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MERCANTILE LAW

Incidents in the life of a negotiable instrument

NEGOTIABLE INSTRUMENTS LAW

1.
2.
3.

It is a written contract for the payment of money
which is intended as a substitute for money and
passes from one person to another as money, in such
a manner as to give a holder in due course the right
to hold the instrument free from defenses available
to prior parties. The instrument must comply with
Sec. 1 of the Negotiable Instruments Law (NIL)
(Sundiang & Aquino, 2014).

Issue
Negotiation
Presentment for acceptance (in certain kinds
BOE’s)
4. Acceptance
5. Dishonor by non-acceptance
6. Presentment for payment
7. Dishonor by non-payment
8. Notice of dishonor
9. Protest in case of foreign bill
10. Discharge

Negotiable instrument v. Non-negotiable instrument

Negotiable instruments are not legal tender

Negotiable instrument

NEGOTIABLE
INSTRUMENT
Governing
Law

Manner of
Transfer

Status of
Transferee

Defenses
Available

NIL.

Can
be
transferred by
negotiation or
by assignment.
The transferee
can
be
a
holder in due
course if all
the
requirements
of Section 52
of the NIL are
complied with.

Negotiable instruments are neither money nor legal
tender; they are mere substitutes for money (NCBA,
Sec. 60).

NON-NEGOTIA
BLE
INSTRUMENT
The Civil Code
or pertinent
special
laws
should apply
(GSIS v. CA,
170 SCRA 533,
1989).
Can
be
transferred
only
by
assignment.
The transferee
can never be a
holder in due
course
but
remains to be
an assignee.

GR: The delivery of a negotiable instrument does
not by itself produce the effect of payment (Roman
Catholic Bishop of Malolos vs. Intermediate Appellate
Court, 191 SCRA 411, 1990).
XPNs: Negotiable instrument shall produce the effect
of payment when:
1. When they have been cashed, or when through
the fault of the creditor they have been
impaired (NCC, Art. 1249).
2. If a check representing demand deposit has
been cleared and credited to the account of the
creditor, such shall be equivalent to delivery to
the creditor of cash (NCBA, Sec. 60).
Q: Negotiable instruments are used as substitutes
for money, which means - (2012 Bar Question)
a.) That they can be considered legal tender.
b.) That when negotiated, they can be used to pay
indebtedness.
c.) That at all times the delivery of the instrument is
equivalent to delivery of the cash.
d.) That at all times negotiation of the instruments
requires proper indorsement.

All defenses
available
to
prior parties
may be raised
against
the
last transferee.

A: B. When negotiated, negotiable instruments can
be used to pay indebtedness.

(Sundiang, 2014)
Laws governing a negotiable instrument

Characteristics
instrument

1. NIL - For instruments which meet the requisites of
negotiability.
2. New Civil Code (NCC) – Applies suppletorily in
cases of assignment and demand for payment of
an NIL.
3. Code of Commerce – Applies suppletorily to NIL in
cases of crossed checks.
UNIVERSITY OF SANTO TOMAS
2014 GOLDEN NOTES

or

features

of

a

negotiable

1. Negotiability – The note may pass from hand
to hand similar to money so as to give the
holder in due course (HIDC) the right to hold
the instrument and collect the sum payable
for himself free from any infirmity in the

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NEGOTIABLE INSTRUMENTS LAW
instrument or defect in the title of any of the
prior parties or defenses available to them
among themselves.

Q: A promissory note which does not have the
words "or order" or "or bearer" will render the
promissory note non-negotiable, and therefore (2012 Bar Question)
a.) It will render the maker not liable
b.) The note can still be assigned and the maker
made liable;
c.) The holder can become holder in due course;
d.) The promissory note can just be delivered and
the maker will still be liable

2. Accumulation of secondary contracts – A
characteristic of a negotiable instrument
where additional parties become involved as
they are transferred from one person to
another. Once an instrument is issued,
additional parties can become involved (De
Leon, 2010).

FORMS AND INTERPRETATION

A: B. The note can still be assigned and the maker
made liable

Form of negotiable instruments (Requisites of
negotiability)

Rules of construction in case of ambiguities in a
negotiable instrument

An instrument to be negotiable must conform to the
following requirements: (SUn-DOrA)
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 (NIL, Sec.1).

1.
2.

3.
4.
5.
6.
7.

NOTE: A NI need not follow the exact language of NIL, as
long as the terms are sufficient which clearly indicate an
intention to conform to the requirements of the law (NIL,
Sec. 10).

Words prevail over figures
If date from which interest is to run is
unspecified, interest runs from the date of the
instrument; if undated, from the issue thereof
If undated, instrument is considered dated as of
the time it was issued
Written provisions prevail over printed
If there is doubt whether it is a bill or note, the
holder may treat it as either at his election
When not clear in what capacity it was signed,
deemed signed as an indorser
When two or more persons signed a negotiable
instrument stating "I promise to pay," in case of
liability, they shall be deemed to be jointly and
severally liable (NIL, Sec. 17).
REQUISITES OF NEGOTIABILITY

The requirements stated in Sec. 1 must appear on the face
of the instrument otherwise the instrument would not be
negotiable.

Factors to determine the negotiability (FRI)
1.

Rules governing the use of phrases in the negotiable
instruments

2.
3.

1. As to promissory note
a. The word “promise” need not be used. Any
expression equivalent to a promise is sufficient.
b. Mere acknowledgment of a debt is not a
promissory note.
c. Language used must indicate a written
undertaking to pay
2. As to bill of exchange
a. It must contain an order for payment as
distinguished from a mere request.
b. The order is not invalidated because it contains
words of civility. Thus, insertion of polite words
like “please” does not alter the character of the
instrument; as long as the language expresses the
drawer’s will that the money be paid.

Words that appear on the Face of negotiable
instrument
Requirements enumerated in Section 1 of NIL
Intention of the parties by considering the whole
of the instrument.

NOTE: In determining the negotiability of an instrument,
consider the instrument in its entirety and only what
appears on its face. It must comply with the requirements
under Section 1 of the NIL (Sundiang, 2014 citing Caltex
Phils. v. CA, 212 SCRA 448).

The instrument must be in writing
It must be reduced in writing or in tangible form. The
negotiability or non-negotiability of an instrument is
determined from the writing on the face of the
instrument itself (De Leon, 2010).

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UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW

MERCANTILE LAW
instrument payable out of a particular fund is
non-negotiable. In this latter case, the fund specified is the
direct source of payment; therefore, it is subject to the
availability of fund, hence conditional.

The instrument must be signed by the maker or
drawer
It is placed at the lower right hand corner of the
instrument. Nonetheless, it may appear in any part of
the instrument whether at the top, middle or bottom
or at the margin (De Leon, 2010).

Certainty as to sum
A sum is certain within the contemplation of Section
1(b) of the NIL if the amount that is to be
unconditionally paid by the maker or drawee can be
determined on the face of the instrument even if it
requires mathematical computation (Sundiang,
2014).

However, where a signature is so placed upon the
instrument that it is not clear in what capacity the
person making the same intended to sign, he is to be
deemed an indorser (NIL, Sec. 17 [f]).
NOTE: The signature is valid and binding as long as it
appears that a person intended to make the instrument his
own. The signature is prima facie evidence of a person’s
intention to be bound as either maker or drawer.

The sum payable is a sum certain within the meaning
of this Act, although it is to be paid: (ISDEA)
1. With Interest; or
2. By Stated installments; or
3. By stated installments, with a provision upon
Default in payment of any installment or of
interest, the whole shall become due (
acceleration clause);
4. With Exchange, whether at a fixed rate or at the
current rate; or
5. With cost of collection or an Attorney’s fees, in
case payment shall not be made at maturity
(NIL, Sec. 2).

Unconditional promise or order to pay
The word “promise” or “order” need not appear in
the instrument to satisfy the requirements of Section
1(b) of the NIL (Sundiang, 2014). The promise or
order to pay must not be subject to any condition or
contingency. An instrument payable upon a
contingency is not negotiable even if the condition
thereon has been fulfilled.

Payment with interest

An unqualified order or promise to pay is
unconditional though coupled with:
1. An indication of particular fund out of which
reimbursement is to be made or a particular
account to be debited with the amount; or
2. A statement of the transaction which gave rise to
the instrument. But an order or promise to pay
out of a particular fund is conditional (NIL, Sec 3).

Interest at fixed rate or at increased or reduced rate
will not destroy negotiability because the presence of
such interest does not make uncertain the sum
payable.
In the absence of a date as to which interest is to run,
it shall be from the date of instrument, or in the
absence thereof, at the date of issue. In the absence
of interest rate, it shall be the legal rate.

Indication of particular fund for reimbursement v.
Indication of particular fund for payment
FUND FOR
REIMBURSEMENT
1. The drawee pays the
payee from his own
funds.
2. The drawee pays
himself
from
the
particular
fund
indicated.
Particular
fund
indicated is not the
direct
source
of
payment.
(Sundiang, 2014).

Payment by installment

FUND FOR PAYMENT
There is only one
the
drawee
directly
from
particular
indicated.

Payment by installment is certain if the dates of each
installment is fixed and the amount to be paid for
each installment is stated (NIL, Sec. 2; Sundiang,
2009).

act pays
the
fund

Payment with an acceleration clause
Acceleration clause is a provision, that upon default
in payment of any installment or interest, the whole
shall become due (NIL, Sec.2[c]).
1. If the option to accelerate the maturity is on the
maker, whether such option is absolute or
conditional, it is negotiable.
2. Where acceleration is at the option of the holder
and can only be exercised upon the happening of
the specified event, still negotiable.
3. But where the holder’s right to accelerate is

Particular
fund
indicated is the direct
source of payment.

NOTE: An instrument which mentions a particular fund out
of which reimbursement is to be made is negotiable. But an
UNIVERSITY OF SANTO TOMAS
2014 GOLDEN NOTES

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NEGOTIABLE INSTRUMENTS LAW
unconditional, the time of payment is rendered
uncertain, the instrument would not be
negotiable.

Effect if a bill or note is payable other than in money
GR: The note or bill must be payable in money. If
payable in goods, wares, or merchandise, or in
property, the same is not negotiable.

Extension clause
Extension Clauses are provisions extending the time
of payment.

XPNs: Negotiability is not affected if the note
contains an additional provision which: (SECo Law)
1. Authorizes the sale of collateral Securities in
case the instrument be not paid at maturity;
or
2. Gives the holder an Election to require
something to be done in lieu of payment of
money; or
3. Authorizes a Confession of judgment if the
instrument be not paid at maturity; or
4. Waives the benefit of any Law intended for
the advantage or protection of the obligor
(NIL, Sec. 5).

GR: An extension clause does not affect the
negotiability of the instrument.
XPN: Where a note with a fixed maturity provides
that the maker has the option to extend time of
payment until the happening of a contingency, the
date is uncertain and the instrument is
non-negotiable.
Sum to be paid with exchange

Payable on demand or at a fixed or determinable
future time

The exchange is the charge for the expense of
providing funds at the place where the instrument is
payable to cover such instrument which is issued at
another place. It may be at a fixed rate or at the
current rate. It is applicable only to foreign bills (De
Leon, 2010).

1. Payable on demand – The holder may call for
payment any time, likewise, the maker may also pay
any time and the refusal of the holder to accept
payment shall stop the running of interest should
there be any, but obligation to pay the note subsist.

Inland bill of exchange v. Foreign bill of exchange

An instrument is payable on demand:
a. When it is so expressed to be payable on
demand, or at sight, or on presentation; or
b. In which no time for payment is expressed (NIL,
Sec 7).
c. Where an instrument is issued, accepted, or
indorsed when overdue, it is, as regards the
person so issuing, accepting, or indorsing it,
payable on demand (ibid).

An inland BOE is one which is, or on its face purports
to be, both drawn and payable within the Philippines
and any other bill is a foreign bill.
NOTE: Unless the contrary appears on the face of the bill,
the holder may treat it as an inland bill (Sec. 109, NIL).

Sum to be paid with costs of collection and/or
attorney’s fees

2. At a fixed time – A term or time instrument is
payable only upon the arrival of the time for
payment.

It does not affect the certainty of the amount payable
at maturity since the increase in the amount due,
even if uncertain, takes place after maturity when the
instrument ceases to be negotiable in the full
commercial sense (De Leon, 2010).

3. At a determinable future time - An instrument is
payable at a determinable future time 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 (NIL, Sec. 4).

Payable in Philippine Peso
The “money” referred into may be our legal tender or
foreign currency. An instrument is still negotiable
although the amount to be paid is expressed in
currency that is not legal tender so long as it is
expressed in money (PNB v Zulueta, 101 Phil 1071).
NOTE: An agreement to pay in foreign currency is valid (RA
8183).

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UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW

Who bears the loss in a fictitious-payee situation In a fictitious-payee situation.000. Eg. Thus. 2.MERCANTILE LAW Payable to order Fictitious-Payee rule The instrument is payable to order where it is drawn payable to the order of a specified person or to him or to his order.J. drawer. A Sgd. the drawee must be named or otherwise designated with reasonable certainty (NIL. or 5. and such fact is known to the person making it so payable. checks issued to “Prinsipe Abante” or “Si Malakas at si Maganda. existing. but not to two or more drawees in the alternative or in succession (NIL. NIL). One or some of Several payees. Payable to bearer (ENaF PaLa) A “fictitious payee” is not limited to person having no real existence. (e.00) When it is payable to a person Named therein or bearer. The Drawer or maker. When faced with a check payable to a fictitious payee. in case of controversy. It may be drawn payable to the order of: (PaDD JoinSH) 1. (Pay to cash) When the only or the Last indorsement is an indorsement in blank (NIL. And since the maker knew this limitation. UNIVERSITY OF SANTO TOMAS 2014 GOLDEN NOTES When drawee must be named with reasonable certainty 1. Sec. he must have intended for the instrument to be negotiated by mere delivery. it is an order instrument. pg. Sec.. 1). Thus. 566 SCRA 513). are bearer instruments because the named payees are fictitious and non-existent (ibid. but it may nevertheless be considered as a bearer instrument if it is payable to the order of a fictitious or non-existing person. 127). P Sgd. (e. 24 In a BOE. Sec 9).00) When it is payable to the order of a Fictitious person or non-existing person. the drawer of the check will bear the loss (Ibid). 8. An actual. 5. the check is considered as a bearer instrument and as such it does not require indorsement to be validly negotiated. I promise to pay to bearer P10.g. Application of the fictitious-payee rule When it is Expressed to be so payable. It is either an order or a bearer instrument but when the payee is fictitious or not intended to be the true recipient of the proceeds of the check. which requires indorsement from the payee or holder before it may be validly negotiated. A Payee who is not a maker. 575-576). An instrument may be addressed “to A and B” but not “to A or B”. 2. NIL). citing PNB v.. A bill may be addressed to two or more drawees jointly. An instrument payable “to the order of the bearer” has been held to be an instrument payable to “order” (10 C. pg.S. It is negotiable by mere delivery (Divina. it is treated as a bearer instrument that can be negotiated by delivery.g. 3. or 4. 3. Pay to P or bearer P10.000. 2010. or 3. will work to strip it of this defense (Ibid). PNB case citing Sec. Two or more payees Jointly. A check is a “bill of exchange” (BOE) drawn on a bank payable on demand. or 6. The underlying theory is that one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon. or drawee. and living payee may also be “fictitious” if the maker of the check did not intend for the payee to in fact receive the proceeds of the check (Ibid. The Drawee. (e. Difference between having a check payable to a fictitious payee and payable to a specified payee If a check is payable to a specified payee. Illustration Back of NI (indorsement) Pay to A Pay to B Sgd. The Holder of an office for the time being (Sec. Pay to John Doe or order) When the name of the Payee does not purport to be the name of any person.” who are well-known characters in Philippine mythology.g. 1. Rodriguez. 4. and such fact was known to the person making it so payable. 9[c]. 10. 2. B Exception to the fictitious-payee rule A showing of commercial bad faith on the part of the drawee or any transferee of the check for that matter. . the drawee bank is absolved from liability and the drawer bears the loss. 9-10).

