FORM AND INTERPRETATION Section 22.
The indorsement or assignment of the instrument by a corporation
Sec 1. Form of negotiable instruments – An instrument to be negotiable must conform to the following
requirements:
(a) It must be signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.
FORM OF NEGOTIABLE INSTRUMENTS
The negotiable instruments law cannot come into operation unless the document in existence is of the
character described in Section 1 of the law. A negotiable instrument in reality is a kind of written contract
which serves as an instrument of trade or credit and transferrable from hand to hand like money.
(1) The instrument must be in writing and signed by the maker or drawer –
 The instrument must be in writing or intentionally reduced in tangible form; otherwise,
nothing could be negotiated or passed from hand to hand. It must be prepares on a
material capable of preserving the writing if they are to be capable of circulating for a
period of time to serve their credit and currency function.
 GENERAL RULE:
Section 18. No person is liable on the instrument whose signature does not appear
thereon, except as herein provided.
 EXCEPT:
1. TRADE NAME OR ASSUMED NAME
Section 18 (2). ...but one whose signs in a trade or assumed name will be liable
to the same extent as if he had signed his own name.
 It is necessary, however, that the party who signed intended to be
bound by his signature.
 Essentially, this is not really an exception to the general rule, but is
an instance where a person’s business name serves the same
purpose that would be served by his signature;
2. DULY AUTHORIZED AGENT SIGNS
Section 19. The signature of any party may be made by a duly authorized
agent. No particular form of appointment is necessary; and the authority of
the agent may be established as in other cases of agency.
 In order for an agent not to be held liable for an instrument, he
must (a) be duly authorized, and (b) must add words that would
indicate that he signs as an agent or in a representative capacity,
on behalf of the principal, and (c) disclose the name of the principal
(Section 20).
 A signature by procuration operates as notice that the agent has
limited authority to sign, and the principal is bound only if the agent
is signs within the limits of his authority (Section 21).
 Hence, the principal is not bound by all the acts in excess
of authority of the agent.
 However, in cases of abuse of authority, the principal
may not raise the defense of abuse of authority against
a bona fide holder for value.
3. WHERE THE SIGNATORY IS A MINOR OR A CORPORATION ULTRA VIRES
or by an infant passes the property therein, notwithstanding that from want
of capacity the corporation or infant may incur no liability.
 Under this, a minor may not be held liable for indorsement of an
instrument. Although the instrument remains valid and negotiable.
However, this is a real defense available only the minor and not the
subsequent parties who indorse the instrument.
 As regards corporations, this article apples where the corporation
acted beyond its powers.
4. WHERE THE SIGNATURE IS FORGED
Section 23. When a signature is forges, or is made without the authority of the
person whose signature It purports to be, it is wholly inoperative, and no right
to retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto can be acquire through or under such
signature unless the person against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.
 Forgery is a real defense against a holder in due course;
 Under this article, only the unauthorized signature is inoperative,
and the instrument is still enforceable as to those whose signature
are found to be genuine.
 PERSONS PRECLUDED FROM SETTING UP FORGERY
 Those who by their acts, silence, or negligence, are
estopped from setting up the defense of forgery;
 Those who warrant or admit the genuineness of the
signature in question (general indorsers, acceptors)
(2) Must contain an unconditional promise or order
 Section 3. When promise is unconditional – An unqualified order or promise to pay is
unconditional within the meaning of this Act, though coupled with:
(a) An indication of a particular fund out of which reimbursement is to be made,
or a particular account to be debited with amount. But an order to pay out of
a particular fund is conditional; or
(b) A statement of the transaction which gives rise to the instrument.
 Any words equivalent to a promise or assumption of full responsibility for payment of the
note on the face of an instrument are sufficient to constitute a promise to pay.
1. INDICATION OF A FUND OUT OF WHICH PAYMENT IS TO BE MADE will not
make the instrument non-negotiable as the fund indicated is not the direct
source of payment but only the source of reimbursement which is an act
subsequent to payment.
2. However, AN INSTRUMENT PAYABLE OUT OF A PARTICULAR FUND is non-
negotiable because the amount to be paid is made dependent upon the
adequacy or existence of the fund designated.
3. The test of negotiability in this case is whether the instrument carries that
general personal credit of the maker or drawer, or if it carries only the credit
of a particular fund.
 In cases of bills of exchange, it is also required that the drawee be named or otherwise
indicated therein with reasonable certainty.
(3) To pay a sum certain in money
 The basic test is whether the holder can determine by calculation or computation from
the terms of the instrument the amount payable when the instrument is due.
 Section 2. The sum payable is certain within the meaning of this Act, although it is paid:
1. With interest
2. By stated installments
 3. By stated installments with a provision that upon default in payment of any
installment or interest the whole shall become due;
 A clause that requires full payment of an instrument immediately
upon default does not make instrument non-negotiable, unless:
 RULES ON ACCELERATION AND EXTENSIONS CLAUSES
ACCELERATION EXTENSION
HOLDER Non-negotiable Negotiable
MAKER Definite Non-negotiable
(negotiable);
Indefinite
(non-negotiable)
4. With exchange, whether at a fixed rate or at the current rate; or
5. Costs of collection or attorney’s fee, when payment not be made at maturity.
 ACTS IN ADDITION TO PAYMENT OF MONEY
1. GENERAL RULE: An instrument is non-negotiable if it contains a promise or
order to do any act in addition to the payment of money.
