Commercial Law Review
Negotiable Instruments Law
NEGOTIABLE INSTRUMENTS LAW (Act No. 2031)
PRELIMINARY CONSIDERATIONS:
A. Governing Laws
1. The Negotiable Instruments Law
2. The Code of Commerce
3. The New Civil Code
B. Concept of Negotiable Instrument
Negotiable Instruments is a written contract for
the payment of the money which is intended as
a substitute for money and passes from one
person to another as money, in such a manner
as to give a holder in due course the right to
hold the instrument free from defenses
available to prior parties.
C. Classes of Negotiable Instrument
1. Promissory Note
Sec. 184 of the Negotiable Instruments
Law provides that: “A negotiable
promissory note within the meaning of this
Act is an unconditional promise in writing
made by one person to another, signed by
the maker, engaging to pay on demand, or
at a fixed or determinable future time, a
sum certain in money to order or to bearer.
Where a note is drawn to the maker’s own
order, it is not complete until indorsed by
him.”
*Personal engagement on the part of the
maker.
2. Bill of Exchange
Sec. 126 of the Negotiable Instruments
Law provides that: “A bill of exchange is an
unconditional order in writing addressed by
one person to another, signed by the
person giving it, requiring the person to
whom it is addressed to pay on demand or
at a fixed or determinable future time a
sum certain in money to order or to
bearer.”
*There is only an order directing other
party to pay the instrument.
D. Functions of Negotiable Instrument
1. It operates as a substitute of money
Maria Zarah Villanueva - Castro
*This is the main function of negotiable
instruments.
*Either negotiable or non-negotiable
instrument, it is a substitute for money.
Both are in lieu of money.
*relate this with legal tender
2. It is a means of creating and transferring
credit
3. It facilitates the sale of goods
4. It increases the purchasing medium in
circulation
Q: Which one is the best or better substitute for
money? Why?
A: Negotiable instrument.
Reasons:
1. Negotiability and
2. Accumulation of secondary contracts.
E. Characteristics of Negotiable Instrument
1. Negotiability – it is that attribute or
property whereby a bill or note or check
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
to collect the sum payable for himself free
from defenses.
*This attribute is very important.
2. Accumulation of secondary contracts –
secondary contracts are picked up and
carried along with them as they are
negotiated from one person to another, or
in the course of negotiation of a negotiable
instrument, a series of juridical ties
between the parties thereto arise either by
law or by privity.
*There must be further negotiation for
secondary contracts exist.
*Converted to obligors because of their
indorsements
F. Negotiable Instruments compared with other
papers (document of title, letter of credit,
certificate of stock, pawn ticket, postal money
order, treasury warrant)
Document of title includes any bill of lading,
dock warrant, quedan, or warehouse receipt or
order for delivery of goods, or any other
document used in the ordinary course of
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business in the sale or transfer of goods, as
proof of possession or control of goods, or
authorizing or purporting to authorize the
possessor of the document to transfer or
receive either by indorsement or by delivery,
goods represented by such document (Article
1636 of the New Civil Code)
Letter of Credit is an engagement by a bank or
other person made at the request of a customer
that the issuer will honor drafts or other
demands for payment upon compliance with
the conditions specified in the credit.
Certificate of Stock is a non-negotiable
instrument because it does not contain an
unconditional promise or order to pay a sum
certain in money.
Pawn Ticket is a non-negotiable document
because it does not represent money but the
pawned articles.
Postal Money Order is a non-negotiable
instrument because it is governed by postal
rules and regulations which may be inconsistent
with the Negotiable Instruments Law and it can
only be negotiated once.
Treasury Warrant is a non-negotiable
instrument because it is payable out of a
particular fund.
G. Legal tender character
Q: Does negotiable instrument has legal tender
power?
A: NO.
Q: What is legal tender?
A: Legal tender is that kind of money that the
law compels a creditor to accept in payment of
his debt when tendered by the debtor in the
right amount.
*Coins/notes circulated by the Bangko Sentral
ng Pilipinas.
Q: What attribute that legal tender has that
negotiable instrument do not have?
A: Element of compulsion.
FORM AND INTERPRETATION OF NEGOTIABLE
INSTRUMENTS:
A. Requisites of negotiability
Sec. 1 of the Negotiable Instruments Law
provides that: “An instrument to be negotiable
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must conform to the following requirements: (a)
It must be in writing and signed by the maker or
drawer; (b) must contain an unconditional
promise or order to pay a sum certain in money;
(c) must be payable on demand, or at a fixed or
determinable future time; (d) must be payable
to order or to bearer; and (e) where the
instrument is addressed to a drawee, he must
be named or otherwise indicated therein with
reasonable certainty.”
Q: What principle do we follow in determining
the instrument as negotiable or not?
A: Negotiability is shown on the face of the
instrument.
Requisites:
1. Must be in writing and signed by the maker
or drawer
Q: Why should it be in writing?
A: In order for the instrument to be used for
negotiation.
Rationale: For the achievement of the
purpose of the negotiable instrument law.
*It must be signed by the maker or drawer.
Rationale: To be bound by the contract.
2. Must contain an unconditional promise or
order to pay a sum certain in money
Rationale why the law requires that the
promise or order be unconditional:
Because no one will accept the same if the
transferee does not know the certainty of
the event that will happen. Hence,
uncertainty will defeat the very purpose of
the negotiable instrument law, i.e.,
substitute for money.
*Mere recital does not negate negotiability
of the instrument.
Q: What is a condition?
A: A contingent event, happening of which
is uncertain, event which may or may not
happen.
*In alternative obligation, for negotiability
purposes, the option must be left in the
hands of the creditor for it to be negotiable.
*If the option is left in the hands of the
debtor, it is non-negotiable.
a. Promise or order to pay must be
unconditional
i. Reference to transaction
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Sec. 3 of the Negotiable become due; or (d) With

