Law On Negotiable Instruments Reviewer

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Law on Negotiable Instruments Reviewer
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Negotiable Instruments
PRELIM
Hector de Leon, 2004 Edition
Questions Answers
What constitutes a negotiable instrument Section 1 of NIL:
(requirements)?
1. It must be in writing and signed b the maker or drawer
Mnemonic: WUPPaW 2. Must contain an unconditional promise or order to pay a
sum certain in money
3. Must be payable on demand, or at a fixed or determinable
future time
4. Must be payable to order or to bearer
5. Where the instrument is addressed to a drawee, he must
be named or otherwise indicated therein with reasonable
certainty.
How to determine the negotiability of an To determine the negotiability of an instrument, the following
instrument? must be considered:
1. The whole of the instrument

2. Only what appears on the face of the instrument
3. The provisions of the NIL, especially Section 1.
Define Negotiable Instrument Section 1
What is a maker? Person issuing a promissory note
What is a drawer? Person issuing a bill of exchange
Distinguish Promissory Note from Bill of Promissory Note Bill of Exchange

Exchange 1. Requirements: Section 1. Requirements:
1, Items 1, 2, 3, and 4 Section 1, Items 1 to 5
2. Issuer: Maker 2. Issuer: Drawer
3. The instrument must 3. The instrument must

contain an contain an
“unconditional “unconditional order”
promise”
Why negotiable instrument should be in Nothing could be negotiated or passed from hand to hand if it

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writing? is not in writing.
Note: Writing includes not only that which has been written
on paper and with a pen or pencil but also that which is in
print.
Why is there a need to affix the signature in It shall serve as a prima facie evidence of his intention to be
the instrument? bound as either drawer or maker.
Who has the burden of proof if the signature The burden of proof is on the holder to show it.
of the maker or drawer is denied?
Why an instrument must contain an Section 3 of NIL

unconditional promise or order to pay?
See comments in preceding pages.
Why the instrument must be payable in a sum Negotiable instruments must be payable in money because
of money? money is the one standard of value in actual business. It does
not fluctuate in value.
What is a legal tender? Legal tender is that sort of money in which a debt, or other
obligation calling for money, may be lawfully paid, if the
contract does not specify the medium of payment.
Why the instrument must be payable at a Section 4 and 7 of NIL:

fixed or determinable future time or on
demand?
Why the instrument must be payable to order Section 8 and 9 of NIL:

or bearer?
Why is there a need to name the drawee? To enable the payee or holder to know upon whom he is to
call for acceptance or payment.
What is a non-negotiable instrument? A non-negotiable instrument is an instrument which is not

negotiable, that is, an instrument which does not meet the
requirements laid down to qualify an instrument as negotiable
one, or an instrument which in its inception was negotiable
but has lost its quality of negotiability.
Example: A check payable only to a specified person.
Note: A non-negotiable instrument may not be negotiated but

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it may be assigned or transferred.
Define Money Money means what is coined or stamped by public authority

and has value fixed by public authority.
Money means cash.
It is a medium of exchange authorized or adopted by a

government as part of its currency.
It includes all legal tender.
What is a promissory note? Promissory note is an unconditional promise in writing made

by one person to another, signed by the maker engaging to
pay on demand, or at a fixed or determinable future time, a
sum of certain money to order or to bearer.
A promise to pay a sum of money.
Who are parties to a promissory note? The one who makes the promise and signs the instrument is
called the maker, and the party to whom the promise is made
or the instrument is payable is called the payee.
What is a holder? Every person to whom an instrument is delivered is a HOLDER.
Sample of promissory note payable to order. August 30, 2004

Manila
P10,000.00
For value received, I promise to pay to the order of Piolo
Pascual the sum of Ten Thousand (Php 10,000.00) Pesos on
or before September 30, 2004 at his house at Pateros,
Metro Manila.
(Sgd.) Sam Milby
Sample of promissory note payable to bearer. August 30, 2004

Manila
P10,000.00
Two months after date, I promise to pay to Piolo
Pascual or bearer the sum of Ten Thousand (Php 10,000.00)

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Pesos.
(Sgd.) Sam Milby
If no time of payment expressed on the note, Yes, it can be negotiated. Where no time for payment is
what does it mean? Can it be negotiated? expressed, an instrument is payable on demand.
What is a bill of exchange? A bill of exchange is an unconditional order in writing

addressed by one person to another, signed by the person
giving it, requiring the person to whom it is addressed to pay
on demand or at a fixed determinable future time a sum
certain in money to order or to bearer.
An order made by one person to another to pay money to a

third person.
Who are original parties to a bill of exchange? 1. Drawer

2. Drawee
3. Payee
Sample Bill of Exchange October 30, 2004

Manila
P10,000.00
Thirty days after date, pay to Piolo Pascual or order the
sum of Ten Thousand (Php 10,000.00) Pesos. Value received
and charge the same to the account of
(Sgd.) Sam Milby
To Lolita Solis
Quezon City
What constitutes certain as to sum? Section 2 of NIL:
The sum payable is a sum certain within the meaning of this

Act, although it is to be paid:
a. With interest; or
b. By stated installments; or
c. By stated installments, with a provision that upon default
in payment of any installment or of interest the whole

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amount shall become due; or

d. With exchange, whether at fixed rate or at the current
rate; or
e. With costs of collection or an attorney’s fee, in case
payment shall not be made at maturity.
Examples of Sum to be paid with interest 1. Interest at fixed rate: I promise to pay Piolo or order
P10,000.00, with interest at 15% per annum.
2. Interest at increased or reduced rate: I promise to pay
Piolo or order P10,000.00 with interest at 18% per annum
from date until paid; 15% if paid when due.
3. Accrual/rate of interest not specified: If no date from
which interest is to run – computed from the date of the
instrument; if no date in the instrument – computed from
the issue. If rate is not specified – the legal rate is 6%
(Article 2209, civil code, now 12%)
4. Interest usurious - can still be negotiated, the contract
remains valid as to the principal only.
What is the meaning of “stated installments”? Stated installments means that:
a. The interest of each installments, and

b. The due date of each installment must be fixed in the
instrument.
Example:
I promise to pay Piolo or order the sum of P10,000.00 in two

installments as follows: P500.00, on or before November 1,
2004 and P500.00, on or before December 1, 2004.
What are the different forms of stated 1. With an acceleration clause – if installment or interest is
installments? not paid, the whole amount shall become due.
2. Acceleration dependent on maker – I promise to pay Piolo

or order P10,000.00 with interest at 15% per annum in four
equal monthly installments beginning December 1, 2004.
3. Acceleration at option of holder – this is non-negotiable.
What does “with exchange means? Exchange is the charge for the expense of providing funds at
the place where the instrument is payable to cover such
instrument which is issued at another place.

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1. Payment in foreign currency

2. Payment with exchange rate
Moses promises to pay Hana or order $1,000.00 with

exchange at ¾%
3. Exchange not applicable to inland or domestic bill.
When is a promise or order unconditional? Section 3: An unqualified order or promise to pay is

unconditional if:
a. There is an indication of a particular fund out of which

reimbursement is to be made, or a particular account to be
debited with the amount, or
b. There is a statement of the transaction which gives rise to
the instrument
Note: It contains a promise or order to pay.
1. It must be payable absolutely and it is not subject to any

condition or contingency.
2. It has the ability to circulate freely from one person to
another.
When promissory note contains a promise to There is an unconditional promise to pay:

pay?
1. Implied promise to pay
a. I promise
b. Payable
c. To be paid
d. I agree to pay
e. I guaranty to pay
2. Bare acknowledgement of indebtedness does not imply

negotiability
3. Use of words of negotiability
When bill of exchange contains an order to There is an unconditional order to pay

pay?
Note: Mere request to pay does not constitute an order, but
the word “please” implies a polite command.
When does an instrument becomes payable at Section 4:

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a determinable future time?

An instrument is payable at a determinable future time which
is expressed to be payable:
a. At a fixed period after date or sight, or

1. I promise to pay P or order the sum of P1,000.00 on
September 1, 2004
2. Sixty days after date, I promise to pay P or order the
sum of P1,000.00.
b. On or before a fixed or determinable future time specified

therein, or
1. On or before September 1, 2004, I promise to pay P or
order P1,000.00
2. On or before the start of the next school semester, I
promise to pay P or order P1,000.00
c. On or at a fixed period after the occurrence of a specified

event, which is certain to happen, the time of happening
be uncertain, or
1. Thirty days after the death of his father, I promise to
pay P or order P1,000.00
What is payable upon a contingency mean? Is It is not negotiable because the order is conditional. The
it negotiable? payment is not certain. The event may or may not happen.
Example: Pay P or order the sum of P1,000.00 upon his

reaching the age of maturity.
Enumerate exceptions to the non-negotiability Section 5: Provisions with --

clause
1. Sale of collateral securities
2. Confession of judgment
3. Waiver of benefit granted by law
4. Election of holder to require some other act
Enumerate omissions which do not affect the Omissions Effect

validity and negotiability of instruments. 1. It is not dated The time it was issued is to
be considered.
No date in the calendar –

the nearest date in the
month specified.

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2. Does not specify the value

given or that any value
has been given therefor
3. Does not specify the place It is presumed to be the

where it drawn or the maker’s or drawer’s place of
place where it is payable business or his home.
4. Bears a seal
5. Designates a particular
kind of current money in
which payment is to be
made.
When is an instrument considered payable on Section 7:

demand?
An instrument is payable on demand:
a. When it is expressed to be payable on demand or at sight,

or on presentation; or
b. In which no time for payment is expressed.
When is an instrument payable to order? 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:
1. A payee who is not maker, drawer, or drawee

2. The drawer or the maker
3. The drawee
4. Two or more payees jointly
5. One or more several payees
6. The holder of an office for the time being.
What is the effect when the payee is not There is nobody who could give the order or authority to
named? collect. There would be nobody who could indorse the
instrument, and, therefore, there is not point considering it
negotiable.
When is an instrument payable to the bearer? Section 9:

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The instrument is payable to bearer:
1. When it is expressed to be so payable

2. When it is payable to a person named therein or bearer
3. 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
4. When the name of the payee does not purport to be the
name of any person
5. When the only or last indorsement is an indorsement in
blank
Note: 1 and 2 are bearer instrument.

3, 4, and 5 are called order instrument
What is a bearer instrument? Instrument payable to the bearer which can be transferred by
mere delivery without indorsement.
What is the effect of an instrument payable to It shall become an instrument payable to the bearer.
a dead person?
Sample of blank indorsement payable to Pay to P or order P1,000.00

bearer
(Sgd.) R
To W
Manila
At the back of the endorsement, sign the instrument:
(Sgd.) P
Define Ante-dated An instrument is ante-dated when it contains a date earlier

that the true date of its issuance.
Example: Instrument is issued on June 30, 2004 but dated

June 15, 2004.

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Define Post-dated Instrument An instrument is post-dated when it contains a date later than
the true date of its issuance.
Example: Issued on June 15, 2004 but dated June 30, 2004
When does ante-dated or post-dated On the date it is delivered.

instrument takes effect?
Can date be inserted in case it is omitted in Yes. According to Section 13 of NIL, any holder may insert
the instrument? therein the true date of issue or acceptance, and the
instrument shall be payable accordingly.
What is the effect of inserting a wrong date The instrument will become void with respect to the holder or
(material alteration)? any one claiming under the holder, but not to the subsequent
holder in due course.
Note: Kapag holder in due course – pwede niyang ienforce

ang instrument as if it has a true date.
What constitutes the insertion of wrong date? It constitutes a material alteration.
What are the steps involved in the issuance of Section 14:

a negotiable instrument?
1. The mechanical act of writing the instruments completely
in accordance with the requirements
2. The delivery of the complete instrument by the maker or
drawer to the payee or holder
Distinguish Section 14 from Section 15; from Section 14 applies only to incomplete instrument which has
Section 16. been delivered. It raises a personal defense.
Section 15 applies to and incomplete instrument which are

undelivered. It raises a real defense.
Section 16 applies to complete instrument which are

undelivered.
What are two classes of instruments 1. FIRST CLASS: Those in which obvious blanks are left at the
contemplated in Section 14? time that are made or indorsed, of such a character as
manifestly to indicate that the instruments are
incomplete until such blanks shall be filled up;
2. SECOND CLASS: Those which are apparently complete,

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containing blanks only because the written matter does

not so fully occupy the entire paper as to preclude the
insertion of additional words or figures, or both.
Distinguish the two classes of blank First class: One who signs or indorses is liable to the bona fide
instruments. holder on the doctrine of implied authority.
Second class: One who signs or indorses is liable to the bona

fide holder on the doctrine of negligence.
What is the rule with regard to Section 14: 1. Authority to fill-up the blanks: The holder or the person in
When instrument is incomplete but delivered? possession has prima facie authority to complete an
incomplete instrument by filing up the blanks therein.
 Suppose M issues a note to P with the space for the

date left blank in payment for goods purchased by M
from P. This gives prima facie authority to fill-up the
blanks.
2. Authority to put any amount
 Suppose that M just delivered a blank paper

containing his signature to P. There must be a proof of
M’s signature.
3. Right against party prior to completion: The instrument

may be enforced only against a party prior to completion if
filled up strictly in accordance with the authority given and
within a reasonable time.
 Not a holder in due course cannot recover if the

instrument is filled up in accordance with the authority
given and within the reasonable time.
4. Right of holder in due course. Real defense
What is the rule when the instrument is Section 15 of NIL:

incomplete but not delivered?
Where an incomplete instrument has not been delivered, it
will NOT, if completed and negotiated without authority, be a
valid contract in the hands of any holder, as against any
person whose signature was placed thereon before delivery.
What are the defenses available to parties? 1. Defenses even against a holder in due course.