” Is the note negotiable? (2011 Bar Question) A bill of exchange may be addressed to more than one drawee A: No. A. signed 25 UNIVERSITY OF SANTO TOMAS FACULTY OF CIVIL LAW . KINDS OF NEGOTIABLE INSTRUMENTS Instances when a bill of exchange may be treated as promissory note Kinds of negotiable instruments 1. 5. B. 5). and the drawee is not liable on the bill unless and until he accepts the same (Sec. by the maker. CurSECo Law) 1. 3. but not to two or more drawees in the alternative or in succession (Sec. Bill of exchange Undertaking As to number of original parties Q: B borrowed Php1 million from L and offered to him his BMW car worth Php 1 Million as collateral. NOTE: A check is a bill of exchange drawn on a bank payable on demand (Sec 185. I promise to pay B Php1 Million or his order or give Php1 Million worth of cement or to authorize him to sell my house worth Php1 Million. Where in a bill the drawer and the drawee are the same person (Sec. Gives the holder an Election to require something to be done in lieu of payment of money. Omission of Date Non-specification of Value given or that any value had been given Non-specification of place where it is drawn or payable Bears a Seal Designation of particular kind of Currency in which payment is to be made. NIL). Q: A writes a promissory note in favor of his creditor. Authorizes the sale of collateral Securities on default 2. A bill of exchange may be addressed to two or more drawees jointly. a sum certain in money to order or to bearer (NIL. Bill of exchange (BOE) – An unconditional order in writing addressed by one person to another signed by the person giving it. promise to pay L or bearer the amount of Php1 Million and to keep my BMW car (loan collateral) free from any other encumbrance. It says: “Subject to my option. engaging to pay on demand. 128.NEGOTIABLE INSTRUMENTS LAW Provisions that do not affect the negotiability of an instrument (DVNo S. the option must be with the holder/creditor. requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer (Sec. Note: In order not to affect the negotiability of the instrument. NIL). 184). 2. the maker and debtor. B then executed a promissory note that reads: “I. whether partners or not. NIL) 1. Promissory note v. NIL). Waives the benefit of the Law intended for the protection of the obligor (NIL. 3. Authorizes Confession of judgment on default 4. NIL). or at a fixed or determinable future time. Signed. (Sec. NOTE: What will not affect the negotiability of the instrument is an additional provision which gives an election to require something to be done in lieu of payment of money. Additional provisions which: 1. 130. Sec. because the exercise of the option to pay lies with A. NIL.) 2. 127. 4. B. Signed. Sec. Promissory notes (PN) – An unconditional promise in writing made by one person to another.” Is this note negotiable? (2011 Bar Question) As to liability of parties As to number of presentments needed A: No. PROMISSORY NOTE Promise to pay 2 parties Maker is primarily liable Only 1 presentment (for payment) is needed BILL OF EXCHANGE Order to pay 3 parties (upon acceptance of the drawee) Drawer is secondarily liable 2 presentments (for acceptance and for payment) are generally needed A bill of exchange is not considered as an assignment of funds in the hands of the drawee A bill of exchange itself does not operate as an assignment of the funds in the hands of the drawee available for the payment thereof. since it contains a promise to do an act in addition to the payment of money. 6. 126. B.

With forgery and alteration ii. The drawee does not have the capacity to contract (Sec. the holder may treat it as either at his election (NIL. 130. 1 of NIL. LIABILITY Secondarily liable. With forgery and alteration ii. Delivered i. Delivery It refers to the transfer of possession. Sec. 102 SCRA 530). 14).MERCANTILE LAW 2.) UNIVERSITY OF SANTO TOMAS 2014 GOLDEN NOTES 26 . with the intent to transfer title to payee and recognize him as holder thereof. Sec. Various situations involving negotiable instruments 1. Without forgery and alteration NOTE: It is the option of the holder to refer to the referee in case of need or not as he may see fit (Sec. The drawee is a fictitious person (Sec. Acceptor The acceptor is the Primarily drawee who liable accepts the bill DRAWER MAKER Issues a BOE Issues a PN Only secondarily liable Can limit his liability by putting “without recourse” Primarily liable Cannot limit liability Payee PARTIES Maker PN Payee COMPLETION AND DELIVERY Steps in the issuance of a negotiable instrument 1. from one person to another (NIL. Incomplete instrument a. Delivery of the complete instrument by the maker or the drawer to the payee or holder with the intention of giving effect to it. FUNCTION LIABILITY One who makes Primarily the promise and liable signs the instrument. actual or constructive. Where the instrument is so ambiguous that there is doubt whether it is a bill or a note. BOE Drawee The party upon whom the bill is drawn. Sec. 130. 17[e]) Acceptance of the bill of exchange by the drawee is not an important requisite for the instrument’s negotiability The acceptance of a bill of exchange is not important in the determination of its negotiability. payment is originally payable. NIL) 4. The mechanical act of writing the instrument completely and in accordance with Sec. NIL) 3. 131. NIL. Referee in case of need is the person named by the drawer or indorser in the NI as the one to whom the holder may resort in case the BOE is dishonored by non-acceptance or non-payment. except when drawee refused to accept Not liable until he becomes acceptor Kind of involved NI Liability Limitation of Liability The party to whom The party to payment is whom originally payable. The nature of acceptance is important only in the determination of the kind of liabilities of the parties involved (PBCOM v Aruego. 2. Maker PARTIES FUNCTION Drawer The person who issues and draws the bill. Without forgery and alteration b. Not delivered i. 191). The party to whom payment is originally payable. Incomplete instrument Referee in case of need An instrument is incomplete when it is wanting in any material particular (NIL. Parties to a negotiable instrument and their liabilities Drawer v.

is valid and effectual for all purposes in his hands. With forgery and alteration ii. Without forgery and alteration b. INCOMPLETE BUT DELIVERED INSTRUMENTS (Sec. Without forgery and alteration Effect of ante-dating or post-dating an instrument If the instrument is ante-dated or post-dated. 14). and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time (ibid). INSERTION OF DATE Prima facie authority to fill up the blanks Necessity of a date in order to make an instrument negotiable 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 (ibid). Complete instrument a. to determine when the interest starts to run. XPNs: Date is important to determine maturity: 1. COMPLETION OF BLANKS Rule when an instrument is complete and delivered Meaning of a material particular If an instrument is complete and delivered without forgery and alteration. it must be filled up strictly in accordance with the authority given and within a reasonable time (ibid). the instrument is avoided (Bank of Houston v. Where the instrument is payable within a specified period after date. 27 UNIVERSITY OF SANTO TOMAS FACULTY OF CIVIL LAW . NOTE: With respect to the person who inserted the wrong date. 1). or 2. 2. the defense that the blanks were filled up beyond the authority given and/ or beyond the reasonable time. It is any particular proper to be inserted in a negotiable instrument to make it complete. NOTE: In order. all parties are bound. Where the acceptance of an instrument payable at a fixed period after sight is undated (NIL. The holder has a prima facie authority to complete it (NIL. but as to a HIDC. 3. When the instrument is payable on demand. however. NIL). that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion. acceptance or indorsement of the instrument (NIL. provided it is not done for illegal or fraudulent purpose (Sec. This defense is merely a personal one. however. date is necessary to determine whether the instrument was presented within a reasonable time from issue. With forgery and alteration ii. 122 SW 756). is not available as against a HIDC. NOTE: If the negotiable instrument is dated. 13). Day. When the instrument is an interest-bearing one. Appl. the instrument is not invalid by that fact alone. Sec. 410. Effect if a completed instrument was negotiated to a holder in due course After completion. Where an instrument expressed to be payable at a fixed period after date is issued undated. Sec. such date is deemed a prima facie proof that it is the true date of the making.NEGOTIABLE INSTRUMENTS LAW 2. 14) Effect of insertion of a wrong date Person authorized to fill up the blanks in an incomplete but undelivered instrument The insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in due course. drawing. 1. Sec. or from the last negotiation. GR: The date is not essential to the negotiability of the instrument (not one of the requirements under sec. the date so inserted is to be regarded as the true date (ibid.). 145 Mo. 12. Not delivered i. Instance when a holder may insert the date in an instrument NOTE: Hence. the completed instrument which was subsequently negotiated to a HIDC. Delivered i. 11). or after sight.

16). COMPLETE BUT UNDELIVERED (Sec. SEC 15 Incomplete and undelivered instrument.) Enforcement of the instrument against the party whose signature was placed after delivery The instrument can be validly enforced against the party whose signature was placed after delivery like an indorser because the indorser warrants the instrument to be genuine and in all respect what it purports to be. Where instrument is wanting in any material particular. Having done so. which provides that there was prima facie authority on the part of Nicky to fill-up any of the material particulars thereof. If holder is HIDC. 16) Effect if an instrument is undelivered It is incomplete and revocable until delivery of the instrument for the purpose of giving it effect (NIL. 15. Is Lorenzo liable to Evelyn? (2006 Bar Question) A: Yes. his secretary. Instrument will not be a valid contract in the hands of any holder. 15). When the instrument is merely a signature on blank paper delivered by person making the signature in order that the paper may be converted into a NI. cannot validly enforce such instrument against the party whose signature was placed before delivery (NIL. and when it is first completed before it is negotiated to a holder in due course like Evelyn. as if it had been filled up strictly in accordance with the authority given. Delivery is essential to the validity of any negotiable instrument (Sundjang. NOTE: Non-delivery of an incomplete instrument is a real defense (ibid. a valid and intentional delivery by him is prima facie presumed. if completed and negotiated without authority. 2009). to fill them as payment for his obligations. and she may enforce it within a reasonable time. Q: Lorenzo signed several blank checks instructing Nicky. The phrase “any holder” includes a HIDC. If instrument is not in possession of party who signed. When Lorenzo found UNIVERSITY OF SANTO TOMAS 2014 GOLDEN NOTES 28 .MERCANTILE LAW Distinctions among Sec. and was subsequently negotiated. whether HIDC or not. valid delivery by all parties prior to him so as to make them liable to him is conclusively presumed. placed P30. the holder. he directed the drawee bank to dishonor the check.000. SEC 16 Complete instrument but undelivered. under Section 14 of the Negotiable Instruments Law. 1. the person in possession has prima facie authority to complete it by filing up blanks therein. 2. The law is specific that the instrument is not a valid contract in the hands of any holder. endorsed and delivered it to Evelyn as payment for goods the latter delivered to the former. 15) Rule when an instrument is incomplete and undelivered 2. INCOMPLETE AND UNDELIVERED INSTRUMENTS (Sec. When Evelyn encashed the check. 14. it was dishonored.00 thereon. Sec. Where an incomplete instrument has not been delivered. and 16 SEC 14 Incomplete instrument which has been delivered by the maker or the drawer to the payee or holder. the person in possession has prima facie authority to fill up as such for any amount. This covers the delivery of an incomplete instrument. it is valid for all purposes. NOTE: The holder must only act in accordance with the authority granted him. Sec. out about the transaction. NOTE: An HIDC cannot hold liable a maker for instruments which are incomplete and undelivered even supposing that the note was stolen. filled-up. otherwise it may be used as a defense against him. 1. Nicky filled one check with her name as payee.

valid delivery is conclusively presumed. Sec. 18. Acceptor. NIL. Sim Wei. 375 SCRA 212). Person. because of the rule that the negotiability is determined only upon the face of the instrument. Persons liable on an instrument Conditional delivery or delivery for a special purpose GR: Only persons whose signatures appear on an instrument are liable thereon (NIL. to a person who takes it as holder (NIL. Is the If the instrument is in the possession of a party other than a HIDC. Sec. to avoid a circuity of suits (Westmont Bank v. Immediate parties Immediate parties are persons having knowledge of the conditions or limitations placed upon the delivery of an instrument. The instrument is deemed issued upon the first delivery of the instrument.000 from Joe as evidenced by a promissory note. Issuance of an instrument NOTE: A signature maybe made in any manner as long as the person signing has the intention to be bound. prior parties are not bound by the instrument (NIL. 18). A party may use his full name. Person who signs in Trade or assumed name (Sec. Sec. Sec. 135) if such delivery was made to a holder not in due course. However. Presumption as to delivery NOTE: Where a signature is so placed upon the instrument that it is not clear in what capacity the person signed. and not proximity. 29 UNIVERSITY OF SANTO TOMAS FACULTY OF CIVIL LAW . Sec. Q: Juan borrowed P10. 191). not a maker or drawer. 3. complete in form.) – Party who signed must have intended to be bound by his signature. the creditor has no cause of action against anyone on the basis of the checks. NOTE: The law contemplates that the condition is orally or verbally conveyed to the holder upon delivery. the Court held that the payee of a check can sue a collecting bank to whom the check was deposited with a forged endorsement even if the check was never delivered to the payee. who makes his acceptance of a bill on a separate paper (NIL. Sec. Remote parties Persons without knowledge as to the conditions or limitations placed upon the delivery of an instrument. possession of such party constitutes only prima facie presumption of delivery. Ong. 219 SCRA 736). he is deemed to be an indorser (NIL.NEGOTIABLE INSTRUMENTS LAW Where a debtor who drew two checks payable to his creditor never delivered the checks to his creditor and a third party was able to collect the proceeds of the checks by forging the endorsement of the creditor as payee. All other requisites of negotiability are present except that Juan did not affix his usual signature thereon as he was ailing at that time and was only able to put “X” in the blank space meant for the signature of the maker. SIGNATURE Validity of signature in a negotiable instrument NOTE: The defense of want of delivery of a complete instrument is only a personal defense which means that it is only available against a holder NOT in due course. surname. 17[f]). Sec. 2. 23) 4. 19. who makes a written Promise to accept the bill before it is drawn (NIL. Sec. the instrument is treated as if there is no condition. If the instrument is in the possession of a HIDC. 16). in another case. It means privity. 134) 5. the following persons are deemed liable: (TraP FAP) 1. even if he is the next party physically. 20). since the payee acquires no interest in the check until its delivery to him (Development Bank of Rizal v. Forger (NIL. XPNs: Notwithstanding the absence of their signatures in their own names. initials or even any mark in signing a negotiable instrument to indicate his intention to bind himself. Principal who signs through a duly authorized agent and such agent discloses the name of his principal and adding words to show he is merely signing in a representative capacity (NIL. if the instrument lands in the hands of a HIDC (one who does not know of the conditional delivery or of its special purpose). The delivery is made conditional or for a special purpose if it was made not for the purpose of transferring the property (title) to the instrument. In such case.