Instrument Law provides that: exchange, whether at a fixed
“An unqualified order or rate or at the current rate; or (e)
promise to pay is unconditional With costs of collection or an
within the meaning of this Act attorney’s fee, in case payment
though coupled with: (a) An shall not be made at maturity.”
indication of a particular fund ii. Payment of interest
out of which reimbursement is Q: Why is there a need to pay
to be made or a particular interest?
account to be debited with the A: For the consumption of the
amount; or (b) A statement of money owned by a person but
the transaction which gives rise was not used by him.
to the instrument. But an order iii. Payment by installments
or promise to pay out of a Stated Installments – the dates
particular fund is not of each installment must be
unconditional.” fixed or at least determinable
ii. Source or payment or account and the amount to be paid for
to be debited each installment must be stated.
Fund for Particular Fund Things to be written in the
Reimbursement for Payment negotiable instrument
The drawee pays There is only one regarding payment by
the payee from act – the drawee installments:
his own funds pays directly from
1. Amount of each
afterwards the the particular
drawee pays fund indicated instalments
himself from the *must be determinable
particular fund 2. Maturity Date
Particular fund Particular fund iv. Acceleration clause
indicated is not indicated is the Acceleration clause renders
the direct source direct source of whole debt due and
of payment payment
demandable upon failure of the
*Particular fund for payment
obligor to comply with certain
depends on the sufficiency of
conditions.
the funds
*relate to doctrine of
*Extrinsic and collateral matter
indivisibility of contract.
negates negotiability.
v. Payment with exchange
b. Payable in sum certain in money
*It must be the prevailing rate
i. Provisions which do not affect
of conversion or fixed rate that
certainty of sum payable
is well known.
Sec. 2 of the Negotiable
*Does not affect the
Instrument Law provides that:
negotiability of the instrument
“The sum payable is a sum
because the sum remains
certain within the meaning of
certain.
this Act, although it is to be
vi. Payment of attorney’s fees
paid: (a) With interest; or (b) By
*Due to the default of the
stated installments; or (c) By
obligor, obligee was forced to
stated installments, with a
engage the services of a lawyer.
provision that, upon default in
3. Payable on demand or at a fixed or
payment of any installment or
determinable future time
of interest, the whole shall
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a. When payable on demand
Sec. 7 of the Negotiable Instruments
Law provides that: “An instrument is
payable on demand: (a) When it is so
expressed to be payable on demand, or
at sight, or on presentation; or (b) In
which no time for payment is expressed.
Where an instrument is issued,
accepted, or indorsed when overdue, it
is, as regards the person so issuing,
accepting, or indorsing it, payable on
demand.”
*It is the holder of the instrument that
has the call in case the negotiable
instrument is silent, i.e., it stated no
maturity date.
b. When payable at determinable future
time
Sec. 4 of the Negotiable Instruments
Law provides that: “An instrument is
payable at a determinable future time,
within the meaning of this Act, which is
expressed to be payable: (a) At a fixed
period after date or sight; or (b) On or
before a fixed or determinable future
time specified therein; or (c) On or at a
fixed period after the occurrence of a
specified event which is certain to
happen, though the time of happening
be uncertain. An instrument payable
upon a contingency is not negotiable,
and the happening of the event does
not cure the defect.”
With a Condition With a Period
Uncertain to Certain to happen
happen though the date of
happening is
uncertain
b. When payable to order
*If the instrument is demandable based
on period the negotiability of the
instrument is still not affected.
*Paragraph (c) is one with a period.
4. Payable to order or bearer
*These are words of negotiability
Q: What is the implication of these words?
A: There is a proper authorization for
further negotiation by the maker or drawer.
a. When payable to bearer
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Sec. 9 of the Negotiable Instrument
Law provides that: “The instrument is
payable to bearer: (a) When it is
expressed to be so payable; or (b)
When it is payable to a person named
therein or bearer; or (c) When it is
payable to the order of a fictitious or
non-existing person, and such fact was
known to the person making it so
payable; or (d) When the name of the
payee does not purport to be the name
of any person; or (e) When the only or
last indorsement is an indorsement in
blank.”
Principle: Once a bearer always a
bearer instrument.
*This principle applies only to an
instrument that was originally issued as
bearer instrument.
i. Rule when instrument is
payable to a fictitious person
*Upon its face, it is an order
instrument but because it is
named to fictitious or non-
existing person it is converted
to a bearer instrument.
*Fictitious person or non-
existing person cannot endorse.
*The person to whose order the
instrument is made payable
may in fact be existing but he is
still fictitious or non-existent
under Sec. 9(c) of the
negotiable instrument law if the
person making it so payable
does not intend to pay the
specified person.
*The payee of instrument payable to
order must be a person in being,
natural or legal, and ascertained at the
time of issue.
i. To whose order the instrument
may be made payable
Sec. 8 of the Negotiable
Instrument Law provides that:
“The instrument is payable to
order where it is drawn payable
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to the order of a specified
person or to him or his order. It
may be drawn payable to the
order of: (a) A payee who is not
maker, drawer, or drawee; or (b)
The drawer or maker; or (c) The
drawee; or (d) Two or more
payees jointly; or (e) One or
some of several payees; or (f)
The holder of an office for the
time being. Where the
instrument is payable to order,
the payee must be named or
otherwise indicated therein
with reasonable certainty.”
• A payee who is not maker,
drawer, or drawee
*The payee may be a
juridical person.
Q: How can it be negotiated
further?
A: By indorsement of the
person authorized by the
corporation.
• The holder of an office for
the time being
*It is not necessary to name
the person holding the
position since it is payable
to the office itself and not
to the person holding it.
5. Omissions that do not affect negotiability
Sec. 6 of the Negotiable Instrument Law
provides that: “The validity and negotiable
character of an instrument are not affected
by the fact that: (a) it is not dated; or (b)
does not specify the value given, or that any
value had been given therefor; or (c) does
not specify the place where it is drawn or
the place where it is payable; or (d) bears a
seal; or (e) designates a particular kind of
current money in which payment is to be
made. But nothing in this section shall alter
or repeal any statute requiring in certain
cases the nature of the consideration to be
stated in the instrument.”
• Does not specify the value given or that
any value had been given therefor
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*Consideration is always presumed. Basis:
Sec. 24 of the Negotiable Instrument Law
provides that: “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.”
• Does not specify the place where it is
drawn or the place where it is payable
*The New Civil Code is applied suppletorily.
• Bears a seal
*This is for authentication purposes.
• A particular kind of current money in
which payment is to be made
*It is still negotiable because it would still
be considered payable in money. Foreign
currency is convertible to Philippine money
which is legal tender in the Philippines.
6. Additional provisions not affecting
negotiability
Sec. 5 of the Negotiable Instrument Law
provides that: “An instrument which
contains an order or promise to do any act
in addition to the payment of money is not
negotiable. But the negotiable character of
an instrument otherwise negotiable is not
affected by a provision which: (a) authorizes
the sale of collateral securities in case the
instrument be not paid at maturity; or (b)
authorizes a confession of judgment if the
instrument be not paid at maturity; or (c)
waives the benefit of any law intended for
the advantage or protection of the obligor;
or (d) gives the holder an election to require
something to be done in lieu of payment of
money. But nothing in this section shall
validate any provision or stipulation
otherwise illegal.”
a. Sale of collateral securities
Q: Is the authority to sale includes the
authority to appropriate for himself?
A: NO. It constitutes pactum
commissorium. It is an unjust
enrichment.
Q: What is the meaning of sale of
collateral securities?
A: Contemplates securities added to the
obligation to pay.
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b. Confession of judgment holder may treat it as either at his election; (f)

*This is void by reason of public policy Where a signature is so placed upon the
but still it is negotiable. instrument that it is not clear in what capacity
*In effect, such provision is considered the person making the same intended to sign,
not existing. he is to be deemed an indorser; (g) Where an
*It waives his right to due process; his instrument containing the word "I promise to
right of a day in court. pay" is signed by two or more persons, they are
Case: PNB v Manila Oil Refinery deemed to be jointly and severally liable
c. Waiver of benefit thereon. “
*Pertains to benefits granted by the *This rule is applicable only in case of ambiguity
Negotiable Instrument Law. and there is doubt.
Q: What are the benefits that can be
waived but the negotiability of the NEGOTIATION:
instrument is not affected? A. Modes of transfer
A: 1. Presentment for payment; 2. 1. Negotiation – an instrument is negotiated
Notice of dishonor; 3. Protest when it is transferred from one person to
d. Holder is given the option to do another in such manner as to constitute the
something in lieu of payment of money transferee the holder thereof.
*If it is the obligor or debtor is given the 2. Assignment – a method of transferring a
option to choose what to be done it is non-negotiable instrument whereby the
not negotiable because it is conditional assignee is merely placed in the position of
thus requisites for negotiability is not the assignor and acquires the instrument
complied with. subject to all defenses that might have been
set up against the original payee.
B. Rules to be followed in interpreting negotiable *If the instrument is a non-negotiable the only
instruments transfer that can be made is by assignment.
Sec. 17 of the Negotiable Instrument Law
provides that: “Where the language of the B. Concept of negotiation; distinguished from
instrument is ambiguous or there are omissions assignment
therein, the following rules of construction Sec. 30 of the Negotiable Instrument Law
apply: (a) Where the sum payable is expressed provides that: “An instrument is negotiated
in words and also in figures and there is a when it is transferred from one person to
discrepancy between the two, the sum denoted another in such manner as to constitute the
by the words is the sum payable; but if the transferee the holder thereof. If payable to
words are ambiguous or uncertain, reference bearer, it is negotiated by delivery; if payable to
may be had to the figures to fix the amount; (b) order, it is negotiated by the indorsement of
Where the instrument provides for the payment the holder and completed by delivery.”
of interest, without specifying the date from
which interest is to run, the interest runs from Assignment Negotiation
the date of the instrument, and if the Pertains to contracts Pertains to negotiable
instrument is undated, from the issue thereof; in general instruments
(c) Where the instrument is not dated, it will be Assignee takes the Holder in due course
instrument subject to takes it free from
considered to be dated as of the time it was
the defenses obtaining personal defenses
issued; (d) Where there is a conflict between among the original available among the
the written and printed provisions of the parties parties
instrument, the written provisions prevail; (e) Assignee steps into Holder in due course
Where the instrument is so ambiguous that the shoes of the may acquire a better
there is doubt whether it is a bill or note, the assignor and merely right than the right of
acquires whatever the transferor
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rights the assignor
may have
Governed by the Civil Governed by the
Code Negotiable Instrument
Law
C. Ways of negotiation (in case of order or bearer
instrument)
1. If payable to bearer, it is negotiated by
mere delivery
2. If payable to order, it is negotiated by
indorsement and delivery
Q: Why can’t indorsement be avoided by
original payee?
A: Because by indorsement, it is the original
payee’s order to the maker to pay the
transferee.
Q: Why indorsement is not necessary in bearer
instrument?
A: Because the engagement is to pay the
amount of the instrument to holder or to any
subsequent holders.
Q: If the instrument is originally issued as an
order instrument and was subsequently
negotiated, does it always require indorsement
and delivery?
A: IT DEPENDS. If the indorsement is special, it
is necessary that there is indorsement and
delivery, however, if the indorsement is blank,
delivery alone is sufficient.
D. Concept of delivery
Sec. 16 of the Negotiable Instrument Law
provides that: “Every contract on a negotiable
instrument is incomplete and revocable until
delivery of the instrument for the purpose of
giving effect thereto. As between immediate
parties and as regards a remote party other
than a holder in due course, the delivery, in
order to be effectual, must be made either by
or under the authority of the party making,
drawing, accepting, or indorsing, as the case
may be; and, in such case, the delivery may be
shown to have been conditional, or for a special
purpose only, and not for the purpose of
transferring the property in the instrument. But
where the instrument is in the hands of a holder
in due course, a valid delivery thereof by all
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parties prior to him so as to make them liable to
him is conclusively presumed. And where the
instrument is no longer in the possession of a
party whose signature appears thereon, a valid
and intentional delivery by him is presumed
until the contrary is proved.”
Delivery is the transfer of possession of the
instrument by the maker or drawer with the
intention to transfer title to the payee and
recognize him as holder thereof.
*Delivery is always a common requirement.
E. Indorsement
1. Concept
Indorsement is a legal transaction effected
by the writing of one’s name at the back of
the instrument or upon a paper (allonge)
attached thereto with or without additional
words specifying the person 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.
*This is a mechanical act
2. How made
Sec. 31 of the Negotiable Instrument Law
provides that: “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.”
Sec. 32 of the Negotiable Instrument Law
provides that: “The indorsement must be
an indorsement of the entire instrument.
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. But where the
instrument has been paid in part, it may be
indorsed as to the residue.”
3. Kinds
*These words: specified, restrictive,
conditional, qualified are associated words;
they can be used interchangeably.
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• How further negotiation of an order
instrument be made:
a. Special
Sec. 34 of the Negotiable Instrument
Law provides that: “A special
indorsement specifies the person to
whom, or to whose order, the
instrument is to be payable, and the
indorsement of such indorsee is
necessary to the further negotiation of
the instrument. An indorsement in
blank specifies no indorsee, and an
instrument so indorsed is payable to
bearer, and may be negotiated by
delivery.”
*In special indorsement, indorsement
and delivery is necessary.
Example:
Front (Back) Pay to C
FFr
Sgd B
b. Blank
Sec. 35 of the Negotiable Instrument
Law provides that: “The holder may
convert a blank indorsement into a
special indorsement by writing over the
signature of the indorser in blank any
contract consistent with the character
of the indorsement.”
*In blank indorsement, only delivery is
necessary.
Example”
Front
Back (Back)
Sgd B
• When is the indorsement effective:
a. Conditional
Sec. 39 of the Negotiable Instrument
Law provides that: “Where an
indorsement is conditional, 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. But any person to
whom an instrument so indorsed is
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negotiated will hold the same, or the
proceeds thereof, subject to the rights
of the person indorsing conditionally.”
Q: What is suspended?
A: The very indorsement is suspended
thus the right of the indorsee is made
to depend on the happening of the
event.
Example:
A → B ----› C
b. Unconditional
• What are the liabilities of an indorser:
a. Qualified
Sec. 38 of the Negotiable Instrument
Law provides that: “A qualified
indorsement constitutes the indorser a
mere assignor of the title to the
instrument. It may be made by adding
to the indorser's signature the words
"without recourse" or any words of
similar import. Such an indorsement
does not impair the negotiable
character of the instrument.”
*This indorsement is confined to
warranties.
*In this kind of indorsement, Sec. 65 of
the Negotiable Instrument is applicable.
b. Unqualified
*Indorsement of this kind makes the
indorsee liable for warranties and held
the indorsee secondarily liable in case
of dishonor.
*Sec. 66 of the Negotiable Instrument
Law is applicable in this kind of
consideration.
• What are the rights of indorsee:
a. Restrictive
Sec. 36 of the Negotiable Instrument
Law provides that: “An indorsement is
restrictive which either: (a) Prohibits
the further negotiation of the
instrument; or (b) Constitutes the
indorsee the agent of the indorser; or (c)
Vests the title in the indorsee in trust
for or to the use of some other persons.
But the mere absence of words
implying power to negotiate does not
make an indorsement restrictive.”
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*Prohibits the further negotiation of
the instrument
- the beneficial and legal title is both on
the indorser.
*Constitutes the indorsee the agent of
the indorser
- the indorser has the legal title while
the beneficial title remains with the
principal.
-the relationship exists here is principal-
agent relationship.
*Vests the title in the indorsee in trust
for or to the use of some other persons
-the beneficial title belongs to other
person whereas the legal title remains
with the beneficiary.
-The relationship exists is a trustee-
trustor relationship.
Sec. 37 of the Negotiable Instrument
Law provides that: “A restrictive
indorsement confers upon the indorsee
the right: (a) to receive payment of the
instrument; (b) to bring any action
thereon that the indorser could bring; (c)
to transfer his rights as such indorsee,
where the form of the indorsement
authorizes him to do so. But all
subsequent indorsees acquire only the
title of the first indorsee under the
restrictive indorsement.”
*It does not follow that if the
instrument is restrictively indorsed the
liability is qualified.
b. Unrestrictive
4. Other rules on indorsement
a. in a representative capacity
Sec. 44 of the Negotiable Instrument
Law provides that: “Where any person
is under obligation to indorse in a
representative capacity, he may indorse
in such terms as to negative personal
liability.”
b. Presumption as to time of indorsement
Sec. 45 of the Negotiable Instrument
Law provides that: “Except where an
indorsement bears date after the
maturity of the instrument, every
negotiation is deemed prima facie to
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have been effected before the
instrument was overdue.”
c. Place of indorsement
Sec. 46 of the Negotiable Instrument
Law provides that: “Except where the
contrary appears, every indorsement is
presumed prima facie to have been
made at the place where the
instrument is dated.”
d. Striking out of indorsement
Sec. 48 of the Negotiable Instrument
Law states that: “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.”
*The striking of indorsement is under
the discretion of the holder and not of
the indorser.
e. Transfer indorsement of an instrument
payable to bearer
Sec. 40 of the Negotiable Instrument
Law states that: “Where an instrument,
payable to bearer, is indorsed specially,
it may nevertheless be further
negotiated by delivery; but the person
indorsing specially is liable as indorser
to only such holders as make title
through his indorsement.”
Example:
Note payable to bearer
A → B → C → D
B indorsed the instrument to C
Q: Does the indorsement affect the
instrument?
A: NO. Even if there is an indorsement,
it does not change the fact that the
instrument is a bearer one thus it can
be negotiated by mere delivery.
Q: Is the indorser of the bearer
instrument liable? What is his liability?
A: YES. He is liable in case of breach of
warranty. He is liable as indorser for the
fact that he indorses a bearer
instrument.
9