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M makes a note with the name of the payee in blank.

P steals it. P – A – B – C – D, holder in due course.
D cannot enforce the note against M.  constitutes a
forgery.
2. Defenses available to parties prior to delivery.
D can enforce the note against P, A, B, and C because their

signature appear on the instrument after delivery, the
instrument is valid as to them.
When does delivery become effectual? Section 16 of NIL:
Delivery, in order to be effectual, must be made either by or

under the authority of the party making, drawing, accepting,
or indorsing, as the case may be; and, in such case, the
delivery may be shown to have been conditional, or for a
special purpose only, and not for the purpose of transferring
the property in the instrument.
But where the instrument is in the hands of a holder in due

course, a valid delivery thereof by all parties prior to him so as
to make them liable to him is conclusively presumed.
And where the instrument is no longer in the possession of a

party whose signature appears thereon, a valid and
intentional delivery by him is presumed until the contrary is
proved.
Define delivery. Define issue. Delivery means transfer of possession, actual or constructive,
from one person to another with intent to transfer title
thereto.
Issue is defined as the first delivery of the instrument,

complete in form, to a person who takes it as holder.
What are the rules when the instrument is  An undelivered instrument is inoperative because delivery is
mechanically complete? a prerequisite to liability.
M – P, M keeps it in his drawer.
 M is not liable
 P cannot acquire rights

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M – P, M keeps it in his drawer, P stole it, P – A – B – C – D

(has knowledge)
 P and D are immediate parties

 Delivery may be presumed but subject to rebuttal.
M – X – P (for safekeeping, but P has no idea)
 P can enforce the instrument as he is not an

immediate party with the meaning of Section 16.
M – X – P (for safekeeping, but P has idea)
 P cannot enforce it against M because the delivery is

conditional or for a special purpose only and not for
purpose of transferring the title to the instrument.
Note: If delivery was made or authorized, it may be shown to

have been conditional, or for special purpose only, and not for
the purpose of transferring the property (title) to the
instrument.
What is the rule on conclusive presumption? When the instrument is found in the hand of a person who is
a holder in due course, it is conclusively presumed that the
delivery thereof is valid and intentional.
However, this does NOT apply to an instrument which is

INCOMPLETE.
The defense is only a personal defense NOT a real defense

(incomplete instrument).
What is the rule if the construction of the Section 17 of NIL:

instrument is ambiguous or has omissions?
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;

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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.
What is the rule if the sum expressed in words Example: Pay to the order of P the amount of Five Hundred
and the figures are different? Pesos (Php 5000.00)
The amount in WORD controls.
What if the words are ambiguous or The marginal figures control.

uncertain?
What of the date when stipulated interest to The instrument will earn interest from the date of the note or
run is not specified? the date of its issue.
If no rate of interest is mentioned, it will draw interest at the

legal rate.
What if the date is not stated in the An undated instrument is considered dated as of the date of
instrument? issue (first delivery).
Example: No date, but delivered on October 15, 2005 – the

note will be considered dated as of the same time.
What if the written and printed provisions are The WRITTEN provisions control.
in conflict?
What if the instrument was signed by two or “I promise to pay” – the two are solidarily liable

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more persons?
“I or we promise to pay” – joint and severally liable
“We promise to pay” – joint liability
What is the liability of a person signing in As a general rule, only persons whose signatures appear on
trade or assumed name? the instrument are liable thereon.
However, there are exceptions:
1. Where a person signs in a trade or assumed name (par. 2,

Section 18).
2. The principal is liable if a duly authorized agent signs on
his behalf (Sec.19).
3. Forger is liable even if his signature does not appear on
the instrument.
4. Where the acceptor makes his acceptance of a bill on a
separate paper.
5. Where a person makes a written promise to accept a bill
before it is drawn.
What is the effect of forged signature? A forged indorsement prevents any subsequent party from
acquiring any right as against any party whose names appears
prior to the forgery.
Exemplify Section 23. NO.
M makes a note payable to the order of P C cannot claim from M and P because his rights against them
are cut-off by a forged signature.
P – A – X – fraud – B – C.
Note: If the note states “in any order” C can claim from M.
Can C claim from M and P?
Can C go after A? C cannot claim from A.
Can C go after B? C can claim from B because his signature is genuine and valid.
Can B and C go after X? B and C have a right of recourse against X.
Can A go after M and P? A can recover from M and P because his right against them
were not affected by the forgery.
What is the exception to Section 23? 1. If the party against whom it is sought to enforce such is

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precluded from setting up the forgery or want of

authority.
2. Where the forged signature is not necessary to the
holder’s title in which the case the forgery may be
disregarded.
Who are precluded from setting up the 1. Those who by their acts, silence, or negligence, are
forgery? estopped from setting up the defense of forgery.
2. Those who warrant or admit the genuineness of the
signature in question.
What defense may be availed under Section Real defense – even against a holder in due course.
23? (Forgery)
The party alleging forgery has the burden of proof.
What are the two cases of forgery? 1. Forgery of bearer instrument

a. The possessor can collect even though it is stolen.
b. The owner is liable to a holder in due course.
2. Forgery of order instrument

a. Prior parties can claim
b. Subsequent parties cannot claim
c. The owner is not liable to any person, even to a holder in
due course.
Define value. Section 25 of NIL:
Value is any consideration sufficient to support a simple

contract. An antecedent or pre-existing debt constitutes
value; and is deemed such whether the instrument is payable
on demand or at a future time.
Define Consideration. Consideration means an inducement to a contract, that is, the

cause, price or impelling influence which induces a
contracting party to enter into the contract.
Is it necessary that the consideration must be A valuable consideration need not be adequate. It is sufficient
adequate to be considered valuable? if it is a valuable one.
Are antecedent or pre-existing debt Yes. An antecedent or pre-existing debt is a valuable

considered a valuable consideration? consideration.
What constitutes a holder for value? Section 26 of NIL:

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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.
A holder for value is one who has given a valuable

consideration for the instrument issued or negotiated to him.
Example of holder for value M – P (without consideration) – A (without consideration) – B

(with value).
B is deemed a holder for value.
M – P (without consideration) – A (without consideration) – B

(with value) – C (as a gift).
C is the holder for value.
What is the rule if the holder for value has lien Section 27 of NIL:
on the instrument?
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.
What is the effect of want of consideration? Section 28 of NIL:
Absence or failure of consideration is a matter of defense as

against any person not a holder in due course; and partial
failure of consideration is a defense pro tanto, whether the
failure is an ascertained and liquidated amount or otherwise.
What is the meaning of Absence of Absence of consideration means a total lack of any valid
Consideration? consideration for the contract.
Example:
M – P (promissory note) in payment for a parcel of land which

does not exist.
P – A (a holder in due course)
P cannot recover from M because of absence of consideration

BUT A can recover from M because absence of consideration
is only a PERSONAL DEFENSE not available against a holder in

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due course.
What is the meaning of Failure of It means the failure or refusal of one of the parties to do,
Consideration? perform or comply with the consideration agreed upon.
Meaning, there was a consideration but such agreed

consideration failed to materialize.
What is an accommodation party? What is the Section 29:

liability of the accommodation party?
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.
What is the liability of the accommodation Accommodation party is in effect solidary co-debtor.
party to a holder in due course? Therefore, he is liable to a holder in due course.
What are the different kinds of 1. Accommodation maker – promissory note

accommodation party? 2. Accommodation drawer – bill of exchange
3. Accommodation acceptor – accepts promissory note
4. Accommodation indorser – signs in blank a bill or note
What is the difference between an Accommodation party Regular party

accommodation party and a regular party? Signs the instrument Signs the instrument for
without receiving value value
therefor
Signs the instrument for the Not for the purpose of

purpose of lending his name lending his name.
to some other person
May always show a parol Cannot limit his personal

evidence liability by parol evidence.
Cannot avail the defense of Can avail the defense of

absence or failure of absence or failure of
consideration against a consideration against a
holder NOT in due course holder NOT in due course

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May sue for reimbursement May not sue any subsequent

the subsequent party party.
What constitutes a 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 thereof.
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.
What are the three methods of transferring a 1. Issue – the first delivery of the instrument
negotiable instrument? 2. Negotiation – involves indorsement
3. Assignment
Define Negotiation The transfer of negotiable instrument from one person to

another in such a manner as to constitute the transferee the
holder thereof.
What are the methods of negotiation for an 1. Indorsement of the payee to the holder
order instrument? 2. Delivery
What are the methods of negotiation for a A mere delivery without indorsement is enough.
bearer instrument?
Is the payment of a check by the drawee bank No. It is not a negotiation and it does not make the bank a
constitutes a negotiation? holder. The bank is neither the payee not an indorsee.
Define Assignment. Transfer of the title to the instrument.
What happens if an order instrument is It cannot be negotiated unless indorsed.

delivered without indorsement?
Distinguish Negotiation from Assignment. Negotiation Assignment

Refers only to negotiable Generally refers to an
instruments ordinary contract
The transferee is a holder The transferee is an assignee

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A holder in due course is An assignee is subject to

subject only to a real both real and personal
defenses defenses.
A holder in due course may Assignee merely steps on

acquire a better title than the shoes of the assignor
that of a prior party.
Example: A entered into a contract with B. B issued a

promissory note that is non-negotiable (the contract is
without consideration) to A. B failed to deliver the goods.
Subsequently, B indorsed the note to C. Can C collect from A?
NO. C cannot collect from A because the transfer of the note

is not thru negotiation (kasi non-negotiable instrument) but
by way of assignment. In assignment, C merely steps on the
shoes of B (the assignor).
What are the different kinds of delivery? 1. Constructive delivery

2. Actual delivery
What is the rule if the delivery is conditional? 1. Condition precedent – parol evidence is admissible
2. Condition subsequent – parol evidence is not admissible.
How an indorsement is made? Section 31 of the NIL:
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.
Writing at the back of the instrument.
It is completed by means of delivery.
Is an indorsement to two or more indorsees No. An instrument which purports to transfer the instrument
valid? to two or more indorsees severally is not valid and does not
operate as a negotiation of the instrument (Section 32).
Example:

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Pay to A P500 and Pay to B P600 – invalid

Pay to A and B – valid
Is partial indorsement allowed? Yes. Partial indorsement is allowed however, the indorsee
must acknowledge receipt or payment of the amount
previously paid.
What is a special indorsement? What is a Section 34 of the NIL:

blank indorsement?
A special indorsement specifies the person to whom, or to
whose order, the instrument is to be payable, and the
indorsement of such indorsee is necessary to the further
negotiation of the instrument.
An indorsement in blank specifies no indorsee, and an

instrument so indorsed is payable to bearer, and may be
negotiated by delivery.
How to change a blank instrument into a Section 35 of NIL:

special instrument?
The holder may convert a blank indorsement into a special
indorsement by writing over the signature of the indorser in
blank any contract consistent with the character of the
indorsement.
What is a restrictive indorsement? Section 36 of NIL:
An indorsement is restrictive which either:
a. Prohibits the further negotiation of the instrument; or

b. Constitutes the indorsee the agent of the indorser; or
c. Vests the title in the indorsee in trust for or to the use
of some other persons.
But the mere absence of words implying power to negotiate

does not make an indorsement restrictive.
Example of restrictive indorsement. a. Prohibits the further negotiation of the instrument

- Pay to A only
- Pay to A and to no other person
b. Constitutes the indorsee the agent of the indorser

- Pay to A for collection

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- Pay to A for collection only
c. Vests the title in the indorsee in trust for or to the use of

some other persons.
- Pay to A for my use
- Pay to A for the use of B
What is a qualified indorsement? Section 38 of NIL:
A qualified indorsement constitutes the indorser a mere

assignor of the title to the instrument.
It may be made by adding to the indorser's signature the

words "without recourse" or any words of similar import.
Such an indorsement does not impair the negotiable
character of the instrument.
What is the effect of qualified indorsement? It limits the liability of the indorser.
What is a conditional indorsement? Absolute Absolute indorsement is one by which the indorser binds
indorsement? himself to pay, upon no other condition than the failure of
prior parties to do so, and of due notice to him such failure.
Conditional indorsement is one by which the indorser adds

some other conditions to his liability, that is, where there is
some condition in the indorsement.
Example:
Pay to A on completion of the construction by him of my

house.
Examples of indorsements Special and restrictive
Pay to A only.
(Sgd) P
Special and qualified
Pay to A without recourse.

