Professional Documents
Culture Documents
Instances when BILL may be treated as a NOTE: e. Where the instrument is addressed to a drawee, he must
1. Drawer and drawee are the same person. be named or otherwise indicated therein with reasonable
1. Drawee is a fictitious person. certainty.
2. Drawee has no capacity to contract.
3. When instrument is so ambiguous, the holder may treat 1. Must be in writing, signed by the maker or drawer;
it either as a BILL or a NOTE. - Otherwise it cannot be a substitute for money.
Other Forms of Negotiable Instruments 2. Must contain an unconditional promise or order to pay a
1. Certificate of deposit issued by banks, payable to the sum certain in money;
depositor or his order, or to bearer
2. Trade acceptance Certainty of sum payable.
3. Bonds, which are in the nature of promissory notes The sum payable is a sum certain although it is to be paid:
4. Drafts, which are bills of exchange drawn by one bank a. With interest; or
upon another b. By stated installments; or
̇ All of these must comply with Sec. 1, NIL c. By stated installments, with a provision that, upon
Note: Letters of credit are not negotiable. default in payment of any installment or of interest,
the whole shall become due; or
Legal Tender d. With exchange, whether at a fixed rate or at the
That kind of money that the law compels a creditor to accept current rate; or
in payment of his debt when tendered by the debtor in the e. With costs of collection or an attorney's fee, in case
right amount. payment shall not be made at maturity. (sec. 2)
Acceleration clause - renders whole debt due and
Note: A negotiable instrument although intended to be a demandable upon failure of obligor to comply with certain
substitute for money, is generally not a legal tender. conditions.
may acquire a better merely steps into the c. To transfer his rights as such indorsee,
right than that of a shoes of the assignor; where the form of the indorsement
prior party authorizes him to do so.
5. A general indorser 5. An assignor does not But all subsequent indorsees acquire only the
warrants the solvency warrant the solvency of title of the first indorsee under the restrictive
of prior parties; prior parties unless indorsement. (sec. 37)
expressly stipulated or
the insolvency is known ̇ Such indorsement destroys the negotiability of
to him; the instrument and bars further negotiation to
6. An indorser is not 6. An assignor is liable a holder in due course.
liable unless there be even without notice of d. Qualified - constitutes the indorser a mere assignor
presentment and dishonor; of the title to the instrument. (sec. 38)
notice of dishonor; • made by adding to the indorser's signature
7. Negotiation is 7. Governed by Arts. 1624 words like "sans recourse,” “without recourse",
governed y the NIL. to 1635 (on assignment "indorser not holder", "at the indorser's own
of credits) of the Civil risk", etc.
Code. • The purpose of this kind of indorsement is to
transfer title without guaranteeing payment by
Methods of negotiation the primary party.
1. Order Instrument – Indorsement and Delivery. • It does not mean, however, that the qualified
2. Bearer Instrument – Delivery only. indorser incurs no liability at all. The effect is
merely to limit his liability. He is secondarily
Indorsement - legal transaction effected by the writing of liable for breach of is warranties as an indorser
one's own name at the: under Sec. 65. Thus, he is liable if the
a. back of the instrument or instrument is dishonored by NON-ACCEPTANCE
b. upon a paper (allonge) attached thereto with or or NON-PAYMENT due to:
without additional words specifying the person to a. forgery;
whom or to whose order the instrument is to be b. lack of good title to the instrument
payable whereby one not only transfers legal title to indorsed;
the paper transferred but likewise enters into an c. lack of capacity to contract on the part of
implied guaranty that the instrument will be duly prior parties; or
paid. d. the fact that the instrument was valueless
Ü General Rule: indorsement must be of the entire or not valid at the time of the indorsement
instrument. which fact was known to him.
