personal
representative, if such there be, and if, with the exercise of reasonable diligence, he can be found. [76]
Where will you present the instrument when the person primarily liable decided to transfer his residency to
Queens City Gardens?
Where no place of payment is specified, presentment for payment must be made to his personal representative,
if such there be, and if, with the exercise of reasonable diligence, he can be found.
PRESENTMENT TO PERSONS LIABLE AS PARTNERS Where the persons primarily liable on the instrument are
liable as partners, and no place of payment is specified, presentment for payment may be made to any one of
them, even though there has been a dissolution of the firm. [77]
What if the persons primarily liable are partners and no place of payment is specified?
Presentment for payment may be made to any one of them.
Can it be made after the dissolution of the partnership?
Yes presentment can be made even though there has been a dissolution of the firm.
PRESENTMENT TO JOINT DEBTORS Where there are several persons, not partners, primarily liable on the
instrument, and no place of payment is specified, presentment must be made to them all. [78]
What if several persons, not partners, who are primarily liable on the instrument, and no place of payment is
specified?
Presentment must be made to them all.
WHEN PRESENTMENT NOT REQUIRED TO CHARGE THE DRAWER Presentment for payment is not required
in order to charge the drawer where he has no right to expect or require that the drawee or acceptor will pay
the instrument. [79]
When is presentment for payment not required in order to charge the drawer?
Where the drawer has no right to expect or require that the drawee or acceptor will pay the instrument.
Give an example:
1) In a case of a check upon which payment has been stopped.
2) Where the drawers balance is less than the amount of the check.
3) where the drawer of a bill containing the words Pay from balance had no money on deposit with the
drawee bank but expected to arrange with the broker to cover drafts.
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WHEN PRESENTMENT NOT REQUIRED TO CHARGE THE INDORSER Presentment for payment is not required
in order to charge an indorser where the instrument was made or accepted for his accommodation and he has
no reason to expect that the instrument will be paid if presented. [80]
When presentment not required in order to charge the indorser?
Where the instrument was made or accepted for his accommodation and he has no reason to expect that the
instrument will be paid if presented.
Give an example:
A makes a note for the accommodation of B, payee. B indorses to C, C to D, D to E, E to F. F need not make
presentment for payment to A in order to charge B, indorser. The reason is that as B did not give value to A, B
has no reason to expect that the note will be paid upon presentment. But C, D, and E are discharged as no
presentment has been made. In effect, the accommodated payee-indorser(B), who is the person primarily liable,
is not discharged even if no presentment for payment is made.
WHEN DELAY IN MAKING PRESENTMENT IS EXCUSED Delay in making presentment for payment is excused
when the 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, presentment must be made with
reasonable diligence. [81]
When is delay in making presentment excused?
When the delay is caused by circumstances beyond the control of the holder, and not imputable to his default,
misconduct, or negligence.
Give examples of circumstances beyond the control of the holder:
1) overwhelming calamity
2) malignant diseases
3) interruption of trade negotiations by political circumstances
4) war between makers and holders countries
5) suspension of commercial INTERCOURSE by public enemy
6) occupation of country where parties reside or where the instrument is payable
7) by public and positive interdictions and prohibitions of state
8) impracticability of finding maker or his place of residence.
WHEN PRESENTMENT MAY BE DISPENSED WITH Presentment for payment is dispensed with
(a)Where after the exercise of reasonable diligence presentment as required by this Act can not be made;
(b)Where the drawee is a fictitious person;
(c)By waiver of presentment, express or implied. [82]
Under what circumstances may presentment for payment may be excused?
1) where after the exercise of reasonable diligence presentment as required by this Act cannot be made;
2) where the drawee is a fictitious person;
3) by waiver of presentment, express or implied.
Give an example of the first circumstance:
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Where the bill is payable in the United States, after the occupation of the Philippines by Japan, presentment for
payment is dispensed with.
Give an example of the second circumstance:
Pay to the order of X.
To: Carmen Sandiego
(Sgd.) Y
Give an example of the third circumstance:

Express:
Pay to B or order P1000.
Presentment waived.
To X
(Sgd.) Y
Implied:
May be manifested by any language, conduct or agreement between the parties reasonably calculated to lead
the holder to believe presentment is waived or to mislead or prevent him from treating the bill as he otherwise
would.
WHEN INSTRUMENT DISHONORED BY NON-PAYMENT The instrument is dishonored by non-payment when
(a)It is duly presented for payment and payment is refused or can not be obtained; or
(b)Presentment is excused and the instrument is overdue and unpaid. [83]
As a rule, is it required that presentment for payment be made in order to charge the person secondarily
liable?
Yes.
What are the exceptions?
1) where the drawer has no right to expect or require that the drawee or acceptor will pay the instrument. (Sec.
79)
2) where the instrument was made or accepted for the indorser's accommodation and he has no reason to
expect that the instrument will be paid if presented. (Sec. 80)
3) where after the exercise of reasonable diligence presentment as required by this Act cannot be made;
(Section 82)
4) where the drawee is a fictitious person; (Section 82)
5) by waiver of presentment, express or implied. (Section 82)
6) when the instrument has been dishonored by non-acceptance. (Sec. 151)
When is the instrument considered dishonored by non-payment?
1) when it is duly presented for payment and payment is refused or cannot be obtained; or
2) when presentment is excused and the instrument is overdue and unpaid.
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LIABILITY OF PERSON SECONDARILY LIABLE, WHEN INSTRUMENT DISHONORED Subject to the provisions of
this Act, when the instrument is dishonored by non-payment, an immediate right of recourse to all parties
secondarily liable thereon accrues to the holder. [84]
What is the effect of dishonor by non-payment to persons secondarily liable?
Persons secondarily liable become principal debtors, provided that notice of dishonor is given to them. If no
notice of dishonor is given to them, they are discharged. (Among themselves, persons secondarily liable are
presumed liable in the order they become parties to the instrument. Thus if F is the holder and he collects from
D, D can collect from C, but not from E. [924])
What about the persons primarily liable, can you still charge them?
Yes they may be included as party defendants by the persons secondarily liable. So if the issue reaches the court,
the court has several persons to hold liable.
TIME OF MATURITY Every negotiable instrument is payable at the time fixed therein without grace. When
the day of maturity falls upon Sunday, or a holiday, the instrument is payable on the next succeeding business
day. Instruments falling due or becoming payable on Saturday are to be presented for payment on the next
succeeding business day, except that instruments payable on demand may, at the option of the holder, be
presented for payment before twelve o'clock noon on Saturday when that entire day is not a holiday. [85]
The instrument is payable on February 14, 2014. When is it supposed to be presented for payment?
Presentment for payment must be made on that date.
What if February 14 falls on a Sunday, when should it be paid?
It is payable on Monday or the succeeding business day. Presentment must therefore be made on that
succeeding business day.
What if February 14 falls on a holiday?
It is payable on the succeeding business day.
What if February 14 falls on a Saturday?
1) where the instrument is payable at a fixed or determinable future time, presentment must be made on the
next succeeding business day, that is on Monday, February 16, 2014.
2) where the instrument is payable on demand, presentment must be made on Saturday, February 14, before
12:00 noon or Monday, February 16, 2014, at the option of the holder.
TIME; HOW COMPUTED When the instrument is payable at a fixed period after date, after sight, or after
that happening of a specified event, the time of payment is determined by excluding the day from which the
time is to begin to run, and by including the date of payment. [86]
How should you compute the time for payment?
The time of payment is determined by excluding the day from which the time is to begin to run, and by including
the date of payment. [first day excluded-last day included]
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RULE WHERE INSTRUMENT PAYABLE AT BANK 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. [87]
What is the rule if the instrument is made payable at the bank?
It is equivalent to an order to the bank to pay the same for the account of the principal debtor thereon.
For example, I promise to pay Mr. Garcia or order the sum of P1 million. Payable at BPI, Ayala Branch. (Sgd.)
A:
This is equivalent to an order to pay addressed to BPI, Ayala Branch, by A, maker. BPU may charge the amount
of the note from the account of A without further authority from A.
What if there is a failure to make presentment for payment at PNB, is A, maker, discharged?
A is not discharged because he is primarily liable.
WHAT CONSTITUTES PAYMENT IN DUE COURSE Payment is made in due course when it is made at or after
the maturity of the instrument to the holder thereof in good faith and without notice that his title is
defective. [88]
What are the requisites for payment in due course?
Payment must be:
1) made at or after the date of maturity.
2) made to the holder.
3) made by the debtor in good faith and without notice that the holders title is defective.
What if it is paid prior to the date where it is supposed to be due?
It would be considered a negotiation back to the person primarily liable and he can re-negotiate it. The payment
does not discharge the instrument.
What is the effect if the instrument is paid to an indorsee who is not in possession of such instrument?
There is no payment in due course as he is not a holder.
SIR: Weve learned that in fact, the instrument must be exhibited to the person from whom you are demanding
payment in order for him to determine the genuineness of the instrument and the right of the holder to receive
payment.
What if the payment is made to a person by the debtor who knows that such person stole it?
It is not payment in due course as such payment is not in good faith.
X is indebted to Y. X gave Y a promissory note worth P1 million. Does the act of giving the promissory note
produce the effect of payment?
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No they produce the effect of payment only when they have been cashed or when through the fault of the
creditor, they have been impaired. (NCC)
VII. NOTICE OF DISHONOR