*Indorsement on a bearer instrument
does not affect the nature of the
instrument because a bearer
instrument is always a bearer
instrument.
*This section applies only to
instruments which are originally
payable to bearer.
Example: A issued to B a bearer note, B
wants to negotiate it to C. B asked you
how he can validly negotiate the bearer
instrument? The answer is by mere
delivery.
Q: Is there a change in the liabilities of a
person who indorses a bearer
instrument?
A: YES. He is liable as an indorser under
Sec. 67 of the Negotiable Instrument
Law.
Q: Is there any liability attaches to the
person who negotiates the instrument
by mere delivery?
A: YES. Sec 65 second paragraph but
confined to warranties only.
f. Where instrument is payable to 2 or
more persons
Sec. 41 of the Negotiable Instrument
Law states that: “Where an instrument
is payable to the order of two or more
payees or indorsees who are not
partners, all must indorse unless the
one indorsing has authority to indorse
for the others.”
g. Instrument is drawn or indorsed to a
person as cashier
Sec. 42 of the Negotiable Instrument
Law states that: “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.”
h. Where name of payee or indorsee is
misspelled
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Sec. 43 of the Negotiable Instrument
Law states that: “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.”
i. Indorsement of an order of instrument
without indorsement
Sec. 49 of the Negotiable Instrument
Law provides that: “Where the holder
of an instrument payable to his order
transfers it for value without indorsing
it, the transfer vests in the transferee
such title as the transferor had therein,
and the transferee acquires in addition,
the right to have the indorsement of
the transferor. But for the purpose of
determining whether the transferee is a
holder in due course, the negotiation
takes effect as of the time when the
indorsement is actually made.”
Q: A issued an instrument payable to
the order of B, B wants to negotiate it
to C. How negotiation be validly made?
A: Indorsement and delivery
Q: A issued an order instrument to B, B
transferred it to C only by delivery
without indorsing it. Is there any legal
implication on the gesture made by B?
A: YES. Under Sec. 49 of the Negotiable
Instrument, there is an equitable
assignment.
Q: Does the holder of the instrument
has any other right?
A: YES. He has the right to have the
indorsement of the transferor. This
right is applicable only if the instrument
is negotiable. He can file a case for
specific performance.
Q: Why is the date of indorsement
material?
A: To determine the date of due course
holding.
Q: A issued a negotiable instrument to
B, B negotiated it to C. The delivery
took effect on May 1, 2008 and the
indorsement took effect on June 1,
10

2008. When was there a valid
negotiation?
A: At the time indorsement was made.
There is no retroactive effect.
*The requisites of a holder in due
course must be present up to the actual
and valid negotiation took place.
5. Negotiation by a prior party
Sec. 50 of the Negotiable Instrument Law
states that: “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.”
HOLDERS:
A. General concept of holder
Sec. 191 of the Negotiable Instrument Law
states that: “"Holder" means the payee or
indorsee of a bill or note who is in possession of
it, or the bearer thereof.”
*If payable to bearer, “holder” means the
person who is in possession thereof.
Q: Can a named payee be called a holder?
A: YES. If the instrument is in his possession.
Presumption: There was a valid delivery.
Advantage of being a holder in due course: Can
give shelter/protection to the subsequent
holders.
B. Holder in due course
Sec. 52 of the Negotiable Instrument Law
provides that: “A holder in due course is a
holder who has taken the instrument under the
following conditions: (a) That it is complete and
regular upon its face; (b) That he became the
holder of it before it was overdue, and without
notice that it has been previously dishonored, if
such was the fact; (c) That he took it in good
faith and for value; (d) That at the time it was
negotiated to him, he had no notice of any
infirmity in the instrument or defect in the title
of the person negotiating it.”
*Requisites on Sec. 52 boils down to good faith
and innocence of the holder.
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*This is equivalent to innocent buyer in good
faith under New Civil Code.
1. Instrument complete and regular
*Complete: all necessary details that define
the necessary rights thereto and all the
requisites of Sec. 1 must be present.
*Regular: there must be no visible
alterations/changes upon the face of the
instrument.
*These are alterations that are obvious in
the naked eye.
2. Taken before overdue
*If the instrument is overdue, it is also a
notice that it has been dishonored.
*An instrument is overdue after the date of
maturity.
*It is very unusual to negotiate an
instrument that has been matured because
such instrument should have been
discharged.
a. Rule in case of installment instruments
*When the instrument contains an
acceleration clause, knowledge of the
holder at the time of acquisition thereof
that one installment or interest, or both,
as the case may be, is unpaid, is notice
that the instrument is overdue.
*One who purchases in good faith an
instrument upon which the interest is
overdue is a holder in due course. But
where, by the terms of the instrument,
the principal was to become due upon
default of the payment of interest, one
who takes the instrument upon which
the interest is overdue is not a holder in
due course.
b. Rule in case of demand instruments
Sec. 53 of the Negotiable Instrument
Law provides that: “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.”
*In demand instrument,
reasonableness test is applied. It is the
usage of trade or business practice (if
any), with respect to such instruments,
and the facts of the particular case.
11