2. EXCEPT: When the provisions
(a) Merely authorizes the sale of collateral securities in case the
instrument is not paid on maturity;
(b) Authorizes a confession of judgement if the instrument is not paid
at maturity; or
(c) Waives the benefit of any law intended for the advantage or
protection of the obligor; or
(d) Gives the holder an election to require something to be done in lieu
of payment of money
But nothing in this section shall validate any provision or stipulation
otherwise illegal.
(4) Payable on demand or at a fixed, determinable future time
 Section 4. An instrument is payable at a determinable future time within the meaning of
this Act, which is expressed to be payable:
(a) At a fixed period after date or sight; or
(b) On or before a fixed or determinable future time specified therein; or
(c) On or at a fixed period after the occurrence of a specified event which is
certain to happen, though the time of happening be uncertain.
An instrument payable upon a contingency is not negotiable, and the happening of
the event does not cure the defect.
 Section 7. An instrument is payable on demand
(a) When it is so expressed to be payable on demand, or at sight, or on
presentation; or
(b) In which no time for payment is expressed.
Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards
the person so issuing, accepting, or indorsing it, payable on demand.
(5) Payable to order or to bearer –
 Section 8. The instrument is payable to order where it is drawn payable to the order of a
specified person or to him or his order. It may be drawn payable to the order of:
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker, the drawee; or
(c) Two or more payees jointly; or
(d) One or some of several payees; or
(e) The holder of an office for the time being.
Where the instrument is payable to order, the payee must be named or otherwise
indicated therein with reasonable certainty.
 Section 9. The instrument is payable to bearer:
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person, and such
fact was known to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of any person;
(e) When the only or last indorsement is an indorsement in blank.
OTHER FACTORS NOT AFFECTING NEGOTIABLITY
Section 6. Omissions; seal; particular money. - The validity and negotiable character of an instrument are
not affected by the fact that:
(a) it is not dated; or
 Generally, date is not necessary and does not affect the negotiability of the instrument;
Except, when the date is necessary in order to determine the date of maturity
1. Where the instrument is ante-dated or post-dated (Section 12)
 The rule in this case is that the holder acquired title upon delivery;
 PRESUMPTION AS TO DATE
1. Where the instrument or an acceptance or any indorsement thereon is dated,
such date is prima facie to be the true date of the making, drawing or accepting
 WHEN DATE MAY BE INSERTED
1. Where an instrument expressed to be payable at a fixed period after date is
issued undated, or where the acceptance of an instrument payable at a fixed
period after sight is undated, any holder may insert therein the true date of
issue or acceptance, and the instrument shall be payable accordingly.
2. The insertion of a new date does not avoid the instrument in the hands of a
subsequent holder in due course; but as to him, the date so inserted is to be
regarded as the true date.
(b) does not specify the value given, or that any value had been given therefor; or
(c) does not specify the place where it is drawn or the place where it is payable; or
(d) bears a seal; or
(e) designates a particular kind of current money in which payment is to be made.
But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the
consideration to be stated in the instrument.
ISSUANCE OF A NEGOTIABLE INSTRUMENT
(1) The mechanical act of writing the instrument completely;
(2) Delivery of the complete instrument with the intention of giving effect to it.
DELIVERY OF AN INCOMPLETE INSTRUMENT
- The rule is that the person in possession has authority to fill up the blanks of any material
particular provided that it is in accordance with the authority given and done within
reasonable time.
NON-DELIVERY OF AN INCOMPLETE INSTRUMENT
- An incomplete instrument that has not been completed and delivered without authority
will not be a valid contract in the hands of any holder, as against any person whose signature
was placed thereon before delivery.
NON-DELIVERY OF A COMPLETE INSTRUENT
- As between immediate parties – the delivery must be made by or either the authority of
the maker or drawer in order to be effective;
- In the hands of a holder in due course – there is a conclusive presumption of delivery.
Hence, all prior parties to the holder in due course may be held liable for the instrument,
including the maker or drawer.
- When an instrument is in the hands of a person who is not the maker or the drawer, there
is a presumption that there is an intentional delivery.
CONSTRUCTION WHERE THE INSTRUMENT IS AMBIGOUS
Section 17. Construction where instrument is ambiguous. - Where the language of the instrument is
ambiguous or there are omissions therein, the following rules of construction apply
(a) Where the sum payable is expressed in words and also in figures and there is a discrepancy
between the two, the sum denoted by the words is the sum payable; but if the words are
ambiguous or uncertain, reference may be had to the figures to fix the amount;
(b) Where the instrument provides for the payment of interest, without specifying the date
from which interest is to run, the interest runs from the date of the instrument, and if the
instrument is undated, from the issue thereof;
(c) Where the instrument is not dated, it will be considered to be dated as of the time it was
issued;
(d) Where there is a conflict between the written and printed provisions of the instrument, the
written provisions prevail;
(e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the
holder may treat it as either at his election;
(f) Where a signature is so placed upon the instrument that it is not clear in what capacity the
person making the same intended to sign, he is to be deemed an indorser;
(g) Where an instrument containing the word "I promise to pay" is signed by two or more
persons, they are deemed to be jointly and severally liable thereon.
CONSIDERATION
Section 24. Every negotiable instrument is deemed prima facie to have been issued for a valuable
consideration; and every person whose signature appears thereon to have become a party thereto
for value.