TO WHOM NOTICE OF DISHONOR MUST BE GIVEN Except as herein otherwise provided, when a negotiable
instrument has been dishonored by non-acceptance or non-payment, notice of dishonor must be given to the
drawer and to each indorser, and any drawer or indorser to whom such notice is not given is discharged. [89]
What is notice of dishonor?
It means bringing it either verbally or in writing, to the knowledge of the drawer or indorser of an instrument,
the fact that a specified negotiable instrument, upon proper proceedings taken, has not been accepted or has
not been paid, and that the party notified is expected to pay it.
Is it necessary to give such notice?
Yes in order to charge to persons secondarily liable.
Who has the burden of proof that notice is given?
The plaintiff -- usually the holder or the indorser -- who seeks to enforce the defendants liability.
Is there a need to give notice to persons primarily liable?
No because the purpose of the notice is to inform the person of such dishonor and it would be STUPID to inform
the very ones who dishonor the instrument.
A made a promissory note making B as the payee. C is the indorsee and D is the holder. The note is payable in
four installments (P1 million per quarter). The amount of the note is P4 million. On the first quarter there was
payment. There was no payment on the second, third and fourth quarter. After the fourth quarter, the holder
sent a notice of dishonor to B and C. May B and C be held liable?
They may be held liable only for the payment on the fourth quarter because each installment is equivalent to a
separate obligation. For every default on each installment, you are required to give a notice of dishonor. Since D
did not give a notice of dishonor to B and C after no payment was made on the second and third quarter, D can
no longer enforce said amount as against B and C as they are considered as discharged.
What if there is an acceleration clause?
It would depend on whether the clause is optional or automatic. Where the acceleration clause is:
1) Automatic failure to give notice of dishonor as to previous installment will discharge the persons
secondarily liable as to the succeeding installments.
2) Optional and it is:
a) exercised - failure to give notice of dishonor as to previous installment will discharge the persons
secondarily liable as to the succeeding installments.
b) not exercised - failure to give notice of dishonor as to previous installment will not discharge the
persons secondarily liable as to the succeeding installments.
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Effect on failure to give notice of dishonor on previous installment (instrument payable in installments):
No acceleration clause
With an acceleration clause
Automatic
Optional
Exercised
Not exercised
1) It does not discharge the drawers and
It will discharge the
It will discharge the It does not
indorsers as to the succeeding
persons secondarily
persons secondarily discharge the
installments.
liable as to the
liable as to the
drawers and
2) The holder can file an action against
succeeding
succeeding
indorsers as to
them for such succeeding instruments
installments.
installments.
the succeeding
provided that as to such succeeding
installments.
installments, notice is given. (each
installment is equivalent to a separate
note)
Are there exceptions to the rule that failure to give notice to the drawer and indorser will discharge them?
Yes these exceptions are:
1) when notice is waived, express or implied. [109]
2) when 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. [112]
As to drawer:
3) where the drawer and drawee are the same person. [114]
4) when the drawee is a fictitious person or a person not having capacity to contract. [114]
5) when the drawer is the person to whom the instrument is presented for payment. [114]
6) where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument.
[114]
7) where the drawer has countermanded payment. [114]
As to indorser:
8) where the drawee is a fictitious person or a person not having capacity to contract, and the indorser was
aware of the fact at the time he indorsed the instrument; [115]
9) where the indorser is the person to whom the instrument is presented for payment; [115]
10) where the instrument was made or accepted for the indorsers accommodation. [115]
Where due notice of dishonor by non-acceptance has been given:
11), notice of a subsequent dishonor by non-payment is not necessary, unless in the meantime the instrument
has been accepted. [116]
As to a holder in due course without notice:
12) an omission to give notice of dishonor by non-acceptance does not prejudice the rights of a holder in due
course subsequent to the omission. [117]
BY WHOM GIVEN The notice may be given by or on behalf of the holder, or by or on behalf of any party to
the instrument who might be compelled to pay it to the holder, and who, upon taking it up, would have a
right to reimbursement from the party to whom the notice is given. [90]
Who should give notice of dishonor?
It may be given by or on behalf of the holder, or by or on behalf of any party to the instrument who might be
compelled to pay it to the holder and who, upon taking it up, would have a right to reimbursement from the
party to whom the notice is given.
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A is the maker, B is the payee, C, D, and E are indorsees. F is the holder. When F tried to collect the said note
from the maker, the maker did not pay. F immediately sent a notice of dishonor to E, who was compelled to
pay the amount to F. May E go after B, C, and D?
No because no notice of dishonor was given to them.
Who should give that notice of dishonor to them?
E may give such notice of dishonor to B, C, and D. Otherwise, B, C and D will be discharge.
SIR: If you are E and you know that there are prior parties who can be made liable to pay the amount of the said
instrument, then upon receipt of such notice of dishonor, you are not sure if the same notice of dishonor was
also given by F to prior parties (B, C, D), the first thing you do is to make also your notice of dishonor addressed
to B, C, and D. Otherwise, if you did not do that and you were compelled by F to pay the amount of the note, B,
C and D are discharged of their duties and obligations as persons secondarily liable, and you have no other
recourse but to go only to A. And you know for a fact that A was not able to pay when F demanded payment.
NOTICE GIVEN BY AGENT Notice of dishonor may be given by an agent either in his own name or in the
name of any party entitled to give notice, whether that party be his principal or not. [91]
May an agent give a notice of dishonor?
Yes it may be given by an agent either in his own name or in the name of any party entitled to give notice,
whether that party be his principal or not.
EFFECT OF NOTICE GIVEN ON BEHALF OF HOLDER Where notice is given by or on behalf of the holder, it
inures for the benefit of all subsequent holders and all prior parties who have a right of recourse against the
party to whom it is given. [92]
What is the effect if notice is given on behalf of holder?
It inures for the benefit of all subsequent holders and all prior parties who have a right of recourse against the
party to whom it is given.
Give an example:
Suppose A makes a note payable to B or order. B negotiates to C, C to D, D to E and E to F. F notifies B, C, D and
E.
The notice by F to B, inures to the benefit of C, D and E, as they are parties prior to F, holder, who have a right of
recourse against B. And even if they do not give notice to B, B is not discharged as to them and they can hold B
liable on the basis of the notice given by F. If any of them is compelled to pay, he can sue B without having the
necessity of giving B another notice of dishonor.
SIR: In this example, if F, holder, gives a notice of dishonor to B, and E; and F was able to compel E to pay the
amount. E may go after B because the notice given by F to B inured to the benefit of E.
EFFECT WHERE NOTICE IS GIVEN BY PARTY ENTITLED THERETO Where notice is given by or on behalf of a
party entitled to give notice, it inures for the benefit of the holder and all parties subsequent to the party to
whom notice is given. [93] NOTICE IS GIVEN BY ANY PARTY TO THE INSTRUMENT WHO MIGHT BE
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COMPELLED TO PAY IT TO THE HOLDER, AND WHO WOULD HAVE A RIGHT TO REIMBURSEMENT FROM THE
PARTY TO WHOM THE NOTICE IS GIVEN.
What is the effect if notice is given by or on behalf of a party entitled to give notice?
It inures for the benefit of the holder and all parties subsequent to the party to whom notice is given.
Give an example:
Suppose A makes a note payable to B or order. B negotiates to C, C to D, D to E and E to F. F compelled E to pay.
E then gives notice only to B.
1) Such notice by E to B inures to the benefit of F, the holder, and C and D, parties subsequent to the party (B) to
whom notice was given.
2) As to F, B is not discharged and F can hold B liable, even if F has not given notice to B.
3) As to C and D, B is not discharged and they can hold B liable, even if they have not given notice to B.
WHEN AGENT MAY GIVE NOTICE Where the instrument has been dishonored in the hands of an agent, he
may either himself give notice to the parties liable thereon, or he may give notice to his principal. If he give
notice to his principal, he must do so within the same time as if he were the holder, and the principal upon
the receipt of such notice has himself the same time for giving notice as if the agent had been an independent
holder. [94]
What should the agent do if the instrument has been dishonored in the hands?
He may either himself give notice to the parties liable thereon, or he may give notice to his principal. If he give
notice to his principal, he must do so within the same time as if he were the holder, and the principal upon the
receipt of such notice has himself the same time for giving notice as if the agent had been an independent
holder.
WHEN NOTICE SUFFICIENT A written notice need not be signed, and an insufficient written notice may be
supplemented and validated by verbal communication. A misdescription of the instrument does not vitiate
the notice unless the party to whom the notice is given is in fact misled thereby. [95]
Should a notice be signed?
No a written notice need not be signed.
Can an insufficient written notice be supplemented and validated by verbal communication?
Yes the insufficiency can be supplemented by oral communication stating the things lacking.
Does a misdescription of the instrument does not vitiate the notice?
No it does not vitiate the notice unless the party to whom the notice is given is in fact misled thereby.
FORM OF NOTICE The notice may be in writing or merely oral and may be given in any terms which
sufficiently identify the instrument and indicate that it has been dishonored by non-acceptance or nonpayment. It may in all cases be given by delivering it personally or through the mails. [96]
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What is the required form of notice?
The notice may be in writing or merely ORAL and may be given in any terms which sufficiently identify the
instrument and indicate that it has been dishonored by non-acceptance or non-payment
Can you send a notice via a text message?
Yes as long as the notice, whether written or oral, contain the following:
1) sufficient description of the instrument to identify it.
2) a statement that is has been presented for payment or for acceptance and that is has been dishonored.
3) a statement that the party giving notice intends to look for the party addressed for payment
How about Skype?
Yes because notice can be given orally.
What if it is sent through a private message on your Friendster?
Yes as long as the notice contain the following:
1) sufficient description of the instrument to identify it.
2) a statement that is has been presented for payment or for acceptance and that is has been dishonored.
3) a statement that the party giving notice intends to look for the party addressed for payment
How about a buzz through Yahoo Messenger?
Wala ni gi ask ni Sir. I just wrote this to waste 3 precious seconds of your life.
How about a notice by phone?
Yes because notice can be given orally. However, it must be clearly shown that the party to be notified was
really communicated with, i.e., fully identified as the party at the receiving end of the line.
SIR: Because of the advent of new technologies, I believe we can use these technologies in giving the notice of
dishonor. For as long as you can prove notice was given. This is unlike the requirement under presentment for
payment wherein there must be actual exhibition of the instrument. Besides, it is the burden of the person
giving notice to prove to the court that indeed such notice was given to person secondarily liable.
TO WHOM NOTICE MAY BE GIVEN. Notice of dishonor may be given either to the party himself or to his
agent in that behalf. [97]
To whom should notice be given?
Notice of dishonor may be given either to the party himself or to his agent in that behalf.
SECTION 98.Notice Where Party is Dead. When any party is dead, and his death is known to the party
giving notice, the notice must be given to a personal representative, if there be one, and if with reasonable
diligence he can be found. If there be no personal representative, notice may be sent to the last residence or
last place of business of the deceased.
What if the party decided to transfer his residence 6 feet below the ground?
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Notice must be given to a personal representative, if there be one, and if with reasonable diligence he can be
found. If there be no personal representative, notice may be sent to the last residence or last place of business
of the deceased.
Under what circumstances can you send a notice to the last residence or last place of business of the
deceased?
1) if his death is not known to the party giving notice; or
2) although his death is known to the party giving notice, but there is no personal representative; or
3) if there is one but he cannot be found with reasonable diligence.
NOTICE TO PARTNERS When the parties to be notified are partners, notice to any one partner is notice to
the firm even though there has been a dissolution. (99)
What is the effect of giving notice to a partner in a partnership?
Notice to any one partner is notice to the other partners of the firm even though there has been a dissolution.
NOTICE TO PERSONS JOINTLY LIABLE. Notice to joint parties who are not partners must be given to each of
them, unless one of them has authority to receive such notice for the others. (100)
How do you give notice to persons jointly liable?
Notice must be given to each of them, unless one of them has authority to receive such notice for the others.
NOTICE TO BANKRUPT. Where a party has been adjudged a bankrupt or an insolvent, or has made an
assignment for the benefit of creditors, notice may be given either to the party himself or to his trustee or
assignee. [101]
How do you give notice to a bankrupt or insolvent party?
Notice may be given either to the party himself or to his trustee or assignee.
TIME WITHIN WHICH NOTICE MUST BE GIVEN. Notice may be given as soon as the instrument is
dishonored; and unless delay is excused as hereinafter provided, must be given within the times fixed by this
Act. [102]
When do you give a notice of dishonor?
Notice may be given as soon as the instrument is dishonored. (The time for giving notice is fixed in Sections 103,
104, and107.)
A promissory note is said to be due on February 21, 2014. Thereafter, the holder who is in dire need of the
money, presented it for payment on February 20, 2014. Can the holder present it for payment to the maker
on February 20, 2014?
No because where an instrument is payable at a fixed date, presentment must be made on the day it falls due.
[71] However, if such maker will pay you then it would be considered a negotiation back to the person primarily
liable and he can re-negotiate it. The payment does not discharge the instrument. [932(1)]
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Supposing that the holder presented it for payment on February 20, 2014 and the maker will not pay, can the
holder send a notice of dishonor to the parties secondarily liable?
No because such notice would be insufficient because an instrument cannot be said to be dishonored for nonpayment unless presented, and presentment must be made on the date of maturity unless presentment is
excused.
What if the notice of dishonor was made on February 21, 2014, the date of its maturity, is that allowed?
Yes, provided that the instrument has been presented for payment and it has been dishonored.
What if the instrument is payable at the bank?
It is not dishonored if the maker deposits the amount of the instrument before the close of banking hours.
Hence, notice of dishonor must be given after the close of banking hours.
Why is it that the notice must be sent promptly?
To give persons secondarily liable every opportunity to secure themselves such as, to enable the party to be
charged to preserve and protect his rights against prior parties.
WHERE PARTIES RESIDE IN SAME PLACE. Where the person giving and the person to receive notice reside in
the same place, notice must be given within the following times:
(a)If given at the place of business of the person to receive notice, it must be given before the close of
business hours on the day following.
(b)If given at his residence, it must be given before the usual hours of rest of the day following.
(c)If sent by mail, it must be deposited in the post-office in time to reach him in usual course on the day
following. [103]
When do you give the notice if the parties reside in the same place?
1) if given at the place of business of the person to receive notice, it must be given before the close of business
hours on the day following.
2) if given at his residence, it must be given before the usual hours of rest of the day following.
3)If sent by mail, it must be deposited in the post-office in time to reach him in usual course on the day
following.
Supposing that presentment for payment has been done and the maker said he will not pay. In order to
charge the person secondarily liable, when should notice be made if he opts to send the notice by mail?
If sent by mail, it must be deposited in the post-office in time to reach him in usual course on the day following.
What if I receive such notice that the maker will not pay at 4 oclock in the afternoon on February 19, 2014.
Are you telling me that I have to immediately go to the postal office?
If there is no mail at such hour on February 19, 2014, the notice may be deposited in the mails by the next mail
thereafter.
WHERE PARTIES RESIDE IN DIFFERENT PLACES. Where the person giving and the person to receive notice
reside in different places, the notice must be given within the following times:
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(a)If sent by mail, it must be deposited in the post-office in time to go by mail the day following the day of
dishonor, or if there be no mail at a convenient hour on that day, by the next mail thereafter.
(b)If given otherwise than through the post-office, then within the time that notice would have been received
in due course of mail, if it had been deposited in the post-office within the time specified in the last
subdivision. [104]
When do you give the notice if the parties reside in different places?
1) if sent by mail, it must be deposited in the post-office in time to go by mail the day following the day of
dishonor, or if there be no mail at a convenient hour on that day, by the next mail thereafter.
2) if given otherwise than through the post-office, then within the time that notice would have been received in
due course of mail, if it had been deposited in the post-office within the time specified in the last subdivision.
Can you send it through a private courier like DHL, is that allowed?
Yes because it may be given otherwise than through the post-office,
What is meant by same place?
It refers to the corporate limits of a town or city where the presentment is made or where the holder resides.
What if you live in at two adjacent barangay, one belonging to Cebu City and the other to Mandaue City, do
you live in the same place?
No
What is the effect if notice is given out of time?
It would be considered not to have been given, unless presentment is excused. Hence, the party to receive such
notice would be discharged.
So you are telling me that the law provides for the time frame?
Yes
WHEN SENDER DEEMED TO HAVE GIVEN DUE NOTICE. Where notice of dishonor is duly addressed and
deposited in the post-office, the sender is deemed to have given due notice, notwithstanding any miscarriage
in the mails. [105]
What is the legal effect if the notice where notice of dishonor is duly addressed and deposited in the postoffice?
The sender is deemed to have given due notice, notwithstanding any miscarriage in the mails.
Is the presumption conclusive?
Yes if not rebutted, or at least, contradicted.
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DEPOSIT IN POST-OFFICE; WHAT CONSTITUTES. Notice is deemed to have been deposited in the post-office
when deposited in any branch post-office or in any letter box under the control of the post-office department.
[106]
When is the notice deemed to have been deposited in the post-office?
When deposited in any branch post-office or in any letter box under the control of the post-office department.
NOTICE OF SUBSEQUENT PARTY; TIME OF. Where a party receives notice of dishonor, he has, after the
receipt of such notice, the same time for giving notice to antecedent parties that the holder has after the
dishonor. [107]
When should the party who receives the notice of dishonor give notice to antecedent parties?
The same time for giving notice to antecedent parties that the holder has after the dishonor.
WHERE NOTICE MUST BE SENT Where a party has added an address to his signature, notice of dishonor
must be sent to that address; but if he has not given such address, then the notice must be sent as follows:
(a)Either to the post-office nearest to his place of residence or to the post-office where he is accustomed to
receive his letters; or
(b)If he lives in one place, and has his place of business in another, notice may be sent to either place; or
(c)If he is sojourning in another place, notice may be sent to the place where he is so sojourning.
But where the notice is actually received by the party within the time specified in this Act, it will be sufficient,
though not sent in accordance with the requirement of this section. [108]
Where should the notice of dishonor be sent?
Where a party has added an address to his signature, notice of dishonor must be sent to that address; but if he
has not given such address, then the notice must be sent as follows:
1) either to the post-office nearest to his place of residence or to the post-office where he is accustomed to
receive his letters; or
2) if he lives in one place, and has his place of business in another, notice may be sent to either place; or
3) if he is sojourning in another place, notice may be sent to the place where he is so sojourning.
But where the notice is actually received by the party within the time specified in this Act, it will be sufficient,
though not sent in accordance with the requirement of this section.
WAIVER OF NOTICE Notice of dishonor may be waived, either before the time of giving notice has arrived
or after the omission to give due notice, and the waiver may be express or implied. [109]
Can a notice of dishonor be waived?
S.
Why can he waive such notice of dishonor?
Because the law says so tell this to Waldemar.
When can you waive such notice of dishonor?
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1) before the time of notice, such as express waiver in the body of the instrument or added to the signature of
the party;
2) after the omission to give due notice.
What is an express waiver?
A waiver which is expressly written or printed in the body of the instrument.
What is an implied waiver?
A waiver which may be inferred from the acts, declarations or silence of the person to whom such instrument is
presented for payment.
WHOM AFFECTED BY WAIVER Where the waiver is embodied in the instrument itself, it is binding upon all
parties; but, where it is written above the signature of an indorser, it binds him only. [110]
To whom is the waiver binding?
1) where the waiver is embodied in the instrument itself, it is binding upon all parties.
2) where it is written above the signature of an indorser, it binds him only.
Give an example where waiver is in the instrument itself:
To C. Pay to X or order P1000. Notice of dishonor waived. (Sgd.) Y
What if the waiver is written above the signature of the indorser?
Only such indorser is bound by the waiver. If there are other indorsers and no notice is given to such indorsers,
they are discharged.
WAIVER OF PROTEST 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. [111]
What is the effect of waiver of protest?
Presentment for payment and notice of dishonor are also waived.
What is the effect of waiver of presentment for payment?
Notice of dishonor is also waived.
WHEN NOTICE IS DISPENSED WITH Notice of dishonor is dispensed with when, after the exercise of
reasonable diligence, it can not be given to or does not reach the parties sought to be charged. [112]
When is notice of dishonor dispense with?
Where after the exercise of reasonable diligence, it cannot be given to or does not reach the parties sought to
be charged.
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Give examples on when notice is excused:
1) when political disturbance interrupt the ordinary negotiation of trades.
2) military operations or interdictions of commerce.
3) prevalence of malignant, contagious or infectious disease which has become so extensive as to suspend all
commercial business and INTERCOURSE.
DELAY IN GIVING NOTICE; HOW EXCUSED Delay in giving notice of dishonor is excused when the 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, notice must be given with reasonable diligence. [113]
When is the delay of giving notice excused?
When the delay is caused by circumstances beyond the control of the holder, and not imputable to his
negligence, misconduct, or default.
Give an example when delay in giving notice is excused:
Delay caused by inquiries as to the address of the party to receive notice where the holder does not know the
address.
WHEN NOTICE NEED NOT BE GIVEN TO DRAWER Notice of dishonor is not required to be given to the
drawer in either of the following cases:
(a)Where the drawer and drawee are the same person.
(b)When the drawee is a fictitious person or a person not having capacity to contract.
(c)When the drawer is the person to whom the instrument is presented for payment.
(d)Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument.
(e)Where the drawer has countermanded payment. [114]
Is notice of dishonor required to discharge the drawer?
Oui.
Notice of dishonor is not required to be given to the drawer in either of the following cases:
1) where the drawer and drawee are the same person.
2) when the drawee is a fictitious person or a person not having capacity to contract.
3) when the drawer is the person to whom the instrument is presented for payment.
4) where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument.
5) where the drawer has countermanded payment.
Give an example where the drawer and drawee are the same person:
A is both the drawer and the drawee of the bill.
Give an example where drawee is a fictitious person:
Pay to X or order P1000 payable on demand.
To Carmen Sandiego
(Sgd.) Q
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Give an example where the drawer is the person to whom the instrument is presented for payment:
A, the drawer; B, payee. X is the drawee. Note is payable at the office of A. B indorses to C, C to D, D to E, E to F,
holder. F makes presentment at As office. X is not there but A is there. F need not give notice to A, as the latter
knows already of the dishonor.
Give an example where the drawer has no right to expect or require that the drawee or acceptor will honor
the instrument:
Where the drawer of a check has no account with the drawee bank.
Give an example where the drawer has countermanded payment:
A, drawer, tells the drawee X not to pay the bill. F, holder need not give notice to A, drawer.
WHEN NOTICE NEED NOT BE GIVEN TO INDORSER Notice of dishonor is not required to be given to an
indorser in either of the following cases:
(a)Where the drawee is a fictitious person or a person not having capacity to contract, and the indorser was
aware of the fact at the time he indorsed the instrument;
(b)Where the indorser is the person to whom the instrument is presented for payment;
(c)Where the instrument was made or accepted for his accommodation. (115)
Is notice of dishonor required to charge the indorser? Why?
Yes because they are secondarily liable on the instrument
1) where the drawee is a fictitious person or a person not having capacity to contract, and the indorser was
aware of the fact at the time he indorsed the instrument;
2) where the indorser is the person to whom the instrument is presented for payment;
3) where the instrument was made or accepted for his accommodation
Z, a partnership, made a note. It was negotiated to several persons. One of the indorsers is X, a partner to the
Z partnership. Is presentment for payment made to one of the partners sufficient? Is there a need for the
holder to send a notice of dishonor of X?
Isnt it that X already has knowledge? What makes it different from the other examples before?
SIR:There is no need. The example given in the book presupposes that the presentment for payment was not
made by the same partner who is one of the indorsers. It presupposes that a partnership is the maker and one
of the indorsers is a partner. If its presented for payment to the partnership by some other partners, still you
have to give a notice of dishonor to partner who indorsed the same instrument. However, if you present it for
payment to the same partner who is also one of the indorsers, then there is no need to give him a notice of
dishonor.
NOTICE OF NON-PAYMENT WHERE ACCEPTANCE REFUSED Where due notice of dishonor by nonacceptance has been given, notice of a subsequent dishonor by non-payment is not necessary, unless in the
meantime the instrument has been accepted.(116)
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Is there a need to give a notice of dishonor by non-payment if the notice of dishonor by non-acceptance was
already given?
No it is not necessary unless the instrument has been accepted
Give an example:
A, drawer, draw a bill payable on February 28, 2014. On February 1, 2014, B, holder presents it for acceptance to
X, drawee, who refuses to accept the bill. B negotiated the note to C, C to D, D to E, E to F, F is now the holder.
on February 15, 2014, F presented it for acceptance to X, who now accepts the bill and became an acceptor. On
February 28, 2014, the holder presented it for payment to X, the acceptor, who refuses to pay. F must give
notice of dishonor to A, B, C, D, and E, in order to charge them as in the meantime the instrument has been
accepted.
So there were two presentment for acceptance?
Yes
SIR: There is a need for you to give a notice of dishonor because the instrument was accepted by the drawee
who initially refused to accept the said instrument. So if it will be dishonored upon presentment for payment,
then there is a need for the said HOLDER to send notice of dishonor by non-payment to persons secondarily
liable.
What are the instances wherein the instrument must be presented for acceptance?
3) where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. (143)
EFFECT OF OMISSION TO GIVE NOTICE OF NON-ACCEPTANCE An omission to give notice of dishonor by
non-acceptance does not prejudice the rights of a holder in due course subsequent to the omission. (117)
What is the effect of omission to give notice of dishonor by non-acceptance to a holder in due course?
It does not prejudice the rights of a holder in due course subsequent to the omission
Give an example:
A, drawer, B, payee, X, drawee. The bill is payable on February 28, 2014. It is successively indorsed it to C, D, E,
and F, holder. X refuses to accept the bill. F fails to give notice to B, C, D, and E. F then negotiates the note to G,
a holder in due course. As to such holder in due course, B, C, D and E are not discharged because omission to
give notice of dishonor by non-acceptance does not prejudice the rights of a holder in due course subsequent to
the omission.
WHEN PROTEST NEED NOT BE MADE; WHEN MUST BE MADE Where any negotiable instrument has been
dishonored it may be protested for non-acceptance or non-payment, as the case may be; but protest is not
required except in the case of foreign bills of exchange. (118)
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When is it necessary to make a protest?
Protest is necessary for foreign bills of exchange
Why?
Because it is required under Section 118 of the NIL
VIII. DISCHARGE OF NEGOTIABLE INSTRUMENTS