3. Notice of infirmity or defect
Sec. 54 of the Negotiable Instrument Law
provides that: “Where the transferee
receives notice of any infirmity in the
instrument or defect in the title of the
person negotiating the same before he has
paid the full amount agreed to be paid
therefor, he will be deemed a holder in due
course only to the extent of the amount
therefore paid by him.”
*There is defective in the title when there is
error in the indorsement and/or in delivery.
Q: Even if the instrument suffer infirmities,
is there a possibility that the holder be a
holder in due course?
A: YES. If he has no knowledge of the
infirmity.
Sec. 55 of the Negotiable Instrument Law
provides that: “The title of a person who
negotiates an instrument is defective within
the meaning of this Act when he obtained
the instrument, or any signature thereto, by
fraud, duress, or force and fear, or other
unlawful means, or for an illegal
consideration, or when he negotiates it in
breach of faith, or under such
circumstances as amount to a fraud.”
Q: What are the circumstances that render
title defective?
A: When he obtained the instrument or any
signature thereto by: 1. Fraud; 2. Duress; 3.
Force and fear; 4. Other unlawful means; 5.
For an illegal consideration; 6. Negotiate it
in breach of faith; and 7. Under such
circumstances as amount to a fraud.
Example:
A → B → C
On the part of A, the issuance of the
instrument is involuntary because of the
presence of any circumstances mentioned
in Sec. 55. thus making B’s title defective.
Q: Can C still be called a holder in due
course?
A: YES. As long as he has no knowledge of
the defect in the title of the person
negotiating it to him.
Sec. 56 of the Negotiable Instrument Law
provides that: “To constitutes notice of an
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Maria Zarah Villanueva - Castro
infirmity in the instrument or defect in the
title of the person negotiating the same, the
person to whom it is negotiated must have
had actual knowledge of the infirmity or
defect, or knowledge of such facts that his
action in taking the instrument amounted
to bad faith.”
*Infirmities must include things that are
wrong with the instrument itself. These are
infirmities not visible to the naked eye.
*As long as he has knowledge of the
infirmity due course holding is not present.
Q: How can we reconcile the 1st
requirement and the 4th requirement?
A: The first requirement pertains to
infirmities visible to the naked eye whereas
the fourth requirement pertains to
infirmities not visible to the naked eye.
Example:
The instrument contains all
necessary details except for
the amount, A instructed B
to fill the instrument of the
any amount but upto
P50,000 only. B inserted
P80,000. B negotiated it to
C.
Q: Can C detect the infirmity upon its face?
A: NO
4. Good faith
5. Holder for value
C. Presumption of due course holding
Sec. 59 of the Negotiable Instrument Law
provides that: “Every holder is deemed prima
facie to be a holder in due course; but when it is
shown that the title of any person who has
negotiated the instrument was defective, the
burden is on the holder to prove that he or
some person under whom he claims acquired
the title as holder in due course. But the last-
mentioned rule does not apply in favor of a
party who became bound on the instrument
prior to the acquisition of such defective title.”
*The presumption expressed in this section
arises only in favor of a person who is a holder
in the sense defined in Sec. 191 of the
Negotiable Instrument Law, i. e., a payee or
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indorsee who is in possession of the draft, or Advantages:

the bearer thereof. Holder in due course A person derived title
Q: How important is the statutory presumption? from a holder in due
A: The holder of the instrument need not prove course
that he is a holder in due course. Always a holder in due Holder in due course
course to all prior to all prior parties
*The burden to prove shifted to the other party.
parties. Always with except to the person
freedom against who negotiated the
D. Rights of holders in due course defenses and instrument to him
Sec. 57 of the Negotiable Instrument Law defective title
provides that: “A holder in due course holds the Shelter rule is Shelter rule is not
instrument free from any defect of title of prior applicable applicable
parties, and free from defenses available to General Rule: Equitable defenses can be
prior parties among themselves, and may interposed against a person not a holder in due
enforce payment of the instrument for the full course.
amount thereof against all parties liable Exception: Shelter rule, i. e., Section 58 of the
thereon.” Negotiable Instrument Law.

LIABILITY OF PARTIES:
E. Shelter Rule
Sec. 58 of the Negotiable Instrument Law Q: What is your understanding of parties liable? When
provides that: “In the hands of any holder other do you say a party is liable?
than a holder in due course, a negotiable A: A person is liable when he in obligated to perform a
instrument is subject to the same defenses as if particular prestation.
it were non-negotiable. But a holder who Q: What are the liabilities of the parties according to its
derives his title through a holder in due course, nature?
and who is not himself a party to any fraud or A: 1. Warranties; 2. Engagement to pay ( primary;
illegality affecting the instrument, has all the secondary)
rights of such former holder in respect of all
A. Primary and secondary liability, distinguished
parties prior to the latter.”
Distinction:
Requisites:
1. That the holder derived his title from a Primary Liability Secondary Liability
The engagement of a An engagement by a
holder in due course.
party to an instrument party to an instrument
2. That he himself is not a party to any fraud that on its due date he that on its due
or illegality affecting the instrument. will accept or pay, or presentment it shall
Example: both, the instrument be accepted or paid or
A → B → C → D → E → F to the payee or to any both as the case may
E is a holder in due course one to whom it is be according to its
E negotiated the instrument to F who is not a negotiated according tenor and that if it be
to its tenor. dishonored and the
holder in due course.
necessary proceedings
To subsequent holder, F is considered to be a on dishonor be duly
holder in due course because he was sheltered taken he will pay the
by E who is a holder in due course. amount thereof to the
*The determination of whether there is due payee or to whom it is
course holding or not is material only when negotiated or to any
subsequent indorser
there is a personal defense.
who may be
Q: Is it worth comparing the holders in due compelled to pay it.
course and the one who derived title from the Absolutely liable Conditionally liable
holder in due course?
A: YES. B. Liability distinguished from warranty

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Warranty consists of a party’s undertaking that b. Qualified

at the time of his negotiation he had title to the (Sec. 65)
instrument and it is valid and subsisting. Persons Persons
-This is an affirmation/assertion/admission that negotiating by negotiating by
delivery (Sec. 65) delivery
certain things are true.
Q: Can the drawee be forced to be held
Q: Are all parties had warranties?
liable?
A: YES.
A: NO. As long as he do not accepts the
Q: Is engagement to pay common to all parties?
instrument.
A: NO.
*The drawee cannot be compelled to
Distinction:
accept the negotiable instrument.
Liability Warranties
*If the refusal amounted to tortious act,
It is material to It is immaterial to
determine whether know whether the the drawee may be held liable but not
the person is primarily person is primarily or based on contract.
or secondarily liable secondarily liable
1. Maker
C. Liability and/or warranty of parties Sec. 60 of the Negotiable Instrument Law
Liability in general provides that: “The maker of a negotiable
a. Warranty instrument, by making it, engages that he
b. Engagement to pay will pay it according to its tenor, and admits
the existence of the payee and his then
Promissory Bill of
Note Exchange capacity to indorse.”
Primary Maker Acceptor *Maker is primarily liable
Secondary General General 2. Drawer
Indorser Indorser Sec. 61 of the Negotiable Instrument Law
and provides that: “The drawer by drawing the
drawer instrument admits the existence of the
*If the holder’s cause of action is
payee and his then capacity to indorse; and
primary engagement, due presentment
engages that, on due presentment, the
and dishonor proceedings are irrelevant.
instrument will be accepted or paid, or both,
*If the holder’s cause of action is
according to its tenor, and that if it be
breach of warranty, due presentment
dishonored and the necessary proceedings
and dishonor proceedings are irrelevant.
on dishonor be duly taken, he will pay the
*If the holder’s cause of action is
amount thereof to the holder or to any
secondary engagement to pay, due
subsequent indorser who may be
presentment and dishonor proceedings
compelled to pay it. But the drawer may
are relevant.
insert in the instrument an express
Q: Is liability on warranties common to
stipulation negativing or limiting his own
all?
liability to the holder.”
A: YES.
*Due presentment means not only any
Persons that had no engagement to
presentment but presentment in
pay:
accordance with law.
1. Qualified Indorsers
*Necessary proceedings on dishonor means
2. Persons negotiating by delivery
proceedings must be one within accordance
Promissory Note Bill of Exchange with law.
Maker (Sec. 60) Drawer (Sec. 61) *Drawer is conditionally liable
Acceptor (Sec. 62) a. Relationship with drawee
Indorser Indorser b. Relationship with collecting bank
a. General a. General 3. Acceptor
(Sec. 66) b. Qualified
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Sec. 62 of the Negotiable Instrument Law
states that: “The acceptor, by accepting the
instrument, engages that he will pay it
according to the tenor of his acceptance
and admits: (a) The existence of the drawer,
the genuineness of his signature, and his
capacity and authority to draw the
instrument; and (b) The existence of the
payee and his then capacity to indorse.”
*Acceptor is primarily liable
Sec. 127 of the Negotiable Instrument Law
states that: “A bill of itself does not operate
as an assignment of the funds in the hands
of the drawee available for the payment
thereof, and the drawee is not liable on the
bill unless and until he accepts the same.”
4. Indorsers
a. General indorsers
Sec. 66 of the Negotiable Instrument
Law states that: “Every indorser who
indorses without qualification, warrants
to all subsequent holders in due course:
(a) The matters and things mentioned in
subdivisions (a), (b), and (c) of the next
preceding section; and (b) That the
instrument is, at the time of his
indorsement, valid and subsisting; And,
in addition, he engages that, on due
presentment, it shall be accepted or
paid, or both, as the case may be,
according to its tenor, and that if it be
dishonored and the necessary
proceedings on dishonor be duly taken,
he will pay the amount thereof to the
holder, or to any subsequent indorser
who may be compelled to pay it.”
*General indorsers are liable for
warranties and they are secondarily
liable for engagement to pay.
b. Qualified indorsers
Sec. 65 of the Negotiable Instrument
Law states that: “Every person
negotiating an instrument by delivery or
by a qualified indorsement warrants: (a)
That the instrument is genuine and in
all respects what it purports to be; (b)
That he has a good title to it; (c) That all
prior parties had capacity to contract;
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(d) That he has no knowledge of any
fact which would impair the validity of
the instrument or render it valueless.
But when the negotiation is by delivery
only, the warranty extends in favor of
no holder other than the immediate
transferee. The provisions of
subdivision (c) of this section do not
apply to a person negotiating public or
corporation securities other than bills
and notes.”
*Qualified indorsers are liable for
warranties
c. Order of liability
Sec. 68 of the Negotiable Instrument
Law states that: “As respect one
another, indorsers are liable prima facie
in the order in which they indorse; but
evidence is admissible to show that, as
between or among themselves, they
have agreed otherwise. Joint payees or
joint indorsees who indorse are
deemed to indorse jointly and
severally.”
5. Parties negotiating by mere delivery
Sec. 65 of the Negotiable Instrument Law
provides that: “Every person negotiating an
instrument by delivery or by a qualified
indorsement warrants: (a) That the
instrument is genuine and in all respects
what it purports to be; (b) That he has a
good title to it; (c) That all prior parties had
capacity to contract; (d) That he has no
knowledge of any fact which would impair
the validity of the instrument or render it
valueless. But when the negotiation is by
delivery only, the warranty extends in favor
of no holder other than the immediate
transferee. The provisions of subdivision (c)
of this section do not apply to a person
negotiating public or corporation securities
other than bills and notes.”
6. Other cases
a. Irregular indorser
Sec. 64 of the Negotiable Instrument
Law states that: “Where a person, not
otherwise a party to an instrument,
places thereon his signature in blank
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before delivery, he is liable as indorser, Real Defense Personal Defense

