De Leon Negotiable Instruments PDF

BANCE,
SHAYNE AMOR S. Notes in Negotiable Instruments Law| DE LEON, H.
Dean R. Villanueva Page 1 of 47
XU Law
Consideration
The Negotiable

Instruments Law

Act No. 2031

Part i
Introduction

Chapter III
Negotiation

Chapter I Sec. 30. What constitutes negotiation. – An instrument is negotiated when
Form and Interpretation it is transferred from one person to another in such a manner as to
constitute the transferee the holder thereof. If payable to bearer, it is
negotiated by delivery; if payable to order, it is negotiated by the
indorsement of the holder completed by delivery.

Transfer, defined
Chapter II v Process by which property is delivered by one person to
another.

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BANCE, SHAYNE AMOR S. Notes in Negotiable Instruments Law| DE LEON, H.
XU Law
v Transfer of a negotiable instrument from one person to another

There are many modes of transfer made in such manner as to constitute the transferee the holder
v A bill of exchange may be transferred in several different ways thereof.
and for different purposes which may result in the acquisition of v There is no negotiation if the transfer does not make the
different rights. transferee the holder of the instrument.
v The NIL does not prescribe an exclusive method of transferring
negotiable instruments, but only the manner in which their Methods of negotiation
independence of equities or defenses might obtain between v The method by which an instrument is negotiated depends
the original parties may be preserved. upon whether the instrument is payable to order or to bearer.
v If payable to order: (a) indorsement; and (b) delivery
Three methods of transferring a Negotiable Instrument v If payable to bearer: mere delivery.
1. Issue
v First delivery of the instrument, complete in form, to a Delivery
person who takes it as a holder. v Transfer of possession actual or constructive, from one person
v First transfer of the instrument to a payee. to another.
v A negotiable instrument’s legal life does not begin until it is
issued by the maker or drawer to the first holder. Theft does not constitute delivery
2. Negotiation v M issues a note “payable to bearer” but the same was stolen by
v Ordinarily involves indorsement. T who delivered the note to P. T’s acquisition of the note does
v Negotiation makes it possible for the transferee to acquire not constitute delivery for delivery must be voluntary.
a better right to a negotiable instrument than the v However, the delivery of T to P constitutes negotiation.
transferor had. v Thus, while a thief or finder cannot acquire title to the
v Whether the holder is a holder in due course depends upon instrument, by virtue of the theft, he can transfer title to a
factors other the fact of negotiation. subsequent innocent purchaser.
3. Assignment
v The less usual method Payment of instrument by drawee not negotiation
v There is no negotiation of a non-‐negotiable instrument, v The payment of a check (or other bill) by the drawee bank is not
only its assignment. a negotiation and does not make the bank a holder within
v Although it may be transferred by indorsement and Section 30.
delivery, the assignee acquired the instrument subject to v The bank is netiher the payee nor indorsee. The check is
the rules applicable to non-‐negotiable paper. extinguished and cannot be put into circulation again so as to
bind the drawer or indorser.
Negotiation v The writing of the name of the holder on the bank of the check
before surrendering it for payment to the drawee-‐bank is not an

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indorsement. Such signature merely serves as a receipt for the v Transfer of instrument is still effected even even when it is
money. Upon payment, the check becomes merely a voucher. delivered without indorsement.
v Payment effects the discharge of the instrument, not a transfer v The transfer operates as an ordinary assignment, and the
of title thereto. assignee is merely placed in the position of the assignor, the
former acquiring the instrument subject to all defenses, real and
Bank, no obligation to make partial payment personal, available against the latter.
v A bank is under no obligation to make part payment on a check v Without the indorsement, the transferee would NOT be the
up to only the amount of the drawer’s funds, where the check is holder of the instrument, he not being the payee, indorsee or
drawn for an amount larger than what the drawer has on the bearer thereof. However, the assignee acquire the right to
deposit. have the indorsement of the assignor. When indorsement is
v Upon partial payment, the check holder could not be called subsequently obtained, the transfer operates as a negotiation
upon to surrender the check and the bank would be without a only as of the time the indorsement is actually made.
voucher affording a certain means of showing payment. This
rule is based on commercial convenience. (Moran v. CA) [Bance] Meaning, when there is a transfer of an order
instrument without indorsement, there is still a transfer of the NI but it is
Assignment, defined a mere assignment, not a negotiation.
v An assignment of a bill or note merely means a transfer of the
title to the instrument, with the assignee generally taking only Negotiation v. Assignment
such title as his assignor has, subject to all defenses available
against his assignor. Negotiation Assignment
Type of instrument Refers only to Refers generally to an
Assignment of instrument negotiable instruments ordinary contract
v Assignment involves a transfer of rights under a contract. The Status of transferee Holder Assignee
transfer of a non-‐negotiable instrument always constitutes an Defenses Subject only to real Subject to both real and
defenses personal defenses
assignment. The word “transfer” is also used when referring to
Title of transferee Holder in due course Merely steps into the
“assignent.” When negotiation takes place, the transferee
may acquire a better shoes of the assignor
becomes a holder. title or greater rights
v Absent an express prohibition against assignment or transfer than those possessed
written on the face of a non-‐negotiable instrument, the same by the transferor or
may be assigned or transferred. prior party
v Thus, a PN marked “non-‐negotiable” but not at the same time Indorsements A general indorser Assignor does not
stamped “non-‐transferrable” or “non-‐assignable” may be warrants the solvency warrant the solvency of
assigned or transferred. (Sesbreño v. CA) of prior parties prior parties, unless
expressly stipulated or
the insolvency is known
Effect of delivery of ORDER instrument without indorsement

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to him existing negotiable instrument.

Liability Indorser is not liable Assignor is liable even Yes Instrument is negotiated when it is delivered to the
unless there be without notice of payee or to an indorsee or the bearer thereof. Hence,
presentment and notice dishonor;
negotiation is not confined to transfer after delivery
of dishonor
because a holder may be a payee in possession of the
Governing law Act 2031 or the NIL CC 1624-‐1635
instrument.

Reconciling the two schools of thought
When distinction not material
(1) The payee, as the first holder, acquires title to the instrument
v If there is no defense to the obligation and only the maker is
not by negotiation but by issue or issuance.
sought to be held.
(2) If the delivery is not made directly to the payee by the maker or
v But whether the transfer of a bill or note is by negotiation or
drawer, payee may acquire title by negotiation such as when
assignment, the transfer may constitute a sale, exchange,
instrument is delivery to a person other than the payee such as
pledge or gift.
an agent of the maker or drawer. (De Ocampo v. Gatchalian)

(3) There may also be negotiation to the payee when the
Payment by means of instrument, merely conditional
instrument is delivered back to him by the last holder.
v Payment by means of PN, BoE and other negotiable

instruments is merely conditional, meaning, it is subject to the
Delivery of negotiable instrument
condition that they be converted into cash at maturity. (Art.
(1) As to kind – Delivery may be actual or constructive.
1249, CC)
(2) As to necessity -‐ Delivery is an essential part of every
v This is not the same rule in insurance. In insurance, once a
negotiation. Delivery is the operative fact that evidences the
promissory note or check in payment of the premium by the
intention of the maker or drawer to become bound by it.
insurer is made, it renders the policy immediately operative
(3) Presumption – Delivery is presumed from possession. Except
where the policy is silent as to the mode of payment, although
against a holder in due course, the maker or drawer may
one of its condition is that “it shall not be valid or binding until
overcome this prima facie presumption by proof that the
the first premium is paid.” The acceptance, in effect, waives this
instrument was lost or stolen.
provision. (Capital Ins. & Surety Co v. Plastic Era Co)

Where delivery conditional
Can there be negotiation to a payee?

Two Schools of Thought

No Delivery to the payee by the maker or drawer does not

constitute negotiation because the delivery is part of the

creation of a negotiable instrument. Before the writing is
delivered, there is no negotiable instrument, no contract Chapter IV
as yet. Negotiation on the other hand refers to an
Rights of Holders

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Who is primarily liable

v The person primarily liable on the instrument is the person who
by the terms of the instrument is absolutely required to pay the
same. All other parties are secondarily liable. (Sec. 192)

Primary party v. Secondary party
v The principal distinction between a primarily liable party and a
Chapter V secondarily liable party is that, while the former is
Liabilities of Parties unconditionally bound, the latter is conditionally bound.
v Being unconditionally liable, the primary party is absolutely
Sec. 60. Liability of maker – The maker of a negotiable instrument by required to pay the instrument upon its maturity. On the other
making it engages that he will pay it according to its tenor, and admits the hand, the secondary party undertakes to pay the instrument
existence of the payee and his then capacity to indorse. only after certain conditions have been fulfilled, to wit:
o Due presentment for payment or acceptance to

primary party (Sec. 70) and dishonor by such party (Sec.
Liability, defined
184 to 151);
v Refers to the obligation of a party to a negotiable instrument to
o Taking of proceedings required after dishonor.
pay the same according to its terms.
v Generally, the liability of all secondary parties to an instrument

ends when the primary party pays the full amount of the
Classification of parties according to liability
instrument. Thus: secondary parties face only potential
(1) Primarily liable
secondary liability on the instrument.
a. The maker of a promissory note;
v Secondary parties are liable in the reverse order in which they
b. The acceptor of a bill of exchange; and
signed the instrument.
c. The certifier of a check.

(2) Secondarily (conditionall) liable:
Liability of maker
a. The drawer of a bill; and
(1) His liability is unconditional and he is the one to whom the
b. The indorser of a note or a bill.
holder will look first for payment and the one who is expected
(3) Not liable:
to pay.
a. The drawee until he accepts the instrument in which
(2) Engages to pay the note according to its terms, subject to no
case he becomes an acceptor.
condition whatsoever. Due presentment for payment and due
When person becomes a party
notice of dishonor are not necessary for the purpose of
v A person becomes a party to an instrument by signing his name
charging the maker with liability, which is necessary however to
thereon. The general rule is that no person is liable on an
fix the liability of any drawer or indorser.
instrument unless his signature appears thereon.

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(3) Promises to pay not only to the payee but to any subsequent necessary proceedings on dishonor be duly taken, he will pay the amount
holder who is legally entitled to the instrument at its maturity thereof to the holder, or to any subsequent indorser who may be
date even if the holder does not demand payment at that time. compelled to pay it. But the drawer may insert in the instrument an
express stitpulation negativing or limiting his own liability to the holder.
(4) He remains fully liable despite the fact that the instrument is
presented for payment late until presecription has run.
(5) He admits the existence of the payee and his then capacity (at Liability of drawer
the time of signing the note) to indorse. v His liability is conditional. Unlike the maker, the drawer does not
promise to pay the bill absolutely. He makes no warranties but
Rationale of the provision engages to pay after certain conditions are complied with.
v The rule operates to prevent the maker from escaping liability
by showing the non-‐existence and incapacity of the payee. The Conditions that must be complied with before drawer is liable
payee must exist because there is no negotiable instrument (1) The bill is presented for acceptance or for payment; or as the
until it is delivered to him. The payee must have the capacity to case may be, to the drawee;
contract because the note is intended to be negotiated and not (2) The bill is dishonored by non-‐acceptance or non-‐payment, as
to be retained with the payee. the case may be; and
(3) The necessary proceedings of dishonor are duly taken. Such
Presumption arising from signature: Tan Sia v. Yu Biao Sontua proceedings are:
v A person placing his name on the face of a note is prima facie a a. Notice of dishonor is given to the drawer subject to
maker and liable as such; and he is presumed to have acted with certain exceptions;
care and to have signed the instrument in question with full b. In case of foreign bills, protest is made followed by a
knowledge of its contents. notice of protest.

Example: Liability of drawer is the same as that of general indorser
M issues a PN for 500 payable on demand. P indorses the note v The drawer, therefore is only secondarily liable to the holder, or
to A. to any subsequent indorser, who may be compelled to pay it.
Upon being sued by A, M cannot say that the agreement His liabilities are conditional in the same manner as the liabilities
between him and P was to pay only P300.00 Neither can he allege that P of a general indorser.
is a non-‐existent nor fictitious person. He is also precluded from setting v The drawer may, by express stipulation, insert in the
up such defenses as minority, insanity or ultra vires act of a corporation instrument, negative or limit his own liability to the holder.

