Negotiable Instruments Law
I. Introduction, p.1
II. General Provisions, p.2
III. Forms of Negotiable Instruments, p.3
IV. Negotiability, p.8
V. Rules of Construction, p.15
VI.
VII. D
VIII. D
IX. D
X. Notice of Dishonor, p.41
XI. Discharge, p.45
XII. Protest, p.47
SHORT BACKGROUND OF ACT NO.2031
The Negotiable Instruments Law, took effect on June 2,
1911, and is patterned after the U.S Uniform Negotiable
Law, which in turn is copied from the English Bill of
Exchange Act of 1882.
I. Introduction
PURPOSE
To facilitate transactions in commercial paper and to
promote free flow of credit. What the law is trying to
establish is to make negotiable instruments have the same
attributes or characteristics as money (negotiability).
In addition,, the Negotiable Instruments Law was enacted
for the purpose of facilitating, not hindering or
hampering transactions in commercial paper. Thus, the
said statute should not be tampered with haphazardly or
lightly. Nor should it be brushed aside in order to meet
the necessities in a single case.1
FUNCTION AND IMPORTANCE
1. Substitute for money Although they do not
constitute legal tender, they are used as a substitute
for money.
2. Medium of exchange Negotiable papers,
particularly checks, constitute, at present, the media
of exchange for most commercial transactions.
3. Medium of credit transaction
1 4
Osmea v. Citibank (2004)
Q: What does freedom of negotiability mean?
mean
Freedom of negotiability is the touchstone relating to the
protection of holders in due course, and the freedom of
negotiability is the foundation for the protection which
the law throws around a holder in due course.2
The essence of negotiability which characterizes
a negotiable paper as a credit instrument lies in its
freedom to circulate freely as a substitute for money.3
The Concept of Legal Tender. Legal tender is that kind
of money which debtor may lawfully compel a creditor
to accept in payment of his debt when tendered by the
debtor in the right amount.
A negotiable instrument although intended to be a
substitute for money, is generally not legal tender. Thus,
a creditor is not bound to accept commercial papers, like
a check, in satisfaction of his demand, because a check,
even if good when offered, does not meet the
requirements of a legal tender.
Q: Is a negotiable
negotiable instrument legal tender?
NO. Negotiable instrument is not legal tender and the
creditor may not be compelled to accept it as payment of
a money obligation no matter how good such an
instrument is. It is the right of the creditor to demand
payment in cash. Thus, consignation in court must be in
cash; it cannot be made through a certified check. But if
the creditor, knowing what was delivered in court was as
certified check, fails to object to such an irregularity,
then there is waiver, and the consignation produces its
effect.4
2
Traders Royal Bank v. CA (1997)
3
Firestone Tire & Rubber v. CA (2001)
Eduque v. Ocampo (1950)
2008 Notes in Negotiable Instruments Law
NOTE: As a rule, negotiable instruments shall produce
the effect of payment only when they have been
encashed or when through the fault of the creditor they
have been impaired.5
Q: Does the mere issuance of a check result in the the
perfection of a contract of loan?
NO. The mere issuance of the checks did not result in the
perfection of the contract of loan. For the Civil Code
provides that the delivery of bills of exchange and
mercantile documents such as checks shall produce the
effect of payment only when they have been cashed. It is
only after the checks have produced the effect of
payment that the contract of loan may be deemed
perfected.6
Papa vs. A.U. Valencia & Co., Inc. While it is true that
the delivery of a check produces the effect of payment
only when it is cashed, pursuant to Art. 1249 of the Civil
Code, the rule is otherwise if the debtor is prejudiced by
the creditor's unreasonable delay in presentment. The
acceptance of a cheek implies an undertaking of due
diligence in presenting it for payment, and if he from
whom it is received sustains loss by want of such
diligence, it will be held to operate as actual payment of
the debt or obligation for which it was given. It has,
likewise, been held that if no presentment is made at all,
the drawer cannot be held liable irrespective of loss or
injury unless presentment is otherwise excused.
This is in harmony with Article 1249 of the Civil
Code under which payment by way of check or other
negotiable instrument is conditioned on its being cashed,
except when through the fault of the creditor, the
instrument is impaired. The payee of a check would be a
creditor under this provision and if its non-payment is
caused by his negligence, payment will be deemed
effected and the obligation for which the check was
given as conditional payment will be discharged.
CHARACTERISTICS OF A NEGOTIABLE
INSTRUMENT
1. Negotiability - that quality or attribute whereby a bill,
note or check passes or may pass from hand to hand,
similar to money, so as to give the holder in due course
the right to hold the instrument and collect the sum
payable for himself free from defenses.
2. Accumulation of secondary contracts - the most
important feature of negotiable instruments is the
5
Article 1249, Civil Code
6 7
Naguiat v. CA (2003)
2
accumulation of secondary contracts as they are
transferred from one person to another.
BIOGRAPHY OF A NEGOTIABLE INSTRUMENT
1. Issue
2. Negotiation
3. Presentment for acceptance, in certain kinds
of bills of exchange
4. Acceptance
5. Dishonor by non-acceptance
6. Presentment for payment
7. Dishonor by non-payment
8. Notice of dishonor
9. Discharge
II. General Provisions
DEFINITION AND MEANING OF TERMS
1. Acceptance means an acceptance completed by
delivery or notification.
2. Action includes counterclaim and set-off.
3. Bank includes any person or association of persons
carrying on the business of banking, whether
incorporated or not.
4. Bearer means the person in possession of a bill or
note which is payable to bearer.
5. Bill means bill of exchange, and note means
negotiable promissory note.
6. Delivery means transfer of possession, actual or
constructive, from one person to another.
7. Holder means the payee or indorsee of a bill or note
who is in possession of it, or the bearer thereof.
8. Indorsement means an indorsement completed by
delivery.
9. Instrument means negotiable instrument.
10. Issue means the first delivery of the instrument,
complete in form, to a person who takes it as a
holder.
11. Person includes a body of persons, whether
incorporated or not.
12. Value means valuable consideration.
13. Written includes printed, and writing includes print.
PERSONS PRIMARILY PROTECTED
In the NIL, the person primarily protected is the holder
in due course. Every holder is presumed to be a holder in
due course.7
59
2008 Notes in Negotiable Instruments Law 3

PERSONS PRIMARILY LIABLE a) treasury warrant;

The person "primarily" liable on an instrument is the b) postal money order; and
person who, by the terms of the instrument, is absolutely c) certificate of time deposit.
required to pay the same. All other parties are
"secondarily" liable.8 A treasury warrant is not a negotiable instrument
since it is issued in favor of a public officer or
REASONABLE TIME; what constitutes employee covering payment or replenishment of
In determining what is a "reasonable time" regard is to be cash advances for official expenditures and it is
had to the nature of the instrument, the usage of trade or payable out of a specific fund or appropriation.12
business with respect to such instruments, and the facts Since a postal money order is subject to the
of the particular case.9 restrictions and limitations under postal laws and
issued by the government which is not engaged in
TIME, how computed; commercial transactions, it is not governed by the
(when last day falls on holiday) NIL.13
Where the day, or the last day for doing any act herein However, a certificate of time deposit is a
required or permitted to be done falls on a Sunday or on negotiable instrument since it complies with the
a holiday, the act may be done on the next succeeding requirements of Section 1 of the NIL.14
secular or business day.10
Q: Does the negotiability or non- non-negotiability of
CASES NOT PROVIDED FOR IN THE LAW certificates of time deposit affect the liability of the
Any case not provided for in Act 2031 shall be governed Philippine Deposit Insurance Company?
by the provisions of existing legislation or in default NO. Whether the CTDs in question are negotiable or not
thereof, by the rules of the law merchant.11 is immaterial in the present case. The Philippine Deposit
Insurance Corporation was created by law and, as such, is
governed primarily by the provisions of the special law
creating it. The liability of the PDIC for insured deposits
therefore is statutory and, under Republic Act No. 3591,
III. Forms of Negotiable Instruments as amended, such liability rests upon the existence of
deposits with the insured bank, not on the negotiability
or non-negotiability of the certificates evidencing these
A. Common Forms deposits.15
1. Promissory note;
2. Bill of exchange; and I. PROMISSORY NOTE
3. Bank checks. A negotiable promissory note (PN) within the meaning
of this Act is an unconditional promise in writing made
B. Special Forms by one person to another, signed by the maker, engaging
1. For Promissory Notes: to pay on demand, or at a fixed or determinable future
a. certificate of deposit; time, a sum certain in money to order or to bearer
b. bank notes; (payee). Where a note is drawn to the maker's own order,
c. due bills; and it is not complete until indorsed by him.16
d. bonds
The name of the payee need not be specified if the
2. For Bills of Exchange: promise is made to bearer.
a. drafts;
b. trade acceptances; and Parties to a Promissory Note
c. bankers acceptances. a. Maker one who makes promise and signs the
instrument; or
Q: State whether the following is a negotiable instrument
or not:
not:
12
Abubakar v. Auditor General (1948)
8 13
192 Phil. Educational Co. v. Soriano (1971)
9 14
193 Caltex v. CA (1992)
10 15
194 PDIC v. CA (1997)
11 16
196 184
2008 Notes in Negotiable Instruments Law 4

b. Payee party to whom the promise is made or the
instrument is payable.
II. BILL OF EXCHANGE
A bill of exchange (BOE) is an unconditional order in
writing addressed by 1 person to another, signed by the
person giving it, requiring the person to whom it is
addressed to pay on demand or at a fixed or determinable
future time, a sum certain in money to order or to
bearer.17
An order made by one person to another to pay money to
a third person.
Except as otherwise provided, the provisions of NIL
which is applicable to a bills of exchange payable on
demand also applies to a check.18
Q: What are foreign and inland bills of exchange?
An inland bill of exchange is one which, on its face,
purports to be both drawn and payable in the
Philippines. Any other bill is a foreign bill.
A foreign bill is drawn in 1 country and payable
in another. On the other hand an inland bill is
drawn AND payable within the same country.
Drawee is not bound to accept. Drawee is not
liable to a holder in due course (HIDC)
Drawee and payee have no privity. Thus, payee
cannot sue drawee if the check is dishonored upon
presentment for payment
2. Bill may be addressed to 2 or more drawees jointly
(partners or not), but not in the alternative or in
succession.20
Reason: difficulty in determining the exact date of
the dishonor of the bill.
3. A foreign bill payable in the Philippines may be
treated by the holder as an inland bill IF on its face it
does not appear that it was drawn in another country
/ state.21
NOTE: A foreign bill may be protested while an
inland bill need not be protested.
Purpose of distinction: To determine what law will
govern the validity, interpretation, and effects of the
bill.
4. In case bill is dishonored by non-acceptance or non-
payment, the drawer and any indorser may insert on
the bill a referee in case of need, person to whom the
holder may resort in case of need.22

BOE; Parties Promissory Note Bill of Exchange

1. Drawer one who gives the order to pay money to a Contains an unconditional Contains an unconditional
third party promise order
2. Drawee the person to whom the bill is addressed 2 original parties 3 parties
and ordered to pay; becomes acceptor when he Maker primarily liable Drawer secondarily liable
indicates a willingness to accept responsibility for the If drawn payable to If drawn payable to
payment of the bill makers own order - not drawers own order -
3. Payee the party in whose favor the bill is drawn) complete without complete without need for
indorsement by him indorsement
NOTE: In a bill of exchange, the drawer has funds in Presentment for payment Presentment payment is
the hands of the drawee of which the drawer wishes is needed. needed.
to avail himself, the drawer being the party primarily Presentment for Presentment for
interested in, and benefited by, the transaction. acceptance, NOT needed. acceptance is needed.
If drawee refuses to accept when he has funds Reasonable time from last Reasonable time from
for the purpose, he becomes liable to the drawer for negotiation. issue.
the resulting damages and the harm done to his
credit. If drawer has none, drawee must look to the Drawer Maker
drawer for reimbursement and not to a bona fide Secondarily liable Primarily liable
holder. Prepares a BE or Check Prepares a PN
Can negative his liability as Cannot negative his
BOE; Rules (in General) when he signs without liability
1. Drawee is not liable unless and until he accepts the recourse
bill; it is not an assignment of funds in the hands of
the drawee available for the payment thereof.19
19
127
20
128
17 21
126 129
18 22
185 Sec. 131
2008 Notes in Negotiable Instruments Law 5

Rule on Two (2) or More Drawees. A bill may be bank, and the bank, is not liable to the holder, unless and
addressed to 2 or more drawees jointly whether they are until it accepts or certifies the check.26
partners or not BUT NOT TO 2 or more drawees in the A check is payable on demand even when not so
alternative or in succession. stated on its face. A check is supposed to be drawn
against a previous deposit of funds, while an ordinary
Q: What are the instances
instances when a BOE is treated as a need not be drawn against a deposit. A check need not be
PN? presented for acceptance.
The following are the instances, viz:
a. The drawer and the drawee are the same person Bill of Exchange Check
he is practically ordering himself to pay; Not necessarily drawn It is necessary that a
b. Drawee is a fictitious person nobody would on a deposit. The drawee check be drawn on a
accept the bill; need not be a bank. bank deposit. Otherwise,
c. Drawee does not have the capacity to contract there would be fraud.
his acceptance would not be valid;23 Death of a drawer of a BOE, Death of the drawer of a
d. Where the bill is drawn on a person who is with the knowledge of the check, with the
legally absent; and bank, does not revoke the knowledge of the bank,
e. Where the bill is ambiguous.24 authority of the drawee to revokes the authority of
pay. the banker to pay.
May be presented for Must be presented for
BILL IN SET payment within reasonable payment within a
A bill composed of several parts, each part being time after its last reasonable time after its
numbered and containing a reference to the other parts, negotiation. issue.
the whole of the parts constituting but one bill. May be payable on demand Always payable on
or at a fixed or demand
Purpose: A bill in set is usually availed of in cases where a determinable future time
bill had to be sent to a distant place through some
conveyance. If each part is sent by different means of NOTE: The drawing and negotiation of a check have
conveyances, the chance that at least one part of the set certain effects aside from the transfer of title or the
would reach its destination would be greater. incurring of liability in regard to the instrument by the
transferor. The holder who takes the negotiated paper
Q: What are the rights
rights of holders of a bill in set where makes a contract with the parties on the face of the
parts are negotiated separately? instrument. There is an implied representation that funds
1. If both are HIDC, the holder whose title first accrues or credit are available for the payment of the instrument
is considered the true owner of the bill. in the bank upon which it is drawn. Consequently, the
2. But the person who accepts or pays in due course withdrawal of the money from the bank to avoid liability
shall not be prejudiced. on the checks cannot prejudice the rights of a holder in
due course.27
Q: What are the obligations
obligations of a holder who indorses two
(2) or
or more parts of the bill in set? CHECKS; Types of checks
1. the person shall be liable on every such part; 1. Cashier's Check. One drawn by the cashier of a bank
2. every indorser subsequent to him is liable on the part in the name of the bank against the bank itself
he has himself indorsed, as if such parts were payable to a third person or order.
separate bills. A cashier's check is a primary obligation of the
issuing bank and accepted in advance by its mere
III. CHECK issuance.
A check is a bill of exchange drawn on a bank payable on
demand.25 2. Managers Check. A check drawn by the manager of
A check of itself does not operate as an assignment of a bank in the name of the bank against the bank
any part of the funds to the credit of the drawer with the itself payable to a third person. It is similar to the
cashier's check as to effect and use.
23
130
24 26
17(e) 189
25 27
185 State Investment House v. CA
2008 Notes in Negotiable Instruments Law
3. Memorandum Check. A check in which is written
the word "memorandum," "memo" and "mem"
signifying that the drawer engages to pay the bona
fide holder absolutely, and not upon a condition to
pay upon presentment of maturity and if due notice
of presentment and non-payment should be given.
It is a check given by a borrower to a lender for
the amount of a short loan, with the understanding
that it is not to be presented at the bank, but will be
redeemed by the maker himself when the loan falls
due and which understanding is evidenced by
writing the word "memorandum," "memo" or "mem"
on the check.
4. Certified Check. A certification is an agreement
whereby the bank against whom a check is drawn
undertakes to pay it on any future time when
presented for payment.
Certification is equivalent to acceptance and
operates as an assignment of a part of the funds to
the creditors.
5. Crossed Check. Under accepted banking practice,
crossing a check is done by writing two parallel lines
diagonally on the left top portion of the checks.
The crossing is special where the name of the
bank or a business institution is written between the
two parallel lines, which means that the drawee
should pay only with the intervention of that
company.
The crossing is special when between the two
parallel lines is written the name of a bank or a
business institution, in which case the drawee should
pay only with the intervention of that bank or
company. The payee of a crossed check should not
encash the check but should deposit it to his account.
NOTE: Indeed, the crossing of the check with the phrase
"Payee's Account Only," is a warning that the check
should be deposited only in the account of the CIR. Thus,
it is the duty of the collecting bank PCIBank to ascertain
that the check be deposited in payee's account only.
Therefore, it is the collecting bank (PCIBank) which is
bound to scruninize the check and to know its depositors
before it could make the clearing indorsement "all prior
indorsements and/or lack of indorsement guaranteed."28
It is a well-settled rule that the relationship
between the payee or holder of commercial paper and
the bank to which it is sent for collection is, in the
absence of an argreement to the contrary, that of
28
Ford v. CA (2001)
6
principal and agent. A bank which receives such paper
for collection is the agent of the payee or holder.29
CHECKS; Crossed Checks; Effects
1. The check may not be encashed but may only
deposited in the bank.
2. The check may be negotiated only onceto one who
has an account with a bank.
3. The act of crossing the check serves as a warning to
the holder that the check has been issued for a
definite purpose, so that he must inquire if he has
received the check pursuant to that purpose;
otherwise, he is not a holder in due course.
NOTE: In order to preserve the credit worthiness of
chocks, jurisprudence has pronounced that crossing of a
check should have the following effects: (a) the check
may not be encashed but only deposited in the bank; (b)
the check may be negotiated only once-to one who has
an account with a bank; (c) and the act of crossing the
check serves as warning to the holder that the check has
been issued for a definite purpose so that he must inquire
if he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course.30
CHECKS; Certified Checks; Effects
1. Equivalent to acceptance31 and is the operative act
that makes banks liable.
2. Assignment of the funds of the drawer in the hands
of the drawee.32
3. If obtained by the holder, discharges the persons
secondarily liable thereon.33
Q: What is the effect when the holder of a check
procures it to be certified?
The drawer and all indorsers are discharged from liability
thereon.34
Q: What if the drawee bank refuses to certify?
The holder has no action against the bank but he has a
right of action against the drawer. The drawer in turn has
right of action against the bank based on the original
contact of deposit between them.
Q: What is the so-called iron-clad rule in negotiable
instruments?
29
Am Jur 2d, Volume 10, Banks Section 604 (1963 Edition.
30
Bataan Cigar v. CA
31
187
32
189
33
188
34
188
2008 Notes in Negotiable Instruments Law
This rule prohibits the countermanding of payment of
certified checks.
NOTE: The holder must be a holder in due course before
the stop payment order may not be successfully invoked
against him.35
Q: What is a stale check?
It is a check which was not presented for payment within
a reasonable time after its issue.
NOTE: Dishonor of a check is not the same as allowing it
to go stale. A dishonored check does not produce the
effect of payment.36
Q: Within what time must a check be presented?
A: 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. [Section 186, Negotiable
Instruments Law] Hence, if no loss or injury is shown,
the drawer is not discharged.
NOTE: Under Section 186 of the NIL, a check must be
presented for payment within a reasonable time after its
issue or the drawer will be discharged from liability
thereon to the extent of the loss caused by the delay. By
current banking practice, a check becomes stale after
more than 6 months or 180 days.37
A stale check is one which has not been presented
for payment within a reasonable time after its issue. It is
valueless and therefore should not be paid. This is
because the nature and theory behind the use of a check
points to its immediate use and payability.
CHECK DOES NOT OPERATE AS AN ASSIGNMENT ASSIGNMENT
A check of itself does not operate as an assignment of any
part of the funds to the credit of the drawer with the
bank, and the bank is not liable to the holder unless and
until it accepts or certifies the check.38
NOTE: While the drawer generally owes no duty of
diligence to the collecting bank, the law imposes a duty
of diligence on the collecting bank to scrutinize checks
deposited with it for the purpose of determining their
genuineness and regularity. The collecting bank being
primarily engaged in banking holds itself out to the
35
Mesina v. IAC (1986)
36
Crystal v. CA (1976)
37
Intl. Corp. Bank v. Gueco
38
189
7
public as the expert and the law holds it to a high
standard of conduct.39
Time and again, we have stressed that banking
business is so impressed with public interest where the
trust and confidence of the public in general is of
paramount importance such that the appropriate
standard of diligence must be very high, if not the
highest, degree of diligence. A bank's liability as obligor
is not merely vicarious but primary, wherein the defense
of exercise of due diligence in the selection and
supervision of its employees is of no moment.40
Q: Is a check legal tender?
NO. Section 63 of the Central Bank Act provides that
checks representing deposit money do not have legal
tender power and their acceptance in the payment of
debts is at the option of the creditor and provided that a
check which has been cleared and credited to the
account of the creditor shall be equivalent to a delivery
to the creditor of cash in an amount equal to the amount
credited to his account. The Court does not sanction use
of a check for the payment of obligations over the
objection of the creditor.41
Q: Is a check which has been cleared and credited to the
account of the creditor equivalent to delivery of cash?
YES. A check which has been cleared and credited to the
account of the creditor shall be equivalent to a delivery
to the creditor of cash in an amount equal to the amount
credited to his account. Having cleared the check earlier,
PCI Bank, therefore, became liable to Ong and it cannot
allege want or failure of consideration between it and
Sarande. Under settled jurisprudence, Ong is a stranger
as regards the transaction between PCI Bank and
Sarande.
Thus, by accepting PCI Bank Check No. 073661
issued by Sarande to Ong and issuing in turn a managers
check in exchange thereof, PCI Bank assumed the
liabilities of an acceptor under Section 62 of the
Negotiable Instruments Law. 42
Q: May a bank be held liable before it accepts or certifies
a check? NO. If a bank refuses to pay a check
(notwithstanding the sufficiency of funds), the payee-
holder cannot, as provided under Sections 185 and 189 of
39
Banco de Oro v. Equitable Banking Corp. (1988)
40
Gempesaw v. CA (1993)
41
Tibajia v. CA (1993)
42
Equitable PCI Bank v. Ong (2006)
2008 Notes in Negotiable Instruments Law 8