Exception: where instrument has been paid in part, it e. Conditional - right of the indorsee is made to
may be indorsed as to the residue. depend on the happening of a contingent event
Ü Kinds of indorsement: • Party required to pay may disregard the
a. Special - specifies the person to whom or to whose conditions.
order, the instrument is to be payable (sec. 34) • This kind of indorsement has no effect on the
b. Blank - specifies no indorsee: further negotiation of the instrument. The
• Instrument is payable to bearer and may be party required to pay, if he chooses, may make
negotiated by delivery (sec. 34) payment, disregarding the condition without
• May be converted to special indorsement by incurring any liability because he is expressly
writing over the signature of indorser in blank authorized to do so under Sec. 39. But the
any contract consistent with character of person who received payment will hold the
indorsement. proceeds subject to the right of the conditional
c. Restrictive - when the indorsement either: indorser.
i. Prohibits further negotiation of the
instrument; or f. Absolute - one by which indorser binds himself to
ii. Constitutes the indorsee the agent of the pay:
indorser; or i. upon no other condition than failure of
iii. Vests the title in the indorsee in trust for prior parties to do so; and
or to the use of some other persons. But ii. upon due notice to him of such failure.
mere absence of words implying power to g. Joint - indorsement of instrument payable to 2 or
negotiate does not make an indorsement more persons; all must indorse in order for the
restrictive. transaction to operate as a negotiation.
• A restrictive indorsement confers upon the • Exceptions to the rule requiring joint
indorsee the right: indorsement:
a. To receive payment of the a. Where the payees or indorsees are
instrument; partners; and
b. To bring any action thereon that the b. Where the payee or indorsee indorsing
indorser could bring; has authority to indorse for the
others.
h. Irregular - a person who, not otherwise a party to 2. Where it was made or accepted for
an instrument, places thereon his signature in blank accommodation and has been paid by the
before delivery. party accommodated;
3. In other cases, where the instrument is
Ü Rules on Indorsements: discharged when acquired by a prior party.
One who has signed the instrument as maker, drawer, a. Absence or failure of consideration, partial or total;
acceptor, or indorser, without receiving value therefor, and b. Want of delivery of complete instrument;
for the purpose of lending his name to some other person c. Insertion of wrong date in an instrument, where it is
Ü Liability: such a person is liable on the instrument to a payable at a fixed period after date and it is issued
holder for value, notwithstanding such holder, at the undated or where it is payable at a fixed period
time of taking the instrument, knew him to be only an after sight and the acceptance is undated;
accommodation party. d. Filling up of blank contrary to authority given or not
Ü Effects: within reasonable time, where the instrument is
1. accommodation party is generally regarded as a delivered;
surety for the party accommodated; e. Fraud in inducement;
2. When accommodation party makes payment to f. Acquisition of instrument by force, duress, or fear;
holder of the note, he has the right to sue the g. Acquisition of the instrument by unlawful means;
accommodated party for reimbursement. h. Acquisition of the instrument for an illegal
consideration;
Ü Rights of accommodation parties as against each other: i. Negotiation in breach of faith;
the other may demand contribution from his co- j. Negotiation under circumstances that amount to
accommodation party without first directing his action fraud;
against the principal debtor provided: k. Mistake;
1. he made the payment by virtue of judicial demand; l. Intoxication (according to better authority);
or m. Ultra vires acts of corporations where the
2. the principal debtor is insolvent. corporation has the power to issue negotiable paper
but the issuance was not authorized for the
Note: A corporation cannot act as an accommodation particular purpose for which it was issued;
party. The issuance or indorsement of negotiable n. Want of authority of agent where he has
instrument by a corporation without consideration and o. apparent authority;
for the accommodation of another is ultra vires. p. Insanity where there is no notice of insanity on the
(Crisologo v. CA, 117 SCRA 594). part of the one contracting with the insane person;
and
Order of liability of indorsers: q. Illegality of contract where the form or
1. among themselves – indorsers are liable prima facie in consideration is illegal.