PRESUMPTION OF CONSIDERATION
(1) Need not be expressly stated – the presumption is that the instrument has been issued for a
valuable consideration, and that every person whose signature appears thereon became a
party thereto for value;
(2) Need not be alleged and proved – The presumption is only prima facie and is rebuttable;
(3) Lack of consideration as a defense – It may be used only against the payee.
Section 26. Where value has at any time been given for the instrument, the holder is deemed a holder
for value in respect to all parties who become such prior to that time.
WHAT CONSTITUTES A HODLER FOR VALUE
A holder for value is one who has given a valuable consideration for the instrument;
- He is deemed as such not only as regards the party whom value has been given by him, but also
in respect to all those who became parties prior to the time when value was given;
o Value is any consideration sufficient to support a simple contract (Section 25).
o An antecedent or pre-existing debt is a valuable consideration.
 Where the holder has a lien on the instrument arising either from
contract or by implication of law, he is deemed a holder for value to the
extent of his lien (Section 27)
o Effect of want of consideration
 Absence or failure of consideration is a matter of defense against any
person not a holder in due course; and partial failure of consideration is
a defense pro tanto, whether the failure is an ascertained and liquidated
among or otherwise/
- A holder of negotiable instrument is presumed to be a holder for value until contrary is proven.
Section 29. An accommodation party is one who has signed the instrument as maker, drawer, acceptor,
or indorser, without receiving value therefor, and for the purpose of lending his name to some other
person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder,
at the time of taking the instrument, knew him to be only an accommodation party.
ACCOMODATION PARTY
One who has signed the instrument as a maker or drawer, or acceptor or indorses without receiving value
for the signature for the purpose of lending his name to another person. He expects that he, not the
accommodated part, will provide payment of the note when it falls due.
LIABILITY OF AN ACCOMODATION PARTY
- The absence of consideration is not a defense between the accommodation party and the
accommodated party does not of itself constitutes a valid defense against a holder for value
even though he knew of it when he became the holder.
RIGHT OF THE ACCOMODATION PARTY
- Since a signature for accommodation is gratuitous, it may be revoked or rescinded by
cancellation or by notice to those interested at any time before the instrument has been
negotiated for value.
- After making payment, the accommodation party has a right to obtain reimbursement from
the accommodated party, as a consequence of the surety relationship between them.
- He may also show by parol evidence that he is only an accommodation party.
 NEGOTIATION
Section 30. An instrument is negotiated when it is transferred from one person to another in such
manner as to constitute the transferee the holder. If payable to bearer, it is negotiated by delivery; if
payable to order, it is negotiated by the indorsement of the holder and completed by delivery.
NEGOTIATION
Negotiation is the transfer of a negotiable instrument from one person to another made in such a manner
as to constitute the transferee the holder thereof. It ordinarily involves indorsement. Negotiation makes
it possible for the transferee to acquire better right to a negotiable instrument that the transferor had.
 As distinguished from issue –
Issue is the first delivery of the instrument complete in form to a person who takes it as a
holder. It is the beginning of the life of a negotiable instrument.
 As distinguished from assignment –
Method of transferring an instrument that is, by nature non-negotiable.
o An assignee of a bill or note takes only the title the assignor has subject to all defense
available against such assignor.
NEGOTIATION OF AN ORDER INSTRUMENT – made through indorsement and delivery;
A. INDORSEMENT, HOW MADE
 Section 31. Indorsement; how made. - The indorsement must be written on the
instrument itself or upon a paper attached thereto. The signature of the indorser, without
additional words, is a sufficient indorsement.
o Indorsement is the writing of the name of the payee on the instrument with the
intent either to transfer the title to the same or to strengthen the security of the
holder by assuming a contingent liability for its future payment or both.
o It not only a transfer but also involves a new contract and an obligation on part of
the indorser – an implied guaranty that the instrument will be duly paid according
to the terms thereof.
o Each indorsement involves certainty of two things:
 The identity of the indorser and the genuiness of his signature
 Section 32. Indorsement must be of entire instrument. - The indorsement must be an
indorsement of the entire instrument. An indorsement which purports to transfer to the
indorsee a part only of the amount payable, or which purports to transfer the instrument
to two or more indorsees severally, does not operate as a negotiation of the instrument.
But where the instrument has been paid in part, it may be indorsed as to the residue.
o Generally, partial indorsement is not allowed. However, when the amount has
already been partially paid, the unpaid amount may be indorsed.
o Transfer of the instrument to two or more payees does not operate as negotiation.
However, it is valid when it is the indorsees/transferors who are joint.
B. KINDS OF INDORSEMENT
 UNQUALIFIED INDORSEMENTS
1. SPECIAL INDORSEMENTS
A special indorsement is one where the name of the payee is specified. And
the indorsement of such indorsee is necessary for further negotiation of the
instrument (Sec 34).
 Originally order – it is negotiated by the payee by special indorsement.
 Originally bearer – may still be negotiated by delivery but the special
indorser is liable only to holder making title through his special
indorsement. (Unbroken chain of indorsement) [Section 40]
2. Blank indorsements
A blank indorsement is one which specifies no particular indorsee, and an
instrument so indorsed is payable to bearer and may be negotiated by delivery
 However, the holder may convert blank indorsement into a special
indorsement by writing over his signature of the indorser in blank any
contract consistent with the character of the indorsement (Section 35)
 QUALIFIED INDORSEMENTS
A qualified indorsement constitutes the indorses a mere assignor of the title to the
instrument. It may be made by adding to the indorser’s signature the words “without
recourse” or any words of similar import. Such indorsement does not impair the
negotiable character of the instrument (Section 38)
 CONTINUATION OF THE NEGOTIABLE CHARACTER
o General rule – An instrument negotiable in its origin continues to be negotiable until
it has been restrictively indorses or discharged by payment or otherwise
o Exception – restrictive indorsements
 An indorsement is restrictive when it:
 Prohibits further negotiation of the instrument;
 Constitutes the indorsee the agent of the indorser’
 Vests title in the indorsee in trust for or to the use of some
other person.