in accordance with the following rules: Stronger defense Weakest defense
(a) If the instrument is payable to the Those that attach to Those which are
order of a third person, he is liable to the instrument itself available only against
and are available a person not a holder
the payee and to all subsequent parties.
against all holders, in due course or a
(b) If the instrument is payable to the whether in due course subsequent holder
order of the maker or drawer, or is or not but only by the who stands in privity
payable to bearer, he is liable to all parties entitled to with him (Equitable
parties subsequent to the maker or raise them (Absolute defense)
drawer. (c) If he signs for the defense)
accommodation of the payee, he is Cannot be enforced by Can be enforced
the holder because because there is an
liable to all parties subsequent to the
there is no contract to existing contract but
payee.” enforce subject to defense
b. Indorser of bearer instrument The following are real The following are
Sec. 67 of the Negotiable Instrument defenses: personal defences:
Law provides that: “Where a person 1. Material 1. Absence or
places his indorsement on an alteration failure of
instrument negotiable by delivery, he 2. Want of consideration
delivery of 2. Want of
incurs all the liability of an indorser.”
incomplete delivery of
c. Accommodation party instrument complete
Sec. 29 of the Negotiable Instrument 3. Duress instrument
Law states that: “An accommodation amounting to 3. Insertion of
party is one who has signed the forgery wrong date in
instrument as maker, drawer, acceptor, 4. Fraud in an instrument
or indorser, without receiving value factum or 4. Filling up of
fraud in esse blank contrary
therefor, and for the purpose of lending
contractus to authority
his name to some other person. Such a 5. Minority given or not
person is liable on the instrument to a 6. Insanity within
holder for value, notwithstanding such 7. Ultra vires acts reasonable
holder, at the time of taking the of a time
instrument, knew him to be only an corporation 5. Fraud in
8. Want of inducement
accommodation party.”
authority of 6. Duress or fear
*The liability of an accommodation agent 7. Illegal
party depends on how they participate 9. Illegality consideration
in the instrument. 10. Forgery 8. Negotiation in
d. Agents signing in behalf of the principal 11. Prescription breach of faith
Sec. 19 of the Negotiable Instrument 9. Mistake
Law provides that: “The signature of 10. Ante-dating or
post dating for
any party may be made by a duly
illegal or
authorized agent. No particular form of fraudulent
appointment is necessary for this purposes
purpose; and the authority of the agent 11. Abuse of
may be established as in other cases of authority
agency.” 12. Conditional
delivery of
DEFENSES: complete
instrument
A. Real and Personal Defenses, distinguished Q: In a creditor-debtor relationship, who is
Distinctions: interested in the existence of a defense?

16

A: Debtor. Reason: Presence of a defense
exonerate the liability of the debtor.
Kinds:
1. Real defense
2. Personal defense
Q: Why are real defenses stronger than the
personal defense?
A: Because there is no contract exists on his
part.
B. Real defenses
1. Minority and ultra vires acts (Sec 22)
Sec. 22 of the Negotiable Instrument Law
provides that: “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.”
Examples:
a. A, a minor, issued a promissory note to
B; B negotiated it to C; C to D then D to
E.
Q: What defense is available to A?
A: Minority
Q: Why is it a real defense?
A: Because of his lack of capacity.
Q: What recourse is available to the holder?
A: Go after the indorsers
b. A issued a negotiable instrument to B, a
minor.
Q: Can A use minority as a defense?
A: NO. As maker, he admits the existence of
the payee and his then capacity to indorse.
2. Non-delivery of an incomplete instrument
Sec. 15 of the Negotiable Instrument Law
provides that: “Where an incomplete
instrument has not been delivered, it will
not, if completed and negotiated without
authority, be a valid contract in the hands
of any holder, as against any person whose
signature was placed thereon before
delivery.”
3. Fraud in factum
*The person who signs the instrument lacks
knowledge of the character or essential
terms of the instrument. But the defense is
not available if the party involved had
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reasonable opportunity to obtain such
knowledge.
4. Forgery and want of authority
Sec. 23 of the Negotiable Instrument Law
provides that: “When a signature is forged
or made without the authority of the
person whose signature it purports to be, it
is wholly inoperative, and no right to retain
the instrument, or to give a discharge
therefor, or to enforce payment thereof
against any party thereto, can be acquired
through or under such signature, unless the
party against whom it is sought to enforce
such right is precluded from setting up the
forgery or want of authority.”
*What is inoperative is only the signature
and not the instrument.
Parties precluded from raising forgery as
defense:
1. Person negotiating by delivery
2. Prior parties/indorsers
a. Forgery of maker’s signature
*Maker cannot be held liable by any
holder.
Reason: The purported maker is not a
party to the instrument as his forged
instrument is inoperative and no right
to retain, enforce or discharge the note
may be acquired against him.
b. Of indorser’s signature
*The indorsement is inoperative thus it
cannot effect any transfer of any rights
to the holder.
Example:
A (maker) → B → C → D → E
B’s signature was forged
Q: Can A raise the defense of Forgery?
A: YES.
Q: Can E go after B?
A: NO.
Recourse: Go after C or D
*Cut-off rule is applicable. Indorsement
is necessary for the transfer of title.
Example:
X→A→B→C→D→E
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Q: Can the acceptor admits the
genuineness of the signature of the
payee?
A: NO.
Q: Can a drawee refuse payment of a
bill of exchange bearing a forged
indorsement?
A: YES. Cut-off rule applies
Cases: Associated Bank v CA; PNB v CA;
Republic v Ebrada
c. Of drawer’s signature
*In cases involving a forged check,
where the drawer’s signature is forged,
the drawer can recover from the
drawee bank. No drawee bank has a
right to pay a forged check. If it does, it
shall have to re-credit the amount of
the check to the account of the drawer.
Reason: The drawee bank is bound to
know the signature of the drawer since
the drawer is its customer.
Example:
X → A (drawer) → B → C → D → E
(holder)
Drawer’s signature was forged
Q: Can drawee accept a bill of exchange
bearing forged signature of the drawer?
A: NO.
Q: What is the implication of accepting
bill of exchange bearing a forged
signature of the drawer?
A: Sec. 62 of the Negotiable Instrument
Law. Once accepted, drawee cannot
raise forgery as a defense.
Recourse: Go after the last
holder/collecting bank.
*Collecting bank assumes the role of an
indorser.
Case: Gempesaw v CA
*Cut-off rule is not applicable
General Rule: Drawee bank is liable for
the loss.
Exception: There is fault/negligence on
the part of the drawer
d. Forgery of bearer instruments
*In bearer instruments, the signature of
the payee or holder is unnecessary to
pass title to the instrument. Hence,
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where the indorsement is a forgery,
only the person whose signature is
forged can raise the defense of forgery
against a holder in due course.
5. Material alteration (partial real defense)
Sec. 124 of the Negotiable Instrument Law
provides that: “Where a negotiable
instrument is materially altered without the
assent of all parties liable thereon, it is
avoided, except as against a party who has
himself made, authorized, or assented to
the alteration and subsequent indorsers.
But when an instrument has been
materially altered and is in the hands of a
holder in due course not a party to the
alteration, he may enforce payment thereof
according to its original tenor.”
Q: Why is this a partial defense only?
A: Because the holder in due course may
still demand payment but according to its
original tenor.
Sec. 125 of the Negotiable Instrument Law
states that: “Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or
interest;
(c) The time or place of payment:
(d) The number or the relations of the
parties;
(e) The medium or currency in which
payment is to be made;
(f) Or which adds a place of payment where
no place of payment is specified, or any
other change or addition which alters the
effect of the instrument in any respect, is a
material alteration.”
*The underlined phrase is what we call
“catch-all clause”
Q: What is the condition/term of the
instrument at the time it was altered?
A: The instrument is materially complete.
6. Extinctive prescription
C. Personal defenses
*Determination of whether the person is a
holder in due course or not is material.
Q: Why this defense is treated as a weak
defense?
18