the order in which they indorse; but evidence is
admissible to show that, as between or among FRAUD IN FACTUM FRAUD IN INDUCEMENT
themselves, they have agreed otherwise (sec. 68) 1. It exists in those cases in 1. It is that which related
2. to the holder – indorsers are liable in any order which a person, without to the quality, quantity,
negligence, has signed an value or character of the
VI. DEFENSES instrument which was in consideration of the
fact a negotiable instrument. In this case,
Kinds: instrument, but was the signer is led by
1. Real/Absolute Defenses - those that attach to the deceived as to the deception to execute what
instrument itself and are available against all holders, character of the instrument he knows is a negotiable
whether in due course or not. and without knowledge of instrument. It implies that
Examples: its, as where a not was the signer knew what he
a. Alteration; signed by one under the was signing but that he was
b. Non-delivery of incomplete instrument; belief that he was signing induced by fraud to sign.
c. Duress amounting to forgery; as a witness to a deed.
d. Fraud in factum or fraud in esse contractus; 2. This kind of fraud is a 2. Such type of fraud is only
e. Minority; real defense because there a personal defense because
f. Marriage in the case of a wife; is no contract. It implies it does not prevent a
g. Insanity where the insane person has a guardian that the person did not contract.
appointed by the court; know what he was signing.
h. Ultra vires acts of a corporation, where the But where the signer by the
corporation is absolutely prohibited by its charter or exercise of reasonable
statute from issuing any commercial paper under diligence could have
any circumstances; discovered the nature of
i. Want of authority of agent; the instrument, the fraud
j. Execution of instrument between public enemies; cannot be considered a real
k. Illegality of contract where it is the contract or defense, as where a person,
instrument itself which is expressly made illegal by who can read, signed a note
statute; and but failed to read it.
l. Forgery.
2. Personal/Equitable Defenses – those which are available Ü Effects of Defenses:
only against a person not a holder in due course or a 1. Complete and undelivered instrument
subsequent holder who stands in privity with him.
Examples:
• as between immediate parties and as regards a omissions that amount to ratification, express
remote party other than a holder in due course, the or implied.
delivery must be authorized in order to be effectual Note: Persons precluded from setting up the
• where the instrument is in the hands of a holder in defense of forgery may still recover damages under
due course, a valid delivery thereof by all parties the NCC provisions on quasi-delicts.
prior to him so as to make them liable to him is • Rules on Forgery:
conclusively presumed A. Promissory Notes
• where the instrument is no longer in the possession 1. Maker’s signature forged
of a party whose signature appears thereon, a valid Order Instrument
and intentional delivery by him is presumed until a. Maker is not liable because he never
the contrary is proved became a party to the instrument.
b. Indorsers subsequent to forgery are liable
2. Incomplete but delivered instrument because of their warranties.
• where the instrument is wanting in any material c. Party who made the forgery is liable.
particular, the person in possession thereof has a Bearer Instrument
prima facie authority to complete it by filling up the a. Maker is not liable.
blanks therein. b. Indorsers may be made liable to those
• it must be filled up strictly in accordance with the persons who obtain title through their
authority given and within a reasonable time indorsements.
• if any such instrument, after completion, is c. Party who made the forgery is liable.
negotiated to a holder in due course, it is valid and 2. Payee’s signature forged
effectual for all purposes in his hands, and he may Order Instrument
enforce it as if it had been filled up strictly in a. Maker and payee not liable
accordance with the authority given and within a b. Indorsers subsequent to the forgery is
reasonable time. liable.
3. Incomplete and undelivered instrument c. Party who made the forgery is liable
• it will not, if completed and negotiated without Bearer Instrument
authority, be a valid contract in the hands of any a. Maker is liable. Indorsement is not
holder, as against any person whose signature was necessary to title and the maker engages
placed thereon before delivery. to pay holder.
• However, subsequent indorsers are liable. b. Party who made the forgery is liable
4. Forgery 3. Indorser’s signature forged
Order Instrument
• counterfeit making or fraudulent alteration of any
a. Maker, payee, and indorser who signature
writing, which may consist of:
was forged is not liable.