INSTRUMENT; HOW DISCHARGED. A negotiable instrument is discharged
(a)By payment in due course by or on behalf of the principal debtor;
(b)By payment in due course by the party accommodated, where the instrument is made or accepted for
accommodation;
(c)By the intentional cancellation thereof by the holder;
(d)By any other act which will discharge a simple contract for the payment of money;
(e)When the principal debtor becomes the holder of the instrument at or after maturity in his own right. (119)
When is a negotiable instrument discharged?
1) by payment in due course by or on behalf of the principal debtor;
2) by payment in due course by the party accommodated, where the instrument is made or accepted for
accommodation;
3) by the intentional cancellation thereof by the holder;
4) by any other act which will discharge a simple contract for the payment of money;
5) when the principal debtor becomes the holder of the instrument at or after maturity in his own right.
What is meant by payment in due course?
Payment made at or after the maturity of the instrument to the holder thereof in good faith and without notice
that his title is defective.
What is the effect if a third party pays the instrument?
The instrument is not discharged and can be renegotiated by the person paying the holder.
*Supposing that the instrument in the hands of the holder is already due for payment. Here comes X wanting
to pay the value of the instrument because prior parties are his friends; in order to surprise his friends, to
show that he is a friend of these persons, X paid the holder of the instrument. What is the effect?
The instrument is not discharged because X is not a party to the negotiable instrument.
*Are you saying it can be re-negotiated by such third person even if it is overdue?
*SIR: Yes, subject to the defenses available to the maker and it can be re-negotiated by such third person and
the person who later on accepts such instrument knowing it is already overdue is not a holder in due course.
However, if you convince that third person and that third person paid the instrument to the holder at the time it
was due (it matured?), hence, he can re-negotiate it because the instrument is considered as not yet discharged.
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*What if the person simply kept it, because his intention is to free all those persons prior to the holder?
Still the instrument is not discharge.
*What if the instrument was burned by the third person?
He better clean up his mess. It depends on the intention of such third person.
What is the effect of payment made by an accommodation party?
It does not discharge the instrument
What is the effect of payment made by a person secondarily liable?
It does not discharge the instrument
Who is a principal debtor?
It refers to person ultimately bound to pay the debt. This is true whether he is a party to the instrument or not,
or whether he appears to be primarily or secondarily liable on the instrument.
*Going back to our example a while ago, that third person who paid the instrument and who wanted to
discharge the instrument. Can we not consider such person as a person paying for and behalf of the principal
debtor because his intention was to free all his friend who are secondarily liable?
No because he is paying for and behalf of he persons secondarily liable and not the principal debtor.
When does the delivery of instrument produce the effect of payment?
1) when they have actually be cashed; or
2) when through the fault of the creditor, they have been impaired.
What are the requisites of a valid cancellation of an instrument?
The cancellation must be:
1) intentional
2) by the holder
What the effect if the cancellation is not intentional?
The instrument is not discharged.
What if its made by a person who is not a holder of the said instrument?
The instrument is not discharged.
How do you cancel an instrument?
Cancellation may be done by
1) tearing the instrument up,
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2) burning it or
3) writing across it the word cancel
For example, here is A who is using the comfort room, without a toilet paper. So he uses the instrument. Is
the instrument discharged?
No because he has no intention of cancelling the instrument
What are the other acts which will discharge the instrument?
Novation will discharge the instrument.
What is novation?
The substitution of a new contract for an old one.
M, the maker, made a note which is due and demandable on February 25, 2014. However, the holder
extended the maturity to March 25, 2014. Is the instrument discharge?
No because an extension of time by the holder will not discharge the instrument.
What are the requisites to in order to discharge an instrument when the principal debtor becomes the holder?
1019
Reacquisition must be:
1) by the principal debtor
2) in his own right
3) at or after the date of maturity.
Can you give an example of the last circumstance under Section 199 in order to discharge the instrument?
A is the maker. F, holder owes money to A, the principal debtor. F, instead of paying money, negotiated the
instrument back to A.
*Supposing that there is a promissory note made by A which due and demandable on March 25, 2014. It was
negotiated until it reached F, the holder. On December 25, 2013, F went back to A and told the latter that he
does not have any money this holiday and so A paid the instrument; The maker simply kept the instrument
instead of negotiating it. The instrument was in As hand on the date of maturity, i.e, March 25, 2014.
A reacquisition by the principal debtor before the maturity will not discharge the instrument. It will merely
constitute a negotiation back to the principal debtor who may renegotiate the instrument.
*On March 26, 2014, A did not renegotiate the instrument because he has no intention of doing so. What is
the effect? Will it not be discharge?
The instrument is not discharged because the holder did not reacquire the instrument at or after maturity.
Can we not use (c)?
If the intention of A as a holder, is to cancel the instrument, the instrument is discharged.
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Can an instrument be discharge by operation of law?
Yes.
Give an examples of discharge by operation of law:
1) discharge by reason of bankruptcy
2) discharge of a party not given due notice of dishonor
3) discharge by the Statute of Limitations
WHEN PERSONS SECONDARILY LIABLE ON, DISCHARGED A person secondarily liable on the instrument is
discharged
(a)By any act which discharges the instrument;
(b)By the intentional cancellation of his signature by the holder;
(c)By the discharge of a prior party;
(d)By a valid tender of payment made by a prior party;
(e)By a release of the principal debtor, unless the holder's right of recourse against the party secondarily liable
is expressly reserved;
(f)By any agreement binding upon the holder to extend the time of payment, or to postpone the holder's right
to enforce the instrument, unless made with the assent of the party secondarily liable, or unless the right of
recourse against such party is expressly reserved. (120)
When is a person secondarily liable on the instrument discharged? when the instrument is discharged under
119; 120
1) by any act which discharges the instrument;
2) by the intentional cancellation of his signature by the holder;
3) by the discharge of a prior party;
4) by a valid tender of payment made by a prior party;
5) by a release of the principal debtor, unless the holder's right of recourse against the party secondarily liable is
expressly reserved;
6) by any agreement binding upon the holder to extend the time of payment, or to postpone the holder's right
to enforce the instrument, unless made with the assent of the party secondarily liable, or unless the right of
recourse against such party is expressly reserved.
Give an example of any act which discharges the instrument:
Payment in due course by the principal debtor
Give an example of intentional cancellation of his signature by the holder:
A, maker, B, payee. The note is successively indorsed to C, D, E, and F, holder. F then intentionally cancels the
signature of D. D is discharged. No consideration is necessary to support a discharge under this instance.
Give an example of a discharge of a prior party:
Using the example above, the intentional cancellation of Ds signature also discharges E, as D is a party prior to
E. And according to this paragraph, the discharge of a prior party discharges parties subsequent thereto. The
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reason is that if E were not discharged by the discharge of D, and he is made to pay by F, holder, he would not
be able to enforce his recourse against D.
Supposing that A, maker, B, payee. The note was successively indorsed to C, D, E, and F, holder. F sent a notice
of dishonor to C, D, and E, without sending a notice to B. What is the effect with respect to B?
As an indorser to whom such notice is not given, B is discharged.
Considering that B is discharged, are the subsequent parties also discharged?
No prior parties are not discharged. A discharge by prior party referred under Section 120(c) must be one that
arises from the act of the holder, such as the intentional cancellation of the signature of a person secondarily
liable by the holder. It does not refer to a discharge by operation of law such as a 1) discharge of a party not
given due notice of dishonor or 2) a discharge by the Statute of Limitations.
SIR: The discharge of prior party must be from the act of the holder (the discharge must be the act of the
holder). If the intention of F is to discharge B, then all subsequent parties are also discharge. However, if it is by
operation of law, like when F did not give such notice of dishonor to B, while he give notice of dishonor to
parties subsequent to B, these subsequent parties cannot claim to be discharge by saying that they cannot hold
B liable.
What is a tender of payment?
It means the act by which one produces and offers to a person holding a claim or demand against him the
amount of money which he considered and admits to be due, in satisfaction of such claim or demand without
any stipulation or condition.
Give an example of a release of principal debtor (maker) unless the holders right of recourse against parties
secondarily is expressly reserved:
Using the same example above, if F release A, the maker, the persons secondarily liable, B, C, D, and E, are also
discharged, as (1) this discharges the instrument and (2) deprives them of their right of recourse against A,
maker. But if on releasing A, the holder F reserves his right of recourse against the parties secondarily liable,
they are not discharged. The reason is that the effect of such reservation is the implied reservation of their
(BCDE) right of recourse against A. In other words, while the holder cannot hold A liable, F can hold B, C, D, and E
liable, but they can hold A liable should any of them be made to pay by F. This reservation must be express.
RIGHT OF PARTY WHO DISCHARGES INSTRUMENT Where the instrument is paid by a party secondarily
liable thereon, it is not discharged; but the party so paying it is remitted to his former rights as regard all prior
parties, and he may strike out his own and all subsequent indorsements, and again negotiate the instrument,
except
(a)Where it is payable to the order of a third person, and has been paid by the drawer; and
(b)Where it was made or accepted for accommodation, and has been paid by the party accommodated. (121)
What are the effects if the person secondarily liable pays the instrument?
1) the instrument is not discharged but it discharges the party paying.
2) she is remitted to her former rights as regard all prior parties.
3) she may strike out her own and all subsequent indorsements
4) she can renegotiate the instrument.
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What are the exceptions to right to renegotiate?
1) where it is payable to the order of a third person, and has been paid by the drawer; and
2) where it was made or accepted for accommodation, and has been paid by the party accommodated.
RENUNCIATION BY HOLDER The holder may expressly renounce his rights against any party to the
instrument before, at, or after its maturity. An absolute and unconditional renunciation of his rights against
the principal debtor made at or after the maturity of the instrument discharges the instrument. But a
renunciation does not affect the rights of a holder in due course without notice. A renunciation must be in
writing, unless the instrument is delivered up to the person primarily liable thereon. (122)
What is meant by renunciation?
The act of surrendering a right or claim without recompense but it can be applied with equal propriety to the
relinquishing of a demand upon an agreement supported by a consideration.
What are the forms of renunciation?
Renunciation must be:
1) express
2) in writing
What is the exception?
When the instrument is delivered to the person primarily liable, the renunciation may be ORAL.
When should renunciation be made?
Renunciation may be made by the holder:
1) before maturity
2) at maturity
3) after maturity
When does renunciation discharge the instrument?
When it is:
1) absolute and unconditional
2) made in favor of the person primarily liable
3) made at or after the maturity.
What if it is made by the drawer?
Renunciation may only be made by the holder.
What if the renunciation was made in favor of the drawer?
It does not discharge the instrument because the drawer is not a person primarily liable on the instrument.
What if the renunciation was made in favor of the indorser?
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It does not discharge the instrument because an indorser is not a person primarily liable on the instrument.
Who is the principal debtor?