[“Subsequent indorser” refers to any of the indorsers between
Sec. 61. Liability of drawer. – The drawer by drawing the instrument the drawer and the holder. They are also called intervening indorsers.]
admits the existence of the payee and his then capacity to indorse; and

engages that on due presentment the instrument will be accepted or paid,
or both, according to its tenor, and that if it be dishonored and the Liability of drawer of a check

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v The drawer may not unilaterally discharge himself from liability Sec. 62. Liability of acceptor. – The acceptor by accepting the instrument
on checks issued by him merely as security and not for value to engages that he will pay it according to the tenor of his acceptance; and
a payee who negotiated the same without his knowledge and admits –
consent to a holder in the due course by the mere expediency (a) The existence of a the drawer, the genuineness of his signatures,
of withdrawing his funds from the drawee bank. and his capacity and the authority to draw the instrument; and
(b) the existence of the payee and his then capacity to indorse.
[Bance: Meaning, the drawer of a check cannot merely
withdraw his funds from the drawee bank to discharge liability, Liability of drawee before acceptance
i.e. avoid payment] v The drawee of a bill is not liable thereon before acceptance.
v By issuing the check, the drawer impliedly represents that funds v He is not obligated to the payee or any holder to accept a bill
or credits are available for its payment in the drawee bank. although he may be liable to the drawer for breach of contract
(State Investment House v. CA) if he refuses without valid reason to accept the bill.
v The drawer can still be made liable under a separate contract v As a general rule, a refusal by the drawee to accept a bill
distinct from the instrument. constitutes a dishonor of the instrument which triggers the
liability of secondary parties – drawer and indorser – except
Example: those indorsing qualifiedly, that is, without guaranteeing
áW (drawee) payment.
R (drawer) à P (payee) à A à B à C (present holder) v Unless the drawee accepts, he owes no duty to either the payee
or any other holder. His only obligation is to the drawer to pay
R will only be liable of W dishonors the bills by non-‐acceptance or non-‐ in accordance with the latter’s orders.
payment and the necessary proceedings of dishonor are taken.
Liability of drawee after acceptance
After proceedings are taken: v Once the drawee accepts, he becomes an acceptor. He is in
C à R, P, A and B. virtually the same position as the maker of a note
v The same results takes place when a drawee bank certifies a
If B pays, B may also go after R. check drawn on the bank.
v The acceptor is primarily bound on the instrument for by his
Drawer v. Maker acceptance, he engages to pay it according to the terms of his
1. The drawer issues a BoE, while the maker a PN; acceptance, subject to no condition whatsoever. His
2. The drawer is only secondarily liable, while the maker is acceptance, in other words, is a promise to pay.
primarily liable; and
3. The drawer can negative, or limit his liability, while the maker Retraction of acceptance
may not do so. v The bill of exchange itself implies a representation by the
drawer that the drawee is already in receipt of funds to pay, and

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the acceptance (admissio of the truth of that representation) v Generally, no one but the drawee may accept; a stranger of
makes the drawee primarily liable. volunteer is not bound by acceptance. Ex: When a bill is
v The drawee who has accepted cannot retract this admission as accepted for honor supra protest.
against a holder for value, since he has thereby obtained a v While the maker of a note or the drawer of a bill engages to pay
suspension of the holder’s remedies against the drawer and an according to the tenor of the instrument, the acceptor engages
extension of credit. to pay according to the tenor of his acceptance, which is not the
same as the tenor of the bill itself because the acceptance may
[Bance: So basically no, the drawee cannot retract his be qualified.
acceptance] v Of course, if his acceptance is general or absolute, then he is
liable to pay according to the tenor of his acceptance which
Payment of check despite stop-‐payment order incidentally is also the tenor of the bill itself.
v If a drawee-‐bank accepts or pays a check despite a stop v The nature of acceptance is important only in the determination
payment order form the drawer, through oversight or of the kind of liabilities of the parties involved, but not in the
otherwise, it cannot refuse to pay the holder or recover what determination of whether a commercial paper is a BoE or not.
has been paid; neither may it debit the drawer’s account unless As long as the commercial paper conforms with the definition
the acceptance nor payment nor payment was made prior to of a BoE, that paper is considered a BoE.
the receipt of the order.
Effect of acceptance of an altered bill
[Bance: So once acceptance or payment has been made, When a bill is altered without authority by the payee before
drawee bank cannot refuse to pay or recover form the payee/holder acceptance and is subsequently accepted by the acceptor as altered, is
what has been paid. It may however debit the account of the drawer the acceptor liable to an innocent holder according to the original tenor
provided that acceptance or payment was made prior to the receipt of of the bill or according to its altered tenor?
the order. So if drawee bank after receipt of order still paid or accepted Example: A bill issued for P3,000 is altered by P, the payee to
a BoE, then it shall suffer the loss.] P8,000 and is accepted by W. How much is W liable to a A, a holder in
due course?
Similarity to liability of maker and drawer There are two views:
v The acceptor has the same liability as the maker of a promissory (1) Tenor of acceptance – the acceptor is liable for
note and the drawer of a bill with respect to the existence of P8,000.
the payee and his capacity to indorse. a. This is because Sec. 62 provides that the
v Like the maker, neither presentment for payment nor notice of acceptor engages to pay “according to the
dishonor is necessary to charge him with liability, except where tenor of his acceptance.”
he is an acceptor for honor. (2) Original tenor of the bill -‐ the acceptor is liable only
for P3,000.
Liability depends on tenor of acceptance a. This view is in ine with section 132 which states
that “the acceptance of a bill is the

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signification by the drawee of his assent to the v The acceptor does not admit the genuineness of the indorser’s
order of the drawer.” This means that the signature because it is only the signature of the drawer that the
acceptor only assents to pay according to the warrants, although the purported instrument was on the bill at
order of the drawer, and not what appears to the time it was accepted.
be the order of the drawer. v An acceptor is only held to a knowledge of the signature of the
b. It cannot be argued that the acceptor by drawer. By accepting a bill, he only admits the genuineness of
accepting an altered bill has “assented to the such signature and cannot be charged with knowledge of the
alteration” for it is difficult how an acceptor want of genuineness of any other part of the instrument or of
could have assented to such if he had no the title of the holder.
knowledge of the alteration.
Distinction between payment and acceptance
Warranties of the acceptor v Acceptance is a promise to perform an act whereas payment is
v Warrants the existence of the payee and his then capacity to the actual performance thereof.
indorse v The acceptance of the bill is the signification by the drawee of
v Admits the existence of the drawer, the genuineness of his his assent to the order of the drawer. But acceptance is not
signature and his capacity and authority to draw the bill. required for checks, for the same are payable on demand.

Defenses precluded Payment amounts to more than acceptance
v That the drawer is fictitious or non-‐existent v Payment of the amount of a bill check by the drawee implies
v That the drawer’s signature is a forgery not only acceptance but also compliance with the drawee’s
v That he has no funds in his hands belonging to the drawer with obligation. This is founded on the principle that the greater
which to pay the bill includes the less.
v The drawer has overdrawn his account v Payment amounts to more than an acceptance, for the second
v That the drawer has no capacity to contract or no authority to is an obligation to pay, while the first is a discharge of the
draw a bill. indebtdedness. The first implies not only the drawee’s assent to
the order of the drawer, but also an admission of his
By accepting unconditionally, the drawee becomes liable to a corresponding obligation to pay the instrument and his clear
holder, and he cannot allege want or failure of consideration between hi compliance with the obligation.
and the drawer. v Acceptance of the drawee may also be implied.

[The holder is a stranger as regards the transaction between Case: Sumacad v. Province of Samar
the drawer and the drawee. (National Bank v. Picornell)] Facts: Province of Samar issued a check to P (Postmaster of Borongan)
for the sum of P25k drawn against PNB. The postmaster negotiated the
Matters not admitted check to A who presented the check to the municipal treasurer of
Borongan for payment, but the municipal treasurer did not pay.

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A sought payment from the Bureau of Posts which referred the be an indorser, unless he clearly indicates by appropriate words his
same to PNB. PNB then asked the Bureau of submit photostatic copies intention to be bound in some other capacity.
of the check and for A to present the check to the provincial treasurer
and provincial auditor of the province of Samar for certification. When person deemed an indorser
Before the check could be certified, R withdrew its deposit with v A person signing his name on the back of an instrument is,
W, thereby leaving a small balance insufficient to cover the amount of nothing else appearing, a general indorser and liable as such.
the check. A transferred his rights to be who was unable to cash it. Being an indorser, he is chargeable only after presentment and
notice of dishonor.
Issue: Was there an implied acceptance by W?
Parol evidence inadmissible
Held: Yes. In requesting photostatic copies of the check in question and v The law absolutely fixes the status of the indorser; it does not
requiring A to present the check for certification, PNB voluntarily merely raise a presumption that he is such. So one who signs as
assumed the obligation of holding so much of the deposit as would be an indorser cannot show by parol evidence his intention to be
sufficient to cover the amount of the check or before allowing the bound in some other capacity, as for example, that he signed
withdrawal that exhausted said deposit, of making the necessary inquiry merely as an agent or for the purpose only of identifying a
on the matter. person on the instrument. The law requires that he indicates by
The request on the Bureau of Posts and the requirement appropriate words his intention to be bound in some other
imposed on A by W would be an empty gesture if W did not thereby capacity on the instrument itself.
mean to assume the obligation of paying the check and holding
sufficient deposit of R for the purpose. However, such obligation is Reason for the rule
merely subsidiary, R being primarily liable to pay the same. v Founded upon commercial necessity.
v The full and free circulation of negotiable papers which take the
Dissenting opintion: J. Padilla place of money is a matter of great importance.
No, under the facts of the case, no obligation was created on v To require each assignee, before accepting them, to inquire into
thep art of W to pay the amount of the check. To hold W liable, the and investigate every circumstance bearing upon the original
original check must have been presented to W for payment and W issuance and to take cognizance of all the equities between the
should have refused to honor or cash it. The subsequent withdrawal of R original parties would utterly destroy their commercial value
of its deposit could not be prevented by W and if it had refused, it might and seriously impede business transactions.
be held responsible for damages for refusing to allow the withdrawal.
The only party liable for the payment of the check is R. W should When a person liable as guarantor
be held free from any liability, primarily or subsidiarily. v A person who writes, in addition to his signature, words like “I
hereby guarantee payment” or “payment guaranteed” or their
equivalent, indicates his intention to be bound as a guarantor in
Sec. 63. When person deemed indorser. – A person placing his signature
upon an instrument otherwise as maker, drawer or acceptor is deemed to which case he is not discharged from liability merely because of

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the lack of due presentment or due notice of dishonor. He As a mere agent for collection, a bank is not bound to know the
waives the need for presentment, protest or notice of dishonor. genuineness of prior indorsements.
v Unlike however an indorser, a guarantor is liable only (1) An intermediate or collecticing bank which accepts a check
subsidiarily after the assets of the principal debtor have been for deposit and forwards it to the drawee bank for payment
exhausted. stamped “all prior indorsements guaranteed” does not
indorse the check as a general indorser but merely as an
Liability as surety agent bank, guaranteeing only “prior indorsements” not
v A person who writes his name on the back of an instrument “as the genuineness of the check itself, so that it is not liable to
surety” shows his intention to be bound as surety rather than as the drawee bank which paid the check in case the signature
an indorser. As surety, he is primarily and absolutely liable with of the drawer is forged. (PNB v. CA, 1968)
the principal debtor without benefit of exhaustion of the (2) A bank is estopped from raising non-‐negotiability of check
properties of the latter and without also the necessity of (accepts for deposit) on the back of which it stamped its
presentment or notice of dishonor. guarantee of “all prior indorsements and/or lack of
indorsement” and subsequently presented those checks
Signature made for identification only for clearing with another bank which on the strength of the
v A party is liable only as a guarantor and not as indorser if his guarantee cleared the checks and credited the account of
indorsement is made for identification only. the first bank. (Banco de Oro v. Equitable Banking Corp,
1988)
Engagement of guarantor (3) A collecting bank which allowed a crossed check payable to
A guarantor may sign an instrument either payment guaranteed two payees to be deposited by a co-‐payee in his account
or collection guaranteed. with the co-‐payee later withdrawing the entire proceeds
thereof upon presentment with the drawee bank without
(a) When a gurantor signs an instrument payment guaranteed or the other payee (corporation) having indorsed the check or
equivalent words, the signer engages that if the instrument is authorized him to indorse it in its behalf is liable to the
not paid when due he will pay it according to its tenor even if other payee for the full amount of the check. The collecting
the party entitled to payment has not attempted to collect from bank has the duty to ascertain the genuineness of all prior
the party liable for it. indorsements. (Metropolitan bank v. BA Finance
(b) When he signs collection guaranteed or equivalent words, the Corporation, 2009)
signer engages that if the instrument is not paid when due he
will pay it according to its tenor but only after the party entitled Sec. 64. Liability of irregular indorser. – Where a person, not otherwise a
to payment has tried to collect from the party liable for it and party to an instrument, places thereon his signature in blank before
has been unable to do so and it is apparent that it is useless to delivery, he is liable as indorser, in accordance with the following rules:
proceed against him. (a) if the instrument is payable to the order of a third person, he is
liable to the payee and to all subsequent parties.
Liability of agent bank for collection

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(b) If the instrument is payable to the order of the maker or drawer,

or is payable to bearer, he is liable to all parties subsequent to the maker When provision applies
or drawer. v Section 64 deals only with the liability of an irregular indorser to
(c) If he signs for the accommodation of the payee, he is liable to all the payee and subsequent parties. The rights and liabilities of
parties subsequent to the payee. several irregular indorsers as among themselves are governed
by Section 68.
Irregular or anomalous indorsement v Section 64 has no application to a case where the signature was
v Denotes an indorsement for some purpose other than to placed on the instrument after delivery to the payee.
transfer the instrument, or an indorsement by a stranger to the
instrument or by one not in the actual or apparent chain of title, Rules as to liability of irregular or anomalous indorser.
especially an indorsement made prior to the delivery of the (1) Where instrument is payable to the order of a third person
instrument to the payee.
v The purpose of the indorsement not for transfer is usually to Example: M issues note payable to P or order but P won’t accept
add the signer’s credit to the instrument. unless X indorses it. So X indorses in blank and the note is delivered
to P. X’s name appears as the first indorser followed by P’s name. P
When a person an irregular or anomalous indorser then negotiates to A.
v An irregular or anomalous indorser is one who: X is liable to P and A, as a subsequent party, not to to M.
o Not otherwise a party to the instrument;
o Places his signature thereon in blank (2) Instrument payable to the order of maker or drawer or to bearer
o Before delivery
Example: M issues note payable to himself (maker and payee are the
The phrase “not otherwise a party to an instrument” means same) and M cannot circulate the note without X’s indorsement. X
that the irregular indorser is not a maker, drawer, acceptor, or then signs his name and M indorses and delivers the instrument to
regular indorser thereon. A.
X is liable to A, a party subsequent to M, the maker and to
v The irregular or anomalous indorser indorses the instrument in subsequent parties bot not to M. M is liable to X. The liability ofM is
an unusual, singular or peculiar manner. His name appears that of a first indorser, while X, of a second indorser. If the note
where we would naturally expect another name. Thus, if an were payable to bearer, X would also be liable to all parties
instrument is made payable to the order of P as the payee, P’s subsequent.
name should appear on the back of the instrument as the first
indorser but instead, we find the name of X. In such a case, X is (3) Irregular indorser signing for accommodation of payee
an irregular or anomalous indorser. Example: M issues a note to P. P wants to discount the note with A,
v Usually, an irregular or anomalous indorser is an a bank, but the bank is not willing to rely on the financial ability of M
accommodation indorser. He is not necessarily so where he and P alone. P then secures X to accommodate him. X without
participates in the consideration for the instrument.