 But mere absence of words implying power to negotiate does not make
an indorsement restrictive.
 Effect of restrictive indorsements
 Confers the right to the indorsee to receive payment;
 To bring any action thereon that the indorses could bring;
 Transfer his rights as an indorsee where the form of the
indorsement authorized him to do so;
 But all subsequent indorsees acquire only the title of the first
indorsee under the restrictive indorsement.
 TRANSFER (Section 49)
Where the holder of an instrument payable to his order transfers it for value without
indorsing it, the transfers vests in the transferee such title as the transferor had therein,
and the transferee acquires, in addition, the right to have the indorsement of the
transferor. But the purpose of determining whether the transferee is a holder in due
course, the negotiation takes effect as to the time when the indorsement is actually made.
NEGOTIATION OF A BEARER INSTRUMENT – made by mere delivery
A. Section 40. Where an instrument payable to bearer is indorsed specially, it may nevertheless
be further negotiated by delivery; but the person indorsing is liable only to holder making title
through his special indorsement.
o In case it is indorsed, it remains a bearer instrument and may be further negotiated
by mere delivery. By virtue of Section 48, the holder may strike out all intervening
indorsements or any of them for none of them is necessary of his title.
 The indorses whose indorsement is struck out and all subsequent to him,
are thereby relieved from liability on the instrument.
RIGHTS OF PRIOR PARTY TO RENEGOTIATE
Where an instrument is negotiated back to a prior party, such party may, subject to provisions of this Act,
re-issue and further negotiate the same, But he is not entitled to enforce payment thereof against any
intervening party whom he was personally liable.
 RIGHTS OF THE HOLDER
Section 52. What constitutes a holder in due course. - A holder in due course is a holder who has
taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it has been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
CLASSES OF HOLDER
(1) Holder simply (Section 51)
o May sue thereon in his own name,
o and payment to him in due course discharges the instrument
(2) Holders for value (Section 26)
(3) Holder in due course (Section 52)
o A holder in due course takes the instrument free of most defenses, or adverse claims
to it by other parties. (Aka bona fide holder for value without notice).
o Every holder is deemed prima facie to be a holder in due course (Section 59)
 But when it is shown that the title of any person who has negotiated the
instrument was defective, the burden is on the holder to prove the that
he or some person under whom he claims acquired the title as holder in
due course.
 But the last mentioned rule does not apply in favor of a party who
became bound on the instrument prior to the acquisition of such
defective title.
o RIGHTS OF A HOLDER IN DUE COURSE
A holder in due course holds the instrument free from any defect of title of prior
parties, and free from defenses available to prior parties among themselves, and
may enforce payment of the instrument for the full amount thereof against all
parties liable thereon (Section 57)
 Sue in his own name;
 Receive payment, and if in due course, the instrument is discharged;
 Hold the instrument free from defect of title of prior parties;
 Holds the instrument free from defenses available to prior parties;
 Enforce payment of the instrument for the full amount thereof against
all parties liable thereon.
WHERE A PERSON IS DEEMED NOT A HOLDER IN DUE COURSE
(1) Where an instrument payable on demand is negotiated an unreasonable length of time after
its issue, the holder is deemed not a holder in due course –
o It is applicable to demand instruments.
o When instrument is payable at a fixed, determinable future time, the rule is that it
must be negotiated before it is overdue.
(2) When the instrument is negotiated to him, and he has notice of infirmity in the instrument and
defect in the title of the person negotiating it.
o Defective title covers all those situation which are known as personal or equitable
defenses and also cover those equities of ownership where there is a breach of faith
in the negotiation (Section 55)
 In the acquisition – obtain signature or the instrument by fraud, duress,
or force and fear, or other unlawful means, or for an illegal consideration
 In the negotiation – when he negotiates the instrument in breach of faith
or under such circumstance as to amount to a fraud.
o Infirmities includes all things that are wrong with the instrument itself as
distinguished from those things that are lacking in the contracts on the instruments.
o WHAT CONSTITUTES NOTICE OF DEFECT
 The person to whom it was negotiated must have had actual knowledge
if the infirmity or defect, or knowledge of such facts that his action in
taking the instrument amounted to bad faith (Section 56).
o NOTICE BEFORE FULL PAYMENT
 Where the transferee receives notice of defect in the title of the person
negotiating the same before he has paid the full amount agreed to paid
therefor, he will be deemed a holder in due course only to the extent of
the amount theretofore paid by him (Section 54)
Section 58. In the hands of any holder other than a holder in due course, a negotiable instrument is
subject to the same defenses as if it were non-negotiable. But a holder who derives his title through a
holder in due course, and who is not himself a party to any fraud or illegally affecting the instrument,
has all the rights of such former holder in respect of all parties prior to the latter.
DEFENSES, IN GENERAL
Defenses are grounds or reasons pleaded or offered by the defendant in a case showing why the plaintiff,
as a matter of law or fact should not be given the relied he seeks.