1. signing of another’s name with intent to
b. Indorsers subsequent to forgery are liable
defraud; or
because of their warranties.
2. alteration of an instrument in the name,
c. Party who made the forgery is liable.
amount, name of payee, etc. with intent to
Bearer Instrument
defraud.
a. Maker is liable. Indorsement is not
• Effect: signature is wholly inoperative, and no right
necessary to title and the maker engages
to retain the instrument, or to give a discharge
to pay holder.
therefore, or to enforce payment thereof against
b. Indorser whose signature was forged is not
any party thereto, can be acquired through or under
liable
such signature
c. Party who made the forgery is liable.
• Exception: unless the party against whom it is B. Bill of Exchange
sought to enforce such right is precluded from 1. Drawer’s signature forged
setting up the forgery or want of authority. In an Order Instrument
• Cut-Off Rule a. Drawer is not liable.
General Rule: Parties prior to the forged signature b. Drawee is liable if it paid (nor recourse to
are cut-off from the parties after the forgery in the drawer) because he admitted the
sense that prior parties cannot be held liable and genuineness of the drawer’s signature.
can raise the defense of forgery. The holder can Drawee cannot recover from the collecting
only enforce the instrument against parties who bank because there is no privity between
became such after the forgery. the collecting bank and the drawer. There
Exception: When the prior parties are precluded is no warranty as to the signature of the
from setting up the defense of forgery. drawer. (Associated Bank v. CA)
Persons precluded from setting up the defense of c. Indorsers subsequent to forgery are liable.
forgery are: d. Party who made the forgery is liable
1. Those who by their acts, silence, or negligence, In a Bearer Instrument
are estopped from setting up the defense of a. Drawer is not liable
forgery; b. Drawee is liable if it paid. Drawee cannot
2. Those who warrant or admit the genuineness of recover from the collecting bank because
the signature in question. These include acts or
a. determine the genuineness of the instrument and Presentment for acceptance – the production or exhibition
the right of the holder to receive payment; and of a bill of exchange to the drawee for his acceptance or
b. to enable him to reclaim possession upon payment. payment
• When exhibition excused:
a. when debtor does not demand to see the instrument General Rule: presentment for acceptance is not necessary to
but refuses payment on some other grounds, and render any party to the bill liable.
b. when the instrument is lost or destroyed.
Exception: presentment for acceptance must be made:
When made: a. Where the bill is payable after sight, or where
• where the instrument is payable at a fixed or presentment for acceptance is necessary in order to
determinable future time, presentment must be made fix the maturity of the instrument; or
on the day it falls due
• where it is payable on demand: b. Where the bill expressly stipulates that it shall be
a. promissory note: presentment must be made within presented for acceptance; or
a reasonable time after its issue
b. bill of exchange: presentment for payment will be c. Where the bill is drawn payable elsewhere, then at
sufficient if made within a reasonable time after the residence or place of business of the drawee.
the last negotiation thereof (sec. 143)
• the check must be presented for payment within a Note: in all the above cases, the holder must either present
reasonable time after its issue or the drawer will be the bill for acceptance or negotiate it within a reasonable
discharged from liability thereon to the extent of the time; otherwise, the drawer and all indorsers are discharged.
loss caused by the delay.
How made:
Time of maturity: 1. made by or on behalf of the holder;
• every negotiable instrument is payable at the time fixed 2. at a reasonable hour;
therein without grace 3. on a business day;
• when the day of maturity falls upon a Sunday or a 4. before the bill is overdue and within reasonable
holiday, the instruments are to be presented for time;
payment on the next succeeding business day 5. to the drawee or some person authorized to accept
• when the day of maturity falls upon a Saturday: or refuse acceptance on his behalf.