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receiving any valuable consideration, but only for purpose of who negotiates the instrument in the same condition in which
lending his name and credit to P, indorses the note in blank. he received it, making no indorsement at all.
X is liable to all parties subsequent to P, the payee. P, is in effect v So this does not govern a blank indorsement which indorser is
the first indorse, and X the second indorsers. governed by Section 66.

Warranties of irregular indorser Warranty liability of one negotiating by delivery and of qualified
v Section 64 provides only for the parties to whom an irregular indorser
indorser is liable. v The liability of a person negotiatin a bearer instrument by mere
v His warranties are the same as those of a general indorser delivery is the same as the person who negotiates it by qualified
under Sec. 66 inasmuch as his indorsement is in blank, which, in indorsement.
itself, is an indorsement without qualification. v Both do not assume to pay the instrument in the event of its
dishonor, unless the dishonor is based on any of the four
Sec. 65. Warranty where negotiation by delivery, and so forth. – Every
implied warranties enumerated in Section 65.
person negotiating an instrument by delivery or by a qualified v They are merely assigning a credit.
indorsement warrants – v Their liability differs with respect to the person in whose favor
(a) that the instrument is genuine and in all respect what it purports the warranty extends. While the liability of the one who
to be; negotiates by mere delivery extends in favor only of his
(b) That he has good title to it; immediate transferee, the qualified indorser is liable to all
(c) That all prior parties had capacity to contract;
subsequent holders who make title through his indorsement for
(d) That he has no knowledge of any fact which would impair the
validity of the instrument or render it valueless. breach of any of his warranties.
But when the negotiation is by delivery only, the warranty extends in
favor of no holder other than the immediate transferee. Examples:
The provisions of subdivision (c) of this section do not apply to (1) M makes a PN payable to bearer and delivers the same to P
persons negotiating public or corporation securities, other than bills and
who negotiates it to A either by delivery or a by a qualified indorsement.
notes.
If the note is dishonored in the hands of A due to the insolvency
of M, A cannot recover from P because P does not warrant M’s solvency.
Negotiation by delivery/qualified indorsement P however is liable under Sec. 65.
v Every indorser makes certain warranties or guarantees about If A subsequently negotiates it to B, thus making it appear as
the instrument he is negotiating. This warranty liability is follows:
unconditional, i.e. it is not conditioned upon proper M à P à A à B
presentment and dishonor of the instrument and the giving of P will not be liable to B even under Sec. 65 for his warranties
notice of the dishonor. only extend to A, his immediate transferee. A however is liable to B for
v Negotiation “by delivery” here pertains to negotiations wherein the latter is his immediate transferee.
the indorsement is not necessary because the instrument is
payable to bearer. The words “by delivery” refer to a holder

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(2) R issued 10 checks (two of three crossed checks are bearer comparative or relative negligence
checks, and one uncrossed bearer check) payable to P, Inc. X, a sales and the demands of substantive
agent of P, indorsed all the checks to A Corp, which deposited the same justice. The proportionate sharing
in its current account with BPI. After temporarily crediting the amount may be 50-‐50 or 60-‐40.
to A Corp’s account, BPI debited the amount against the account of A
Corp upon being informed by P, Inc. that the indorsement by X were 2. Assumes warranty of an indorser
forgeries. v A collecting bank where a check is deposited which
Under Sec. 65, the warranty of R with respect to the bearer indorses the check upon presentment with the drawee
checks, extends only to BPI. (See Jai-‐Alai Corp v. Bank of PI) bank is an indorser.
v This is because in indorsing a check to the drawee bank, a
Liability of collecting/issuing bank collecting bank, stamps the bank of the check with the
1. Guarantees even if previous indorsement are forged. phrase “all prior and/or lack of indorsements guaranteed”
v The warranty that “the instrument is genuine and in all and treats the check as a negotiable instrument; hence,
respects what it purports to be” covers all defects in the assumes the warranties of an indorser.
instrument affecting the validity thereof, including a forged
indorsement. Rationale for the warranty as indorser
v Thus, the last indorser will be liable for the amount v Without the warranty, the drawee bank would not pay the
indicated even if a previous indorsement was forged. value of the check.
v A collecting bank which indorses a check bearing a forged
indorsement and presents it to the drawee bank Why collecting bank or last indorser suffers loss
guarantees all prior indorsements, including the forged v The collecting bank generally suffers the loss because it has the
indorsement itself, and ultimately should be held liable duty to ascertain the genuineness of all prior indorsements
therefore. considering that the act of presenting the check for payment to
i. This above rule is subject to exceptions, such the drawee bank is an assertion that the party making the
as when the the issuance of the check itself presentment has done its duty to ascertain the geuineness of
was attended with negligence. prior indorsements.
ii. Thus:
Sale of public or corporate securities
GR: Collecting bank is liable. v Brokers and other persons “negotiating public or corporation
Ex: Issuing bank is just as liable or more than securities, other than bills and notes” do not warrant the
the collecting bank as when (a) the check was capacity of prior parties.
negligently issued.
Sec. 66. Liability of general indorser. – Every indorser who indorses
v If both banks are negligent = SC without qualification, warrants to all subsequent holders in due course –
allocates the loss considering their

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(a) The matters and things mentioned in subdivisions (a), (b) and (c)
upon presentment to the drawee bank, through the qualified
of the next preceding section; and indorsement of its employee, where full payment by the
(b) That the instrument is at the time of his indorsement, valid and drawee bank would have taken place where it not for the
subsisting. irregular indorsement, cannot hold prior indorsers liable on the
And, in addition, he engages that on due presentment, it shall be instrument for its dishonor. (Gonzales v. RCBC)
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
Warranty that instrument will be honored
duly taken, he will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it. v The unqualified indorser also warrants that the instrument will
be honored. So he is liable in case the instrument will not be
paid because of the insolvency of any prior party but a qualified
Warranty liability of general or unqualified indorser indorser is not liable unless he had knowledge of such
v The drawer and the general indorser guarantee payment of the insolvency.
instrument, provided certain steps are taken to charge them v When a person makes an unqualified indorsement of an
with liability. instrument, the law specifies and defines his liability and parol
testimony is not admissible to explain or defeat such liability.
Similar warranties to that of Sec. 65 v After an instrument is dishonored by non-‐payment, indorsers
v Insofar as the first three warranties in Sec. 65 are concerned, cease to be merely secondarily liable. They become principal
the liability of the general indorser is similar to the liability of the debtors whose liability becomes identical to that of the original
qualified indorser and a person negotiating by delivery. obligor. The holder neet not even proceed against the maker or
v It must be emphasized that the law is not applicable to non-‐ drawer before suing the indorsers. The maker or drawer is not
negotiable instruments like treasurery warranties. He cannot an indispensable party in an action against the indorsers.
interpose the defense that signatures prior to him are forged.
Warranty that prior indorsements genuine
Warranty that instrument valid and subsisting v By stamping on a crossed check accepted by it for deposit its
v While the unqualified indorser guarantees that the instrument is guarantee that “all prior indorsements and/or lack of
valid and subsisting, whether or not he has no knowledge of endorsements guaranteed”; a collecting bank makes assurance
that fact, the qualified indorser warrants merely that he has no that it had ascertained the genuineness of all prior
knowledge of any fact which would invalidate the instrument indorsements.
or render it useless. If the instrument so indorsed turns out to v By such deliberate and positive act, it has for all legal intents
be invalid, the unqualified indorser is liable because of the and purposes treated the said check as negotiable instrument
fourth warranty but the qualified indorser is not liable unless he and accordingly, assumed the warranty of the indorser.
was awre of the cause of the invalidity. v In case the indorsement is forged or unauthorized, the bank, in
v A subsequent party which caused a defect in the instrument paying the check, becomes liable to the payee for the value
cannot have any recourse against any of the prior indorsers in thereof.
good faith. Thus, a bank which caused the dishonor of a check

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Warranty available only to a holder in due course v The warranties of Sec. 65 run to any person to whom the
v The warranties of a general indorser in Sec. 66 are based upon a instrument has been negotiated and there is no reason why the
transfer of title and are available only to a holder in due course. same result should not be obtained under Section 66.
They do not attach to the indorsement for deposit and
collection made by the payee/holder of a bill or check. Conditions precedent to make indorser liable
v In case of erroneous payment by the drawee bank, the In order to enforce his liability to pay:
collecting bank has no legal right to debit the amount of the (1) due presentment for payment or acceptance as the case
payee for any amount it refunded to the drawee-‐bank. may be must be made;
v Under Sec. 36, a restrictive indorsement does not in any way (2) If the instrument is dishonored (by non-‐presentment or
transfer the title of the instrument to the collecting bank. The non-‐acceptance), the necessary proceedings on dishonor
collecting bank cannot invoke the warranty for the be duly taken.
payee/depositor who indorsed the instrument for collection.
These conditions, unless waived, must be met in order that a
Warranty of collecting bank as indorser secondary party may be held liable on his promissory liability as
v A collecting bank where a check is deposited, and which distinguished from his warranty liability. The liability of the unqualified
indorses the check upon presentment with the drawee bank is indorser is similar to that of the drawer.
an indorser and assumes the warranty of an indorser under Sec.
61. Indorser’s liability as warrantor distinct from his liability to pay
v In check transactions, the collecting bank or as last indorser v Even the qualified indorser who does not guarantee payment of
generally suffers the loss because it has the duty to ascertain the instrument may nevertheless incur liability for breach of one
the genuineness of all prior indorsements considering that the or more of the implied warranties.
act of presenting the check for payment to the drawee is an v These warranties are imposed in view of the fact that the
asserition that the party making the presentment has done its indorser is actually a seller of property. And although the
duty to ascertain the genuiness of the indorsements when a general indorser’s obligation to pay the instrument may never
bank tamps a check with the phrase “all prior indorsements become absolute because of non-‐presentment or omission to
and/or lack of indorsement guaranteed”, it treats the checks as give due notice of dishonor, he may, nevertheless be held liable
a negotiable instrument and accordingly assumes the warranty if there has been breach of any implied warranty.
of an indorser. v His liability as warrantor is distinct form his liability to pay the
Right of holder not in due course to enforce warranties of general instrument. As warrantor, his liability is unconditional.
indorser
v Although the warranty pertains to “all subsequent holders in Indorser and drawer distinguished
due course,” this should not be construed to mean that holders An indorser and a drawer are similar in that they are both
not in due course cannot enforce the warranties. secondarily liable on the instrument. But they are different in the
following manner:

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v An indorser is a party to either a note or a bill, while a drawer, his liability will be governed by Section 65 or 66 depending upon
only to a bill; whether the indorsement is qualified or unqualified.
v An indorser does not make any admission regarding the (a) If he indorses specially, he is liable only to holders who make
existence of the payee and his capacity to indorse, while the title through his indorsement.
drawer makes such admission; and (b) If he indorses without qualification, he incurs the liability of
v An indorser has warranties, while a drawer makes no warranties a general indorser.
but engages to pay after certain conditions are complied with.
v The liabilities of the drawer are conditional in the same manner Sec. 68. Order in which indorsers are liable. – As respects one another,
as those of the general indorser. indorsers are liable prima facie in the order in which they indorse; but
evidence is admissible to show that as between or among themselves,
General indorser v. irregular indorser they have agreed otherwise. Joint payees or joint indorsees who indorse
v A general indorser makes either a blank or special indorsement, are deemed to indorse jointly and severally.
while an irregular indorser always makes a blank indorsement;
v A general indorser indorses the instrument after its delivery to Applicability of section
the payee, while an irregular indorser indorses before its v This section governs the liability of indorsers only among
delivery to the payee; and themselves.
v A general indorser is liable only to parties subsequent to him; v This does not govern a holder of an instrument which has been
while an irregular indorser is liable to the payee and subsequent dishonored for as to him, indorsers are liable in any order and
parties unless he signs for the accommodation of the payee in none of them can interpose as a defense against him an
which case he is liable only to all parties subsequent to the agreement among themselves that they are not liable in the
payee. order of their indorsements.

Sec. 67. Liability of indorser where paper negotiable by delivery. – Where a Liability among indorsers
person places his indorsement on an instrument negotiable by delivery v There is a disputable presumption that every indorser is liable to
he incurs all liabilities of an indorser. all indorsers subsequent to him.
v This is merely a prima facie order of liability which may be
Liability of indorser of bearer instrument rebutted by parol evidence.
(1) Negotiable by delivery – An instrument payable to bearer is
negotiable by delivery and the transferor is liable to the immediate Liability of joint payees/indorsees who indorse solidarily
transferee under Sec. 65. It is therefore, not necessary for the holder to v If the obligation is solidary, none of them can escape liability
indorse the instrument if his purpose is just to negotiate the same. just because proper notice of dishonor was not given to the
other.
(2) Negotiation by indorsement – There is nothing however to prevent v Parol evidence is inadmissible that they signed as guarantors
the holder from indorsing the instrument if he wants to. In such a case, only.