- Real Defenses are those that are available against all parties, both immediate and remote,
including holders in due course or holders through the latter [F2EU ADM2 WIWI]
o Forgery;
o Fraud in factum;
o Execution of instrument between public enemies
o Ultra vires acts of a corporation
o Material alteration
o Duress amounting to forgery
o Minority
o Marital Consent
o Want of authority of the agent
o Incapacity to contract
o Want of delivery of an incomplete instrument
o Illegality of contract
- Personal Defenses are those which grow out of the agreement or conduct of a particular
person in regard to the instrument which renders it inequitable for him, through holding the
legal title, to enforce it against the party sought to be made liable but which are not available
against a holder in due course.

LIABILITIES OF PARTIES
Liability refers to the obligations of a party to a negotiable instrument to pay the same according to its
terms. The parties to a negotiable instrument may be classified according to their liabilities as follows:
 PRIMARILY LIABLE
1. The maker of a promissory note
Section 60 – the maker of a negotiable instrument, by making it, engages
that he will pay it according to its terms, and admits the existence of the
payee and his then capacity to indorse.
2. The acceptor of a bill of exchange
Section 62 – An acceptor, by accepting the instrument engages that he will
pay it according to the tenor of his acceptance and admits:
- The existence of the drawer, the genuineness of his signature,
and his capacity and authority to draw the instrument; and
- The existence of the payee and his then capacity to indorse.
3. The certifier of a check.
 SECONDARILY (CONDITIONALLY) LIABLE
1. The drawer of a bill
Section 61 – the drawer, by drawing the instrument, 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 necessary proceedings on
dishonor be duly taken, he will pay the amount thereof to the holder or to
any subsequent indorser who may be compelled to pay it. But the drawer
may insert in the instrument an express stipulation negativing or limiting
his own liability to the holder.
2. Indorser of a bill –
Section 63 – A person placing his signature upon an instrument otherwise
as maker, drawer or acceptor is deemed to be a(n) [general] indorser,
unless he clearly indicates by appropriate words his intention to be bound
in some other capacity.
 WARRANTY AND LIABILTY OF A GENERAL INDORSER
Every indorser who indorses without qualifications warrants to all
subsequent holders in due course that the:
 Instrument is genuine & in all respects what it purports to be;
 That he is has a good title to it;
 That all prior parties had capacity to contract; and
 That the instrument is, at the time of his indorsement, valid
and subsisting.
 And that on due presentment, the instrument will be
accepted, or paid or both as the case may be;
 And that if it be dishonored, and the necessary proceedings
on dishonor be duly taken, he will pay the amount thereof to
the holder or to any subsequent indorsers who may be
compelled to pay it.
3. Indorser of a note
 Undertakes the same warranty as that of a qualified indorser. But
the warranty extends in favor of the immediate transferee only.
4. Irregular indorser
 A person not otherwise party to the instrument places his signature in
blank thereon before delivery, is liable as an indorser in accordance to
the following rules:
 If the instrument is payable to the order of a third person, he
is liable to the payee and to all subsequent parties.
 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 or drawer;
 If he signs for the accommodation of the payee, he is liable to
all parties subsequent to payee.
 Warranties of an irregular indorser is the same as those of general
indorses inasmuch as his indorsement is in blank which, in itself, is an
indorsement without qualifications.
 ORDER OF LIABILITY
o To the holder – As respects to one another, indorsers are prima facie liable in order
in which they indorse;
o Among themselves – as between among themselves, evidence is admissible, to
show that between them, they have agree otherwise.
o Joint payees or joint indorsees – solidarily liable.
 NOT LIABLE
1. A qualified indorser –
A qualified indorser is generally, not liable to the instrument (Sec 38) unless
there is a dishonor, and the dishonor is based on any of the four implied
warranties enumerated in Section 65.
 WARRANTIES OF A QUALIFIED INDORSER
Every person negotiating by delivery or by qualified indorsement
warrants –
 That the instrument is genuine and in all respects what it
purports to be;
 That he has a good title to it;
 That all prior parties had capacity to contract; and
 That he has no knowledge of any fact which would impair the
validity of the instrument or render it valueless.
The provisions of subdivision (c) do not apply to persons negotiating
public or corporation securities other than bills or notes.
2. The drawee –
3. The agent or broker –
GENERAL RULE: An agent who signs in accordance with the rules provided in
Section 20 is not liable to the instrument.
EXCEPT: Where a broker or other agent negotiates and order instrument
without indorsement or negotiates a bearer instrument by delivery, he incurs
all the liabilities of a qualified indorser.
 Parole evidence is not admissible to relieve the agent of such liability.

PRESENTMENT FOR PAYMENT
Section 70 – Presentment for payment is not necessary in order to charge the person primarily liable
on the instrument; but if the instrument is, by its terms, payable at a special place, and he is able and
willing to pay it there at maturity, such ability and willingness are equivalent to a tender of payment
upon his part. But except as herein otherwise provided, presentment for payment is necessary in
order to charge the drawer and indorsers.
PRESENTMENT FOR PAYMENT
Presentment for payment is meant presentment of an instrument to the person primarily liable for the
purposed of demanding and receiving payment therefrom.
- Generally, presentment and demand for payment is not necessary in order to charge the
person primarily liable, that is, the maker or the acceptor since his liability is absolute.
o Holder can sue the maker or acceptor, although no demand has been made on him,
as soon as the date for payment has passed without the instrument being paid.
o However, the ability and willingness on the part of the primary party to pay there at
maturity are equivalent to a tender or offer of payment on his part so that if the
instrument is not par and is overdue, he cannot be considered in delay, and
therefore, not being at fault, he is not liable for costs and interests subsequently
accruing although he is not relieved from making the payment of the amount due.