̇ Instrument is payable at a fixed or determinable
future time (time instrument) - presented for Days presentment may be made. If date of presentment is:
payment is on the next succeeding business day a. Sunday or a holiday – must be made on the next
̇ instruments is payable on demand - at the option of succeeding business day
the holder, be presented for payment: b. Saturday – before 12:00 noon on Saturday provided
a. before 12:00 noon on Saturday when that it is not a holiday.
that entire day is not a holiday or
b. the next succeeding business day. When delay for presentment excused:
How computed: a. bill is drawn payable elsewhere than at the place of
̇ excluding the day from which the time is to begin to business or the residence of the drawee.
run, and by including the date of payment b. holder has no time, with the exercise of reasonable
̇ applies to instruments which are payable at a fixed diligence, to present the bill for acceptance before
period after date, after sight, or after that presenting it for payment on the day that it falls
happening of a specified event. due.
Effect: does not discharge the drawers and indorsers.
Proper place for presentment:
a. Where a place of payment is specified in the instrument Where presentment is excused:
and it is there presented; a. Where the drawee is dead, or has absconded, or is a
b. Where no place of payment is specified but the address fictitious person or a person not having capacity to
of the person to make payment is given in the contract by bill.
instrument and it is there presented; b. Where presentment can not be made after the
c. Where no place of payment is specified and no address is exercise of reasonable diligence
given and the instrument is presented at the usual place c. Where, although presentment has been irregular,
of business or residence of the person to make payment; acceptance has been refused on some other ground.
d. In any other case if presented to the person to make Note: bill may be treated as dishonored by non-
payment wherever he can be found, or if presented at acceptance.
his last known place of business or residence.
Duty of holder where bill not accepted. - where a bill is
When delay in presentment excused – delay is caused by duly presented for acceptance and is not accepted within the
circumstances beyond the control of the holder and not prescribed time (24 hours – sec. 136), the person presenting
imputable to his default, misconduct, or negligence. When it must treat the bill as dishonored by non-acceptance or he
the cause of delay ceases to operate, presentment must be loses the right of recourse against the drawer and indorsers.
made with reasonable diligence.
Acceptance: the signification by the drawee of his assent to • a bill may be accepted before it has been signed by the
the order of the drawer. It is the act by which the drawee drawer, or while otherwise incomplete, or when it is
manifests his consent to comply with the request contained overdue, or after it has been dishonored by a previous
in the bill of exchange directed to him. refusal to accept, or by non payment
• when a bill payable after sight is dishonored by non-
How made : acceptance and the drawee subsequently accepts it, the
1) must be in writing holder, in the absence of any different agreement, is
2) signed by the drawee entitled to have the bill accepted as of the date of the
3) must not express that the drawee will perform his first presentment.
promise by any other means than the payment of • an unconditional promise in writing to accept a bill
money. before it is drawn is deemed an actual acceptance
• the holder of the bill presenting the same for acceptance in favor of every person who, upon the faith
may require that the acceptance be written on the bill, thereof, receives the bill for value.
and if such request is refused, may treat the bill as • where a check is certified by the bank on which it is
dishonored. drawn, the certification is equivalent to an
• where an acceptance is written on a paper other than acceptance.
the bill itself, it does not bind the acceptor except in Effect: the drawer and all indorsers are discharged
favor of a person to whom it is shown and who, on the from liability thereon.
faith thereof, receives the bill for value.