A: Because only holders not in due course can
raise these defenses.
1. Ante-dating or post dating
Sec. 12 of the Negotiable Instrument Law
provides that: “The instrument is not invalid
for the reason only that it is ante-dated or
post-dated, provided this is not done for an
illegal or fraudulent purpose. The person to
whom an instrument so dated is delivered
acquires the title thereto as of the date of
delivery.”
2. Insertion of wrong date
Sec. 13 of the Negotiable Instrument Law
provides that: “Where an instrument
expressed to be payable at a fixed period
after date is issued undated, or where the
acceptance of an instrument payable at a
fixed period after sight is undated, any
holder may insert therein the true date of
issue or acceptance, and the instrument
shall be payable accordingly. The insertion
of a wrong date does not avoid the
instrument in the hands of a subsequent
holder in due course; but as to him, the
date so inserted is to be regarded as the
true date.”
Principle: One who made possible to the
infirmity shall bear the loss
Example:
_______
10 days after date
The true date is June 1, 2008 maturity date
will be June 11, 2008
The date inserted is May 25, 2008 the
maturity date will be June 4, 2008
A→B→C→D→E
If E is a holder in due course and A is the
maker, though both E and A are innocent, A
shall suffer the consequence for he made
possible to the loss
If E is not a holder in due course and A is
the maker, E is not innocent but A is
innocent thus E cannot held A liable.
3. Filling up blanks beyond authority (Abuse of
Authority)
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Sec. 14 of the Negotiable Instrument Law
states that: “Where the instrument is
wanting in any material particular, the
person in possession thereof has a prima
facie authority to complete it by filling up
the blanks therein. And a signature on a
blank paper delivered by the person making
the signature in order that the paper may
be converted into a negotiable instrument
operates as a prima facie authority to fill it
up as such for any amount. In order,
however, that any such instrument when
completed may be enforced against any
person who became a party thereto prior to
its completion, it must be filled up strictly in
accordance with the authority given and
within a reasonable time. But if any such
instrument, after completion, is negotiated
to a holder in due course, it is valid and
effectual for all purposes in his hands, and
he may enforce it as if it had been filled up
strictly in accordance with the authority
given and within a reasonable time.”
*It is inequitable for a person to set up this
defense against more innocent party.
Q: Is there any recourse to the holder?
A: YES. To ran against the indorsers
*Subsequent indorsers cannot put up the
defense of good faith.
Example:
The amount is
___________
The authority to fill the amount is upto
P50,000 only
A→B→C→D→E
B inserted an amount of P80,000
Q: Is there a defense?
A: YES.
Q: Can it be used?
A: IT DEPENDS. Depending whether the
holder is a holder in due course or not.
*If holder in due course the defense cannot
be raised.
*If holder not in due course he can use it as
a defense.
19

Reason: The holder not in due course is not
an innocent party as far as the maker is
concern thus the contract is avoided.
Recourse: Go after the immediate
transferor in case of bearer instrument or
the indorsers in case of order instrument.
4. Want of delivery of a complete instrument
Sec. 16 of the Negotiable Instrument Law
states that: “Every contract on a negotiable
instrument is incomplete and revocable
until delivery of the instrument for the
purpose of giving effect thereto. As
between immediate parties and as regards
a remote party other than a holder in due
course, the delivery, in order to be effectual,
must be made either by or under the
authority of the party making, drawing,
accepting, or indorsing, as the case may be;
and, in such case, the delivery may be
shown to have been conditional, or for a
special purpose only, and not for the
purpose of transferring the property in the
instrument. But where the instrument is in
the hands of a holder in due course, a valid
delivery thereof by all parties prior to him
so as to make them liable to him is
conclusively presumed. And where the
instrument is no longer in the possession of
a party whose signature appears thereon, a
valid and intentional delivery by him is
presumed until the contrary is proved.”
Example:
A issued a complete instrument but he has
no intention of negotiating it yet
B got the instrument accidentally
B negotiated it to C then C to D and D to E
E is a holder in due course
Q: Can C be a holder in due course?
A: YES. As long as he has no knowledge of
the infirmity
Q: Between E and A, can A raise the
defense?
A: NO. Because the defense is a personal
defense.
Principle: One who makes the infirmity
possible shall bear the loss.
Recourse: Go after the indorsers
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Reason: Breach of warranty, i.e., that they
had good title to the instrument.
5. Absence or failure of consideration
Sec. 28 of the Negotiable Instrument Law
provides that: “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.”
*Defense pro tanto means that the person
is not totally exonerated from liability; he is
liable upto the amount he benefited.
*Partial failure of consideration is a
personal defense and can be raised against
a holder not in due course.
*The general indorser is liable for breach of
warranty, i.e., his warranty that at the time
of his indorsement the instrument is valid
and existing.
*With regard to person negotiating by
delivery and qualified indorser, his liability
depends on whether or not he has
knowledge of the invalidity of the
instrument.
Example:
A issued a promissory note sans
consideration to B.
Q: Can B collect to A?
A: NO.
B indorsed the note to C then C to D and D
to E.
Q: Could C be a holder in due course?
A: YES. As long as he has no knowledge of
the fact that there was infirmity in the
instrument.
Q: Is a defense exists in favor of A? What
kind of defense?
A: YES. It is a personal defense
Q: Can A successfully raise it? Why?
A: NO. One who made the infirmity possible
shall bear the loss.
6. Simple fraud, duress, intimidation, force or
fear, illegality of consideration, breach of
faith
Sec. 55 of the Negotiable Instrument Law
provides that: “The title of a person who
20