- But in order to charge parties secondarily liable, presentment first to the primary party is
required. Secondary parties (Section 62, 66) are only liable when the instrument is dishonored,
and dishonor only occurs when proper presentment is made, and acceptance and/or payment
is refused or cannot be secured.
Section 72 - Presentment for payment, to be sufficient, must be made:
(a) By the holder, or by some person authorized to receive payment on his behalf;
(b) At a reasonable hour on a business day;
(c) At a proper place as herein defined;
(d) To the person primarily liable on the instrument, or if he is absent or inaccessible, to any
person found at the place where the presentment is made.
HOW TO MAKE PROPER PRESENTMENT
- By whom – It must be made by the holder, or by some person authorized to receive payment
on his behalf.
- When – The term “reasonable hour” on a business day means during business hour. What
constitutes business hours depends upon the general custom of the place of the particular
transaction.
o Presentment where instrument is payable at bank
Where an instrument is payable at bank, it is equivalent to an order to the bank to
make payment for the account of the principal debtor (Section 87)
 Presentment must be made during banking hours
 Unless the person to make payment has not funds there to meet it at any
time during the day, in which case, presentment at any hour before the
bank is closed on that day is sufficient. (Section 75)
- Where –
o Where place of payment is specified in the instrument.
o If no place is specified, in the address of the person given in the instrument;
o If no address is given and no place is specified, in the usual place of business or
residence of the person to make payment;
o In any other case, wherever he can be found, or at his last known place of business
or residence.
- To Whom –
Generally, presentment must be made to the maker of the promissory note or the acceptor of
the bill of exchange. In case of checks payable on demand, it must also be presented to the
drawee although he is not liable on the bill.
o Presentment where the principal debtor is dead;
 And no place is specified;
 Presentment must be made to his personal representative, if there is;
 If there is no representative that can be found after exercising due
diligence, then the presentment is dispensed with.
o Presentment to persons liable as partners
 Payment may be made to any one of the partners as an agent of the
partnership, even though there has been dissolution of the firm.
o Presentment to joint debtors
 Where there are several persons, not partners, primarily liable,
presentment must be made to all of them. There are as many debts as
there are debtors, and each debt is considered distinct and separate
from one other.
Section 71 - Where the instrument is not payable on demand, presentment must be made on the day
it falls due. Where it is payable on demand, presentment must be made within a reasonable time after
its issue, except that in the case of a bill of exchange, presentment for payment will be sufficient if
made within a reasonable time after the last negotiation thereof.
DATE OF PRESENTMENT OF INSTRUMENT
The date of presentment depends on whether the instrument is payable at a fixed determinable future
time or on demand.
- If payable on demand –
o And the instrument is a promissory note, presentment must be made within
reasonable time after its issue or delivery.
o And the instrument is a bill of exchange, the presentment to drawee or acceptor
must be made within a reasonable time after the last negotiation.
- If payable at a fixed determinable future time, presentment must be made on the date it falls
due without period of grace (Section 86), otherwise the drawer and indorsers will be discharged
from the liability.
o Presentment before maturity date is not effective.
o Time of maturity of instrument – As provided in Section 85
 When the day of maturity falls on a Sunday or holiday, presentment must
be made on the next succeeding business day.
 If it is payable on a Saturday, and is a time instrument, it should be
presented on the next succeeding business day, or the next day if
Monday is a holiday,
 If it is payable on demand, it may be presented before 12 noon on
Saturday or on Monday at the option of the holder.
o Computation of time of maturity (Section 86)
 If payable at a fixed period after date, after sight, or after happening of
a specified event, the time of payment is determined by excluding the
day from which time is to being to run and by including day of payment.
- Delay in making the presentment is excused when delay is caused by circumstances beyond the
control of the older, and not imputable to his default, misconduct or negligence. When the
cause of delay ceases to operate, presentment must be made with reasonable diligence.
PRESENTMENT MAY BE DISPENSED WITH
(1) When after exercise of reasonable diligence, presentment cannot be made
 (2) Where drawee is a fictitious person
(3) Waiver or presentment, expressed or implied.
PRESENTMENT IS NOT REQUIRED
- As to the drawer –
Section 79 - Presentment for payment is not required in order to charge the drawer where
he has no right to expect or require that the drawee or acceptor will pay the instrument.
o Where he has no funds with the drawee, unless arrangement has been made for
payment of bill; or
o Where the drawer of a check stopped payment thereof; or
o Where the drawer of the check has withdrawn funds from the drawee-bank leaving
nothing with which to pay the check.
- As to the indorser –
Section 80 – Presentment is not required in order to charge an indorser where the
instrument was made or accepted for his accommodation and he has no reason to expect
that the instrument will be paid if presented.
PAYMENT DUE COURSE
- The instrument must be exhibited to the person whom payment is demanded, and when it is
paid must be delivered up to the party paying it.
- Payment is made in due course when it is made at or after the maturity of the instrument to
the holder thereof in good faith and without notice that his (the holder) title is defective.
DISHONOR
When an instrument is dishonored by non-payment, an immediate right of recourse to all parties
secondarily liable thereon accrues to the holder (Section 84).