Procuration 1. 2. Sec. It operates as notice or a warning that the agent has but a limited authority to sign and the principal is bound only in case the agent in so signing acted within the actual limits of his authority (NIL.MERCANTILE LAW requisite that the instrument must be signed by the maker complied with? defense that can be invoked by a minor. it is not a defense which may be setup by parties other than a minor.Issuance or indorsement of an instrument by a corporation acting beyond its powers is a REAL defense. No. He adds words to his signature indicating that he signs as an agent/representative and 3. that the party who signed intended to be bound by his signature. A: Yes. SIGNING IN TRADE NAME 3. I promise to pay P (16 years old) or order P10. he is however not incapacitated to transfer his rights. as he has a real defense of minority on his part. 20). May A collect from M notwithstanding that P. the legal effects of an agent’s signature in a negotiable instrument are: 1. But one who signs in a trade or assumed name is liable as if he signed his own name (NIL. It is not necessary that the signature is the usual signature of the maker. however. June 25.R. Scott. L-34404. 1980). A can collect from M. a minor can be bound by his signature in an instrument (PNB v. It is necessary. CA. No. 2. G. Sgd. SIGNATURE OF AGENT Requisites for an agent to be exempt from liability Minor can be bound by his representation that he is of legal age 1. Incapacitated person – An incapacitated person may also use as a real defense his incapacity to enter into a contract. It appears from the problem that such letter was adopted by Juan with the intent to authenticate the instrument. In case that A cannot collect from M. Transfer of instrument by a minor While a minor is not bound by his indorsement for lack of capacity. M P indorsed it to A. Sec. He discloses the name of his principal (NIL. Yes. INDORSEMENT BY MINOR OR CORPORATION Effects of indorsement made by an infant or a corporation 1. 143 S. 18). He is duly authorized 2. A cannot collect from P. the indorser is a minor? 2. Sec. Incapacitated persons include: a) insane or demented persons and b) deaf and blind who does not know how to write. Notwithstanding the fact that A is a minor. Where he committed actual fraud by specifically stating that he is of legal age. Corporation . As a general rule. He will be exempt from personal liability. Legal effects of an agent’s signature Q: A executed a promissory note in favor of M which reads: Provided that the above requisites are complied with. The letter “X” is sufficient to comply with the requirement. at the option of the minor. His signature will bind his principal. It is a real UNIVERSITY OF SANTO TOMAS 2014 GOLDEN NOTES 30 . can he collect from P? It is the act by which a principal gives power to another to act in his place as he could himself (Fink v. Contract entered into by the incapacitated are voidable. the indorsement of P (the minor) passes title to A (the holder). M cannot invoke the defense of minority because such defense would only be available to P. 305) Effect of a signature by procuration A: 1. 21). Minor – A contract entered into by a minor is voidable. However.000. only persons whose signatures appear on an instrument are liable thereon. and 2.E.

48). (forged by P) 1. An instrument indorsed which on its face is payable to bearer may be enforced by the holder to whose title over the instrument the forged signature is not necessary. 137932. In this case. persons negotiating by delivery and acceptor. Extent and effects of forgery 1. However. as any other mechanism of fraud must be proven clearly and convincingly. because by preclusion. by desirable shortcut.R.000 30 days after sight. It happens when a signature is affixed by one who does not claim to act as an agent and who has no authority to bind the person whose signature he has forged (NIL. Mar. 30. are estopped from claiming forgery. A to B. 2001). Only the signature forged or made without authority is the one inoperative. its customer. rights may still exist and be enforced by virtue of such instrument as to those signatures thereto are found to be genuine. No. a forged indorsement prevents any subsequent parties from acquiring any right against any party prior to the forgery. Effects of forgery GR: It does not avoid the instrument but only the forged signature. 2.NEGOTIABLE INSTRUMENTS LAW FORGERY since the payee merely used one action to reach. No.R. G. Sec. Those who by their acts. and the burden of proof lies on the party alleging forgery (Chiang Yia Min v. In other words. Forgery It is the counterfeit making or fraudulent alteration of any writing. Where the forged signature is not necessary to the holder’s title. B to C. Such forged indorsement cuts off the rights against prior parties to the forger (Cut-off rule). 2. or negligence. the forgery may be disregarded (NIL. Burden of proof in proving forgery Forgery. G. NIL) A payee may sue the collecting bank for the amount of the checks it paid under a forged indorsement even when the instrument has not been delivered to him The collecting bank is liable to the payee and must bear the loss because it is its legal duty to ascertain that the payee’s indorsement (signature). The payee is allowed to directly recover from the collecting bank to simplify proceedings (Westmont Bank v. 3. Ong. The signature is wholly inoperative. 62. Sec 56). X accepted the instrument without detecting the forgery. the acceptor admits the genuineness of the drawer’s signature (See Sec. Sec. CA. A holder of a bearer instrument who subsequently negotiates such instrument with a prior forged indorsement (forged indorsement is not necessary to his title it being a bearer instrument). 2. silence. if after 30 days the holder presented the instrument to X for payment the latter is liable despite the forgery. XPNs: 1. 2002). 132560. Those who admit/warrant the genuineness of the signature such as indorsers. Sec. 3. Jan. That there was no delivery yet and therefore he never became the owner of the check is immaterial 31 UNIVERSITY OF SANTO TOMAS FACULTY OF CIVIL LAW . was genuine before cashing the check. Illustration Persons precluded from setting up the defense of forgery Pay to P or order P10. The instrument can be enforced against those who are precluded from setting up forgery. 28. (Sgd)D. the person who ought in any event to be ultimately liable as among the innocent persons. the instrument itself and the genuine signatures are valid. To X P presented the instrument for acceptance. (NIL. P then indorses the bill to A. If the party against whom it is sought to enforce such right is precluded from setting up forgery or want of authority (NIL. the present holder. 23). in which case. 23).

OF However. G.MERCANTILE LAW Liabilities of the parties to a negotiable instrument where an indorsement is forged or A. Sec. because were it not for the forgery of X the instrument will not reach the possession of C. If the instrument is payable to order and the indorsement of one of the indorsers is forged. 23). 2004). Subsequent parties to the forgery are bound NOTE: A drawer’s account cannot be charged by the drawee. as between the drawee-bank and collecting bank. Forged signature is wholly inoperative is wholly inoperative unless estoppel sets in unless estoppel sets in with regard prior parties with regard prior parties (cut-off rule). the forged signatory is not liable to a party who is not a holder in due course. CA. the remedy of the drawee-bank is against the party responsible for the forgery. 29. Aug. the drawer may be precluded or estopped from setting up the defense of forgery as against the drawee-bank. Jan. No. when it is shown that the drawer himself had been guilty of gross negligence as to have facilitated the forgery (Metropolitan Waterworks v. Illustration 3. because by accepting the instrument. 2. L62943. L-26001. The drawer is not liable to the collecting bank. Forged payee's signature – When drawee-bank pays the forged check. Otherwise. NIL. ORDER INSTRUMENTS ORDER PROMISSORY ORDER BILL OF NOTE EXCHANGE Prior parties are not Prior parties are not bound. 149454. Forged signature bound. Prior parties liable However. G. A drawee-bank paying on a forged check must be considered as paying out of its funds and cannot charge the amount to the drawer (Samsung Construction Co. C can enforce the note against X and B but not against M. 107382. If the instrument is payable to bearer.R. 1986). P UNIVERSITY OF SANTO TOMAS 2014 GOLDEN NOTES 32 .R. 13. the bank becomes liable since its primary duty is to verify the authenticity of the payee's signature a. When drawer's signature is forged – Drawee-bank by accepting the check cannot set up the defense of forgery. 129015. Drawee bank versus collecting bank – When the signature of the drawer is forged. but not from the drawee unless he accepts the bill. Far East Bank. July 14. the latter can recover such amount from the drawee-bank (Associated Bank v. (cut-off rule). the drawee-bank sustains the loss. 1968). No.R. If the drawee-bank has charged drawer's account. BPI v. the forged signatory is not liable to a party who is not a holder in due course. drawee-bank bears the loss. However. No.R. May 28. 148196. b. Sept.R. Case Montessori Internationale. the indorsement of X is not necessary to vest title to C because negotiation on bearer instrument requires only delivery. the drawee bank admits the genuineness of signature of drawer (BPI Family Bank v. 2004). CA. CA. 31. No. v.R. Phils. it must be considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor. 1996. since the collecting bank does not guarantee the signature of the drawer. No. G. The payee can recover from either the drawer or collecting bank. since the duty of the latter is only to the payee. In such case. (Philippine National Bank v. 2005. Unless a forgery is attributable to the fault or negligence of the drawer himself. Oct. G. The payment of the check by the drawee bank constitutes the proximate negligence since it has the duty to know the signature of its client-drawer. BEARER INSTRUMENTS BEARER PROMISSORY BEARER BILL NOTE EXCHANGE Prior parties liable. G. Subsequent parties to the forgery are bound Legal consequences when a bank honors a forged check 1. No. G. Buenaventura. Collecting bank bears the loss. 30.

4. XYZ Bank indorsed the check to the drawee bank-ABC bank which paid it and charged the account of the drawer. warrants that the note is valid and subsisting. G.R.R. since X. X set up the defense of illegality of consideration. ABC Bank has no right to ask the drawer for its payment.R. CA.G.00. No. The Drawer has no cause of action against collecting bank. G. No. CA. Thereafter. a.000. The remedy of the drawer is against the forger. 1996). the drawer. Unable to collect from P. 1990).If the instrument is payable to order. collecting bank is bound by its warranties as an indorser and cannot set up defense of forgery as against drawee bank (Associated Bank v. 1996. since the duty of collecting bank is only to the payee (Manila Lighter Transportation. CA. 23.R. 1922). 107382.000. ABC Bank. 31. Jan. Ong. b. Radio Philippines Network. No. of course. 31. he can recover from the drawee-bank (Associated Bank v. Remedy of the drawee bank in case of a forged indorsement The drawee bank may not debit the account of the drawer but may generally pass liability back through the collection chain to the party who took from the forger and. If the forgery is that of the payee's or holder's indorsement. Because the forged indorsement did not prevent the transfer of title. D. 30. Y then sued X on the note. Jan.1996). 31. 138510. (Sgd)D To: ABC Bank A: 1. Jan. lllustrate the liability of a drawer and a drawee-bank in an 1) instrument payable to order and in an 2) instrument payable to bearer in case of a forgery on payee’s signature. may charge the amount thereof to the account of the drawer. G. G. G.66) c. since the duty of collecting bank is only to the payee (Manila Lighter Transportation. No. Drawee-bank can recover from the collecting bank because even if the indorsement on the check deposited by the bank's client is forged.R.R.NEGOTIABLE INSTRUMENTS LAW (Traders Royal Bank v.G. Inc. the drawee-bank. 2002.R. The drawee bank is liable to the drawer for the amount of the check and his account cannot be charged because the indorsement of the payee is a forgery. 18657. a general indorser. Oct. 107382. Aug. No. v. Is he correct? (2011 Bar Question) Q: X fraudulently obtained possession of the check and forged P’s signature and then indorsed and deposited the check with XYZ bank which honored the check and placed the amount thereof to his credit. 10. 1996). (See Sec. liable to the drawee bank because of his warranty as an indorser. If the instrument is payable to bearer: a. G. Co. Forged indorsement – Drawer's account cannot be charged. if available. Pay to P or order P10. 15. the collecting bank had no right to be paid by the drawee bank. 107382. 2002). XYZ Bank is however. No.000. b. collecting bank is bound by its warranties as an indorser and cannot set up defense of forgery as against drawee bank (Associated Bank v. the collecting bank is held liable. Drawee-bank can recover from the collecting bank because even if the indorsement on the check deposited by the bank's client is forged. 33 UNIVERSITY OF SANTO TOMAS FACULTY OF CIVIL LAW . and if charged.R. v. Q: P sold to M 10 grams of shabu worth Php5. Hence. to the forger himself. Drawer has no cause of action against collecting bank. No. L-50373 Feb. As he had no money at the time of the sale. it is wholly inoperative and therefore. CA. No. a. Great Eastern Life Ins. CA. Jan. and X to Y. 15. 1990). G. Inc. b. v.R. P then indorsed the note to X (who did not know about the shabu). 31. The former must necessarily return the money paid by the latter because it was paid wrongfully (Associated Bank v. No. 132560. without prejudice to the latter proceeding against the forger. Since a forged indorsement is inoperative. is not liable on the check because its order is to pay P or his order and not to any other person. 107382. Hongkong & Shanghai Bank. M wrote a promissory note promising to pay P or his order Php5. L-50373 Feb. Westmont Bank v. A: No. Jan. 2. CA.

Sec. if the same was due to the negligence of both the drawee bank and the drawer CONSIDERATION Consideration It is an inducement to a contract that is the cause.MERCANTILE LAW Liability of the drawee bank and the drawer for the amount paid on checks with forged indorsements. NOTE: Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration (NIL. Sec. price or impelling influence. A: No. 2002). No. No. he is precluded from setting up the forgery due to his own negligence in entrusting to his secretary his credit cards and check book including the verification of his statements of account (Ilusorio v. 13. Value It is any consideration sufficient to support a simple contract. G. NOTE: An antecedent or pre-existing debt constitutes value and is deemed such whether the instrument is payable on demand or at a future time (NIL. Q: The drawer’s signature was forged. G. What will be its effect insofar as the drawer’s right is concerned? A: The failure of the drawer to report the forgery within ten days from receipt of the monthly bank statement from the drawee bank does not preclude the drawer from questioning the mistake of the drawee bank despite the provision (BPI v. May 28. 27.R. X’s secretary forged his signature on the checks and was able to withdraw his money. He also introduced the secretary to the bank for purposes of reconciliation of his accounts. NOTE: Where the holder has a lien on the instrument arising either from contract or by implication of law. There is. G. v. CA.R. however. Subsequently. Failure of consideration WANT OR ABSENCE OF CONSIDERATION Total lack of any valid consideration for the contract Q: If forgery was committed by an employee of the drawer whose signature was forged. 2004).R. The drawer. passbooks. 28). Sec. 2004). does the relationship amount to estoppel such that the drawer is precluded in recovering from the drawee bank? A: The bare fact that the forgery was committed by an employee of the party whose signature was forged can not necessarily imply that such party’s negligence was the cause of the forgery in the absence of some circumstances raising estoppel against the drawer (Samsung Construction Co. A holder for value is deemed as such not only as regards the party to whom the value has been given to by him but also in respect to all those who became parties prior to the time when value was given. 129015. 27). Effect of partial failure of consideration Partial failure of consideration is a defense pro tanto. UNIVERSITY OF SANTO TOMAS 2014 GOLDEN NOTES 34 . No. 25). The loss occasioned by such negligence should be divided equally between the drawer/depositor and the drawee. bank statements and cancelled checks to his secretary. the drawer should report it within 10 days from receipt of the statement to the drawee. 139130. Want or absence of consideration v. CASA Montessor.). thus. FAILURE OF CONSIDERATION Failure or refusal of one of the parties to do. however failed to do so. Sec. 149454. he is deemed a holder for value to the extent of his lien (NIL. perform or comply with the consideration agreed upon Effect of want of consideration It becomes a matter of defense as against any person not a holder in due course. Aug. 24). whether the failure is an ascertained and liquidated amount or otherwise (ibid. Is the drawee bank liable for the amounts withdrawn by the secretary? Holder for value A holder for value is one who has given a valuable consideration for the instrument. Far East Bank and Trust Company. credit cards. which induces a party to enter into a contract. Nov. a provision in the monthly bank statement that if the drawer’s signature was forged. a PERSONAL defense (NIL. Q: X entrusted his check books.