the Negotiable Instruments Law, sue the bank. The payee
should instead sue the drawer who might in turn sue the
bank. Section 189 is sound law based on logic and
established legal principles: no privity of contract exists
between the drawee-bank and the payee. Indeed, in this
case, there was no such privity of contract between Asian
Bank Corporation and petitioner. Thus, petitioner should
not have sued ABC.43
IV. Negotiability
NEGOTIABILITY; Requisites
A negotiable instrument is a contractual obligation to pay
money. Section 1 of the law provides for the
requirements, viz:
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.

NOTE: Conformity with all the requirements of the NIL

The essence of negotiability which characterizes a makes instruments a bill of exchange, even if acceptance
negotiable paper as a credit instrument lies in its freedom is not made since the latter is important only in the
to circulate freely as a substitute for money.44 determination of liabilities of the parties. The exception
to this is Sec. 8 on an instrument payable to order, where
Q: What are the factors that may determine
determine the literal compliance with the law is necessary.48
negotiability of the instrument?
1. Words that appear on the negotiable instrument (on Q: State whether the promissory note below is negotiable
its face); or not.
2. Requirements set forth in Section 1, NIL; and Received P10,000 payable after World War II.
3. Intention of the parties. NO, it is not negotiable because it is neither payable to
order or to bearer.49
NOTE: The instrument need not follow the language of
the NIL, but any terms are sufficient which clearly Q: May the provisions of the NIL be applied if the
indicate an intention to conform to the requirements instrument involved is not negotiable?
hereof.45 A: As a rule, NO. However, in the case of Borromeo v.
Amancio (1999), it was held that Section 14 of the NIL
The accepted rule is that the negotiability or applies by analogy in a case involving a Deed of
non-negotiability of an instrument is determined from Assignment of shares which was signed in blank to
the writing, that is, from the face of the instrument facilitate future assignment of the same shares. The SC
itself.46 observed that the situation is similar to Section 14 where
While the writing may be read in the light of the blanks in an instrument may be filled up by the
surrounding circumstances in order to more perfectly holder, the signing in blank being with the assumed
understand the intent and meaning of the parties, yet as authority to do so.
they have constituted the writing to be the only outward
and visible expression of their meaning, no other words Negotiable Instrument Non-
Non-negotiable Ins.
are to be added to it or substituted in its stead. The duty Governed by the NIL Governed by the NIL only
of the court in such case is to ascertain, not what the by analogy
parties may have secretly intended as contradistinguished Contains all requisites Does not have any, some or
from what their words express, but what is the meaning under Sec. 1 all requisites
of the words they have used. What the parties meant Transferred by negotiation Transferred by assignment
must be determined by what they said.47 HIDC can have rights Transferee acquires rights
better than his transferor no better than his
transferor
43
Villanueva v. Nite (2006) Prior parties warrant Prior party does not
44
supra at note 3
45
10
46 48
Caltex v. CA (1992) PBCom v. Aruego (1981)
47 49
Am. Jur. 2d, Bills and Notes, 79 Jimenez v. Bucoy (1958)
2008 Notes in Negotiable Instruments Law
payment
Solvency of debtor is in a
sense guaranteed by the
indorsers because they
engage that the
instrument will be
accepted, paid or both and
that they will pay if the
instrument is dishonored.
Negotiable Instrument
Subject: money
Is itself the property with
value
Has all the requisites of
Sec. 1
Holder may run after the
secondary parties for
payment if dishonored by
the party primarily liable
Holder (if a HIDC) may
acquire rights over the
instrument better than his
predecessors
Negotiable Instrument
If originally payable to
bearer, it will always
remain so payable
regardless of manner of
indorsement.
A holder in due course
may obtain title better
than that of the one who
negotiated the instrument
to him.
Assignment
Pertains to contracts in
general
Holder takes the
instrument subject to the
defenses obtaining
among the original
parties
9
warrant payment but
merely legality of his title
Solvency of debtor is not
guaranteed under Art. 1628
of the Civil Code unless
expressly stipulated.
Negotiable Documents of
Title
Subject: goods
Document is a mere
evidence of title the
things of value being the
goods mentioned in the
document
Does not have these
requisites
Intermediate parties are not
secondarily liable if
document is dishonored
Holder can never acquire
rights to the document
better than his predecessors
Negotiable Warehouse
Receipt
If payable to bearer, it will
be converted into a receipt
deliverable to order, if
indorsed specially.
The indorsee, even if
holder in due course,
obtains only such title as
the person who caused the
deposit had over the goods.
Negotiation
Pertains to negotiable
instruments
Holder in due course takes it
free from personal defenses
available among the parties
Governed by the Civil Governed by the NIL
Code
Negotiation
Negotiation vs. Assignment
Only an instrument qualifying as a negotiable instrument
under the relevant statute may be negotiated either by
indorsement thereof coupled with delivery, or by
delivery alone where the negotiable instrument is in
bearer form. A negotiable instrument may, however,
instead of being negotiated, also be assigned or
transferred. The legal consequences of negotiation as
distinguished from assignment of a negotiable instrument
are of course, different. A non-negotiable instrument,
may, obviously, not be negotiated; but it may be assigned
or transferred, absent an express prohibition against
assignment or transfer written on the face of the
instrument.
NOTE: A negotiable instrument may, however, instead of
being negotiated, also be assigned or transferred. The
legal consequences of negotiation as distinguished from
assignment of a negotiable instrument are, of course,
different. A nonnegotiable instrument may, obviously,
not be negotiated; but it may be assigned or transferred,
absent an express prohibition against assignment or
transfer written in the face of the instrument.
The words 'not negotiable,' stamped on the face of
the bill of lading, did not destroy its assignability, but the
sole effect was to exempt the bill from the statutory
provisions relative thereto, and a bill, though not
negotiable, may be transferred by assignment; the
assignee taking subject to the equities between the
original parties.50
MUST BE IN WRITING
Rationale. As a rule, bills, notes and other instruments of
a similar nature are not subject to be varied or
contradicted by parol or extrinsic evidence following the
long experience that written evidence is so much more
certain and accurate than that which rests in fleeting
memory only, that it would be unsafe, when parties have
expressed the terms of their contract in writing, to admit
weaker evidence to control and vary the stronger and to
show that the parties intended a different contract from
that expressed in the writing signed by them.51
Physical integrity of the whole instrument. The
negotiability of an instrument must be determined only
from the document itself and not elsewhere. This is
parol evidence rule.
50
Sesbreo v. CA (1995)
51
Inciong v. CA (1996)
2008 Notes in Negotiable Instruments Law
Although a commercial transaction may be verbal unless
otherwise required by law, writing is required for
negotiable instruments. Thus, there is no verbal
promissory note or bill of exchange. Hence, aside from
consent, object and consideration, there must be
compliance with form (in writing).
Fraud as exception to parol evidence rule. Allegations of
fraud may allow presentation of external or parol
evidence to prove circumstances in the execution of a
negotiable instrument, e.g. the correct amount.
However, fraud must be established by clear and
convincing evidence, not just mere preponderance of
evidence being inadequate.
SIGNED BY THE MAKER OR DRAWER
1. Any inscription or even stamping will suffice
provided that it is meant to function as the signature
of the party.
2. Persons who write their names on the face of a note
are makers and are liable as such, and their solidary
liability is made certain by the presence of the phrase
joint and several.
NOTE: Under the Negotiable Instruments Law, persons
who write their names on the face of promissory notes
are makers, promising that they will pay to the order of
the payee or any holder according to its tenor. Thus, even
without the phrase personal capacity, (Roxas) will still
be primarily liable as a joint and several debtor under the
notes considering that his intention to be liable as such is
manifested by the fact that he affixed his signature on
each of the promissory notes twice which necessarily
would imply that he is undertaking the obligation in two
different capacities, official and personal.52
Rule: Only persons whose signatures appear on an
instrument are liable thereon.53
Exceptions:
1. Person signs in trade or assumed name54 party who
signed must have intended to be bound by his
signature.
2. Principal is liable if a duly authorized agent signs in
his own behalf55 authority may be given orally or
in writing (SPA, only an evidence of authority of an
agent to third parties)
52
Astro Electronics v. Phil. Export (2003)
53
18
54
18 (2)
55
19
10
NOTE: However, that the fact that the drawer was a
commission agent of the drawee does not necessarily
make him an agent of the drawee in the latters
obligations arising from the drawing of the bill by
him
3. In case of forgery56 See chapter on forgery
4. Acceptors makes his acceptance of a bill on a
separate paper57
5. Person makes a written promise to accept the bill
before it is drawn58
Q: What are the requisites
requisites to exempt an agent from
from
liability?
liability?
Under Sec. 20, the following must are essential:
1. That the agent is duly authorized
2. Agent adds words to his signature indicating that he
signs as agent/representative
3. He discloses his principal
signature by procuration mean?
Q: What does a signature
A signature by "procuration" operates as notice 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.59
UNCONDITIONAL PROMISE OR ORDER
A promise or order is unconditional when it is not made
dependent or contingent upon an event. Where the
promise or order is made to depend on a contingent
event, said promise or order becomes conditional, and
the instrument involved is rendered non-negotiable. The
happening of the event does not cure the defect.
Any word equivalent to an order would suffice, and
words of courtesy would not be inconsistent with the
order; however, a mere request or authorization would
not be enough.
The promise must be found in the instrument itself;
the mere existence of a debt does not amount to a
promise. The use of the word order is deemed
equivalent to promise.
Nature of Condition
A distinction must be made between a condition (a future
and uncertain event which may or may not happen) and
a period (one that is certain to happen though the time
when it will happen is unknown). An instrument
embodying an obligation that is subject to a condition is
56
23
57
134
58
135
59
21
2008 Notes in Negotiable Instruments Law 11

non-negotiable; whereas, that with an obligation subject
to a period is negotiable.60
NOTE: The reference in a promissory note to some
extrinsic agreement, in order to destroy its negotiability,
must be such as to indicate unmistakably that the paper is
to be burdened with the conditions of that agreement.
When the reference is a simple recital of the
consideration for which the paper was given, or is a mere
mention of the origin of the transaction, its negotiability
is not affected.61
Provisions which do not affect the unconditional nature
of a promise or order
Under 3, the instrument is still unconditional when the
promise or order to pay is unqualified, although coupled
with:
a) An indication of a particular fund out of which
reimbursement is to be made, OR a particular
account to be debited with the amount; or
b) A statement of transaction which gives rise to
instrument
bare admission or acknowledgement of indebtedness
(IOU, for value received, etc.) alone is not negotiable
instrument because it does not show that the parties
intend the debt to be paid. Thus, any word may be used
as long as the language used must be such that the
written undertaking to pay may fairly be deduced
therefrom.
NOTE: An acknowledgment of a debt becomes a promise
to pay by the addition of words implying a promise of
payment, such as payable, payable on a given day,
payable on demand, paid when called for, IOU.63
TO PAY A SUM CERTAIN IN MONEY
Under 2, the sum payable is a sum certain within the
meaning of this act, although it is to be paid:
1. with interest must be stipulated. Take note that
the operation of Usury Law is now suspended.
2. by stated installments the installments must not
only be stated, but the maturity of each installment
must be fixed or determinable.

Particular Fund for Particular Fund for 3. by stated installments, with a provision that,
that, upon
Reimbursement Payment default in payment of any installment or of interest,
Drawee pays the payee There is only 1 act the the whole shall become due;
from his own funds; drawee pays directly from
afterwards, the drawee the particular fund 4. with exchange, whether at a fixed or current rate
pays himself from the indicated. Payment is may also be in foreign exchange;
particular fund indicated subject to the condition
that the fund is sufficient NOTE: R.A. 8183 now allows payment in foreign
Particular fund indicated is Particular fund indicated is currency.
not the direct source of the direct source of
payment but only the payment 5. with costs of collection
collection or an attorney's fee, in case
source of reimbursement payment shall not be made at maturity at maturity,
the instrument is no longer fully negotiable since
NOTE: The indication of Fund 501 as the source of the any transferee acquiring it would not be a holder in
payment to be made on the treasury warrants makes the due course.64
order or promise to pay "not unconditional and the
warrants themselves non-negotiable. There should be no NOTE: A provision to the effect that costs of collection is
question that the exception on Section 3 of the to be paid PLUS costs, charges, and attorneys fees will
Negotiable Instruments Law is applicable in the case at affect the negotiability of the instrument since the sum is
bar.62 not certain anymore.

Q: Should the word promise in a promissory note be
always contained therein?
NO, any words equivalent to a promise or assumption of
full responsibility for the payment of the note are
sufficient to constitute a promise to pay. However, a
On Mathematical Computations. A sum is certain if the
amount to be unconditionally paid by the maker or
drawee can be determined on the face of the instrument
and is not affected by the fact that the exact amount is
arrived at only after a mathematical computation.

60
Art. 1179, New Civil Code
61 63
Elizalde & Co. v. Bian Trans. Co. (1960) Jimenez v. Bucoy (1958)
62 64
Metrobank v. CA 52 and 58
2008 Notes in Negotiable Instruments Law 12