Acceptance for Honor - an undertaking by a stranger to a bill
Period for drawee to accept - allowed 24 hours after after protest for the benefit of any party liable thereon or for
presentment in which to decide whether or not he will accept the honor of the person for whose account the bill is drawn
the bill; if acceptance is given, it dates as of the day of which acceptance inures also to the benefit of all parties
presentation. subsequent to the person for whose honor it is accepted, and
conditioned to pay the bill when it becomes due if the
Constructive/Implied acceptance: where a drawee refuses original drawee does not pay it.
within 24 hours after delivery or within such other period as ̇ Requisites:
the holder may allow, to return the bill accepted or non- 1. the bill must have been protested for dishonor
accepted to the holder, he will be deemed to have accepted by non-acceptance or for better security;
the same. 2. the acceptor for honor must be a stranger and
Note: same effect if the drawee destroys the instrument. not a party already liable on the instrument;
3. bill must not be overdue;
Kinds: 4. acceptance for honor must be with the consent
1. General - assents without qualification to the order of of the holder of the instrument.
the drawer. ̇ Formalities:
2. Qualified - which in express terms varies the effect of 1. must be in writing;
the bill as drawn. 2. must indicate that it is an acceptance for
a. Conditional - makes payment by the acceptor honor;
dependent on the fulfillment of a condition 3. signed by the acceptor for honor;
therein stated. 4. must contain an express or implied promise to
b. Partial - an acceptance to pay part only of the pay money;
amount for which the bill is drawn. 5. the accepted bill for honor must be delivered
i. Local - an acceptance to pay only at a to the holder.
particular place.
ii. Qualified as to time Notice of Dishonor - notice given by the holder or his agent
iii. The acceptance of some one or more of to a party or parties secondarily liable that the instrument
the drawees but not of all. was dishonored by non-acceptance by the drawee of a bill, or
3. Constructive by non-payment by the acceptor of a bill or by non-payment
by a maker of a note.
Rights of parties as to qualified acceptance. - If such notice is given by a notary public, it is called
• Holder: he may refuse to take a qualified acceptance PROTEST.
and if he does not obtain an unqualified acceptance, he
may treat the bill as dishonored by non-acceptance. Ü Effect of failure to give notice: parties secondarily liable
• Drawer or indorser: when he receives notice of a are discharged
qualified acceptance, he must, within a reasonable time,
express his dissent to the holder or he will be deemed to Ü Requisites:
have assented thereto (implied assent). 1. Given by holder or his agent, or by any party who
may be compelled by the holder to pay;
Effect of taking a qualified acceptance: the drawer and 2. Given to secondary party or his agent;
indorsers are discharged from liability on the bill unless they 3. Given within the periods provided by law;
have expressly or impliedly authorized the holder to take a 4. Given at the proper place.
qualified acceptance, or subsequently assent thereto.
Ü When notice of dishonor dispensed with:
Other rules of acceptance:
1. when party to be notified knows about the dishonor, Ü Notice may be waived either before the time of giving
actually or constructively; notice, or after the omission to give due notice. Waiver
2. if waived; and may be expressed or implied.
3. when after due diligence, it cannot be given.
Ü As to who are affected by an express waiver depends on
Ü How given: where the waiver is written:
1. by bringing verbally or 1. if it appears in the body or on the face of the
2. by writing to the knowledge of the person liable the instrument, it binds all parties; but
fact that a specified instrument, upon proper 2. if it is written above the signature of an
proceedings taken, has not been accepted or has indorser, it binds him only.
not been paid, and that the party notified is
expected to pay it. Ü Notice of dishonor is not required to be given to the
drawer in any of the ff. cases:
Ü To whom given: 1. drawer and drawee are the same;
1. Non-acceptance (bill) – to persons secondarily 2. drawee is a fictitious person or not having the
liable, namely, the drawer and indorsers as the case capacity to contract;
may be. 3. drawer is the person to whom the instrument is
2. Non-payment (both bill and note) – indorsers. presented for payment;
Note: Notice must be given to persons secondarily 4. the drawer has no right to expect or require
liable. Otherwise, such parties are discharged. that the drawee or acceptor will honor the
Notice may be given to the party himself or to his instrument;
agent. 5. where the drawer has countermanded
payment.