Regular party ACCOMMODATION PARTY Signs an instrument without receiving value therefor (NIL. Sec. No. drawer. The accommodation party is liable to a holder for value as if the contract was not for accommodation. 3. The purpose is to lend the name. acceptor. Cannot disclaim personal liability by parol evidence REGULAR PARTY Signs the instrument for value (NIL.R. NIL. drawer. Sec. the cause of action is not on the instrument but on an implied contract of reimbursement. notwithstanding that such holder at the time of taking the instrument knew him to be only an accommodation party. 1355). Apr. issued a check. Sevilla. Y then indorsed the check to his sister Z for no consideration.R. that one cannot be an accommodation party merely because he has received some consideration for the use of his name. Right to contribution from other solidary accommodation maker (Sadaya v. Is Z a holder in due course? Explain your answer (2012 Bar Question) May avail May not sue Extent of liability of an accommodation party 1. without receiving value therefor. Sec. It is not a valid defense that the accommodation party did not receive any valuable consideration when he executed the instrument. 52 (c). Sec.NEGOTIABLE INSTRUMENTS LAW Inadequacy of consideration Sec. A: No. No. By signing the note. and 3. it is expressly provided that the instrument must be acquired in good faith and for value to consider him a HIDC. G. 29) May always show. Hence. 53). however. 1. the check was dishonored for insufficiency of funds. 29). L-17845. Z is not a HIDC. 24) Not for that purpose 35 UNIVERSITY OF SANTO TOMAS FACULTY OF CIVIL LAW . NOTE: It does not mean. Admiral United Savings Bank. that he is only such Cannot avail of the defense of absence/failure of consideration against a holder not in due course May sue reimbursement after paying the holder/subsequent party GR: Inadequacy of consideration does not invalidate the instrument. The phrase “without receiving value therefor” only means that no value has been received “for the instrument” and not “for lending his name. Under Sec. 2008). 154740. 27. knowledge of inadequacy of consideration would render the holder not HIDC liable (NIL.” Holder for value may recover from accommodation party notwithstanding knowledge of such fact an his This is so because an accommodation party is liable on the instrument to a holder for value. Nor is it correct to say that the holder for value is not a holder in due course merely because at the time he Accommodation party v. When Z deposited the check to her account. ACCOMMODATION PARTY Accommodation party Accommodation party cannot raise the defense of absence or want of consideration An accommodation party is one who has signed the instrument as maker. the accommodation party thus became liable for the debt even if he had no direct personal interest in the obligation or did not receive any benefit therefrom (Dela Rama v. NOTE: However. and for the purpose of lending his name to some other person (NIL. XPN: There has been fraud. 1967). 2. or indorser. G. Apr. acceptor or indorser 2. Art. Requisites to be an accommodation party An accommodation party who lends his name to enable the accommodated party to obtain credit or raise money is liable on the instrument to a holder for value even if he receives no part of the consideration. mistake or undue influence (NCC. He assumes the obligation to the other party and binds himself to pay the note on its due date. Accommodation party must sign as maker. No value is received by the accommodation party from the accommodated party. by parol evidence. 16. Right to revoke accommodation – before the instrument has been negotiated for value. 29) Purpose of signing is to lend his name to another person (NIL. Q: X borrowed money from Y in the amount of Php 1 Million and as payment. Right to reimbursement from the accommodated party – the accommodated party is the real debtor.

Sec. may nevertheless be further negotiated by delivery. Despite the special indorsement made by B. indorsers liable if the party primarily liable does not pay. 15.R. No. payable to bearer. Modes of negotiation 1. D may collect from A. NOTE: A holder is the payee or indorsee of a bill or note. subject to all defenses available against the assignor. but the person indorsing specially shall be liable as indorser to only such holders as make title through his indorsement (once a bearer instrument. Hence. Sec. NOTE: This rule applies only to instruments originally payable to bearer. Delivery of negotiable instrument NEGOTIATION Delivery means transfer of possession. 16). 1989). Sept. endorses it to C in this manner: Negotiation v. Where an instrument. 30). 2. he merely steps into the shoes of the assignor The transferee has no right of recourse for UNIVERSITY OF SANTO TOMAS 2014 GOLDEN NOTES "Payable to C. Feb. The holder can hold the drawer and the ASSIGNMENT Non-negotiable instrument may be assigned absent any prohibition against assignment written on its face. however. even when indorsed specially." Later. G. Signed: B. NOTE: Where the instrument is no longer in the possession of the party whose signature appears thereon. G.it is negotiated by mere delivery 2. 1968). Negotiation Negotiation is the transfer of an instrument from one person to another so as to constitute the transferee the holder thereof (Sec. It does not apply to instruments originally payable to order converted to bearer because the only or last indorsement is in blank. 191). always a bearer instrument) (NIL. who is in possession of it. Sec. May D proceed against A for the note? (1998 Bar Question) A: Yes. CA. If payable to order. B. A bearer instrument. 22. 3.MERCANTILE LAW acquired the instrument. he knew that the indorser was only an accommodation party (Ang Tiong v. Ting. if he is a HIDC may acquire better rights than his transferor. If payable to bearer. No. 191). 30). it may nevertheless be further negotiated by delivery. Issuance – first delivery of the instrument complete in form to a person who takes it as a holder. is indorsed. Accomodation made by a corporation payment against immediate parties. without indorsing the promissory note. the note remained a bearer instrument and can be negotiated by mere delivery. 36 . Assignment NEGOTIATION Only a negotiable instrument may be negotiated. from one person or another (NIL. with the assignee generally taking only such title as his assignor has. 40). actual or constructive. Negotiation Assignment – transfer of the title to the instrument. DISTINGUISHED FROM ASSIGNMENT Q: A makes a promissory note payable to bearer and delivers the same to B.it is negotiated by the indorsement of the holder completed by delivery (NIL. transfers and delivers the same to D. Sec. The transferee can have no better right than his transferor. The note is subsequently dishonored by A. L-26767. The note made by A is a bearer instrument. there is a prima facie presumption of a valid and intentional delivery by him (NIL. The transferee. 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 (Crisologo-Jose v. Sec. MODES OF NEGOTIATION The issue or indorsement of a negotiable paper by a corporation without consideration and for the accommodation of another is ultra vires.R. 80599. C. or the bearer thereof (NIL. Effect if a bearer instrument is negotiated by indorsement and delivery Methods of transferring an instrument 1.

Different kinds of indorsement 1. 36) – When the instrument: a. 37 UNIVERSITY OF SANTO TOMAS FACULTY OF CIVIL LAW . Sec. but with the obligation to hold Php20. Sec.00. 35). 3. b. 49). 34) – Specifies no indorsee. payable to the order of Y. places thereon his signature in blank before delivery. Sec. On the instrument itself. NOTE: Indorsement to two or more indorsees severally does NOT operate as a negotiation of the instrument. 1. (NIL. Rules on indorsement 7. D can proceed against A. 38). Also known as specific indorsement or indorsement in full. Constitutes the indorsee the agent of the indorser. a. Sec. Sec. Qualified (NIL. Restrictive (NIL. 2. Effect of assignment of a negotiable instrument The transferee does not become a holder and he merely steps into the shoes of the transferor. Party required to pay may disregard the conditions (NIL. May be converted to special indorsement by writing over the signature of the indorser in blank any contract consistent with the character of indorsement (NIL. KINDS OF INDORSEMENTS Indorsement It is the signing of the name of the indorser on the instrument with the intent to transfer title to the same. 32). GR: Indorsement must be of the entire instrument (NIL. As such. Absolute – The indorser binds himself to pay: a. NOTE: For the purpose of determining whether the transferee is a HIDC. 38) – Constitutes the indorser a mere assignor of the title to the instrument made by adding to the indorser’s signature words like. to whom Y owed Php30. or 2. 39). Instrument is payable to bearer and may be negotiated by delivery. for how much may Z collect from X? (2011 Bar Question) Special (NIL. Upon due notice to him of such failure 6. Irregular (NIL. Sec. 22. Effect of the delivery of an order instrument without indorsement The transfer operates as an ordinary assignment (NIL. 40). 76788 Jan. 36) c. 1990). NOTE: An instrument payable to bearer indorsed specially may nevertheless be negotiated by delivery (once a bearer always a bearer) (NIL. 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 transfereror. the negotiation takes effect at the time when the indorsement is actually made. Sec. Q: X executed a promissory note with a face value of Php50. Joint – Indorsement made payable to 2 or more persons who are not partners (NIL. 31) NOTE: The condition refers to the indorsement not on the instrument itself.000. b. Upon no other condition than failure of prior parties to do so b. Y indorsed the note to Z. No.00. 5.R. 34) – Specifies the person to whom or to whose order the instrument is to be payable. NOTE: But mere absence of words implying power to negotiate does not make an instrument restrictive. Sec. Any defense available against the transferor is available against the transferee (Salas v. Sec.00 for Y's benefit. Sec. NOTE: All of them must indorse unless the one indorsing has authority to indorse for the others. Where the indorsement should be placed 1. Sec. the latter became a holder thereof. G.000. A: Php 50. CA. XPN: When the instrument has been paid in part. 41). If X has no defense at all against Y. 64) – A person who. Vests the title in the indorsee in trust for or to the use of some persons. Blank (NIL. Sec. 4. not otherwise a party to an instrument. Sec.000. Prohibits further negotiation of the instrument (it destroys the negotiability of the instrument). Sec. On a separate piece of paper attached to the instrument called “allonge” (NIL.00. sans recourse or at the indorsee’s own risk (this serves as an ordinary equitable assignment) (NIL. Conditional – Right of the indorsee is made to depend on the happening of a contingent event.000. without recourse.NEGOTIABLE INSTRUMENTS LAW When C delivered and transferred the note to D.

It may be negotiated further by either indorsement of the corporation or indorsement of the officer (Sec. and 3. the instrument was valueless or not valid at the time of the indorsement which fact was known to him. Lack of good title on the part of the indorser. But. he is not entitled to enforce payment thereof against any intervening party to whom he was personally liable (NIL. The negotiable instrument is deemed prima facie payable to the corporation of which said person is such an officer. Sec. EX. Transfer of an instrument payable to order by mere delivery (NIL. A qualified indorser is liable only if the instrument is dishonored by non-acceptance or non-payment due to: 1. strike out any indorsement which is not necessary to his title. or 4. NIL). “A” payee indorsed the instrument to B. C to D. NIL). 37. 3. When the instrument has been restrictively indorsed. 49). Striking out of an indorsement The holder may. Payees or indorsees are partners. 32) 2. where the form of the indorsement authorizes him to do so (Sec. 48. 2. Payee or indorsee indorsing has authority to indorse for the others. then B indorsed it to C. 47) A qualified indorsement does NOT destroy the negotiability of the instrument. 50). UNIVERSITY OF SANTO TOMAS 2014 GOLDEN NOTES 38 . Sec. Instances when the indorsement is considered only as equitable assignment 1. Sec. Negotiation by a prior party Where an instrument is negotiated back to a prior party. Indorsement of only a part of the amount of the instrument (NIL. at any time. Successive – Indorsement to two persons or more in succession. Effect of indorsing an instrument to a person as cashier or other officers of a corporation 10. NOTE: Any of them can indorse to effect negotiation of the instrument. Sec. 2014). However. 45). are relieved from liability on the instrument (Sec. The fact that at the time of the indorsement. 48). he may strike out the intervening indorsements because they are not necessary for his title and he is liable to them because of his initial indorsement (Sec. XPN: Only one of them may indorse in case the 1. Sec. B can further negotiate the instrument. Lack of capacity to indorse on the part of the prior parties.MERCANTILE LAW 2. 38) 3. In cases of qualified indorsement (NIL. then D to B. NIL). When discharged by payment or otherwise (NIL. and 2. To bring any action thereon that the indorser could bring. XPN: Except where an indorsement bears date after the maturity of the instrument (Sec. and all indorsers subsequent to him. Facultative – Indorser waives presentment and notice of dishonor. To transfer his rights as such indorsee. Rights of an indorsee in a restrictive indorsement Date of indorsement 1. which is still true even if the NI was dishonored or is already overdue. GR: An instrument negotiable in origin is always negotiable until paid. 41). 37. To receive payment of the instrument. Joint indorsement GR: All must indorse in order for the transaction to operate as a negotiation (NIL. such party may reissue and further negotiate the same. enlarging his liability and his indorsement. Effect of a qualified indorsement XPNs: 1. GR: Every negotiation is deemed prima facie to have been effected before the instrument was overdue. It only means that the qualified indorser is NOT liable when the maker is insolvent. Sec. 42). He may also strike out the indorsement of C and D (Sundiang. Continuation of negotiable character NOTE: All subsequent indorsees acquire only the title of the 1st indorsee under the restrictive indorsement (Sec. Forgery. 2. 2. Indorser whose indorsement is struck out.

Where it is payable to the order of a third person. 121[a]). or after the last negotiation thereof. To the holder thereof. Secs. 3. HOLDER IN DUE COURSE (HIDC) To be considered as a HIDC. 26). 71 and 143[a]). 51). Where it was made or accepted for accommodation and has been paid by the party accommodated (NIL. Shelter principle NOTE: If the instrument is payable on demand. 191). Availability of rights to a party who derives his title from a holder in due course NOTE: If the payment is in due course. NIL). Sec. a prior party cannot further negotiate the instrument: 1. Sec. by negotiating the instrument. Sec. which must be made within a reasonable time after its issue. 2. 52 of the NIL must be complied with. 51). 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 to all parties prior to the latter (NIL. Hold the instrument free from any defect of title of prior parties. 125. Sec. 2. to a party not a HIDC. 3. That is Complete and regular upon its face. if it is a note. 4. 121[b]). Holders in general (Simple Holders) (NIL. A HIDC takes a NI under the following conditions: (COFI) Specifically. 57). Under the "shelter principle. In order for payment to constitute payment in due course. 4. NIL and it is not a material particular under Sec. Right to sue 2. Classes of holders Payment in due course 1. Rights of a holder in general 1. Sec. Sec. A holder is presumed to be a holder in due course GR: Every holder is deemed prima facie to be a HIDC. In other cases. NIL) NOTE: Knowledge of the agent is constructive knowledge to the principal.NEGOTIABLE INSTRUMENTS LAW Where the transferee receives notice of any infirmity in the instrument or defect in the title of the person negotiating the same before he had paid the full amount agreed to be paid. transfers all his rights as such holder to the latter and acquires the right to enforce the instrument as if he 39 UNIVERSITY OF SANTO TOMAS FACULTY OF CIVIL LAW . A holder who derives his title through a HIDC. RIGHTS OF THE HOLDER 3. the requisites under Sec." the HIDC. (Sec. Sec. he will be deemed a holder in due course only to the extent of the amount paid by him (NIL. 54). The payee or indorsee of a bill or note who is in possession of it or the bearer thereof (NIL. and 5. Became the holder before it was Overdue. Holders for value (NIL. Enforce payment of the instrument for the full amount thereof against all parties liable. Right to receive payment (NIL. 1. if it is a bill of exchange (NIL. Sec. 88). At or after the maturity of the instrument 2. 52. Limitations on re-negotiation In the following cases. Sue 1. NOTE: Absence of the required documentary stamp will not make the instrument incomplete (It is not a requisite of negotiability under Sec. Hold the instrument free from defenses available to parties among themselves. the date of maturity is determined by the date of presentment. Secs. Receive payment. 119[e]) . Sec. and it has been paid by the drawer (NIL. he had no notice of any Infirmity in the instrument or defect in the title of the person negotiating it. and without notice that it has been previously dishonored. 58). 52. At the time it was negotiated to him. 3. it must be made: 1. 2. Holders in due course (NIL. Sec. Sec. a holder is entitled to the following rights: 1. in good faith and without notice that his title is defective (NIL.59). Took it in good Faith and for value. the instrument is discharged. But this is only as regards a party who became such after the acquisition of the defective title (NIL. where the instrument is discharged when acquired by a prior party (NIL. if such was the fact. Holder XPN: When it is shown that the title of any person who has negotiated the instrument was defective. 2.