Acceleration Clause
It is a clause or provision in a contract which renders the NOTE: Under Sec. 6 (b), the validity and negotiable
whole debt due and demandable upon failure of the character of an instrument are not affected by the fact
debtor to comply with certain conditions. This DOES that it does not specify the value given, or that any value
NOT affect the negotiability of the instrument. had been given therefor. Nevertheless, if any statute
aside from the NIL requires that the nature of the
Insecurity Clause consideration be stated in the instrument, then it must be
This is a provision in the contract which allows the so stated.
holder to accelerate the payment if he deems himself
insecure. This renders the instrument non-negotiable PAYABLE ON DEMAND
because the holders whim and caprice prevail without Under 7, an instrument is payable on demand:
the fault and control of the maker. 1. where expressed to be payable on demand, at sight or
on presentation;
Extension Clauses 2. where no period of payment is stated; or
These are clauses on the face of the instrument that 3. where issued, accepted, or indorsed after maturity (as
extend the maturity dates either: to immediate parties)
a. at the option of the holder;
b. at the option of the maker or acceptor to a DETERMINABLE FUTURE TIME
further definite time; or Under 4, future time is determinate when it is payable
c. automatically upon or after a specified act or either:
event. 1. At a fixed period after date or sight
2. On or before a fixed or determinable future time
Extension Clause Extension under 120(f) specified therein
Stated on the face of the Agreement binding the 3. On or at a fixed period after the occurrence of a
instrument holder; specified event, which is certain to happen, though
a. To extend the time of the time of happening be uncertain
payment OR
b. Postpone the holders NOTE: An instrument payable upon a contingency is not
right to enforce the negotiable, and the happening of the event does not cure
instrument the defect.65
Parties are bound because Binds the person Instrument with a promise to pay when able or as
they took the instrument secondarily liable (and soon as I can is non-negotiable because of want of fixed
knowing that there is an therefore cannot be time for payment. It is not so certain as to render an
extension clause discharged from liabilities instrument negotiable.
if: If the day and the month, but not the year of
a. He consents or payment is given, it is not negotiable due to its
b. Right of recourse is uncertainty.
expressly reserved.
PAYABLE TO ORDER
Q: What if acts are required instead of a sum certain in Under 8 the instrument is payable to order where it is
money? drawn payable to the order of a specified person or to
Rule: An instrument which contains an order or promise him or his order. The payee must be named or otherwise
to do any act in addition to the payment of money is not indicated therein with reasonable certainty.
negotiable. However, if it is the holder who is given an
Drawee as payee once accepted, is equivalent
election to require something to be done in lieu of to a promissory note in favor of drawer.
payment of money, the same is not rendered non-
negotiable.
Maker as payee instrument not complete until
the maker indorses.
Q: Must consideration be always specified in a contract?
Being an essential element of a contract, there must be a
Drawer as payee authorizes the drawee to pay
consideration. However, it need not be specified in the himself.
contract because there is a rebuttable presumption that it
exists. 65
4, last para.
2008 Notes in Negotiable Instruments Law
NOTE: Subject to the rules in Secs. 13, 14 and 15 on
incomplete instruments, leaving the name of the payee
blank may make the instrument non-negotiable. This is
because an instrument payable to order may be
negotiated only by indorsement and delivery.
Q: How do you make an instrument payable to order?
Under Sec. 8, there are only two (2) ways:
1. Pay to A or order
2. Pay to the order of A
Q: Who may be payees?
The instrument may be made payable to the order of:
a. A payee who is not the maker, drawer or drawee
b. The drawer or maker
c. The drawee
d. Two or more payees jointly
e. One or some of several payees
f. The holder of an office for a time being
Q: How do you negotiate an instrument payable to order?
You negotiate it by indorsement AND delivery.
PAYABLE TO BEARER
"Bearer" means the person in possession of a bill or note
which is payable to bearer. A person who steals an
instrument payable to bearer is still a bearer.
Under 9 the instrument is payable to bearer when:
1. It is expressed to be so payable; or
2. It is payable to a person named therein or bearer;
or
3. It is payable to the order of a fictitious or non-
existing person, and such fact was known to the
person making it so payable; or
4. The name of the payee does not purport to be
the name of any person; or
5. The only or last indorsement is an indorsement
in blank.
An instrument originally payable to bearer can be
negotiated by mere delivery even if it is indorsed
specifically. If originally a bearer instrument, it will
always remain a bearer instrument.
However, with regard to an original order instrument,
when specifically indorsed, it can no longer be negotiated
further by mere delivery; it MUST BE INDORSED.
NOTE: The clause and such fact is known to the person
making it so payable, does not require that it should be
the maker himself who is chargeable with the notice.
Otherwise, the whole provisions would be ineffective in
13
practically every case where the purpose of the person
drawing the check was fraudulent.66
A check payable to the order of cash is payable to
bearer and the bank may pay it to the person presenting
it for payment without the drawers indorsement.67
Q: How do you negotiate an instrument payable to
bearer?
You negotiate it by mere delivery.
Words equivalent to Bearer
1. Assignee
2. Holder
3. Possessor
4. On return of this certificate properly indorsed
5. Order of the bearer
Words not equivalent
equivalent to Bearer
1. To X or his collector
2. To X or his agent
3. To bearer X
NOTE: Omission of the maker or drawer to name or
otherwise indicate therein with reasonable certainty the
name or identity of the payee may be filled in later.68
FICTITIOUS PAYEE RULE RULE
It is not necessary that the person referred to in the
instrument is really non-existent or fictitious to make the
instrument payable to bearer. The person to whose order
the instrument is made payable may in fact be existing
but he is till fictitious or non-existent under Sec. 9(c) of
the NIL if the person making it so payable does not
intend to pay the specified persons.
PROVISIONS OR OMISSIONS NOT AFFECTING
NEGOTIABILITY
Under Sec. 5, the following provisions in the instrument
will not affect the negotiable character of said
instrument, viz:
3. A provision authorizing the sale of collateral
securities in case the instrument be not paid at
maturity;
4. A provision waiving the benefit of any law
intended for the advantage or protection of the
obligor;
66
Mueller v. Liberty (1920)
67
Ang Tek Lian v. CA (1950)
68
14
2008 Notes in Negotiable Instruments Law
5. A provision authorizing a confession of
judgment if the instrument be not paid at
maturity; or
6. A provision giving the holder an election to
require something to be done in lieu of payment
of money.
Under Sec. 6, the validity or negotiability is not affected
by the fact that:
1. it is not dated; or
2. does not specify the value given, or that any
value had been given therefor; or
3. does not specify the place where it is drawn or
the place where it is payable; or
4. bears a seal; or
5. designates a particular kind of current money in
which payment is to be made.
OTHER PROVISIONS not affecting the negotiability of
an instrument:
1. Statements which gave rise to the instruments
issuance;
2. Provisions of clauses in regards to sale of
securities;
3. Clause affecting confessions of judgment;
4. A waiver of benefit intended for the obligor;
5. Giving the holder the election to require
something to be done in lieu of payment of
money;
6. Absence of date;
7. No seal, place of payment, place of issuance;
8. Absence of a statement of consideration has
been paid;
9. Negotiation of a particular kind of money
NOTE: See also 2 on provisions regarding sum certain
not affecting negotiability.
DATE OF THE INSTRUMENT
Section 6(a) states that the date is not essential. If dated,
such date is deemed a prima facie proof that it is the true
date of the making, drawing, acceptance or indorsement
of the instrument.69
The person to whom the instrument so dated is delivered
acquires title or ownership over it, not as of the date it
bears, but as to the date it is delivered.
Section 17 (c) states that where the instrument is not
dated, it will be considered dated as of the time it was
issued.
69
11
14
When date necessary
Date is necessary in the following instances:
1) Where the instrument is payable at a fixed period
after date;
2) Where the instrument is payable at a fixed period
after sight or presentment.
NOTE: Secs. 70 and 71, however, provides that
presentment for payment must be done within a
REASONABLE TIME; otherwise, persons secondarily
liable may be released from their liability.
Q: May a holder insert a date on an undated instrument?
YES. In the following instances, the holder may insert
the date:
1) Where an instrument is payable at a fixed period
after date but is issued undated; and
2) Where an instrument is payable at a fixed period
after sight but the acceptance is undated.70
NOTE: If the holder has knowledge of the true date of
issue or acceptance and deliberately inserted a wrong
date (e.g. to hasten the day of maturity), the instrument
shall be invalid as to him or to anyone claiming under
him BUT NOT to a subsequent holder (in due course[?])
Q: When is an instrument ante-
ante-dated and post-
post-dated?
An instrument is ANTE-DATED when it contains a date
earlier than the true date of its issuance.
It is POST-DATED when it contains a date later than
the true date of its issuance.
As a rule, an instrument which is ante-dated or post-
dated shall not render it as non-negotiable. However,
when it is done for an illegal or fraudulent purpose, the
instrument is rendered invalid.71
NOTE: A change in the original date as written on the
face of the instrument constitutes a material alteration
thereof. (See: Chapter on Defenses)
No Place of Payment
Where no place of payment is specified, but the address
of the person to make payment is given in the instrument
and it is there presented.
Where no place of payment is specified is given
and the instrument is presented at the usual place of
business or residence of the person to make payment.
70
13
71
12
2008 Notes in Negotiable Instruments Law 15

In any other case, if presented to the person to

make payment wherever he can be found, or if presented 7. I promise to pay when signed by two or more
at his last known place of business or residence.72 persons is deemed to be jointly and severally signed.
i.e. solidary liability
No Statement of Value Received
Every negotiable instrument is deemed prima facie to Situation 1:
have been issued for a valuable consideration and every
person whose signature appears thereon to have become Promise to pay X P500.00
a party for value.73
Sgd. Y & Z
NOTE: Where an agreement stipulates for the confession
of judgment prior to any actual litigation, the stipulation This is joint liability because it is not a negotiable
is void for being contrary to public policy. However, if instrument. Thus, the general rule under civil law of
the creditor sues, the debtor can go to court and only joint liability applies in the absence of stipulation that
then confess judgment. This is valid if done by the liability should be solidary.
debtor himself.74
Situation 2:

I / We promise to pay X or order P500.00

V. Rules of Construction Sgd. Y & Z

In the case of PNB vs. Concepcion (1962) the Supreme

According to Section 17, in case of ambiguity or doubt,
the following construction of rules on negotiable
instruments shall be observed:
1. The sum expressed in words takes precedence over
the sum expressed in numbers; except where the
words are ambiguous or uncertain, then reference to
the figures should be made.
Court held that Y and Z are liable solidarily since I
dominates over We.
NOTE: Courts can interpret a contract only if there is
doubt in its letter. But if an examination of the
promissory note shows no such ambiguity, Sec. 17 of the
NIL should not be applied. 75

2. Where interest is stipulated, without specification of

the starting date, the intests runs from the date of the VI. Negotiation
instrument, and if undated, from the issue thereof.

3. An undated instrument is considered to be dated as An instrument is negotiated when it is transferred from

of the time it was issued. one person to another in such a manner as to constitute
the transferee the holder thereof.76 Hence, there is no
4. The written provision prevails over the printed negotiation if the transfer does not make the transferee
provisions of the instrument. the holder of the instrument.

5. Where the instrument is ambiguous as to whether it Modes of Transfer

Transfer
is a note or a bill, the holder may treat it as either at 1. Negotiation the transfer of the instrument from
his election. one person to another so as to constitute the
transferee as holder thereof.77 May be done through
6. When the capacity of a signature is not clear, he is delivery or indorsement or both.
deemed to be an indorser.

72 75
73 Evangelista v. Mercator Finance Corp. (2003)
73 76
24 30
74 77
Traders Insurance v. Dy Eng Biok (1958) Ibid.
2008 Notes in Negotiable Instruments Law
2. Assignment absent any express prohibition against
assignment or transfer written on the face of a
negotiable or non-negotiable instrument, the same
may be assigned or transferred.78 The transferee does
not become a holder. He merely steps into the shoes
of the transferor meaning that any defense available
against the transferor is available against the
transferee.
Methods of Negotiation
Always remember that only negotiable instruments may
be negotiated. Under 30, an instrument is negotiated
when it is transferred from one person to another in such
manner as to constitute the transferee the holder thereof.
1. If payable to bearer, it is negotiated by delivery;
2. if payable to order, it is negotiated by the
indorsement of the holder completed by delivery.
NOTE: Incomplete negotiation of order instrument .
Where the holder of an instrument payable to his order
transfers it for value without indorsing it, the transfer
vests in the transferee such title as the transferor had
therein and he also acquires the right to have the
indorsement of the transferor. But for the purpose of
determining whether the transferee is a holder in due
course, the negotiation takes effect as of the time when
the indorsement is made.79
Delivery. Actual or constructive transfer of possession
from one person to another (it is presumed from
possession)
NOTE: Where an instrument is unconditionally
delivered as an operative contract, parol evidence is not
admissible to show a parol condition (not written)
attached to the obligation of the contract.
Issuance.
Issuance This is the first delivery of the instrument,
complete in form, to a person who takes it as a holder.80
All other transfers after the first delivery are subsequent
transfers.
Steps:
1. Mechanical act of writing the instrument
completely and in accordance with the
requirements of Section 1; and
2. The delivery of the complete instrument by the
maker or drawer to the payee or holder with the
intention of giving effect to it.
78
supra at note 50.
79
49
80
191
16
NOTE: In both cases, delivery must be intended to give
effect to the transfer of instrument.81
Consideration for the Issuance and Subsequent
Subsequent Transfers
Every negotiable instrument is deemed prima facie to
have been issued for a valuable consideration. Every
person whose signature appears thereon is presumed to
have become a party thereto for value.82
Q: What constitutes value in negotiable instruments?
A: a. An antecedent or pre-existing debt
b. Value previously given
c. Lien arising from contract or by operation of law.83
Indorsement. The indorsement must be written on the
instrument itself or upon a paper attached thereto. The
signature of the indorser, without additional words, is a
sufficient indorsement.84
Legal transaction effected by the affixing of ones
signature at the:
a. Back of the instrument; or
b. Upon a paper (allonge) attached thereto with or
without additional words specifying the person to
whom or to whose order the instrument is to be
payable whereby one not only transfers legal title to
the paper transferred but likewise enters into an
implied guaranty that the instrument will be duly
paid.85
Entire Instrument Rule: Indorsement must be of the
entire instrument.86 An indorsement which purports to
transfer to the indorsee a part only of the amount
payable, or which purports to transfer the instrument to
two or more indorsees severally, does not operate as a
negotiation of the instrument.
Exception: Where instrument has been paid in part, it
may be indorsed as to the residue.
Indorsement as a Contract. Indorsement is not only a
mode of transfer but also a contract. Every indorser is a
new drawer and the terms are found on the face of the
bill or note, with the additional obligation that if the
instrument is dishonored by nonpayment or non-
81
Devt. Bank of Rizal vs. Sima Wei (1993)
82
24
83
27
84
31
85
ibid.
86
32
2008 Notes in Negotiable Instruments Law 17

acceptance, and notice is given to the indorser, the latter

will pay for it. Pay to X at his own risk. (Sgd.) Y

KINDS OF INDORSEMENTS NOTE: Such an indorsement does not impair the

An indorsement may be: negotiable character of the instrument although the
a. Special indorsers liability is limited. Indorser is still liable
b. Blank (secondarily) for breach of his warranties91 and also
c. Qualified for the dishonor of the instrument by non-
d. Absolute acceptance/non-payment due to:
e. Conditional 1. forgery
f. Restrictive 2. lack of goods title to the instrument indorsed
g. Joint 3. lack of capacity to contract (prior parties)
h. Irregular
i. Facultative Recourse means resort to a person who is
j. Successive secondarily liable after the default of the person who
is primarily liable.
A. SPECIAL87 specifies the person to whom or to
whose order the instrument is to be payable and the Q: What is the convenience given to a qualified
indorsement of such indorsee is necessary to the indorser?
indorser? Generally, an indorser is secondarily liable
further negotiation of the instrument in case the instrument is dishonored. The fact of
dishonor makes the indorser the principal (original)
Pay to X, (Sgd) Y debtor. Now, by qualifiedly indorsing the
instrument, the qualified indorser does not become
NOTE: Where an instrument, payable to bearer, is liable to the dishonor of the instrument because by
indorsed specially, it may nevertheless be further qualifiedly indorsing it, he does not warrant that the
negotiated by delivery; but the person indorsing instrument will be accepted or paid. That is what
specially is liable as indorser to only such holders as without recourse or other words of similar import
make title through his indorsement.88 means.

B. BLANK89 specifies no indorsee. An instrument
indorsed in blank is payable to bearer and may be
negotiated by delivery
Pay to the order of X (Sgd) Y
D. ABSOLUTE one by which indorser binds himself
to pay:
1. upon no other condition than failure of prior
parties to do so
2. upon due notice to him of such failure

In this case, to make a blank indorsement, X may
sign at the back of the instrument without specifying
any indorsee .
A blank indorsement may be converted to special
indorsement by writing over the signature of the
indorser in blank any contract consistent with the
character of indorsement90
E. CONDITIONAL92 right of the indorsee is made to
depend on the happening of a contingent event.
Nevertheless, the party required to pay the
instrument may disregard the condition and make
payment to the indorsee or his transferee whether
the condition has been fulfilled or not.
Pay to X if he tops the 2008 Bar Exams (Sgd. Y)

C. QUALIFIED (38) constitutes the indorser a mere
assignor of the title to the instrument. It is made by
adding to the indorsers signature words like sans
recourse, without recourse, or words of similar
import.
NOTE: Any person to whom an instrument so
indorsed is negotiated will hold the same, or the
proceeds thereof, subject to the rights of the person
indorsing conditionally.