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v But the one who pays may demand reimbursement from the
others.
Chapter Vi
Presentment for Payment
Successive negotiations contemplated
v Section 68 does not determine the order of liability of joint Sec. 70. Effect of want of demand on the principal debtor. – Presentment for
indorsers among themselves. payment is not necessary in order to charge the person primarily liable
v Example: A note which contains “I, or we, hereby guarantee..” on the instrument; but if the instrument is, by its terms, payable at a
signed in succession by P, A, B, C, and D, C has no right to 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
indemnification by P, A and B, the preceding indorsers under
part. But, except as herein otherwise provided, presentment for payment
Section 68. is necessary in order to charge the drawer and indorsers.
v This section governs successive negotiations and successive
indorsements.
Presentment for payment, defined
v The presentment of an instrument to the person primarily liable
Sec. 69. Liability of an agent or broker. – Where a broker or other agent for the purpose of demanding and receiving payment.
negotiates an instrument without indorsement, he incurs all the liabilities
prescribed by section sixty-‐five of this Act, unless he discloses the name of

his principal and the fact that he is acting only as agent. Presentment for payment to person primarily liable, not necessary
v Presentment and demand for payment are not necessary in
order to charge the person primarily liable, that is, the maker or
Liability of an agent or broker the acceptor since his liability is absolute.
v Refers to instruments which are payable to bearer and are, v The holder can sue the maker or the acceptor, although no
therefore, negotiable by delivery. demand has been made on him, as soon tas the date for
o Agent or broker who negotiates by mere delivery payment has passed without the instrument being paid.
incurs the liabilities of Section 65.
o If he negotiates the instrument by qualified If instrument is payable at a special place
indorsement, his warranties are also those stated in v This is true whether the instrument is payable on time or on
Sec. 65 and if by general indorsement, those stated in demand, and even if the instrument is payable at a special place.
65. v However, his ability and willingness on the part of the primary
party to pay at maturity are equivalent to a tender or offer of
Exemption from liability payment on his part so that if the instrument is not paid and is
v To escape personal liability, he must disclose his principal and overdue, he cannot be considered in delay, and therefore, not
the fact that he is acting only as agent. being at fault.
v Parol evidence is not admissible to relieve a broker or other
agent whose indorsement brings him within 69. Where presentment is required by terms of instrument

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v Neither is presentment for payment necessary to charge the v Dishonor of the instrument activates the secondary liability of
maker or the acceptor even if it is required according to the the drawer and indorsers.
terms of the instrument. v If the instrument is not presented to the person primarily liable,
v Worse, the failure to make the presentment would not put him the drawer and the indorsers are discharged from their
in default notwithstanding that the instrument is overdue and secondary liability unless such presentment is excused or
unpaid. dispensed with.

Rule applicable to notes payable on demand Sec. 71. Presentment where instruments is not payable on demand and
v It has been held that the rule that presentment for payment is where payable on demand. – Where the instrument is not payable on
not necessary to charge the person primarily liable is applicable demand, presentment must be made on the day it falls due. Where it is
to notes payable on demand and suit thereon may be payable on demand, presentment must be made within a reasonable time
maintained though no demand has been made. 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.
Risks assumed by holder in case presentment not made
v Neglect to present a check does not affect the debt for which it
was given. Presentment if payable at a fixed or determinable future time
v The only risk assumed by the holder of a check in case v Presentment must be made on the date it falls due without
presentment was not made within a reasonable time, so far as period of grace, otherwise, the drawer and indorsers will be
the rights against the drawer are concerned, in the insolvency discharged from liability.
of the drawee. v Presentment made before maturity is not effective and a notice
to the makers before maturing reminding them of the date
Presentment for payment to persons secondarily liable necessary when the note would fall due is not a proper presentment.
v Persons secondarily liable undertake to pay only if the
instrument is dishonored. Presentment if payable on demand
v Thus, demand for payment must first be made upon the person v If promissory note, presentment must be made to the maker
primarily liable. The demand is effected by presenting the within a reasonable time after its issue or delivery.
instrument to him for payment. v If BoE, presentment for payment to the drawee or acceptor
v A dishonor by the primary party occurs when proper must be made within a reasonable time after the last
presentment is made and acceptance and/or payment is negotiation.
refused. o Thus, the liability of the drawer and indorser could
Effect where presentment not made continue for an indefinite time limited only by the
v In the event of non-‐acceptance or non-‐payment, notice of statute of limitations so long as each negotiation takes
dishonor must be given to the drawer and each indorser, place promptly after each indorser acquires title.
otherwise, the party to whom notice is not given will be o “last negotiation” means the last transfer for value.
released from liability.

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Reasonable time v In the absence of proper presentment, no right of recourse is

v What constitutes a reasonable time is a question of fact. available against the drawer.
v It is a question of law upon the facts proved in each case.
v A demand made after 60 days was held to be unreasonable, When presentment must be made
while another held a delay of 7 months to be reasonable. v “reasonable hour on a business day” means during business
hour
[Dean] In the PH, “reasonable time” is usually 6 months. This is usually v If payable at a bank, presentment must be made during banking
the banking practice that after 6 months, checks become stale. hours.
v If presented at a place of business, it must be made during the
Sec. 72. What constitutes a sufficient presentment. – Presentment for
usual business hours in that place
payment, to be sufficient, must be made – v If presented at the residence of the person liable to pay, it must
(a) By the holder, or by some person authorized to receive payment be made between the usual hours of rising and retiring.
on his behalf;
(b) At a reasonable hour on a business day; To whom presentment must be made
(c) At a proper place as herein defined; v Presentment for payment must be made to the primary party –
(d) To the person primarily liable on the instrument, or if he is
to the maker in case of a promissory note, or to the acceptor in
absent or inaccessible, to any person found at the place where the
instrument is made. case of an accepted bill.
v If BoE, the presentment must be made to the drawee although
he is not liable on the bill.
Requisites for a sufficient presentment for payment
v If the presentment for payment does not comply with any of If person primarily liable is absent or inaccessible
the requisites, the effect is the same as if no presentment is v Presentment must be made to any person of sufficient
made and consequently, the persons secondarily liable are discretion at the proper place of presentment.
discharged. v Where a note is payable at a certain store, presentment for
payment at such store to a person connected therewith is
Who has the right to make presentment sufficient and no personal demand on the maker is necessary.
v The holder; or v If the holder after the exercise of reasonable diligence cannot
v Any person authorized by him may present the instrument and find the person to make payment on the day and at the place of
the authorization need not be in writing. payment, he has done all that is required of him.
Effects of crossing check
v The drawer intends the same for deposit only by the rightful
person, i.e. the payee named therein. Sec. 73. Place of presentment. – Presentment for payment is made at the
proper place:
v There is no proper presentment where the check is presented
(a) Where a place for payment is specified in the instrument and it
for payment not by the payee but by his transferee. is there presented;

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(b) Where no place of payment is specified, but the address of the Sec. 74. Instrument must be exhibited. – The instrument must be exhibited
person to make the payment is given in the instrument and it is there to the person from whom payment is demanded, and when it is paid must
presented; be delivered up to the party paying it.
(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; Mode of presentment for payment
(d) In any other case if presented to the person to make payment v Presentment refers to the act of the holder of an NI of
wherever he can be found, or if presented at his last known place of exhibiting a note to the maker and demanding payment, or
business or residence. showing a bill to the drawee and requesting its acceptance or
payment.
Order of enumeration
v The proper place of presentment is the place specified in the Presentment, more than demand
order of enumeration from (a) to (d). v A valid presentment for payment consists of something more
than a mere demand.
Presentment made at other place than specified v Requires personal or face to face demand at the proper place,
v Presentment of a note payable at a specified place where the exhibiting the instrument to the maker or acceptor from whom
payee resides, at a different place which was the domicile and payment is demanded.
place of business of the maker, is not sufficient to charge
indorsers. Purpose of exhibition
v Where a note is payable at a designated branch of a trust v Enable the debtor:
company, presentment at the principal office or at any other o To determine the genuiness of the instrument and the
branch of the company is not sufficient. indorsements and the right of the holder to receive
v A specified place of payment must indicate a definite address. If payment; and
only the name of the town or city is stated, the subsection b o To enable him, upon payment, to take possession of it
applies. to guard against a lawsuit by a subsequent holder.
v The usual residence referred to is the usual ordinary and § In the case of an acceptor who pays a bill, he
habitual residence. has the right to have it delivered to him for use
as a voucher in settlement of accounts with
Clearinghouse the drawer.
v Presentment can be made at a place specified in the instrument
or through a clearinghouse (an association of banks and Presentment without exhibition
financial institutions) where adjustment and payment of daily v If the instrument is not exhibited, the presentment would be
balances between banks are made. ineffectual as the debtor is entitled to see the instrument and
demand its surrender upon payment.

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v Demand by telephone is not sufficient because exhibition of the discharge his liability by written assignment to the holder of his
instrument is not possible. rights . . . the payor bank in respect to such funds” and the
maker is thereby discharged of further liability to the holder.
Informal demand without presentment v If the bank does not pay, the loss falls on the holder because of
v An informal demand for the payment of a demand note, not the late presentment.
accompanied by a presentment of it and not intended as a
formal presentment and demand, is not sufficient to put the Sec. 76. Presentment where principal debtor is dead. – Where the person
note in dishonor as to charge an indorser. primarily liable on the instrument is dead, and no place of payment is
v Such informal demand, however, may have an important specified, presentment for payment must be made to his personal
bearing on the question of whether the note was actually representative, if such there be, and if, with the exercise of reasonable
presented for payment within a reasonable time. diligence, he can be found.

Waiver of maker’s right to exhibition Presentment where principal debtor is dead
v The instrument need not be exhibited unless such exhibition is v Applicable only when no place of payment is specified.
demanded. v If there is a place specified, presentment should be made at
v The maker’s right to an exhibition of a note is waived when he that place.
does not demand to see the note and he refuses payment on v If the principal debtor is dead, presentment for payment may be
some other grounds. made to his executor or administrator if there be one and can
be found.
Sec. 75. Presentment where instrument payable at bank. – Where the v Presentment may be dispensed with if in the exercise of
instrument is payable at a bank, presentment for payment must be made reasonable diligence, no personal representative can be hound.
during banking hours, unless the person to make payment has no funds v However, the holder is not excused from giving notice of
there to meet it at any time during the day, in which case presentment at dishonor to the indorser, if he wishes to hold the latter liable on
any hour before the bank is closed on that day is sufficient.
the instrument.

Presentment after date of maturity Sec. 77. Presentment to persons liable as partners. – Where the persons
v Unlike the indorser, the maker of a note is not discharged in any primarily liable on the instrument are liable as partners, and no place of
way by the fact that the note is presented for payment after payment is specified, presentment for payment may be made to any one of
maturity date unless prescription has run. them, even though there has been dissolution of the firm.
v He has the duty to pay even if the holder does not demand at
that time. Presentment to persons liable as partners
v Where however the note is payable at a specified bank and the v Each partner is an agent of the partnership or his co-‐partners,
bank became insolvent after the maturity date but before and is presumed to have authority to act for the others.
presentment for payment – with the result that the maker is
“deprived of funds” during the delay – the maker “may

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XU Law
v Hence, presentment may be made to any one of them or to the When presentment not required to charge drawer
agent of one of them. A dishonor by one is a dishonor by all. v Where he has no right to expect or require that the drawee or
acceptor will pay the instrument.
Sec. 78. Presentment to joint debtors. – Where there are several persons,
v Examples:
not partners, primarily liable on the instrument, and no place of payment o Where he has no funds with the drawee unless
is specified, presentment must be made to them all. arrangement has been made for payment of the bill
o Where the drawer of a check has stopped payment

thereof;
Presentment to all joint debtors
o Where the drawer of a check has withdrawn funds
v If the parties primarily liable are not partners, their liability is only
from the drawee-‐bank leaving nothing with which to
joint.
pay the check.
v In a joint obligation, there are as many debts as there are debtors,
v Neither is presentment required where the drawer and the
each debt being considered distinct and separate from each other.
drawee is considered a maker for he is liable without
v Hence, presentment must be made to all of them to hold the drawer
presentment.
and indorsers on their secondary liability.

Rationale for the rule Sec. 80. When presentment not required to charge the indorser. –
v The joint debtor, in undertaking the obligation, would pay if the Presentment for payment is not required in order to charge an indorser
where the instrument was made or accepted for his accommodation and
makers of the note did not. If either of them should pay it, the
he has no reason to expect that the instrument will be paid if presented.
indorser would be discharged. He did not undertake that if
either of the makers should refuse to pay, he would; but that if
ALL of them refused to pay it, then he would be responsible. Applicability
v Otherwise, the greater the number of makers, the greater the v Refers only to an indorser for whose accommodation an
risk he would run of being obliged to pay it in the first instance; instrument is made or accepted.
for the holder might choose to demand it of the only insolvent v All other parties secondarily liable still requires presentment to
among them. be liable on the instrument.

Rationale
Sec. 79. When presentment not required to charge the drawer. –
Presentment for payment is not required in order to charge the drawer v The accommodated payee-‐indorser is the real debtor and not
where he has no right to expect or require that the drawee or acceptor the maker or acceptor. Hence, he is not discharged even if no
will pay the instrument. presentment for payment is made to the maker or acceptor
who, in substance, is a surety for the debt.
Applicability
Not solely for benefit of accommodated party
v This section applies only to the drawer, and not to other parties
v It is not necessary that a loan for which notes are given should
secondarily liable such as indorsers.
have been made for the sole accommodation of an indorser. It

is enough if it is only partly for his benefit.