or any signature thereto. However. The projected purchase did not materialize. That he took it in good faith and for value Effect of notice before the full amount is paid Good faith is the holder’s well founded or honest belief that the person from whom he received the instrument was the owner thereof. 55) An instrument may be dishonored either by: 1. 2010). he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it That it is complete and regular upon its face INFIRMITY Refers to those that vitiate the instrument itself An instrument is complete when it is not wanting in any material particular and regular when there is no alteration apparent on the face of the instrument. In the negotiation – When he negotiates it in breach of faith. A negotiable instrument in circulation past its maturity date carries strong indication that it has been dishonored. G. the rule that a possessor of the instrument is prima facie a HIDC does not apply to the clinic UNIVERSITY OF SANTO TOMAS 2014 GOLDEN NOTES 40 . or other unlawful means. 157833. he will be deemed a holder in due course only to the extent of the amount therefore paid by him (Sec. which check was delivered to the agent of the owner of the car for safekeeping. (NIL.R. That he became the holder before it was overdue An overdue instrument is still negotiable. responsibility. in case of negotiation of an overdue instrument. or under such circumstances as amount to a fraud (NIL. the holder cannot be a holder in due course while in case of negotiation of a dishonored instrument. 56). etc. or for an illegal consideration. At the time it was negotiated to him. detriment. The principle applies to a "sheltered" holder who is not a party to any fraud or illegality impairing the validity of the instrument. or for an illegal consideration or when he negotiates it in breach of faith. NIL). Value may be some right. Non-payment An overdue or dishonored instrument may still be negotiated either by indorsement or by delivery to the same extent as before maturity. 2007). 54. by fraud. as by fraud. No. Non-acceptance (refers to a bill of exchange) or 2. Roxas. Sec. loan. October 15. duress. or force and fear. In its acquisition – When he obtained the instrument. The check was then used by the agent to pay the medical bills of his wife in a clinic. with the right to transfer it (Duran v IAC. 138 SCRA 489). duress. 2010). Q: A drawer issued a check for the payment of a car. to the other (BPI v. 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 to be paid therefor. profit or benefit to the party who makes the contract or some forbearance. or under any other circumstances as amount to a fraud. or other unlawful means. Notice of defect on the transferee The person to whom it is negotiated must have had actual knowledge of such facts or knowledge of other facts that his action in taking the instrument amounted to bad faith (NIL. interest. Sec. 2. 55) Instances when the title of a person (transferor) is defective Without notice that it has been previously dishonored.MERCANTILE LAW was a holder in due course. or force and fear. the holder without notice can be a holder in due course (De Leon. Sec. An overdue instrument puts all person on notice that it might not have been paid because of a valid defense to such payment (De Leon. and although it is subject to defenses existing at the time of transfer. if such was the fact 1. Is the clinic considered a holder in due course? A: No. DEFECT Refers to how he obtained the instrument or the signature thereto.

payment. It does not make the possessor a holder for value within the meaning of the law. the corporation was aware of the fact that the checks were all for deposit only to payee’s account. June 17. Personal or Equitable Defenses –defenses which are only available against a holder not in due course. He is entitled to the instrument but holds it subject to the same defenses as if it were non-negotiable 3. vs. since the instrument was not payable “to the agent or to bearer”. As holder’s title was defective or suspicious. Where an instrument payable on demand is negotiated for an unreasonable length of time after its issue (Sec.R. G. afterwards. No. Drawee as holder in due course A drawee does not become a HIDC by simply paying a bill. though holding the legal title. 2. No. NOTE: Presence or absence of defect or infirmity must be determined at the time the instrument was negotiated to the holder. the instrument is discharged 2. A holder who acquires the instrument after its date of maturity. both immediate and remote. 51. L-15126. 30. 45). From the beginning.R. Where the instrument contains an acceleration clause. it becomes a stale check.NEGOTIABLE INSTRUMENTS LAW because he cannot be said to have acquired the negotiable instrument in good faith for there was a defect in the title of the holder (agent). 52 (De Ocampo v. CA. usually 6 months from date the thereof. 109491. supra). v. strips the instrument of negotiability and reduces it to a mere voucher or proof of payment. The other rights are: 1. Feb. He may sue on the instrument in his own name (Sec. Gatchalian. 2001). CA. It gives rise to no liability on the part of the maker or drawer or indorsers (STELCO Marketing Corp. 1992). Those which grow out of the agreement or conduct of a particular person which renders it inequitable for him. upon acceptance and 41 UNIVERSITY OF SANTO TOMAS FACULTY OF CIVIL LAW . No. the agent did not show or tell the payee why he had the check in his possession and why he was using it for the payment of his own account. DEFENSES AGAINST THE HOLDER Defenses against the holder Payee as holder in due course The defenses available against the holder are classified as follows: 1. is unpaid is a notice that it is overdue. 96160. Gatchalian. to enforce it against the party sought to be made liable. G. 1961).R. the presumption that the clinic is a HIDC does not exist (De Ocampo & Co. NIL). A: The checks were crossed checks and specifically indorsed for deposit to payee’s account only. it could not be considered a HIDC (Atrium Management Corp. or both. also the drawer had no account with the clinic. v. it is deemed prima facie to have been negotiated before the instrument was overdue (NIL. knowledge of the holder at the time of acquisition thereof that one installment or interest. A check becomes overdue when it is not presented for payment within a reasonable time. Nov. it cannot be stated that the payee acquired the check without knowledge of said defect in holder’s title. 2. 53. Possession of a negotiable presentment and dishonor instrument NOTE: A note payable on demand is due when payment is demanded. after 3. NOTE: Where indorsement is not dated. Instances when a person is deemed not a holder in due course 1. Real or Absolute Defenses – those that are attached to the instrument itself and are available against all parties. An overdue instrument is still negotiable but it is subject to the defenses existing at the time of the transfer. Q: Is a corporation to which four crossed checks were indorsed by the payee corporation a holder in due course and hence entitled to recover the amount of the checks when the same had been dishonored for the reason of “payment stopped”? Rights of a holder who is not a holder in due course The rights of a holder not a HIDC are similar to an assignee. whereas a drawee. 28. G. There can be no doubt that a proper interpretation of NIL as a whole leads to the conclusion that a payee may be a holder in due course under the circumstances in which he meets the requirements of Sec. including holders in due course. Sec. Clearly then. He may receive payment and if the payment is in due course. A holder refers to one who has taken the instrument as it passes along in the course of negotiation. NIL).

Acceptor – of a bill of exchange. 2. NIL). Bill of exchange – drawee/acceptor Q: A bill of exchange has T for its drawee. 2. NIL). Maker – of a promissory note. 6. 12. The Philippine Negotiable Instruments Law. NOTE: Fraud in factum exists in those cases in which a person. 3. the instrument being a bill of exchange. AFForD PODIF) 1. value or character of the consideration of the instrument. 11. 8. Acquisition of instrument by Duress or force and fear. Promissory note – maker 2. and Indorser of a note or a bill Person to whom the negotiable instrument should be presented NI should be presented for payment to the party primarily liable (Sec. This kind of fraud is a real defense because there is no contract since the person did not know what he was signing. Such type of fraud is only a personal defense because it does not prevent a contract (De Leon. Fraud in inducement relates to the quality. Failure or absence of consideration. conditions have been fulfilled: 1. apparent and real Fraudulent alteration Forgery Duress amounting to Forgery Prescription Other infirmities appearing on the face of the instrument Discharge in insolvency Illegal Contract Fraud in Factum or Esse Contractus A: No. Filling up of blanks not in accordance with the Authority given 5. since F can treat U as maker due to the minority of T. Drawer of a bill. NIL).143. 7. Discharge by payment or renunciation or release before maturity 7. 2. 2. Annotated. as where a note was signed by one under the belief that he was signing as a witness to a deed. 10.70. Undelivered complete instrument 9. 72[d]. LIABILITIES OF PARTIES Party primarily liable v. and F as holder. 8. 3. 130. 5. 9. the holder may treat the bill as a PN (Sec. F learned that T is only 15 years old. U as drawer. Taking of proceedings required by law (Sec. 3. and Certifier of a check Parties secondarily liable 1. Set-off between immediate parties 4. 2010 ed. 3. 13. has signed an instrument. NIL. but was deceived as to the character of the instrument and without knowledge of it. When F went to T for UNIVERSITY OF SANTO TOMAS 2014 GOLDEN NOTES SECONDARILY LIABLE 42 . presentment. Party secondarily liable under the Negotiable Instruments Law PRIMARILY LIABLE Unconditionally bound Personal defenses available against a holder (InnocentS2 ADD FUn In Fraud) 1. This exists when a person is induced to sign a note for the price of a worthless stock which was fraudulently represented by the payee as to its value. quantity. Innocent alteration or spoliation Discharge of party Secondarily liable by discharge of prior party. Insertion of a wrong date 10.152. NOTE: Where the drawee does not have the capacity to contract. NIL) Parties primarily liable 1. Here. without negligence. unlawful means or for an illegal consideration 6.): 1. 4. Dishonor by such party (Sec.). Due presentment for payment or acceptance to primary party (Sec. deceit is not in the character of the instrument but in its amount or terms. 2. Fraud in inducement or simple fraud Absolutely required to pay the instrument upon maturity Conditionally bound Undertakes to pay only after the ff.MERCANTILE LAW Real defenses available against a holder (IM In Ultra. F wants to recover from U but the latter insists that a notice of dishonor must first be made. the drawee. Is he correct? (2011 Bar Question) Incomplete and undelivered instrument Minority (available only to the minor) Incapacity as far as incapacitated persons are concerned Ultra –vires acts of a corporation Want of Authority.

c. Q: On the right bottom margin of a PN appeared the signature of the corporation’s president and treasurer above their printed names with the phrase “and in his personal capacity. Are the officers liable? A: Yes. That if dishonored. Instrument. capacity to contract of all prior parties. NIL. The drawee must accept the instrument (thus. b. a person negotiating by mere delivery is liable only to his immediate transferee. 61. (Sec. (par. no knowledge of any fact which would impair the validity of the instrument. (Sec. Instrument is genuine. 60. they cannot escape liability arising therefrom (Republic Planters Bank v. That if the necessary proceedings on dishonor be duly taken. it shall be accepted or paid. 65. Warranties and liabilities of parties who are secondarily liable ABSOLUTE LIABILITY Drawer of a BOE Warrants: a. NIL. he will pay the holder. was valid and subsisting.) LIMITED LIABILITY Qualified Indorser Warrants that the: a. or both according to its tenor c. Admits the existence of the payee and his then capacity to indorse (Sec.” The corporation failed to pay its obligation. Engages that on due presentment the instrument will be accepted or dishonored. G. Admits the existence of the payee and his then capacity to indorse. He had good title to it iii. namely. at the time of indorsement. All prior parties had capacity to contract iv. If the instrument is dishonored and the necessary proceedings on NOTE: The maker is liable the moment he makes the NI. and 3. he has good title to it. liable to all parties subsequent to payee. Instrument is genuine ii. General indorser a. he will pay the party entitled to be paid. 43 UNIVERSITY OF SANTO TOMAS FACULTY OF CIVIL LAW . If he signs for accommodation of the payee. 66. No. His liability is primary and unconditional. b. 1992). NIL). liable to the payee and all subsequent parties b. and c. NIL.) MAKER Maker The maker of a negotiable instrument. NOTE: He is liable to all parties who derive their title through his indorsement. 21. The existence of payee and his then capacity to indorse b.NEGOTIABLE INSTRUMENTS LAW The drawee is not liable for payment of a bill of exchange dishonor be duly taken. The officers are co-makers and as such. NIL. Sec. Warrants that: i. or to any subsequent indorser who may be compelled to pay it (Sec.) Irregular indorser a.65. NIL). and d. (Sec. by making such instrument: 1. 2.R. Dec. CA. But unlike a qualified indorser. That the instrument will be accepted or paid upon due presentment by the party primarily liable according to its tenor. If bearer instrument or payable to order of maker or drawer. Engages that he will pay it according to its tenor. and 2. 93073. On due presentment.) DRAWER NOTE: Person negotiating by mere delivery and a qualified indorser’s secondary liability is limited. becomes an acceptor) in order that he may be primarily liable for the payment of a BOE. by drawing the instrument: 1. liable to all parties subsequent to the maker or drawer c. to their warranties Drawer The drawer. he will pay the amount thereof to the holder. In an order instrument. and 2. 64. 61. (Sec. Person negotiating by delivery Same warranties as a qualified indorser.) The mere issuance of a bill does not operate as an assignment of the funds in the hands of a drawee. NIL. persons who sign their names on the face of promissory notes are makers and liable as such.

B negotiated the bill to M. Due to non-acceptance and after proceedings for dishonor were made. 66. D. and O to P.000. The drawer may limit his liability to the holder The drawer may insert in the NI an express stipulation negativing or limiting his own liability to the holder (ibid. which O did. Engages that he will pay the NI according to the tenor of his acceptance. An acceptor engages to pay according to the tenor of his acceptance. the genuineness of his signature and his capacity and authority to draw the instrument 3. Q: D draws a bill of exchange that states: “One month from date. being the drawer. Admits the existence of the payee and his then capacity to indorse (Sec. Q: X draws a check against his current account with Bonifacio Bank in favor of B.). NOTE: A person who places his indorsement on an bearer instrument incurs all liabilities of an indorser (Sec. D. On the other hand. INDORSER ACCEPTOR Indorser Acceptor A person placing his signature upon an instrument otherwise than as maker or acceptor is deemed to be an indorser. NIL. N to O. X has conspired with the bank's bookkeeper so that his ledger card would show that he still has sufficient funds. Signed. When the bank honored the check. by accepting the instrument: 1. NIL). NIL). Decide the case (1998 Bar Question). The drawer is secondarily liable to the following: 1. The bank files an action for recovery of the amount paid to B because the check presented has no sufficient funds. 63. the bank became primarily and directly liable to the payee/holder B. and 2. 62. De Leon. Apparently. Irregular indorser (2005 Bar Question) Party who can accept the bill of exchange GR: Only the drawee may accept. which may not be the same as the tenor of the bill itself because the acceptance may be qualified. unless he clearly indicates by appropriate words his intention to be bound in some other capacity (Sec. To any subsequent indorser who may be compelled to pay it (ibid.). The acceptor. supra) . P asked O to pay. Difference between the liability of an acceptor or drawee-acceptor and a maker While both are primarily liable. it became an acceptor. General indorser v. pay to B or his order Php100. Although X does not have sufficient funds. 64. As acceptor. M to N. NOTE: Drawee does not become liable until he accepts the instrument in which case he becomes an acceptor.00. the acceptor engages to pay the negotiable instrument according to the tenor of his acceptance. XPN: In case of a bill which is accepted for honor supra protest (Sec. From whom may O recover?(2011 Bar Question) A: A: The bank cannot recover the amount paid to B for the check. A stranger or volunteer is not bound by acceptance.” The drawee named in the bill is E. 161. Admits the existence of the drawer. The recourse of the bank should be against X and its bookkeeper who conspired to make X's ledger show that he has sufficient funds. 67. NIL). NIL). The holder or 2.MERCANTILE LAW Secondary liability of the drawer maker engages to pay the negotiable instrument according to the tenor of the bill itself. the UNIVERSITY OF SANTO TOMAS 2014 GOLDEN NOTES 44 General Indorser Makes either a blank or special indorsement Irregular Indorser Always makes a blank indorsement Indorses the instrument after its delivery to the payee Indorses before its delivery to the payee Liable only to parties subsequent to him Liable to the payee and subsequent parties unless he signs for the accommodation of the payee in which case he is liable only to all parties subsequent to the payee (Sec. the bank honors the check when it is presented for payment.