(Sgd) P

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Special and conditional
Pay to A if he marries before he reaches the age of 25.
(Sgd) P
Blank and restrictive
For collection only.

(Sgd) A
Blank and qualified
Without recourse.
(Sgd) A
Blank and conditional
Payable upon completion of my house in Pateros.

(Sgd) A
Special, unrestrictive, unqualified
Pay to A
(Sgd) P
What is the effect of special indorsement if Section 42 of NIL:

the instrument is originally payable to bearer?
Where an instrument, payable to bearer, is indorsed specially,
it may nevertheless be further negotiated by delivery; but the
person indorsing specially is liable as indorser to only such
holders as make title through his indorsement.
M issues a promissory note to payable to P or By mere delivery.

bearer and delivers it to P. How can P
negotiate the instrument to A? Take note that in Bearer Instrument, mere delivery is enough.

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How can A negotiate the instrument to B? Also, by delivery.
Can B recover from P? No, because B did not obtain his title through the
indorsement of P.
But B can recover from A (indorser) and M (maker).
What if A indorses the note to B who later P is liable to A and B, and A is liable to B.
delivers it to C, then P is liable to whom?
P and A are liable to C because he obtained his title through
delivery and not through indorsement of P and A.
B is also liable to C.
When a holder may strike out his Section 48 of NIL:

indorsement?
The holder may at any time strike out any indorsement which
is not necessary to his title. The indorser whose indorsement
is struck out, and all indorsers subsequent to him, are thereby
relieved from liability on the instrument.
Example:
M – P – X – Y – Z – W (struck out by X)
W can go after M, P and X – all prior indorsers
Because subsequent indorsers are free from liability
What is the effect if the instrument is M – P – A (without indorsement)

delivered but not indorsed?
A is a mere assignee
A should ask P to indorse it – to clean the defect.
A must be a holder in due course – determine the time of

actual indorsement.

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What is the effect if the prior party If a prior party renegotiates an instrument before maturity, he
renegotiates an instrument? can negotiate the same further. But after paying the holder,
he may NOT claim payment from any of the intervening
parties.
Example:
M to P
P to A
A to B ==== prior party
B to C
Intervening parties; B cannot collect from them
C to D
D to B ==== prior party

B to E
B can only collect from M, P and A

E can collect from M, P, A and B
What are the rights of a holder? 1. To sue

2. To receive payment
What constitutes a holder in due course? Section 52 of the NIL:
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.
What constitutes a complete and regular It is complete if all the requisites for its completeness are
instrument? present.
(Note: An instrument is incomplete when it is wanting in any
material particular/s proper to be inserted in a negotiable
instrument without which the same will not be complete).

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An instrument is regular if it has no defects. To render the

instrument irregular, alteration, tampering or erasure must be
visible or apparent on the face of the instrument.
Who is a holder in due course? Refers to bona fide holder or bona fide holder for value
without notice.
Can a holder of non-negotiable instrument No, he is a mere assignee.

attain the status of a holder in due course?
The fact that the instrument is non-negotiable is a sign of
warning to a prospective purchaser and places him on his
guard and on inquiry (like caveat emptor).
Who has the burden of proof in a case against The one who claims has the burden of proof. (It lies on the
a holder in due course? person who disputes the presumption.
As a rule, every holder is generally deemed prima facie (prima

facie presumption) a holder in due course (Sec. 59).
 If a holder has proof of being a holder- the

presumption accrues on his favor, he does not have to
prove it.
 If the indorser’s title is defective – the holder must
prove it that he is a holder in due course
Exemplify and state your analogy on Section P obtained the note of M through fraud
59. P–A–B–C–D
D is presumed to be a holder in due course
If M raised the issue of fraud – the burden is shifted to D – he

has to prove that he is a holder in due course.
For example:
M – P –fraud – A – B – C – D
D is presumed to be a holder in due course, because C is a

holder in due course. D can recover from M.
M – P – A – fraud – C – D
D can recover from M and P

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What is a holder through a holder in due A person who acquires a title from a prior holder who is a
course? holder in due course.
Can a drawee become a holder in due course? No, a drawee cannot be a holder in due course (only the
payee – by paying the bill).
What is meant by overdue instrument? An instrument is overdue after the date of maturity.
What is the reckoning date if the instrument is The date of maturity is determined by the date of
payable on demand? presentment.
 Promissory note: within the reasonable time after its

issue
 Bill of exchange: after the last negotiation
Are overdue instruments negotiable? Can it be Yes, an overdue instrument is still negotiable, and although it
negotiated? is subject to defenses existing as a time of transfer.
What is the effect if the instrument is partly It depends.

overdue and partly not (as in the case of
installments)? a. If the instrument became due before transfer, the
transferee is not a holder in due course.
b. If the transferee had no notice of payment, he is holder in
due course as to the installments to mature in the future.
c. If there is a notice of non-payment, the purchaser cannot
be a holder in due course.
Differentiate dishonor by non-acceptance and Dishonor by non-acceptance refers only to a bill of exchange
dishonor by non-payment. and it may occur before the date of its maturity. While
dishonor by non-payment can only take place at the time of
maturity.
Can overdue or dishonored instrument be Yes, it can be negotiated either by indorsement or by delivery
negotiated? How? What is its effect? to the same extent as before maturity, but:
a. In the case of overdue instruments – the holder cannot be

a holder in due course.
b. In the case of dishonored instruments – the holder
without notice can be holder in due course.
What is the rule on holders not in due course? Under Section 53, If the negotiation of the instrument is made
outside the reasonable time after its issue, the holder cannot
be deemed a holder in due course.

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What constitutes a “reasonable time”? The law provides that “regard is to be had to the instrument,
the usage of trade or business (if any) with respect to such
instruments and the facts of the particular case (Standard –
usually 6 months).
What is the effect of notice of infirmity Section 54 gives to instances:

(defect) before full payment?
1. If no amount has yet been paid – he is relieved from the
obligation to make payment.
2. If an amount has been paid – he can be considered holder
in due course only to the extent of the amount
theretofore paid by him.
What is the meaning of defective title? What Section 55 of NIL:

constitute a defective title?
A title is defective when the instrument, or any signature
thereto is obtained:
1. by fraud, duress, or force and fear, or

2. other unlawful means, or
3. for an illegal consideration, or
4. when he negotiates it in breach of faith, or
5. under such circumstances as amount to a fraud
It covers personal or equitable defenses.
What is the objective of Section 55 in To prevent one from becoming a holder in due course who
connection with Section 56? takes the instrument with notice that his transferor is not
acting honestly.
To require a thoroughly honest and fair transaction to

continue one a holder in due course.
What constitute notice of defect? Section 56 of NIL:
To constitutes notice of an infirmity in the instrument or

defect in the title of the person negotiating the same, the
person to whom it is negotiated must have had actual
knowledge of the infirmity or defect, or knowledge of such
facts that his action in taking the instrument amounted to bad
faith.

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What other things to be considered under 1. Mere negligence to make injuries is not sufficient.
Section 56? 2. Knowledge of the infirmity amounts to bad faith.
What is the effect of notice of defect? 1. Destroys the status of a holder as a holder in due course.
2. Opens all defenses
What are the rights of holder in due course? Section 57:
The following are the rights of a holder in due course:
1. He may sue on the instrument on his own name;

2. He may receive payment and if the payment is in due
course, the instrument is discharged;
3. He holds the instrument free from any defect of title prior
parties;
4. He may enforce payment of the instrument for the full
amount Hereof against all parties liable thereon.
What is the importance and foundation of due 1. A holder in due course acquires a right better than any of
course holding? his predecessors because he takes the instruments free
most of defenses available to prior parties among
themselves.
2. Protection for those who holds the instrument in due
course – Estoppel.
What defenses are available for a holder in Real defenses are available against all persons even as against
due course? How about for holder not in due a holder in due course.
course?
A holder not in due course – subject to all defenses, whether
personal or real. (Why? Because he is treated as a mere
assignee of the non-negotiable paper.
What are the different types of defenses? 1. Real or absolute defenses

2. Personal or equitable defenses
Differentiate Real and Personal Defenses. Real Defenses Personal Defenses

Real defenses are those that Personal defenses are those
are available against all which grow out of the
parties, both immediate and agreement or conduct of a
remote, including the holder particular person in regard
in due course. to the instrument which
renders it inequitable for
They are real because they him, though holding the

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are attached to the res, that legal title, to enforce it

is, the instrument itself against the party sought to
regardless of the merits or be made liable but which are
demerits of the holder or not available against a
the conduct or agreement of holder in due course.
the parties to it.
They are called personal
Note: It cannot be enforced defenses because they are
by the holder because there available only against that
is not contract to enforce. person or subsequent holder
who stands in privity with
Applied to “only” to the him.
person who has made or
drawn the instrument. In other words, they can be
used only between
Usually applied in VOID ORIGINAL PARTIES or
contracts or instruments. immediate parties, or
against one who is NOT A
HOLDER IN DUE COURSE
Examples: Examples:
1. Incapacity as far as the 1. Filing the wrong date

incapacitated person is 2. Filling up of blanks not in
concerned. accordance with the
2. Want of delivery of authority given and within
incomplete instrument reasonable time.
3. Forgery 3. Want of delivery of
4. Illegality of contract complete instrument.
when declared by law. 4. Absence or failure of
5. Duress amounting to consideration
forgery (signature) 5. Simple fraud or fraud of
6. Fraud in factum or fraud inducement
in esse contractus 6. Acquisition of instrument
7. Fraudulent alteration by (not signature) by duress
the holder or force and fear
8. Prescription 7. Usury
9. Discharge at or after
maturity
10. Other infirmities
appearing on the face of
the instrument
Differentiate Immediate, Remote, and Prior M–P–A–B

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Parties.
Immediate parties: in direct contractual relations to each
other.
 M makes and delivers his promissory note to P and P

endorses it to A, and A to B. M and P are immediate
parties.
 Pero kapag may intermediary, (example, may inutusan
si P to deliver it to M, let say si X), M and P are not
immediate parties.
M–P–A–B
Remote parties: is one who takes title to an instrument by

negotiation from either the original payee or any subsequent
holder.
 M and B
 M and A
 P and B
M–P–A–B
Prior parties:
 M, P and A are prior parties with respect to B
What defenses available to the following A holder in due course is free from personal “defenses
persons, if the flow of negotiation is this: M – available to prior parties among themselves”
P – A – B?
M and P - Real
P and A - Real
A and B – Real
M and A – the prior party can set up real defenses but if A is

not a holder in due course, the instrument is subject to ALL
defenses.
In such a case, A is a mere assignee and the general rules on

contract would apply.
What defenses available to a holder not in due Only those defenses available under ordinary contracts.
course?
A holder not in due course has the following rights:

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What are their rights?