87
34
88
40
89 91
34 65
90 92
35 39
2008 Notes in Negotiable Instruments Law
F. RESTRICTIVE93
When the instrument:
1. prohibits further negotiation of the instrument;
2. constitutes the indorsee the agent of the
indorser;
3. vests the title in the indorsee in trust for or to
the use of some persons.
NOTE: Mere absence of words implying power to
negotiate does not make an instrument restrictive.
1. Nos. 2 and 3 above does not affect the
negotiability.
2. A restrictive indorsement does not automatically
convert the instrument into a non-negotiable
one. It is only in cases of no. 1 that the
instrument is held to be non-negotiable.
Rights of Indorsee in an instrument restrictively
indorsed:
1. to receive payment of the instrument
2. to bring any action thereon that the indorser
could bring
3. to transfer his rights as such indorsee, where the
form of the indorsement authorizes him to do so
NOTE: All subsequent indorsees acquire only the
title of the 1st indorsee under the restrictive
indorsement.94
Illustrations
Illustrations:
ations:
1. Pay to X only completely destroys the
negotiable character of the instrument and it
may no longer be negotiated.
2. Pay to X as agent rights of X to negotiate is
limited because the same must be within the
scope of his authority as agent.
3. Pay to X in trust may negotiate the
instrument only within the scope of his
authority as trustee.
Continuation of negotiable character An instrument
negotiable in its origin continues to be negotiable
until it has been 1) restrictively indorsed or 2)
discharged by payment or otherwise.95
93
36
94
37
95
47
18
G. JOINT
JOINT96 indorsement made payable to 2 or more
persons. As a rule: All must indorse in order for the
transaction to operate as a negotiation.
Exceptions:
1. payees or indorsees are partners; and
2. payee or indorsee indorsing has authority to
indorse for the others
H. IRREGULAR97 also called anomalous indorsement.
A person who, not otherwise a party to an
instrument, places thereon his signature in blank
before delivery. (See Chapter on Liabilities &
Warranties)
I. FACULTATIVE
FACULTATIVE where the indorser enlarges his
liability as when he indicates in the indorsement
waiver of notice, demand or protest.
Pay to the order of X, notice of dishonor waived.
(Sgd. Y)
J. SUCCESSIVE if several persons indorse in
succession where, unless agreed otherwise, they are
liable to each other in the order they indorse.
Transfer without indorsement; effects:
Under Sec. 49, where the holder of an instrument
payable to his order transfers it for value without
indorsing it:
1. the transfer vests in the transferee such title as the
transferor had therein.
2. the transferee acquires in addition, the right to have
the indorsement of the transferor.
3. for the purpose of determining whether the
transferee is a holder in due course, the negotiation
takes effect as of the time when the indorsement is
actually made.
NOTE: Section 49 of the Negotiable Instruments Law
contemplates a situation whereby the payee or indorsee
delivers a negotiable instrument for value without
indorsing it. It bears stressing that such transaction is an
equitable assignment and the transferee acquires the
instrument subject to defenses and equities available
among prior parties.
96
41
97
64
2008 Notes in Negotiable Instruments Law
However, transferees in this situation do not enjoy
the presumption of ownership in favor of holders
since they are neither payees nor indorsees of such
instruments. The weight of authority is that the mere
possession of a negotiable instrument does not in
itself conclusively establish either the right of the
possessor to receive payment, or of the right of one
who has made payment to be discharged from
liability. Thus, when Salazar deposited with PNB
three checks which were not indorsed, she has the
burden to prove that they came into her possession
by virtue of a legitimate transaction with the last
holder.
Consequently, petitioner, as the collecting bank, had the
right to debit Salazars account for the value of the checks
it previously credited in her favor. It is of no moment
that the account debited by petitioner was different from
the original account to which the proceeds of the check
were credited because both admittedly belonged to
Salazar, the former being the account of the sole
proprietorship which had no separate and distinct
personality from her, and the latter being her personal
account. 98
Q: When may a prior party negotiate the instrument?
instrument
Where an instrument is negotiated back to a prior party,
such party may, subject to the provisions of this Act,
reissue and further negotiable the same. But he is not
entitled to enforce payment thereof against any
intervening party to whom he was personally liable.99
The reason behind this rule is to avoid circuitous suits.
Q: What if the instrument is renegotiated to the maker or
to the accommodated party?
A: Makers or accommodated partys obligation is
extinguished because the creditor and debtor are merged
into 1 person. Maker or accommodated party may
negotiate the same, provided it has not yet matured.
Hence, the following are the limitations on the
application of Sec. 50:
1. Where it is payable to the order of a third
person, and has been paid by the drawer
2. Where it was made or accepted for
accommodation and has been paid by the party
accommodated
3. other cases, where the instrument is discharged
when acquired by a prior party.
98
BPI v. CA, Salazar, et al. (2007)
99
50
19
Q: What is the effect
ffect of an instrument drawn or indorsed
to a person as cashier?
Where an instrument is drawn or indorsed to a person as
"cashier" or other fiscal officer of a bank or corporation, it
is deemed prima facie to be payable to the bank or
corporation of which he is such officer, and may be
negotiated by either the indorsement of the bank or
corporation or the indorsement of the officer.100
NOTE: This provision cannot apply if the cashier uses his
individual name without the title of his office.101
Mispelled Name of Payee or Indorsee
Where the name of a payee or indorsee is wrongly
designated or misspelled, he may indorse the instrument
as therein described adding, if he thinks fit, his proper
signature.102
Indorsement in Representative Capacity
Where any person is under obligation to indorse in a
representative capacity, he may indorse in such terms as
to negative personal liability.103
Time of indorsement
Except where an indorsement bears date after the
maturity of the instrument, every negotiation is deemed
prima facie to have been effected before the instrument
was overdue.104
Place of indorsement
Except where the contrary appears, every indorsement is
presumed prima facie to have been made at the place
where the instrument is dated.105
Striking out indorsement
indorsement
The holder may at any time strike out any indorsement
which is not necessary to his title. The indorser whose
indorsement is struck out, and all indorsers subsequent to
him, are thereby relieved from liability on the
instrument.106
INDORSEMENT BY INFANT
INFANT OR CORPORATION
Under Sec. 22, the following are the rules on effects of
indorsement by infant or corporation:
100
42
101
First Natl. Bank of Pomeroy v. McCallough, 50 Oregon
508)
102
43
103
44
104
45
105
46
106
48
2008 Notes in Negotiable Instruments Law
1. The contract of indorsement of an infant is not void,
and that his indorsee has the right to enforce
payment from all parties prior to the infant indorser;
the incapacity of the infant cannot be availed of by
prior parties. However, it does not destroy the right
of such an infant indorser to disaffirm under the
rules of infancy.
2. The indorsement or assignment of the instrument by
a corporation or by an infant passes the property
therein, notwithstanding that from want of capacity,
the corporation or infant may incur no liability
thereon.
3. In both instances, the indorsements are merely
voidable meaning, valid until annulled that is
why they still pass good title. Therefore, parties prior
to the minor or corporation cannot escape liability
by setting up as defense the incapacity of the
indorsers.
II. Completeness and
Delivery
Different situations involving negotiable instruments as
provided for in Sections 14, 15 and 16 of the Negotiable
Instruments Law. (See Annex A)
A. Incomplete instrument
1. Delivered
b) With forgery and alteration
c) Without forgery and alteration
2. Not delivered
a) With forgery and alteration
b) Without forgery and alteration
B. Complete instrument
1. Delivered
a) With forgery and alteration
b) Without forgery and alteration
2. Not delivered
a) With forgery and alteration
b) Without forgery and alteration
NOTE: A negotiable instrument is not only a written
evidence of a contract right but is also a species of
property. Just as a deed to a piece of land must be
delivered in order to convey title to the grantee, so must
a negotiable instrument be delivered to the payee in
order to evidence its existence as a binding contract.
20
Thus, the payee of a negotiable instrument
acquires no interest with respect thereto until its delivery
to him. Delivery of an instrument means transfer of
possession, actual or constructive, from one person to
another. Without the initial delivery of the instrument
from the drawer to the payee, there can be no liability on
the instrument. Moreover, such delivery must be
intended to give effect to the instrument.107
INCOMPLETE INSTRUMENT BUT DE DELIVERED
A. Holder has prima facie authority to fill up blanks:
1) Signature on blank paper delivered by signatory
with intention of making it a negotiable
instrument, prima facie authority to fill it up for
any amount.
2) Party prior to completion bound if filled up
a) In accordance with authority
b) Within reasonable time
B. Irrespective of compliance with no. 2) above prior
parties still bound but only to HIDC.
C. The rules apply whether the instrument is a
promissory note or bill of exchange, whether payable
to bearer or order.
INCOMPLETE INSTRUMENT NOT DELIVERED
A. Completed and delivered with authority, valid.
B. Completed and delivered without authority
1) Valid against party whose signature was placed
after delivery like indorser. Reason: Indorser
warrants the instrument is in all respect what it
purports to be.
2) Not valid against party whose signature was
placed before delivery, if not a holder in due
course. Reason: Delivery is essential to validity.
However, with respect to a holder in due course,
there is prima facie presumption of delivery
which may be rebutted.
C. Rules apply whether
1) Promissory note or bill of exchange
2) Payable to bearer or order
3) With or without forgery and material alteration
COMPLETE AND DELIVERED IN INSTRUMENT
A. Without forgery and alteration, all parties are bound.
B. With forged indorsement and/or alteration:
1. Order instruments
b) Order promissory note
1) Prior parties not bound.
Reason: Forged signature wholly
inoperative unless estoppel sets in, then
prior parties bound.
107
Devt. Bank of Rizal vs. Sima Wei (1993)
2008 Notes in Negotiable Instruments Law
2) Subsequent parties bound
Reason: Bound on warranties of
indorsers unless otherwise specified
i. Whether or not holder in due
course
ii. Only forged signature is inoperative
c) Order bill of exchange
1) Drawee cannot charge drawer's account
(If charged drawer has right to recover)
2) Drawer has no right against collecting
bank
3) Drawee can recover from collecting
bank
4) Collecting bank bears loss (Can recover
from person it paid)
5) Payee can recover from:
i. Drawer
ii. Collecting bank
iii. Payee cannot recover from drawee
6) Drawer not liable to the collecting bank
2. Bearer instruments
a) Bearer promissory note
1) Prior parties liable
2) Forged signatory not liable to party not
holder in due course
b) Bearer bill of exchange
Drawee bank liable
COMPLETE BUT NOT DELIVERED INSTRU INSTRUMENT
A. Delivery completes the contract
1. Between immediate and remote parties
2. Delivery effectual
B. If under authority
1) To a holder in due course
a) Valid delivery presumed
b) Prior parties bound
2) If delivery conditional
Prior parties not bound
Immediate parties refer to those having or being held to
know of the conditions or limitations placed upon the
delivery of an instrument (privity, not proximity).
Remote parties are those who are not in direct
contractual relations to each other.
Q: When is the obligation in the instrument
consummated?
A: It is consummated upon delivery of the instrument
upon completion. Defenses available:
1. As regards the immediate and remote parties,
delivery is effectual when it is made either by or
21
under the authority of the party making, drawing,
accepting or indorsing (conditional delivery).
2. When the instrument is in the hands of a HIDC, a
valid delivery thereof by all parties prior to him , as
to make them liable to him, is conclusively presumed
(conclusive presumption does not apply to an
incomplete instrument)
3. When the instrument is no longer in the hands of a
party whose signature appears thereon, a valid and
intentional delivery by him is presumed until the
contrary is proved
VIII. Forgery
Forgery is the counterfeit making or fraudulent alteration
of any writing, which may consist of:
1. Signing of anothers name with intent to defraud; or
2. Alteration of an instrument in the name, amount,
name of payee, etc. with intent to defraud.
NOTE: The forgery may be so near like the genuine as to
defy detection by the depositor himself.
Forgery of Signature
A signature is considered forged in any of the following
cases:
a. Where 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;
b. Where signature is affixed by one who purports
to be an agent but has no authority to bind the
alleged principal;
b. If the signature was a mere simulation or
counterfeit;
c. If the signature was procured by force or duress;
OR
d. If the signature was obtained by fraudulent use
of carbon paper, or was given for other purposes
but was used in converting the paper into a
negotiable instrument.
NOTE: It is only the forged or unauthorized signature
that is declared to be inoperative; rights may still exist
and be enforced by virtue of such instrument as to those
whose signatures thereto are found to be genuine.
2008 Notes in Negotiable Instruments Law
NOTE: A document formally presented is presumed to be
genuine until it is proved to be fraudulent. In a forgery
trial, this presumption must be overcome but this can
only be done by convincing testimony and effective
illustrations.108
Legal Effects of Forgery
1. No right to retain the instrument
2. No right to give a discharge therefore
3. No right to enforce payment thereof against any
party thereto, can be acquired through or under such
signature
Kinds of Forgery
Forgery of signatures may be:
a. fraud in the execution - also called fraud in factum.
When one signed without any intention to issue a
negotiable instrument but another person converted
the same into a negotiable instrument or was
deceived as to the character of the instrument and
without knowledge of it This constitutes a real
defense.
b. fraud in the inducement also called simple fraud or
fraud in esse contractus. When there is fraud in a
transaction where there is intent to issue a negotiable
instrument as when a person issues a check in
payment of what he thought to be a diamond ring
which turned out to be mere ordinary glass. Relates
to the quantity, quality, value or character of the
consideration of the instrument. Deceit is not in the
character of the instrument but in its amount or
terms. This is a personal defense, therefore not a
defense against a HIDC.
Effect when there is forgery
General Rule: no right or title can be acquired to a NI
through or under a forged or unauthorized signature.
When a signature is forged or made without the
authority of the person, the signature (not instrument
itself and the genuine signatures) becomes wholly
inoperative.
Exceptions:
1. If the party against whom it is sought to enforce such
right is precluded from setting up forgery or want of
authority by reason of estoppel or negligence;
2. Where the forged signature is not necessary to the
holders title, as when the indorsement is forged on
an instrument payable to bearer, in which case, the
forgery may be disregarded;109
108
Samsung v. FEBTC (2004)
109
48
22
3. In case of a drawee-acceptor who shall be liable
despite the forgery of the drawers signature because
the acceptor, by accepting the bill warrants the
genuineness of the drawers signature;
4. The indorser is liable because he guarantees the
genuineness of the signatures of all parties to the bill
at the time of the indorsement.110
NOTE: An unauthorized signature has the same effect as
that of a forged signature.
Q: May a subsequent party who caused the dishonor of
the check through its qualified indorsement hold prior
endorsers liable on the instrument?
NO. Under Section 66 of the Negotiable Instruments
Law, the warranties for which Alviar and Gonzales are
liable as general endorsers in favor of subsequent
endorsers extend only to the state of the instrument at
the time of their endorsements. This provision, however,
cannot be used by the party which introduced a defect on
the instrument, such as respondent RCBC in this case,
which qualifiedly endorsed the same, to hold prior
endorsers liable on the instrument because it results in
the absurd situation whereby a subsequent party may
render an instrument useless and inutile and let innocent
parties bear the loss while he himself gets away scot-free.
It cannot be over-stressed that had it not been for the
qualified endorsement (up to P17,500.00 only) of Olivia
Gomez, who is the employee of RCBC, there would have
been no reason for the dishonor of the check, and full
payment by drawee bank therefor would have taken
place as a matter of course.111
NOTE: The mere fact that the forgery was committed by
a drawer-payor's confidential employee or agent, who by
virtue of his position had unusual facilities for
perpetrating the fraud and imposing the forged paper
upon the bank, does not entitle the bank to shift the loss
to the drawer-payor, in the absence of some
circumstance raising estoppel against the drawer. This
rule likewise applies to the checks fraudulently
negotiated or diverted by the confidential employees
who hold them in their possession.112
NOTE: A forged signature in a negotiable instrument is
wholly inoperative and no right to discharge it or enforce
its payment can be acquired through or under the forged
signature except against a party who cannot invoke the
forgery, it stands to reason, upon the facts of record, that
110
66.
111
Gonzales v. RCBC (2006)
112
PCIB v. CA (2001)
2008 Notes in Negotiable Instruments Law
the respondent, as a collecting bank which endorsed the
checks to the drawee-banks for clearing, should be liable
to the latter for reimbursement, for, as found by the court
a quo and by the appellate court, the endorsements on
the checks had been forged prior to their delivery to the
petitioner. In legal contemplation, therefore, the
payments made by the drawee-banks to the respondent
on account of the said checks were ineffective; and, such
being the case, the relationship of creditor and debtor
between the petitioner and the respondent had not been
validly effected, the checks not having been properly and
legitimately converted into cash.113
NOTE: Where a check is drawn payable to the order of
one person and is presented to a bank by another and
purports upon its face to have been duly indorsed by the
payee of the check, it is the duty of the bank to know
that the check was duly indorsed by the original payee,
and where the Bank pays the amount of the check to a
third person, who has forged the signature of the payee,
the loss falls upon the bank who cashed the check, and its
only remedy is against the person to whom it paid the
money.114
Persons Precluded from
Setting up the Defense of Forgery
1. Those who admit/warrant the genuineness of
the signature in question: indorsers, persons
negotiating by delivery and acceptors;
2. Those who by their acts, silence, or negligence,
are estopped from claiming forgery;
3. Holder of a bearer instrument (Forged signature
is not necessary to the title of the holder).
NOTE: The bank on which a check is drawn, known as
the drawee bank, is under strict liability to pay the check
to the order of the payee. The drawer's instructions are
reflected on the face and by the terms of the check.
Payment under a forged indorsement is not to the
drawer's order. When the drawee bank pays a person
other than the payee, it does not comply with the terms
of the check and violates its duty to charge its customer's
(the drawer) account only for properly payable items.
Since the drawee bank did not pay a holder or other
person entitled to receive payment, it has no right to
reimbursement from the drawer. The general rule then is
that the drawee bank may not debit the drawer's account
and is not entitled to indemnification from the drawer.
The risk of loss must perforce fall on the drawee bank.
113
Jai-Alai vs. BPI
114
Republic v. Ebrada
23
However, if the drawee bank can prove a failure by
the customer/drawer to exercise ordinary care that
substantially contributed to the making of the forged
signature, the drawer is precluded from asserting the
forgery.
If at the same time the drawee bank was also
negligent to the point of substantially contributing to the
loss, then such loss from the forgery can be apportioned
between the negligent drawer and the negligent bank.115
NOTE: The records show that at the time the twenty-
three (23) checks were prepared, negotiated, and
encashed, the petitioner was using its own personalized
checks, instead of the official PNB Commercial blank
checks. In the exercise of this special privilege, however,
the petitioner failed to provide the needed security
measures. Hence, the petitioner is barred from setting up
the defense of forgery under Section 23 of the Negotiable
Instruments Law because it was guilty of negligence not
only before the questioned checks were negotiated but
even after the same had already been negotiated.116
NOTE: The petitioner is precluded from setting up the
forgery, assuming there is a forgery, due to his own
negligence in entrusting to his secretary his credit cards
and checkbook including the verification of his
statements of accounts. 117
Rights of parties in cases of forged instruments:
1. Where note payable to order
- party whose signature was forged is not liable to
a holder, even a HIDC
- since it is effected by indorsement coupled with
delivery, it being forged, the indorsement is
wholly inoperative
2. Where note payable to bearer
- the party whose indorsement is forged is liable
to a HIDC, but not to one who is not a HIDC
Reason: it can be negotiated by mere delivery
- the only defense available is want of delivery but
this defense can be raised only against a holder
not in due course
3. Where bill payable to order
- the party whose indorsement is forged is not
liable to any holder even a HIDC. The forged
indorsement is wholly inoperative.
115
Associated Bank vs. CA
116
MWSS vs. CA
117
Ilusorio vs. CA
2008 Notes in Negotiable Instruments Law 24

E.g. mechanically complete

M P A B C before the forgery.

c. Party who made the

X forgery is liable.
(forger)
Rules:
1. B and C cannot enforce payment against M, P, FORGERY OF BILL OF EXCHANGE
and A (cut
cut-
cut-off rule)
rule Forged DRAWERs signature
2. Parties before the forgery have rights as between Order Instrument Bearer Instrument
themselves a. Drawer is not liable a. Drawer is not liable.
3. C may ask payment from B (warranties) because he was never a
party to the instrument. b. Drawee is liable if it
Exceptions: paid. Drawee cannot
1. estoppel; b. Drawee is liable if it paid recover from the
2. when signature is not necessary (no recourse to drawer) collecting bank.
because he admitted the
FORGERY IN PROMISSORY NOTES genuineness of the drawers c. Party who made the
Forged MAKERs signature signature. Drawee cannot forgery is liable.
Order Instrument Bearer Instrument recover from the collecting
a. Maker is not liable a. Maker is not liable. bank because there is no
because he never became a privity between the
party to the instrument. b. Party who made the collecting bank and the
forgery is liable. drawer. The latter does not
b. Indorsers subsequent to give any warranty
c. Indorsers may be made
forgery are liable because of regarding the signature of
liable to those persons
their warranties. the drawer. (Associated
who obtain title through
Bank vs. CA)
their indorsements.
c. Party who the made the
forgery is liable. c. Indorsers subsequent to
Forged PAYEEs signature forgery liable (such as
Order Instrument Bearer Instrument collecting bank or last
a. Maker and payee not a. Maker is liable. endorser)
liable. (Indorsement is not d. Party who made the
necessary to title and the forgery is liable
b. Indorsers subsequent to maker engages to pay
forgery are liable. holder) Forged PAYEEs signature
c. Party who made the Order Instrument Bearer Instrument
forgery is liable. b. Party who made the a. Drawer, drawee and a. Drawer is liable
forgery is liable payee not liable. b. Drawee is liable
Forged INDORSERs signature b. Indorsers subsequent to c. Payee is not liable
Order Instrument Bearer Instrument forgery are liable. (such as d. Collecting bank is liable
a. Maker, payee and a. Maker is liable. collecting bank) because of warranty
indorser whose signature (indorsement is not c. Party who made the e. Party who made the
was forged is not liable. necessary to title and the forgery is liable forgery is liable
maker engages to pay the Forged INDORSERs signature
b. Indorsers subsequent to holder) Order Instrument Bearer Instrument
forgery are liable. (Because
b. Indorser whose
of their warranties)
signature was forged not
liable to one who is not a
c. Party who made the
HIDC provided the
forgery is liable.
instrument is
2008 Notes in Negotiable Instruments Law 25

a. Drawer, payee and a. Drawer is liable. clearing period, the collecting bank is absolved from
indorser whose signature (indorsement not liability.120
was forged not liable. necessary to title)
b. Drawee is liable if it paid. b. Drawee is liable.
c. Indorsers subsequent to c. Indorser whose
forgery are liable. (such as signature was forged is
collecting bank) liable because
IX. Defenses
d. Party who made the indorsement is not
forgery is liable. necessary to title.
d. Party who made the
Real defenses
forgery is liable.
Those available against all holders. They attach to the res
regardless of the merits or demerits of the holder.
A BANK IS BOUND TO KNOW KNOW Real defenses do not render the instrument
ITS DEPOSITORS SIGNATURE
SIGNATURE valueless. With real defenses, the instrument is
When a person deposits money in a general account in a
unenforceable only against the party entitled to set up
bank, against which he has the privilege of drawing the defense but not against those whom such a defense is
checks in the ordinary course of business, the
not available as such, as in the case of forgery which is
relationship between the bank and the depositor is that
not available to persons estopped.
of debtor and creditor. So far as the legal relationship
between the two is concerned, the situation is the same Examples of real defenses
as though the bank had borrowed money from the
1. Alteration
depositor, agreeing to repay it on demand, or had bought
2. Want of delivery of incomplete instrument.
goods from the depositor, agreeing to pay for them on 3. Duress amounting to forgery.
demand. The bank owes the depositor money in the same 4. Fraud in factum or fraud in the execution
sense that any debtor owes money to his creditor. Added
5. Minority
to this, in the case of bank and depositor, there is, of
6. Marriage in the case of a wife
course, the banks obligation to pay checks drawn by the 7. Insanity where the insane person has a guardian
depositor in proper form and presented in due course. appointed by the court.
When the bank receives the deposit, it impliedly agrees
8. Ultra vires acts of a corporation, where the
to pay only upon the depositors order. When the bank
corporation is absolutely prohibited by its charter or
pays a check, on which the depositors signature is a statute from issuing any commercial paper under any
forgery, it has failed to comply with its contract in this
circumstances.
respect. Therefore, the bank is held liable.118
9. Want of authority of agent.
10. Execution of instrument between public enemies.
The deposit contract between a payor bank and its 11. Illegality of contract where it is the contract or
customer determines who can draw against the
instrument itself which is expressly made illegal by
customers account by specifying whose signature is
statute
necessary on checks that are chargeable against the
12. Forgery.
customers account. Therefore, a check drawn against the
account of an individual customer that is signed by
Personal defenses
someone other than the customer, and without authority
Those which grow out of the agreement or conduct of a
from her, is not properly payable and is not chargeable to
particular person in regard to the instrument which
the customers account, inasmuch as any unauthorized renders it inequitable for him, though holding the legal
signature on an instrument is ineffective as the signature
title, to enforce it against the party sought to be made
of the person whose name is signed.119
liable but which are not available against a holder in due
course.
24-
24-hour Clearing Rule
When the drawee bank fails to return a forged check or
Examples of personal defenses
altered check to the collecting bank within the 24-hour
1. Absence or failure of consideration, partial or total.
2. Want of delivery of complete instrument.
118
Brady, The Law of Forged and Altered Checks
119
Nickles, Negotiable Instruments and Other Related
120
Commercial Paper Republic vs. CA (1975)
2008 Notes in Negotiable Instruments Law 26