The acceptor.
How about the drawee?
No because he is not even a party.
CANCELLATION; UNINTENTIONAL; BURDEN OF PROOF . A cancellation made unintentionally, or under a
mistake or without the authority of the holder, is inoperative, but where an instrument or any signature
thereon appears to have been cancelled the burden of proof lies on the party who alleges that the
cancellation was made unintentionally, or under a mistake or without authority. (123)
What is cancellation?
Any act which signifies the intention of the holder to cancel the instrument.
How do you cancel an instrument?
By drawing criss-cross lines, tearing, obliterations, erasures or burning. It may be made by any other means by
which the intention to cancel instrument may be evident.
When is cancellation considered inoperative?
When:
1) made unintentionally
2) made under mistake
3) made without the authority of the holder.
Who has the burden of proof that the cancellation was made unintentionally, or under a mistake or without
authority?
The party claiming that the cancellation is inoperative.
ALTERATION OF INSTRUMENT; EFFECT OF Where a negotiable instrument is materially altered without the
assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized,
or assented to the alteration, and subsequent indorsers.
But when an instrument has been materially altered and is in the hands of a holder in due course, not a party
to the alteration, he may enforce payment thereof according to its original tenor. (124)
What is an alteration?
The act, process, or result of changing or altering something.
PNB vs CA
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FACTS: A check with serial number 7-3666-223-3, in the amount of P97,650.00 was issued by the Ministry of
Education and Culture payable to F. Abante Marketing. This check was drawn against Philippine National Bank.
F. Abante Marketing, a client of Capitol City Development Bank (Capitol), deposited the questioned check in its
savings account with said bank. In turn, Capitol deposited the same in its account with the Philippine Bank of
Communications (PBCom) which, in turn, sent the check to petitioner for clearing. PNB cleared the check as
good and, thereafter, PBCom credited Capitol's account for the amount stated in the check. Later on, PNB
returned the check to PBCom and debited PBCom's account for the amount covered by the check, the reason
being that there was a "material alteration" of the check number. Subsequent debits were made but Capitol
cannot debit the account of Abante any longer for the latter had withdrawn all the money already from the
account. This prompted Capitol to seek reclarification from PBCOM and demanded the recrediting of its
account. PBCOM followed suit by doing the same against PNB. Demands unheeded, it filed an action against
PBCOM and the latter filed a third-party complaint against PNB.
ISSUE: Whether the alteration in the check constitutes material alteration.
HELD: An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized
change in an instrument that purports to modify in any respect the obligation of a party or an unauthorized
addition of words or numbers or other changes to an incomplete instrument relating to the obligation of a party.
In other words, a material alteration is one which changes the items which are required to be stated under
Section 1 of the Negotiable Instruments Law.
The case at bench is unique in the sense that what was altered is the serial number of the check in question, an
item which, it can readily be observed, is not an essential requisite for negotiability under Section 1 of the
Negotiable Instruments Law. The aforementioned alteration did not change the relations between the parties.
The name of the drawer and the drawee were not altered. The intended payee was the same. The sum of
money due to the payee remained the same. The check's serial number is not the sole indication of its origin. As
succinctly found by the Court of Appeals, the name of the government agency which issued the subject check
was prominently printed therein. The check's issuer was therefore sufficiently identified, rendering the referral
to the serial number redundant and inconsequential. Petitioner, thus cannot refuse to accept the check in
question on the ground that the serial number was altered, the same being an immaterial or innocent one.
Therefore, there being no material alteration in the check committed, PNB could not return the check to
PBCOM. It should pay the same.
What is the test in order to determine whether the alteration is material or not?
The test is whether the alteration is one which changes the items which are required to be stated under Section
1 of the Negotiable Instruments Law.
What are the requirements?
1) it must be in writing and signed by the maker or drawer;
2) must contain an unconditional promise or order to pay a sum certain in money;
3) must be payable on demand, or at a fixed or determinable future time;
4) must be payable to order or to bearer; and
5) where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
What is the effect of material alteration against a holder not in due course?
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It is avoided in the hands of one who is not a holder in due course as against any prior party who has not
assented to the alteration.
It is not avoided against a:
1) party who has made the alteration.
2) party who authorized or assented to the alteration.
3) subsequent indorsers.
A made a note for P100,000 payable to the order of B. With the authority of C and the assent of E, D alters the
note to P1,000,000. The note is successively indorsed to F, and G, holder. G is not a holder in due course. May
G go after A?
No because as to A, the instrument is avoided.
Why is it avoided as to A?
Because A is neither a party who himself made, authorized, or assented to the alteration nor is he a subsequent
indorser.
What about B?
Is it also avoided as to B for the same reason as A.
In the example, who would be liable to G, who is not a holder in due course?
C and E are liable to G for P1,000,000 as they are parties who respectively authorized and assented to the
alteration. D is also liable to G for P1,000,000 as he is the party who made the alteration. F would also be liable
to G P1,000,000 as he is a subsequent indorser.
Can G go after A and at least ask for P100,000?
No because the instrument is avoided in the hands of one who is not a holder in due course as against any prior
party who has not assented to the alteration.
What is the effect if the instrument is materially altered and is now in the hands of a holder in due course?
He may enforce payment according to its original tenor. In our example, if G is a holder in due course, he could
recover from A and B P100,000, the original tenor of the note.
What about C, D, E, and F?
G can recover P1,000,000 from C, as C authorized the alteration; also from D, as D made the alteration; also E, as
E assented to the alteration; and from F, as he is a subsequent indorser.
*A made a note for P100,000 making B as the payee. B negotiated it to C, who while examining the
instrument, inadvertently drew a line on the instrument which made it appear that the amount of the
instrument is P1,100,000. C negotiated the note to D for P100,000. D negotiated it to E. E is a holder in due
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course. When E enforce the note against A, maker, the latter was unable to pay. E went to C. Can C, indorser,
be required to pay the whole amount of P1,100,000?
Yes because the law does not make the distinction between fraudulent and innocent alteration.
Is there a crime committed if the person alters the instrument?
Yes the crime of falsification of commercial document by private individuals. (RPC, Art 171, 172)
X issued a check for P100,000 drawn against a bank. The instrument was altered to make it appear that the
check is worth P1,000,000. When the check was presented to the bank, the latter paid P1,000,000. May the
bank debit the account of the drawer?
The bank should be allowed to debit the amount of the drawer only for the correct amount.
MONTINOLA V. PNB
FACTS: Ramos, as a disbursing officer of an army division of the USAFE, made cash advancements w/ the
Provincial Treasurer of Lanao. In exchange, the Provl Treasurer of Lanao gave him a P500,000 check. Thereafter,
Ramos presented the check to Laya for encashment. Laya in his capacity as Provincial Treasurer of Misamis
Oriental as drawer, issued a check to Ramos in the sum of P100000, on the Philippines National Bank as drawee;
the P400000 value of the check was paid in military notes. Ramos was unable to encash the said check for he
was captured by the Japanese. But after his release, he sold P30000 of the check to Montinola for P90000
Japanese Military notes, of which only P45000 was paid by the latter. The writing made by Ramos at the back of
the check was to the effect that he was assigning only P30000 of the value of the document with an instruction
to the bank to pay P30000 to Montinola and to deposit the balance to Ramos's credit. This writing was,
however, mysteriously obliterated and in its place, a supposed indorsement appearing on the back of the check
was made for the whole amount of the check. At the time of the transfer of this check to Montinola, the check
was long overdue by about 2-1/2 years.
ISSUE: Whether the alteration in the check constitutes material alteration.
HELD: The words "Agent, Phil. National Bank" now appearing on the face of the check were added or placed in
the instrument after it was issued by the Provincial Treasurer Laya to Ramos. The check was issued by Laya only
as Provincial Treasurer and as an official of the Government, which was under obligation to provide the USAFE
with advance funds, and not as agent of the bank, which had no such obligation. The addition of those words
was made after the check had been transferred by Ramos to Montinola. The insertion of the words "Agent, Phil.
National Bank," which converts the bank from a mere drawee to a drawer and therefore changes its liability,
constitutes a material alteration of the instrument without the consent of the parties liable thereon, and so
discharges the instrument.
What was the original tenor of the instrument?
The check was issued by Laya in his capacity as Provincial Treasurer of Misamis Oriental and as an official of the
Government.
What convinced the Supreme Court that indeed the check was not issued by Laya as an agent of PNB?
There is no reason known to why Provincial Treasurer Laya should issue the check as agent of the Philippine
National Bank. Said check for P100,000 was issued to complete the payment of the other check for P500,000
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issued by the Provincial Treasurer of Lanao to Ramos, as part of the advance funds for the USAFFE in Cagayan de
Misamis. The balance of P400,000 in cash was paid to Ramos by Laya from the funds, not of the bank but of the
Provincial Treasury. Said USAFFE were being financed not by the Bank but by the Government and, presumably,
one of the reasons for the issuance of the emergency notes in Mindanao was for this purpose.
What is the test in determining that the alteration is material?
The test is whether the alteration is one which changes the items which are required to be stated under Section
1 of the Negotiable Instruments Law.
In this case, did it affect any elements of the Section 1 of the NIL?
Yes, under the first requisite of Sec. 1, the instrument must be in writing and signed by the maker or drawer; In
this case, Laya, as drawer, signed the instrument in his capacity as Provincial Treasurer, not as an agent of PNB.
In effect, it changed one of the elements of Section 1 of the NIL, because it made it appear that the instrument
was signed by a different drawer.
WHAT CONSTITUTES A MATERIAL ALTERATION Any alteration which changes
(a)The date;
(b)The sum payable, either for principal or interest;
(c)The time or place of payment;
(d)The number or the relations of the parties;
(e)The medium or currency in which payment is to be made;
Or which adds a place of payment where no place of payment is specified, or any other change or addition
which alters the effect of the instrument in any respect, is a material alteration. (125)
When do you consider an alteration material?
Any alteration which changes the
1) date;
2) sum payable, either for principal or interest;
3) time or place of payment;
4) number or the relations of the parties;
5) currency or medium in which payment is to be made;
6) or which adds a place of payment where no place of payment is specified, or any other change or addition
which alters the effect of the instrument in any respect.
A note payable in Philippine peso for P1million pesos. The holder has a plan to visit Japan, so he is in dire
need of Japanese Yen. He altered the tenor of the note from P1 million to 2 million. If you make a calculation
mathematically, more or less P1 million is equivalent to 2 million. Is there still a material alteration even if
there is no damage?
Yes because such alteration changes the currency in which payment is to be made.
The instrument is made payable at Cyma in Ayala Terraces. It was altered such that payment is to be made at
Caf Laguna in Ayala Terraces. Will it be considered as material alteration knowing for a fact that the distance
is just a boogers throw away?
Yes because such alteration changes the place of payment.
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IX. BILLS OF EXCHANGE: FORM AND INTERPRETATION