Ü By whom given:
1. the holder Ü Notice of dishonor is not required to be given to an
2. another on behalf of the holder indorser in the ff. cases:
3. any party to the instrument who may be compelled 1. drawee is a fictitious person or does not have
to pay it to the holder, and who would have a right the capacity to contract, and indorser was
of reimbursement from the party to whom notice is aware of that fact at the time he indorsed the
given. instrument;
2. indorser is the person to whom the instrument
Ü Notice of dishonor given by or on behalf of a holder is presented for payment;
inures to the benefit of: 3. instrument was made or accepted for his
a. all parties prior to the holder, who have a right accommodation.
of recourse against the party to whom the
notice is given; and Ü If an instrument is not accepted by the drawee, there is
b. all holders subsequent to the holder giving no sense presenting it again for payment, and notice of
notice. dishonor must at once be given. If there was
acceptance, presentment for payment is still required
Ü Notice of dishonor given by or on behalf of a party and if payment is refused, there is a need for notice of
entitled to give notice inures to the benefit of: dishonor.
a. the holder; and
b. all parties subsequent to the party to whom Ü An omission to give notice of dishonor by non-acceptance
notice is given. does not prejudice the rights of a holder in due course
subsequent to the omission.
Ü Where an instrument is dishonored in the hands of an
agent, he can do either of the ff.: Dishonor by Non-Payment
a. directly give notice to persons secondarily
liable thereon; or When instrument dishonored by non-payment:
b. give notice to his principal. In such case, he a. it is duly presented for payment and payment is
must give notice within the time allowed by refused or cannot be obtained; or
law as if he were a holder. b. presentment is excused and the instrument is
overdue and unpaid.
Ü A party giving notice is deemed to have given due notice
where: Effect of dishonor: an immediate right of recourse to all
a. the notice of dishonor is duly addressed, and parties secondarily liable thereon accrues to the holder.
b. deposited in the post-office, even when there
is miscarriage of mail. Dishonor by Non-Acceptance
Effect: an immediate right of recourse against the 4. By any act which will discharge a simple contract
drawer and indorsers accrues to the holder and no for the payment of money;
presentment for payment is necessary. 5. When the principal debtor becomes the holder of
Note: where a bill is duly presented for acceptance and the instrument at or after maturity in his own right.
is not accepted within the prescribed time (24 hours),
the person presenting it must treat the bill as dishonored By any act which would discharge a simple contract:
by non-acceptance. 1. Payment or performance;
2. Loss of the thing due;
When Instrument Considered to be Dishonored 3. Condonation or remission;
a. If it is not accepted when presented for acceptance; 4. Confusion or Merger;
or 5. Compensation;
b. If it is not paid when presented for payment at 6. Novation;
maturity; or 7. Annulment or Rescission;
c. If presentment is excused or waived and the 8. Fulfillment of a resolutory condition;
instrument is past due and unpaid. 9. Prescription.
Protest - the formal instrument executed usually by a notary When persons secondarily liable on the instrument are
public certifying that the legal steps necessary to fix the discharged:
liability of the drawee and the indorsers have been taken. 1. By any act which discharges the instrument;
2. By the intentional cancellation of his signature by
Ü Effect of waiver: where protest is waived, presentment the holder;
and notice of dishonor are also deemed waived. But 3. By the discharge of a prior party;
where the notice of dishonor is waived, presentment is 4. By a valid tender of payment made by a prior party;
not waived. 5. By the release of the principal debtor, unless the
holder’s right of recourse against the party
Ü Applicability: protest is necessary only in case of foreign secondarily liable is expressly reserved;
bills of exchange which have been dishonored by non- 6. By any agreement binding upon the holder to extend
acceptance or non-payment, as the case may be. If it is the time of payment or to postpone the holder’s
not so protested, the drawer and indorsers are right to enforce the instrument.
discharged.
Ü In the following cases, the agreement to extend the time
of payment does not discharge a party secondarily liable:
Ü Foreign Bill of Exchange: 1. where the extension of time is consented to by such
1. Drawn in the Philippines but payable outside the party;
Philippines. 2. where the holder expressly reserves his right of
2. Payable in the Philippines but drawn outside the recourse against such party.
Philippines.