3. Insertion of wrong date in an instrument, where it is D. Incomplete but Delivered125

payable at a fixed period after date and it is issued 1. Holder has prima facie authority to fill up the
undated or where it is payable at a fixed period after instrument.
sight and the acceptance is undated. 2. The instrument must be filled up strictly in
4. Filling up of blank contrary to authority given or not accordance with the authority given and within
within reasonable time, where the instrument is reasonable time
delivered. 3. HIDC may enforce the instrument as if filled up
5. Fraud in inducement or fraud in esse contractus according to no. 2.
6. Acquisition of instrument by force, duress, or fear.
7. Acquisition of the instrument by unlawful means. E. Complete but Undelivered126
8. Acquisition of the instrument for an illegal 1. Between immediate parties and those who are
consideration. similarly situated, delivery must be coupled with the
9. Negotiation in breach of faith. intention of transferring title to the instrument.
10. Negotiation under circumstances that amount to 2. As to HIDC, it is conclusively presumed that there
fraud. was valid delivery; and
11. Mistake. 3. As against an immediate party and remote party who
12. Intoxication according to better authority. is not a HIDC, presumption of a valid and intentional
13. Ultra vires acts of corporations where the delivery is rebuttable.
corporation has the power to issue negotiable paper
but the issuance was not authorized for the particular F. Fraud
purpose for which it was issued. (See Chapter on Forgery; Fraud)
14. Want of authority of agent where he has apparent
authority. G. Absence or Failure of Consideration
15. Insanity where there is no notice of insanity on the Personal defense to the prejudiced party and available
part of the one contracting with the insane person. against any person not HIDC. 127
16. Illegality of contract where form or consideration is
illegal H. Prescription
Refers to extinctive prescription and may be raised even
EFFECTS OF CERTAIN DEFENSES against a HIDC. Under the Civil Code, the prescriptive
A. Minority period of an action based on a written contract is 10 years
Negotiation by a minor passes title to the instrument.121 from accrual of cause of action.
But the minor is not liable and the defense is personal to
him I. Material Alteration
Any change in the instrument which affects or changes
B. Ultra-
Ultra-vires acts the liability of the parties in any way. Any party or even
A real defense but the negotiation passes title to the a stranger through spoliation may cause a material
instrument.122 alteration.

NOTE: A corporation cannot act as an accommodation EFFECTS OF MATERIAL ALTERATION

party. The issuance or indorsement of negotiable
instrument by a corporation without consideration and
for the accommodation of another is ultra vires.123
C. Incomplete and Undelivered
If completed and negotiated without authority, not a
valid contract against a person who has signed before
delivery of the contract even in the hands of HIDC but
subsequent indorsers are liable. This is a real defense.124
Under Sec. 124, the following are the effects of material
alterations to the negotiable instrument:
1. Alteration by a party Avoids the instrument except
as against the party who made, authorized, or
assented to the alteration and subsequent indorsers.
However, if an altered instrument is negotiated to a
HIDC, he may enforce payment thereof according to
its original tenor regardless of whether the alteration
was innocent or fraudulent.

121
22
122 125
Ibid. 14
123 126
Crisologo v. CA (1982) 16
124 127
15 28
2008 Notes in Negotiable Instruments Law
NOTE: Since no distinction is made, it does not
matter whether it is favorable or unfavorable to the
party making the alteration. The intent of the law is
to preserve the integrity of the negotiable
instruments.
Subsequent indorsers - indorsers who indorsed
subsequent to the alteration because of their
warranties.
2. Alteration by a stranger (spoliation)- the effect is the
same as where the alteration is made by a party
which a HIDC can recover on the original tenor of
the instrument.128
Changes in the following constitute material alterations:
a. Date;
b. Sum payable, either for principal or interest;
c. Time or place of payment;
d. Number or relations of the parties;
e. Medium or currency in which payment is to be
made;
f. That which adds a place of payment where no
place of payment is specified; and
g. Any other change or addition which alters the
effect of the instrument in any respect.129
NOTE: A serial number is an item which is not an
essential requisite for negotiability under Sec. 1, NIL, and
which does not affect the rights of the parties, hence its
alteration is not material.130
Q: Is the alteration of the serial number of a check a
material alteration?
NO. The question on whether an alteration of the serial
number of a check is a material alteration under the
Negotiable Instruments Law is already a settled matter.
In Philippine National Bank v. Court of Appeals, this
Court ruled that the alteration on the serial number of a
check is not a material alteration. Thus, an alteration is
said to be material if it alters the effect of the instrument.
It means an unauthorized change in an instrument that
purports to modify in any respect the obligation of a
party or an unauthorized addition of words or numbers
or other change to an incomplete instrument relating to
the obligation of a party. In other words, a material
alteration is one which changes the items which are
128
124
129
125
130
PNB v. CA, 256 SCRA 491
27
required to be stated under Section 1 of the Negotiable
Instruments Law.131
Q: Is the alteration of the date and
and amount appearing on
the check a material alteration?
YES. An alteration is said to be material if it changes the
effect of the instrument. It means that 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 other words, a material alteration is one which
changes the items which are required to be stated under
Section 1 of the Negotiable Instruments Law.
In the case at bar, the check was altered so that
the amount was increased from P1,000.00 to P91,000.00
and the date was changed from 24 November 1994 to 14
November 1994. Apparently, since the entries altered
were among those enumerated under Section 1 and 125,
namely, the sum of money payable and the date of the
check, the instant controversy therefore squarely falls
within the purview of material alteration.
Metrobank failed to detect the above alterations
which could not escape the attention of even an ordinary
person. This negligence was exacerbated by the fact that,
as found by the trial court, the check in question was
examined by the cash custodian whose functions do not
include the examinations of checks indorsed for payment
against drawers accounts.132
X. Consideration
An inducement to a contract, i.e., the price, cause or
impelling influence which induces a party to enter into a
contract. It is the essential or more proximate purpose a
party has in view at the time of entering into a contract.
It is not the motive, for the latter is the personal
or private reasons of a party in entering into a contract.
Presumption of
consideration. Every negotiable
instrument is deemed prima facie to have been issued for
a valuable consideration; and every person whose
signature appears thereon to have become a party thereto
for value.133
131
Intl. Corporate Bank v. CA and PNB (2006)
132
Metrobank v. Cabilzo (2006)
133
24
2008 Notes in Negotiable Instruments Law 28

Effect of want of consideration. Absence or failure of
consideration is a matter of defense as against any person
not a holder in due course; and partial failure of
consideration is a defense pro tanto, whether the failure
is an ascertained and liquidated amount or otherwise.134
Value. Value is any consideration sufficient to support a
simple contract. An antecedent or pre-existing debt
constitutes value; and is deemed such whether the
instrument is payable on demand or at a future time.135
Holder for value. Where value has at any time been
given for the instrument, the holder is deemed a holder
for value in respect to all parties who become such prior
to that time.136
When lien on instrument constitutes holder for value.
Where the holder has a lien on the instrument arising
either from contract or by implication of law, he is
deemed a holder for value to the extent of his lien.137
NOTE:
1. If between the pledgor and the party liable on the
instrument, there are existing defenses, then the
pledgee can collect on the instrument only to the
extent of the amount of his debt.
2. If the defenses of the party liable on the instrument
are real defenses, the pledgee can recover nothing
upon the instrument.
NOTE: A corporation cannot act as an accommodation
party. The issuance or indorsement of negotiable
instrument by a corporation without consideration and
for the accommodation of another is ultra vires.139
Requisites:
1. Accommodation party must sign as maker, drawer,
acceptor or indorser;
2. No value is received by the accommodation party for
the accommodated party; and
3. The purpose is to lend the name or credit.
NOTE: without receiving value therefor, means
without receiving value by virtue of the instrument.140
Legal Position
1. AP is generally regarded as a surety for the party
accommodated (principal) - It is a settled rule that a
surety is bound equally and absolutely with the
principal and is deemed an original promissory and
debtor from the beginning. The liability is immediate
and direct;141
2. When AP makes payment to holder of the note, he
has the right to sue the accommodated party for
reimbursement.142
Rights of an Accommodation Party
1. Right to revoke accommodation before the
instrument has been negotiated for value

ACCOMMODATION
2. Right to reimbursement from accommodated party
A legal arrangement under which a person called the
the accommodated party is the real debtor. Hence,
accommodation party, lends his name and credit to
the cause of action is not on the instrument but on
another called the accommodated party, without any
an implied contract of reimbursement
consideration.
3. Right to contribution from other solidary
Accommodation Party.
Party. An accommodation party (AP) is
accommodation maker
one who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor,
Liability of accommodation party.
and for the purpose of lending his name to some other
Such a person is liable on the instrument to a holder for
person.138
value, notwithstanding such holder, at the time of taking
the instrument, knew him to be only an accommodation
NOTE: The person to whom the instrument thus
party. (29)
executed is subsequently negotiated has a right of
recourse against the accommodation party in spite of the
NOTE: AP is liable on the instrument to a holder for
formers knowledge that no consideration passed
value notwithstanding such holder at the time of the
between the accommodation and accommodated parties.
taking of the instrument knew him to be only an
134
28
135 139
25 Supra at note 123
136 140
26 Clark v. Sellner, 42 Phil. 384
137 141
27 Garcia vs. Llamas (2003)
138 142
29 Agro Conglomerates, Inc. v. CA, (2000)
2008 Notes in Negotiable Instruments Law 29

accommodation party. Hence, As regards, an AP, the 4th party being the surety. It is a settled rule that a surety is
condition, i.e., lack of notice of infirmity in the bound equally and absolutely with the principal and is
instrument or defect in the title of the persons deemed an original promissor and debtor from the
negotiating it, has no application.143 beginning. The liability is immediate and direct.

Accommodation Party Regular Party

NOTE: On principle, a solidary accommodation maker
Signs an instrument Signs the instrument for who made payment-has the right to contribution, from
without receiving value value
his co-accommodation maker, in the absence of
therefor
agreement to the contrary between them, and subject to
Purpose of signing: lend his Not for that purpose conditions imposed by law. This right springs from an
name to other person implied promise between the accommodation makers to
May always show, by parol Cannot disclaim personal share equally the burdens that may ensue from their
evidence, that he is only liability by parol evidence having consented to stamp their signatures on the
such promissory note. For having lent their signatures to the
Cannot avail of the defense May avail principal debtor, they clearly placed themselves-in so far
of absence/failure of as payment made by one may create liability on the other
consideration against a in the category of mere joint guarantors of the former.145
holder not in due course
May sue reimbursement May not sue NOTE: The aforequoted provision of the Negotiable
after paying the Instruments Law which holds an accommodation party
holder/subsequent party liable on the instrument to a holder for value, although
such holder at the time of taking the instrument knew
Rights of
of APs as against each other him to be only an accommodation party, does not include
An AP may demand contribution from his co- nor apply to corporations which are accommodation
accommodation party without first directing his action parties. This is because the issue or indorsement of
against the principal debtor provided: negotiable paper by a corporation without consideration
a. He made the payment by virtue of judicial and for the accommodation of another is ultra vires.
demand; or Hence, one who has taken the instrument with
b. The principal debtor is insolvent. knowledge of the accommodation nature thereof cannot
recover against a corporation where it is only an
NOTE: By its terms, the note was made payable to a accommodation party. If the form of the instrument, or
specific person rather than to bearer or to order -- a the nature of the transaction, is such as to charge the
requisite for negotiability under the Negotiable indorsee with knowledge that the issue or indorsement of
Instruments Law (NIL). Hence, Garcia cannot avail the instrument by the corporation is for the
himself of the NILs provisions on the liabilities and accommodation of another, he cannot recover against the
defenses of an accommodation party. Besides, a non- corporation thereon.
negotiable note is merely a simple contract in writing By way of exception, an officer or agent of a
and is evidence of such intangible rights as may have corporation shall have the power to execute or indorse a
been created by the assent of the parties. The promissory negotiable paper in the name of the corporation for the
note is thus covered by the general provisions of the Civil accommodation of a third person only if specifically
Code, not by the NIL.144 authorized to do so.146

Even granting arguendo that the NIL was applicable,
still, Garcia would be liable for the promissory note.
Under Article 29 of Act 2031, an accommodation party is
liable for the instrument to a holder for value even if, at
the time of its taking, the latter knew the former to be
only an accommodation party. The relation between an
accommodation party and the party accommodated is, in
effect, one of principal and surety -- the accommodation
NOTE: To be sure, as regards an accommodation party,
the fourth condition, i.e., lack of notice of any infirmity
in the instrument or defect in title of the persons
negotiating it, has no application. This is because Section
29 of the law preserves the right of recourse of a "holder
for value" against the accommodation party
notwithstanding that "such holder, at the time of taking