68) 2. Drawer v. That all prior parties had capacity to contract 4.R. Has warranties Order of liability among the indorsers Q: X is the holder of an instrument payable to him (X) or his order. Indorser Drawer Party only to a bill Makes admission as to the existence of the payee and his capacity to indorse Makes no warranties. That he has no knowledge of any fact which would impair the validity of the instrument or render it useless. James alleged that the suit should be dismissed because Phebean is an indispensable party. when the checks deposited had forged indorsements and the collecting bank. indorsers cease to be merely secondarily liable. was made to pay the drawee bank. NIL). Heirs of Bartolome Ramos. because the depositor of a check as indorser warrants that it is genuine and in all respect what it purports to be. Will it prosper? (2011 Bar Question) 1. NOTE: Parol evidence is NOT admissible to relieve an agent or broker whose endorsement brings him within the above liability. according to their tenor. the checks were to be accepted or paid. or both. 68. July 14. pay to Z. and that in case they were dishonored. Does James’ argument hold water? Qualified indorser A qualified indorser is a person who indorses without recourse (Sec. Rizal Commercial Banking Corporation. Trude sued James for payment of money. No. James. subsequently indorsed it to Trude. as a consequence of such forgery. NIL) The following are the warranties a person provides in negotiating an instrument: 1. 2005). NIL) A: Yes. 65. G. there is no privity between the drawer and the holder. the drawee Union Bank refused to encash it due to insufficiency of funds. Among themselves – Liable prima facie in the order in which they indorse (Sec. Aug. No. To the holder – In any order NOTE: Every indorser is liable prima facie to all indorsers subsequent to him. Even a qualified indorser may incur liability for breach of implied warranties. L-29432. 156262. the buyer warranted that upon due presentment. After an instrument is dishonored by non-payment. G. That the instrument is genuine and in all respects what it purports to be 2. Z now sues X for collection.R. Liability of an agent or broker who negotiates an instrument without indorsement WARRANTIES He incurs all the liabilities prescribed to a general indorser unless he discloses the name of his principal and the fact that he is acting only as an agent (Sec. (Gonzales v. As warrantor. X then indorsed it as follows: “Subject to no recourse. X. As indorser. Q: Phebean. the drawer issued a check to James. but engages to pay after certain conditions are complied with Indorser Party either a bill or note No such admission A: No. 6. The drawer is merely secondarily liable. it turned out that Y's signature was forged. 1975). as a qualified indorser. but not those indorsers prior to him (Sec. Thus. That he has good title to it 3. his liability is unconditional. Q: Can a collecting bank debit the account of the depositor when the checks indorsed to it (bank) were forged? NOTE: Indorser’s liability as warrantor is distinct from his liability to pay the instrument. the collecting bank can debit the 45 UNIVERSITY OF SANTO TOMAS FACULTY OF CIVIL LAW . BPI. A: Yes. When Trude is about to encash the check. warrants that the note is genuine. with Y as maker. Signed. because X. 69. she would pay the corresponding amount.” When Z went to collect from Y. 508 SCRA 459) account of the depositor for his breach of warranty (Jai-Alai Corporation Of The Philippines v. they become principal debtors whose liability becomes identical to that of the original obligor (Tuazon v.NEGOTIABLE INSTRUMENTS LAW NOTE: The holder or subsequent indorser who tries to claim under the instrument which had been dishonored for "irregular indorsement" must not be the irregular indorser himself who gave cause for the dishonor.

MERCANTILE LAW PRESENTMENT FOR PAYMENT 3. Querimit. which he cannot do because he is not in possession thereof. To the person primarily liable. By waiver of presentment. express or implied INSTRUMENT TIME FOR PRESENTMENT GR: On the day it falls due (Sec. Beyond said period. NIL).R. Within a reasonable time after the last negotiation thereof (Sec. Instance when presentment for payment is not necessary to charge persons secondarily liable Bill of exchange payable on demand 1. NIL). As to 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 (Sec. by its terms. NOTE: Presentment for payment is not necessary in order to charge the person primarily liable on the instrument. 80. or 2. must be made: 1. it must be delivered to the person paying it (Sec. NECESSITY OF PRESENTMENT FOR PAYMENT Instance when necessary presentment for payment When dispensed with under Sec. G. 72. or if he is absent or inaccessible. 46 . and the person primarily liable is able and willing to pay it there at maturity. presentment cannot be made b. Where the drawee is a fictitious person c. NIL). NIL) Payable at a fixed or determinable future time XPN: If the due date falls on a Saturday. 82. 2. NIL). is Promissory note payable on demand Presentment for payment is only necessary to charge persons secondarily liable—drawer and indorsers (Sec. At a reasonable hour on a business day. the check becomes stale and valueless and thus. “Reasonable time” means not more than 6 months from the date of issue. Presentment for payment It is the presentation of an instrument to the person primarily liable for the purpose of demanding and receiving payment. or his agent authorized to receive payment on his behalf. Time for presentment for payment Payee cannot claim payment for a promissory note which was stolen and as such is not in his possession To make presentment for payment. 16. paid the without & Trust Jan. 70. NIL such as: a. As to drawer. NOTE: “Last negotiation” means the last transfer for value. presentment must be made on the next Monday. Instrument is lost or destroyed. payable at a special place. where he has no right to expect or require that the drawee or acceptor will pay the instrument (Sec. by its terms. it will not result to a discharge of the instrument (Sec. At a proper place. Debtor does not demand to see the instrument and refuses payment on some other grounds. after the exercise of reasonable diligence. XPNs: When exhibition is excused: 1. Within a reasonable time after its issue. Requisites for a sufficient presentment for payment Presentment for payment. 2. NIL). 71. By the holder. GR: Instrument must be exhibited to the person from whom payment is demanded. 3. 74. it is necessary to exhibit the instrument. 4. when paid. Subsequent transfers between banks for purposes of collection are not negotiations within Sec. such ability and willingness are equivalent to a tender of payment upon his part (Sec. NIL). 71. NIL). should not be paid. 79. No. NIL). 148582. UNIVERSITY OF SANTO TOMAS 2014 GOLDEN NOTES NOTE: If presentment for payment is made before maturity. Where. 2002). to be sufficient. 70. 50. to any person found at the place where the presentment is made (Sec. 85. Rule if the instrument is. payable at a special place Manner of presentment If the instrument is. Liability of a bank paying a certificate of deposit payable to bearer without requiring its surrender The bank remains liable to the holder if it certificate of deposit payable to bearer requiring its surrender (Far East Bank Company v.

NIL). 2. as soon as the cause of delay ceases to operate. Instances when delay in making presentment is excused NOTE: The term “in good faith” refers to the maker or acceptor and not to the holder. Liable as partners and no place of payment specified – payment may be made to any of them though there has been a dissolution of the firm (Sec.). The maker in case of a promissory note. Order of preference with regard to the place of presentment 1.) On a Saturday If instrument which falls due on a Saturday is payable on demand WHEN TO PRESENT FOR PAYMENT On the next succeeding business day On the next succeeding business day Before 12:00 noon on Saturday. XPNs: Where the person/s primarily liable is/are: 1. NIL).NEGOTIABLE INSTRUMENTS LAW NOTE: Every NI is payable at the time fixed therein without grace. 1. or on Monday. 77. G. 88. 75. to the: 1. NIL). Specified place in the instrument Address of the person to make the payment if given in the instrument Usual place of business or residence of the person to make the payment Wherever he can be found. 3. in which case presentment at any hour before the bank is closed on that day is sufficient (Sec.” This only signifies that the drawer had intended the same for deposit only by the person indicated (Associated Bank v. then presentment must be made to any person of sufficient discretion at the proper place of presentment (Sec. Dead – payment must be made to his personal representative (Sec. or 2. CA. or negligence (Sec. unless the person to make payment has no funds there to meet it at any time during the day. misconduct. 78. NIL. 72[d]. Not imputable to his default. Hence. NIL). Rules on presentment for payment when maturity date is fixed Time of presentment where the instrument is payable at a bank TIME OF MATURITY OF INSTRUMENT On a Sunday or holiday Presentment must be made during banking hours. the presentment must be made to the drawee although he is not automatically liable on the bill.R. The acceptor in case of an accepted bill. It is made at or after the date of Maturity. In Good faith and without notice that holder’s title is defective (Sec. 4. If the person primarily liable is absent or inaccessible. GR: Presentment for payment must be made to the primary party. or 47 UNIVERSITY OF SANTO TOMAS FACULTY OF CIVIL LAW . not partners. Under Sec. 81. May 7. presentment for payment. At his Last known place of business or residence (Sec. and no place of payment is specified – payment must be made to all of them (Sec. When caused by circumstances beyond the control of the holder. at the option of the holder Requisites of payment in due course Payment is made in due course when (MHG) 1. 3. the effects of crossing a check relate to the mode of its presentment for payment. 1992). 73. 2. The checks here had been crossed and issued “for payee’s account only. NIL). 2. 76. NIL). presentment must be made with reasonable diligence (ibid. 4. to be sufficient. Q: Is the bank liable to the payee for depositing and encashing the crossed checks to an unauthorized person? A: Yes. No. If the bill of exchange or check is payable on demand. PARTIES TO WHOM PRESENTMENT FOR PAYMENT SHOULD BE MADE Parties to whom presentment for payment should be made NOTE: Only the delay in presentment is excused and not the presentment itself. Several persons. 3. and 2. To the Holder thereof. 89802. 5. NIL). 72 of the NIL. must be made by the holder or by some person authorized to receive on his behalf.

)–Party is allowed one entire day for the purpose of giving notice. NIL). Indorser – When the NI was made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented (Sec.when he has no right to expect or require that the drawee or acceptor will pay the instrument (Sec. 82. UNIVERSITY OF SANTO TOMAS 2014 GOLDEN NOTES To inform parties secondarily liable that the maker or acceptor has failed to meet his engagement. 103. Q: Notice of dishonor is not required to be made in all cases. NIL 3. Parties reside in the same place a. 48 . express or implied (Sec. NIL. NIL). Where the drawee is a fictitious person. 113. 82. b. Where. 3. that the instrument was dishonored by non-payment or non-acceptance by the drawee/maker. NIL). presentment cannot be made. an immediate right of recourse to all parties secondarily liable thereon accrues to the holder (Sec. Presentment for payment is not required to charge drawer and indorser when: a.MERCANTILE LAW DISPENSATION WITH PRESENTMENT OF PAYMENT NOTICE OF DISHONOR Effect when presentment is not made Notice of dishonor GR: Drawer and the indorsers are discharged from their secondary liability. It is a notice given by the holder to the parties secondarily liable. To advise them that they are required to make payment. NON-PAYMENT W/OUT PRESENTATION Presentment is excused and the instrument is overdue and unpaid (Sec. 102. Purposes for requiring notice of dishonor 1. One instance where such notice is not necessary is when the indorser is the one to whom the instrument is supposed to be presented for payment. 2. By mail – Deposited in the post office in time to go by mail (actual departure in the course of mail from the post office in which the notice was deposited) the day following the day of dishonor. When presentment for payment is dispensed with under Sec. 80. drawer and each indorser. XPNs: 1. 2. 2. or By waiver of presentment. Place of business – Before close of business hours on the day following b. 3. 151. since no PP for is necessary (Sec. 79. Parties reside in different places a. NOTE: An instrument cannot be dishonored by non-payment until after the maturity. NIL). The rationale here is that the indorser (2011 Bar Question) Instances when presentment for payment may be dispensed with 1. NIL) Effect of dishonor by non-payment Subject to the provisions of the law. A: Already knows of the dishonor and it makes no sense to notify him of it. DISHONOR BY NON-PAYMENT Instances when an instrument is dishonored by non-payment NON-PAYMENT UPON DUE PRESENTATION The instrument is duly presented for payment to party primarily liable and it is either refused or cannot be obtained XPN: Delay is excused (Sec. when the instrument is dishonored by non-payment. Residence – Before the usual hours of rest on the day following c. NOTE: Persons primarily liable need not be given notice of dishonor because they are the ones who dishonored the instrument. By mail – Deposited in the post office in time to reach him in the usual course on the day following (Sec. 83. NIL). GR: As soon as instrument was dishonored (Sec. When the BOE has been dishonored by non-acceptance. 84. Drawer. 2. NIL). Time and place of giving the notice of dishonor 1. NIL). after the exercise of reasonable diligence.

All holders subsequent to the holder who has given notice. or 3. B. or 2. To the parties secondarily liable – Within the time fixed by Secs. NIL). would have a right to reimbursement from the party to whom notice is given (Sec. Time of notice to antecedent parties – Same time for giving notice that the holder has after the dishonor (Sec. who may be compelled to pay and who. NIL). 108. 104. 102-104. 99. personal messenger) – Within the time that notice would have been received in due course of mail. NIL) EFFECT OF NOTICE Liability of a person secondarily liable when the instrument is dishonored Effect of notice of dishonor if given by or on behalf of the holder After the necessary proceedings for dishonor had been duly taken. NIL). 89. To his principal – The principal must give notice to parties secondarily liable as if his agent were an independent holder (Sec. or 2. 7.NEGOTIABLE INSTRUMENTS LAW b. as if he were the said holder (Sec. 93. For BOE. The holder. NIL). Effect of failure to give notice of dishonor Any drawer or indorser to whom such notice is not given is discharged (Sec. Indorser. 1. upon taking it up. and 107. NIL) is NOTE: A party who receives notice of dishonor is entitled to give notice of such dishonor to prior parties within the same period of time that the holder has after the dishonor. NIL). For PN. 3. NIL) Notice of dishonor inures to the benefit of: 1. The drawer. they are discharged 2. 2. 149. NIL) 4. NIL). Notice of dishonor inures to the benefit of: 1. Instances when a negotiable considered dishonored instrument Notice to joint parties who are not partners must be given to each of them (Sec. Parties to whom the notice of dishonor should be given in case the instrument was dishonored in the hands of the agent 4. NOTE: Actual receipt of the party within the time specified by law is sufficient though not sent in the places specified above (Sec. otherwise.g. 6. If no mail – At a convenient hour (of the sender) on that day. payment is refused or not obtained) when presented for payment at maturity. NIL) 5. All parties prior to the holder but subsequent to the party to whom notice has been given and against whom they may have a right of recourse (Sec. 1. and 2. A. NIL) Where a party has been adjudged a bankrupt – to the party himself or to his trustee or assignee (Sec. PARTIES WHO MAY GIVE NOTICE OF DISHONOR 1. or 2. NIL). Where party is dead – to a personal representative or sent to the last residence or last place of business of the deceased (Sec. 84). 101. NIL). NIL) PARTIES TO BE NOTIFIED Parties to whom notice must be given Effect of notice of dishonor if given by party entitled thereto Notice of dishonor should be given to: 1. 92. 90. All parties subsequent to the party to whom notice is given (Sec. 83. 98. NIL) 49 UNIVERSITY OF SANTO TOMAS FACULTY OF CIVIL LAW . His agent (Sec. Not paid (that is. if it has been deposited in the post office within the time specified in (a) (Sec. 94. When the parties to be notified are partners – notice to any one partner though there has been a dissolution (Sec. 107. 107. Where presentment is excused or waived and the instrument is overdue and unpaid (Sec. 97. If not accepted when presented for acceptance. and 2. an immediate right of recourse to all parties secondarily liable thereon accrues to the holder (Sec. 1. If presentment for acceptance is excused and the bill is not accepted (Sec. Other than by post office (e. by the next mail thereafter c. Holder Another in behalf of the holder Any party to the instrument. 100.