Ü Payment at or after maturity by a party secondarily
Ü Protest may be made by:: liable does not discharge the instrument. It only cancels
1. a notary public; or his own liability and that of the parties subsequent to
2. any respectable resident of the place where the bill him.
is dishonored, in the presence of 2 or more credible
witnesses. Effects of Renunciation:
1. A renunciation in favor of a secondary party may be
Protest for better security is one made by the holder of a bill made by the holder before, at or after maturity of
after it has been accepted but before it matures, against the the instrument. Effect: only such secondary party is
drawer and indorsers, where the acceptor has been adjudged discharged and all parties subsequent to him but the
a bankrupt or an insolvent, or has made an assignment for instrument itself remains in force.
the benefit of the creditors. 2. A renunciation in favor of the principal debtor may
be effected at or after maturity. Effect: the
instrument is discharged and all parties thereto
VIII. DISCHARGE provided the renunciation is made unconditionally
and absolutely.
Discharge of instrument - a release of all parties, whether
primary or secondary, from the obligations arising Note: In either case, renunciation does not affect the
thereunder. It renders the instrument without force and rights of a holder in due course without notice.
effect and, consequently, it can no longer be negotiated.
Ü Cancellation of an instrument includes tearing, erasure,
Instances: obliteration, or burning. It is not limited to writing of
1. By payment in due course by or on behalf of the the word ‘cancelled”, or “paid”, or drawing of criss-
principal debtor; cross lines across the instrument.
2. Payment by accommodated party;
3. Intentional cancellation by the holder; Payment for Honor - payment made by a person, whether a
party to the bill or not, after it has been protested for non-
payment, for the benefit of any party liable thereon or for countermand by the payor after
the benefit of the person for whose account it was drawn. indorsement.
o The bank’s manager signs manager’s check
Ü Requisites: while cashier’s check is signed by the bank
1. the bill has been dishonored by non-payment; cashier.
2. it has been protested for non-payment;
3. payment supra protest (another term for payment 2. Certified Check – one drawn by a depositor upon funds to
for honor because prior protest for non-payment is his credit in a bank which a proper officer of the bank
required) is made by any person, even by a party certifies will be paid when duly presented for payment
thereto;
4. the payment is attested by a notarial act of honor 3. Stale check – one which has not been presented for
which must be appended to the protest or form an payment within a reasonable time after its issue
extension of it;
5. the notarial act must be based on the declaration 4. Crossed check – when 2 parallel lines are drawn across
made by the payor for honor or his agent of his its face or across a corner thereof. If the name of a bank
intention to pay the bill for honor and for whose appears between the parallel lines, the check is said to
honor he pays. be specially crossed, and payment should be made only
if presented by the named bank. If no name appears
Note: If the above formalities are not complied with, between the parallel lines, the check is said to be
payment will operate as a mere voluntary payment and generally crossed, and payment should be made only
the payor will acquire no right to full reimbursement upon presentment by some bank.
against the party for whose honor he pays.
Effects of crossing a check:
Ü In payment for honor, the payee cannot refuse payment. a. That the check may not be encashed but only be
If he refuses, he cannot recover from the parties who deposited in the bank;
would have been discharged had he accepted the same. b. That the check may be negotiated only once to one
In acceptance for honor, the holder’s consent is who has an account with a bank; and
necessary. c. That the act of crossing the check serves as a
warning to the holder that the check has been
Ü The payor for honor is given the right to receive both the issued for a definite purpose so that he must inquire
bill and the protest obviously to enable him to enforce if he has received the check pursuant to that
his rights against the parties who are liable to him. purpose.
Kinds of checks:
1. Manager’s / Cashier’s Check – drawn by a bank on itself
and therefore, it is a primary obligation of the bank.
o It is accepted in advance by the act of its
issuance and is not subject to