143 145
Stelco Marketing Corp. v. CA (1992) Sadaya v. Sevilla
144 146
Garcia v. Llamas (2003) Crisologo v. CA (1982)
2008 Notes in Negotiable Instruments Law
the instrument, knew him to be only an accommodation
party."147
NOTE: In accommodation transactions recognized by the
NIL, an accommodating party lends his credit to the
accommodated party, by issuing or indorsing a check
which is held by a payee or indorsee as a holder in due
course, who gave full value therefor to the
accommodated party. The latter, in other words, receives
or realizes full value which the accommodated party then
must repay to the accommodating party, unless of course
the accommodating party intended to make a donation to
the accommodated party. But the accommodating party
is bound on the check to the holder in due course who is
necessarily a third party and is not the accommodated
party. Having issued or indorsed the check, the
accommodating party has warranted to the holder in due
course that he will pay the same according to its tenor.148
NOTE: Well-entrenched is the rule that the
consideration necessary to support a surety obligation
need not pass directly to the surety, a consideration need
not pass directly to the surety, a consideration moving to
the principal alone being sufficient.149
XI. Holders
"Holder" means the payee or indorsee of a bill or note
who is in possession of it, or the bearer thereof.150
NOTE: Under Sec. 30, an instrument is negotiated when
it is transferred from one person to another in such
manner as to constitute the transferee the holder thereof.
Kinds of Holders
Holders
1. Simple Holder151
2. Holder for Value152 - where value has at any time
been given for the instrument, the holder is deemed
a holder for value in respect to all parties who
become such prior to that time.
3. Holder in Due Course153
147
Stelco v. CA
148
Travel-On v. CA
149
Evangelista v. Mercator Finance Corp. (2003)
150
191
151
51
152
26
153
52 and 57
30
RIGHTS OF A HOLDER
In general, as provided for in Sec. 51, a holder has the
following rights:
1. Right to sue Even when he holds the instrument
merely in a representative capacity; such as a holder
for collection only;154 or a pledgee of a note.155
2. Right to payment in due course which discharges the
instrument
Payment in due course is payment made (a) at or
after the maturity of the instrument; (b) to the
holder thereof; and (c) in good faith and without
notice that his title is defective.156
NOTE: The law does not provide that a holder who
is not a holder in due course, may not in any case,
recover on the instrument. The only disadvantage of
a holder who is not a holder in due course is that the
negotiable instrument is subject to defenses as if it
were non-negotiable.157
Rule: In the hands of a holder other than a holder in due
course, a negotiable instrument is subject to the same
defenses as if it were non-negotiable.
Exception: However, a holder who is not himself a
holder in due course but derives his title from a holder in
due course is given the rights of such former holder,
provided he himself is not a party to any fraud or
illegality affecting the instrument.
Rights of a Transferee of Unindorsed Negotiable
Instrument
Although a transferee of an unendorsed instrument is not
a holder as defined under Sec. 191, nevertheless, the
prevailing school of thought is that if the transferor could
sue in his own name, then the transferee may also do so
under the principle in assignment that the assignee steps
into the shoes of the assignor.
Under Sec. 49, where the holder of an instrument
payable to his order transfers it for value without
indorsing it, the transfer vests in the transferee such title
as the transferor has therein.
154
Alabama City v. Kyle, 202 Ala. 552
155
Walmer vs. First Acceptance Co., 212 N.W. 638
156
88; See Chapter on Presentment for Payment
157
Chan Wan vs. Tan Kim (1960)
2008 Notes in Negotiable Instruments Law
HOLDER IN DUE COURSE
Under Sec. 52, a holder in due course is a payee or
indorsee of a negotiable instrument who takes it under
the following conditions:
1. That it is complete and regular upon its face;
2. That he became the holder of it before it was
overdue, and without notice that it has been
previously dishonored, if such was the fact;
3. That he took it in good faith and for value;
4. That at the time it was negotiated to him, he had no
notice of any infirmity in the instrument or defect in
the title of the person negotiating it.
Rights of a HIDC
1. Right to sue
2. Right to receive payment
3. Holds the instrument free from any defect of title of
prior parties
4. Holds the instrument free from defenses available to
parties among themselves
5. He may enforce payment of the instrument for the
full amount thereof against all parties liable thereon.
NOTE: The weight of authority sustains the view that a
payee may be a holder in due course. Hence, the
presumption that he is a prima facie holder in due course
applies in his favor. However, said presumption may be
rebutted. Hence, what is vital to the resolution of this
issue is whether David took possession of the checks
under the conditions provided for in Section 52 of the
NIL.158
Defective Title
Under Sec. 55, the title of a person who negotiates an
instrument is defective:
1. in its acquisition - when he obtained the instrument,
or any signature thereto, by fraud, duress, or force
and fear, or other unlawful means, or for an illegal
consideration.
2. in the negotiation - when he negotiates it in breach
of faith, or under such circumstances as amount to a
fraud.
De Ocampo vs. Gatchalian (1961) As the holder's title
was defective or suspicious, it cannot be stated that the
payee acquired the check without knowledge of said
defect in holder's title, and for this reason the
presumption that it is a holder in due course or that it
acquired the instrument in good faith does not exist. And
having presented no evidence that it acquired the check
in good faith, it (payee) cannot be considered as a holder
158
Yang vs. CA (2003)
31
in due course. In other words, under the circumstances of
the case, instead of the presumption that payee was a
holder in good faith, the fact is that it acquired possession
of the instrument under circumstances that should have
put it to inquiry as to the title of the holder who
negotiated the check to it. The burden was, therefore,
placed upon it to show that notwithstanding the
suspicious circumstances, it acquired the check in actual
good faith.
Pursuant to Section 55, it is vital to show that the
negotiation is made by the perpetrator in breach of faith
amounting to fraud. The person negotiating the checks
must have gone beyond the authority given by his
principal. If the principal could prove that there was no
negligence in the performance of his duties, he may set
up the personal defense to escape liability and recover
from other parties who. Though their own negligence,
allowed the commission of the crime.
In this case, we note that the direct perpetrators of
the offense, namely the embezzlers belonging to a
syndicate, are now fugitives from justice. They have,
even if temporarily, escaped liability for the
embezzlement of millions of pesos. We are thus left only
with the task of determining who of the present parties
before us must bear the burden of loss of these millions.
It all boils down to the question of liability based on the
degree of negligence among the parties concerned.
Foremost, we must resolve whether the injured
party, Ford, is guilty of the "imputed contributory
negligence" that would defeat its claim for
reimbursement, bearing ing mind that its employees,
Godofredo Rivera and Alexis Marindo, were among the
members of the syndicate.
Q: What constitutes notice of defect?
A: Notice of infirmity in the instrument or defect in the
title, the person to whom it is negotiated must have had
actual knowledge of such facts that his action in taking
the instrument amounted to bad faith.159
GENERAL RULE: Failure to make inquiry is not
evidence of bad faith.
Exceptions:
1. Where a holders title is defective or suspicious
that would compel a reasonable man to investigate, it
cannot be stated that the payee acquired the check
without the knowledge of said defect in the holders
title and for this reason the presumption that it is a
159
56
2008 Notes in Negotiable Instruments Law
holder in due course or that it acquired the
instrument in good faith does not exist.160
2. Holder to whom cashiers check is not indorsed in
due course and negotiated for value is not a holder in
due course.161
NOTE: Admittedly, petitioner became the holder of the
cashier's check as endorsed by Alexander Lim who stole
the check. He refused to say how and why it was passed
to him. He had therefore notice of the defect of his title
over the check from the start. The holder of a cashier's
check who is not a holder in due course cannot enforce
such check against the issuing bank which dishonors the
same. If a payee of a cashier's check obtained it from the
issuing bank by fraud, or if there is some other reason
why the payee is not entitled to collect the check, the
respondent bank would, of course, have the right to
refuse payment of the check when presented by the
payee, since respondent bank was aware of the facts
surrounding the loss of the check in question.162
HOLDER NOT IN DUE COURSE
The following are holders not in due course:
a. He is one who became a holder of an instrument
without any, some, or all of the requisites under Sec.
52; OR
b. Under Sec. 53, where an instrument payable on
demand is negotiated on an unreasonable length of
time after its issue, the holder is not deemed a holder
in due course.
NOTE: If there are no defenses, the distinction between a
HIDC and one who is not a HIDC is immaterial.
Q: How do you determine reasonable time?
A: Regard must be had to the nature of the instrument,
the usage of trade or business (if any) with respect to
such instrument, and the facts of the particular case.163
Rights of a holder NOT in due course
1. he may sue on the instrument in his own name.
2. he may receive payment and if the payment is in due
course, the instrument is discharged.
3. he is entitled to the instrument but holds it subject to
the same defenses as if it were non-negotiable.
4. has all the rights of a HIDC from whom he derives
his title in respect of all parties prior to such holder,
160
De Ocampo vs. Gatchalian
161
Mesina v. IAC (1986)
162
Ibid.
163
193
32
provided he is not himself a party to any fraud or
illegality affecting the instrument.164
NOTE: Person not a HIDC his rights are those of a
transferee of a non-negotiable instrument so that he is
not free from personal defenses, except: Sec. 58 (holder
through a HIDC)
Every holder is deemed a HIDC.165 When it is shown
that the title of any person who has negotiated the
instrument was defective, the burden is on the holder to
prove that he or some person under whom he claims
acquired the title as HIDC (presumption arises only in
favor of a person who is a holder in the sense defined in
Sec. 191).
Q: What is the so
so--called shelter rule?
A: This rule is found in Sec. 58 which states that [a]
holder who derives his title through a holder in due
course, and who is not himself a party to any fraud or
illegality affecting the instrument, has all the rights of
such former holder in respect of all prior parties to the
latter.
XII. Liabilities & Warranties
PARTIES PRIMARILY LIABLE
LIABLE
1. Maker
a. Engages to pay according to the tenor of the
instrument; and
b. Admits the existence of the payee and his
capacity to indorse.
2. Acceptor
a. Engages to pay according to the tenor of his
acceptance;
b. Admits the existence of the drawer, the
genuiness of his signature and his capacity and
authority to draw the instrument; and
c. Admits the existence of the payee and his
capacity to indorse.
NOTE: A bill of itself does not operate as an assignment
of funds in the hands of the drawee available for the
164
58
165
59
2008 Notes in Negotiable Instruments Law 33

payment thereof and the drawee is not liable unless and
until he accepts the same.166
Q: Why is an acceptor primarily bound?
A: Because his acceptance is a promise to pay. Also, there
is an implied acceptance when there was payment since
the greater includes the less.
NOTE: Acceptance is a promise to perform an act.
Payment is actual performance.
Acceptor engages that he will pay it according to the
tenor of hi acceptance, and admits:
a) existence of the drawer, the genuineness of his
signature, and his capacity and authority to draw the
instrument; and
b) existence of the payee and his then capacity to
indorse (62)
NOTE: Liability depends on the tenor of the acceptance,
not on the tenor of the instrument.
warranties. He would be liable only if the following
conditions are complies with:167
1. Bill is presented for acceptance or for payment to the
drawee;
2. Bill is dishonored by non-acceptance or non-
payment; and
3. Necessary proceedings of dishonor are duly taken,
such as:
a) notice of dishonor is given to drawer
b) protest is made followed by a notice of protest
(in case of foreign bills)
Intervening Indorsers (subsequent indorsers) Any of the
indorsers between the holder and the drawer.
Negative or limited liability expressly made by the
drawer
LIMITED LIABILITY UNDER SEC. 65
Person Negotiating by
Qualified Indorser
Delivery

Every person negotiating A. Warranties same as those

PARTIES SECONDARILY LIABLE
instrument by delivery or of qualified indorsers; and
1. Drawer
by a qualified
a. Admits the existence of the payee and his B. Warranties extend to
endorsement warrants
capacity to indorse; immediate transferee only.
that:
b. Engages that the instrument will be accepted or
paid by the party primarily liable; and a. Instrument is genuine
c. Engages that if the instrument is dishonored and and in all respects what it
proper proceedings are brought, he will pay purports to be;
entitled to be paid.
b. He has good title to it;

2. General Indorser c. All prior parties had

A. Warrants all subsequent HIDC - capacity to contract;
a. That the instrument is genuine and in all
d. He has no knowledge of
respect what it purports to be
any fact which would
b. He has good title to it;
impair the validity of the
c. All prior parties had capacity to contract
instrument or render it
d. The instrument is, at the time of
valueless.
endorsement, valid and subsisting.

B. Engages that the instrument will be accepted or
paid, or both, as the case may be, according to its
tenor; and
C. If the instrument is dishonored and necessary
proceedings on dishonor be duly taken, he will pay
to the party entitled to be paid.
NOTE: Drawer is only secondarily liable because he does
not promise to pay the bill absolutely and makes no
Q: What does recourse mean?
"Recourse" means resort to a person who is secondarily
liable after the default of the person who is primarily
liable. Appellant, by indorsing the note "with recourse"
does not make itself a qualified indorser; but a general
indorser who is secondarily liable, because by such
indorsement, it agreed that if Dr. Villaruel fails to pay the
note, plaintiff-appellee can go after said appellant. The
effect of such indorsement is that the note was indorsed
Without qualification. A person who indorses without

166 167
127 61
2008 Notes in Negotiable Instruments Law 34

qualification engages that on due presentment, the note

shall be accepted or paid, or both as the case may be, and Primary and Secondary
Warranties of Parties
that if it be dishonored, he will pay the amount thereof Liabilities
Liabilities of Parties
to the holder. Appellant Sambok's intention of indorsing Makes the parties liable to Impose no direct obligation
the note without qualification is made even more pay the sum certain in to pay in the absence of
apparent by the fact that the notice of demand, dishonor, money stated in the breach thereof. In case of
protest and presentment were all waived. The words instrument. breach, the person who
added by said appellant do not limit his liability, but breached the same may
rather, confirm his obligation as a general indorser.168 either be liable or barred
from asserting a particular
NOTE: The collecting bank or last endorser generally defense.
suffers the loss because it has the duty to ascertain the Conditioned on Does not require
genuineness of all prior endorsements considering that presentment and notice of presentment and notice of
the act of presenting the check for payment to the dishonor. dishonor.
drawee is an assertion that the party making the
presentment has done its duty to ascertain the ORDER OF LIABILITY
genuineness of the endorsements." The rule finds more There is NO ORDER of liability among the indorsers as
meaning in this case where the check involved is drawn against the holder. He is free to choose to recover from
on a foreign bank and therefore collection is more any indorser in case of dishonor of the instrument..
difficult than when the drawee bank is a local one even As with one another, indorsers are liable prima facie
though the check in question is a manager's check.169 in the order in which they indorse unless the contrary is
proven.171
Person Negotiating by Mere The rule is that a person whose signature does not
Delivery or by Qualified General Indorser appear on the instrument shall not be liable thereon.
Indorsement Except:
No secondary liability; but is There is secondary 1. The principal who signs through an agent is
liable for breach of warranty liability, and warranties liable;
2. The forger is liable;
Warrants that he has no Warrants that the 3. One who indorses in a separate instrument
knowledge of any fact which instrument is, at the time (allonge) or where an acceptance is written on a
would impair the validity of of his indorsement, valid separate paper is liable;
the instrument or render it and subsisting 4. One who signs his assumed or trade name is
valueless liable; and
5. A person negotiating by delivery (as in the case
Irregular Indorser of a bearer instrument) is liable to his immediate
A person who, not otherwise a party to an instrument, indorsee.
places his signature thereon in blank before delivery.170
Warranties of the Acceptor:
1. He is precluded from raising as defense that:
Rules governing its liability: a) drawer is fictitious
1. If instrument payable to the order of a 3rd person, he b) there was forgery
is liable to the payee and subsequent parties; c) he has no funds
2. If the instrument payable to order of maker or d) drawer has overdrawn his account
drawer, he is liable to all parties subsequent to maker e) drawer was incapacitated
or drawer; and f) drawer has no authority to draw the bill
3. If he signs for accommodation of the payee, he is 2. He does not admit the genuineness of the indorsers
liable to all parties subsequent to payee. signature.

Q: When is a person deemed an Indorser? When he

places his signature on the instrument otherwise than as
168
Metropol vs. Sambok (1983)
169
BPI vs. CA and Napiza
170 171
64 68
2008 Notes in Negotiable Instruments Law 35

a maker, drawer, or acceptor unless he clearly indicates INDORSER DRAWER

his intention to be bound in some other capacity.172 A party either to a note or Only to a bill
bill
Q: Who is an irregular indorser? He is one who indorses Does not make any Makes such admission
the instrument in an unusual, singular or peculiar admission regarding the
manner. His name appears where we would naturally existence of the payee and
expect another name. Hence, the requisites are: his capacity then to indorse
1. he is not otherwise a party to an instrument Has warranties Makes no warranties
2. he places his signature in blank
3. done before delivery. Q: Distinguish between a guarantor/surety and an
Purpose: to lend credit or his name. indorser of a negotiable instrument.
There are well-defined distinctions between the
Rules Indorser 173
Rules as to the Liability of an Irregular Indorser: contract of an indorser and that of a guarantor/surety of a
1. Instrument payable to the order of 3rd person liable commercial paper. The contract of indorsement is
to PAYEE and to ALL SUBSEQUENT parties, but not primarily that of transfer, while the contract of guaranty
to the maker is that of personal security. The liability of a
2. Instrument payable to the order of Maker or Drawer guarantor/surety is broader than that of an indorser.
or To Bearer liable to all parties SUBSEQUENT to Unless the bill is promptly presented for payment at
the maker or drawer maturity and due notice of dishonor given to the indorser
3. Irregular indorser signing for accommodation of within a reasonable time, he will be discharged from
payee liable to all parties SUBSEQUENT to the liability thereon. On the other hand, except where
payee required by the provisions of the contract of suretyship, a
demand or notice of default is not required to fix the
Implied warranties by a person negotiating an instrument suretys liability. He cannot complain that the creditor
by delivery or by a qualified indorsement;174 has not notified him in the absence of a special
1. Instrument is genuine and in all respects what it agreement to that effect in the contract of suretyship.
purports to be; Therefore, no protest on the export bill is
2. He has good title to it; necessary to charge all the respondents jointly and
3. All prior parties had capacity to contract; and severally liable with G.G. Sportswear since the
4. He has no knowledge of any fact w/c would impair respondents held themselves liable upon demand in case
the validity of the instrument or render it valueless. the instrument was dishonored and on the surety, they
even waived notice of dishonor as stipulated in their
NOTE: 1. Person who negotiates by mere delivery Letters of Guarantee.176
extends in favor only of his immediate transferee; while a
qualified indorser is liable to all subsequent holders who
make title through his indorsement for a breach of any of
his warranties.
2. Qualified indorsers do not warrant the
solvency of prior parties. XIII. Presentment
GENERAL INDORSER IRREGULAR INDORSER
Makes either a blank or Always makes a blank
special indorsement indorsement Presentment is the act of a holder of an instrument of
Indorses the instrument Before delivery to the exhibiting the note to the maker and demand payment,
after its delivery to the payee or showing a bill to the drawee and requesting its
payee acceptance or payment.
Liable only to parties Liable to payee and
subsequent to him subsequent parties
unless175

172
63, see also 17
173 175
64 Sec. 64 (c)
174 176
65 Allied Banking Corp. v. CA (2006)
2008 Notes in Negotiable Instruments Law 36

GENERAL RULES AS TO PRESENTMENT 1. Presentment for acceptance in the following instances:

1. Presentment for payment (PP) is not necessary to
charge persons primarily liable but is necessary to
charge persons secondarily liable177
2. PP is not necessary to charge persons secondarily
liable in the following cases:
a) as to drawer178
b) as to indorser179
c) when presentment is dispensed with180
d) when bill has been dishonored by non-
acceptance181
MODE OF PRESENTMENT182
Instrument must be exhibited. It requires personal or
face to face demand at a proper place. Instrument need
not actually be exhibited unless such exhibition is
demanded
a. Where the bill is payable after sight, or when it is
necessary in order to fix the maturity of the
instrument;
b. Where the bill expressly stipulates that it shall be
presented for acceptance;
c. Where the bill is drawn payable elsewhere than at
the residence or place of business of the drawee.183
NOTE: In all the above cases, the holder must either
present the bill for acceptance or negotiate it within a
reasonable time; otherwise, the drawer and all
indorsers are discharged.184
2. If dishonored by non-acceptance;
a. Notice of dishonor given to drawer and
indorsers.
b. Protest in case of a foreign bill.

Exhibition 3. If bill is accepted - presentment for payment to the

A. Purposes: acceptor.
1. To enable the debtor to determine the genuineness
of the instrument and the right of the holder to 4. If dishonored upon presentment for payment:
receive payment; and a. Notice of dishonor to persons secondarily liable.
2. To enable him to reclaim possession upon payment. b. Protest for dishonor by non-payment in case of
foreign bill.
B. When excused:
1. When debtor does not demand to see the instrument
but refuses payment on some other grounds, and
2. When the instrument is lost or destroyed.