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. (126)
What is a bill of exchange?
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.
What is a clean bill of exchange?
One which are not attached documents of title to be delivered to the person against whom the bill is drawn
when he either accepts or pays the bill.
What is a documentary bill of exchange?
One to which are attached documents of title to be delivered and surrendered to the drawee when he accepts
or pays the bill.
What is time or usance bills?
Bills which are payable at a fixed future time or a determinable future time.
What is a Document against acceptance bill?
D/A bill is a time bill to which are attached documents to be delivered and surrendered to the drawee when he
accepts the bill.
What is a Document against payment bill?
D/P bill is a sight or time bill to which are attached documents to be delivered and surrendered to the drawee
when he has paid the corresponding bill.
BILL NOT AN ASSIGNMENT OF FUNDS IN HANDS OF DRAWEE A bill of itself does not operate as an
assignment of the funds in the hands of the drawee available for the payment thereof, and the drawee is not
liable on the bill unless and until he accepts the same. (127)
What does the phrase A bill of itself does not operate as an assignment of the funds in the hands of the
drawee available for the payment thereof mean?
The drawee, as a third party, is not liable on the bill unless and until he accepts the same, or he pays such
instrument.
BILL ADDRESSED TO MORE THAN ONE DRAWEE. A bill may be addressed to two or more drawees jointly,
whether they are partners or not; but not to two or more drawees in the alternative or in succession. (128)
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Can a bill be addressed to two or more drawees jointly?
Yes
What if the instrument provides To A, or in his incapacity, B will pay, is that allowed?
No because a bill cannot be addressed to two or more drawees in the alternative or in succession.
INLAND AND FOREIGN BILLS OF EXCHANGE. An inland bill of exchange is a bill which is, or on its face
purports to be, both drawn and payable within the Philippine Islands. Any other bill is a foreign bill. Unless
the contrary appears on the face of the bill, the holder may treat it as an inland bill. (129)
What is an inland bill?
An inland bill of exchange is a bill which is, or on its face purports to be, both drawn and payable within the
Philippine Islands.
What is a foreign bill?
A foreign bill of exchange is a bill which is, or on its face purports to be, drawn or payable outside the Philippine
Islands. In short, any bill which does not fit the specification of an inland bill.
Why is it important for us to know the difference between an inland bill and a foreign bill?
The distinction is important in:
1) that foreign bills are required to be protested. Failure to protest foreign bills will discharge persons
secondarily liable thereon.
2) for the determination of the law applicable.
WHEN BILL MAY BE TREATED AS PROMISSORY NOTE. Where in a bill drawer and drawee are the same
person, or where the drawee is a fictitious person, or a person not having capacity to contract, the holder may
treat the instrument, at his option, either as a bill of exchange or a promissory note. (130)
When can you treat a bill of exchange as a promissory note?
The holder may treat the instrument, at his option, either as a bill of exchange or a promissory note in the
following cases:
1) where in a bill drawer and drawee are the same person such as, in a draft drawn by an agent on his principal
by authority of the principal. Another example is a draft drawn by a bank on its branch.
2) where the drawee is a fictitious person.
3) where the drawee is a person not having capacity to contract.
Is there a need to give a notice of dishonor to the drawer in these instances?
1) Under Section 114, there is no need to give notice of dishonor in all of these cases in order to charge the
drawer.
2) Treating the bill as a note would constitute the drawer, the maker. Thus, considered as maker, the drawer
would then be a party primarily liable on the instrument to whom notice of dishonor need not be given.
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REFEREE IN CASE OF NEED. The drawer of a bill and any indorser may insert thereon the name of a person
to whom the holder may resort in case of need; that is to say, in case the bill is dishonored by non-acceptance
or non-payment. Such person is called the referee in case of need. It is in the option of the holder to resort to
the referee in case of need or not, as he may see fit. (131)
Who is a referee in case of a need?
A referee is a person, whose name has been inserted on the instrument by the drawer or any indorser, to whom
the holder may resort in case of need.
What does in case of need mean?
In case of need means in case the instrument is dishonored by non-acceptance or non-payment by the drawee,
the holder may, instead of going to the drawer and prior indorsers, apply to the referee for payment.
Is there a need for the holder to give a notice of dishonor to the referee, drawer and indorsers?
The holder need not give a notice of dishonor to the referee; what the holder needs to give is a protest. As to
the drawer and indorsers, the holder must give a notice of dishonor in order to charge them.
SIR: Give a notice of dishonor to the drawer and indorsers before you present it for payment to the referee. In
case the referee refuses to pay, there is no more need to send another notice of dishonor to the drawer and
indorsers.
Should a bill be protested first before you can go to the referee?
Yes because where a dishonored bill contains a reference in case of need, it must be protested for non-payment
before it is presented for payment to the referee in case of need. (167)
If the referee pays, from whom can the referee recover?
He may recover the amount from the drawer or indorser who has named him as referee in case of need.
What is the legal liability of the referee?
The referee has no legal liability because he is not a party to the instrument. You can never hold the referee
liable if the latter refuses to pay.
X. ACCEPTANCE
ACCEPTANCE; HOW MADE, AND SO FORTH The acceptance of a bill is the signification by the drawee of his
assent to the order of the drawer. The acceptance must be in writing and signed by the drawee. It must not
express that the drawee will perform his promise by any other means than the payment of money. (132)
What is acceptance?
Acceptance is the signification of the drawee of his assent to the order of the drawer.
What are the requisites of actual acceptance?
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It must be:
1) in writing
2) signed by the drawee
3) it must not express that the drawee will perform his promise by any other means than the payment of money
4) it must be communicated or delivered to the holder.
*Can an acceptance may made through a text message/telegram?
Yes for as long as the bill is properly identified. The law merely requires some substantial and tangible evidence
of contract.
Can an acceptance may made through a telephone?
No because an acceptance must be in writing.
Is acceptance required for checks?
No because they are payable on demand.
SIR: It is my submission that in the advent of new technologies, I think you can accept the instrument through
the different mediums available, particularly email messages. Just like on the olden times, the SC allowed
acceptance by means of telegram notwithstanding the fact that the sender does not sign on the telegram. In
fact, transmittal of electronic evidence is now allowed by your SC.
Is it important for acceptance to be delivered?
Yes because acceptance is incomplete until delivery or notification.
What is the effect of acceptance on the drawee?
Upon acceptance, the drawee becomes liable on the bill.
Is acceptance the same as payment?
No because acceptance is a promise to perform an act whereas payment is the actual performance thereof.
SIR: Acceptance and payment are two different legal terms. Acceptance is only needed on three instances (143)
whereas payment must be made unless the person primarily liable has a defense. Even if there is payment, you
cannot legally say that there is an acceptance.
HOLDER ENTITLED TO ACCEPTANCE ON FACE OF BILL 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. (133)
Can the holder require the drawee to write the acceptance on the bill itself?
Yes the holder may require that the acceptance be written on the bill.
What if the drawee says, I would do anything for love but I wont do that?
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The holder may treat the bill as dishonored.
ACCEPTANCE BY SEPARATE INSTRUMENT. Where an acceptance is written on a paper other than the bill
itself, it does not bind the acceptor except in favor of a person to whom it is shown and who, on the faith
thereof, receives the bill for value. (134)
Where do you write the acceptance?
On the bill itself or on a separate paper.
X, the drawee accepted the instrument using another document. The instrument was passed on several times
until it reached the hand of Y (Y is an amputee). May Y enforce the instrument against X?
It depends on whether or not Y has seen the letter of acceptance. If Y has been shown such document, and on
faith thereof, received the bill for value, Y may enforce the bill against X. Otherwise, X is not liable against Y.
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. (135)
Is there an acceptance on a non-existing bill?
Yes
What are the requisites on acceptance on a separate paper if the bill is non-existent?
1) That the contemplated drawee shall describe the bill to be drawn, and promise to accept it.
2) That the bill shall be drawn within a reasonable time after such promise is written
3) That the holder shall take the bill upon the credit of the promise
Can you accept the instrument by simply writing the word good?
Good constitutes an acceptance if written on the bill or check but not when written in a collateral document
such as a telegram.
TIME ALLOWED DRAWEE TO ACCEPT 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. (136)
How much time is given to the drawee to accept the bill?
The drawee is allowed twenty-four hours after presentment for acceptance in which to decide whether or not
he will accept the bill.
What is the effect if the drawee fails to communicate with the holder of the action taken by him within the 24
hours?
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The person presenting it must treat the bill as dishonored by non-acceptance or the loses the right of recourse
against the drawer or indorsers. (150)
X holds the check and he presented it to the bank. Does the 24-hour period within which to accept and pay
the instrument apply to banks?
No it does not apply to banks since a check is present for payment and not acceptance.
LIABILITY OF DRAWEE RETAINING OR DESTROYING BILL Where a drawee to whom a bill is delivered for
acceptance destroys the same, or refuses within twenty-four hours after such delivery, or within such other
period as the holder may allow, to return the bill accepted or non-accepted to the holder, he will be deemed
to have accepted the same. (137)
Upon presentment for acceptance, the drawee destroyed the instrument. What is the legal effect?
The drawee will be deemed to have accepted the bill.
What is constructive acceptance?
Constructive acceptance is where the drawee will be deemed to have accepted the bill even if there is no actual
written acceptance by him.
Give examples of constructive acceptance:
1) where the drawee to whom a bill is delivered for acceptance destroys it
2) where the drawee refuses within 24 hours after such delivery, or within such time as is given to him, to return
the bill accepted or not accepted.
What is the effect of constructive acceptance?
The drawee will be primarily liable as an acceptor.
Is mere retention considered as acceptance?
Yes the mere failure to return the bill within 24-hours is an acceptance.
X brings the instrument to U, the drawee and asks U to accept the instrument. After giving U 3 hours to
examine the instrument, X demands that U return the same. Can U tell X that he will keep the instrument
within the period of 24-hours and return the instrument after such period?
No because the bill is at all times the property of the holder and he is entitled to have it when he wants to, and
Section 137 so provides. If the holder should demand its return before 24-hours, the drawee would be required
to comply on pain of being held as an acceptor; but return within 24-hours unaccepted would not be a dishonor
because the drawee could still accept by notification within the 24-hours.
Does this 24-hour period to present for acceptance apply to presentment for payment?
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Yes Sections 136 and 137 covers presentment for acceptance and payment because the considerations involved
in both cases are the same although the law is silent on the point of how long the drawee may take to pay. The
rule established in the Wisner case forces uniform treatment on instruments whether presented for payment or
acceptance and established certain and predictable results where it is not clear for which purpose the
instrument was presented.
ACCEPTANCE OF INCOMPLETE BILL. 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. (138)
When do you make an acceptance?
Acceptance may be made:
1) before the bill is signed by the drawer
2) even when the bill is otherwise incomplete
3) even when the bill is overdue
4) even after it has been dishonored by non-acceptance or non-payment.
KINDS OF ACCEPTANCE An acceptance is either general or qualified. A general acceptance assents without
qualification to the order of the drawer. A qualified acceptance in express terms varies the effect of the bill as
drawn. (139)
What is general acceptance?
A general acceptance assents without qualification to the order of the drawer
What is a qualified acceptance?
A qualified acceptance in express terms varies the effect of the bill as drawn.
WHAT CONSTITUTES A GENERAL ACCEPTANCE 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. (140)
Payment on a particular place is that a general acceptance or a qualified acceptance?
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.
QUALIFIED ACCEPTANCE An acceptance is qualified which is
(a)Conditional; that is to say, which makes payment by the acceptor dependent on the fulfillment of a
condition therein stated;
(b)Partial; that is to say, an acceptance to pay part only of the amount for which the bill is drawn;
(c)Local; that is to say, an acceptance to pay only at a particular place;
(d)Qualified as to time;
(e)The acceptance of some one or more of the drawees, but not of all. (141)
What are the types of qualified acceptance?
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1) Conditional: which makes payment by the acceptor dependent on the fulfillment of a condition therein
stated.
Accepted if Y marries Z. (Sgd.) X
2) Partial an acceptance to pay part only of the amount for which the bill is drawn;
Bill is for P1000. Accepted for P500 only. (Sgd) X
3) Local: an acceptance to pay only at a particular place;
Accepted, payable at BPI Ayala Branch only. (Sgd.) X
4) Qualified as to time.
Bill is payable 30 days after sight. Accepted. Payable 60 days after sight. (Sgd.) X
5) The acceptance of some one or more of the joint drawees, but not of all.
The drawees of the bill are X and Y, and it is accepted only by Y.
What if they are solidary drawees?
A bill cannot be addressed two or more drawees in the alternative or in succession. (128)
RIGHTS OF PARTIES AS TO QUALIFIED ACCEPTANCE. 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. (142)
Does the holder have the right to ask for a general acceptance?
Yes
What is the legal effect if its denied?
He may treat the bill as dishonored by non-acceptance. Accordingly, the holder must give a notice of dishonor.
What is the effect of accepting a qualified acceptance as to the indorser and drawer?
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.
XI. PRESENTMENT FOR ACCEPTANCE