negotiates an instrument is defective within
the meaning of this Act when he obtained
the instrument, or any signature thereto, by
fraud, duress, or force and fear, or other
unlawful means, or for an illegal
consideration, or when he negotiates it in
breach of faith, or under such
circumstances as amount to a fraud.”
Sec. 56 of the Negotiable Instrument Law
states that: “To constitutes notice of an
infirmity in the instrument or defect in the
title of the person negotiating the same, the
person to whom it is negotiated must have
had actual knowledge of the infirmity or
defect, or knowledge of such facts that his
action in taking the instrument amounted
to bad faith.”
Sec. 57 of the Negotiable Instrument Law
provides that: “A holder in due course holds
the instrument free from any defect of title
of prior parties, and free from defenses
available to prior parties among themselves,
and may enforce payment of the
instrument for the full amount thereof
against all parties liable thereon.”
ENFORCEMENT OF LIABILITY:
C. Presentment for payment
A. Parties primarily liable and parties secondarily
liable
Primarily Liable Secondarily Liable
Maker Drawer
Acceptor General Indorsers
Qualified Indorsers
B. General steps in enforcing liability
1. Presentment
2. Dishonor
• Promissory Note
1. Presentment for payment must be
made within the required period to the
maker (Sec. 70)
2. Notice of Dishonor (Sec. 89)
Example:
M→A→B→C→D→E
Q: In a case where the cause of action is for
payment, is presentment and dishonor
essential?
A: YES.
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Q: If the holder is running after the
indorsement for breach of warranty, is
presentment and dishonour essential?
A: NO.
• Bill of Exchange
1. Presentment for acceptance or
negotiation within a reasonable time
after it was acquired (Sec. 143)
2. If dishonored by non-acceptance:
2.1. Notice of dishonor should be given
to the indorsers and drawer
2.2. If the bill is a foreign bill, there must
be a protest for dishonor by non-
acceptance
3. If the bill is accepted:
3.1. Presentment for payment to the
acceptor should be made
3.2. If the bill is dishonored upon
presentment for payment:
3.2.1. Notice of dishonor upon
presentment for payment
3.2.2. If the bill is a foreign bill,
protest for dishonor by
non-acceptance must be
made
1. Concept of presentment
Presentment is the production of a bill of
exchange to the drawee for his acceptance
or to the drawee or acceptor for payment
or the production of a promissory note to
the party liable for the payment of the
same.
2. Requisites for sufficiency
Sec. 72 of the Negotiable Instrument Law
provides that: “Presentment for payment,
to be sufficient, must be made: (a) By the
holder, or by some person authorized to
receive payment on his behalf; (b) At a
reasonable hour on a business day; (c) At a
proper place as herein defined; (d) To the
person primarily liable on the instrument,
or if he is absent or inaccessible, to any
person found at the place where the
presentment is made.”
a. Date of presentment
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Sec. 71 of the Negotiable Instrument
Law states that: “Where the instrument
is not payable on demand, presentment
must be made on the day it falls due.
Where it is payable on demand,
presentment must be made within a
reasonable time after its issue, except
that in the case of a bill of exchange,
presentment for payment will be
sufficient if made within a reasonable
time after the last negotiation thereof.”
i. Rule in determining maturity
date
Sec. 85 of the Negotiable
Instrument Law provides that:
“Every negotiable instrument is
payable at the time fixed
therein without grace. When
the day of maturity falls upon
Sunday or a holiday, the
instruments falling due or
becoming payable on Saturday
are to be presented for
payment on the next
succeeding business day except
that instruments payable on
demand may, at the option of
the holder, be presented for
payment before twelve o'clock
noon on Saturday when that
entire day is not a holiday.”
ii. Rule in computing time
Sec. 86 of the Negotiable
Instrument Law provides that:
“When the instrument is
payable at a fixed period after
date, after sight, or after that
happening of a specified event,
the time of payment is
determined by excluding the
day from which the time is to
begin to run, and by including
the date of payment.”
iii. Rule in if payable at a bank
Sec. 75 of the Negotiable
Instrument Law states that:
“Where the instrument is
payable at a bank, presentment
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for payment must be made
during banking hours, unless
the person to make payment
has no funds there to meet it at
any time during the day, in
which case presentment at any
hour before the bank is closed
on that day is sufficient.”
b. Place of presentment
Sec. 73 of the Negotiable Instrument
Law provides that: “Presentment for
payment is made at the proper place: (a)
Where a place of payment is specified
in the instrument and it is there
presented; (b) Where no place of
payment is specified but the address of
the person to make payment is given in
the instrument and it is there presented;
(c) Where no place of payment is
specified and no address is given and
the instrument is presented at the usual
place of business or residence of the
person to make payment; (d) In any
other case if presented to the person to
make payment wherever he can be
found, or if presented at his last known
place of business or residence.”
i. Rule in if payable at a special
place
Sec. 70 of the Negotiable
Instrument Law states that:
“Presentment for payment is
not necessary in order to
charge the person primarily
liable on the instrument; but if
the instrument is, by its terms,
payable at a special place, and
he is able and willing to pay it
there at maturity, such ability
and willingness are equivalent
to a tender of payment upon
his part. But except as herein
otherwise provided,
presentment for payment is
necessary in order to charge
the drawer and indorsers.”
c. Presentment to the party primarily
liable
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i. How presentment made
Sec. 74 of the Negotiable
Instrument Law states that:
“The instrument must be
exhibited to the person from
whom payment is demanded,
and when it is paid, must be
delivered up to the party paying
it.”
ii. Rule in case party primarily
liable is already dead
Sec. 76 of the Negotiable
Instrument Law states that:
“Where the person primarily
liable on the instrument is dead
and no place of payment is
specified, presentment for
payment must be made to his
personal representative, if such
there be, and if, with the
exercise of reasonable diligence,
he can be found.”
iii. Presentment to partners
Sec. 77 of the Negotiable
Instrument Law provides that:
“Where the persons primarily
liable on the instrument are
liable as partners and no place
of payment is specified,
presentment for payment may
be made to any one of them,
even though there has been a
dissolution of the firm.”
iv. Presentment to joint debtors
Sec. 78 of the Negotiable
Instrument Law states that:
“Where there are several
persons, not partners, primarily
liable on the instrument and no
place of payment is specified,
presentment must be made to
them all.”
3. Instances where presentment is excused
Sec. 79 of the Negotiable Instrument Law
provides that: “Presentment for payment is
not required in order to charge the drawer
where he has no right to expect or require
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that the drawee or acceptor will pay the
instrument.”
Sec. 80 of the Negotiable Instrument Law
states that: “Presentment 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.”
Sec. 82 of the Negotiable Instrument Law
states that: “Presentment for payment is
excused: (a) Where, after the exercise of
reasonable diligence, presentment, as
required by this Act, cannot be made; (b)
Where the drawee is a fictitious person; (c)
By waiver of presentment, express or
implied.”
4. When delay in presentment excused
Sec. 81 of the Negotiable Instrument Law
provides that: “Delay in making
presentment for payment is excused when
the delay is caused by circumstances
beyond the control of the holder and not
imputable to his default, misconduct, or
negligence. When the cause of delay ceases
to operate, presentment must be made
with reasonable diligence.”
D. Notice of dishonor
1. When dishonor of the instrument occurs:
a. Dishonor by non-payment
Sec. 83 of the Negotiable Instrument
Law states that: “The instrument is
dishonored by non-payment when: (a)
It is duly presented for payment and
payment is refused or cannot be
obtained; or (b) Presentment is excused
and the instrument is overdue and
unpaid.”
Q: What are the implications of the
notices sent to drawer/general
indorsers?
A: Secondary liability
Example:
A→B→C→D→E
E sent notice of dishonor to D alone
Q: What is the effect of notice given to
D?
23

A: Others are discharge.
Principle: Parties not given a notice are
discharge.
b. Dishonor by non-acceptance
Sec. 149 of the Negotiable Instrument
Law provides that: “A bill is dishonored
by non-acceptance: (a) When it is duly
presented for acceptance and such an
acceptance as is prescribed by this Act
is refused or can not be obtained; or (b)
When presentment for acceptance is
excused and the bill is not accepted.”
2. Who should give notice
a. Holder
Sec. 90 of the Negotiable Instrument
Law provides that: “The notice may be
given by or on behalf of the holder, or
by or on behalf of any party to the
instrument who might be compelled to
pay it to the holder, and who, upon
taking it up, would have a right to
reimbursement from the party to whom
the notice is given.”
b. Agent
Sec. 91 of the Negotiable Instrument
Law states that: “Notice of dishonor
may be given by any agent either in his
own name or in the name of any party
entitled to given notice, whether that
party be his principal or not.”
c. Party who may be compelled to pay
Sec. 90 of the Negotiable Instrument
Law provides that: “The notice may be
given by or on behalf of the holder, or
by or on behalf of any party to the
instrument who might be compelled to
pay it to the holder, and who, upon
taking it up, would have a right to
reimbursement from the party to whom
the notice is given.”
3. Form of Notice
Sec. 96 of the Negotiable Instrument Law
states that: “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
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all cases be given by delivering it personally
or through the mails.”
4. To whom notice is given
a. Party secondarily liable or agent
Sec. 97 of the Negotiable Instrument
Law provides that: “Notice of dishonor
may be given either to the party himself
or to his agent in that behalf.”
b. Notice where party is dead
Sec. 98 of the Negotiable Instrument
Law states that: “When any party is
dead and his death is known to the
party giving notice, the notice must be
given to a personal representative, if
there be one, and if with reasonable
diligence, he can be found. If there be
no personal representative, notice may
be sent to the last residence or last
place of business of the deceased.”
c. Notice to partners
Sec. 99 of the Negotiable Instrument
Law provides that: “Where the parties
to be notified are partners, notice to
any one partner is notice to the firm,
even though there has been a
dissolution.”
d. Notice to persons jointly liable
Sec. 100 of the Negotiable Instrument
Law provides that: “Notice to joint
persons who are not partners must be
given to each of them unless one of
them has authority to receive such
notice for the others.”
e. Notice to bankrupt
Sec. 101 of the Negotiable Instrument
Law states that: “Where a party has
been adjudged a bankrupt or an
insolvent, or has made an assignment
for the benefit of creditors, notice may
be given either to the party himself or
to his trustee or assignee.”
5. When notice is excused
Sec. 109 of the Negotiable Instrument Law
provides that: “Notice of dishonor may be
waived either before the time of giving
notice has arrived or after the omission to
give due notice, and the waiver may be
expressed or implied.”
24

Sec. 110 of the Negotiable Instrument Law
states that: “Where the waiver is embodied
in the instrument itself, it is binding upon all
parties; but, where it is written above the
signature of an indorser, it binds him only.”
Sec. 111 of the Negotiable Instrument Law
states that: “A waiver of protest, whether in
the case of a foreign bill of exchange or
other negotiable instrument, is deemed to
be a waiver not only of a formal protest but
also of presentment and notice of
dishonor.”
Sec. 112 of the Negotiable Instrument Law
states that: “Notice of dishonor is dispensed
with when, after the exercise of reasonable
diligence, it cannot be given to or does not
reach the parties sought to be charged.”
Sec. 114 of the Negotiable Instrument Law
provides that: “Notice of dishonor is not
required to be given to the drawer in either
of the following cases:
(a) Where the drawer and drawee are the
same person;
(b) When the drawee is fictitious person or
a person not having capacity to contract;
(c) When the drawer is the person to whom
the instrument is presented for payment;
(d) Where the drawer has no right to expect
or require that the drawee or acceptor will
honor the instrument;
(e) Where the drawer has countermanded
payment.”
Sec. 115 of the Negotiable Instrument Law
provides that: “Notice of dishonor is not
required to be given to an indorser in either
of the following cases:
(a) When the drawee is a fictitious person
or person not having capacity to contract,
and the indorser was aware of that fact at
the time he indorsed the instrument;
(b) Where the indorser is the person to
whom the instrument is presented for
payment;
(c) Where the instrument was made or
accepted for his accommodation.”
6. When there is delay in giving notice
Sec. 113 of the Negotiable Instrument Law
states that: “Delay in giving notice of
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dishonor is excused when the delay is
caused by circumstances beyond the
control of the holder and not imputable to
his default, misconduct, or negligence.
When the cause of delay ceases to operate,
notice must be given with reasonable
diligence.”
DISCHARGE OF INSTRUMENTS:
A. Concept of Discharge
Discharge means a release of all parties,
whether primary or secondary, from the
obligations arising thereunder. It renders the
instrument without force and effect and
consequently, it can no longer be negotiated.
*Applies to the instrument or to the source of
liability.
B. How instrument is discharge
Sec. 119 of the Negotiable Instrument Law
provides that: “A negotiable instrument is
discharged: (a) By payment in due course by or
on behalf of the principal debtor; (b) By
payment in due course by the party
accommodated, where the instrument is made
or accepted for his accommodation; (c) By the
intentional cancellation thereof by the holder;
(d) By any other act which will discharge a
simple contract for the payment of money; (e)
When the principal debtor becomes the holder
of the instrument at or after maturity in his own
right.”
1. Payment in due course
Sec. 88 of the Negotiable Instrument Law
provides that: “Payment is made in due
course when it is made at or after the
maturity of the payment to the holder
thereof in good faith and without notice
that his title is defective.”
a. By the principal debtor
Sec. 119 (a) of the Negotiable
Instrument Law states that: “A
negotiable instrument is discharged: (a)
By payment in due course by or on
behalf of the principal debtor; x x x”
b. By the accommodated party
Sec. 119 (b) of the Negotiable
Instrument Law provides that: “A
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Negotiable Instruments Law
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negotiable instrument is discharged: x x party; (e) By a release of the principal debtor