HOW PARTIES ARE CHARGED XIV. Presentment for Payment

A. Parties primarily liable
The unconditional promise attaches the moment the
maker makes the instrument while the acceptors assent REQUISITES
to the unconditional order attaches the moment he 1. Made by the holder or his agent or any person
accepts the instrument. No further act is necessary in authorized to receive payment on his behalf;
order for the liability to accrue. Presentment for payment 2. To the person primarily liable or if he is absent or
is all that is necessary. inaccessible, to any person found at the place where
the presentment is made.
B. Parties secondarily liable 3. To the party liable under it;
Steps in a promissory note (indorsers) 4. At a reasonable hour on a business day and
a. Presentment for payment to the maker. 5. At a proper place.
b. Notice of dishonor should be given, if dishonored
by non-payment. NOTE: Presentment must be made within reasonable
time after issue. Under Sec. 193, it is provided that, in
Steps in a bill of exchange determining what is a "reasonable time" regard is to be
had to the nature of the instrument, the usage of trade or
177
70
business with respect to such instruments, and the facts
178
79 of the particular case.
179
80
180
82
181 183
151 143
182 184
74 144
2008 Notes in Negotiable Instruments Law
TIME OF PRESENTMENT
A. If payable on demand
1. PN: within reasonable time after its issue or deliver
this is a question of fact
2. BE: within reasonable time after its last negotiation
last transfer for value
B. If on a specified date
Instrument payable on a specified date, presentment
should be made on the date it falls due.
1. If not, indorsers and drawers are discharged
2. If made before maturity, not effective.
TIME OF MATURITY
1. Time fixed without grace
If with grace: last date of grace
2. Maturity: Sunday or Holiday next succeeding
business day
3. Maturity: Saturday
a) Time instrument: next succeeding business day
b) Demand instrument: before 12:00PM (Saturday)
or Monday (at the option of the holder)
NOTE: Under Sec. 86, computation of time of payment
where instrument is payable at a fixed period may be:
1. after date
2. after sight
3. after the happening of a specified event
Exclude the day from which time is to begin to run,
include the date of payment
Presentment WHEN NOT NECESSARY
1. Upon the drawer Presentment for payment is not
required in order to charge the drawer where he has
no right to expect or require that the drawee or
acceptor will pay the instrument.185
2. Upon the indorser (accommodated party) when the
instrument was made or accepted for his
accommodation and he has no reason to expect that
the instrument will be paid if presented.186
NOTE: PP is not required in order to charge an indorser
where the instrument was made or accepted for his
accommodation and he has no reason to expect that the
instrument will be paid if presented. Reason:
accommodated payee-indorser is the real debtor and not
the debtor and not the maker or acceptor. Hence, he is
185
79
186
80
37
not discharged even if no PP is made to the maker or
acceptor who, in substance, is a surety for the debt.
Presentment WHEN EXCUSED
Presentment for payment is excused:
1. Where, after the exercise of reasonable diligence,
presentment, as required by this Act, cannot be
made, e.g. drawer has no funds with drawee;
2. Where the drawee is a fictitious person - there is no
one to whom presentment is to be made;
3. By implied or express waiver of presentment before
or after maturity.
NOTE: Waiver by the maker does not operate as a
waiver by the indorser.
Delay in making presentment or
of giving notice; When excused
The delay in making presentment is excused:
1. When delay is caused by circumstances beyond the
control of the holder; and
2. When delay is not imputable to his default,
misconduct, or negligence.187
NOTE: Only the delay is excused. Hence, if the cause of
the delay ceases, Presentment must be made with
reasonable diligence.
PROPER PLACE
The proper place is determined on the following order of
preference.
1. Place specified;
2. Address of the person to make payment is given, in
case no place is specified;
3. Usual place of business or residence of the person to
make payment, in case no place is specified and no
address is given;
4. In any other case, wherever the person to make
payment can be found, or at his last known place of
business or residence. 188
When no place of payment is specified, and persons
primarily liable are partners - Presentment for payment
may be made to any one of them, even though there has
been dissolution of the firm.189
187
81
188
73
189
77
2008 Notes in Negotiable Instruments Law 38

When no place of payment specified, Persons Primarily

Liable are joint debtors - Presentment for payment must PAYABLE AT A BANK BANK
be made to them ALL.190 Under Sec. 87 the following are the rules where
instrument is payable at a bank:
DISHONOR BY NON-
NON-PAYMENT 4. equivalent to an order to pay addressed to the bank;
When PN considered dishonored 5. bank may charge the amount of the instrument out
1. After due presentment, payment refused; of the deposit of the maker or drawer without the
2. Presentment is excused, instrument is overdue and necessity of getting additional authority from the
unpaid. latter;
6. applies only where the instrument is payable at a
Under Sec. 83, dishonor by non-payment may be particular named bank
through:
A. Non-payment upon due presentation PAYMENT IN DUE COURSE
Requisites: Payment is in due course when:192
1. instrument is duly presented 1. Made at or after date of maturity
2. payment is either refused or cannot be 2. Made to the holder
obtained. If not, remedy of the maker is against the one who
received the payment
B. Non-payment without presentation 3. Made in good faith and without notice that the
Requisites: holders title is defective (refers to maker/acceptor,
1. presentment is excused not to the holder)
2. instrument is overdue
3. it is unpaid NB: Payment before maturity does not discharge the
instrument anymore than if it were merely discounted.
NOTE: An instrument is dishonored by non-payment as It would constitute a negotiation back to the primary
long as it is not paid although the primary party may be party (merger/confusion of debtor)
willing to pay. Therefore, if the maker promises to pay 5
days after, instrument is dishonored.
No presentment and presentment is not excused,
instrument is not dishonored although it is already
overdue and unpaid.
XV. Presentment for Acceptance
Right to Enforce
Under Sec. 84 Holder has an immediate right to enforce
liabilities on the persons secondarily liable when Production or exhibition of a BE to the drawee for his
instrument is dishonored. acceptance or payment (also includes presentment for
payment).
DEATH OF PERSON PRIMARILY LIABLE
Where the person primarily liable is dead, and there is no REQUISITES
REQUISITES
place of payment specified, presentment should be 1. Must be made by or on behalf of the holder;
made:191 2. At a reasonable hour on a business day;
a. To his personal representative (executor or 3. Before the bill is overdue; and
administrator) 4. To the drawee or some person authorized to accept
b. if there is a personal representative or refuse to accept on his behalf.
c. if he can be found (with the exercise of reasonable
diligence) Presentment WHEN REQUIRED
1. Where the bill is payable after sight, or when it is
NOTE: Holder must give notice of dishonor to the necessary in order to fix the maturity of the
indorser, if he wishes to hold the latter liable on the instrument;
instrument 2. Where the bill expressly stipulates that it shall be
presented for acceptance;
190
78
191 192
76 88
2008 Notes in Negotiable Instruments Law
3. Where the bill is drawn payable elsewhere than at
the residence or place of business of the drawee. 193
NOTE: In no other case is presentment for acceptance
necessary in order to render any party to the bill liable.
In all the above cases, the holder must either present
the bill for acceptance or negotiate it within a reasonable
time; otherwise, the drawer and all indorsers are
discharged.194
NOTE:
NOTE: If drafts issued are sight drafts, then, there is no
need for acceptance. Presentment for acceptance is
necessary only in the cases expressly provided for in
Section 143 of the Negotiable Instruments Law. 195
MANNERS OF PRESENTMENT FOR ACCEPTANCE
1. Where a bill is addressed to 2 or more drawees who
are not partners, presentment must be made to all
2. Where drawee is dead, presentment may be made to
his personal representative
3. Where the drawee is adjudged a bankrupt, insolvent
or made an assignment to his creditors, presentment
may be made to him or his trustee or assignee
Presentment WHEN EXCUSED
1. Where the drawee is dead, or has absconded, or is a
fictitious person or a person not having capacity to
contract by bill;
2. After exercise of reasonable diligence, presentment
cannot be made;
3. Although presentment has been irregular,
acceptance has been refused on some other
ground.196
NOTE: If bill is duly presented for acceptance and it is
not accepted within the prescribed time, the person
presenting it must treat the bill as dishonored by non-
acceptance or he loses the right of recourse against the
drawer and indorsers.197
FORM OF PRESENTMENT FOR ACCEPTANCE198
1. Must be made by or no behalf of the holder;
2. At a reasonable hour or a business day;
3. Before the bill is overdue; and
4. To the drawee or some person authorized to accept
or refuse to accept on his behalf.
193
143
194
144
195
Prudential Bank vs. CA
196
148
197
150
198
145
39
a) addressed to 2 or more drawees not partners to
all (except when one was given authority)
b) when drawee is dead to his personal
representative
c) drawee is bankrupt or insolvent or has made an
assignment for the benefit of creditors to him
or to his trustee or assignee
TIME OF PRESENTMENT
Section 146 provides the rule that presentment for
acceptance may be made on any day on which
Negotiable Instruments may be presented for payment
under Secs. 72 and 85. When Saturday is not otherwise a
holiday, presentment for acceptance may be made before
12PM on that day.
NOTE: As distinguished with Sec. 85, Sec. 146 gives no
distinction between demand or non-demand instrument
because it is only a presentment for acceptance; there is
no need to give money.
Delay in making presentment or
of giving notice; When excused
Requisites:
1. Bill drawn payable elsewhere than at the place of
business or the residence of the drawee;
2. Holder has no time (with the exercise of reasonable
diligence) to present the bill for acceptance before
presenting it for payment on the day that it falls due.
NOTE: Holders and indorsers are not discharged
XVI. Acceptance
The signification by the drawee of his assent to the order
of the drawer.199 It is the act by which the drawee
manifests his consent to comply with the request
contained in the bill of exchange directed to him.
Object
To bind the drawee and make him an actual party liable
to the instrument
Presumption
Every bill of exchange is drawn on account of some
indebtedness from the drawee to the drawer, and that the
acceptance is an appropriation of the funds of the latter
in the hands of the former.
199
132
2008 Notes in Negotiable Instruments Law
NOTE: Until the bill is accepted, drawer is the principal
debtor. Upon acceptance, the Bill, in effect, BECOMES A
NOTE.
Nature:
Nature: Only to determine liabilities of parties.
PRESCRIBED FORM OF ACCEPTANCE
As a rule, acceptance must be in the required form:
1. Must be in writing;
2. Signed by the drawee - (without it, he is not liable);
and
3. Must express a promise to pay money (not goods or
services) that the drawee will not perform his
promise by any other means than the payment of
money.200
4. Must be delivered to the holder (before delivery or
notification, acceptor may revoke or cancel his
acceptance)
Exceptions: (a) under 136 under an implied acceptance;
(b) under 137 under a constructive acceptance; and (c)
to a foreign bill payable in another state (unless the other
state requires for written acceptance)
Requisites in order to bind the acceptor:
1. acceptance be shown to the person to whom the
instrument is negotiated; and
2. such person must take the bill for value on the faith
of such acceptance.201
NOTE: Extrinsic acceptance must be in writing and is
good only to persons to whom it is shown.
Acceptance where made
a. The holder of the bill presenting the same for
acceptance may require that the acceptance be
written on the bill, and if such request is refused,
may treat the bill as dishonored.202
b. on a separate instrument (by letter or telegram)
acceptance by a separate instrument; existing bill
(acceptors benefit because it binds only those who
know of the acceptance on a separate instrument)
KINDS OF ACCEPTANCE
ACCEPTANCE
A. Express Acceptance
1. General - assents without qualification to the
order of the drawer.
200
Ibid.
201
134
202
133
40
2. Qualified - which in express terms varies the
effect of the bill as drawn, which may either be:
a. Conditional - makes payment by the
acceptor dependent on the fulfillment of a
condition therein stated.
b. Partial - an acceptance to pay part only of
the amount for which the bill is drawn.
c. Local - an acceptance to pay only at a
particular place.
d. Qualified as to time
e. The acceptance of some one or more of the
drawees but not of all.
B. Implied Acceptance if after 24 hours, the drawee
fails to return the instrument. He is also deemed to
have accepted the instrument when he destroys the
same.
C. Constructive Acceptance where the drawee a)
destroys the instrument; or b) refuses to return it
whether accepted or unaccepted.203
NOTE: Sec. 137 and Sec. 150 (non-acceptance of bill
upon presentment) compared:
A. Sec. 150: holder is mandated to treat the bill as
dishonored by non-acceptance, otherwise, he would
lose his right of recourse against the drawer and
indorsers; no bad faith because the instrument is
really not accepted within the prescribed time [24
hours after presentment (136)] and the holder
should opt to demand its return.
B. Sec. 137: bad faith on the part of the drawee (by
destroying or refusing to return it) to escape liability.
PROMISE TO ACCEPT
non-existing bill204
a future non-
1. Good to any person who, upon faith thereof, receives
the bill for value;
2. No need of presentment;
3. Promise must be unconditional and in writing
NOTE: Such promise is equivalent to acceptance.
CONSTRUCTIVE ACCEPTANCE
by operation of law205
Where the drawee to whom the bill is delivered for
acceptance destroys the same, or refuses within 24 hours
after such delivery, to return the bill accepted or non-
203
137
204
135
205
Ibid.
2008 Notes in Negotiable Instruments Law
accepted to the holder, he will be deemed to have
accepted the same.
NOTE: Mere retention without refusal to return for more
than 24 hours constitutes constructive acceptance.
ACCEPTANCE OF INCOMPLETE BILL
Acceptance may be made before the bill has been signed
by the drawer or while otherwise incomplete; even after
it is overdue; and even after it has been dishonored by
non-acceptance or non-payment..206
But when a bill payable after sight is dishonored by non-
acceptance and the drawee subsequently accepts it, the
holder, in the absence of any different agreement, is
entitled to have the bill accepted as of the date of the 1st
resentment.
Rights of parties as to qualified acceptance207
1. A holder my refuse to accept a qualified acceptance
and if he does not obtain an unqualified acceptance,
he may treat the bill as dishonored by non-
acceptance;
2. If a qualified acceptance is taken, drawer and
indorsers are discharged from liability on the bill
Exceptions:
a. when they have expressly or impliedly
authorized the holder to take a qualified
acceptance, or subsequently assent thereto
b. Implied assent (when they did not express their
dissent to the holder within a reasonable time
when they received a notice of qualified
acceptance)
XVII. Notice of Dishonor
This is the notice given by holder or his agent to party or
parties secondarily liable that the instrument was
dishonored by non-acceptance by the drawee of a bill or
by non-payment by the acceptor of a bill or by non-
payment by the maker of a note.208 This is the act of
bringing to the knowledge of the drawer or indorser
(verbally or in writing) the fact that a specified
negotiable instrument, upon proper proceedings taken,
206
138
207
142
208
89
41
has not been accepted or paid and that the party notified
is expected to pay it.
PURPOSES:
1. To inform parties secondarily liable that the maker
or acceptor has failed to meet his engagement.
2. To advise them that they are required to make
payment.
NOTE: Any person to whom such notice is not given is
discharged, but he will still be liable for breach of
warranties pertaining to the instrument.
NOTE: At the outset, we note that petitioner admits that
the withdrawal slips in question were non-negotiable.
Hence, the rules governing the giving of immediate
notice of dishonor of negotiable instruments do not apply
in this case. It bears stressing that Citibank could not
have missed the non-negotiable nature of the withdrawal
slips.209
REQUISITIES
1. Given BY holder or his agent, or by any party who
may be compelled by the holder to pay;210
2. Given TO secondary party or his agent;211
3. Given WITHIN the periods provided by law;212 and
4. Given AT the proper place.213
FORM OF NOTICE
The notice may be in writing or merely oral and may be
given in any terms which sufficiently identify the
instrument, and indicate that it has been dishonored by
non-acceptance or non-payment. It may in all cases be
given by delivering it personally or through the mails.214
CONTENTS OF NOTICE
1. Identity of the instrument;
2. Fact that it has been dishonored;
3. Statement that the party giving notice intends to
look to the party addressed for payment.
NOTE: Mere statement that the instrument is due and
demandable is insufficient notice.
Q: When is notice sufficient? Written notice need not be
signed. Insufficient notice may be supplemented or
validated by verbal communication. A misdescription of
209
Firestone vs. CA (2001)
210
90
211
97
212
102
213
103 and 104
214
96
2008 Notes in Negotiable Instruments Law
the instrument does not vitiate the notice unless the
party to whom the notice is given is in fact misled
thereby.215
HOW NOTICE GIVEN
1. By bringing verbally or
2. By writing to the knowledge of the person liable the
fact that a specified instrument, upon proper
proceedings taken, has not been accepted or has not
been paid, and that the party notified is expected to
pay it.
NOTICE GIVEN TO WHOM
1. Non-acceptance (bill) to persons secondarily liable,
namely, the drawer and indorsers as the case may be.
2. Non-payment (both bill and note) indorsers.
NOTE: Notice must be given to persons secondarily
liable. Otherwise, such parties are discharged. Notice
may be given to the party himself or to his agent.
NOTICE GIVEN BY WHOM WHOM
1. by or on behalf of the holder
2. by or on behalf of any party to the instrument
3. by a party to the instrument who may be compelled
to pay and who, upon taking it up, would have a
right to reimbursement from the party to whom
notice is given.216
NOTE: Notice by a stranger (or one who is no longer
liable on the instrument) is ineffectual.
NOTICE WHEN GIVEN
1. As soon as instrument was dishonored party is
allowed one entire day for the purpose of giving
notice.217
Exception: delay is excused218
NOTE: an instrument cannot be dishonored by non-
payment until after the maturity
2. If parties reside in the same place219
a. Place of business: before close of business hours
on the day following
b. Residence: before the usual hours of rest o the
day following
215
95
216
90
217
102
218
119
219
103
42
c. By mail: deposited in the post office in time to
reach him in the usual course on the day
following
NOTE: If time of giving notice falls on a Sunday or a
holiday, the act may be done on the next succeeding
business day.
Notice placed in a mail on the day of protest but not
postmarked until the next day at noon, is mailed in
time.
3. If parties reside in different places220
a. 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.
If no mail: at a convenient hour (of the sender)
on that day, by the next mail thereafter
b. Other than by post office (e.g. personal
messenger): within the time that notice would
have been received in due course of mail, if it
has been deposited in the post office within the
time specified in (a)
Q: When is notice deemed deposited in the post office?
A: Under Sec. 106, notice is deemed deposited in the post
office:
a) when deposited in the post office;
b) any branch post office
c) any letter box under the control of the post office.
Q: When is the sender deemed to have given due
notice?221
A: When the notice of dishonor is:
1. duly addressed; and
2. deposited in the post office
Time to notify antecedent parties
Where a party receives a notice of dishonor, he has, after
the receipt of such notice, the same time for giving notice
to antecedent parties that the holder has after the
dishonor. 222
220
104
221
Sec. 105
222
107
2008 Notes in Negotiable Instruments Law 43

Q: The instrument was dishonored in the hands of the

NOTICE WHERE SENT
Under Sec. 108, as a rule, notice is sent to the stated
address added to the partys signature. If, however, there
is none:
a) notice must be sent to the post office nearest to his
place of residence or post office where he is
accustomed to receive his letters
b) If he lives in one place and have his place of business
in another, notice may be sent to either place
c) If he is sojourning in another place, notice may be
sent to the place where he is sojourning
NOTE: What is important is that the party to be notified
actually receives the notice on time wherever the notice
is given. The mere manner in which the notice is sent is
wholly immaterial.
EFFECT OF NOTICES
A. Given by the Holder223
Inures to the benefit of:
1. all holders subsequent to the holder who has given
notice; and
2. 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
B. Given by the Party entitled thereto224
Inures to the benefit of:
1. the holder; and
2. all parties subsequent to the party to whom notice is
given.
NOTICE BY AGENT
Notice may be given by agent. And he may give it in his
own name, or in the name of any party entitled to give
notice, whether the party be his principal or not.225
NOTE: Under Section 97, notice of dishonor may be
given either to the party himself or to his agent in that
behalf. Under Sec. 97, the agent must be authorized to
receive notice and not merely an agent for a specified
purpose. This must be distinguished from Section 91
where there is no need for authorization since giving of
notice benefits the principal. Under Section 97, receipt
of notice creates liability. In short, in Sec. 91 it is the
agent who GIVES, while in Sec. 97 it is the agent who
RECEIVES (thus the need of authorization.)
agent. To whom and when may he give notice?226
A: He may give it:
1. To the parties secondarily liable within the time
fixed by Secs. 102-104, and 107, otherwise, they are
discharged.
2. To his principal also within the time fixed (as if he
were a holder)
TO A DEAD PARTY227
NOTICE TO
When a party dies, notice must be given to the following:
1. His personal representative
Requisites:
a) his death is known to the party giving notice
b) there is a personal representative
c) personal representative could be found with
reasonable diligence
2. If none, to the last residence or last place of business
of the deceased
NOTICE TO PARTNERS
Under Sec. 99, where parties to be notified are partners,
notice must be given to any partner even though there
has been a dissolution (this rule cannot be applied to the
individual undertakings of a partner).
NOTICE TO JOINT PARTIES NOT PARTNERS
Under Sec. 100, joint parties not partners: to each of
them, unless:
1. they are partners
2. one of them is authorized to receive for others
NOTE:: Does not refer to joint payees/indorsees.228 Joint
accommodated indorsers are neither payees nor
indorsees. Hence, they are governed by Sec. 100, not Sec.
68.
NOTICE TO A BANKRUPT PARTY229
2 situations:
1. Party is declared bankrupt;
2. Party has made an assignment of his properties for
the benefit of creditors
NOTE: In both instances, notice is given to:
a. the party himself or
b. to his trustee or assignee
It is necessary for the holder to file his claims in the
insolvency proceedings and to prove the giving of due