- There is dishonor by non-payment when –
(a) It is duly presented for payment and payment is or cannot be obtained;
(b) Payment is excused and the instrument is overdue and unpaid.
NOTICE OF DISHONOR
Notice of dishonor is bringing, either verbally or in writing, to the knowledge of the drawer or indorses of
an instrument that a specified negotiable instrument, upon proper proceedings taken, has not been
accepted or has not been paid and that the party notified is expected to pay it.
- GENERAL RULE: When a negotiable instrument has been dishonored by non-acceptance or
non-payment, notice of dishonor must be given to the drawer and to each indorser, and any
drawer or indorser to whom such notice is not given is discharged.
- EXCEPTIONS:
(1) Waiver of notice of dishonor
Waiver is an intentional abandonment of a known right. With reference to notice of
dishonor, it is the willingness on the part of the drawer or indorses concerned to be bound
as such even without due notice of dishonor.
o It may be made before the time of giving notice or after omission to give due notice,
and the waiver may be express or implied (Section 109)
o Where the waiver is embodied in the instrument itself, it is binding upon all parties.
o Where it is written above the signature of indorser, it binds him only (Section 110).
(2) Waiver of protest
Protest is a formal instrument executed usually by a notary public certifying that the legal
steps necessary to fix the liability of the drawee and the indorsers have been taken.
o As a rule, a waiver of protest is deemed waiver not only of formal protest, but also
of presentment and notice of dishonor. This is so because protest means all the
steps accompanying dishonor necessary to charge party secondarily liable.
(3) Notice is dispensed with
o Notice is dispensed with when after the exercise of reasonable diligence, it cannot
be given or does not reach the parties sought to be charged
 Dispensed with, and not made – secondary party is liable
 Dispensed with, and made – still liable, the dispensing of notice does not
have an effect to the liability
 Not dispensed with, and made – then liable, because it complied
 Not dispensed with, not made – secondary parties are discharged
(4) When notice to the drawer is not required
a. Where the drawer and drawee are the same person;
b. When the drawee is fictitious person, or a person not having capacity to
contract;
c. When the drawer is the person to whom the payment is presented for
payment;
d. Where the drawer has no right to expect or require that the drawee or
acceptor will honor the instrument;
e. Where the drawer has countermanded payment.
(5) When notice to indorser is not required
a. Where the drawee is fictitious person or a person not having capacity to
contract, and the indorser was aware of the fact at the time he indorsed the
instrument;
b. Where the indorser is the person to whom the instrument is presented for
payment;
c. Where the instrument was made or accepted for his accommodation.
(6) Where notice of non-acceptance is already given
o Where due notice of dishonor by non-acceptance has been given, notice of
subsequent dishonor by non-payment is not necessary, unless in the meantime the
instrument has been accepted.
(7) Holder in due course subsequent to the omission
 o An omission to give notice of dishonor by non-acceptance does not prejudice rights
of a holder in due course subsequent to the omission.
STEPS IN MAKING A NOTICE OF DISHONOR
A. By whom notice of dishonor is given
Section 90 – The notice may be given by or on behalf of the holder, or by or on behalf of
any party to the instrument who might be compelled to pay it to the holder, and who, upon
taking it up, would have a right to reimbursement from the party to whom notice is given.
o By the holder;
o By another in behalf of the holder;
 Notice of dishonor may be given by an agent either in his own name or
in the name of any party entitled to give notice, whether that party be
his principal or not (Section 91)
 Where a the instrument has been dishonored in the hands of
the agent, he may himself give notice to the parties
secondarily liable. In such case, he must do so within the time
fixed by Section 102, 103, 104, 107. Otherwise, the secondary
parties are discharged.
 The agent ma also choose to give notice to the principal, and
must do so within the same time referred to as if he were a
holder. The principal has also the same time for giving notice
to secondary parties.
 Where notice is given by or on behalf of the holder, it inures to the
benefit of all subsequent holders an all prior parties who have a right of
recourse against the party to whom it is given.
 Where notice is given by or on behalf of a party entitled thereto, it inures
to the benefit of the holder and all parties subsequent to the party whom
notice is given.
o By a party to the instrument who might be compelled to pay it or by another
person on behalf of such party
B. To whom it should be given
GENERAL RULE: It must be given to either the party himself or to his agent (the agent must be
authorized unlike in Section 91)
o Where party is dead, it must be given to his personal representative
 The death must be known to the party giving notice;
 There is a personal representative
 The said representative can be found with reasonable diligence
Absence of one requisite, notice of dishonor is dispensed with.
o Notice to partners
Each partner is an agent of the partnership. Hence, notice to one is notice to all,
except when the instrument pertains to individual undertakings.
o Notice to joint parties
Where persons not partners indorse, each is entitled to notice and upon failure to
give such notice, neither could be charged because as to them, each must have
separate notice (Section 100).
 This only applies to joint accommodation indorsees (Section 64), and is
an exception to Section 68.
o Where a party has been adjudged a bankrupt or an insolvent, or has made an
assignment for the benefit of creditors, notice may be given either to the party
himself or to his trustee or assignee.
C. Where it should be given
o To the post-office nearest to his place of residence or to the post-office where he is
accustomed to receive his letters
o If he lives in one place and has his place of business in another, notice may be sent
to either place
o If he is sojourning in another place, notice may be sent to the place where he is so
sojourning
o But where the notice is actually received by the party within the time specified in
this Act, it will be sufficient.