1. He may sue on the instrument on its own name
2. He may receive payment and if the payment is in due
course, the instrument is discharged
Example: B purchases from A an overdue promissory note

signed by M, B is not a holder in due course, but B may
recover from M or A, if both has no valid excuse for
refusing payment.
3. He is entitled to the instrument but holds it subject to the

same defenses as if it were non-negotiable
4. He has all the rights of the holder in due course from
whom he derives his title in respect of all the parties prior
to such holder, provided he is not a party to any fraud.
Are defenses subject to estoppel? Why? Yes, real and personal defenses are subject to estoppel since
the rules and principles governing estoppel generally are
applied to commercial instruments.
Example: Forgery may be precluded by estoppel.
Distinguished fraud in factum and fraud in Fraud in the execution or fraud in factum – it exists in those
inducement cases in which a person, without negligence, has signed an
instrument which was in fact a negotiable instrument, but was
deceived as to the character of the instrument and without
knowledge of it.
A tells B that he need the signature of the latter for an

autograph, but in fact, the paper was a negotiable instrument.
Fraud in the inducement or simple fraud – it is that which

relates to the quality, quantity, value or character of the
consideration of the instrument. (Deceit in the its amount or
its terms, not its character).
What defenses are available in fraud in factum Fraud in the execution or fraud in factum – Real defenses
and fraud in inducement? because there is no contract (but negligence is not included)
Fraud in the inducement or simple fraud –
What are the rights of purchaser from a If he acquires the instrument from a person not a holder in
holder in due course? due course – the PURCHASER is like those of a transferee of a
non-negotiable instrument (he is NOT free from personal

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defenses)
If he acquires it from a holder in due course – the PURCHASER

can have all the rights available to a holder in due course.
Example:
 P induced M in its favor

 P indorsed it to A
 A has a notice of fraud but indorsed it to B
 B indorsed it to C
Analogy: C is not a holder in due course but has all the rights
(of a holder in due course) kasi he acquires the note from B
who is a holder in due course. C is a holder in due course
relative to M, P, and A.
 B indorsed it to P
P cannot recover because he is a party to the fraud. P is

remitted to his original position kahit na B is a holder in due
course.
 C indorsed it to D, who knows the defect but was not a

party to the fraud.
D cannot recover from M, because he did not acquire his title

from a holder in due course (C).
 Assuming C is a holder in due course, then A

reacquires the note.
A cannot recover because he is remitted to its original

position. This is not allowed under Section 55.
 B (holder in due course) negotiates it to C

 B reacquires it from C
B will hold the instrument in due course, he is remitted to his

original position as a holder in due course.
What are the liabilities of the maker? Section 60:
The maker of a negotiable instrument, by making it, engages

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that he will pay it according to its tenor, and admits the

existence of the payee and his then capacity to indorse.
What are the classifications of parties 1. Primarily liable

according to their liabilities? a. Maker of a promissory note
b. Acceptor of a bill of exchange
c. Certifier of a check
2. Secondarily liable
a. Drawer of the bill
b. Indorser of a note or a bill
3. Not liable
a. Drawee until he accepts the instrument
Distinguished primary party from secondary Primarily liable – person who by the terms of the instrument
party. is absolutely required to pay. Unconditionally bound.
Secondarily liable – conditionally bound to pay. Will pay the

instrument only after certain conditions have been fulfilled:
1. Due presentment for payment or acceptance to

primary party.
2. Dishonor by such party
3. Taking of proceedings required by law after dishonor.
Note: maging primary liable sila kapag they sign the

instrument (Section 68).
GENERALLY, the liability of the secondary parties ends when

the primary party pays the full amount of the instrument.
What is the liability of the drawer? Section 61:
He will pay the amount of the instrument 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.
What is the liability of the acceptor? Section 62:
The acceptor, by accepting the instrument, engages that he

will pay it according to the tenor of his acceptance and

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admits:
a. The existence of the drawer, the genuineness of his

signature, and his capacity and authority to draw the
instrument; and
b. The existence of the payee and his then capacity to indorse.
Who are deemed indorsers? Section 63:
A person placing his signature upon an instrument otherwise

than as maker, drawer, or acceptor, is deemed to be indorser
unless he clearly indicates by appropriate words his intention
to be bound in some other capacity.
What is the liability of the irregular endorser? Section 64:
Where a person, not otherwise a party to an instrument,

places thereon his signature in blank before delivery, he is
liable as indorser, in accordance with the following rules:
a. If the instrument is payable to the order of a third

person, he is liable to the payee and to all subsequent
parties.
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 or drawer.
c. If he signs for the accommodation of the payee, he is
liable to all parties subsequent to the payee.
What are the warranty of negotiations if done Section 65:

by delivery or indorsement?
Every person negotiating an instrument by delivery or by a
qualified indorsement warrants:
a. That the instrument is genuine and in all respects what

it purports to be;
b. That he has a good title to it;
c. That all prior parties had capacity to contract;
d. That he has no knowledge of any fact which would
impair the validity of the instrument or render it
valueless.
But when the negotiation is by delivery only, the warranty

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extends in favor of no holder other than the immediate

transferee.
The provisions of subdivision (c) of this section do not apply to

a person negotiating public or corporation securities other
than bills and notes.
What is the liability of general endorser? Section 66:
Every indorser who indorses without qualification, warrants to

all subsequent holders in due course:
a. The matters and things mentioned in subdivisions (a),

(b), and (c) of Section 65;
b. That the instrument is, at the time of his indorsement,
valid and subsisting.
And, in addition, he engages that, on due presentment, it shall

be accepted or paid, or both, as the case may be, according to
its tenor, and that if it be dishonored and the necessary
proceedings on dishonor be duly taken, he will pay the
amount thereof to the holder, or to any subsequent indorser
who may be compelled to pay it.
Distinguish General Indorser from Irregular General Indorser Irregular Indorser

Indorser. Makes either special or Blank indorsements only
blank indorsements.
Indorses the instrument Indorses the instrument

after its delivery. before delivery to the payee.
Liable only to subsequent Liable to the payee and

parties subsequent parties
What is the liability of indorser when the Section 67:

paper negotiable is done by delivery?
Where a person places his indorsement on an instrument
negotiable by delivery, he incurs all the liability of an indorser
What is the liability of the indorser if If he indorses specially, he is liable to only the holders who
negotiation is done by negotiation? make title through the indorsement

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If he indorses without qualification, he incurs liability of a

general indorser (liable only to subsequent parties).
What order does a holder becomes liable? Section 68:
As respect one another, indorsers are liable prima facie in the

order in which they indorse; but evidence is admissible to
show that, as between or among themselves, they have
agreed otherwise. Joint payees or joint indorsees who
indorse are deemed to indorse jointly and severally.
What is the liability of the broker or agent? Section 69:
Where a broker or other agent 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.
MIDTERM
What is the effect of want of demand on Section 70:
principal debtors?
Presentment for payment is not necessary in order to charge
(Effect of lack of demand) 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.
What is the meaning of presentment for Presentment of payment to the person primarily liable for the
payment purpose of demanding and receiving payment.
When is presentment and demand of If the date has passed.

payment not necessary? IN EFFECT: The holder can sue the maker or the acceptor and
presentment and demand of payment are not necessary in
order to charge the person primarily liable.
Is presentment necessary to charge the maker No, presentment is not required.

or the acceptor? Example: M – P – Php 1000.00 payable at PNB. P fails to
present the note at maturity.
 M is still liable to pay the Php 1000.00 and the interest

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UP TO THE MATURITY (only)
 M is not liable to pay the interest AFTER maturity.
Note: Hindi na required ang presentment if the drawer and

the drawee is considered a maker – HE IS LIABLE WITHOUT
PRESENTMENT.
What are the rules on the presentment for 1. Presentment for payment is not necessary to charge the
payment? person primarily liable – BUT THIS IS APPLICABLE ONLY TO
NOTES PAYABLE ON DEMAND.
2. Suit may be maintained though no presentment or demand
for payment has been made.
What is the effect if presentment is not made? It will not affect the holder but it might put him in the risk if
the drawee is INSOLVENT.
Who are secondarily liable? The drawer and indorsers.
Can the holder go directly after the persons No, demand for payment must first be made upon the person
secondarily liable? primarily liable.
What happens if the instrument was not The secondarily liable parties are discharged (unless
presented to the person primarily liable? presentment is excused).
Note: Notice of non-acceptance or non-payment must be

given to drawers and indorsers, otherwise kapag hindi sila
nabigyan ng notice, they will be RELEASED from liability.
When presentment should be made: Presentment must be made on the day it falls due (sa due
date) without grace period.
- If not payable on demand? Promissory note - Presentment must be made within a

reasonable time after its issue or delivery.
- If payable on demand?
Bill of Exchange - Within reasonable time after the last
negotiation (last transfer for value).
What happens if the presentment is done It was held in William State Bank vs. Clark 208 Pac. 549 that it
BEFORE the instrument is due? is not effective and is considered as an improper
presentment.
What constitutes a sufficient presentment? Section 72 of NIL:

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If the presentment for payment is made:
1. By the holder, or by some person authorized to receive

payment on his behalf
2. At a reasonable hour on a business day
3. At a proper place as herein defined
4. 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.
Define Presentment. Act of the holder of a negotiable instrument of exhibiting a

note to the maker and demanding payment, or showing a bill
to the drawee and requesting its acceptance or payment.
What is the effect of present if the following

circumstances occur:
a. The instrument is not exhibited? The presentment would be ineffectual
What is the exception? Exhibition is not necessary if the exhibition is demanded or

waived.
b. Demand is through telephone? It is not sufficient because exhibition of the instrument is not
possible.
c. The demand is informal and not Not sufficient to dishonor the note and charge the indorser
accompanies with presentment? (okay lang).
How is presentment done if the instrument is Section 75: Presentment must be made:
payable at a bank?
a. During banking hours
b. Anytime during the day
c. Before close of banking hours
What is the rule on presentment where the Section 76:

principal debtor is dead?
If the principal debtor is dead, presentment may be made to
his EXECUTOR or ADMINISTRATOR if there be one and can be
found.

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How is presentment done to persons liable as Section 77:

partners?
Presentment may be made to any one of the co-partners or to
the agent of one of them.
Note: A dishonor by one is a dishonor by all.
What if the parties are joint debtors, how is Section 78:

presentment executed?
Presentment must be made to all of them to hold the drawer
and indorsers on their secondary liability.
When presentment may be dispensed with? Section 82:
Presentment for payment is dispensed with:
a. Where after the exercise of reasonable diligence,

presentment cannot be made.
b. Where the drawee is a fictitious person
c. By waiver of presentment, express or implied
d. The instrument is overdue and unpaid.
Summarize the rules on presentment for 1. Presentment for payment is not necessary to charge
payment. persons primarily liable but is necessary to charge the
persons secondarily liable (Sec. 70).
2. In the following cases, presentment for payment is not
necessary to charge the persons secondarily liable:
a. as to drawer
b. as to indorser
c. when presentment is dispensed with
d. when the bill has been dishonored by non-accpetance.
When is an instrument considered dishonored Section 83:

by non-acceptance?
The instrument is dishonored by non-payment when:
1. it is duly presented for payment and payment is refused or

cannot be obtained; or
2. presentment is excused and the instrument is overdue and
unpaid.
What is the liability of the person secondarily Section 84:

liable, when the instrument is dishonored?

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When the instrument is dishonored by non-payment, an

immediate right of recourse to all parties secondarily liable
thereon accrues to the holder.
As to the HOLDER, the persons secondarily liable become the

principal debtors.
Define PAYMENT IN DUE COURSE. Payment in due course is payment in the usual course of
business.
What constitutes a PAYMENT IN DUE Section 88:

COURSE?
Requisites of payment in due course:
1. Payment must be made AT or AFTER date of maturity.

2. Payment must be made to the HOLDER
3. Payment must be made in good faith and without notice
that the holder’s title is defective.
Example: M issues a note payable to P or order. The note is

indorsed in blank and delivered by P to A from whom it was
obtained through fraud by B who presented it to M for
payment.
If M had no notice of the fraud, payment by him discharges

the note. This would not be so if the payment was made
before maturity or M had notice of the fraud when he made
the payment.
What is a NOTICE OF DISHONOR? Notice of dishonor is bringing, either verbally or in writing, to

the knowledge of the drawer or indorser of an instrument, the
fact 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.
Note: if a notice is given by a notary public, it is called a

PROTEST.
To whom notice of dishonor must be given? Section 89:
Notice of dishonor must be given to the DRAWER and each

INDORSER, and any drawer or indorser to whom such notice is
not given is discharged.

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When is the instrument considered A negotiable instrument is considered dishonored:

dishonored?
1. If is not accepted when presented for acceptance; or
2. If it is not paid when presented for payment at maturity;
3. If presentment is excused or waived and the instrument is
past due and unpaid.
What is the OBJECTIVE of giving notice of 1. To inform the parties secondarily liable (THE DRAWER OR
dishonor? THE INDORSER) that the maker or acceptor, as the case
may be, has failed to meet his engagement.
2. To advise such parties that they will be require to make
payment.
What happens if the party (who has the right Any drawer or indorser to whom such notice is not given is
to issue a notice) failed to give notice of discharged (meaning, sinong di nabigyan ng notice ay
dishonor? discharged na).
However, although the indorser to whom the notice is not

given is discharged, he is still liable for breach of warranties
pertaining to the instrument.
What will a party do if he receives the notice If a party holding a bill of exchange receives notice of its
of dishonor? dishonor, he is bound to communicate this to the drawer.
Who are not entitled to notice of dishonor? The maker and acceptor do not have to be notified, including
(Sino ang hindi na kailangang bigyan ng the joint maker and/or accommodation maker.
notice?)
Who may give a notice of dishonor? Section 90: Notice may be given:
1. By the holder
2. By another on behalf of yhr holder
3. By the party to the instrument who may be compelled
to pay it to the holder and who, upon taking it up,
would have the right to reimbursement from the party
to whom the notice is given
4. By another person on behalf of # 3.
Note: A mere stranger is ineffectual UNLESS he is acting as

agent of the party who is entitled to give notice.
Illustrative Case: 1. Pwedeng magbigay ng notice si D or his agent kina P, A, B,

and C.