Waiver of protest It is the waiver of the formal instrument executed usually by a notary public certifying that the legal steps necessary to fix the liability of the drawee and the indorsers have been taken. Instances when a notice of dishonor to the drawer may be dispensed with WAIVER 1. NIL) 3. Drawer has no right to expect or require that the drawee or acceptor will honor the instrument. 110. Implied (e. Drawer in cases under Sec. and 6. E then treated it as a bill of exchange.) NOTE: A written notice need not be signed.NIL). Must contain the following: a. A (for and in behalf of P). Drawer is the person to whom the instrument is presented for payment (he is the one who dishonored the instrument) 4. vs. Drawer has countermanded the payment (e. NIL). 109. C to D. Drawee is fictitious or does not have the capacity to contract 3. and an insufficient notice may be supplemented or validated by verbal communication. Inc. NOTE: The holder of two checks which were dishonored because the drawer withdrew her funds from the bank can hold the drawer liable even if no notice of dishonor was given to the drawer. or UNIVERSITY OF SANTO TOMAS 2014 GOLDEN NOTES 50 . 5. 111. 3.g. It reads: “Pay to B or order the sum of Php1 million. 114. NIL. notice must also contain a statement that it has been protested). NIL. FORM OF NOTICE Form and contents of a notice of dishonor 1. Oral. notice cannot be given or does not reach the parties sought to be charged (Sec. Express. Indorser in cases under Sec.) Waiver of notice It is the willingness on the part of the drawer or indorser to be bound as such even without due notice of dishonor. Description of the instrument. 95. 217 SCRA 32) Ways to give a waiver of notice It can either be: 1. 2. All parties (if embodied on the face of the instrument). and D to E.. 109. b. stop payment order) (Sec. (State Investment House. or After the omission to give due notice (Sec. (Sec. NIL). DISPENSATION WITH NOTICE Instances when notice of dishonor is not necessary 1. Payment by an indorser after he learns of the default of the maker. 96. admission of liability after dishonor) (Sec. A misdescription of the instrument does not vitiate the notice unless the party to whom the notice is given is in fact misled thereby (Sec. Indorsers who are discharged from liability by reason that no notice of dishonor was given to them is still liable for breach of warranties as to the NI. When notice is dispensed with when after exercise of reasonable diligence. NIL) 4. 115. or In writing It may be given by personal delivery. 2.” The instrument shows that it was drawn on P. 114.MERCANTILE LAW NOTE: Holder is not required to notify all indorsers. c. Court of Appeals. 111. Waiver of notice (Sec. Where due notice of dishonor by non-acceptance has been given (notice of dishonor by non-payment not necessary). 5. NIL. NIL) 2. NIL). Thus. 2. NIL) 4. B then indorsed to C. or 2.g. Before the time of giving notice has arrived. 109. NIL). since the drawer had no right to expect that the drawee bank would honor the checks. Signed. it is deemed to be a waiver not only of a formal protest but also of presentment and notice of dishonor (Sec. he may select to hold only one or more indorsers. 116. Time when a waiver of notice may be given 1. Waiver of protest (Sec. Particular indorser (if written above the signature of such indorser) (Sec. Statement that the party giving the notice intends to look for the party addressed for payment. 112. Statement that it has been presented for payment or for acceptance and that it has been dishonored (If protest is necessary. Is presentment for Parties affected by the waiver of notice 1. When drawer and drawee is the same person 2. or by mail (Sec. Q: P authorized A to sign a negotiable instrument in his (P’s) name. NIL.

When Juben failed to sell the jewelry. With acceleration clause – It depends upon whether the clause is automatic or optional. 109. burned or destroyed) 4.R. No. To the holder thereof d. and consequently. NIL) 3. Notice is dispensed with (Sec. Effect of failure to give notice of dishonor GR: Any person to whom such notice is not given is discharged. Not necessary to drawer (Sec. Inc. but he will still be liable for breach of warranties pertaining to the instrument. Instances when it is not necessary to give a notice of dishonor to the indorser 1. 1231 of the NCC specifically remission. 101163. Waiver (Sec. NIL). Villanueva. a. By the principal debtor b. 117. DISCHARGE OF NEGOTIABLE INSTRUMENT Methods for discharge of instrument EFFECT OF FAILURE TO GIVE NOTICE 1. since the drawer and drawee are the same person. Is notice of dishonor necessary? 2. 2. NIL). Intentional cancellation of instrument by the holder (by expressly stating it in the instrument or when the instrument is torn up. Reacquisition must be: a. 11. 1993). No. and indorser was aware of these facts at the time he indorsed the instrument.R. 106011. CA. Payment by principal debtor: a. the rule would be the same as if the installment contains an automatic acceleration clause (Town Savings Bank v. NIL) 5. there was no need to serve him notice of dishonor (State Investment House. A: No. XPNs: 1. DISCHARGE OF NEGOTIABLE INSTRUMENT Drawee is fictitious or has no capacity to contract. Y negotiated the check to S. compensation is not available so long as an obligation is evidenced by a negotiable instrument (Commercial Law Review. NOTE: Loss of the negotiable instrument will not extinguish liability. he withdrew all his funds from the drawee bank. from the obligations arising thereunder. 1. Juben was responsible for the dishonor of his checks. Payment by accommodated party 3. or Instrument was made or accepted for his accommodation (Sec. NIL) 2. 1993). In his own right 51 UNIVERSITY OF SANTO TOMAS FACULTY OF CIVIL LAW . 2009 Edition). CA. In good faith and without notice that the holder’s title is defective 2. At or after its maturity c. G. Not necessary to indorser (Sec. G. 114. hence. 112. Effect of the omission of a previous holder to give notice of dishonor by non-acceptance It does not prejudice the rights of a holder in due course subsequent to the omission to present the instrument to the drawee for acceptance and notify the drawer and indorsers if acceptance is refused (Sec. By or on behalf of principal debtor b. June 17. NIL) 4. Q: Juben issued to Y two post-dated checks as security for pieces of jewelry to be sold. Automatic – failure to give notice of dishonor as to a previous installment will discharge the persons secondarily liable as to the succeeding installments. 3. and merger. After dishonor. Optional – if not exercised. If exercised. b. whether primary or secondary. Jan.NEGOTIABLE INSTRUMENTS LAW acceptance necessary in this case? (2011 Bar Question) Effect of lack of notice of dishonor on the instrument which is payable in installments A: No. 115. novation. Indorser is person to whom the instrument is presented for payment. v. It renders the instrument without force and effect. the rule would be the same as if there is no acceleration clause. Any act which discharges a simple contract for the payment of money under Art. 115. Juben contends that the holder failed to give him a notice of dishonor. It is the release of all parties. Reacquisition by principal debtor in his own right. it can no longer be negotiated. No acceleration clause – Failure to give notice of dishonor on a previous installment does not discharge drawers and indorsers as to succeeding installments.

the burden of proof lies on the party alleging that the cancellation was made unintentionally. Intentional Cancellation of his signature by the holder Discharge of prior party which may be made when signature is Stricken out Valid Tender of payment by a prior party. and he may strike out his own and all UNIVERSITY OF SANTO TOMAS 2014 GOLDEN NOTES 52 . RIGHTS OF A PARTY WHO DISCHARGED THE INSTRUMENT GR: The party so discharging the instrument is remitted to his former rights as regards all prior parties. NIL). the instrument must be surrendered to the person primarily liable (Sec. if made before. or under a mistake or without the authority of the holder. Must be written If oral. Extension is consented to by such party b. and has been paid by the drawee. 120. Made in favor of principal debtor made at or after the maturity (made absolutely and unconditionally) of the instrument – discharges the instrument (Sec. 2. 122. Any Act which discharges the instrument. Where it is paid by the accommodated party NOTE: (a) and (b) has the same effect as payment by the party primarily liable. NIL). 2. 123. Where it is payable to the order of a third person. But where an instrument or any signature appears to have been cancelled. 3. NIL). Rule regarding the cancellation of an instrument GR: Instrument may be renegotiated It is presumed intentional. Renunciation does not affect the rights of a holder in due course without notice (Sec. subsequent indorsements. 4. it may be renegotiated) (Sec. 5. It is inoperative if unintentional. 6. and 2. With respect to an indorser. 119. NIL) A: Limited to the case where the indorsement is not necessary to his title. and b. NIL). NIL). Person paying is remitted to his former rights (as regards prior parties) and he may strike out his own and all subsequent indorsements (Sec. 3. XPNs: 1. 120. 122. at or after maturity – discharges only the secondary parties and all subsequent to him (Sec. the holder's right to cancel his signature is: (2011 Bar Question) 1. unless holder expressly reserves his right of recourse against the said subsequent parties Extension of time of payment. It was made or accepted for accommodation.MERCANTILE LAW c. 122. Instrument is not discharged 2. 4. NIL). unless: a. Manner of making renunciation by the holder 1. XPNs: a. NIL) RENUNCIATION BY HOLDER Renunciation It is the act of surrendering a claim or right with or without recompense (a PERSONAL defense). 121. and again negotiate the instrument. At or after date of maturity (instrument is discharged. Where it is payable to the order of a third person. 2. and has been paid by the drawer. Holder expressly reserves his right of recourse against such party (Sec. Effects of payment by persons secondarily liable 1. Release of the principal debtor. Effects of renunciation Q: The rule is that the intentional cancellation of a person secondarily liable results in the discharge of the latter. It only cancels his own liability and that of the parties subsequent to him 3. and has been paid by the party accommodated. or under a mistake or without authority (Sec. Made in favor of a secondary party may be made by the holder before. DISCHARGE OF PARTIES SECONDARILY LIABLE Methods of discharge of secondary parties (ACS TReE) 1.

Any other change or addition which alters the effect of the instrument (Sec. If negotiated to a HIDC. NIL). He may. Delivered to the holder (before delivery or notification. ACCEPTANCE EFFECT OF MATERIAL ALTERATION DEFINITION Effect of material alteration of a negotiable instrument without the assent of all parties liable thereon Acceptance of a bill It is a signification by the drawee of his assent to the order of the drawer (Sec. A party who authorized or assented to the alteration. Sum payable. 125. Avoids the instrument except against: a. Hence. 124 NIL) Requisites for acceptance 1. It is any change in the instrument which affects or changes the liability of the parties in any way. except constructive acceptance and to a foreign bill payable in another state (unless the other state requires for written acceptance). The indorsers who indorsed subsequent to the alteration (because of their warranties). 132. Must express a promise to pay money (not goods). 3. b. 4. or c. that of the first indorser. If negotiated to a holder not a HIDC. There is no material alteration when the serial number of a check had been altered Instances that constitute material alteration Any alteration which changes: 1. 1.R. authorized or assented to the alteration and subsequent indorser. The drawee who thereby becomes an acceptor assumes the liability of the maker (who has primary liability) and the drawer. Q: A material alteration of an instrument without the assent of all parties liable thereon results in its avoidance. It has the same effect as alteration. 53 UNIVERSITY OF SANTO TOMAS FACULTY OF CIVIL LAW . 2.NEGOTIABLE INSTRUMENTS LAW MATERIAL ALTERATION Q: Can a drawee who accepts a materially altered check recover from the holder and the drawer? (2011 Bar Question) CONCEPT Material alteration A: No. 2. either for principal or interest 3. The alteration of the serial number of a check did not change the relations between the parties nor the effect of the instrument.) An alteration is said to be material if it alters the effect of the instrument. 12. he is not liable). Signed by the drawee (without it. G. he cannot recover from either of them. The time or place of payment 4. It refers to material alteration of an instrument done by a stranger. 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 change to an incomplete instrument relating to the obligation of a party. in effect becomes a note. Adds a place of payment where no place is specified 7. he may enforce the payment thereof according to its original tenor against the person not a party to the alteration. except against: (2011 Bar Question) Spoliation A: A party who has made. NOTE: The change in the date of indorsement is not material where the date is not necessary to fix the maturity of the instrument. 2001). Number or the relations of the parties 5. NIL. In writing. A party who has made the alteration. Currency in which payment is to be made 6. however enforce payment according to the altered tenor from the person who caused the alteration and from the indorsers (Sec. acceptor may revoke or cancel his acceptance). Date 2. 3. CA. he cannot enforce payment against the person not a party prior to the alteration. Effect of acceptance Upon acceptance. He may also enforce payment thereof against the party responsible for the alteration for the altered amount. Feb. No. the bill. the alteration on the serial number of a check is not a material alteration (International Corporate Bank vs. 141968.