x (b) By payment in due course by the unless the holder's right of recourse against the
party accommodated, where the party secondarily liable is expressly reserved; (f)
instrument is made or accepted for his By any agreement binding upon the holder to
accommodation; x x x” extend the time of payment or to postpone the
2. Intentional cancellation holder's right to enforce the instrument unless
a. Rule in case of unintentional made with the assent of the party secondarily
cancellation liable or unless the right of recourse against
Sec. 123 of the Negotiable Instrument such party is expressly reserved.”
Law states that: “A cancellation made
unintentionally or under a mistake or CHECKS:
without the authority of the holder, is A. Checks defined
inoperative but where an instrument or Sec. 185 of the Negotiable Instrument Law
any signature thereon appears to have provides that: “A check is a bill of exchange
been cancelled, the burden of proof lies drawn on a bank payable on demand. Except as
on the party who alleges that the herein otherwise provided, the provisions of
cancellation was made unintentionally this Act applicable to a bill of exchange payable
or under a mistake or without on demand apply to a check.”
authority.” *Checks need not be presented for acceptance
3. Any act that discharge simple contracts *Checks are always payable on demand
*The law on Obligations and Contracts will *Checks are always drawn against a bank
apply. *In case of refusal by drawee bank, payee or
Article 1231 of the New Civil Code provides holder cannot compel drawee bank to pay
that: “Obligations are extinguished: (1) By because there is no privity of contract.
payment or performance: (2) By the loss of Recourse: Serve notice of dishonour to drawer;
the thing due: (3) By the condonation or ran after the drawer
remission of the debt; (4) By the confusion B. Distinguished from Draft
or merger of the rights of creditor and
debtor; (5) By compensation; (6) By Other Bill of Exchange Check
novation. Other causes of extinguishment Not drawn on a It is necessary that a
of obligations, such as annulment, deposit. It is not check is drawn on a
rescission, fulfillment of a resolutory necessary that a previous deposit.
condition, and prescription, are governed drawer of a Bill of Otherwise, there
elsewhere in this Code.” Exchange should have would be fraud.
funds in the hands of Always bank as a
*Although these ways discharge the
the drawee. drawee, need not be
instrument as between immediate parties, Exist for circulation presented for
they will not do so in the hands of a holder acceptance. Exist for
in due course. immediate payment
4. Principal debtor becomes a holder Death of the drawer of Death of the drawer of
a Bill of Exchange with a check, with the
C. Discharge of persons secondarily liable the knowledge of the knowledge by the
bank, does not revoke bank, revokes the
Sec. 120 of the Negotiable Instrument Law
the authority of the authority of the
provides that: “A person secondarily liable on banker to pay. banker to pay.
the instrument is discharged: (a) By any act May be presented for Must be presented for
which discharges the instrument; (b) By the payment within a payment within a
intentional cancellation of his signature by the reasonable time after reasonable time after
holder; (c) By the discharge of a prior party; (d) its last negotiation. its issue. Checks
By a valid tender or payment made by a prior become stale after 6
months from issue.
26

C. Relationship between drawer, drawee and
payee
Drawer – is a secondarily liable; admits the
existence of a payee and his capacity to indorse
and engages that the instrument will be
accepted or paid by the party primarily liable
and engages that if the instrument is
dishonored and proper proceedings are brought
he will pay to the party entitled to be paid.
Drawee – primarily liable; engages to pay
according to the tenor of his acceptance; admits
the existence of the drawer, the genuineness of
his signature and his capacity and authority to
draw the instrument and admits the existence
of the payee and his capacity to indorse.
Payee – the person who is named to received
the payment. The one who can indorse for
further negotiation.
D. Kinds of check
1. Cashier’s and manager’s check a bill of
exchange drawn by a bank upon itself, and
is accepted by its issuance.
*Treated as good as cash.
*The drawee and the drawer are one and
the same.
BSP Circular 259 series of 2000 provides
that: “Pursuant to Monetary Board
Resolution No. 1494 dated 1 September
2000, additional anti-money laundering
rules and regulations for banks are hereby
issued as follows: Section 1. Issuance of
Cashier’s, Manager’s or Certified Checks.
Banks shall not issue cashier’s, manager’s or
certified checks or other similar instruments
payable to cash, bearer, fictitious payee or
numbered account. When the person
purchasing the above-mentioned
instruments is not a regular bank client, the
issuing bank shall require the purchaser to
present his/her proof of residence together
with his/her driver’s license, passport,
employment I.D. or other photo
identification card. A register for cashier’s,
manager’s or certified checks issued shall
be maintained by the bank. Section 2.
Sanction. Any violations of the provision of
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Maria Zarah Villanueva - Castro
this Circular shall be subject to a fine of
P30,000 per transaction.”
BSP Circular No. 291 series 2001 provides
that: “The Monetary Board, in its Resolution
No. 707 dated 10 May 2001 decided to
authorize the issuance of cashier’s,
manager’s or certified checks or other
similar instruments in blank or payable to
cash, bearer or numbered account as an
exception from the provisions of Circular no.
259, subject to the following
conditions: a. That the amount of each
check shall not exceed P10,000.00; b. That
the buyer of the check is properly identified
as required under Circular No. 259 dated 29
September; c. That a register of said
checks shall be maintained with the
following minimum information: 1. Date
issued; 2. Amount; 3. Name of buyer; 4.
Date paid; 5. If the aggregate instruments
purchased by the same person within any
thirty (30) day period amounts to at least
fifty thousand pesos (P50,000), the purpose
of the buyer should be stated.; d. That
banks which issue as well as those which
accept as deposits, said cashier’s,
manager’s or certified checks or other
similar instruments issued in blank or
payable to cash, bearer or numbered
account shall take such measure(s) as may
be necessary to ensure that said
instruments are not being used/resorted to
by the buyer or depositor in furtherance of
a money-laundering activity; e. That the
deposit of said instruments shall be subject
to the same requirements/scrutiny
applicable to cash deposits; f. That
transactions involving said instruments
should be accordingly reported to the
Bangko Sentral ng Pilipinas if there is
reasonable ground to suspect that said
transactions are being used to launder
funds of illegitimate origin.”
2. Certified check one drawn by a depositor
upon funds to his credit in a bank which a
proper officer of the bank certifies will be
paid when duly presented for payment.
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*There is a guarantee that upon
presentment it will be accepted.
*It is accepted in advance.
*Certification is equivalent to acceptance.
*It is forbidden to issue a stop order
payment.
Sec. 187 of the Negotiable Instrument Law
provides that: “Where a check is certified by
the bank on which it is drawn, the
certification is equivalent to an
acceptance.”
Sec. 188 of the Negotiable Instrument Law
provides that: “Where the holder of a check
procures it to be accepted or certified, the
drawer and all indorsers are discharged
from liability thereon.”
Sec. 189 of the Negotiable Instrument Law
provides that: “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.”
3. Crossed Check done by writing two parallel
lines diagonally on the left top portion of
the checks.
Article 541 of the Code of Commerce
provides that: “The maker of any legal
holder of a check shall be entitled to
indicate therein that it be paid to a certain
banker or institution, which he shall do by
writing across the face the name of said
banker or institution, or only the words
"and company".
a. Effects of crossing a check
1. The check may not be encashed but
only deposited in the bank
2. The check may be negotiated only
once – to one who has an account
with the bank
3. The act of crossing serves as a
warning to the holder that the
check has been issued for a definite
purpose so that he may inquire if he
has received the check pursuant to
that purpose.
4. Memorandum and traveller’s check
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Negotiable Instruments Law
Maria Zarah Villanueva - Castro
Memorandum Check is in the form of an
ordinary check, with the word
“memorandum”, “memo” or “mem”
written across its face, signifying that the
maker or drawer engages to pay the bona
fide holder absolutely, without any
condition concerning its presentment. Such
check is an evidence of debt against the
drawer, and although it may not be
intended to be presented, has the same
effect as an ordinary check, and if passed to
a third person, will be valid in his hands like
any other check.
Traveller’s Check instruments purchased
from banks, express companies, or the like,
in various denominations, which can be
used like cash upon second signature by the
purchaser. It has the characteristics of a
cashier’s check of the issuer. It requires the
signature of the purchaser at the time he
buys it and also at the time he uses it – that
is when he obtains the check from the bank
and also at the time he delivers the same to
the establishment that will be paid thereby.
E. When required to be presented for payment
Sec. 186 of the Negotiable Instrument Law
provides that: “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.”
F. Effect of death of drawer
*In case of death of the drawer, the bank may
refuse payment provided that there was a
proper notice of the death of the drawer given
to bank.
G. Pertinent Philippine Clearing House Corporation
rules
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