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M makes a note payable to the order of P. The

note is indorsed successively as follows: D  P, A, B C
P–A–B–C–D 2. Kung si C lang ang binigyan ni D ng notice, si C ang

magbabayad kay D. Pero pwedeng bigyan ni C sina P, A and
Suppose the note is dishonored sa kamay ni D, B para mareimburse siya.
what will happen? How will the notice be
enforced? D  C (notify P, A, B for reimbursement)
3. Halimbawa si B ang binigyan ni C, pwedeng bigyan ng

notice ni B sina P and A.
C  B (notify P, A for reimbursement)
4. Si A naman, pwedeng magbigay kay P
B  A (si P lang pwede niyang bigyan)
5. But P cannot give notice to A, because A is the subsequent

party and P has no right of reimbursement from A.
PA
6. Pero kung si B and binigyan ni D, discharged na si C. Kasi di

naman pwedeng magnotify si B kay C kasi subsequent party
na si C.
discharge
P – A – B – C – Dd
What is the effect if the notice is given by a Section 93:

party entitled to give notice?
Where 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 the notice is given.
M makes a note payable to P or order. The 1. D  P, A, B C

note is indorsed successively as follows: 2. The notice given to P operates to the benefit of A, B, and C
and E
P 3. Notice of A inures to the benefit of B, C and E
A 4. Notice of B inures to the benefit of C and E
B 5. Notice of C inures to the benefit of E
C
D – Holder (dishonored) “inures to the benefit” means pwedeng i-charge ng isang

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E – Subsequent holder party ang prior party na nakatanggap ng notice kahit yung
party nay un ang hindi nagbigay ng notice.
Suppose the note is dishonored sa kamay ni D,
what will happen? What is the effect of the Sa example, si D ang nagbigay ng notice sa lahat (P, A, B, C).
notice if it is given by D to P, A, B, C? Kaya if B pays C:
B can go against P or A (for reimbursement) kahit hindi siya

ang nagbigay ng notice
ANOTHER SCENARIO:
If D notifies only C:
1. D  C
P, A, and B are discharged. However if C gives due notice to P,

A, and B, such notice inures to the benefit of D and E
P– A– B– C – D– E
Si C lang ang binigyan ni D.  inures to the benefit of D and E.
For the same reason, C’s notice to A inures to the benefit of B,

C, D, E. Kaya kahit na hindi nabigyan ni D ng notice si A (for
example) A is not discharged if A is notified by C.
What is the rule if the instrument is Section 94:

dishonored in the hands of an agent?
The agent may notify his principal and he may act as if he
were the holder.
Example:
P to A
A to B
B to X (X is an agent of C)
The instrument was dishonored in the hand of X.
1. X can give notice to C, his principal

2. X can directly give notice to P, A and B
May a notice of dishonor be waived? Yes, a notice of dishonor may be waived (Section 109 of NIL).
Waiver id the intentional abandonment of a known right. It is

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willingness on the part of the drawer or the indorser

concerned to be bound as such even without due notice of
dishonor.
Who are the persons that may be affected by Section 110:

a waiver?
1. If the waiver is embodied in the instrument itself, that is, it
appears in the body or on the face of the instrument, it
binds ALL parties.
2. If it is written above the signature of an indorser, it binds
him only.
What is the effect of the protest is waived? “Protest is a notice given by the notary public”
It applies only to FOREIGN BILLS .
1. When protest is waived = presentment and notice of

dishonor are also deemed waived.
2. When notice of protest is waived = only the notice of
dishonor is waived.
3. When presentment is waived = notice of dishonor is
also waived
4. When notice of dishonor is waived = does not waive
presentment.
Presentment Notice of
Dishonor
Protest W W
Notice of Protest Not W W
Presentment W
NOD Not W Not W
When can a notice be dispensed with? Section 112:
Notice of dishonor is dispensed with when, after the exercise

of reasonable diligence, it cannot be given or does not reach
the parties sought to be charged.
What are the instances where a notice is not Section 114:

required to be given to the DRAWER?
1. When the drawer and the drawee are the same person
2. When the drawee is fictitious person or a person not having

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capacity to contract.
3. When the drawer is the person to who the instrument is
presented for payment
4. Where the drawer has no right to expect or require that the
drawee or acceptor will honor the instrument
5. Where the drawer has countermanded payment
Countermanded means revoked, rescinded or annulled.
Give the reasons (with respect to Section 114). Instances Reasons

1. When the drawer and the The drawer already knows of
drawee are the same the dishonor and obviously
person notice to him is superfluous.
2. When the drawee is Same with 1

fictitious person or a
person not having
capacity to contract.
3. When the drawer is the The drawer has knowledge

person to who the of the dishonor since he is
instrument is presented the one who dishonored the
for payment instrument.
4. Where the drawer has no Obviously, kapag expected

right to expect or require na ng drawer na wala siyang
that the drawee or account sa drawee-bank,
acceptor will honor the hindi siya entitled to notice
instrument of dishonor.
5. Where the drawer has Alam na ng drawer that the

countermanded payment instrument will be
dishonored, and he orders
the drawee not to pay (stop
payment order). Example,
kapag nawala ang check.
The drawer will say, wag mo

muna bayaran kasi nawala
ko ang check.

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What are the instances where a notice is not Section 115:

required to be given to the INDORSER?
1. When the drawee is a fictitious person or a person not
having the capacity to contract, and the indorser was aware
of the fact at the time he indorsed the instrument.
2. When the indorser is the person to whom the instrument is
presented for payment
3. When the instrument was made or accepted for his
accommodation.
Give the reasons (with respect to Section 115). Instances Reasons

1. When the drawee is a Alam na ng drawer na ang
fictitious person or a drawee do not have the
person not having the capacity to contract or
capacity to contract, and fictitious ang drawee.
the indorser was aware of
the fact at the time he
indorsed the instrument.
2. When the indorser is the Siya (indorser) din ang

person to whom the tatanggap ng payment. Hindi
instrument is presented naman niya pwedeng bigyan
for payment ng notice ang sarili niya,
hehehehe.
3. When the instrument was He is the accommodated

made or accepted for his party, kaya siya ang principal
accommodation. debtor. No need to give him
a notice.
What is the effect of the notice of dishonor by Section 116:

non-acceptance if it is given to subsequent
parties? When a bill is dishonored by non-acceptance, an immediate
right of recourse against all secondary parties accrues to the
holder and no presentment for payment is necessary.
Paano kung tinanggap ng drawee? However, kapag tinanggap ng drawee ang bill after it has been
dishonored; the holder must present the bill for payment
upon maturity.
Paano kung di binayaran ng drawee? The holder must give notice to the drawer and the indorsers
kasi failure to do so will discharge them from liability.
What will happen if there is an omission to It has been said earlier na kapag di nabigyan ng notice within

lOMoARcPSD|4474323
give notice of non-acceptance? Exemplify. the time prescribed, the drawer or the indorsers are
discharged. PERO, omission to give notice does not prejudice
the right of a party who is a holder in due course.
EXAMPLE:
R drew a bill against W in favor of P.
Nung ipinresent ni P kay W ang bill, W refused to accept it.

Kapag P fails to give notice of dishonor by non-acceptance to
R within the time prescribed, will discharge R from liability.
Pero kung ipinasa ni P ang bill kay A (before maturity), A

cannot be prejudiced kahit na hindi nabigyan ng notice si R
kasi HE IS A HOLDER IN DUE COURSE. In effect, pwede pa nga
niyang habulin both si P and R for thei secondary liability.
When protest need not be made? Section 118:
x x x protest is not required except in the case of foreign bills

of exchange.
In summary, what are the instances where 1. When notice is waived (Section 109)
notice of dishonor is not necessary to charge 2. When protest is waived (Section 111)
persons secondarily liable? 3. When notice is dispensed with (Section 112)
4. When the subject is the DRAWER himself (Section 114)
5. When the subject is the INDORSER himself (Section 115)
6. Where due notice of dishonor by non-acceptance has
been given (116)
7. When the party involved is a holder in due course, without
notice of dishonor by non-acceptance, subsequent to the
omission to give notice (Section 117)
How may an instrument be discharged? Section 119:
Mnemonics: PAIOH 1. By payment in due course by or on behalf of the principal

debtor
2. By payment in due course by the party accommodated,
where the instrument is made or accepted for his
accommodation
3. By the intentional cancellation thereof by the holder
4. By any other act which will discharge a simple contract for
the payment of money
5. When the principal debtor becomes the holder of the

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instrument at or after maturity in his own right.
Short version (for memorization):
1. Payment by principal debtor

2. Payment by accommodated party
3. Intentional cancellation if instrument by holder
4. Any act which discharges a contract
5. Reacquisition by principal debtor in his own right.
Note: While the various causes of discharging a simple

contract such as payment, condonation, etc. will operate to
discharge the instrument as between the immediate parties,
they will NOT in the hands of a HOLDER IN DUE COURSE.
What is discharge of an instrument? It is the release of all parties, whether primary or secondary,
from the obligation on the instrument.
NOTE: It renders the instrument non-negotiable.
When may a persons secondarily liable on the Section 120:

instrument be discharged?
1. By any act which discharges the instrument
2. By the intentional cancellation of his signature by the
holder
3. By the discharge of a prior party
4. By a valid tender or payment made by a prior party
5. By a release of the principal debtor unless the holder's right
of recourse against the party secondarily liable is expressly
reserved
6. By any agreement binding upon the holder to extend the
time of payment or to postpone the 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.
In summary:
1. Any act which discharges the instrument

2. Intentional cancellation of signature
3. Discharge of prior party by act of holder
4. Valid tender of payment
5. Release of the principal debtor by act of holder
6. Extension of time of payment

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May a party reserve his right of recourse Yes, but it must be an express (not implied) reservation.
against a subsequent party?
For example:
M (maker) – P (payee) – indorsed to A – B – C (present

holder).
C releases M – automatically, all subsequent parties are

discharged. Pero kung C released M, but expressly reserved
his right against P, A and B, they are not discharged.
Pero, ang effect ng reservation ni C ay implied reservation ng

mga subsequent parties of their right of against the PRINCIPAL
DEBTOR.
Kaya, sina P, A, B pwede ding i-held liable si M.
What are the rights of the party who Section 121:

discharges instrument?
Where the instrument is paid by a party secondarily liable
thereon, it is not discharged; but 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
again negotiate the instrument, except:
1. Where it is payable to the order of a third person and has

been paid by the drawer; and
2. Where it was made or accepted for accommodation and
has been paid by the party accommodated.
What is the meaning of the first part of Payment at or after maturity by a party secondarily liable
Section 121: “Where the instrument is paid by does not discharge the instrument. It only cancels his own
a party secondarily liable thereon, it is not liability and that of parties subsequent to him.
discharged x x x”?
Example:
R is a 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, B and C.
R– P–A–B–C
If A pays the bill, the instrument is not discharged, but it

lOMoARcPSD|4474323
discharges HIM, B and C, kasi yung dalawa are whom

he is personally liable with.
What is the meaning of the this part Based on the above example: A is remitted (released from) to
(Section121): but the party so paying it is his former rights as regards all prior parties na sina P and R,
remitted to his former rights as regard all prior and pwede niyang istrike-out yung indorsement niya kina B
parties, and he may strike out his own and all and C and pwede niya i-RENEGOTIATE ang instrument (kasi
subsequent indorsements and again siya ang nagbayad).
negotiate the instrument, except:
Pero kung si R ang nagbayad ng instrument, hindi allowed
1. Where it is payable to the order of a yung previous statement kasi the exceptions will apply kung
third person and has been paid by the siya ang DRAWER and ACCOMMODATED PARTY (Eh di ba sa
drawer; and example, R is the drawer? Kaya di pwede).
2. Where it was made or accepted for
accommodation and has been paid by
the party accommodated?
What are the effects if the holder renounces Section 122:

the instrument?
The holder may expressly renounce his rights against any
party to the instrument before, at, or after its maturity.
An absolute and unconditional renunciation of his rights

against the principal debtor made at or after the maturity of
the instrument discharges the instrument.
But a renunciation does not affect the rights of a holder in

due course without notice.
A renunciation must be in writing unless the instrument is

delivered up to the person primarily liable thereon.
Give example of this: But a renunciation does M–P–A–B–C–D

not affect the rights of a holder in due course
without notice. Si D ang present holder.
D renounces his right against M, automatically, discharged

ang mga kasunod na parties: M, P, A, B, C
M–P–A–B–C–D----E
If D negotiates the instrument to E, a holder in due course

without notice, E can still enforce the instrument.

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When may an instrument be renounced? In favor of secondary party – BEFORE, DURING, AFTER
maturity
In favor of principal debtor – DURING and AFTER maturity.