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Likewise, presentment is dispensed with when the

o
Sec. 81. When delay in making presentment is excused. – Delay in making
proper place of presentment cannot be determine
presentment for payment is excused when the delay is caused by because Sec. 73 is not applicable.
circumstances beyond the control of the holder, and not imputable to his o But insolvency of the maker even if known to the
default, misconduct, or negligence. When the cause of delay ceases to indorser, will not excuse presentment for
operate, presentment must be made with reasonable diligence. payment.
(2) Where drawee is fictitious
When delay in presentment excused v If the drawee is fictitious, there is no one to whom
v Only the delay in making presentment is excused, and not the presentment is to be made and, therefore, it is dispensed
making of presentment itself. with.
(3) Where there is waiver
[Bance] Meaning, presentment must still be made – the holder is v The waiver may be before or after maturity and it may be
not excused from this obligation. Simply that if there are circumstances express or implied.
beyond his control, the delay in making presentment may be excused. v Examples:
o “presentment waived” or “waiving demand and
Circumstances beyond the control, defined protest,” written before the signature of the
v Events which could not be foreseen, or which, though foreseen drawer or indorser is an express waiver.
are inevitable (fortuitous events) o Impied waiver of presentment may be manifested
v As soon as the cause is removed, presentment must be made by an act or conduct of a party calculated to lead
with reasonable diligence. the holder to believe that presentment is waived
or to mislead or prevent him from treating the
instrument as he would otherwise like:
Sec. 82. When presentment may be dispensed with. – Presentment for
§ Where the drawer promised from time to
payment is dispensed with –
(a) Where after the exercise of reasonable diligence, presentment, as time to pay a bill, making no objection on
required by this Act can not be made; the ground that the bill had not been
(b) Where drawee is a fictitious person; presented to the drawee.
(c) By waiver of presentment, express or implied.
Waiver of presentment of a note by the maker does not operate as a
When presentment may be dispensed with waiver by the indorser.
(1) Where reasonable diligence has been exercised.
v Reasonable diligence implies active search. If practicable, Summary rules as to presentment for payment
the holder should make inquiries of the payee when neither (1) Presentment for payment is not necessary to charge person
the maker nor his residence could be found. primarily liable but is necessary to charge persons secondarily
o But the fact that the bank was closed by the liable.
government dispenses with presentment.

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(2) In the following cases, presentment for payment is not v Although presentment may be excused, the indorser is still
necessary to charge persons secondarily liable: entitled to notice of dishonor of the instrument by its being
a. As to drawer (Sec. 79) overdue and unpaid.
b. As to (accommodated) indorser (Sec. 80); v But where there has been no presentment for payment and
c. When presentment is dispensed with (Sec. 81); presentment is not excused, the instrument is not dishonored
d. When bill has been dishonored by non-‐acceptance (Sec. although it is already overdue and unpaid.
151)
Sec. 84. Liability of person secondarily liable, when instrument dishonored.
Sec. 83. When instrument dishonored by non-‐payment. – The instrument is – Subject to the provisions of this Act, when the instrument is dishonored
dishonored by non-‐payment when – by nonpayment, an immediate right of recourse to all parties secondarily
(a) it is duly presented for payment and payment is refused or can not liable thereon accrues to the holder.
be obtained; or

(b) presentment is excused and the instrument is overdue and
unpaid. Effect of dishonor by non-‐payment
(a) As to the holder – after an instrument is dishonored by non-‐
payment, the persons secondarily liable become the principal
Non-‐payment upon due presentation debtors and he need not proceed against the person primarily
v This has two requisites: liable before suing them.
o That the instrument is duly presented for payment to a. But the immediate right of recourse against secondary
the party primarily liable thereon; and parties will accrue only after the giving of due notice of
o That payment is either refused or cannot be obtained. dishonor to them.
v An instrument is dishonored by non-‐payment as long as it is not b. The right is immediate because the holder may
paid although the primary party may be willing to pay. immediately bring suit against the secondary parties
v Thus, there is already dishonor where on presentment, the and the latter cannot interpose the defense that the
maker promises to pay 5 days later. suit should have been brought first against the maker
or acceptor.
Non-‐payment without presentation (b) Secondary parties – to hold secondary parties liable, the holder
v This has three requisites: must prove at least three things:
o Presentment is excused; a. Presentment was properly made;
o The instrument is overdue and b. The primary party dishonored the instrument; and
o It is unpaid. c. Notice of dishonore was properly given to the
v Thus, if presentment is waived, the instrument is deemed secondary party.
dishonored if it is overdue and unpaid even if the holder did not
make presentment.
Sec. 85. Time of maturity. – Every negotiable instrument is payable at the
time fixed therein without grace. When the day of maturity falls upon
Notice of dishonor is still necessary

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Sunday, or a holiday, the instruments is payable on the next succeeding v General rule: It must be presented on October 4, 2013 and if not
business day. Instruments falling due or becoming payable on Saturday paid, it is considered dishonored.
are to be presented for payment on the next succeeding business day, v Exception:
except that instruments payable on demand may, at the option of the
holder, be presented for payment before twelve o’clock noon on Satuday
o When a five-‐day grace period is given: presentment
when that entire day is not a holiday. must be made at the end of the grace period, i.e.
October 9.
o If the date falls on a Sunday or holiday, then
Time of maturity of instrument, not subject to custom or usage presentment must be made on the next succeeding
v As the law expressly says that the instrument is payable at the business day.
time fixed therein without grace, it is not permitted to show a o If date falls on Saturday:
custom or usage fixing a date of maturity different from that § If time instrument è succeeding bus. day
clearly indicated on the fact of the instrument. If grace is § If demand instrument è either 12 noon on
provided in the instrument, the instrument is payable on the Saturday or on Monday, at the option of the
last date of grace. holder.

On a Sunday or holiday Instruments falling due or becoming payable on Saturday
v If the instrument falls due on a Saturday, and it is a time (a) An instrument “falls due on a Saturday” if it is payable on a
instrument, it should be presented for payment on the next Saturday.
succeeding business day, i.e. Monday or the next succeeding (b) It “becomes payable on a Saturday” when it falls due on
business day if Monday is a holiday. another day like Friday which happens to be a holiday and,
v The rule is intended for the benefit of the debtor. Since the therefore the instrument shall instead be payable on Saturday
business hours on Saturdays are only up to noontime, the law which is the next day.
intends not to deprive the debtor of half a day within which to
look for money. In either case, presentment should also be made, not on Saturday,
but on the next succeeding business day.
On demand
v If the instrument however is payable on demand, it may be
presented for payment before 12:00 noon on Saturday or on Sec. 86. Time; How computed. – Where the instrument is payable at a fixed
period after date, after sight, or after the happenings of a specified event,
Monday, at the option of the holder.
the time of payment is determined by excluding the day from which time
v The reason for the rule is that the instrument being payable on is to begin to run, and by including the date of payment.
demand, the presumption is that the party primarily liable has
the money ready at any time for payment.
Sec. 87. Rule where instrument payable at bank. – Where the instrument is
Example: made payable at a bank it is equivalent to an order to the bank to pay the
An instrument is payable on October 4, 2013: same for the account of the principal debtor thereon.

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To constitute payment in due course, the following requisites

Rule where instrument payable at a bank must be present:
v The bank may charge the amount of the instrument out of the (a) payment must be made at or after date of maturity.
deposit of the maker or drawer without the necessity of getting v Payment before maturity does not discharge the
additional authority from the latter. The instrument itself is instrument any more than if it were merely discounted.
sufficient authority. v It would constitute a negotiation back to the primary
v But a bill itself does not operate as an assignment of the funds party.
in the hands of the drawee-‐bank available for the payment v If the instrument is renegotiated to a holder in due
thereof, and the bank is not liable unless and until it accepts the course, the latter may recover on the instrument.
same. (b) payment must be made to the holder
v Maker is not discharged if he pays the payee who is no
Applicability longer the holder because he has already transferred
v Applies only where the instrument is payable at a particular the note to a holder in due course, unless it is shown
named bank, i.e. PNB. that he was authorized by the holder to receive
v The fact that a note made payable at “any bank in Manila” is payment.
sent by the maker for collection to a bank in Manila in which he v In this case, the remedy of the maker is against the one
has a deposit when the note matured, does not authorized that who received the payment.
bank to pay the note from such deposit. (c) payment must be made in good faith and without notice that
the holder’s title is defective
Sec. 88. What constitutes payment in due course. – Payment is made in due
v The maker of the note or the acceptor of a bill must
course when it is made at or after the maturity of the instrument to the satisfy himself, when the instrument is presented to
holder thereof in good faith and without notice that his title is defective. him for payment, that the holder traces his title
through genuine indorsements for it there is a forged

indorsement, it is a nullity and no right passes by it and
Payment in due course
payment by him does not operate as a discharge of the
v Payment in due course is payment in the usual course of
instrument.
business

v To effect a discharge of an instrument, payment should be in
Good faith
money since in a negotiable instrument, the promise or order is
v Good faith here refers to that of the maker or acceptor, and not
to pay a sum certain in money.
the holder.
v The party bound to make payment has no right to do so in any

other medium in the absence of agreement to that effect.
Doctrine of Last Clear Chance
Requisites of payment in due course The negligence of one party does not preclude the party from
recovering the same from the party who had the last clear chance/

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XU Law
opportunity to detect the defect and thus prevent the damage/loss (3) If presentment is excused or waived and the instrument is past
done. due and unpaid.

Notice of dishonor, defined
v Notice of dishonor is bringing, either verbally or in writing, to
Chapter ViI the knowledge of the drawer or indorser of an instrument, the
fact that a specified negotiable instrument, upon proper
Notice of Dishonor proceedings taken, has not been accepted or has not been paid

and that the party notified is expected to pay it.
Sec. 89. To whom notice of dishonor must be given. – Except as herein v If such notice is given by a notary public, it is called a protest.
otherwise provided, when a negotiable instrument has been dishonored

by non-‐acceptance or non-‐payment, notice of dishonor must be given to
the drawer and each indorser, and any drawer or indorser to whom such
Object of notice of dishonor
notice is not given is discharged. v Two-‐fold:
o To inform the parties secondarily liable that the maker
or acceptor has failed to meet his engagement; and
Dean: o To advise such parties that they will be required to
Failure to give notice of dishonor is only required, where non-‐ make payment.
payment is due to insolvency. v Purpose of giving prompt notice of dishonor is to enable the
party, whom the holder wishes to charge, to preserve and
Situational (Dean) enforce his rights against prior parties.
A borrowed money from C, but C does not trust A. C then v The notice preserves the right of the holder to recover on the
suggests for A to ask B to execute a promissory note with C. B agrees. instrument and enforce the liability of the drawer or indorsers
C then transferred the instrument to D. D then goes to A for thereon.
payment but A is already bankrupt. D then notifies C but he is also
bankrupt. D then goes after B who argues that he is discharged for he Effect of failure to give notice of dishonor
was not given a notice of dishonor. v When an instrument is dishonored, notice of such dishonor
Is B correct? must be given to the persons secondarily liable.
No. When he signed as an accommodation maker, he became v Any such person to whom such notice is not given is discharged.
primarily liable on the instrument and thus, he is not entitled to notice of v However, although the indorser to whom notice is not given is
dishonor. discharged, he is still liable for breach of warranties pertaining
to the instrument.
When instrument considered to be dishonored
An instrument is dishonored: Burden on holder to prove notice given
(1) if it is not accepted when presented for acceptance; or v The holder is not required to notify ALL the indorsers, although
(2) if it is not paid when presented fro payment at maturity; or the law says “each indorser.”

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v He may select to hold only one or some of the indorsers and the
party not given notice is discharged. “Indorsers” contemplated
v The burden of proving due notice or that notice was waived or v “Each indorser” and “any indorser” include any kind of indorser
excused is on the holder. It is incumbent upon him who seeks to v Hence, an accommodation indorser is entitled to notice; and
enforce the defendant’s liability upon such NI to establish such also an irregular indorser, being likewise an indorser
liability by proving that notice was given to the defendant v The holder of a check is entitled to an unqualified notice of
within the time and in the manner required by law. dishonor by the drawee before he is required, in order to hold
v The loss of a note does not excuse compliance with Sec. 89. an indorser liable, to notify him that payment has been refused.

Case: Dunn v. O’Keefe (Foreign Jurisprudence) Liability of qualified indorser and indorser negotiating by delivery
R drew a bill of exchange against W in favor of P and issued the v Lack of notice of dishonor has no effect on them, inasmuch as
same to P for value. P presented the bill to W for acceptance but it was they do not undertake to pay the instrument in the event of its
dishonored by W. No notice of dishonor by non-‐acceptance was given to dishonor.
R. v But they are still liable on their warranties.
P then negotiated the bill to A who had no knowledge of the
prior dishonor. W again dishonored the bill. A immediately gave notice When notice of dishonor not necessary
of dishonor to R and then sued R. Sec. 89 is the general rule and the same does not apply in the
Issue: Is R discharged from liability for failure of P, prior holder, to give following:
notice of dishonor? (a) When there has been waiver of notice (Sec. 109);
(b) When there has been waiver of protest (Sec. 111);
Held: (c) When notice is dispensed with (Sec. 112);
No, if a party holding a BoE receives notice of its dishonor, he is (d) When notice need not be given to drawer (Sec. 114);
bound to communicate this to the drawer. In the absence of notice, the (e) When notice need not be given to indorser (Sec. 115);
drawer is discharged as against the party failing to give the necessary (f) When notice of non-‐payment where accepted refused (Sec.
notice but not as against an innocent indorsee who has no knowledge 116);
that the bill has been dishonored, because a former holder has omitted (g) When prior holder omitted to give notice and the NI is in the
to give notice to the drawer that the drawee has refused acceptance. hands of a subsequent holder in due course (Sec. 117).
A contrary doctrine would be destructive of the very policy and
effect of this specie of instrument by rendering its credit of so Who are entitled to notice of dishonor
precarious a nature that no person would be found willing to trust to it, v Only the drawer and indorsers or their agents are entitled to
especially if a number of names were indorsed upon it. notice of dishonor.
v The maker and acceptor do not have to be notified because
Indorser entitled to notice of dishonor they are the very one who dishonored the instrument.
v Notice is essential as mere knowledge by the indorser of non-‐
payment is not sufficient.