226
94
223 227
92 98
224 228
93 Sec. 68
225 229
91 101
2008 Notes in Negotiable Instruments Law 44

notice of dishonor before he can enforce his rights operate, notice must be given with reasonable
against said party.230 diligence.239

WHEN NOTICE NOT NECESSARY When notice need not be given to the drawer
1. Waiver of notice;231 Under Sec. 114, notice need not be given to the drawer
2. Waiver of protest - includes waiver of presentment under the following circumstances:
and notice of dishonor. However, waiver of notice a) Drawer and drawee: same person
of protest waives the notice only. It is not a waiver b) Drawee: fictitious or does not have the capacity to
of presentment;232 contract
3. Notice dispensed with - when, after the exercise of c) Drawer: person to whom the instrument is presented
reasonable diligence, it cannot be given or does not for payment (he is the one who dishonored the
reach the parties sought to be notified/charged;233 instrument)
4. Notice not required to drawer;234 d) Drawer: no right to expect or require that the drawee
5. Notice not required to indorser;235 or acceptor will honor the instrument
6. Notice of non-
non-payment where acceptance is refused NOTE: This is not always the case since the drawee
(116); and may have agreed to advance the amount for the
7. Omission to give notice.
notice.236 drawer who has a reason, therefore, to expect the
drawee to accept or pay
NOTE: If notice is given by a notary public, it is called a e) Drawer has countermanded the payment (e.g. stop
protest. (See Chapter on Protests) Mere knowledge by payment order)
the indorser of non-payment is not sufficient.
When notice need not be given to the indorser
WAIVER OF NOTICE Under Sec. 115, notice need not be given to the drawer
When given237 under the following circumstances:
1. Before the time of giving notice has arrived; or a) Drawee: fictitious or no capacity to contract
2. After the omission to give due notice NOTE: indorser was aware of these facts at the time
he indorsed the instrument
How given b) Indorser: person to whom the instrument is
1. Express presented for payment
2. Implied (e.g. Payment by an indorser after he learns c) Instrument was made or accepted for his
of the default of the maker; admission of liability accommodation
after dishonor) NOTE: indorser is the principal debtor, therefore, he
is not entitled to notice.
What Waiver affects238
1. all parties (if embodied on the face of the Rules when bill is dishonored by non-
non-acceptance
instrument); or 1. Right of recourse against all secondary party accrues
2. particular indorser (if written above the signature of to the holder;
such insdorser) 2. No presentment for payment is necessary since
dishonor of the instrument by non-payment is to be
When Delay of Giving Notice is Excused expected;
Delay of giving notice is excused when the delay is 3. If the instrument is accepted after it has been
caused by circumstances beyond the control of the dishonored by non-acceptance presentment for
holder, and not imputable to his default, misconduct or payment is necessary upon maturity
negligence. When the cause of the delay ceases to 4. In case of non-payment, holder must give the
corresponding notice of dishonor; otherwise,
secondary parties are discharged.240
230
Insolvency Law, Act No. 1956
231
109
232
111
233
112
234
114
235
115
236
117
237 239
109 113
238 240
110 116
2008 Notes in Negotiable Instruments Law
Effect of omission of notice to a HIDC
Section 117 provides that omission to give notice of
dishonor by non-acceptance does not prejudice the rights
of a HIDC subsequent to the omission.
Protest required
1. In case of foreign bill of exchange which has been
dishonored by non-acceptance or non-payment for
evidentiary purposes (if not, drawer and indorsers
are discharged)241
2. Optional protest - Inland Bills of Exchange, checks,
Promissory Notes
NOTE: What is essential is presentment and demand at
the time and place provided for, followed by notice to
the indorser of such presentment, demand and non-
payment.
DISHONOR BY NON-
NON-PAYMENT
1. Payment is refused or cannot be obtained after due
presentment for payment;
2. Presentment is excused and the instrument is
overdue and unpaid.242
Effect: There is an immediate right of recourse by the
holder against persons secondarily liable. However,
notice of dishonor is generally required.243
DISHONOR BY NON- NON-ACCEPTANCE244
1. When it is duly presented for acceptance and such an
acceptance is refused or cannot be obtained; or
2. When presentment for acceptance is excused, and
the bill is not accepted.
Non-
Non-acceptance within prescribed time
If bill is duly presented for acceptance and it is not
accepted within the prescribed time, the person
presenting it must treat the bill as dishonored by non-
acceptance or he loses the right of recourse against the
drawer and indorsers.245
Instances of Dishonor by Non-
Non-Acceptance
1. When it is duly presented for acceptance and such an
acceptance is refused or cannot be obtained; or
2. When presentment for acceptance is excused, and
the bill is not accepted.246
241
118
242
83
243
84
244
149
245
150
246
149
45
Effect: Immediate right of recourse against the drawer
and indorsers accrues to the holder and no presentment
for payment is necessary.247
If an instrument is not accepted by the drawee, there is
no use presenting it again for payment, and notice of
dishonor must at once be given. If there was acceptance,
presentment for payment is still required and if payment
is refused, there is a need for notice of dishonor.248
Rights of holder where bill is not accepted
Rule: An immediate right of recourse against the drawers
and indorsers accrues to the holder and no presentment
for payment is necessary.249
Exception: Section 165 Agreement of acceptor for honor.
- The acceptor for honor, by such acceptance, engages
that he will, on due presentment, pay the bill according
to the terms of his acceptance provided it shall not have
been paid by the drawee and provided also that is shall
have been duly presented for payment and protested for
non-payment and notice of dishonor given to him.
Effect of lack of notice of dishonor on NI which are
payable in installments
1. No acceleration clause failure to give notice of
dishonor on a previous installment does not
discharge drawers and indorsers as to succeeding
installments.
2. With acceleration clause failure to give notice of
dishonor as to previous installment will discharge
the persons secondarily liable as to the succeeding
installments.
XVIII. Discharge
Release of all parties (primary or secondary) from the
obligations arising thereunder. Renders the instrument
without force and effect, thus, instrument cannot be
negotiated
DISCHARGE; HOW MADE250
a. Payment by principal debtor:
1. by or on behalf of principal debtor
2. at or after its maturity
247
151
248
116
249
151
250
119
2008 Notes in Negotiable Instruments Law
3. to the holder thereof
4. in good faith and without notice that the
holders title is defective
b. Payment by accommodated party
c. Intentional cancellation of instrument by the holder
(by expressly stating it in the instrument or when
the instrument is torn up, burned or destroyed)
d. Any act which discharges a contract [payment, loss
of the thing due, condonation, confusion/merger,
compensation, novation.251
e. Reacquisition by principal debtor in his own right
Reacquisition must be:
1. by the principal debtor
2. in his own right
3. at or after date of maturity (instrument is
discharged; if made before,
before it may be
renegotiated)
RENUNCIATION
The act of surrendering a claim or right with or without
recompense (a personal defense), but it can be applied
with equal propriety to the relinquishing of a demand
upon an agreement supported by a consideration.252
NOTE: A renunciation must be written. An oral
renunciation is ineffective. For an oral renunciation to
be effective it must be made with a consideration AND
the instrument should be surrendered to the person
primarily liable.
Effects of Renunciation
1. A renunciation in favor of a secondary party may be
made by the holder before, at or after maturity of the
instrument. The effect is to discharge only such
secondary party and all parties subsequent to him but
the instrument itself remain in force.
2. A renunciation in favor of the principal debtor may
be effected at or after maturity. The effect is to
discharge the instrument and all parties thereto
provided the renunciation is made unconditionally
and absolutely.
NOTE: In either case, renunciation does not affect the
rights of a holder in due course without notice.
CANCELLATION
Includes tearing, erasure, obliteration, or burning. It is
not limited to writing of the word cancelled, or paid,
or drawing of criss-cross lines across the instrument. It
251
Art. 1231, New Civil Code
252
122
46
may be made by any other means by which the intention
to cancel the instrument may be evident.
NOTE: The rule is that a cancellation made
unintentionally or under a mistake or without the
authority of the holder, is inoperative. Except: Where an
instrument or any signature thereon appears to have
been cancelled, the burden of proof lies on the party who
alleges that the cancellation was made unintentionally or
under a mistake or without authority.253
DISCHARGE OF PERSONS SECONDARILY LIABLE
1. By any act which discharges the instrument;
2. By the intentional cancellation of his signature by
the holder;
3. By the discharge of a prior party;
4. By a valid tender of payment made by a prior party;
5. By the release of the principal debtor, unless the
holders right of recourse against the party
secondarily liable is expressly reserved;
6. By any agreement binding upon the holder to extend
the time of payment or to postpone the holders right
to enforce the instrument.254
Except:
a) where the extension of time is consented to by
such party;
b) where the holder expressly reserves his right of
recourse against such party.
Payment at or after maturity by a party secondarily
liable does not discharge the instrument. It only
cancels his own liability and that of the parties
subsequent to him.255
Effect of payment by person secondarily liable
Payment at or after maturity by a party secondarily liable
1. Does not discharge the instrument, it only cancels
his own liability and that of the parties subsequent to
him.
2. Instrument may be renegotiated
Exceptions:
a) where it is payable to the order of a third person,
and has been paid by the drawer; and
b) where it is paid by the accommodated party
3. Person paying is remitted to his former rights (as
regards prior parties) and he may strike out his own
and all subsequent indorsements.
253
123
254
120
255
121
2008 Notes in Negotiable Instruments Law 47

NOTE: Where a bill does not appear on its face to be a

XIX. Protest
Formal instrument executed by a notary public or other
competent persons certifying that the facts necessary to
the dishonor of the instrument (non-acceptance/non-
payment) have taken place.
It includes all steps or acts accompanying dishonor of a
bill taken for the liability of the drawer and indorsers.
PURPOSE of Certificate of Protest
To do away with the necessity of proving the fact of
presentment, demand, non-payment, and notice of
dishonor by witnesses in court.
Who makes protest
1. A notary public; or
2. Any respectable resident of the place where the bill
is dishonored, in the presence of 2 or more credible
witnesses.256
CONTENTS257
FORM AND CONTENTS
1. Must be annexed to the bill or must contain a copy
thereof
2. Must be under the hand and seal of the notary
making it
3. Must specify:
a) Time and place of presentment
b) The fact that presentment was made and the
manner thereof
c) The cause or reason for protesting the bill
d) Demand made and the answer given (if any) or
the fact that the drawee or acceptor could not be
found
When is protest NECESSARY?
Where a foreign bill appearing on its face to be such is
dishonored by non-acceptance, it must be duly protested
for non-acceptance, by non-acceptance is dishonored and
where such a bill which has not previously been
dishonored by nonpayment, it must be duly protested for
nonpayment.
foreign bill, protest thereof in case of dishonor is
unnecessary.
PROTEST FOR BETTER SECURITY258
Requisites:
1. One made by the holder of a bill;
2. After it has been accepted;
3. But before it matures;
4. Made against the drawer and indorsers;
5. The acceptor has:
a. Been adjudged bankrupt or insolvent; or
b. Made an assignment for the benefit of the
creditors.
NOTING
The notary on the day of dishonor makes a minute of the
dishonor on the instrument or on his notarial register,
the minute consisting of his initials, the year, month, day
of dishonor, and his charges.
PERIOD TO PROTEST259
Rules:
1. The noting must be done on the day of the dishonor,
but the certificate may be subsequently made.
2. Protest must be dated as of the date of noting.
PLACE TO PROTEST260
PLACE
Gen Rule: At the place where it is dishonored
Exception: Bill drawn payable at the place of business or
residence of some person other than the drawee, has
been dishonored by non-acceptance, it must be protested
for non-payment at the place where it is expressed to be
payable, and no further presentment for payment to, or
demand on, the drawee is necessary.
NOTE: A bill which has been protested for non-
acceptance may be subsequently protested for non-
payment.261
with262
When Protest is DISPENSED with
1. By any circumstances which would dispense with
notice of dishonor (See Secs. 109-118).
2. Delay in noting or protesting:
a. When delay is caused by circumstances beyond
the control of the holder; and

Effect if not protested: Drawer and indorsers are

discharged 258
158
259
155
260
156
256 261
154 157
257 262
153 159
2008 Notes in Negotiable Instruments Law 48

b. Not imputable to his default, misconduct, or
negligence.
NOTE: When the cause of delay ceases, bill must be
noted or protested with reasonable diligence.
Lost, Destroyed or Wrongly Detained Bill
When bill is lost or destroyed or is wrongly detained
from the person entitled to hold it, protest may be made
on a copy or written particulars thereof.263
3. It was protested for non-payment; and or is given to
him supra protest;
4. Notice of dishonor.264
NOTE: Acceptor for honor is secondarily liable. Holder is
required to make presentment for payment of the bill on
maturity notwithstanding its prior dishonor by non-
acceptance. Reason: Drawee, after his 1st refusal, may
have reached an understanding with the drawer for the
payment of the bill.

PROTEST NOTICE OF DISHONOR REQUISITES

Required only in case of Required in any NI, other 1. Bill is protested for dishonor by non-acceptance or
dishonor of a foreign bill than a foreign bill for better security;
Always written Oral or written 2. Acceptor for honor must be a stranger;
Includes presentment, Only to such notice 3. Bill is not overdue at the time of acceptance for
notice of dishonor, and all honor; and
steps accompanying 4. Acceptance for honor must be with the consent of
dishonor the holder of the instrument.
By notary public By a party or his agent
Made at the place of Place of dishonor, not Formal Requisites265
dishonor essential 1. Must be in writing;
Made on the day of Made within the times 2. Must indicate that it is an acceptance for honor;
dishonor prescribed in Secs. 102- 3. Signed by the acceptor for honor;
104, 107 4. Must contain an express or implied promise to pay
money;
5. The accepted bill for honor must be delivered to the
holder.

XX. Acceptance for Honor NOTE: Acceptor for honor must appear before a notary
and declare his intention to accept the protested bill.

Also known as acceptance supra protest. An Effect

undertaking by a stranger to a bill after protest for the Holders rights are suspended (because the holder can go
benefit of any party liable thereon or for the honor of the against the preceding parties after the acceptor for honor
person for whose account the bill is drawn which does not pay)
acceptance inures also to the benefit of all parties
subsequent to the persons for whose honor it is accepted, When Silent as To Whom Acceptance is Made
and conditioned to pay the bill when it becomes due if Where an acceptor for honor does not expressly state for
the original drawee does not pay it. whose honor it is made, it is deemed to be an acceptance
for the honor of the drawer it is only he who will be
Purpose liable to the acceptor for honor.266
To preserve the credit of the parties to the instrument or
some party to it for whose honor acceptance was made. To whom acceptor for honor is liable
The acceptor for honor is liable to the holder and to all
ACCEPTOR FOR HONOR parties to the bill subsequent to the party for whose
Person who pays according to the terms of his honor he has accepted.267
acceptance, provided (conditions):
1. The bill is duly presented for payment;
2. It was not paid for by the drawer; 264
165
265
162
266
163
263 267
160 164
2008 Notes in Negotiable Instruments Law 49

Presentment
Presentment for Payment to Acceptor 2. It has been protested for non-payment;
Under 168 the following are the rules for presentment 3. Payment supra protest (another term for payment for
for payment to the acceptor: honor because prior protest for non-payment is
1. If it is to be presented in the place where the protest required) is made by any person, even by a party
for non-payment was made, it must be presented not thereto;
later than the day following its maturity; 4. The payment is attested by a notarial act of honor
2. If it is to be presented in some other lace than the which must be appended to the protest or form an
place where it was protested, it must be forwarded extension of it;271
within the time specified in Sec. 104 (mailing) 5. The notarial act must be based on the declaration
made by the payee for honor or his agent of his
Acceptance for Honor Ordinary Acceptance intention to pay the bill for honor and for whose
There must be previous Protest not required honor he pays.272
protest
Acceptor: stranger Acceptor: drawee Effect
Effect of non-
non-compliance with the requisites payment
Holders consent required Consent not required is mere voluntary and the payor acquires no right to full
Acceptor: secondarily Acceptor: primarily liable reimbursement against the party for whose honor he
liable pays.
Bill not discharged upon Bill is discharged
payment by acceptance for Preference of parties offering to pay for honor the
honor person whose payment will discharge the greatest
number of parties to the bill.273
Other Rules
1. Where a bill payable after sight is accepted for NOTE: In acceptance for honor, there may be further
honor, its maturity is calculated from the date of the acceptance by a different person.274
noting for non-acceptance and not from the date of
the acceptance for honor.268 Effects of payment for honor:
1. All parties subsequent to the party for whose honor
2. Where a dishonored bill has been accepted for honor it is paid, are discharged.
supra protest or contains a reference in case of need, 2. Payor for honor is subrogated for, and succeeds to,
it must be protested for non-payment before it is both the rights and duties of the holder as regards
presented for payment to the acceptor for honor or the party whose honor he pays and all parties liable
referee in case of need.269 to the latter.275

Effect where holder refuses to receive payment supra

XXI. Payment for Honor
Also known as payment supra protest. Payment made
by a person, whether a party to the bill or not, after it has
been protested for non-payment, for the benefit of any
party liable thereon or for the benefit of the person for
whose account it was drawn.270 NOTE: Payment for
honor is not applicable to promissory notes!
protest - He loses his right of recourse against any party
who would have been discharged by such payment.276
NOTE: In payment for honor, the payee cannot refuse
payment. If he refuses, he cannot recover from the
parties who would have been discharged had he accepted
the same. In acceptance for honor, the holders consent
is necessary.
Rights of payer for honor (Right to receive both the bill
and protest) the payor for honor is given the right to
receive both the bill and the protest obviously to enable

REQUISITES
1. The bill has been dishonored by non-payment; 271
172
272
173
273
174
268 274
166 161
269 275
167 175
270 276
171 176
2008 Notes in Negotiable Instruments Law 50

him to enforce his rights against the parties who are

liable to him.277

Payment for Honor Acceptance for Honor

Protest: non-payment
Bill is overdue
Consent of holder is not
required; he cannot refuse
Acceptor: secondarily
liable
Notarial act of dishonor is
necessary
Only 1 payer for honor
Effects: 175 and 177
Non-acceptance or for
better security
Not overdue
Consent is required
Acceptor: primarily liable
Not necessary
May be several acceptors
Effects: 164 and 165

Libertas Et Iusticia
2008 Academics Committee

www.libertas.ph

277
177