WHEN PRESENTMENT FOR ACCEPTANCE MUST BE MADE Presentment for acceptance must be made
(a)Where the bill is payable after sight, or in any other case, where presentment for acceptance is necessary in
(b)Where the bill expressly stipulates that it shall be presented for acceptance; or
(c)Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee.
In no other case is presentment for acceptance necessary in order to render any party to the bill liable. (143)
What are the circumstances wherein presentment for acceptance is necessary?
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3) where the bill is drawn payable elsewhere than at the residence or place of business of the drawee.
If an instrument is not within those circumstances, can it be presented for acceptance?
Yes, there is nothing wrong in making a presentment for acceptance in the other cases. And if the bill is
dishonored by non-acceptance. The holder may treat the bill as if it had required acceptance.
If you are the holder, will you present the instrument for acceptance?
SIR: Yes because if you present the instrument for acceptance and it would be accepted by the drawee, then you
have already a person primarily liable on the said instrument. Later on, if the acceptor will not pay, you can send
a notice to the persons secondarily liable and they can go after that drawee. In effect, there is more security on
your part. Rather than you keep on negotiating the instrument from one hand to another without asking the
drawee whether or not the instrument will be accepted later on; and you just wait until the instrument is due
for payment and you present it for payment immediately and if he says no, then you cannot make that person
liable any more.
What is presentment for acceptance?
It is the production of a bill of exchange to the drawee for his acceptance.
WHEN FAILURE TO PRESENT RELEASES DRAWER AND INDORSER Except as herein otherwise provided, the
holder of a bill which is required by the next preceding section to be presented for acceptance must either
present it for acceptance or negotiate it within a reasonable time. If he fail to do so, the drawer and all
indorsers are discharged. (144)
Under the instances provided for under Sec. 143, what should the holder do in order that the drawer or
indorser will not be discharge?
1) to make presentment for acceptance, or
2) to negotiate the bill within reasonable time.
In order to determine what is a reasonable time, regard is had:
PRESENTMENT; HOW MADE. Presentment for acceptance must be made by or on behalf of the holder at a
reasonable hour, on a business day and before the bill is overdue, to the drawee or some person authorized
to accept or refuse acceptance on his behalf; and
(a)Where a bill is addressed to two or more drawees who are not partners, presentment must be made to
them all, unless one has authority to accept or refuse acceptance for all, in which case presentment may be
made to him only;
(b)Where the drawee is dead, presentment may be made to his personal representative;
(c)Where the drawee has been adjudged a bankrupt or an insolvent, or has made an assignment for the
benefit of creditors, presentment may be made to him or to his trustee or assignee. (145)
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When do you present a bill for acceptance?
1) before the bill is overdue; and
2) within reasonable time after acquisition thereof
Otherwise what is the effect if you did not do that?
The drawer and indorsers are discharged.
To whom should you present the instrument for acceptance?
1) to the drawee or some person authorized to accept or refuse the acceptance on his behalf.
2) where there are two or more drawees, presentment must be made to both of them unless:
a. one is duly authorized to accept or refuse acceptance, or
b. they are partners.
What if the drawee is already dead?
Presentment may be made to his personal representative.
What if the drawee is adjudged to be insolvent?
Presentment may be made to him or to his trustee or assignee.
Is it necessary to make a presentment for acceptance if the drawee is already dead?
No because presentment is excused when the drawee is dead. (148)
Why is there a need for you to present the instrument to the personal representative when the drawee is
already dead and presentment is excused by law?
The law merely gives the holder the option to make such presentment.
If you are the holder, which option will you choose?
You should make presentment for acceptance in order to determine whether the personal representative of
such deceased person will accept the instrument. Its the same reason that you present the instrument for
acceptance even in instances wherein presentment for acceptance is not required.
*If you are the holder and you choose the option of not presenting it for acceptance, what should you do?
You may present the instrument for payment to the personal representative and if the latter refuses to pay the
amount on the instrument, you may send a notice of dishonor to the persons secondarily liable. ?!?!
If the instrument is dishonored by non-acceptance, can you directly to the persons secondarily liable?
Yes provided you have given such persons a notice of dishonor.
Why is there no need for you to present the instrument for payment?
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Because when a bill is dishonored by non-acceptance, an immediate right of recourse against the drawer and
indorsers accrues to the holder and no presentment for payment is necessary. (151)
Are you prevented from presenting it again for acceptance?
No.
ON WHAT DAYS PRESENTMENT MAY BE MADE A bill may be presented for acceptance on any day on which
negotiable instruments may be presented for payment under the provisions of sections seventy-two and
eighty-five of this Act. When Saturday is not otherwise a holiday, presentment for acceptance may be made
before twelve o'clock, noon, on that day. (146)
PRESENTMENT WHERE TIME IS INSUFFICIENT Where the holder of a bill drawn payable elsewhere than at
the place of business or the residence of the drawee has no time with the exercise of reasonable diligence to
present the bill for acceptance before presenting it for payment on the day that it falls due, the delay caused
by presenting the bill for acceptance before presenting it for payment is excused, and does not discharge the
drawers and indorsers. (147)
WHERE PRESENTMENT IS EXCUSED Presentment for acceptance is excused, and a bill may be treated as
dishonored by non-acceptance, in either of the following cases:
(a)Where the drawee is dead, or has absconded, or is a fictitious person or a person not having capacity to
contract by bill.
(b)Where, after the exercise of reasonable diligence, presentment can not be made.
(c)Where, although presentment has been irregular, acceptance has been refused on some other ground.
(148)
When is presentment for acceptance excused?
1) where the drawee is dead, or has absconded, or is a fictitious person or a person not having capacity to
contract by bill.
2) where, after the exercise of reasonable diligence, presentment cannot be made.
3) where, although presentment has been irregular, acceptance has been refused on some other ground
WHEN DISHONORED BY NON-ACCEPTANCE A bill is dishonored by non-acceptance
(a)When it is duly presented for acceptance and such an acceptance as is prescribed by this Act is refused or
can not be obtained; or
(b)When presentment for acceptance is excused, and the bill is not accepted. (149)
When can you treat an instrument to be dishonored by non-acceptance?
1) when it is duly presented for acceptance and such an acceptance as is prescribed by this Act is refused or
cannot be obtained; or
2) when presentment for acceptance is excused, and the bill is not accepted.
DUTY OF HOLDER WHERE BILL NOT ACCEPTED 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 nonacceptance or he loses the right of recourse against the drawer and indorsers. (150)
What is the duty of the holder of the instrument which has been dishonored by non-acceptance?
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The holder must give notice of dishonor to the persons secondarily liable. Otherwise, the drawer and indorsers
will be discharged.
RIGHT OF HOLDER WHERE BILL NOT ACCEPTED When a bill is dishonored by non-acceptance, an immediate
right of recourse against the drawer and indorsers accrues to the holder and no presentment for payment is
necessary. (151)
*Supposing that the drawee is a fictitious person, isnt it that presentment for acceptance is excused, you can
treat the instrument as having been dishonored by non-acceptance, and you can send a notice of dishonor to
persons secondarily liable such that even if the instrument has not yet matured, you can charge this persons
as secondarily liable; Is there a need for presentment for payment if the instrument is already treated as
dishonored by non-acceptance?
No because when presentment is excused, you can immediately treat the instrument to have been dishonored
by non-acceptance; and after that you can immediately send a notice of dishonor by non-acceptance to the
persons secondarily liable; and after sending such notice, there is no need for you to wait for the instrument to
become mature before you can charge the persons secondarily liable.
XII. PROTEST
IN WHAT CASES PROTEST NECESSARY Where a foreign bill appearing on its face to be such is dishonored by
non-acceptance, it must be duly protested for non-acceptance, and where such bill which has not previously
been dishonored by non-acceptance is dishonored by non-payment, it must be duly protested for nonpayment. If it is not so protested, the drawer and indorsers are discharged. Where a bill does not appear on
its face to be a foreign bill, protest thereof in case of dishonor is unnecessary. (152)
What is meant by protest?
By protest is meant a formal statement in writing made by a notary under his seal of office at the request of the
holder of a bill or note in which it is declared that the same was on a certain day presented for
acceptance/payment and such acceptance/payment was refused, whereupon the notary protests against all
parties to such instrument and declares that they will be held responsible for all loss or damage arising from its
dishonor. It means all the steps or acts accompanying the dishonor of a bill or note necessary to charge an
indorser.
When is it necessary?
Protest is required:
1) where the foreign bill is dishonored by non-acceptance.
2) where the foreign bill is dishonored by non-payment.
3) where the bill has been accepted for honor, it must be protested for non-payment before it is presented for
payment to the acceptor for honor.
4) where the bill contains a referee in case of need, it must be protest for non-payment before it is presented
for payment for the referee in case of need.
What is the effect of non-protest if such protest is necessary?
The drawer and indorsers are discharged.
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PROTEST; 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. (153)
How do you make a protest?
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
1) the time and place of presentment;
2) the fact that presentment was made and the manner thereof;
3) the cause or reason for protesting the bill;
4) the demand made and the answer given, if any, or the fact that the drawee or acceptor could not be found.
What is certificate of protest?
It is a solemn declaration made by the notary public to prove that it has been presented for payment or
acceptance to the person liable and that it has been refused and that there has been a protest of the
instrument.
What is the purpose of protest?
To furnish to the holder the legal testimony of presentment, demand and notice of dishonor to be used in an
action against the drawer and indorsers.
What is the difference between a certificate of protest and notice of protest?
A certificate of protest generally serves as evidence of the facts set forth in its terms whereas a notice of protest
is a formal declaration sent by the notary to all parties to the instrument after he protests the instrument.
Why is protest required?
To charge the persons secondarily liable.
After protesting a bill, what kinds of damages can you charge against the holder?
The damages are:
1) the face value of the bill
2) interest thereon
3) protest fees
4) re-exchange, being the additional expense of procuring a new bill
PROTEST; BY WHOM MADE Protest may be made by
(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. (154)
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Who can make a protest?
1) a notary public; or
2) by any respectable resident of the place where the bill is dishonored, in the presence of two or more credible
witnesses. (154)
PROTEST; WHEN TO BE MADE. When a bill is protested, such protest must be made on the day of its
dishonor, 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. (155)
When should protest be made?
It must be made on the day of its dishonor unless delay is excused as herein provided.
What is meant by the word duly noted?
It means that the notary public jots down a note on the bill, or a paper attached thereto, or in his registry book,
consisting of his initials or signature and those matters required to be stated in Section 153.
PROTEST; WHERE MADE A bill must be protested at the place where it is dishonored, 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 non-acceptance, 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. (156)
Where do you make such protest?
At the place where it is dishonored, 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 non-acceptance, it must be protested for nonpayment at the place where it is expressed to be payable.
PROTEST BOTH FOR NON-ACCEPTANCE AND NON-PAYMENT A bill which has been protested for nonacceptance may be subsequently protested for non-payment. (157)
Can you protest a bill for non-payment even though it was already protested for non-acceptance?
Yes but it is merely optional on the part of the holder.
PROTEST BEFORE MATURITY WHERE ACCEPTOR INSOLVENT 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. (158)
What is protest for better security?
It is one made by the holder against the drawer and indorsers where the acceptor has been adjudged bankrupt
or an insolvent or has made an assignment for the benefit of creditors before the bill matures. Such a protest is
not necessary to charge the drawer and indorsers. It is optional on the part of the holder.
When do you make a protest for better security?
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1) after acceptance
2) before the date of maturity
3) when the acceptor has been adjudged bankrupt or an insolvent or has made an assignment for the benefit of
creditors
What is the purpose for making a protest for better security?
To give notice to the drawer and indorsers that the acceptor is bankrupt, insolvent, or has made an assignment
in order to enable them to make the necessary arrangements so that they will not be held liable thereon and
prevent loss of exchange.
WHEN PROTEST DISPENSED WITH. 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. (159)
When can you dispense with the act of protest?
By any circumstances which would dispense with notice of dishonor. (112, 114, 115, 117)
When is delay in noting or protesting 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.
PROTEST WHERE BILL IS LOST, AND SO FORTH. 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. (160)
Does loss or destruction of a bill dispense with making a protest?
No because loss or destruction of a bill does not excuse the making of protest. Protest may be made on a copy
or written particulars thereof.
XIII. ACCEPTANCE FOR HONOR

WHEN BILL MAY BE ACCEPTED FOR HONOR. Where a bill of exchange has been protested for dishonor by
non-acceptance or protested for better security, and is not overdue, any person not being a party already
liable thereon may, with the consent of the holder, intervene and accept the bill supra protest for the honor
of any party liable thereon, or for the honor of the person for whose account the bill is drawn. The acceptance
for honor may be for part only of the sum for which the bill is drawn; and where there has been an
acceptance for honor for one party, there may be a further acceptance by a different person for the honor of
another party. (161)
What is an acceptance for honor/acceptance supra protest?
An acceptance of a bill made by a stranger to it before maturity, where the drawee of the bill has refused to
accept it, and the bill has been protested for non-acceptance, or where the bill has been protested for better
security.
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What is the purpose of acceptance for honor?
It is done to save the credit of the parties to the instrument or some party to it, as the drawer, drawee, or
indorser,or somebody else.
Who shall benefit such acceptance for honor?
It will inure to the benefit of all parties subsequent to him for whose honor it was accepted.
What are the requisites for acceptance for honor?
1) bill must have been previously protested (a) for non-acceptance or (b) for better security.
2) bill is not overdue at the time of the acceptance for honor.
3) the acceptor for honor must be a stranger to the bill.
4) holder must give his consent.
ACCEPTANCE FOR HONOR; HOW MADE. An acceptance for honor supra protest must be in writing, and
indicate that it is an acceptance for honor, and must be signed by the acceptor for honor. (162)
How do you make an acceptance for honor?
1) in writing, and indicate that it is an acceptance for honor, and
2) signed by the acceptor for honor.
Is it necessary for an acceptor for honor to appear before a notary?
Yes because an acceptance for honor can be properly made by the acceptor appearing before a notary public
and declaring his intention to accept for honor of some one or more of the parties and subscribing to some such
expression of his intention as accepted for the honor of X
WHEN DEEMED TO BE AN ACCEPTANCE FOR HONOR OF THE DRAWER. Where an acceptance for honor
does not expressly state for whose honor it is made, it is deemed to be an acceptance for the honor of the
drawer. (163)
What is the effect if the acceptance for honor does not specify to whose honor the bill is accepted?
It is deemed to be an acceptance for the honor of the drawer.
LIABILITY OF THE ACCEPTOR FOR HONOR. The acceptor for honor is liable to the holder and to all parties to
the bill subsequent to the party for whose honor he has accepted. (164)
What is the extent of the liability of an acceptor for honor?
He is liable to the holder and to all parties to the bill subsequent to the party for whose honor he has accepted.
Is his liability primary or secondary?
His liability is secondary.
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AGREEMENT OF ACCEPTOR FOR HONOR. The acceptor for honor, by such acceptance engages that he will
on due presentment pay the bill according to the terms of his acceptance, provided it shall not have been paid
by the drawee, and provided also that it shall have been duly presented for payment and protested for nonpayment and notice of dishonor given to him. (165)
By accepting the instrument for honor, what is the engagement made by the acceptor for honor?
He engages to pay if:
1) presentment for payment has been made
2) the drawee does not pay
3) the bill is protested for non-payment
4) notice of dishonor is given to him
MATURITY OF BILL PAYABLE AFTER SIGHT; ACCEPTED FOR HONOR. Where a bill payable after sight is
accepted for honor, its maturity is calculated from the date of the noting for non-acceptance and not from the
date of the acceptance for honor. (166)
When do you start to count the maturity of the instrument payable after sight if the same is accepted for
honor?
From the date of the noting for non-acceptance and not from the date of the acceptance for honor.
PROTEST OF BILL ACCEPTED FOR HONOR, AND SO FORTH. Where a dishonored bill has been accepted for
honor supra protest or contains a reference in case of need, it must be protested for non-payment before it is
presented for payment to the acceptor for honor or referee in case of need. (167)
When is protest for non-payment necessary?
When a dishonored bill has been accepted for honor supra protest or contains a referee in case of need.
PRESENTMENT FOR PAYMENT TO ACCEPTOR FOR HONOR, HOW MADE. Presentment for payment to the
acceptor for honor must be made as follows:
(a)If it is to be presented in the place where the protest for non-payment was made, it must be presented not
later than the day following its maturity.
(b)If it is to be presented in some other place than the place where it was protested, then it must be
forwarded within the time specified in section one hundred and four. (168)
How do you make presentment for payment to an acceptor for honor?
1) if it is to be presented in the place where the protest for non-payment was made, it must be presented not
later than the day following its maturity.
2) if it is to be presented in some other place than the place where it was protested, then it must be forwarded
within the time specified in section one hundred and four (Sec 104).
WHEN DELAY IN MAKING PRESENTMENT IS EXCUSED. The provisions of section eighty-one apply where
there is delay in making presentment to the acceptor for honor or referee in case of need. (169)
Can delay in making presentment excused?
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Yes delay in making presentment to the acceptor for honor or referee in case of need is excused when the 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, presentment must be made with reasonable diligence.
DISHONOR OF BILL BY ACCEPTOR FOR HONOR. When the bill is dishonored by the acceptor for honor it
must be protested for non-payment by him. (170)
If an acceptor for honor dishonors an instrument, is protest for non-payment necessary?
Yes in order to fix the liability of the indorsers.
XIV. PAYMENT FOR HONOR

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. (171)
Who may make payment for honor?
Any person, even a party thereto, may pay supra protest.
What are the requisites in order that a payment for honor may be validly made?
1) the bill has be protested for non-payment
2) any person, even a party thereto, may pay supra protest.
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. (172)
What is the form for payment for honor?
1) the payment must be attested by notarial act appended to the protest or from an extension to it.
2) the notarial act must be based on a declaration by the payer for honor.
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. (173)
What is the procedure for payment for honor?
1) 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 payor then notifies the person for whose honor he pas within reasonable time.
If these formalities are not followed, the payment will operate as a mere voluntary payment and the payor
acquires only the rights stated in Articles 1236 to 1237 of the NCC and not thosestated in Section 175.
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What is the purpose of payment for honor?
It is availed of when the holder does not want to indorse the bill and thereby incur the liabilities or of one
negotiating by mere delivery.
Can holder still negotiate at this point in time?
Yes but subject to defenses available under the law which will make the holder a holder not in due course.
What is the difference between acceptance for honor and payment for honor?
As to their concept:
As to who may be an
acceptor/payor:
As to their form:
As to their purpose:
ACCEPTANCE FOR HONOR