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v Thus, a joint maker, though a surety, is not an indorser and is Yes. An assignment of credit done onerously has an effect
primarily liable and, therefore, not entitled to notice of similar to that of a sale. If there be any breach of the warranties
dishonor. provided in Art. 1628, the assignor-‐vendor should be held answertable
v Even an accommodation maker is not entitled to notice. therefor. E is actually enforcing the deed of assignment and the check
v An assignor of a check under Art. 1628 is liable to the assignee in covered thereby is merely an incidental or collateral matter. This
case of dishonor of the check, notwithstanding the absence of particular check merely evidenced the credit which was actually
notice of dishonor to the assignor. assigned to E. R is being held liable for both check. It is only what is
represented by the said checks that R is being asked to pay. As long as
Case: Nyco Sales Corporation v. BA Finance Corporation [1991] credit remains outstanding, it shall continue to be liable to E as its
At the request of F, R corporation (assignor) granted X assignor.
discounting privileges which R had with E corporation (assignee). X The dishonor of an assigned check simply stresses its liability
issued a post-‐dated check payable to R which, following the discounting and the failure to give notice of dishonor will not discharge R from such
process, indorsed the check in favor of E. Thereafter, E issued a check liability. This is because the cause of action stems from the breach of
payable to R which indorsed it in favor of X. X then made use of and warranties embodied in the deed of assignment and not from the
negotiated the check. dishonoring of the check alone.
Accompanying the exchange of checks was a deed of
assignment executed by R in favor of E with the conformity of X. Under Sec. 90. By whom given. – The notice may be given by or on behalf of the
the said deed, subject of the discounting was the aforecited check. At holder, or by or on behalf of any party to the instrument who might be
the back thereof, was a suretyship agreement whereby F compelled to pay it to the holder, and who, upon taking it up, would have
unconditionally guaranteed to E the full, faithful and prompt payment a right to reimbursement form the party to whom the notice is given.
and discharge of any and all indebtedness of R. The check, however was
dishonored by the drawee-‐bank upon presentment for payment. E Who may give notice
immediately reported the matter to F who thereupon issued a substitute v The holder;
check in favor of E which was again dishonored. v Another in behalf of the holder; or
Despite repeated demands, R and F failed to settle the v By a party to the instrument who may be compelled to pay it to
obligations with E, thus prompting the latter to institute an action in the holder who, upon taking it up, would have a right to
court. reimbursement from the party to whom the notice is given; or
For its defense, R argues among others, that it was actually v Another person in behalf of such party
discharged of its liability over the substitute check when E failed to give
its notice of dishonor. Notice by a stranger
v Notice by a mere stranger (one who is no longer liable on and has
Issue: Is the assignor liable to its assignee for its dishonored checks? no interest in the instrument) is ineffectual unless he is acting as
agent of a party who is entitled to give notice of dishonor.
Held:

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v The drawee who refuses to accept is not a party or chargeable on Sec. 91. Notice given by agent. – Notice of dishonor may be given by an
the bill, and notice from him of non-‐acceptance is no degree better agent either in his own name or in the name of any party entitled to give
than from any other stranger. notice, whether that party be his principal or not.
v One who wrongfully in possession of the instrument cannot given

notice without authority from the holder.
Authority to give notice not necessary

v The agent need not be authorized by the principal to give
Why notice must come from holder
notice
v The object of requiring the notice to come from the holder is to
v Under this section, any person can be an agent of any party
enable him as the person chiefly interested, to fix or waive the
entitled to give notice.
liabilities of the persons secondarily liable.
v The notice may be given in the name of the agent or the party

entitled to give notice.
Example:
M makes a note payable to the order of P. The note is indorsed
successively by P to A, by A to B, by B to C and by C to D, the present Sec. 92. Effect of notice on behalf of holder. – Where notice is given by or on
behalf of the holder, it inures to the benefit of all subsequent holders and
holder. Suppose the note is dishonored in the hands of D.
all prior parties who have a right of recourse against the party to whom it
(1) Di or his agent may give notice of dishonor to P, A, B, and C, is given
the parties secondarily liable.
(2) If D notifies only C, the latter who thereby can be compelled
by D to pay, D may then, in turn, notify P, A and B. Effect of notice given by holder
(3) B may give notice to A and P whom he can hold liable. Notice of dishonor given by or on behalf of the holder inures to
Likewsie, A may give notice to P. But A cannot give notice to B because the benefit of:
A is the one liable to B who is a subsequent party and therefore, A has v all holders subsequent to the holder who has given notice;
no right to reimbursement from B. For the same reason, P would have v all parties prior to the holder but subsequent to the party to
no right to notify A. whom notice has been given and against whom they have a
(4) If D gives notice only to B, the effect is to discharge C due to right of recourse.
lack of notice since B would have no right to notify C. o A party can charge a prior party who has received
(5) If B, after having been given notice by D, does not choose to notice of dishonor although he himself has not given
notify P and A, then the latter would also be discharged from the said prior party any notice. The reason for this is that a
instrument. party entitled to a notice of dishonor need to be
(6) Upon his discharge, C becomes a total stranger and as such notified only once.
he is not entitled to give notice unless he is acting as an agent of a party
who can give proper notice of dishonor. Example:
M makes a note payable to P or order. The following are the
indorsers of the note in the order of their indorsements:
P

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A however makes him a party entitled to give notice as he might be

B compelled to pay it to the holder, and who, upon taking it up, would
C have a right to reimbursement from the party to whom notice is given.
D -‐ holder If C gives due notice to P, A and B such notice inures to the
E -‐ subsequent holder benefit of D, the holder and also of E, as he is also a party “subsequent
to the party to whom notice was given. C’s notice to P inures to the
If the above note was dishonored in the hands of D who benefit of A, B, D and E, parties subsequent to P, although they
notifies, P, A, B and C. themselves did not give notice to P.
The notice given by D to P operates to the benefit of A, B and C, For the same reason, C’s notice to A inures to the benefit of B,
parties subsequent to P, and E, a subsequent holder, although they D, and E, etc. Thus, A is not discharged by failure of D to give him notice
themselves have not notified P. if A is notified properly by a person entitled to give him notice like c.
The notice to A inures to the benefit of B, C, and E; the notice to
B, to the benefit of C and E and so on. Therefore, should B pay C, B may
go against P or A on the basis of the notice given to P or A although B Sec. 94. When agent may give notice. – Where the instrument has been
has not himself given notice of dishonor. dishonored in the hands of an agent, he may either give notice to the
But the notice to A does not operate in favor of P because P has parties liable thereon, or he may give notice to the principal. If he gives
no right of recourse against A. It is A who can hold P liable. notice to his principal, he must do so within the same time as if he were
the holder, and the principal upon receipt of such notice has himself the
same time for giving notice as if the agent had been an independent
Sec. 93. Effect where notice is given by party entitled thereto. – Where holder.
notice is given by or on behalf of a party entitled to give notice, it inures to
the benefit of the holder and all parties subsequent to the party to whom
notice is given. When and to whom agent may give notice
v The agent, in case of dishonor in his hands, may give notice to

either his principal or directly to the parties secondarily liable
Effect of notice given by party entitled thereto
thereon without notifying his principal.
v Notice of dishonor given by or on behalf of the party entitled to

give notice inures to the benefit of:
Notice to parties secondarily liable
o The holder; and
v If the agent gives notice directly to the parties secondarily
o All parties subsequent to the party to whom notice is
liable, he must do so within the time fixed:
given including the parties subsequent to the holder
o where the parties reside in the same place, notice must
who gave notice.
be given on the day following depending on:

§ if given at the place of business of the person
Example to receive notice, it must be given before the
Using the preceding example, if D notifies only C, the P, A and B close of business hours;
are discharged from their liability for lack of notice. The notice to C

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§ If given at his residence, it must be given Sec. 96. Form of notice. – The notice may be in writing or merely oral and
before the usual hours of rest; may be given in any terms which sufficiently identify the instrument and
§ if sent by mail, it must be deposited in the post indicate that it has been dishonored by nonacceptance or nonpayment. It
office in time to reach him in the usual course may in all cases be given by delivering it personally or through the mails.
on the day following (Sec. 103).
o Where parties reside in different places, notice must be Form of notice
given: v Notice of dishonor may be in writing or merely oral.
§ If sent by mail, it must be deposited in the post o Notice may thus be given by telephone, provided it be
office in time to go by mail the day following clearly shown that the party notified was really
the day of dishonor or if there be no mail at a communicated with, that is fully identified as the party
convenient hour on that day, by the next mail at the receiving end of the line.
thereafter; o Notice may also be sent by telegraph.
§ If given otherwise than through the post v A notice which contains a copy of the instrument and declares
office, then within the time that notice would that payment has been demanded and refused, is sufficient.
have been received in due course of mail, if it o But a mere statement that the instrument is due and
has been deposited in the post office within payable is insufficient notice.
the time specified in the last subdivision.
o Where a party receives notice of dishonor, he has the Contents of the notice
same time for giving notice to antecedent parties. Whether written or oral, the notice must set forth:
(1) The identity of the instrument;
Notice to principal (2) The fact that it has been dishonored by non-‐acceptance or
v If he chooses to give notice to his principal, the agent must non-‐payment; and
notify the latter within the same time referred to as if he were a (3) A statement that the party giving notice intends to look to
holder. the party addressed for payment.
v The principal upon receiving such notice has also the same time
for giving notice to the parties secondarily liable as if the How notice is given
instrument was dishonored on the day that he received the Notice of dishonor may be given:
notice. (1) by personal delivery; or
(2) by mail.
Sec. 95. When notice sufficient. – A written notice need not be signed, and
an insufficient written notice may be supplemented and validated by [Note] The word “may” in this section has been construed to mean
verbal communication. “must.”
A misdescription of the instrument does not vitiate the notice

unless the party to whom the notice is given is in fact misled thereby.
Defect in notice
v Lack of signature or insufficiency

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o The fact that a written notice is not signed or v Agent to whom notice is given must be authorized to receive
insufficient would not invalidate it notice for the drawer or indorser concerned and not merely an
o Thus, failure to state in the notice of dishonor the date agent for a specified or purpose.
of making and maturity of a note, and the name of the v Thus, notice to an agent having authority merely to sell, collect
payee does not invalidate the notice. and remit is not sufficient.
o Any such insufficiency may be supplemented and v An oral notice by telephone to a clerk of an indorsing
validated by oral communication. coporation especially when it does not appear that the clerk
v Misdescription of instrument had communicated it to the management is ineffective.
o Neither does misdescription of the instrument, such as,
as to the amount, or the date, or the names of the Reason for requiring authority from principal
parties, or the date of maturity, or other defect vitiates v Under Sec, 91, the agent giving notice need not be authorized,
the notice unless it misleads the party to whom it is but under this Section, the agent must be authorized.
sent. v The reason for the difference is that, in Sec. 91, the giving of
o The purpose of the notice is to appraise the party notice benefits the principal, in Sec. 91, the receipt of notice
entitled thereto of the dishonor of the instrument. So creates liability.
that when he is, in fact, not misled by the
misdescription, the notice is sufficient. Sec. 98. Notice where party is dead. – When any party is dead, and his
v Lack of statement of recourse to indorser death is known to the party giving notice, the notice must be given to a
o A notice of dishonor need not state that the sender personal representative, if there be one, and if with reasonable diligence
looks to the indorser for payment, where it may be he can be found. If there be no personal representative, notice may be
inferred that the indorsee looks to the indorser, and no sent to the last residence or last place of business of the deceased.
other inference could reasonably be drawn from the
notice. Notice where party is dead
v When the party sought to be charged is dead, the notice must
Sec. 97. To whom notice may be given. – Notice of dishonor may be given be given to his personal representative provided that:
either to the party himself or to his agent in that behalf. o His death is known to the party giving notice
o There is a personal representative; and
Person to be given notice o If with reasonable diligence, the said personal
representative could be found.
v The party himself; or
v An executor named in the will, but not yet approved by the
v His agent in that behalf.
court is a “personal representative” within the meaning of the

rule.
Authority of agent to receive notice
v A notice sent to the “estate of” a deceased indorser at his last
residence was also held sufficient.

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v Where there are several personal representatives, notice to one Provision, when applicable
of them is good. 1. When the party secondarily liable has been declared bankrupt
or an insolvent; and
When notice to personal representative not required 2. The party secondarily liable has made an assignment of his
There is no duty to give notice to the personal representative: properties for the benefit of creditors.
(a) If the death is not known to the party giving the notice; or
(b) Although the fact of death is known, the decedent has no Sec. 102. Time within which notice must be given. – Notice may be given as
personal representative; or soon as the instrument is dishonored and unless delay is excused as
(c) If there be one but with reasonable diligence, he cannot be hereinafter provided, must be given within the times fixed by this Act.
found.