D. When it should be given
GENERAL RULE: Notice may be given as soon as the instrument is dishonored and must be
given within the time fixed by this Act (Section 102)
EXCEPTION: Delay in giving notice of dishonor is excused when the delay is caused by
circumstances beyond the control of the holder and not imputable to his default,
misconduct, or negligence. When the cause of delay ceases to operate, notice must be given
with reasonable diligence (Section 113)
o Where the parties reside at the same place –
(a) At the place of business – must be given before the close of business hours on
the day following;
(b) At the residence – any hours when the members of the household are
attending to ordinary affairs, before usual hours of rest on the day following;
(c) By mail – must be deposited In the post in time to reach him in usual course
on the day following.
 Where notice of dishonor is duly addressed and deposited in the post
office, the sender is deemed to have given due notice, notwithstanding
nay miscarriage in the mails (Section 105)
 Notice is deemed to have been deposited in the post office when
deposited in any branch of post-office or in any letter box under the
control of the post office department (Section 106)
o Where parties reside in different places
(a) If sent by mail – deposited in the post in time to go by mail the day following
the day of dishonor, or if there be no mail at a convenient hour on that day,
by the next mail thereafter.
(b) If given otherwise than through mail – within the time that notice would have
been received in due course of mail, if it had been deposited in the post office
within the time specified in the last subdivision.
Section 107 – Where a party receives notice of dishonor, he has after the receipt of such
notice, the same time for giving notice to antecedent parties that the holder has after
dishonor.
 (f)By any agreement binding upon the holder to extend the time of payment or to postpone the
holder's right to enforce the instrument unless made with the assent of the party secondarily
liable or unless the right of recourse against such party is expressly reserved.
o It means an agreement between the holder and the principal debtor, supported by
a valuable consideration for a definite period.
DISCHARGE OF NEGOTIABLE INSTRUMENT o Consistent with the rule that extension granted to the debtor by the creditor
extinguishes the guaranty.
Discharge means release of all parties, whether primary or secondary from the obligations thereunder. RENUNCIATION BY THE HOLDER
It renders the instrument without force and effect, and consequently, can no longer be negotiated. - The holder may expressly renounce his rights against any party to the instrument before, at, or
after its maturity.
DISCHARGE OF PRIMARY PARTIES - An absolute and unconditional renunciation of his rights against the principal debtor made at
(a) Payment in due course by or on behalf of the principal debtor; or after the maturity of the instrument discharges the instrument.
o It must be made by or on behalf of the debtor; o A renunciation if favor of secondary party discharges only such party and all parties
o At or after maturity date; subsequent to him but the instrument itself remains in force.
o To the holder thereof; - But a renunciation does not affect the rights of a holder in due course without notice.
o In good faith and without notice that the holder’s title is defective - A renunciation must be in writing unless the instrument is delivered up to the person primarily
(b) By payment in due course by the party accommodated, where the instrument is made or liable thereon.
accepted for his accommodation;
o As between the accommodation and the accommodated party, the latter is the real MATERIAL ALTERATION
debtor. Hence, payment of the latter is actually payment by the principal debtor. Material alteration is defined to be the change in the instrument which affects or changes the liability of
(c) By the intentional cancellation thereof by the holder; the parties in any way. Any alteration which changes the (1) date; (2) sum payable, either for principal or
o A cancellation made unintentionally or under a mistake or without the authority of interest; (3) time or place of payment; (4) number or the relations of the parties; (5) medium or currency
the holder, is inoperative. in which payment is to be made; or (6) which adds a place of payment where no place of payment is
o But where an instrument or any signature thereon appears to have been cancelled, specified, or any other change or addition which alters the effect of the instrument in any respect, is a
the burden of proof lies on the party who alleges that the cancellation was made material alteration.
unintentionally or under a mistake or without authority. - EFFECT OF ALTERATION OF INSTRUMENT
(d) By any other act which will discharge a simple contract for the payment of money; o Where a negotiable instrument is materially altered without the assent of all parties
(e) When principal debtor becomes holder of the instrument at or after maturity in his own right. liable thereon, it is avoided, except as against a party who has himself made,
o Constitutes a merger of the characters of creditor and debtor. authorized, or assented to the alteration and subsequent indorsers.
o The reacquisition must be at or after maturity, otherwise no discharge will be o But when an instrument has been materially altered and is in the hands of a holder
effected because the debtor, on reacquiring the instrument, can re-negotiate it. in due course not a party to the alteration, he may enforce payment thereof
according to its original tenor.
DISCHARGE OF SECONDARY PARTIES
(a) By any act which discharges the instrument;
(b) By the intentional cancellation of his signature by the holder;
(c) By the discharge of a prior party;
Payment by any secondary party after maturity does not discharge the instrument. It only
cancels his own liability and that of the parties subsequent to him (Section 121)
o The party so paying it is remitted to his former rights as regard all prior parties, and
he may strike out his own and all subsequent indorsements and against negotiate
the instrument, except:
 Where it is payable to the order of a third person and has been paid by
the drawer; and
 Where it was made or accepted for accommodation and has been paid
by the party accommodated.
(d) By a valid tender or payment made by a prior party;
o Valid tender, when accepted would operate to discharge the party making such
tender and all the parties subsequent to hi,.
o The refusal to accept tender does not discharge the debt but stops the running of
interest and relieves the party making tender from subsequent costs and attorney’s
fees in case of litigation.
(e) By a release of the principal debtor unless the holder's right of recourse against the party
secondarily liable is expressly reserved;