What are other things that should be Renunciation must be made unconditionally and absolutely.
remembered in Section 122?
Renunciation is a personal defense.
What is the rule on cancellations if it is Section 123:

cancelled or made unintentionally?
A cancellation made unintentionally or under a mistake or
Who has the burden of proof? without the authority of the holder, is inoperative but where
an instrument or any signature thereon appears to have been
cancelled, the burden of proof lies on the party who alleges
that the cancellation was made unintentionally or under a
mistake or without authority.
INOPERATIVE kapag:
a. Made unintentionally
b. By mistake or through fraud
c. Without authority
What is the effect of alteration? Section 124:
Where a negotiable instrument is materially altered without

the assent of all parties liable thereon, it is avoided, except as
against a party who has himself made, authorized, or
assented to the alteration and subsequent indorsers.
But when an instrument has been materially altered and is in

the hands of a holder in due course not a party to the
alteration, he may enforce payment thereof according to its
original tenor.
What is the effect if alterations are done by: Generally, the effect of material alteration by the HOLDER will
- The party/holder? discharge the instrument and all prior parties. Pero NOT
discharged ang:
1. party who has himself made

2. party who authorized, or assented to the alteration
3. indorsers who indorsed subsequent to the alteration
Example:

lOMoARcPSD|4474323
M makes a promissory note for 3,000.00 payable to P or

order. P negotiates it to A. A indorsed it to B for 8,000.00 pero
nagpaalam siya kay P. B indorsed it to C, then to D.
Halimbawa, D is not a holder in due course.
Since di siya holder in due course, hindi siya pwedeng

maningil kay M, kahit pa 3,000 (original tenor) ang sisingilin
niya.
Kay A siya pwedeng maningil ng 8,000 kasi he is the party who

made the alteration.
Pwede ring maningil si D kay P kasi he authorized or assented

to the alteration.
Pati na rin sina B and C kasi sila ang mga subsequent

indorsers.
What is the effect if alterations are done by a Kapag ang alteration ay done by a stranger SPOLIATION ang
- Stranger? tawag.
What is the right of the holder in due course Pwede siyang maningil sa maker (M) in its original tenor and
against parties who made the alteration? against prior parties in its altered tenor.
Example:
Pwedeng maningil si D kay M pero 3,000.00 lang.

Pwede rin siyang maningil kina P, A, B, C ng 8,000.00 if M
dishonored the note.
What constitutes a material alteration? Section 125:
Any alteration which changes:
1. The date;
2. The sum payable, either for principal or interest;
3. The time or place of payment:
4. The number or the relations of the parties;
5. The medium or currency in which payment is to be made;
6. Or which adds a place of payment where no place of
payment is specified, or any other change or addition
which alters the effect of the instrument in any respect, is

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a material alteration.
Define Bill of Exchange. Section 126:
A bill of exchange is an unconditional order in writing

addressed by one person to another, signed by the person
giving it, requiring the person to whom it is addressed to pay
on demand or at a fixed or determinable future time a sum
certain in money to order or to bearer.
Distinguish Bill of Exchange from Promissory Bill of Exchange Promissory Note

Note. 1. The instrument must 1. The instrument must
contain an contain an
SEE PAGE 1. “unconditional promise” “unconditional order”
to pay. made by one person to
another to pay it.
2. Parties (3): drawer, 2. Parties (2): Maker and

drawee, payee or bearer payee or bearer
3. The issuer: drawer is only 3. The issuer: maker is

secondarily liable primarily liable
4. A bill drawn payable to 4. It is not complete until

the drawer’s own order indorsed by the maker.
is complete without
indorsement, provided it
has been accepted by the
drawee.
5. Presentment is necessary 5. Presentment is not

necessary
6. A bill payable on demand 6. A note payable on

must be presented for demand must be
payment within presented for payment
reasonable time from its within reasonable time
last negotiation from its issue.
When is promissory note treated like a BOE? Kapag na-indorse.
When is BOE treated like a promissory note? Kapag it is accepted.

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Kaya, certified check is practically a promissory note kasi the

bank is the maker.
What are the different types of bills of 1. Draft

exchange? 2. Trade Acceptance
3. Banker's Acceptance
4. Check
Define draft, Trade Acceptance and Banker’s Draft - This is the common term of a bill of exchange and used
Acceptance? synonymously.
A bank draft is a bill of exchange drawn by a bank, issued at

the solicitation of a stranger who purchases and pays
therefor.
Trade acceptance - A draft or bill of exchange drawn by the

seller on the buyer of goods sold and accepted by such
purchaser of goods. It is payable to order and with certain
maturity.
Banker's acceptance - A draft or bill of exchange of which the

acceptor is a bank or banker engaged generally in the
business of granting banker's acceptance credit. Chiefly used
for international trade financing.
Are bills considered “assignment of funds” if it Section 127:

is in the hands of the drawee?
A bill of itself does not operate as an assignment of the funds
in the hands of the drawee available for the payment thereof,
and the drawee is not liable on the bill unless and until he
accepts the same. [Section 127]
What are the statuses of the drawee: BEFORE ACCEPTANCE:
a. prior to acceptance or 1. The drawee is a mere stranger to the bill (unless he

b. payment/after payment? accepts the same). Magiging ACCEPTOR ang drawee
kapag na-accept na niya.
2. Drawee is not bound to accept. (Take note na kapag
hindi pa na-accept ang bill, ORDER pa siya).
3. Drawee is not liable to a holder in due course. (kasi hindi
pa niya na-accept ang bill. Hindi pwedeng maningil ang
holder in due course sa kanya, sa drawe and indorsers

lOMoARcPSD|4474323
lang siya pwedeng maningil, not sa drawee).
PAYMENT/AFTER PAYMENT:
No contractual relation created between a drawee-bank and

the payee. Kaya kapag nadishonor ang check the payee
cannot sue the bank pero pwede niyang issue ang drawer for
lack of privity.
May a bill be addressed to more than one Section 128:

drawee?
Yes. A bill may be addressed to two or more drawees jointly,
whether they are partners or not; but not to two or more
drawees in the alternative or in succession.
Example:
ALLOWED: “To A and B”

“To A, B and C”
NOT ALLOWED: “To A or B”

“To A, and his absence, to B”
Objection is due to: difficulty in determining the exact date of

dishonor.
What is an Inland Bill? What is a Foreign Bill? Section 129:
An inland bill of exchange is a bill which is, or on its face

purports to be, both drawn and payable within the
Philippines. Any other bill is a foreign bill. Unless the contrary
appears on the face of the bill, the holder may treat it as an
inland bill.
Identify instances where a bill can be treated Section 130:

as promissory note.
1. Where in a bill the drawer and drawee are the same
person
2. Where the drawee is a fictitious person
3. Where the drawee is a person not having capacity to
contract, i.e., minor
What is a referee? Section 131:

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The drawer of a bill and any indorser may insert thereon the
name of a person to whom the holder may resort in case of
need; that is to say, in case the bill is dishonored by non-
acceptance or non-payment.
Such person is called a referee in case of need. It is in the

option of the holder to resort to the referee in case of
dishonor.
Is the referee liable to the holder in case of The referee is not bound to pay the holder but he may be
dishonor? made liable to the party who named him.
Example:
Pay to P or order P 1,000.00
In case of need, apply to X
Sgd. R
To W
If the bill is dishonored by W in the hands of P, P may apply it

to X for payment. PERO, he must first have the bill protested.
If X pays it, X may recover from R (the one who named him as
referee).
What is Acceptance? Section 132:
The acceptance of a bill is the signification by the drawee of

his assent to the order of the drawer.
TAKE NOTE: ACCEPTANCE APPLIES ONLY TO BILLS OF

EXCHANGE.
What are the formal requisites of acceptance? The acceptance must be in writing and signed by the drawee.
It must not express that the drawee will perform his promise
by any other means than the payment of money.
1. In writing
2. Signed by the drawee

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3. Express a promise to pay money

4. Delivered to the holder
1
May a check be accepted? In a certain sense it may be said that there can be no
acceptance of a check which is a demand instrument.
What is the objective and effect of 1. The object of acceptance is to bind the drawee and make
acceptance? him an actual party liable to the instrument.
Effects:
2. By accepting a bill, the drawee admits everything essential

to its validity. (Kaya, kahit na without consideration cannot
be shown in a suit).
3. Until the bill has been accepted, the drawer is the principal
debtor. Upon acceptance, the bill, in effect becomes a note
and the drawee becomes primarily liable.
How to execute acceptance? The acceptance must be communicated or delivered to the

holder.
The holder of a bill presenting the same for acceptance may

require that the acceptance be written on the bill, and, if such
request is refused, may treat the bill as dishonored. [Section
133]
Where an acceptance is written on a paper other than the bill

itself, it does not bind the acceptor except in favor of a person
to whom it is shown and who, on the faith thereof, receives
the bill for value. [Section 134]
May an acceptance be made through a Yes, as long as it states a promise to pay.

telegram?
What does Section 134 provides? How about Section 134 provides that an extrinsic acceptance (acceptance
Section 135? by separate instrument) must be in writing and is good only to
person to WHOM IT IS SHOWN.
Section 135 provides that a promise to accept is good to any

person who UPON THE FAITH THEREOF RECEIVES THE BILL
FOR VALUE.
Is promise to accept equivalent to Section 135:

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acceptance?
Yes. An unconditional promise in writing to accept a bill
before it is drawn is deemed an actual acceptance in favor of
every person who, upon the faith thereof, receives the bill for
value.
Example:
Bago pa mapalabas ang bill, nagsulat muna si P to W.

Ipinaalam muna niya kung tatanggapin ba niya ang draft ni R
for Php1,000 dahil yun ang ibabayad niya sa bibilhin ni R na
goods from P.
Sabi ni P, YES. Kaya P sells the goods to R.
W is liable to P as acceptor kasi yung pag-Yes ni P is deemed

an actual acceptance.
Pero kung nai-forward ni P kay A ang bill (and A neither saw or

knew the promise), W will not be liable to A.
What is the time allowed for a drawee to Section 136:

accept an instrument?
The drawee is allowed twenty-four hours (24) after
presentment in which to decide whether or not he will accept
the bill; the acceptance, if given, dates as of the day of
presentation.
What is the liability of the drawee if he Section 137:

retrains or destroys the bill (with respect to
acceptance)? Where a drawee to whom a bill is delivered for acceptance
destroys the same, or refuses within twenty-four hours after
such delivery or within such other period as the holder may
allow, to return the bill accepted or non-accepted to the
holder, he will be deemed to have accepted the same.
What are the rules on the acceptance of Section 138:

incomplete bill?
A bill may be accepted before it has been signed by the
drawer, or while otherwise incomplete, or when it is overdue,
or after it has been dishonored by a previous refusal to
accept, or by non payment.
But when a bill payable after sight is dishonored by non-

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acceptance and the drawee subsequently accepts it, the

holder, in the absence of any different agreement, is entitled
to have the bill accepted as of the date of the first
presentment.
What are the different kinds of acceptance? Section 139:
An acceptance is either general or qualified.
1. A general acceptance assents without qualification to the

order of the drawer.
2. A qualified acceptance in express terms varies the effect
of the bill as drawn.
What constitutes a general acceptance? Section 140:
An acceptance to pay at a particular place is a general

acceptance unless it expressly states that the bill is to be paid
there only and not elsewhere.
What constitutes a qualified acceptance? Section 141:
An acceptance is qualified which is:
1. Conditional; that is to say, which makes payment by

the acceptor dependent on the fulfillment of a
condition therein stated
Example: “Received from A Company an order from Y

to pay his note as soon as proceeds of sale of
hardware is available which I will do.”
2. Partial; that is to say, an acceptance to pay part only of

the amount for which the bill is drawn
Example: A bill of P1,000,00 is accepted thus:

“Accepted for P700.00 only.
3. Local; that is to say, an acceptance to pay only at a

particular place
4. Qualified as to time
Example: A bill payable 30 days after date is accepted

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thus: “Accepted 60 days from date”
5. The acceptance of some, one or more of the drawees

but not of all.
Example: A bill addressed to X, Y, and Z is accepted by

X and Y only.
What are the rights of the parties in qualified Section 142

acceptance?
1. The holder may refuse to take a qualified acceptance
and if he does not obtain an unqualified acceptance,
he may treat the bill as dishonored by non-acceptance.
2. Where a qualified acceptance is taken, the drawer and
indorsers are discharged from liability on the bill
unless they have expressly or impliedly authorized the
holder to take a qualified acceptance, or subsequently
assent thereto.
3. When the drawer or an indorser receives notice of a
qualified acceptance, he must, within a reasonable
time, express his dissent to the holder or he will be
deemed to have assented thereto.
When presentment for acceptance must be Section 143:

made? (When presentment for acceptance is
necessary?) Presentment for acceptance must be made:
1. Where the bill is payable after sight, or in any other case,

where presentment for acceptance is necessary in order to
fix the maturity of the instrument; or
2. Where the bill expressly stipulates that it shall be
presented for acceptance; or
3. Where the bill is drawn payable elsewhere than at the
residence or place of business of the drawee.
In no other case is presentment for acceptance necessary in

order to render any party to the bill liable.
What is presentment for acceptance? Production or exhibition of a bill of exchange to the drawee
for his acceptance or payment.
Give example of Section 143. 1. Bills payable after sight – A bill payable 30 days after sight.
Kaya if you saw (after presentment din) the bill on August