An acceptance of a bill made by a
stranger to it before maturity,
where the drawee of the bill has
refused to accept it.
Any person not being a party
already liable thereon
PAYMENT FOR HONOR

Payment of a bill which has been
protested for non-payment by any
person for the honor of any person
liable thereon.
Any person, even a party thereto.
To save the credit of the parties to

the instrument or some party to it.
To enable the holder not to incur

the liabilities of an indorser of a bill
or of one negotiating by mere
delivery.
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. (174)
What happens if two or more persons want to pay for honor?
The person whose payment will discharge most parties to the bill is to be given the preference.
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. (175)
What is the effect on subsequent parties where the bill is paid for honor?
All parties subsequent to the party for whose honor it is paid are discharged.
Give an example:
A draws a bill payable to B or order with X, as the drawee. The bill is successively indorsed to C, D, E, and F,
holder. X does not pay and F has duly protested non-payment. Y pays for the honor of C.
1) D and E, parties subsequent to C, for whose honor the payment is made, are discharged;
2) Y, the payer for honor, acquires the rights of F, holder, as against C and A, B, and X, parties who are liable to
C.
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What about the person for whose honor it was paid, is he also discharged?
No he is not discharged and the payer for honor may go after him.
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. (176)
What is the legal effect if the holder refuses to receive payment supra protest?
The holder loses his right of recourse against any party who would have been discharged by such payment.
Give an example:
Using the example above, suppose Z offers to pay for the honor of B, and F refuses. F, by his refusal, loses his
right to hold C, D, and E liable, as had he accepted Zs offer, they would have been discharged.
*Can you think of a situation wherein the holder will not accept such payment? Take note that at this point,
the instrument was already dishonored by nonpayment.
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. (177)
XV. BILLS IN A SET

BILLS IN SETS 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. (178)
What is a bill in set?
It is one composed of various parts, each part being numbered, and containing a reference to the other parts, all
of which parts constitute but one bill.
What is the purpose of bill in set?
To increase the probability of the bill reaching its destination.
RIGHTS 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 rights of a person who in due course accepts
or pays the part first presented to him. (179)
What is the legal effect if the bill in set is negotiated to two or more holders in due course?
The holder whose title first accrues is as between such holders the true owner of the bill.
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
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indorser subsequent to him is liable on the part he has himself indorsed, as if such parts were separate bills.
(180)
What is the liability of a holder who negotiates to two or more parties?
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 BILLS 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 are negotiated to
different holders in due course, he is liable on every such part as if it were a separate bill. (181)
What is the effect if the drawee accepts two or more bills?
He is liable on every such part as if it were a separate bill.
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 that part at maturity is
outstanding in the hands of a holder in due course, he is liable to the holder thereon. (182)
What is the legal effect if the drawee pays one bill without requiring the surrender of the first bill containing
his acceptance?
He would still be liable to the holder of the first part on which appears his acceptance.
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. (183)
XVI. PROMISSORY NOTES AND CHECKS