Time within which notice must be given
In any of these situations, “notice may be sent to the last
(1) Each party into whose hands a dishonored bill may pass is
residence or last place of business of the deceased.”
allowed one entire day for the purpose of giving notice.

v A different rule would subject every party to the
Sec. 99. Notice to partners. – Where the parties to be notified are partners, inconvenience of giving an account of all his other
notice to any one partner is notice to the firm even though there has been engagements in order to prove that he could not
dissolution.
reasonably be expected to send the notice on the same
day of dishonor.
Notice to partners v Thus, the rule excludes all discussions as to the particular
v Each partner is an agent of the partnership. Hence, notice to occupations of the party on the day.
the partners is notice to the partnership. (2) Notice of dishonor can be given only after the instrument has
v This could still be true although the notice was fraudulently been actually dishonored by non-‐acceptance or non-‐payment.
suppressed by the partners receiving it. v Thus, notice of dishonor before maturity of the
v But the fraudulent partner is liable to his co-‐partners. instrument even on the ground that the maker has
indicated his intention not to pay the same is premature
Sec. 100. Notice to persons jointly liable. – Notice to joint parties who are
and ineffective.
not partners must be given to each of them unless one of them has (3) An instrument cannot be dishonored by non-‐payment until after
authority to receive such notice for others. the maturity.
v After dishonor, notice may be given earlier than is

required by law.
Sec. 101. Notice to bankrupt. – When a party has been adjudged a bankrupt v The purpose of early notice is, in addition to holding the
or an insolvent, or has made an assignment for the benefit of creditors, parties secondarily liable on the instrument, to afford the
notice may be given either to the party himself or to his trustee or
latter an opportunity to discharge it, thereby avoiding
assignee.
court action.

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v Notice is sufficient if it is given during any of the hours

Sec. 103. Where parties reside in the same place. – Where the person giving
when the members of the household are attending to their
notice and the person to receive notice reside in the same place, notice ordinary affairs.
must be given within the following times: v In case the party to be notified has a place of business in
(a) If given at the place of business of the person to receive notice, it one place and a residence in another place, the holder has
must be given before the close of business hours on the day following. the option to send the notice to either place.
(b) If given at his residence, it must be given before the usual hours
of rest on the day following.
By mail
(c) If sent by mail, it must be deposited in the post office in time to
reach him in usual course on the day following. v If the notice of dishonor is mailed on time, that is, deposited at
the mailbox “in time to reach him in usual course on the
following day” the dishonor, it is immaterial that through the
Notice where parties reside in same place miscarriage in the mails or for any cause not imputable to the
This section provides for two means of giving notice of sender, the notice does not reach the addressee the day
dishonor: following the dishnor.
(a) personally v Thus it has been held that a notice placed in a mail on the day of
(b) by mail. protest but not postmarked until the next day at noon, is mailed
in time and it will be presumed, in the absence of any contrary
Time fixed evidence, that the notice reached its destination on the day
v The specific words of Section 103 cannot be modified by the following before the close of business hours.
definition of a reasonable time in Section 193 which has no
application to his section but applies to cases like that described
in Sec. 144.
Sec. 104. Where parties reside in different places. – Where the person
giving and the person to receive notice reside in different places, the
Place where notice may be given
notice must be given within the following times:
(a) At place of business (a) If sent by mail, it must be deposited in the post office in time to
v Notice given after the close of business hours on the day go by mail the day following the day of dishonor, or if there be no mail at a
following dishonor would be late. convenient hour on that day, by the next mail thereafter.
v Thus, where the holder of a demand note presented it to (b) If given otherwise than through the post office, then within the
the maker on the 17th of the month and was told to return time that notice would have been received in due course of mail, if it has
been deposited in the post office within the time specified in the last
on the 22nd for payment, but on the 22nd the maker had
subdivision.
absconded, the notice given on the 22nd to the indorser was
held not within the time limit, the dishonor having occurred Burden is upon the holder to prove notice was mailed
on the 17th. v The burden is upon the holder to prove that the notice was
mailed within the time prescribed; it is not enough merely to
(b) At the residence

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show that the notice was deposited in the post office on the
day following the dishonor.
v It is also necessary to show that the notice was deposited in
Chapter ViII
Discharge of Negotiable Instrument
time to go by mail the day following the day of dishonor.

Examples Sec. 119. Instrument; how discharged. – A negotiable instrument is
(a) by mail discharged –
(a) By payment in due course by or on behalf of the principal
H, a holder, resides in Manila and R, drawer resides in Olongapo.
debtor;
The instrument is dishonored on October 10, 2013. (b) By payment in due course by the party accommodated, where
v If the notice is given by mail, it need not reach R on the instrument is made or accepted for accommodation;
October 11, but it must be deposited in the mails not (c) By the intentional cancellation thereof by the holder;
later than October 11 so as to go by mail on October 11, (d) By any other act which will discharge simple contract for the
2013, the day following the day of dishonor. payment of money;
v If there is no mail on October 11, or if there is but it (e) When the principal debtor becomes the holder of the
instrument at or after maturity in his own right.
leaves at an inconvenient hour, i.e. 4am and the next
mail is 5pm October 12, the notice must be deposited in
time for it to go by mail at 5pm on October 12. Sec. 88. What constitutes payment in due course. –
Payment is made in due course when it is made at or after the
(b) other than by mail. maturity of the instrument to the holder thereof in good faith and
If H failes to deposit the written notice in the mails on time, the without notice that his title is defective.
same may still be given in some other way as by personal messenger.
What is important is that R should receive the notice not later than the Requisites of payment in due course
time he would have received it had it been mailed. 1. Payment must be made at or after the date of maturity
Suppose that the notice would have been received by R on 2. Payment must be made to the holder
October 14, 2013 had it been maid to him 3. Payment must be made in good faith and without notice that
the holder’s title is defective.

v The holder; Meaning and effect of discharge of instrument
v Another in behalf of the holder; or v Release of ALL parties, whether primary or secondary, from the
v By a party to the instrument who may be compelled to pay it to obligations arising thereunder.
the holder who, upon taking it up, would have a right to v Renders the instrument without force and effect, and
reimbursement from the party to whom the notice is given; or consequently, it can no longer be negotiated.

Concept of discharge
v Refers to both the instrument itself and to the parties.

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v The law provides for discharge of the instrument by specified Payment to effect discharge, requisites
methods (119) and for discharge of persons secondarily liable (a) Made by or on behalf of the principal debtor;
also by specified methods (120). (b) At or after its maturity
v Discharge of the instrument obviously includes discharge of the (c) To the holder thereof
person or persons primarily liable on it and a person secondarily (d) In good faith and without notice that the holder’s title is
liable on an instrument is also discharged by an act which defective.
discharges the instrument.
Hence, payment made by a stranger will not discharge the
Discharge of instrument v. discharge of persons (Bance) instrument unless the payment is for the debtor.
v Basically, when the instrument is discharged, ALL parties to the
instrument (whether primarily or secondarily liable) are Payment to a thief or to a person holding through a thief
discharged of their obligations; while the discharge of persons v Will not discharge the instrument.
refers only to the discharge of persons secondarily liable, and v Neither will payment operate as a discharge if the payor
not those who are primarily liable on the instrument. makes the payment that violates a restrictive indorsement.
v It should be made to the holder or the person entitled to
Methods for discharge of instrument receive it.
v There is no express provision for the release of a party primarily
liable for he is absolutely bound to pay in the first instance, and Principal debtor, defined
can be relieved only by a discharge of the instrument itself. v Interpreted to mean exactly what it says – refers to the person
v These methods provided are exclusive, under the rule that the ultimately bound to pay the debt and not necessarily to the
express mention of one thing implies the exclusion of another “person primarily liable” on the instrument.
v Ex. The fact that a post-‐dated check was merely issued as v So payment by a guarantor or surety will not discharge the
security is not a ground for the discharge of the instrument as instrument since he is not the “principal debtor.”
against a holder in due course to whom the instrument was
negotiated without the knowledge and consent of the maker or Payment by accommodated party
drawer. v As between the accommodation party and the accommodated
party, the latter is the real debtor. Hence, payment by the
Payment by principal debtor accommodated party is actually payment by the principal
v Payment by principal debtor is the most common type of debtor and this is true whether he appears as a party to the
discharge. It discharges all liability on the instrument. instrument or not.
v General rule: when an instrument upon which several are liable,
some primarily and some secondarily, if it is satisfied by him Intentional cancellation of instrument by holder
who is primarily liable, a complete discharge results. It no v Requisites:
longer has legal existence. o Intentionally done
o By the holder thereof.

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v Cancellation must be done by writing the word “cancelled” or Reacquisition by principal debtor in his own right
“paid” on the face of the instrument. v Requisites:
v There is also cancellation when the instrument is torn up, o The reacquisition must be by the principal debtor
burned, mutilated or destroyed. o In his own right
v To be effective, the cancellation must be done intentionally. The o At or after the date of maturity.
presumption is that the cancellation is intentional. v When the principal debtor becomes the holder of the
instrument in his own right, the instrument is discharged
Any acts which discharges a contract because of the merger in his person of the characters of
v Art. 1231 of the CC, obligations are extinguished: creditor and debtor.
o By payment or performance
o By the loss of the thing due In his own right, defined
o By the condonation or remission of the debts; v Means not in a representative capacity.
o By the confusion or merger of the rights of creditor and v Ex: If the debtor reacquires the instrument as the agent of
debtor; another or as a pledge from the holder, or as administrator of
o By compensation; the intestate estate of the holder, he does not do so in his own
o By novation. right.
v Other causes of extinguishing obligations:
o Annulment Reacquisition must me made at or after the date of maturity
o Rescission v Because the debtor, on reacquiring the instrument, can re-‐
o Fulfillment of a resolutory condition negotiate the same under Sec. 50. (re-‐acquirer)
o Prescription
Sec. 120. When person secondarily liable on the instrument are discharged.
[Note] While the various causes of discharging a simple contract – A person secondarily liable on the instrument is discharged:
such as payment, condonation will operate to discharge the instrument (a) By any act which discharges the instrument;
as between the immediate parties, they will not in the hands of a holder (b) by the intentional cancellation of his signature by the holder;
in due course. (c) By the discharge of a prior party;
(d) By a valid tender of payment made by a prior party;
(e) By a release of the principal debtor, unless the holder’s right of
[Bance] A issues to B a negotiable promissory note for the
recourse against the party secondarily liable is expressly reserved;
payment of A’s debt. A later decides to just pay B in cash instead as he (f) By any agreement binding upon the holder to extend the time of
already has the money to pay him and arranges to do the same but B payment, or to postpone the holder’s right to enforce the instrument,
fails to return the note, alleging that he left it at home. In truth however, unless made with the assent of the party secondarily liable, or unless the
B has already indorsed the note to C, a holder in due course. The right of recourse against such party is expressly reserved.
instrument is not discharged in the hands of C, the holder in due course Application of provision
but it is as to B, being an immediate party. v This applies only to parties secondarily liable on the instrument.

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v A maker even though he be a surety for a co-‐maker, an v The discharge of a party as by intentional cancellation of his
accommodation co-‐maker and an accommodation acceptor are signature also operates as a discharge of parties subsequent to
not persons secondarily liable within this section. the party to the party discharged. The reason for the rule is that
the discharge deprives a subsequent party of a right of
Discharge recourse against the party discharged by the holder.
v May be partial as when there is: v Prior party is not limited to prior indorsers but includes as well
o tender of payment, principal debtors within its meaning.
o cancellation of a secondary party’s signature of v This section only applies to discharge by the act of the holder,
indorsement, and not to discharges by operation of law. It does not include:
o reacquisition of instrument o A discharge by bankruptcy
v May also be total: o Discharge by the statute of limitations
o Payment or satisfaction of instrument o Discharge of a party for failure of the holder to give him
o cancellation of the instrument itself notice of dishonor.