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1, 2008, you will pay the bill, 30 days thereafter.
2. Bill with express stipulation – self-explanatory, siyempre

kung ano yung nakasulat sa face ng bill,yun ang susundin.
3. Bill payable elsewhere – A bill payable to P at PNB Manila,

drawn against W, residing and having his place of business
in QC.
When is presentment for acceptance not Take note na kapag presentment for acceptance it also
necessary? includes PRESENTMENT FOR PAYMENT.
Presentment for acceptance is not necessary kapag it does

not fall under Section 143. Pero kailangang may presentment
for payment in order to charge the drawer or indorsers.
Does refusal of the drawee constitutes Yes, if the drawee refuses to accept, the bill be deemed
dishonor? dishonored by non-acceptance and the holder then must
proceed in the same manner as if the bill required
acceptance.
What is the effect of failure to present a bill Section 144:

for payment or acceptance?
Except as herein otherwise provided, the holder of a bill which
is required by the next preceding section to be presented for
acceptance must either present it for acceptance or negotiate
it within a reasonable time. If he fails to do so, the drawer
and all indorsers are discharged.
How is presentment made? Section 145:
Presentment for acceptance must be made by or on behalf of

the holder at a reasonable hour, on a business day and before
the bill is overdue, to the drawee or some person authorized
to accept or refuse acceptance on his behalf; and:
1. Where a bill is addressed to two or more drawees who are

not partners, presentment must be made to them all
unless one has authority to accept or refuse acceptance
for all, in which case presentment may be made to him
only;
2. Where the drawee is dead, presentment may be made to

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his personal representative;

3. Where the drawee has been adjudged a bankrupt or an
insolvent or has made an assignment for the benefit of
creditors, presentment may be made to him or to his
trustee or assignee.
What is the rule if the time for presentment is Section 147:

insufficient?
Where the holder of a bill drawn payable elsewhere than at
the place of business or the residence of the drawee has no
time, with the exercise of reasonable diligence, to present the
bill for acceptance before presenting it for payment on the
day that it falls due, the delay caused by presenting the bill for
acceptance before presenting it for payment is excused and
does not discharge the drawers and indorsers.
What are the instances where presentment Section 148:

may be excused?
Presentment for acceptance is excused and a bill may be
treated as dishonored by non-acceptance in either of the
following cases:
1. Where the drawee is dead, or has absconded, or is a

fictitious person or a person not having capacity to
contract by bill.
2. Where, after the exercise of reasonable diligence,
presentment can not be made.
3. Where, although presentment has been irregular,
acceptance has been refused on some other ground.
When is a bill considered dishonored by non- Section 149:

acceptance?
A bill is dishonored by non-acceptance:
7. When it is duly presented for acceptance and such an

acceptance as is prescribed by this Act is refused or can
not be obtained; or
8. When presentment for acceptance is excused and the bill
is not accepted.
What happens if the bill is not presented Section 150:

within the prescribed time?
Where a bill is duly presented for acceptance and is not
What is the duty of holder if the bill is not accepted within the prescribed time, the person presenting it

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accepted must treat the bill as dishonored by non-acceptance or he

loses the right of recourse against the drawer and indorsers.
What are the rights of holder if the bill is not Section 151:
accepted?
When a bill is dishonored by non-acceptance, an immediate
right of recourse against the drawer and indorsers accrues to
the holder and no presentment for payment is necessary.
Define Protest. It is a formal statement in writing made by a notary under his

seal of office, at the request of the holder of a bill, in which it
is declared that the same was on a certain day presented for
payment (or acceptance, as the case may be), and such
payment was refused, whereupon the notary protests against
all parties to such instrument, and declares that they will be
held responsible for all loss or damage arising from its
dishonor.
What instances where a protest is required? Section 152:
1. Where a foreign bill appearing on its face to be such is

dishonored by non-acceptance.
2. Where a foreign bill which has not previously been
dishonored for non-acceptance is dishonored by non-
payment.
Why protest is necessary? For security, kasi, if the bill is not protested, the drawer and
indorsers will be discharged.
What are the instances where protest is not Section 152:

necessary
Where a bill does not appear on its face to be a foreign bill,
protest thereof in case of dishonor is unnecessary.
(OF COURSE, kapag hindi siya foreign bill).
Pero what are the exceptions? What are the 1. Where the bill has been accepted for honor, it must be
instances where protest is necessary even if protested for non-payment before it is presented for
bill is not a foreign bill? payment to the acceptor for honor.
2. Where the bill contains a referee in case of need, it must
be protested for non-payment before it is presented for

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payment to the referee in case of need.
How is protest made? Section 153:
The protest must be annexed to the bill or must contain a

copy thereof, and must be under the hand and seal of the
notary making it and must specify:
1. The time and place of presentment;

2. The fact that presentment was made and the manner
thereof;
3. The cause or reason for protesting the bill;
4. The demand made and the answer given, if any, or the fact
that the drawee or acceptor could not be found.
Who can execute a protest? Section 154:
Protest may be made by:
1. A notary public; or
2. By any respectable resident of the place where the bill is
dishonored, in the presence of two or more credible
witnesses.
What are the steps in making a protest? 1. After the instrument is dishonored by non-acceptance or
non-payment, as the case may be, the holder takes it to a
notary public;
2. The notary public will present the instrument (again) to the
person who dishonored it, and demands its acceptance for
payment;
3. If the acceptance or payment is refused, the notary public
will make a minute of dishonor on the instrument or on his
notarial register (called NOTING).
4. The notary public will draft a certification of the fact of the
protest and affixes his notarial seal;
5. The notice of dishonor is sent to all parties to the
instrument.
When to execute a protest? 1. When a bill is protested, such protest must be made on
the day of its dishonor unless delay is excused as herein
provided.
2. When a bill has been duly noted, the protest may be
subsequently extended as of the date of the noting.
[Section 155]

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3. “Duly noted” is when the notary public jots down a note

on the bill, or paper affixed thereto, or in his registry book,
consisting of his initials or signature and those matters
required to be stated in Section 153.
May a protest be made both for non- Section 157:

acceptance and non-payment?
A bill which has been protested for non-acceptance may be
subsequently protested for non-payment.
What is the rule if the acceptor has been Section 158:

declared insolvent (in relation to protest)?
Where the acceptor has been adjudged a bankrupt or an
insolvent or has made an assignment for the benefit of
creditors before the bill matures, the holder may cause the
bill to be protested for better security against the drawer and
indorsers.
Kailan hindi na kailangan ng ptotest? Section 159:
Protest is dispensed with by any circumstances which would

dispense with notice of dishonor. Delay in noting or protesting
is excused when 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, the bill must be noted or protested with reasonable
diligence.
IN SHORT: Kapag excusable ang delay.
What will happen to the protest if the bill is Section 160:

lost?
When a bill is lost or destroyed or is wrongly detained from
the person entitled to hold it, protest may be made on a copy
or written particulars thereof.
Distinguish Notice of Dishonor and Protest. Protest Notice of Dishonor

Applies to foreign bill Applies to all negotiable
instruments
Always in writing May be oral or written
Protest includes Notice only

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presentment, notice of
dishonor and all the steps
accompanying dishonor
Made by a notary public or a Made by the party or his

respectable resident in the agent
presence of witnesses
Made at the place where Place of dishonor is not

the bill is dishonored. necessary
Made on the day of Made within the times

dishonor prescribed.
When may a bill be accepted for honor? Section 161:
When a bill of exchange has been protested for dishonor by

non-acceptance or protested for better security and is not
overdue, any person not being a party already liable thereon
may, with the consent of the holder, intervene and accept the
bill supra protest for the honor of any party liable thereon or
for the honor of the person for whose account the bill is
drawn.
The acceptance for honor may be for part only of the sum for
which the bill is drawn; and where there has been an
acceptance for honor for one party, there may be a further
acceptance by a different person for the honor of another
party.
What is an acceptance for honor? An undertaking by a stranger to a bill after protest for the
benefit of any party liable thereon or for the honor or the
person for whose account the bill is drawn which acceptance
inures also to the benefit of all parties subsequent to the
person for whose honor is accepted.
ALSO KNOWN as ACCEPTANCE SUPRA PROTEST.
What are the requisites of acceptance for 1. The bill must have been protested for dishonor by non-
honor? acceptance or for better security.
2. The acceptor for honor must be a person not a party
already liable thereon (STRANGER)
3. The bill must not be overdue at the time of acceptance for

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honor
4. The acceptance for honor must be with the consent of the
holder of the instrument.
How is acceptance for honor supra protest Section 162:

made?
An acceptance for honor supra protest
(supra = at an earlier place)
a. must be in writing
b. must indicate that it is an acceptance for honor
c. must be signed by the acceptor for honor
d. must contain an express or implied promise to pay money
e. the accepted bill must be delivered to the holder
When is the effect if the acceptance for honor Section 163:

does not expressly state for whose honor it is
made? x x x it is deemed to be an acceptance for the honor of the
drawer.
What is the liability of the acceptor for honor? Section 164:
The acceptor for honor is liable to the holder and to all parties
to the bill subsequent to the party for whose honor he has
accepted.
R draws a bill against W with P, A, B, and C as successive

indorsers. It is forwarded to D, the holder.
D presented it to W, W dishonored it.
D made a protest for non-acceptance.
X, a stranger, with the consent of D accepted the bill for the

honor of B.
Therefore: X is only liable to C and D but not R, W, P, A.
Pag nabayaran na ni X si D, that is the time X will have a right

of recourse against R, W, P, A and B.
But X’s right to hold W liable will depend upon whether W is

liable to R.
What are the things that the acceptor for Section 165:

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honor must agree?

The acceptor for honor, by such acceptance engages that he
will, on due presentment, pay the bill according to the terms
of his acceptance provided
a. it shall not have been paid by the drawee

b. it shall have been duly presented for payment and
protested for non-payment and notice of dishonor
given to him.
How is maturity calculated if the bill is payable Section 166:

after sight is accepted for honor?
Its maturity is calculated from the date of the noting for non-
acceptance and not from the date of the acceptance for
honor.
When to protest if the dishonored bill has Section 167:

been accepted for honor supra protest or
contains a referee in case of need? It must be protested for non-payment before it is presented
for payment to the acceptor for honor or referee in case of
need.
How is “presentment for payment to acceptor Section 168:

for honor made?
Presentment for payment to the acceptor for honor must be
made as follows:
4. If it is to be presented in the place where the protest for

non-payment was made, it must be presented not later
than the day following its maturity.
5. If it is to be presented in some other place than the place
where it was protested, then it must be forwarded within
the time specified in Section 104.
When may a delay in making presentment be Section 169:

excused?
The provisions of Section 81 apply where there is delay in
making presentment to the acceptor for honor or referee in
case of need.
(Section 81. When delay in making presentment is excused. –

Delay in making presentment for payment is excused when
the delay is caused by circumstances beyond the control of
the holder and not imputable to his default, misconduct, or

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negligence. When the cause of delay ceases to operate,

presentment must be made with reasonable diligence).
Distinguish Acceptance for Honor from Acceptance for Honor Ordinary Acceptance
Ordinary Acceptance. There must be a previous Not necessary
protest
Acceptor must be a stranger The acceptor is the drawee
Consent of the holder is Consent is not required

required
Acceptor is secondarily Acceptor is primarily liable

liable
There may be several No alternative or no

acceptor for honor for acceptors in succession
different parties in the bill
The bill is not discharged The bill is discharged if paid

upon payment of the by the acceptor.
acceptor for honor
What is a payment for honor? Payment made by a person (party or not) after it has been
protested for non-payment, for the benefit of any party liable
thereon or for benefit of the person for whose account it was
drawn.
Also called PAYMENT SUPRA PROTEST.
NOTE: FOR BILLS OF EXCHANGE ONLY. Not applied to

promissory note.
Distinguish PAYMENT SUPRA PROTEST from Payment Supra Protest Acceptance Supra Protest
ACCEPTANCE SUPRA PROTEST Protest for non-payment Protest for non-acceptance
and for better security
Consent of the holder is not Consent of the holder not

required nor can the holder required
refuse

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Acceptor is secondarily Acceptor is primarily liable

liable
Notarial act of honor is Notarial act is not necessary

necessary
Only one payer for honor There may be several

acceptors for honor
Effects: Section 175 and 177 Effects: Section 164 and 165
Who can make a payment for honor? Section 171:
Where a bill has been protested for non-payment, any person

may intervene and pay it supra protest for the honor of any
person liable thereon or for the honor of the person for
whose account it was drawn.
How is payment for honor supra protest Section 172:

made?
The payment for honor supra protest, in order to operate as
such and not as a mere voluntary payment, must be attested
by a notarial act of honor which may be appended to the
protest or form an extension to it.
Where must a notarial act of honor begin? Section 173:

What should be the content of the declaration
of the payer for honor? The notarial act of honor must be founded on a declaration
made by the payer for honor or by his agent in that behalf
declaring his intention to pay the bill for honor and for whose
honor he pays.
Who will be given preference if two or more Section 174:

parties offer to pay a bill for honor?
Where two or more persons offer to pay a bill for the honor of
different parties, the person whose payment will discharge
most parties to the bill is to be given the preference.
What is the effect on subsequent parties if the Section 175:

bill was paid for honor?
Where a bill has been paid for honor, all parties subsequent to
the party for whose honor it is paid are discharged but the

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payer for honor is subrogated for, and succeeds to, both the
rights and duties of the holder as regards the party for whose
honor he pays and all parties liable to the latter.
What will happen if the holder refuses to Section 176:

receive payment supra protest?
Where the holder of a bill refuses to receive payment supra
protest, he loses his right of recourse against any party who
would have been discharged by such payment.
What are the rights of payer for honor? Section 177:
The payer for honor, on paying to the holder the amount of

the bill and the notarial expenses incidental to its dishonor, is
entitled to receive both the bill itself and the protest.
What is the effect if the bill is drawn in a set? Section 178:
Where a bill is drawn in a set, each part of the set being

numbered and containing a reference to the other parts, the
whole of the parts constitutes one bill.
What is the right of holders if different parts Section 179:

of the instrument were negotiated?
Where two or more parts of a set are negotiated to different
holders in due course, the holder whose title first accrues is,
as between such holders, the true owner of the bill. But
nothing in this section affects the right of a person who, in
due course, accepts or pays the parts first presented to him.
Example:
If P negotiates (against W) the first part of the Bills in Set to A

on September 20, the second part to B on September 25, and
the third part to C on September 30.
P is liable in every such part.
If A, B, C are holders in due course = A is the true owner kasi

siya ang una.
Halimbawa, sabay-sabay silang pumunta kay W, si A lang ang

babayaran ni W.

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Pero kung mas naunang pumunta si C kay W, si C ang

babayaran ni W.
What is the liability of the holder if he Section 180:

indorses two or more parts of a set to
different persons? Where the holder of a set indorses two or more parts to
different persons he is liable on every such part, and every
indorser subsequent to him is liable on the part he has
himself indorsed, as if such parts were separate bills.
D
A = 1,000 (1st part)
P E
B = 1,000 (2nd part)
C
C = 1,000 (3rd part) F
In this sample:
P is liable for a total of P3,000 kasi treated as separate bills.
Pero kung naipasa na kina D, E, C, F, P1,000 lang ang liability ni

P.
Section 181:
If P BEFORE negotiating the three parts of the bill, presented

them for acceptance to W, and W writes his acceptance on
each part. P negotiates it to A, B, and C. A, B and C are
deemed holders in due course. Si W na ang liable kina A, B
and C for P1,000 EACH.
But if P does not negotiate the three parts, he liable for only
one part or for P1,000.00
What is the effect of payment of bill by Section 182:

acceptor of bills drawn in sets?
When the acceptor of a bill drawn in a set pays it without
requiring the part bearing his acceptance to be delivered up
to him, and the part at maturity is outstanding in the hands of
a holder in due course, he is liable to the holder thereon.
What is the effect if one part of the bill in a set Except as herein otherwise provided, where any one part of a

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is discharged? bill drawn in a set is discharged by payment or otherwise, the

whole bill is discharged. [Section 183]
Define Promissory Note. Section 184:
A negotiable promissory note within the meaning of this Act is

an unconditional promise in writing made by one person to
another, signed by the maker, engaging to pay on demand, or
at a fixed or determinable future time, a sum certain in money
to order or to bearer. Where a note is drawn to the maker's
own order, it is not complete until indorsed by him.
What is a Check (Cheque). • A check is a bill of exchange drawn on a bank payable on

demand.
• Except as herein otherwise provided, the provisions of
this Act applicable to a bill of exchange payable on
demand apply to a check. [Section 185]
• A check of itself does not operate as an assignment of any
part of the funds to the credit of the drawer with the
bank, and the bank, is not liable to the holder, unless and
until it accepts or certifies the check.
• A check is payable on demand even when not so stated
on its face.
• A check is supposed to be drawn against a previous
deposit of funds, while an ordinary need not be drawn
against a deposit.
• A check need not be presented for acceptance.
Kapag encashed na, a check may be considered as payment.
Identify the different kinds of check? Cashier's check - One drawn by the cashier of a bank in the
name of the bank against the bank itself payable to a third
person or order.
A cashier's check is a primary obligation of the issuing bank

and accepted in advance by its mere issuance.
Manager's check - A check drawn by the manager of a bank in

the name of the bank against the bank itself payable to a third
person.
It is similar to the cashier's check as to effect and use.
Memorandum check - A check in which is written the word

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"memorandum," "memo" and "mem" signifying that the

drawer engages to pay the bona fide holder absolutely, and
not upon a condition to pay upon presentment of maturity
and if due notice of presentment and non-payment should be
given.
It is a check given by a borrower to a lender for the amount of

a short loan, with the understanding that it is not to be
presented at the bank, but will be redeemed by the maker
himself when the loan falls due and which understanding is
evidenced by writing the word "memorandum," "memo" or
"mem" on the check.
Certified check - A certification is an agreement whereby the

bank against whom a check is drawn undertakes to pay it on
any future time when presented for payment.
Certification is equivalent to acceptance and operates as an

assignment of a part of the funds to the creditors.
Crossed check - Under accepted banking practice, crossing a

check is done by writing two parallel lines diagonally on the
left top portion of the checks. Sa bangko lang inindorse.
Governed by Code of Commerce.
The crossing is special where the name of the bank or a

business institution is written between the two parallel lines,
which means that the drawee should pay only with the
intervention of that company.
What are the effects of a crossed check? 1. The check may not be encashed but only deposited in the
bank.
2. The check may be negotiated only once—to one who has
an account with a bank.
3. The act of crossing the check serves as a warning to the
holder that the check has been issued for a definite
purpose, so that he must inquire if he has received the
check pursuant to that purpose; otherwise, he is not a
holder in due course.
What is a Stale check? One which is not presented for payment within a reasonable
time after its issue.

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Distinguish BP Blg. 22 (Bouncing Check Law) 1. BP 22 and Estafa have different elements.
and Estafa (Article 315 of the RPC). 2. Estafa is malum in se requiring proof of criminal intent on
the part of the offender.
3. Violation of BP 22 is mala prohibitum – malice and intent
are immaterial.
Within what time a check must be presented? Section 186:
A check must be presented for payment within a reasonable

time after its issue or the drawer will be discharged from
liability thereon to the extent of the loss caused by the delay.
Hence, if no loss or injury is shown, the drawer is not

discharged.
What is the effect if the check is certified by Section 187:

the bank?
Where a check is certified by the bank on which it is drawn,
the certification is equivalent to an acceptance.
However, a bank is not obligated to the depositor to certify

checks.
What is the effect if the holder of check Section 188:

procures it to be certified?
Where the holder of a check procures it to be accepted or
certified, the drawer and all indorsers are discharged from
liability thereon.
Can a check operate as an assignment? Section 189:
A check of itself does not operate as an assignment of any

part of the funds to the credit of the drawer with the bank,
and the bank is not liable to the holder unless and until it
accepts or certifies the check.
GENERAL PROVISIONS • "Acceptance" means an acceptance completed by delivery

or notification.
Define and give the meaning of the following
terms. • "Action" includes counterclaim and set-off.
• "Bank" includes any person or association of persons

carrying on the business of banking, whether incorporated

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or not.
•
• "Bearer" means the person in possession of a bill or note
which is payable to bearer.
• "Bill" means bill of exchange, and "note" means negotiable

promissory note.
• "Delivery" means transfer of possession, actual or

constructive, from one person to another.
• "Holder" means the payee or indorsee of a bill or note

who is in possession of it, or the bearer thereof.
• "Indorsement" means an indorsement completed by

delivery.
• "Instrument" means negotiable instrument.
• "Issue" means the first delivery of the instrument,

complete in form, to a person who takes it as a holder.
• "Person" includes a body of persons, whether

incorporated or not.
• "Value" means valuable consideration.
• "Written" includes printed, and "writing" includes print.
Who are primarily liable with the terms of the Section 192:
instrument?
The person "primarily" liable on an instrument is the person
who, by the terms of the instrument, is absolutely required to
pay the same. All other parties are "secondarily" liable.
How to determine whether or not the time is Section 193:

reasonable?
In determining what is a "reasonable time" regard is to be had
to the nature of the instrument, the usage of trade or
business with respect to such instruments, and the facts of
the particular case.
How is time computed? What is the rule if the Section 194:

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last day falls on holiday

Where the day, or the last day for doing any act herein
required or permitted to be done falls on a Sunday or on a
holiday, the act may be done on the next succeeding secular
or business day.
Bonus Question: When was NIL enacted? Enacted on 3 February 1911

When it was published? The effectivity? Published on 4 March 1911
Took effect on 2 June 1911
What is a “document of title?” It refers to goods and not to money (a non-negotiable

instrument).
It is a symbol of the goods covered by it, serving as evidence

of transfer of title and transfer of possession.
What are most common forms of documents 1. Bill of lading – contract or receipt for the transport of
of title? goods and their delivery to the person named therein, to
his order, or to bearer.
2. Dock warrant – an instrument given by dock owners to an
importer of goods warehouse on the dock recognizing the
importer’s title to the said goods.
3. Warehouse receipt – contract or receipt for goods
deposited with a warehouseman containing the latter’s
undertaking to hold or deliver the goods to a specific
person, to his order, or to bearer.

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Law on Negotiable Instruments Reviewer

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1. The whole of the instrument

Define Negotiable Instrument Section 1

What is a maker? Person issuing a promissory note

What is a drawer? Person issuing a bill of exchange

Distinguish Promissory Note from Bill of Promissory Note Bill of Exchange

2. Issuer: Maker 2. Issuer: Drawer

3. The instrument must 3. The instrument must

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writing? is not in writing.

Why an instrument must contain an Section 3 of NIL

Why the instrument must be payable at a Section 4 and 7 of NIL:

Why the instrument must be payable to order Section 8 and 9 of NIL:

What is a non-negotiable instrument? A non-negotiable instrument is an instrument which is not

Example: A check payable only to a specified person.

Note: A non-negotiable instrument may not be negotiated but

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it may be assigned or transferred.

Define Money Money means what is coined or stamped by public authority

Money means cash.

It is a medium of exchange authorized or adopted by a

It includes all legal tender.

What is a promissory note? Promissory note is an unconditional promise in writing made

A promise to pay a sum of money.

What is a holder? Every person to whom an instrument is delivered is a HOLDER.

Sample of promissory note payable to order. August 30, 2004

(Sgd.) Sam Milby

Sample of promissory note payable to bearer. August 30, 2004

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(Sgd.) Sam Milby

What is a bill of exchange? A bill of exchange is an unconditional order in writing

An order made by one person to another to pay money to a

Who are original parties to a bill of exchange? 1. Drawer

Sample Bill of Exchange October 30, 2004

(Sgd.) Sam Milby

What constitutes certain as to sum? Section 2 of NIL:

The sum payable is a sum certain within the meaning of this

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amount shall become due; or

What is the meaning of “stated installments”? Stated installments means that:

a. The interest of each installments, and

I promise to pay Piolo or order the sum of P10,000.00 in two

2. Acceleration dependent on maker – I promise to pay Piolo

3. Acceleration at option of holder – this is non-negotiable.

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1. Payment in foreign currency

Moses promises to pay Hana or order $1,000.00 with

3. Exchange not applicable to inland or domestic bill.

When is a promise or order unconditional? Section 3: An unqualified order or promise to pay is

a. There is an indication of a particular fund out of which

Note: It contains a promise or order to pay.

1. It must be payable absolutely and it is not subject to any

When promissory note contains a promise to There is an unconditional promise to pay:

2. Bare acknowledgement of indebtedness does not imply

When bill of exchange contains an order to There is an unconditional order to pay

When does an instrument becomes payable at Section 4:

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a determinable future time?

a. At a fixed period after date or sight, or

b. On or before a fixed or determinable future time specified