Q: X. drawee of a bill of exchange. UNIVERSITY OF SANTO TOMAS 2014 GOLDEN NOTES NOTE: The holder may refuse to take a qualified acceptance and if he does not obtain an unqualified acceptance. NIL). On a separate paper. Drawee to whom the bill is delivered for acceptance destroys it. receives the bill for value (Sec. NIL). Qualified Acceptance . General Acceptance . TIME FOR ACCEPTANCE The drawer has 24 hours after presentment to decide whether or not he will accept the bill. Promise made before it is drawn c. 3.000. A: Yes. Any person who. if given. Unconditional promise in writing to accept a bill b. or b. Constructive/implied (Sec. X.” The drawer questioned the acceptance as invalid. Local – an acceptance to pay only at a particular place. and 3. 139. Qualified as to time– a bill is accepted to be paid on or after a specified date. NIL). To be binding upon the acceptor: a. The holder shall take the bill upon the credit of the promise. 136. and b. he may treat the bill as dishonored by non-acceptance (Sec. 137. and if on a separate paper a. pay to the order of Mr. NIL). 5. or within such time as is given him. with promise to make payment within two days. NOTE: Drawee bank is not entitled to 24 hours to decide whether or not to pay a check since a check is presented for payment. 2. Signed. NIL). Virtual a. the drawee. 3. within 24 hours after such delivery. NOTE: A holder may refuse to accept a qualified acceptance and if he does not obtain an unqualified acceptance. Bill shall be drawn within a reasonable time after such promise is written. 142. Is the acceptance valid? Other kinds of acceptance 1. If the bill is non-existent. since a drawee is allowed to effect a qualified acceptance in which case he shall be liable according to the tenor of his acceptance.” May he accept under such terms. to return the bill accepted or non-accepted 2. Mr. because the acceptance is in reality a clear assent to the order of the drawer to pay.MERCANTILE LAW Q: A bill of exchange states on its face: “One (1) month after sight. Partial – an acceptance to pay part only of the amount for which the bill is drawn. 4. The acceptance. S. accepted the bill upon presentment by writing on it the words “I shall pay Php30.acceptance of some one or more of the drawees but not of all (Sec. On the bill itself. Such person must take the bill for value on the faith of such acceptance (Sec. it may be acceptance as to a non-existing bill. wrote the words: “Accepted. Signed. S. 141. Drawee refuses.An acceptance which in express terms varies the effect of the bill as drawn (ibid.00. It may be acceptance as to an existing bill.” Mr.000. or b. dates as of the day of presentation (Sec. 134. which varies the command in the bill of exchange? (2011 Bar Question) Kinds of qualified acceptance 1. the acceptance on a separate paper must comply with following requirements: 1. a.It assents without qualification to the order of the drawer (Sec. chargeable to the account of Mr. MANNER Manner of making an acceptance Acceptance may be made 1. RULES GOVERNING ACCEPTANCE Effect of accepting an instrument with a qualified acceptance GR: When the holder takes a qualified acceptance the drawer and indorsers are discharged from liability on the bill. Extrinsic– the acceptance is written on a paper other than the bill itself. 141 [d]. T. Kinds of acceptance 1. 2. Acceptance must be shown to the person to whom the instrument is negotiated. As to drawee . 135. 2.00 three (3) months after sight. Qualified acceptance as to time is allowed (Sec. The contemplated drawee shall describe the bill to be drawn and promise to accept it. upon faith thereof. Conditional – makes payment by the acceptor dependent on the fulfillment of a condition therein stated. NIL).). he 54 . 2. NIL). A: Yes. NIL). not acceptance. R the amount of Php50.

express his dissent to the holder or he will be deemed to have assented thereto (Sundiang. G. 1980). the certification is equivalent to acceptance (Secs. 189. Subsequently assent thereto 3.R. To the drawee or some person authorized to accept or refuse to accept on his behalf (Sec. Effect of failure to make presentment for payment of a check within a reasonable time XPNs: 1. At a reasonable hour on a business day 3. 1961). 2014). or when it is necessary in order to fix the maturity of the instrument 2. 2014). Drawee is dead PRESENTMENT MUST BE MADE TO All of them unless one has authority to accept or refuse acceptance for all. 145. December 30. Seneris. Where bill is payable after sight. Implied assent (when they did not express their dissent to the holder within a reasonable time when they received a notice of qualified acceptance) (Sec. 55 UNIVERSITY OF SANTO TOMAS FACULTY OF CIVIL LAW . 1. NIL) NOTE: The holder must either present it for acceptance or negotiate it within a reasonable time.NEGOTIABLE INSTRUMENTS LAW may treat the bill as dishonored by non-acceptance (Sudiang. Necessity of presentment for acceptance To drawee or his trustee/assignee (Sec 145. NIL). EFFECT OF FAILURE TO MAKE PRESENTMENT GR: It is not necessary to render any party to the bill liable (par. NIL. 144. 145. or after it is overdue. Before the bill is overdue. NIL). 2. [b]. or 2. 19. [c]. XPNs: 1. Sec. 142. 186. Republic of the Philippines vs. 138. It must be made: 1. he must. otherwise. Dec. NIL). NIL). By or on behalf of the holder 2. 143. Sec. No. NIL). Drawee's personal representative (Sec. Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee (par. PNB. L-16106. NIL). 145. L-41764. NIL).R. in which case presentment may be made to him only (Sec. 3. within a reasonable time. TIME/PLACE/MANNER OF PRESENTMENT Proper presentment for acceptance NOTE: When the drawer or indorser receives notice of a qualified acceptance. NIL) WHEN Bill addressed to 2 or more drawees who are not partners Effect of the certification by the drawee bank Certification implies that the check is drawn upon sufficient funds in the hands of the drawee. Acceptance of an incomplete bill Acceptance may be made before the bill has been signed by the drawer or while otherwise incomplete. New Pacific Timber v. Where a check is certified by the bank on which it is drawn. or even after it has been dishonored by non-acceptance or non-payment (Sec. [a]. G. NOTE: Presentment is merely permissive since it is excused by (Sec.148a). that they have been set apart for its satisfaction and that they shall be so applied whenever the check is presented for payment. the drawer and all indorsers are discharged (Sec. When they have expressly or impliedly authorized the holder to take a qualified acceptance. NIL. or Failure to make such presentment will discharge the drawer from liability or to the extent of the loss caused by the delay (Sec. and 4. 143. No. When bill expressly stipulates that it shall be presented for acceptance. Drawee is adjudged a bankrupt or insolvent or has made an assignment for the benefit of creditors PRESENTMENT FOR ACCEPTANCE Presentment for acceptance It is the production or exhibition of a bill of exchange to the drawee for his acceptance or payment (also includes presentment for payment). 187.

NIL). An unconditional promise in writing made by one person to another. Where. and conditioned to pay the bill when it becomes due if the original drawee does not pay it (Sec. or to a specified person or bearer. to pay money. 151. NIL). and no presentment for payment is necessary (Sec. NIL). 148. presentment for payment is necessary upon maturity. Must Indicate that it is an acceptance for honor 3. signed by the maker. Where the drawee is dead. or 3. Right of recourse against all secondary party accrues to the holder. on demand or on a fixed date. 147. the bill is not accepted. often with interest. acceptance has been refused on some other ground (Sec. presentment cannot be made. or is a fictitious person not having capacity to contract by bill. it is also necessary that the bill remains not accepted. and the bill is not accepted (Sec. When it is duly presented for acceptance and such an acceptance is refused or cannot be obtained. NIL). NIL). engaging to pay on demand. 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. after exercise of reasonable diligence. In case of non-payment. When presentment for acceptance is excused. Rules when a bill is dishonored by non-acceptance 1. 5. Must be in Writing 2. It runs for a longer period of time than a PN. Bank Note – instrument issued by a bank for circulation as money payable to bearer on demand. 150. 3.MERCANTILE LAW Instance when delay in presentment may be excused Rights of a holder when bill is not accepted When a bill is dishonored by non-acceptance. NIL) DISHONOR BY NON-ACCEPTENCE Instances when non-acceptance a bill is dishonored by PROMISSORY NOTES 1. Instances when presentment is excused 1. otherwise. a sum certain in money to order or to bearer (Sec. 4. Registered bond – one payable only to the person whose name appears on the face of the certificate. Duty of the holder where bill is not accepted Special types of promissory notes If within 24 hours after due presentment. or at a fixed or determinable future time. Requisites of acceptance for honor (WIS) 1. NIL). 162. No presentment for payment is necessary since dishonor of the instrument by non-payment is to be expected. an immediate right of recourse against the drawer and indorsers accrues to the holder. to present the bill for acceptance before presenting it for payment on the day that it falls due (Sec. Bonds – an evidence of indebtedness issued by a public or private corporation which constitutes a promise. 184. 161. UNIVERSITY OF SANTO TOMAS 2014 GOLDEN NOTES 56 . 2. 2. Acceptance for honor It is an undertaking by a stranger to a bill after protest for the benefit of any party liable thereon or for the honor of the person for whose account the bill is drawn which acceptance inures to the benefit of all parties subsequent to the person for whose honor it is accepted. If the instrument is accepted after it has been dishonored by non-acceptance. although presentment has been irregular. secondary parties are discharged. the person presenting it must treat the bill as dishonored by non-acceptance otherwise he will lose the right of recourse against the drawer and indorsers (Sec. Certificate of deposit – a written acknowledgment by a bank of the receipt of money on deposit on which the bank promises to pay to the depositor or to him or his order or to some other person or to him or his order. 2. under seal. holder must give the corresponding notice of dishonor. or 2. Where. Must be Signed by the acceptor for honor (Sec. Promissory note NOTE: It is not sufficient that presentment for acceptance is excused. 4. Coupon bond – one to which are attached coupons which entitle the holder to interest when due. 3. 149. NIL). 1. or has absconded.

Presentment for Acceptance Checks Always drawn on a bank or banker against a previous deposit of funds Always payable on demand Ordinarily intended for immediate payment Must be presented for payment within a reasonable time after its issue(Sec. They are drawn on a bank. The creditor then filed an action against drawee bank for the amount. supra). 2. Essential characteristics of checks There are 2 essential distinct characteristics of checks: 1. NIL) They remain liable despite acceptance (Sec. 188. 143. 8. Presentment for Payment The drawer and the drawee are the same person. Judgment Note – this is a note to which a power of attorney is added enabling the payee to take judgment against the maker without the formality of a trial if the note is not paid on its due date (De Leon. 7. Payable instantly on demand. It ordinarily provides that title to the goods shall remain in payee’s name until the note is paid in full. NIL) When a check is accepted or certified. NIL.) BOE May or may not be drawn on a bank and need not be drawn against a deposit Either payable on demand or at a fixed or determinable future time (Sec. The drawee has no capacity to contract. Mortgage Note – an instrument secured by either a real (REM) or personal property (Chattel). 17[e] and 130. citing Secs. NIL) Death of the drawer of a check with the knowledge of the bank revokes the authority of the bank to pay. Will the action prosper? 57 UNIVERSITY OF SANTO TOMAS FACULTY OF CIVIL LAW . NIL. The word “due” is commonly used. and 2. 185.186. Discharge of Liability CHECKS DEFINITION Check It is a bill of exchange drawn on a bank and payable on demand (Sec. Must be presented for acceptance in certain cases (Sec.PN which shows on its face that one person acknowledges his indebtedness to another. The instrument is so ambiguous that there is doubt whether it is a bill or a note (Sundiang 2014. 171.4) Intended for circulation as instrument of credit Must be presented for payment within a reasonable time after its last negotiation (Sec. Need not be presented for acceptance (Sec. Collateral Note – it is used when the maker pledges securities to the payee to secure the payment of the amount of the note 10. the drawer & indorsers are discharged from liability thereon (Sec. 9. Bill of exchange Drawee Payability Function Instances when a bill of exchange may be treated as a promissory note 1. 3. NIL). 185. Check v. 4.NEGOTIABLE INSTRUMENTS LAW 6. The drawee is a fictitious person. NIL). 84. Effect of the Death of the Drawer NOTE: 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. NIL) Death of the drawer of an ordinary bill does not revoke the authority of the drawee to pay. Due Bill .) Q: A check was dishonored due to material alteration. Title-retaining Note – an instrument used to secure the purchase price of goods.

he is not a HIDC (State Investment House v. 3. otherwise the bank has no authority to use the drawer's funds deposited with the bank. it pays in its own responsibility and will not be permitted to charge the account. the payee-holder cannot. If a bank refuses to pay a check (notwithstanding the sufficiency of funds). the banks can be sure that they are paying to the right party. 5. Otherwise. pg. That the act of crossing the check serves as a warning to the holder that the check has been issued for definite purpose so that he must inquire if he has received the check pursuant to the purpose. 4. sue the bank. without any condition concerning its presentment 6. Manager’s Check – a BOE drawn by the bank upon itself and is accepted at its issuance and signed by a manager on behalf of a bank. The marking signifies that the bank should pay only with the intervention of the company only. It is a warning to the drawee bank that payment must be made to the right party. It is usually signed by the cashier of the bank. unless and until it accepts or certifies the check (Sec. supra. A check becomes stale 6 months from date of issue.R. Memorandum Check – A check with “Memorandum” written on its face. 58 . This is so because no privity of contract exists between the drawee-bank and the payee (Villanueva v. CA). Hence. That the check may be negotiated only once. The crossing becomes a warning also to whoever deals with the said instrument to inquire as to the purpose of its issuance. NIL). as provided under Sections 185 and 189 of the NIL. KINDS Special types of checks 1. the effects of crossing a check are: 1. 148211. countermanding of a check is proper where the payee failed to deliver the goods that he was supposed to deliver (Sundiang 2014. 2. UNIVERSITY OF SANTO TOMAS 2014 GOLDEN NOTES Purpose of crossing a check The purpose is to insure payment to the payee. When withdrawal is made. Stopping payment The drawer has the right to order the drawee to stop payment of a check and this right flows from the rule that the issuance of a check by itself is not an assignment of funds by the drawee. Traveler’s Checks – Instruments purchased from banks or express companies which can be used like cash upon the second signature by the purchaser (De Leon. Gatchalian. NOTE: 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. Hence. he is subject to the personal defense on the part of the drawer that there is breach of trust committed by the payee in not complying with the drawer's instruction.to one who has an account with a bank. 189. (2005 Bar Question) A: A crossed check is a check with two (2) parallel lines. banks adopted the policy that crossed checks must be deposited in the payee's account. 3. 2006). Thus. The drawer may countermand payment if he has a valid defense against the holder of the check. The writing signifies that the drawer engages to pay the bona fide holder absolutely. Crossed Check – Done by writing 2 parallel lines on the left top portion of the check. July 25. 3 SCRA 596). IAC. if something wrong happens to the payment thereof. Cashier’s Check – a BOE drawn by the bank upon itself and is accepted at its issuance. Q: What is a crossed check? What are the effects of crossing a check? Explain. That the check may not be encashed but only deposited in the bank. should not be paid. If a bank pays a check after it has been notified to stop payment. that person cannot claim to be a holder in due course. and the bank is not liable to the holder. It is valueless and thus. It can only be deposited but may not be converted into cash by the drawer. To be assured that it will avoid any mistake in paying to the wrong party. citing Bataan Cigar and Cigarette Factory v.MERCANTILE LAW A: No. written diagonally on the upper right corner thereof. Crossing a check does not destroy its negotiability but the check may be negotiated only once – to one who has an account with the bank (De Ocampo v. 380-385). Stale check A check which has not been presented for payment within a reasonable time after its issue. 175 SCRA 310). No. Nite. Certified Check – Drawn by a depositor upon funds to his credit in a bank which an officer of a bank certifies will be paid on presentation. Otherwise. G. 2. The payee should instead sue the drawer who might in turn sue the bank.

No. (b) The drawer suffers loss. 59 UNIVERSITY OF SANTO TOMAS FACULTY OF CIVIL LAW .NEGOTIABLE INSTRUMENTS LAW When drawer of check discharged from liability (a) The check is not presented within a reasonable time after its issue. v. will be valid in his hands like any other check (People v. CA. Oct. the drawer cannot be held irrespective of the loss or injury suffered by the payee (Pio Barretto Realty Corp. August 13. L-4388. 22. Payment will be deemed effected and the obligation for which the check was given as conditional payment will be discharged (Pio Barretto Realty Corp.) 2. the drawer cannot be held liable irrespective of loss or injury sustained by the payee. 2001). The drawer will be discharged from liability thereon to the extent of the loss caused by the delay. NIL). 75954. G. CA. 1952).R. No. 186. supra). G. EFFECTS OF DELAY Effects of delay 1. PRESENTMENT FOR PAYMENT TIME Time A check must be presented for payment within a reasonable time after its issue (Sec. The indorser shall be discharged from liability (PNB vs. (ibid. If no such presentment was made. June 28. Seeto. 2010 p. Nitafan. 186 of the NIL.R. Acceptance of a check implies an undertaking of due diligence in presenting it for payment. No. NOTE: PP is not dispensed with by Sec. Q: When will the delivery of a check produce the effect of payment even if the same had not been encashed? A: If the debtor was prejudiced by the creditor's unreasonable delay in presentment. 406) Memorandum check A memorandum check is an evidence of debt against the drawer and although may not be intended to be presented. v. 132362. if there is no PP. Hence. has the same effect as an ordinary check and if passed on to a third person. G.R. and (c) The loss suffered by the drawer is attributable to the delay (De Leon. 1992).