Any act which discharges the instrument [Bance] Meaning: A è B è C è D. If D, cancels the signature
v If the instrument is discharged, it ceases to have force and of B, the instrument being a bearer instrument, B is discharged
effect. by the intentional cancellation of his signature and C is also
v Hence, all parties, whether primarily or secondarily liable will discharged as a prior party (B) was discharged from liability on
also be discharged. the instrument.
v But a discharge of a secondary party does not effect a discharge
of the instrument itself. Valid tender of payment
v Tender of payment means the act by which one produces and
Intentional cancellation of signature offers to a person holding a claim or demand against him the
v If the holder intentionally strikes out the signature of a person amount of money which he considers and admits to be due, in
secondarily liable, the effect is to discharge him from liability on satisfaction of such claim or demand without any stipulation or
the instrument as if he has never been a party to the same. condition.
v And no consideration is necessary to support the discharge. v A valid tender of payment made by a prior party, if accepted,
v However, the right of a holder to cancel the signature of an would result in the discharge of said party and necessarily of all
indorser is subject to the limitation that the indormsent is not parties subsequent to him.
necessary to the holder’s title. o It is but just therefore that the holder’s refusal without
v A holder may discharge a secondary party either by striking out any justifiable reason to accept a valid tender of
a portion of the instrument such as one or more signatures payment made by a prior party should discharge the
(partial) or the entire instrument itself (total). subsequent parties.
Discharge of prior party by act of holder o The refusal to accept the tender does not operate to
discharge the debt but the tender stops the running of

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interest and relieves the party making the tender from v “Agreement binding on the holder” means agreement
subsequent liability for costs and attorney’s fees in binding on the holder made with the principal debtor.
case of litigation. Hence, an agreement by the holder with a third party to
o While the party lending tendering payment is extend the time of payment does not discharge the
discharged to a limited extent, any other parties on the indorsers.
instrument are totally discharged if, to collect on the v To be binding, the agreement must be supported by a
instrument, they could theoretically have sued the valuable consideration and for a definite period.
party who made the tender of payment. [Bance: what v This rule is consistent with the rule that an extension
the hell does this mean? I think I understand but I’m not granted to the debtor by the creditor without the consent
sure. Check.] of the guarantor extinguishes the guaranty. (Art. 2079) But
the mere failure on the part of the holder to demand
Release of the principal debtor by act of holder payment does not of itself constitute an extension of time.
v The release of the principal debtor discharges the instrument
and, therefore, all the secondary parties are also discharged. Where agreement to extend time does not discharge a party
v Moreover, with the release of the principal debtor, subsequent secondarily liable
parties lose their right of recourse against him. 1. Where the extension of time is consented to by such party; and
v However, this would not be the case if the holder reserved his 2. Where the holder expressly reserves his right of recourse
right of recourse against the said subsequent parties, for then against such party.
the effect of the reservation by the holder of his right is the
implied reservation by the subsequent parties of their right of Sec. 121. Right of party who discharges instrument. – Where the
recourse against the principal debtor. This reservation of the instrument is paid by a party secondarily liable thereon, it is not
right of recourse must be express. Hence, it cannot be implied discharged; but the party so paying it is remitted to his former rights as
from acts and conducts. regards all prior parties, and he may strike out his own and all
subsequent indorsements, and again negotiate the instrument, except –
[Bance] Meaning: general rule is that the release of the principal (a) Where it is payable to the order of a third person, and has been
paid by the drawer; and
debtor by the holder also releases all the secondary parties because the
(b) Where it was made or accepted for accommodation, and has
“debt” is basically discharged and also because the secondary parties been paid by the party accommodated.
lose their right of recourse against him. However, when the holder
releases the principal debtor but EXPRESSLY reserves his right against
secondary parties, then they are not discharged. By such reservation, it Effect of reacquisition by prior party
is understood that the right of recourse of the parties secondarily liable v Payment at or after maturity by a party secondarily liable does
against M, the principal debtor, is also reserved. not discharge the instrument. It only cancels his own liability
and that of parties subsequent to him.
Extension of time of payment v With respect to prior parties, primary or secondary, the
reacquirer, for the most part, is remitted to his former position,

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and consequently, he may strike out his own and all subsequent rights as regards all prior parties, and he may strike out his indorsement
indorsements as they are not necessary to his title. to B as well as the indorsement of C and renegotiate the instrument.
v If the party so paying was formerly a holder in due course, he Of course, A’s right to sue R and P and to renegotiate may be
may recover from prior parties as such a holder even thought at exercised even without cancelling intervening indorsements.
that time he already had notice of defenses. If the bill is paid by R, the case would come under subsection (a)
[payable to the order a third party] and so R cannot further negotiate
Negotiation by prior party the bill. If P is an accommodated party and P pays, neither can he
v Means: renegotiate the bill as his case would fall under subsection (b)
o That the instrument is not discharged
o It may again be negotiated.
Sec. 122. Renunciation by holder. – The holder may expressly renounce his
§ Except: rights against any party to the instrument, before, at, or after its maturity.
• where it is payable to the order of a An absolute and unconditional renunciation of his rights against the
third person, and has been paid by the principal debtor made at or after the maturity of the instrument
drawer; and discharges the instrument. But a renunciation does not affect the rights of
• Where it was made or accepted for a holder in due course without notice. A renunciation must be in writing,
unless the instrument is delivered up to the person primarily liable
accommodation, and has been paid by
thereon.
the party accommodated.

Rationale as to why exceptions (a) and (b) only apply to right to Meaning of renunciation
renegotiate and not to the discharge of instrument v Renunciation describes the act of surrendering a right or claim
v It would deny the drawer who pays a bill of the right to recover with or without recompense.
from the acceptor.
v Thus, where the drawer of certified check which he had drawn Sec. 122 vis-‐à-‐vis Section 120 (e)
payable to the US Government for taxes was required to take v Section 122 refers only to the unilateral act of the holder, i.e.
up the check because of failure of the drawee-‐bank, the check is without recompense or consideration; while Sec. 120 (e) covers
not discharged and the drawer is subrogated to the right of the an oral renunciation supported by a consideration.
payee and can recover in full. v Thus: 122 => written, unilateral renunciation; while 120(e) covers
an oral renunciation with a consideration.
Example: v Thus, an oral release without consideration is ineffective.
R is the drawer of a bill addressed to W, the drawee, and
payable to the order of P. The bill is accepted by W and indorsed by P, A, How renunciation by holder made
B, and C in succession. v Renunciation must be made by a written declaration to that
If A pays the bill, it is not discharged, but it discharges A and B effect.
and C to whom he is personally liable. But A is remitted to his former v If oral, it should be accompanied by a surrender of the
instrument to the person primarily liable thereon.

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v The mere expression of an intention or desire to renounce is not Sec. 123. Cancellation; unintentional; burden of proof. – A cancellation
enough. made unintentionally, or under a mistake or without the authority of the
o Where the holder of a demand note being in articulo holder is inoperative; but where an instrument or any signature thereon
mortis instructed his nurse to write a memorandum to appears to have been cancelled the burden of proof lies on the party who
the effect that the note should be destroyed as soon as alleges that the cancellation was made unintentionally or under a mistake
it could be found, it was held that there was no or without authority.
renunciation under the law.
v Sec. 122 does not apply to or prevent a discharge by oral Manner of cancellation
novation under which the obligation of the other persons is v Cancellation of an instrument is any act by which the intention
accepted in lieu of the maker of the instrument. to cancel the instrument may be evidenced. It is not limited to
the writing of the word “cancelled” or “paid” or the drawing of
Effect of renunciation crisscross lines across the instrument. It includes any other
A renunciation by the holder of his rights against any party to means such as tearing, erasure, obliteration or burning.
the instrument also acts as a discharge.
v A renunciation in favor of a secondary party may be made by When cancellation inoperative
the holder before, at, or after the maturity of the instrument. v If the cancellation is made:
The effect of renunciation is to discharge only such secondary o Unintentionally;
party and all parties subsequent to him but the instrument itself o By mistake or through fraud
remains in force. o Without authority.
v A renunciation in favor of the principal debtor may be effected v It is inoperative.
at or after maturity. The effect of the renunciation is to
discharge the instrument and all parties thereto, provided the Presumption in favor of cancellation
renunciation is made absolute and unconditionally. v Cancellation is presumed to be intentional.
v The burden is on the holder claiming its ineffectivess to
Rights of holder in due course overcome the presumption by contrary proof.
v Whether renunciation is made in favor of a secondary party or
in favor of the principal debtor, the renunciation does not affect
Sec. 124. Alteration of instrument; effect of. – Where a negotiable
the rights of a holder in due course without notice. instrument is materially altered without the assent of all parties liable
v If the renunciation is made before maturity of the instrument, it thereon, it is avoided, except as against a party who has himself made,
runs the risk of being negotiated later so as to gain new life in authorized or assented to the alteration and subsequent indorsers.
the hands of a holder in due course since renunciation is only a But when an instrument has been materially altered and is in the
personal defense. hands of a holder in due course, not a party to the alteration, he may
enforce payment thereof according to its original tenor.

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Burden of proof

Material alteration, defined (a) Where alteration is apparent, the party claiming under the
v Any change in the instrument which affects or changes the instrument has the burden to explain the alteration or that he
liability of the parties in any way as specified under Sec. 125 or had no part therein or that he was a holder in due course.
changes the contract of the parties in any respect. (b) Where alteration is not apparent on the face by the use of
ordinary care in inspecting the instrument, the burden is on the
Sec. 124 refers only to physical alterations party alleging it.
v So an extension of time given by the holder of a note to the
principal maker without the consent of a surety co-‐maker is not When the drawee-‐bank pays a materially altered check
an alteration. v It has no right to claim reimbursement from the drawer much
less, the right to deduct the erroneous payment if made from
Effects of alteration of instrument = Gen rule: DISCHARGE the drawer’s account since it did not pay according to the
original tenor of the instrument.
Alteration by a party
o The effect of a material alteration is to DISCHARGE the Alteration by a stranger
instrument and all prior parties thereto who did not give their o When the material alteration of the instrument is made by a
consent to such alteration. stranger, it is called SPOLIATION.
o No distinction is made so it is immaterial that the alteration was: o In England, spoliation has the same effect as alteration.
§ Favorable or unfavorable to the party making it or to Although Sec. 124 does not make a distinction, American courts
the interests of prior parties hold that spoliation has no effect upon the instrument if the
§ Innocently or fraudulently made since alteration original meaning can be ascertained.
includes innocent changes, without regard to the
motive or the purpose of the party making it. Rights of holder in due course
o Exceptions as to the effect of material alteration: v A material alteration avoids the instrument in the hands of one
§ It does not discharge the instrument as against: who is not a holder in due course as against any prior party who
• The party who has made the alteration; has not assented to the alteration.
• A party who authorized or assented to the v But if an altered instrument is negotiated to a holder in due
alteration; and course, he may enforce payment thereof according to its
• Indorsers who indorsed subsequent to the original tenor regardless of whether the alteration was innocent
alteration. or fraudulent.

Sec. 62. The acceptor by accepting the instrument engages that he will
pay it according to the tenor of its acceptance; and admits (a) the
existence of the drawer, the genuiness of his signature, and his

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capacity and authority to draw the instrument; and (b) the existence of If D is a holder in due course, he could enforce the instrument
the payee and his then capacity to indorse. against M for P3k, its original tenor. Of course, D can recover from P, A
or C P8,000 should M dishonor the instrument.
Sec. 14. Where the instrument is wanting in any material particular, the
person in possession thereof has a prima facie authority to complete it Reason for the rule in relation to material alteration
by filling up the blanks therein. And a signature on a blank paper v The law in relation to material alteration of instruments rests
delivered by the person making the signature in order that the paper upon public policy, in that, to maintain the integrity surrounding
may be converted into a negotiable instrument operates as a prima commercial relations, no party to be benefited should be
facie authority to fill it up as such for any amount. In order however permitted under any guise to alter the written obligation of
that any such instrument when complete may be enforced against any another without his authority or assent.
person who became a party thereto prior to its completion, it must be v To do otherwise would open the door to the perpetuation of all
filled up strictly in accordance with the authority given and within a kinds of fraud to the prejudice of the party or parties to be
reasonable time. But if any such instrument, after completion, is bound who have no control whatever over the possession of
negotiated to a holder in due course, it is valid and effectual for all such instruments which are passed from hand to hand, and
purposes in his hands, and he may enforce it as if it had been filled up therefore cannot prevent any person in possession thereof
strictly in accordance with the authority given and within a reasonable. from making changes therewith in disregard of honesty and
good conscience.
Example: v “No man should be permitted to take the chance of gain by the
M makes a promissory note for P3k payable to P or order. P commission of fraud, without running the risk of loss in case of
negotiates the note to A who, with the consent of P, raises the amount detection.”
to P8,000 and thereafter indorses it to B, B to C, and C to D, under the
circumstances which made D not a holder in due course. Sec. 125. What constitutes a material alteration. – Any alteration which
The note is discharged as against M; hence, D cannot enforce it changes –
as against M even for the original tenor. A, however, would be liable to (a) The date;
D for 8,000 as he is the party who himself made the alteration although (b) The sum payable, either for principal or interest;
D is not a holder in due course. Moreover, as indorser, A warrants that (c) The time or place of payment;
(d) The number or the relations of the parties;
the instrument is genuine and in all respect what it purports to be.
(e) The medium or currency in which payment is to be made;
P would also be liable to D for P8,000 as he authorized or (f) Or which adds a place of payment where no place of payment
assented to the alteration. is specified, or any other change or addition which alters the effect of the
Likewise, B and C would be liable to D for P8,000.00 as they are instrument in any respect, is a material alteration.
subsequent indorsers.

When alteration material
However:
v Under this section, a change in any of the matters mentioned or
any other change which alters the effect of the instrument in

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any respect constitutes a material alteration. Any other

alteration is immaterial and will not discharge the instrument
nor affect the liability of parties to the instrument prior to the
alteration.

Change in date
v Is material whether it hastens or postpones the time of
payment
v A change in date from which interest is to run is also material
v But the change in the date of indorsement is not material where
the date is not necessary to fix the maturity of the instrument,
unless the issue is whether the indorsement was made before
or after maturity.
v The filling of date blanks is not material nor an alteration.

Sum payable
v Any change in the amount of the principal or interest is always a
material alteration.
v The addition of the words “with interest” with or without a
fixed rate is also material.
v But an alteration of the marginal figures of an instrument is not
material when the sum stated in words in the body remains
unchanged.
v Neither is the insertion by the payee of the words “with
interest” after execution with authority of the maker material
v Nor the insertion of the legal rate of interest where the
instrument has a provision for “interest at __ percent) since the
legal import.

Time of payment
v A change in the maturity of the instrument whether time of
payment is curtailed or extended is material.
v But a change in the marginal notation of the date of maturity of
an instrument in order to correct an obvious mistake is not a
material alteration.

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BANCE,

v Transfer of a negotiable instrument from one person to another

to him existing negotiable instrument.

Who is primarily liable

(b) If the instrument is payable to the order of the maker or drawer,

Reasonable time v In the absence of proper presentment, no right of recourse is

Likewise, presentment is dispensed with when the

To constitute payment in due course, the following requisites

A however makes him a party entitled to give notice as he might be

v Notice is sufficient if it is given during any of the hours

Burden of proof

any respect constitutes a material alteration. Any other

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