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. (184)
What is a promissory note?
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.
What are the special types of promissory notes?
1) bank notes
2) bonds
3) certificate of deposit
4) due bills
What are bank notes?
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They are promissory notes of the issuing bank payable to bearer on demand and intended to circulate as money.
They are regarded as cash and pass from hand to hand without any evidence of title in the holder than that
which arises from possession.
What is a bond?
It is promise, under seal, to pay money. It may also be defined as a series of instruments representing unites of
indebtedness regarded as parts of one entire debt. The bond certifies that the issuing company is indebted to
the bondholder for the amount specified on the face of the bond and contains an agreement of the company to
pay a specified interest on the principal amount at regular intervals. Bonds are negotiable if they conform with
Section 1 of the NIL.
What is a certificate of deposit?
It is a 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. It is not ipso facto a negotiable instrument. To be such,
it must conform to Section 1 of the NIL.
What is a due bill?
It is an instrument whereby one person acknowledges his indebtedness to another. If it conforms with Section 1
of the NIL, a due bill is considered a negotiable promissory note.
What is a mortgage bond?
Those that are secured by a mortgaged constituted on a corporate physical property. The property is conveyed
to a trustee for the benefit of the bondholders in case the interest or principal is defaulted.
What is the primary purpose of a bond?
To increase capitalization or raise more funding.
SIR: For example, a corporation issues to you a mortgage bond if you raise P20 Million. Some properties of the
corporation will be mortgaged in your favor. Later on, if you will call on the bond and the corporation cannot
pay, you can collect the indebtedness by virtue of that mortgage bond.
What is a collateral trust?
Those that are not secured by a lien on physical property of the corporation but by a lien on securities deposited
with a trustee as collateral.
What are guaranteed bonds?
One that is secured by the guaranty of a corporation other than the one issuing it. It implies, therefore, a double
obligation, that of the issuing corporation and that of the guaranteeing corporation.
What are debentures?
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Those that are not secured by any specific mortgage lien pledge on specific corporate property but by the general
credit of the corporation and restrictive agreement.
What are income bonds?
One the principal of which may or may not be secured by a mortgage but the interest is payable only out of the
net profit.
What are coupon bonds?
Those to which are attached a sheet of dated, numbered and similarly printed coupons which the bondholder
may cut off when due or thereafter.
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. (185)
What is a check?
A bill of exchange drawn on a bank payable on demand.
How will you distinguish a check from a promissory note?
Unlike a promissory note, 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. There is therefore an element of certainty or assurance that the instrument will be paid upon
presentation.
What are the special types of checks?
1) cashiers check
2) certified check
3) crossed check
4) managers check
5) memorandum check
What is a cashiers check?
It is one drawn by the cashier of a bank in the name of the bank against the bank itself payable to a third person
or order. There is an assurance that the check is funded.
What is the significance of the issuance of a cashiers check?
The mere issuance of it is considered an acceptance thereof, and the holder has the option of treating it as a
promissory note or bill of exchange.
What is a managers check?
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It is a check drawn by the manager of a bank in the name of the bank against the bank itself. It is similar to the
cashiers check as to effect and use. It is negotiable because it complies with the requisites on forms under the
Negotiable Instruments Law.
What is a memorandum check?
A check on which is written the word memorandum, memo and mem, signifying that the drawer engages
to pay the bona fide holder absolutely and not upon a condition to pay upon presentment and non-payment. It
is given by the borrower to the lender as evidence of his indebtedness.
Can you be held liable under B.P. 22 even if it is a mere memorandum check?
Yes because the gravamen of B.P. 22 is the act of making and issuing a worthless check and putting it into
circulation, or a check that is dishonored upon its presentment for payment. It is not the non-payment of an
obligation which the law punishes. Memorandum check falls within ambit of B.P. 22. The mere act of issuing a
worthless check, whether as a deposit, as a guarantee, or even as an evidence of a pre-existing debt, is malum
prohibitum. (People vs Nitafan)
What is meant by gravamen?
The material or significant part of a complaint.
Can you not, as a matter of defense, say that it was issued merely as an evidence of your indebtedness?
No because B.P.22 applies in cases where the dishonored checks were issued merely in the form of a DEPOSIT or
a GUARANTY and not as actual payment. The law does not make any distinction. Criminal liability attaches to the
drawer of the check whether it was issued in payment of an obligation or merely to guarantee the said
obligation.
*How do you distinguish a memorandum check from an ordinary check?
In an ordinary check, it is a contract whereby the maker engages to pay the bona fide holder absolutely without
any condition concerning the payment whereas in a memorandum check, the making of a check in this manner
is merely for the purpose of indicating that it is not to tbe presented immediately for payment.
What is a certified check?
A check on which the drawee bank has written an agreement whereby it undertakes to pay the check at any
future time when presented for payment such as, by stamping on the check the word certified and
underneath it is written the signature of the cashier.
What is the effect by issuing a certified check?
By issuing a certified check, the bank guarantees that:
1) the check is drawn upon sufficient funds in the hands of the drawee
2) they have been set apart for its satisfaction
3) they shall be so applied whenever the check is presented for payment.
How do you distinguished them from a cashiers check or a managers check?
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They are similar inasmuch as they are already funded.
What is a crossed check?
Crossed check is one where two parallel lines are drawn across its face or across a corner thereof. It may crossed
generally or specially. A check is crossed specially when the name of a particular banker or a company is written
between the parallel lines drawn. It is crossed generally when only the words "and company" are written or
nothing is written at all between the parallel lines. It may be issued so that presentment can be made only by a
bank.
What is the effect of crossing a check?
1) the check may not be encashed but only deposited in the bank;
2) the check may be negotiated only once to one who has an account with a bank;
3) and the act of crossing the check serves as warning to the holder that the check has been issued for a definite
purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a
holder in due course.
What is the significance of a check which is crossed generally?
Payment must be made through the intervention of any company which is duly authorized.
What is the significance of specially crossing the check?
The one who encashes the check with the drawee bank must be the bank mentioned between the parallel lines.
What are the advantages of crossing a check?
It is a good precaution when it is to be forwarded by mail or when it is entrusted to an agent and the drawer
wants to be sure that it will be paid to the rightful owner.
STATE INVESTMENT HOUSE VS COURT OF APPEALS
FACTS: Corazon Victoriano provided pieces of jewelry to Nora Moulic so that the latter may sell the same. As
security for the jewelries, Moulic issued to Victoriano two post dated checks in the aggregate amount of
P100,000.00. Moulic was not able to sell the jewelries so she returned the same to Victoriano. Victoriano was
however unable to return the checks hence Moulic withdrew all her funds from the bank. Apparently, the
checks were negotiated by Victoriano to State Investment House. So when the checks were dishonored, State
Investment demanded Moulic to pay. Moulic refused to pay because she said the checks were merely used as
security for the jewelry. Moulic further averred that she received no notice of dishonor.
ISSUE: Whether State Investment House is entitled to be paid.
HELD: Yes. State Investment is a holder in due course as it met all the requirements to be one pursuant to
Section 52 of the Negotiable Instruments Law. In particular, it is clearly shown that: (a) on their faces the postdated checks were complete and regular: (b) State Investment bought these checks from Victoriano, before
their due dates; (c) State Investment took these checks in good faith and for value, (d) State Investment was
never informed nor made aware that these checks were merely issued to Victoriano as security and not for
value. Further, there is no need to issue a notice of dishonor to Moulic. After Moulic withdrew her funds, she
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could not have expected her checks to be honored. It would only be futile for State Investment to be sending
her notices of dishonor for the two checks.
Was there a discharge here?
No.
What is her recourse?
To go after Corazon Victoriano.
BATAAN CIGAR VS COURT OF APPEALS
FACTS: Bataan Cigar and Cigarette Factory Inc. (BCCFI) engaged one of its suppliers, Kim Tim Pua George(George
King), to deliver bales of tobacco leaf. In consideration thereof, BCCFI issued postdated crosschecks to King. King
sold the checks, at a discount, to the State Investment House Inc. (SIHI). As King failedto deliver the bales of
tobacco leaf despite demand, BCCFI issued stop payment orders on the checks. Effortsby SIHI to collect from
BCCFI failed. SIHI filed suit.
ISSUE: Whether SIHI can recover the value of the checks, premised on the issue whether SIHI is a holder in due
course.
HELD: The facts of the case are on all fours to the case of SIHI vs. Intermediate Appellate Court. The crossing of
the checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorsers title to
the check or the nature of his possession. Failing in this respect, the holder is declared guilty of gross negligence
amounting to legal absence of good faith, contrary to Section 52 (c) of the Negotiable Instruments Law, and as
such the consensus of authority is to the effect that the holder of the check is not a holder in due course. BCCFI
cannot be obliged to pay the checks as there is a failure of consideration (King being unable to supply the bales
of tobacco leaf, for which the checks were intended for). Still, SIHI -- a holder not in due course -- can collect
from the immediate indorser, George King. Such is the disadvantage of a holder not in due course, i.e. the
instrument is subject to defenses as if it were non-negotiable.
CITYTRUST BANKING CORP VS INTERMEDIATE APPELLATE COURT
FACTS: Emme Herrero, businesswoman, made regular deposits with Citytrust Banking Corp. at its Burgoa branch
in Calamba, Laguna. She deposited the amount of P31, 500 in order to amply cover 6 postdated checks she
issued. All checks were dishonored due to insufficiency of funds upon the presentment for encashment.
Citytrust banking Corp. asserted that it was due to Herreros fault that her checks were dishonored, for she
inaccurately wrote her account number in the deposit slip.
ISSUE: Whether Citytrust Bank has the duty to honor checks issued by Emme Herrero.
HELD: Yes, even it is true that there was error on the account number stated in the deposit slip, it is, however,
indicated the name of Emme Herrero. This is controlling in determining in whose account the deposit is made
or should be posted. This is so because it is not likely to commit an error in ones name than merely relying on
numbers which are difficult to remember. Numbers are for the convenience of the bank but was never intended
to disregard the real name of its depositors. The bank is engaged in business impressed with public trust, and it
is its duty to protect in return its clients and depositors who transact business with it. It should not be a matter
of the bank alone receiving deposits, lending out money and collecting interests. It is also its obligation to see to
it that all funds invested with it are properly accounted for and duly posted in its ledgers.
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TAN VS. COURT OF APPEALS
FACTS: Tan, who was a businessman from Palawan, secured a cashier check from PCIB Puerto Princesa branch.
Upon arriving in Mania, he deposited the said cashier check to RCBC Binondo branch which he has an existing
account. Petitioner Tan used a local check deposit slip instead of using a regional deposit slip. Respondent RCBC
sent the same cashier check to the Central Bank for clearing. The Central Bank returned the same check for
having been misspent by RCBC. No notification was sent by RCBC to petitioner Tan. Believing that the cashier
check has been cleared, Tan issued two personal checks in favor of two different business entities.
Subsequently, the two personal checks bounced due to insufficiency of funds in his RCBC account. He learned
that the cashier check was not credited to his account. Due to intense humiliation, Tan filed a civil suit for
damages against respondent RCBC.
ISSUES: (1) Was respondent bank liable for damages even if it was petitioner Tan who erroneously used the
wrong check deposit slip? (2) Was RCBC correct in not applying its discretion on the immediate payment of the
cashier check to the account of Tan, pending the clearance of the check?
HELD: (1) Yes. The respondent bank cannot exculpate itself from liability by claiming that its depositor "impliedly
instructed" the bank to clear his check with the Central Bank by filling a local check deposit slip. Bank clients are
supposed to rely on the services extended by the bank, including the assurance that their deposits will be duly
credited them as soon as they are made.
In the instant case, the teller should not have accepted the local deposit slip with the cashier's check that on its
face was clearly a regional check without calling the depositor's attention to the mistake at the very moment
this was presented to her. Neither should everyone else down the line who processed the same check for
clearing have allowed the check to be sent to Central Bank.
(2) No. What was presented for deposit in the instant cases was not just an ordinary check but a cashier's check
payable to the account of the depositor himself. A cashier's check is a primary obligation of the issuing bank and
accepted in advance by its mere issuance. By its very nature, a cashier's check is the bank's order to pay drawn
upon itself, committing in effect its total resources, integrity and honor behind the check. A cashier's check by its
peculiar character and general use in the commercial world is regarded substantially to be as good as the money
which it represents. In this case, therefore, PCIB by issuing the check created an unconditional credit in favor of
any collecting bank.
All these considered, petitioner's reliance on the layman's perception that a cashier's check is as good as cash is
not entirely misplaced, as it is rooted in practice, tradition, and principle. We see no reason thus why this socalled discretion was not exercised in favor of petitioner, especially since PCIB and RCBC are members of the
same clearing house group relying on each other's solvency. RCBC could surely rely on the solvency of PCIB
when the latter issued its cashier's check.
What is the difference between estafa under the Revised Penal Code and estafa under B.P. 22?
Estafa under the RPC is an act mala in se in which the intent to defraud or injure a party must be established
before one can be convicted of such crime whereas estafa under B.P. 22 makes the mere act of issuing a
worthless check malum prohibitum wherein criminal intent need not be proved because it is presumed and
considered a violation thereof as one committed against public interest.
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*X wants to marry his fiance. He went to a jewelry store and purchase a 101 carat diamond ring worth P5
million by issuing check in favor of the store, knowing for a fact that the check is unfunded. Is he liable for
estafa? RPC and BP 22
Yes because by issuing such check in payment of an obligation--knowing at the time that he had now funds in
the bank-- prior to or simultaneously with the commission of the fraud, X may be liable for estafa under the RPC.
Supposing X, instead of giving a check worth P5 million, asks the manager to at least give him a lead time of 5
days because he will be raising the money; and since the manager knew X comes from a buena familia in Cebu
City, the former allowed X to take the diamond ring. On the 5th day, the manager called X and the latter issued
a check knowing for a fact that he has no funds in the bank, es l responsable de estafa?
Yes X may be liable for estafa under B.P. 22 for issuing a check without sufficient funds.
*What are the elements of estafa under B.P. 22?
1) the making, drawing, and issuance of any check to apply for account or for value;
2) the knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or
credit with the drawee bank for the payment of the check in full upon its presentment; and
3) the subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for
the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.
Is notice of dishonor necessary in order to convict a person under B.P. 22?
Yes in order to prove that he has knowledge that his account is without sufficient funds to cover payment for
the check he issued.
Are foreign checks covered by B.P. 22?
Yes, provided either they are drawn and issued in the Philippines, though payable outside, are within the
coverage of the law. (De Villa vs. CA, 195 SCRA 722)
X issued a check in favor of Y in Cebu City in payment of an obligation. Y, who is from Basilan, personally
picked up the check here in Cebu City. Y went to Davao and stayed there for five days. Thereafter he went to
Basilan and presented the check there. However, the check was dishonored. Can Y file a case for B.P. 22 in
Basilan?
Yes because violations of B.P. 22 are in the nature of continuing crimes. In such crimes, some acts material and
essential to the crimes and requisite to their consummation occur in one municipality or territory and some in
another, in which event, the court of either has jurisdiction to try the cases. Hence, a person charged with a
transitory crime may be validly tried in any municipality or territory where the offense was in part committed.
Suppose upon presentment for payment in Basilan and after it was dishonored, Y went to Davao City. Can he
file a case for estafa under B.P. 22 in Davaoremember he stayed there for five (5) days carrying the check
with him before he went to Basilan?
No because you may only file in one of the municipality or territory where one or any of the material acts of the
crime was committed. Y may only file the case in Cebu, the place where X issued the check, or in Basilan, where
the same bounced.
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Is venue in B.P. 22 jurisdictional?
Yes because in B.P. 22, the action may only be instituted and tried in the court of the municipality or province
wherein the offense was committed or anyone of the essential ingredients thereof took place.
WITHIN WHAT TIME A CHECK MUST BE PRESENTED. A check must be presented for payment within a
reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss
caused by the delay. (186)
When should a check be presented for payment?
A check must be presented for payment within a reasonable time after its issue.
What is the legal effect if the check is not presented within reasonable time after its issuance?
The drawer is discharged but only to the extent of the loss caused by the delay.
What if there is no loss or injury which can be proven by the drawer despite the delay in presenting the
instrument?
The drawer is not discharged because there must be loss or damage which must be proven before he can be
discharged from the said instrument. The only injury which would be sustained by the drawer in case
presentment was not made within reasonable time would be caused by the failure of the bank subsequent to
the delivery and prior to presentment of the check. If the bank or banker still remains in good credit and is able
to pay the check, the drawer will still remain liable to pay the same, notwithstanding many months may have
elapsed since the date of the check and before the presentment for payment and notice of dishonor.
SIR: The burden is upon the drawer to prove that he suffered some losses and up to the extent of such losses, he
can never be compelled to pay the said check. For example, A issued a check in favor of B in 2010. In 2014, the
check is not yet presented for payment. On March 2014, the holder decided to present it for payment. Of course
we all know that the check already became stale. The only effect of a stale check is that it can never be honored
by a drawee bank. Even if it is not honored bank because the check became stale, you can still go after the
drawer and under Section 186, the drawer is discharged from liability thereon to the extent of the loss caused by
the delay.
PAPA vs. AU VALENCIA AND CO.
FACTS: Myron Papa is the administrator of the estate of Angela Butte. In 1973, he sold a portion of said estate to
Felix Pearroyo through A.U. Valencia and Co. Inc. Pearroyo gave Papa P5,000.00 plus a check worth
P40,000.00. However, Papa was not able to deliver the certificate of title to Pearroyo. A litigation ensued and
ten years after, Papa argued that the sale between him and Pearroyo was never consummated because he did
not encash the P40,000.00 check and that the P5,000.00 cash was merely earnest money.
ISSUE: Whether PAPA is correct.
HELD: No. After more than ten (10) years from the payment in part by cash and in part by check, the
presumption is that the check had been encashed. Granting that Papa had never encashed the check, his failure
to do so for more than ten (10) years undoubtedly resulted in the impairment of the check through his
unreasonable and unexplained delay. While it is true that the delivery of a check produces the effect of payment
only when it is cashed, pursuant to Article 1249 of the Civil Code, the rule is otherwise if the debtor (Pearroyo)
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is prejudiced by the creditors (Papas) unreasonable delay in presentment. The acceptance of a check implies an
undertaking of due diligence in presenting it for payment, and if he from whom it is received sustains loss by
want of such diligence, it will be held to operate as actual payment of the debt or obligation for which it was
given.
Was the drawer in this case discharged?
Yes
Was the drawer made to pay?
No because there was a presumption that the check was encashed and the holders failure to present the check
within reasonable time resulted in the impairment of the check.
In this case, was there a loss?
SIR: There was no categorical pronouncement but the SC said there was no longer a need for you to pay even if
the other party failed to present for payment in a period of ten (10) years. It presupposes that there was loss.
But as to what is that loss suffered by the drawer, we do not know. In fact, according to Agbayani, this loss will
only come into play if the drawee bank either becomes insolvent or has no capacity to pay on such instrument.
Such that, if you failed to present the instrument or there was delay in presenting the check for payment, and
then thereafter the bank becomes insolvent or incapacitated to pay, then that would be the time that the
drawer will be discharged because there was loss.
What is effect of delay on the liability of the drawer?
The drawer is discharged but only to the extent of the loss caused by the delay.
What if there is no loss or injury which can be proven by the drawer despite the delay in presenting the
instrument?
SIR: The drawer is not discharged because there must be loss or damage which must be proven before he can be
discharged from the said instrument. The only injury which would be sustained by the drawer in case
presentment was not made within reasonable time would be caused by the failure of the bank subsequent to
the delivery and prior to presentment of the check. If the bank or banker still remains in good credit and is able
to pay the check, the drawer will still remain liable to pay the same, notwithstanding many months may have
elapsed since the date of the check and before the presentment for payment and notice of dishonor.
It would seem that the drawer can be considered as discharged only if that drawer suffered some losses; and
that loss would be a result of the drawee bank becoming insolvent. In effect, if I am the drawer and I issued a
check way back in 2010 and the holder did not present it for payment, the latter cannot go the drawee bank and
ask for payment as the check already became stale. Since the drawer has an obligation to the holder, the holder
can still go after the drawer; and the drawer, under Section 186, can only be discharged if he suffered some loss.
In our example, if the bank became insolvent such that the drawer is unable to withdraw his funds, and the
holder may not go after the drawer as the latter is already considered as discharged because he suffered some
losses.
I would apply the Papa case only if its in four square with the facts of the problem given. For example, if at the
time when a check is issued, the amount of the check is only P1000. But after one (1) year, the holder failed to
present the check for payment, and now there is an inflation such that the value of the check is now P100,000;
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the drawer may interpose the defense that he would suffer some loss if the holder requires him to pay
P100,000.
What is the effect of (unreasonable) delay of presentment of a check as to indorsers?
It will discharge the indorsers, whether or not he is injured by the delay as the law presumes that he is
prejudiced.
CERTIFICATION OF CHECK; EFFECT OF. Where a check is certified by the bank on which it is drawn, the
certification is equivalent to an acceptance. (187)
What is certification?
A certification is an agreement whereby the bank against whom a check is drawn, undertakes to pay it at any
future time when presented for payment.
Can the bank refuse certification?
Yes a bank is not obligated to the depositor to certify checks.
*If the bank will refuse certification, is presentment for payment on the part of the holder still necessary?
Yes it does not dispense with requirement since a check is of right presentable only for payment at the bank on
which it is drawn.
What are the effects of certification?
1) equivalent to acceptance and is the operative act that makes the drawee bank liable.
2) it operates as an assignment of funds of the drawer in the hands of the drawee bank
3) if obtained by the holder, it discharges persons secondarily liable.
What is the purpose of procuring checks to be certified?
To impart strength and credit to the paper by:
1) obtaining acknowledgement from the certifying bank that the drawer has funds therein sufficient to cover the
check and
2) securing the engagement of the bank that the check will be paid upon presentment.
EFFECT WHERE THE HOLDER OF CHECK PROCURES IT TO BE CERTIFIED. Where the holder of a check
procures it to be accepted or certified, the drawer and all indorsers are discharged from liability thereon.
(188)
Who are discharged after certification of check is procured by the holder?
The drawer and all indorsers are discharged from liability thereon. Only indorsers at the time of certification are
discharged. Indorsers subsequent at the time of the certification are not discharged.
Why?
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Because the certification has the same effect as if the holder had drawn the money, redeposited it and taken a
certificate of deposite for it.
WHEN CHECK OPERATES 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. (189)
When does the check operate as an assignment of funds in the hands of the drawee?
When the holder procures the check to be certified.
What is the relationship between the depositor and the bank?
That of creditor and debtor.
Supposing that that the bank refuses to certify, or accept, or pay an instrument, is the holder given the right
to go after the said drawee bank?
No because the check is of itself not an assignment of funds of the drawer in the hands of the drawee bank until
it has accepted or certified it.
Using the same example given above, can the holder go after the drawer?
The holder has no right of action against the drawer where the drawee bank refuses to accept or certify the
check, but he has a right of action against the drawer where the bank refuses to pay.
Using the same example given above, can the drawer go after the bank?
Yes, however, his right of action is not based on the check drawn but on the original contract of deposit between
them.
What is the concept of stopping payment?
As a check of itself does not operate as an assignment of funds to the credit of the drawer, the latter may
countermand payment before its acceptance or certification. The order to stop payment must be communicated
to the bank before the check has been paid; and in the absence of a rule of a bank that stop order must be in
writing, a verbal notice is sufficient.
What is issue?
The first delivery of the instrument, complete in form, to a person who takes it as a holder.
XVII. GENERAL PROVISIONS

REASONABLE TIME, WHAT CONSTITUTES. In determining what is a "reasonable time" or an "unreasonable
time," regard is to be had to the nature of the instrument, the usage of trade or business (if any) with respect
to such instruments, and the facts of the particular case. (193)
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For the nth time, in order to determine what is a reasonable time, regard is had:
SOCIETAS SPECTRA LEGIS AND FRIENDS
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Negotiable

Based on the outlined discussion of Atty. Eduardo V. Soleng, Jr.

Societas Spectra Legis

Societas Spectra Legis

I. FORM AND INTERPRETATION ....................................................................................................................................13

SECTION 2. Certainty as to Sum; What Constitutes. .............................................................................................................................................................. 23

SECTION 10.Terms, When Sufficient ....................................................................................................................................................................................... 37

SEC 17. Construction where instrument is ambiguous.......................................................................................................................................................... 48

SEC 21. Signature of Procuration ............................................................................................................................................................................................ 51

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IV. RIGHTS OF A HOLDER ..............................................................................................................................................80

SECTION 53.When Person Not Deemed Holder in Due Course ............................................................................................................................................ 83

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V. LIABILITIES OF PARTIES .............................................................................................................................................85

LIABILITY OF INDORSER WHERE PAPER NEGOTIABLE BY DELIVERY ..................................................................................................................................... 98

VI. PRESENTATION FOR PAYMENT ................................................................................................................................99

WHAT CONSTITUTES A SUFFICIENT PRESENTMENT ............................................................................................................................................................ 106

VII. NOTICE OF DISHONOR ..........................................................................................................................................113

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VIII. DISCHARGE OF NEGOTIABLE INSTRUMENTS........................................................................................................126

WHAT CONSTITUTES A MATERIAL ALTERATION .................................................................................................................................................................. 136

IX. BILLS OF EXCHANGE: FORM AND INTERPRETATION...............................................................................................137

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XI. PRESENTMENT FOR ACCEPTANCE..........................................................................................................................144

XII. PROTEST ...............................................................................................................................................................148

XIII. ACCEPTANCE FOR HONOR ...................................................................................................................................151

XIV. PAYMENT FOR HONOR ........................................................................................................................................154

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XV. BILLS IN A SET .......................................................................................................................................................156

XVI. PROMISSORY NOTES AND CHECKS ......................................................................................................................157

WITHIN WHAT TIME A CHECK MUST BE PRESENTED .......................................................................................................................................................... 165

CERTIFICATION OF CHECK; EFFECT OF .................................................................................................................................................................................. 167

XVII. GENERAL PROVISIONS ........................................................................................................................................168

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THE NEGOTIABLE INSTRUMENTS LAW: (Act No. 2031)

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What are the special types of bills of exchange?

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I. FORM AND INTERPRETATION

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As to form and appearance

As to the steps taken before the

Demand for payment and a

What are the FUNCTIONS of negotiable instruments?

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